The upcoming United Nations COP26 talks will bring world leaders to Glasgow, Scotland in search of consensus on how to reach net-zero carbon emissions by 2050. Industries facing the most challenging decarbonization pathways say they’ll need unprecedented government support — and trillions of dollars in investment — to even stand a chance of hitting that critical climate target.
That’s the message from the Mission Possible Partnership, a group of more than 400 companies launched in January with support from the climate funds of billionaires Jeff Bezos and Bill Gates. The industries represented — shipping, aviation, trucking, chemicals, steel, aluminum and cement — account for about 30 percent of global carbon emissions.
In reports released last week, the group laid out what it terms “transition strategies” to start steel and aviation on those decarbonization pathways. It also previewed a similar strategy for shipping set to be released next week and announced an agreement between global chemical manufacturers to coordinate similar efforts.
The plans envision cooperation among competing companies and will require massive levels of investment. This approach earned founding members of the partnership the label of “radical environmentalists” and “crazy hippies” when the idea was first floated three years ago, Faustine Delasalle, the partnership’s co-executive director, said in a webinar last week.
But now things have changed. “With some of the biggest industry players in the space, this makes us less crazy hippies and much more [ready to start] making things happen at the right scale,” she said. Still, “it will take new technologies, it will take new business models [and] it will take a multitrillion[-dollar] investment plan” to complete even the first steps outlined in the transition strategies, she said.
The level of investment needed for these industries to reach net-zero emissions is laid out in a new report from the World Economic Forum, one of the partnership’s four founding partner organizations. It finds that the global community will need to invest $4.3 trillion per year from now through 2050 to get these sectors to net-zero — roughly three times the spending that transpired in 2020.
Much of that investment over the next decade will be directed toward technologies that are cost-effective today, including wind and solar power, or those rapidly approaching that point, such as batteries and electric vehicles.
But post-2030 progress for these hard-to-clean-up sectors will rely on “breakthrough decarbonization technologies” including hydrogen, bio-based fuels, and carbon capture and storage, the report finds. Getting those industries to the scale needed by 2050 will require substantial investments starting this decade. A mere $16 billion was invested in these technologies in 2020, but that investment must reach an average of $300 billion to $500 billion a year over the next decade, as the chart below indicates.
The transition strategies released last week rely heavily on massive foundational investments to develop and deploy the needed technologies.
Shipping, which accounts for 2 to 3 percent of global carbon emissions, will need an investment of $2 trillion to reach its first milestone of 5 percent of the industry running on zero-carbon fuel by 2030.
Aviation, which accounts for about 2 percent of global emissions, will need $300 billion per year to reach aggressive targets of using 25 to 30 percent fuel made from biological feedstocks by 2030.
Steel and chemical producers will need to use a combination of hydrogen and renewable electricity to achieve the targets in their sectors’ transition plans. The steel industry, which is responsible for 7 to 8 percent of global emissions, will need an investment of an additional $6 billion per year to move to “net-zero-compliant technologies” by 2050. The industry has already made early moves in this direction, with a handful of facilities starting to shift from coal to hydrogen, enabling the first deliveries of low-carbon steel to be made this year.
The chemicals industry, which is responsible for about 5 percent of global emissions, will need zero-carbon electricity to replace the fossil fuel usage that accounts for roughly 60 percent of its emissions. Eliminating the remaining 40 percent of its emissions will require new processes and catalysts, said Conrad Keijzer, CEO of Swiss chemicals company Clariant, during last week’s webinar.
To reach industrywide targets, companies must find ways to share low-carbon technology advances, according to Keijzer. Clariant has been licensing its cellulosic ethanol technology to other companies to “allow us to scale up the technology much faster than we could ever do” alone, he said.
Wholly decarbonizing the industries will require even greater efforts at “radical collaboration” between “energy-intensive players, their energy suppliers, their technology providers, their buyers [and] the buyers of their buyers,” Delasalle said.
She pointed to the example of last week’s announcement of a “pre-competitive development platform” for chemical companies in the partnership to jointly invest in developing and scaling low-carbon technologies. “It’s far from being at the level that we need,” she said, “but it creates the right foundations for us to move forward.”
Steelmakers not only need ample supplies of renewable electricity and green hydrogen to meet the industry’s decarbonization goals. They will also need their buyers to band together and agree to pay a significant “green premium” for sustainable steel as that product ramps up over the next two decades, said Aditya Mittal, CEO of global steel and mining company ArcelorMittal.
“The math may not work” for early adopters, “but you feel at the end of the day that if you decarbonize, the customer will be there, and there will be some form of return,” he said. “That forces everyone to catch up.”
The World Economic Forum report highlights this “green premium” challenge in terms of the longer-term contracts — including “offtake agreements, tolling structures, availability-based payments [and] feedstock guarantees” — that will need to replace spot-market purchasing of lowest-cost materials. But this type of industrywide coordination can also raise antitrust concerns that governments will need to manage carefully, Chad Holliday, former DuPont CEO and newly named chair of the Mission Possible Partnership, recently told Reuters.
Cross-border regulatory and financial alignment
Government action will also be needed to align the investments required in zero-carbon fuels with the decarbonization needs of industries, Delasalle said. The World Economic Forum report cites the need for “a significant combination of green surcharges, carbon taxes or public incentives,” as well as anchor investments from multilateral development banks, to make many of these technologies financeable over the next decade.
In that sense, the Mission Possible strategies also constitute “a cry for help, I would say, for policymakers pre-COP,” she said, referencing the COP26 conference that starts on October 31. Progress on the partnership’s goals “will not be fast enough if we don’t have support from policymakers — and COP is the right moment to ensure that companies that are active in this space send that message to policymakers around the world.”
For the shipping industry to meet its target of 5 percent zero-carbon fuel by 2030, approximately 600 gigawatts of low-carbon fuel production capacity will need to be deployed, said Rasmus Bach Nielsen, global head of fuel decarbonization at Swiss commodities trading firm Trafigura.
Although that goal seems lofty, Nielsen points to the successful precedent of the partnerships that were forged to support the development of ship engines that can run on ammonia derived from green hydrogen. “We would never [have invested in] the fuel before, but now we’re quite far down the road,” he said.
But the industry partnerships are not enough. Ammonia’s energy per unit of volume is one-third to one-half that of traditional fuel, yielding “a significant price gap which is impossible for any private enterprise to bridge,” he said.
Aviation companies will face similar challenges in ramping up production of renewable fuel stocks well beyond their current commitments, said Scott Kirby, CEO of United Airlines. “If you have that certainty from a government framework” that sets standards for renewable fuels, “you start to get a much deeper pool of private capital,” he said.
The steel industry also faces global competitive dynamics that only governments can tackle, Mittal said.
“Today, China is half of the global steel industry,” he said. “We need some sort of carbon border adjustment,” such as the carbon tariff on imports being proposed by the European Union, or another form of a global carbon price to assure a level playing field between nations. “We really need the policymakers to step up their game.”
International government frameworks will play a central role in giving confidence to investors to put up adequate capital to achieve the transformational scales envisioned by the Mission Possible Partnership.
“We need some sort of scheme” for hard-to-decarbonize sectors “that is recognized both in the U.S. and Europe to begin with, the U.K. as well, so that there’s some incentive to do more of this,” Anne Finucane, vice chair of Bank of America, said at last week’s event. She offered the example of the tax credits that have grown the U.S. wind and solar industries to a point where they’re cost-competitive against fossil-fuel-fired electricity.
Funding from multilateral development banks such as the World Bank “could stand up and create scale much more quickly,” she said. Bank of America has scaled up its climate financing targets from about $300 billion three years ago to more than $1 trillion today based on the bankability of wind, solar and electric vehicles, Finucane pointed out. It has also joined private equity firm Blackrock and other corporate partners in Bill Gates’ Breakthrough Energy Catalyst effort, pledging $1 billion in equity investments and offtake agreements to foster technologies to serve hard-to-decarbonize industries.
“We need to get traditional banking in here and create debt facilities” to fund the next wave of expansion, Finucane said. Major financial institutions with about $88 trillion in assets have joined the U.N.-sponsored Glasgow Alliance for Net Zero, which is asking members to commit to invest in ways that foster rather than undermine 2050 net-zero goals, she said.
Climate activists have been demanding more stringent commitments from this alliance and other financial-sector groups to halt all financing of fossil fuel projects. Climate groups have also sought more transparency about the accounting methods used in low-carbon investing. Bank of America itself was the third-largest fossil fuel investor among U.S. banks from 2016 to 2020, according to a report from environmental and financial transparency groups.
“Disclosures are a way of compelling everyone to get their act together,” Finucane said. “If we can agree on a taxonomy and disclosure so it can’t be greenwashing, [and] if we can have some harmonization of regulation amongst the E.U., the U.S. and the U.K. as a start, that can be the way to the future.”
“I think we’re all focused on the same thing, which is we need greater transparency, we need a price on carbon, we need government incentives, we need a market solution for carbon credits,” she said. “The next step will be shining a very bright light on it at COP26, and it’s from there that the action will be taken.”
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