Part 2 - Building the industry of the future
Andrea Vassallo is a Sustainability Analyst based in Barcelona, and is also the founder of The Climate Tech Business Newsletter, exploring everything at the frontier of Climate Tech across the world.
Deeper into the narrow path of decarbonization
Fast forward in the future, I can already see it:
Innovative technology being a deeply interconnected system with our biosphere, where the energy we consume and the goods we produce are not resources to be exploited but rather a way to deepen our connection with entire ecosystems.
The value we create relies on the balance we maintain.
In the first part of this series on the topic of decarbonization (if you missed it, you can find it here), I introduced the topic of decarbonization and the need behind the idea: creating the case for the transition of our economy towards a low-carbon future.
Achieving a low-carbon future is possible. But like all great accomplishments by humanity, it comes with a significant dose of uncertainty matched with steep learning curves and unique challenges.
The evolution of climate is still unpredictable and not easily governed by humans.
This doesnât mean that we donât have the opportunity to make it more likely to happen. There are critical milestones we need to achieve in the journey towards a low carbon future. One of them is decarbonizing those industries that need to consume extreme amounts of energy. Technologists, investors, entrepreneurs, researchers, and policymakers are putting a laser-focus effort to make it possible.
Today, Iâm going to speak about the main challenge at the core of the decarbonization efforts in this sector: create the case for energy-intensive industries to transition from fossil-fuels to renewable energies and clean technologies.
Letâs now discover how we can get a step closer to it.
The low-carbon future belongs to heavy industries
Out of the total 34 gigatons of annual CO2 emissions that we produce, industry is responsible for 25% of them. After the energy sector, it is the second major component responsible for the rising climate disaster weâre witnessing. Itâs always important to remember who the biggest polluters are, even if sometimes marketing and PRs can be a great deflecting force to hide them from the spotlight.
Source: Our World in Data
In the industrial sector, heavy industries alone generate 80% of the total sector emissions.
This category includes all those industrial activities which characterizes themselves by large-scale, capital intensive, and extraordinarily complex operations, such as:
Oil & Gas đ˘ď¸
Chemicals đ§Ş
Metallurgy âď¸
Large vehicles đ˘
Below you can see a more detailed picture of the current status quo taken from the Net-Zero Industry Tracker report published by the World Economic Forum last year:
These industries rely on consuming massive amounts of energy day and night during their continuous production cycles. Thatâs why implementing decarbonization practices is a key competitive advantage for industries to reduce the associated financial burdens. Despite the already solid business case, the progresses made in the sector are still far away from the needed, as reported by the International Energy Agency (IEA):
Source: IEA
The red dots in the picture above signal all those industries that are behind on their targets to meet the net-zero scenario. In their respective case, the heavy industries highlighted (steel, chemicals, cement, and aluminum) should leverage innovation to make their productive strategies more efficient and reduce associated emissions.
The energy transition without industry is pointless
Transitioning towards a low-carbon future requires heavy industries to rethink and transform their current operating infrastructures.
These are the critical technologies that will drive this process:
Clean energy âď¸
Energy efficiency đ
Low-carbon fuels đą
Still, the gap in investments required to reach the current net-zero scenario is considerable:
Source: IEA
Considering the current rise in the cost of capital, the private sector will need to face a big challenge in the effort of industry decarbonization, since it will be the one with the capacity to drive renewable energy capacity and responsible for its implementation.
Did somebody say it was not difficult enough?
Scaling and deploying these technologies also require the technical know-how needed to not make these investments useless. However, the knowledge to run complex, renewable tech might not be easy to find in a sector that has been traditionally fossil-fuel friendly. Thatâs why companies operating in the heavy industry field, starting from the biggest players, are leveraging Mergers and acquisitions (M&A) strategies to acquire startups that can provide the human and technological capital to run operations powered by renewable technologies.
This topic will require a dedicated deep dive. Donât worry, itâs already on the list.
The implementation of these technologies is a critical step to sustain the transition toward clean energy industries and a systemic energy transition.
The frontiers of a low-carbon industry
To help us create a low-carbon future, the focus for the industry sector is one:
Put a lot of money and effort into the development of renewable technologies.
Unfortunately, the path is narrow and unpredictable. The current, unstable global scenario is creating barriers for industries to focus only on their transition to a more sustainable system.
The biggest issues that heavy industries are facing are the following:
Energy security âĄ
Supply-chain disruptions đ
High cost of capital đľ
The priority for industries is to keep their operations running while abating the immense operational cost brought by a steady increase in energy prices and the difficulties in procuring the raw materials for their products due to disruptions in the supply chains of critical materials (such as rare earths â°ď¸).
Amidst global tensions, itâs hard to make the low-carbon transition the highest priority in the business agenda.
Nevertheless, investments in renewable technology represent an incredible opportunity to reduce operational costs in the long-term and reduce exposure to the increasing prices of traditional energy sources.
But who is willing to financially support this huge technological effort?
Next time, Iâll dive deeper into the financial side of decarbonization to uncover where the money is flowing.
Link to the original post: https://tctb.beehiiv.com/p/decarbonization-is-a-megatrend-part2Â
Comentarios