Can climate technology save the planet? That was the question asked at the Financial Times Talks Climate Finance event at the COP27 Global Climate Action Hub. Moderated by the Financial Times’s Pilita Clark, the discussion focused on whether the hundreds of millions of dollars being invested in new climate tech will make a difference on the ground, or if it’s an expensive distraction from the climate technology we already have.
Dr Andrew Forrest, founder and Executive Chairman of Fortescue Metals Group, an Australian iron ore mining company, explained that the mood around green hydrogen has changed since COP26 last year. “We have at least $100 billion of green energy and green hydrogen projects in the pipeline right now. The range of projects we run is increasing in scale, decreasing in operating and capital costs, and becoming more and more competitive.”
“We know we have the technical solutions right now, and while many think that the mining industry will be the last to go green, that’s just not true,” Forrest says. “Fortescue will go green in the next five to six years, and switch off the gas, diesel and oil and run purely on renewable energy.” While that transition will cost $6.2 billion according to Forrest, the company will save between $800 and $900 million a year by “switching off” fossil fuels entirely.
Fossil Fuel Crisis
Mark Campanale, is the Founder and Executive Director of Carbon Tracker, a financial think tank that looks at the financial impact of climate change on capital markets. He was bullish on the prospects of green hydrogen, pointing to a recent Carbon Tracker report that revealed that the war in Ukraine has spurred more than $70 billion of fresh investment in green hydrogen in the past few months, as costs drop, which has made fossil fuel-produced hydrogen uneconomic as gas prices soar.
“When we talk about an energy crisis, what we actually mean is there’s a fossil fuel crisis, which is an industry dominated by a few major players who control markets and dictate terms,” Campanale said. “Right now in the UK, renewables are coming in a £40-48 a megawatt hour, while gas is costing £330 a megawatt hour. This affects the entire economy as gas is such a major input in multiple industries.”
Campanale outlined the oil and gas industry’s view on the energy transition from fossil fuels to renewables: “The fossil fuel industry thinks they will be making blue hydrogen (this is produced mainly from natural gas, using a process called steam reforming, which brings together natural gas and heated water in the form of steam, but also releases carbon dioxide), but it is incredibly expensive. We believe the oil and gas industry will lose the battle with green hydrogen (produced with electrolysis, an energy-intensive process that uses electricity to split water molecules into their component parts. When the electricity for this is obtained from renewable sources such as on-site solar or wind, it is green) purely because of the economics. We believe that in the next ten years in the US, green hydrogen will get down to around $2 a kilogram, which will make it one of the cheapest sources of energy in the world.”
Game Changer
All the panelists highlighted the “game-changing” Inflation Reduction Act, which was passed in the United States a few months ago. It is a $369 billion package of climate investments that President Biden called the “most significant legislation in history” to tackle the climate crisis. Estimates suggest it could cut US greenhouse gas emissions by 40 per cent by 2030.
“It means that the US becomes the most competitive place in the world to manufacture green hydrogen, wind turbines, solar panels and batteries,” Forrest said. “If I have a plant I need to build and it’s going to cost $4 billion in Australia, it’s now going to cost $2 billion in the US.”
All the panelists talked about scale. As Campanale pointed out: “The more you build, the cheaper it gets, and the cheaper it gets, the more people want it.” He mentions the beginnings of price competitiveness in the electric vehicle (EV) market, as more producers start bringing their EVs to market. The good news is that “once you are producing volume at low prices, then it’s game over for the incumbents.” He points out we are seeing this across the economy with solar and wind energy prices having reached historic lows, purely driven by lowering technology costs.
“Fossil fuels are inherently inflationary,” Campanale added. “All the cheap stuff has been found, so you have to go to more difficult places to get what’s left and then you have to haul it back on land and process it before you send it off to the market place.” This is causing stranded assets, Campanale said, including the building of gas-fired power stations that are never getting turned on as the price of gas is now too high.
Yet despite this, many challenges remain. Campanale pointed out that the renewable energy industry is nowhere near as organized as the fossil fuel industry, which have a stranglehold over policy makers, reflected in the policy hurdles renewables have to get past.
Cornelius Piper, Managing Director and Senior Partner at Boston Consulting Group, echoed this and pointed out that key is scaling existing technology rather than trying to develop new forms of climate technology. “What makes me relatively optimistic about the nascent technologies we have now, is that when we look at what happened to solar and wind in the past ten years, we were saying the costs around them were too expensive, and then their costs dropped 90 per cent, so we have been consistently wrong in forecasting [how cheap these technologies will become].”
All the panelists expressed optimism that the clean energy transformation will continue at pace. Indeed, Campanale said that wind and solar capacity is growing by about 20 per cent a year and will reach 40 per cent of global power generation by 2030. “If that growth continues for the next six years, we will reach 8,000 GW of power in 20 years, which is equivalent to all the global fossil fuel capacity amassed over the past century.”