In the last few years there have been two massive changes in the zeitgeist around business and the economy. Firstly the near total acceptance of the impact and risk of climate change and the need to dramatically reduce emissions of carbon dioxide and other greenhouse gases. The United Nations Intergovernmental Panel on Climate Change’s Sixth Assessment Report (AR6) in August 2021 summarised the latest knowledge, highlighted the impacts and the need to get to net zero emissions.
My key takeaways from AR6 were that:
- The effects of climate change are widespread, rapid and intensifying.
- The links between human caused warming and extreme weather events are now “an established fact”.
- It is “virtually certain that global surface temperature rise and associated changes can be limited through rapid and substantial reduction in global GHG emissions”.
- There is still a choice about how much warming there will be this century.
The ultimate outcome will be the result of the choices that we all make as investors, leaders, business owners and colleagues, in every organisation. We need to take responsibility and put plans and reporting for emissions reduction in place without delay, so we can make positive progress as fast and effectively, as humanly possible.
Our challenge is to take the knowledge, creativity and technical and managerial skills we have and turn long-term intentions into investment plans that can be actioned now – investments that can move us rapidly towards net zero.
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More than 20% of the world’s largest 2,000 public companies, with sales of nearly $14 trillion, have set net zero targets.
Making a commitment to achieve net zero is easy, particularly if the date for achieving it is in 2050, still 28 years away. None of the board members voting for such a target will be around by then, and neither will be many of the management and operational staff who have to implement it.
Such as target is meaningless without establishing intermediate targets, starting with 2030. A target and the plan to achieve it are inter-related. There is merit in setting a stretch or even ‘impossible’ target in order to spur action and innovative thinking, but at the same time there has to be some visible route to achieving it.
Some companies like Microsoft have gone further, they are not just committing to reduce their emissions but to go carbon negative, wiping out all the carbon the company and its suppliers have emitted since its founding in 1975. We will see an increase in the number of companies setting this almost ‘moon shot’ level of ambition.
The second major change over the last few years, and one that is highly significant but less visible to most people, has been the massive shift within the financial sector towards sustainability in all its forms and particularly backing the idea of moving towards net zero.
Since COVID-19 Environmental, Social and Governance (ESG) led investing has become front and central as a way of addressing risks, as well as taking advantage of the new opportunities presented by the trends towards greater sustainability.
In 2020 ESG funds took in twice as much as in 2019 ($55 billion) and the evidence shows that ESG funds out-perform the market. On current trends, by 2025, $53 trillion of Assets Under Management (AUM), fully one third of global AUM will be ESG assets, up from $37 trillion now, and from $22 trillion in 2016.
It is right to be sceptical of some of the new ESG funds that have emerged, and there is much to do in terms of validating their intentions, actions and measurement techniques. However, the juggernaut is unstoppable, driven by a number of factors including: regulations such as the EU Sustainable Finance Taxonomy, risk reduction, and realisation of the size of the market, as well as societal pressures.
This trend will make it increasingly difficult to raise capital for companies and projects whose operations are dependent around fossil fuels, and that will only continue. Lombard Odier – a Swiss bank with a strong commitment to sustainability captures the views of many investors when it states:
‘We must look beyond a company’s footprint today, and understand its trajectory and alignment to the transition.’
They also categorise companies into four categories:
- Burning logs – highly exposed companies with an urgent need to decarbonise, yet failing to do so.
- Ice cubes – companies in similarly exposed sectors, but taking appropriate action and transitioning.
- Solutions providers – companies whose products and services help enable the transition across the economy.
- Companies isolated from climate risks.
If your company is a burning log attracting investors and finding capital will become harder and more expensive. It will also find increasing resistance amongst customers.
The process industry is right in the cross hairs when it comes to achieving net zero. Process heating in industry accounts for about one third of global final energy demand today and is expected to keep growing to 2050. It accounts for 80% of total industrial energy demand.
Although in the UK we may have largely phased out coal, globally coal still accounts for 41% of process heat while coal, oil and gas account for 75%. Total emissions from process heat are about 15% of all greenhouse gas emissions, about the same as the transport sector.
But can the process industries really achieve net zero?
It is important to remember that it is, to use that over-used word, a journey. Some sectors and some companies may not get there, or get there as fast as others, but society and investors will increasingly demand that companies start on the journey and have a credible route map.
It is easy to think that offsetting emissions is part of the solution for getting to net zero. There is no question that in the short-term offsetting emissions that cannot be prevented has to be part of the solution but there are a number of caveats.
Firstly the nature and quality of offsetting systems varies enormously and far more is involved than ‘just planting some trees’. Secondly, offsetting itself is increasingly under the microscope by investors and others who see it as ‘green washing’. It should be used as a last resort when all other options are exhausted.
Another area which on the face of it is attractive but has its pitfalls is buying renewable power. We all know that if you use grid power you cannot say the electrons you use are ‘green’. The carbon intensity of grid power varies hour by hour, and place by place, as the proportion of renewable power changes in response to varying renewable output and total power demand. You have to question whether just buying power labelled as green from a supplier is really additive.
Using Power Purchase Agreements can lead to additional investment in renewables, but even better can be the purchase of power from nearby renewable facilities via private wire to avoid the grid altogether. This kind of investment, which guarantees 100% truly renewable power, and reduced cost by avoiding all the non-commodity costs imposed by the grid, is set to grow as companies take back responsibility for energy supply as a way of achieving decarbonisation, reduced energy costs, and greater resilience as the grid faces increased pressures.
It is always important to start by ensuring the basics are in place, so much can be done by improving energy management and energy efficiency. ISO 50001 embeds good energy management and makes it a part of the company’s operating systems.
We still see many opportunities for better energy management and energy efficiency investments even in process industries. These projects can have very high returns, especially when all of the multiple benefits are identified and valued.
Ensuring the basics are in place, and energy efficiency is optimised, helps reduce the investment needed to move towards net zero. It is also important to remember that emissions are not just about energy use, they are a function of emissions intensity, material intensity, energy intensity and how products are used. Addressing issues like waste and yield rates helps reduce emissions.
It is also important to expand the boundary of the problem. Traditionally we just think about energy use and emissions from within an industrial site. In some sites there may be opportunities for integrated energy systems that address the needs of neighbouring industrial sites or even residential areas.
The potential use of waste heat and the potential for optimisation of local energy networks should be considered both as a way of decarbonising and of having social impact. The use of integrated design techniques can reduce both energy costs as well as capital costs.
Most (c.80%) of process industry emissions are associated with heat rather than electricity usage and for too long the decarbonisation of heat has been neglected compared to the decarbonisation of electricity. With heat temperature is always critical, more than 50% of industrial heat demand is low temperature (<150oC) or medium temperature (150oC to 400oC). More than 50% of low and medium temperature heat demand is in the following sectors; chemicals and petrochemicals; food, beverage and tobacco; and paper, pulp and printing.
So what are the technological options for decarbonising low and medium temperature industrial heat?
BloombergNEF and the WBCSD recently identified the following options: electrification in the form of heat pumps, mechanical vapour recompression, resistance heating and electromagnetic heating; bioenergy in the form of direct combustion of biomass waste; biogas or biomethane; geothermal; and solar thermal.
Rethinking traditional process engineering can also pay dividends. In many applications the fundamental design of heat exchangers has not changed since the Victorian era. Using new heat exchange technologies such as indirect thermosyphon heaters can reduce energy use by 50%, automated control systems can further increase the savings.
Other technologies to be considered include waste heat to power using Organic Rankine Cycle engines or even thermoelectric generators. All of these are technically viable and can be economic, or are close to being economic, in certain situations. Developments in technologies such as heat pumps and solar have moved quickly and their costs are falling, perceptions of their viability often lag the reality.
When assessing decarbonisation options it is important to recognise the multiple benefits that come from such investments. All too often these kinds of investments are assessed purely on the basis of capital costs versus savings in energy running costs, and the multiple value streams that can come from them are ignored.
In any project assessment it is critical to include a full multiple benefits assessment, counting all value streams including; risk reduction; health and safety; maintenance savings; and many others including those that support the businesses’ strategic objectives. When this is done the identified financial return from projects is often multiplied many times and decarbonisation can prove to be profitable rather than the cost it is usually perceived to be.
So is decarbonising process industries possible? Yes of course it is but firstly we need to choose to do it, and commit to achieving it. Boards of companies, with the pressure and support from investors, need to decide to do it, set bold targets and actively drive the process of change.
Managers, engineers and operators need to think outside the box, accountants need to assess all the benefits, not just energy costs. Will it be easy? No, of course not. Many technical and organisational challenges will need to be met but the environmental and financial risks of not doing it are not an option.
