CCS Environmental Analysis, February

IPCC Sixth Assessment Report: Climate change adaptation is vital to protect society

When UN Secretary-General Guterres presented the latest special report in the IPCC’s scientific basis for world leaders, he referred to it as ‘a damning indictment of failed global leadership on climate’.

Interactions between climate, nature and society

The report, ‘Impacts, Adaptation and Vulnerability’, contains an analysis of all significant climate risks that may affect society; who is most vulnerable and how society can protect itself against the worst consequences of these risks. Different ecosystems, man-made infrastructure and social systems are all at risk. In the eight years since the IPCC last published an equivalent report, there has been an increased focus on the interactions between climate, nature and society, including how the effects of this will impact social inequality and how different climate change adaptation strategies will impact the UN’s other sustainable development goals.

Pressure on scare water resources

As an example, studies have shown that CCS installed at power plants and increased cooling needs may increase pressure on already scarce water resources by up to 50%. The report stresses that targeted and coordinated efforts on climate change adaptation may be able to provide significant protection for society, but that the window of opportunity is closing. Guterres therefore believes that half of future climate-related funding should be dedicated to climate change adaptation. The IPCC’s third special report, which assesses measures for reducing future emissions, will be published in March.

Ukraine: New global supply chain disruption on the horizon

Just as people breathed a sigh of relief that the gradually improving pandemic could lead to a redoubling of efforts to combat other existential societal challenges, the international community was hit with another crisis.

Radical and far-reaching changes

The Russian invasion of Ukraine and the response of the international community has rapidly weakened international cooperation and trade in energy resources and other vital raw materials. The crisis has the potential to create radical and far-reaching changes in many parts of society. The longer and deeper the crisis gets, the greater the ripple effects will be for the economy and supply chains in Europe and beyond.

EU action plan

The IEA quickly released a 10-point plan for how the EU can reduce its dependence on Russian gas by up to 1/3 this year, while also reducing carbon emissions. The EU recently published its plan to wean itself off Russian fossil fuels well before 2030, while also protecting itself from high energy prices this year. The plan states that in the short-term the EU will increase its gas purchases from other suppliers and in the longer term, increase the introduction of renewable energy while phasing out fossil fuel-based energy.

High energy prices

All in all, it is reasonable to expect that energy prices in Europe will remain much higher for the foreseeable future than before the pandemic. Inflation in the EU, already high before the Ukraine crisis, has risen further and is expected to remain high going forward. As for CCS, higher energy prices will make it more expensive and less competitive compared to other climate initiatives.

Increased interest in CCS?

The desire to phase out fossil fuel-based energy more quickly in the EU may also have a direct impact on interest in CCS, especially for carbon capture from natural gas or coal. Furthermore, the coming energy shortage will mean that all energy use (including for CCS) will face stronger competition with other energy use across society. However, the adoption of CCS up to 2030 will also largely be decided by the balance the EU makes between climate issues with other needs and how much funding is available for this purpose.

Equinor’s annual ‘Energy Perspectives’ from last year offers relevant analysis and its ‘Rivalry’ scenario is a fitting comparison to the current situation. The scenario points out that energy policy is much more focused on energy independence than the economy and environment. The analyses also show that this scenario leads to greater social inequalities, lower energy efficiency, less technology development as well as higher taxes on natural resources compared to their other scenarios.

China: The IKEA of the energy transition

Solar cell and wind turbine prices bucked a long-standing trend by rising in 2021. This is according to an analysis by Wood MacKenzie published in February.

Record commodity and transport costs

The principal reasons behind the price rise are record commodity and transport costs, supply chain issues and logistical bottlenecks. Despite this, China added a further 134 GW of renewable energy capacity in 2021, and their total capacity increased to 1,070 GW – amounting to 1/3 of total global renewable energy capacity. According to Wood MacKenzie, Chinese manufacturers now make up 70% of the global market for solar cells and 50% for wind turbines. China is even more dominant in lithium-ion battery production.

Strong domestic market

Chinese-manufactured solar cells and wind turbines also have far and away the lowest prices on the international market. Wood MacKenzie believes that China’s energy policy and economic growth going forward will create a formidable domestic renewables market, drive costs down even further and enshrine China’s continued dominant position as a global supplier of these technologies. They also point out that China is far from a global leader in other climate-related technology areas such as CCS and low-carbon hydrogen, and that these will be important areas of competition for technology suppliers in the coming years. Looking further into the future, operators outside of China may win competitive advantages around the production of next-generation fuels.

The EU: The fight against “greenwashing” intensifies

In February, the European Securities and Markets Authority (ESMA) presented a roadmap to fight greenwashing.

Increasing interest in environmentally friendly investments

The reason behind the new roadmap is that investors are showing increasing interest in environmentally friendly investments, while the EU is also working hard to achieve its climate goals, and a growing market for sustainable investments is the perfect arena for harmful “greenwashing”. Greenwashing could result in derailing climate efforts and weakens the incentive for companies to make serious cuts to their greenhouse gas emissions through CCS, for example. As a result of this, ESMA states that the EU will improve its own understanding of current developments and introduce the necessary market oversight in the areas of greatest significance to investors.

Serious about the climate

This shows the EU’s seriousness about its 2050 climate goals as well as the importance of its Strategy on Sustainable Finance, including the EU taxonomy, as a tool for achieving them. There is also increasing awareness in the USA around this issue, especially since President Biden announced more ambitious climate goals last year. To this end, the Chair of the U.S. Securities and Exchange Commission (SEC) announced in February that tougher regulations are on the way.

A report on the scope of greenwashing in large international organisations, ‘Corporate Climate Responsibility Monitor 2022’, was published by two companies based in Germany and Belgium. The report features a review of 25 organisations that have made high-profile statements about their climate goals of reaching “net zero” emissions. The total emissions of the companies assessed were 2.7 Gt CO2, including scopes 1, 2 and 3. The energy companies Enel and E.ON were included.  The companies were assessed according to criteria such as actual emissions recorded and published, how concrete and binding their climate goals are, whether emissions have actually been reduced, and other climate-related measures. The report concludes that only half of the companies explicitly outline what “net zero” means, and that the emission-reducing measures of half of the companies only involve a 40% reduction – not 100% as “net zero” would suggest. None of the 25 companies in the report achieved a “high integrity” grade and only Maersk achieved the second highest grade of “reasonable integrity”.

The USA: DoE proposes $9.5 billion for clean hydrogen

In February, the U.S. Department of Energy (DoE) announced a proposal for a comprehensive strategy to develop four geographic hubs for the production and use of hydrogen manufactured from electricity or fossil fuel-based energy.

General focus areas

The strategy covers the period 2022-26. The proposal is part of the $1.2 trillion infrastructure package that was approved by the Senate last year and is divided into several general focus areas, including “energy and industry”. The hubs will focus on energy use from either renewable, atomic or fossil fuel-based energy (coal or gas), but all other forms of energy will also be included.

Demand for CCS

Requirements state that greenhouse gas emissions for hydrogen produced from fossil fuel-based energy must not exceed 2 kg CO2e per kg hydrogen, something demanding the use of CCS. There is also a requirement for hubs to concentrate on different areas of application for hydrogen. One aim of this is to bring the cost of green hydrogen production down to $1 per kilogram before 2030 – an almost 80% reduction from current prices. The response deadline for the strategy is the end of March.

The Environmental Analysis is prepared by Gassnova’s analysis team.