EU sets out rules for how green hydrogen will help to achieve energy independence from Russia

In May, the European Commission published its proposals for concrete regulations on how to incentivise the market to achieve the rapid scaling-up of renewable energy and green hydrogen, known as “REPowerEU”, which was announced in March. Its goal is to increase the volume of green hydrogen before 2030 and for consumption to reach 20 million tonnes by 2030, of which half will come from EU-based production and the other half will come from imports. The share of renewable power in the energy system will be doubled to 45% by 2030, and the share of solar and wind in the energy system will increase from 33% today to 67%. Blue hydrogen (“low-carbon hydrogen”) will also be prioritised up to 2030, given that it’s carbon footprint is 70% lower than today’s grey hydrogen. The regulations that were presented in May initially addressed the transport sector, but it is expected that the regulations will also cover other sectors in the future, such as industry. Today, the EU consumes around 10 million tonnes of hydrogen per year, most of which is produced using steam methane reforming without carbon storage (grey hydrogen).

Investments will increase

Compared to “Fit for 55”, which was launched less than a year ago, the European Commission assumes that total investments through REPowerEU will increase to €300 billion by 2030, but that it will see savings of almost €100 billion per year which is currently spent on energy imports from Russia. Increased imports of natural gas from other countries will not be enough to compensate for the shortfall in Russian natural gas by 2027. It is therefore assumed that the use of natural gas in industry will see a reduction of almost 40% from 92 to 57 bcm per year, while consumption of oil and coal is expected to increase somewhat. Total energy consumption will nevertheless be reduced by about 5%. The European Commission will find the money to finance these changes through a reprioritisation of funds and the sale of quotas that have so far been held back from the quota market, amongst other things.

War in Ukraine is creating increased momentum for LNG, CCS may be next

 European imports of natural gas from Russia have reduced by around 40% (1 bcm per week) compared with 2021, while imports of LNG to the EU have seen a corresponding increase over the same period. 1 bcm is equal to around 10% of the global trade of LNG. The global market for LNG has increased by around 60% over the last ten years, driven in particular by increased demand from East Asia. Since the production and transport of LNG over long distances may involve a significantly higher carbon footprint compared with other forms gas transport, it has become increasingly common for LNG suppliers to sell “carbon-neutral LNG” in recent years. The means that emissions related to production and transport are offset using carbon credits. Not all credits have been sufficiently transparent to provide the credibility buyers need, and pressure on suppliers to reduce their own emissions has increased. An opinion piece from Wood Mackenzie indicates that this may open up opportunities for CCS to be adopted by numerous LNG producers, and Australia is pinpointed as a region with strong conditions for such a development.

CO2 transport network in Germany

The German energy authorities recently announced that one of two planned LNG import terminals is also set to receive a pipeline for CO2 exports. The plans are viewed in light of the war in Ukraine and plans to import more LNG or synthetic methane from green hydrogen. The energy authorities are soon expected to present an overall strategy that includes possibilities for a more comprehensive CO2 transport network in Germany. Earlier this year, it was also announced that the Japanese oil company Inpex is working on plans to finance a major CCS facility for LNG in northern Australia for delivery to Japan by 2026 at the earliest.

HeidelbergCement sets ambitious new 2030 climate goals

 The EU’s climate ambition of a 55% reduction in greenhouse gases by 2030 and its associated taxonomy are putting pressure on most industries to meet these requirements and to secure their social legitimacy in order to continue operating.  For the cement industry, the taxonomy has set requirements for maximum emissions of 498 kg of CO2 per tonne of cement. For HeidelbergCement, this requirement entails a 12% reduction in carbon emissions from their 2021 levels. According to a press release, HeidelbergCement has set a goal of a maximum of 400 kg of CO2 per tonne of cement by 2030. Other major cement producers, such as Holcim and Cemex, have previously set goals of 475 kg of CO2 per tonne of cement, under the same taxonomy requirement.

Plans to cut carbon emissions

At Heidelberg’s “Capital Markets Day” in May, the company presented its concrete plans to cut carbon emissions, including its ambition of removing 10 million tonnes of CO2 through CCUS by 2030. One Canadian and six European projects were mentioned in addition to several pilot projects and CCU initiatives. In May, Heidelberg also announced that their project at Slite on Gotland is going ahead with funding from Swedish authorities.

GCCA supporting start-ups

The industry is also collaborating more broadly to promote technology development for more affordable CCUS solutions in the long run. In May, the Global Cement & Concrete Association selected six start-ups to receive backing through their “Innovandi Open Challenge” programme, which has presented promising concepts that the industry may benefit from in the run up to 2050.

CCU unites waste and food in the Netherlands

The Netherlands’ many horticultural greenhouses produce 17.5% of the country’s total export revenues. Natural gas is an important component in this, and the industry is responsible for 9% of the total domestic consumption of natural gas. It provides heating, light and CO2 – all essential for the greenhouses. This energy consumption resulted in 5.7 million tonnes of CO2 emissions in 2018. OCAP, the Linde-based network of pipelines for carbon transport, alone provides around 0.5 million tonnes of CO2 captured from various industrial sources for use in greenhouses, and so contributes to reducing the consumption of natural gas and therefore reducing carbon emissions for the country overall. Demand for CO2 is reported to be high, and interest in connecting to more CO2 suppliers and users is growing. Higher carbon prices in the quota market are making users look for “climate-neutral” CO2 sources based on biogenic sources or from incinerating waste that cannot be recycled.

Converting household waste

In May, it was announced that OCAP, along with the local company GIDARA Energy, has received €110 million in funding from Dutch authorities to use household waste from the Amsterdam area for the production of 90,000 tonnes of green methanol and 84,000 tonnes of CO2 per year for horticultural greenhouses. At the same time, Aker announced that it has received a contract from Netherlands-based Twence for the delivery of a carbon capture facility for the production and delivery of 100,000 tonnes/year of CO2 to local greenhouses from a waste-to-energy plant in the east of the country. This project also received support from authorities because the project contributes to reducing Dutch carbon emissions.

The World Bank: Rising carbon emission prices globally in 2021, but still a long way to go

In May, the World Bank published their report on the state and trends of carbon pricing. It points to the fact that after many years of limited growth, carbon prices have grown rapidly in 2021. Both the level of carbon taxes and quota systems reached record levels in a number of jurisdictions. The underlying drivers are more ambitious climate policies and economic factors such as global energy prices.

Price per tonne of CO₂

The expansion of a number of quota systems and increases in quota prices have led to a similar increase in state revenues, and for the first time, revenues from quota sales have surpassed revenues from carbon taxes. However, the prices in most areas remain lower than necessary to achieve the goals of the Paris Agreement. The average level of carbon taxes globally in 2021 was $6 per tonnes. Among quota systems, the EU and UK stand out with prices of up to $100 per tonne of CO2, while most other quota markets have prices around $10-30 per tonne. According to the World Bank, around 23% of global carbon emissions are subject to some form of carbon pricing instrument.

Need for transparency and verification

Regarding the voluntary markets for carbon credits, the World Bank writes that these are now at a crossroads. Market dynamics over the past year have driven a strong demand and increased diversity expressed by new buyers, different market niches and trade channels with distinct preferences. This has created a more varied pricing picture. Eventually, as the carbon credits market takes on a more important role in contributing to meeting climate goals, the need for transparency and verification of the credits sold will also grow. This will be a significant development going forwards. The volume of traded carbon credits in 2021 corresponds to 478 million tonnes of CO2 at an average price of almost $4 per tonne. Credits focusing on removing CO2 from the atmosphere were the most expensive, and were traded at prices of between $15 and $20 per tonne.

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

IEA and IPCC: DACCS is increasingly important for climate goals

In April, the IEA (International Energy Agency) released their latest analysis of the conditions behind the increasing interest in DACCS (Direct Air Carbon Capture and Storage), as well as assessments of what is needed for the technology to be adopted. In the short term, DACCS will be able to offset emissions that are more difficult to cut (carbon credits), and in the longer term, it will help remove historic emissions (CDR – Carbon Dioxide Removal). Furthermore, CO2 from the atmosphere may be used in the future to produce materials or for synthetic fuels (DACCU).

DACCS should be scaled up

The IEA believes that to achieve the goal of net zero emissions before 2050, DACCS should be scaled up to 85 million tonnes of CO2 in 2030 and 980 million tonnes in 2050. The cost per tonne of captured carbon could fall to under $100 in 2030 – with sufficient R&D (Research and Development) and scale-up. In comparison, around 8,000 tonnes of CO2 are captured through DAC systems today, while global operational CCS projects have a combined capture and storage capacity of around 40 million tonnes of CO2 per year. For DACCS to be a viable solution, the IEA believes that internationally recognised certifications must be set up for the solution, and that niches willing to pay for DACCS must be exploited.

Significant amount of CDR is needed to achieve goals

The IPCC’s latest report dedicated a lot of space to CDR solutions (including DACCS). The IPCC works on multiple scenarios and as such presents a greater sample space for the use of DACCS than the IEA. This is also an expression of significant uncertainty about how climate goals should be achieved and the relevance of DACCS going forwards. However, overall, the IPCC assumes a significant amount of CDR from now up to 2100 in order for the world to stay within the 2°C goal, in the region of several hundred to over 1,000 gigatonnes removed in the next 80 years. In comparison, current total global greenhouse gas emissions are around 60 gigatonnes of CO2e. The IPCC emphasises the multiple important benefits of DACCS, including scalability, measurable additionality and flexibility around localisation. The challenges of DACCS are primarily linked to its costs and the large amounts of energy required.

USA investing in DACCS

Last year, the United States Congress added their name to the list of new major investors in DACCS by approving USD 3.5 billion for the development DACCS hubs over a five year period. The international collaborative venture “Mission Innovation” has set a goal of 100 million tonnes of stored carbon by 2030 through the use of various CDR technologies, including DACCS.

Large companies establish CDR funding scheme

Five major international companies in finance, tech and consulting have come together and set up a fund (“Frontier”) worth almost USD 1 billion to buy carbon credits from operators that can offer credits based on carbon negative solutions (CDR). The fund will buy credits from operators offering carbon removal from the atmosphere with solutions at a cost that may fall over time to less than USD 100 per tonne of CO2.  The purpose of this is to support scale-up of CDR technologies and to develop a market for these carbon credits. Frontier hopes to evolve into a marketplace for other operators wanting to support these sorts of initiatives. The concept itself is based on what is known as an “Advance Market Commitment” – where private and public operators come together to incentivise the development of markets for mutual benefit. The concept was also used for the development of vaccines.

EU: 100 cities to be climate-neutral by 2030

Last autumn, the EU announced five “missions” related to key social issues. One of these was “Climate-Neutral and Smart Cities”. After a competition, the European Commission announced in April which cities were selected. In Norway, Trondheim, Oslo and Stavanger are among the 100 chosen cities. The aim of this focus, beyond the cities being climate-neutral by 2030, is to create experimental and creative networks of cities that can share knowledge and experience with other cities with the same ambition.

Defining city emissions

Emissions that occur within a city’s boundaries as well as emissions related to a city’s own energy and heat consumption, regardless of the city’s boundaries, are what are currently regarded as a city’s emissions and which cities must focus on in order to call themselves “climate-neutral”. This includes industry, transport and waste management, and corresponds to “scopes” 1 and 2 according to the commonly used international methodology to categorise emissions. Scope 3 – which in this context is defined as indirect emissions that occur outside a city’s boundaries which are caused by the residents’ consumption – is not included here.

Individual consumption patterns affect emissions

A study published in 2018 by C40 (a network of climate-leading international cities), which assessed emissions from 79 international cities, concludes that 2/3 of emissions associated with residents’ consumption occur outside of the city itself. Various other studies have also shown that changes in individual consumption patterns and levels have a significant impact on total emissions and are among the more affordable climate initiatives in a socioeconomic perspective.

Bloomberg: Europe’s net zero emissions goal requires significant investment

 In its latest analysis of the consequences for Europe on its journey to the climate goal of net-zero emissions by 2050, Bloomberg points out the need for significant additional investments and the rapid phasing out of fossil fuel-based energy. The analysis was made by comparing a “net zero” scenario with a scenario with less political interference and a stronger focus on the economy, technology and pure market forces. Bloomberg concludes that the climate goal requires a rapid decrease in oil and gas consumption in Europe by 2030.

Demand for fossil fuel-based energy falls

In the NetZero Scenario, European demand for oil falls by more than 50% to 9.5 million barrels per day, and demand for natural gas falls by almost 25% by 2030. This is primarily due to rapid electrification or a transition to green hydrogen. This requires more than double current energy investments to achieve climate goals, and additional investments will primarily be seen in wind and green hydrogen.

HeidelbergCement: LEILAC technology will be extended and scaled up

 Since 2016, HeidelbergCement has worked to develop and test a new process for cement production (LEILAC), which will contribute to reducing the costs of carbon capture. A pilot facility was built in 2019 in Lixhe, Belgium, with a capacity of around 80,000 tonnes per year. The results were published last autumn and show that the process works as intended and that carbon capture can be achieved without having to use additional energy.

Amine process more expensive than LEILAC

The study estimated that the cost of carbon capture to be €12.5 per tonne of CO2 before compression compared to €20 for a traditional amine-based process, like the one used at Brevik. The analysis concludes that if carbon produced from the energy required for the amine process is also to be captured, the total cost of carbon capture using amine technology will be around €50 per tonne of CO2 – significantly more expensive than the LEILAC process. This also means that the investment cost of the LEILAC process, both for retrofitting and new installations, is significantly lower compared to an amine-based process. Heidelberg recently decided to continue LEILAC in a slightly larger pilot in Hannover, Germany. The purpose of the pilot is to validate the costs of building and using the technology, as well as the conditions associated with the integration and operation of the facility. The pilot is slated to be in operation in 2023.

Canada: tax credits for CCUS and DACCS up to 2030

Last year, Canada joined the “club” of the more than 70 countries with a goal of net-zero emissions. In the 2022 federal budget presented in April, the Trudeau government proposed a fiscal plan to support investment in CCUS and DACCS projects. CAD 2.6 billion (around NOK 20 billion) has been earmarked in the budget for 2022-2026, but the support is expected to total CAD 8.6 billion by 2030. The goal is cut national emissions by 15 million tonnes of CO2 per year by 2030. 

Surveying carbon storage opportunities

In March, the Government of Alberta designated six locations and operators to survey carbon storage opportunities. The goal is to establish an open network for this sort of storage in the province. The initiatives announced have received a mixed response. The CEO of Cenovus, one of Canada’s major oil companies that focuses on oil sands and is based in Alberta, recently said that the authorities have not done nearly enough to help companies achieve their climate goals. Alberta is unquestionably the province of Canada with the largest production of oil and gas and the largest carbon emissions. According to an article in Nature published in 2020, Canada is one of the countries with the largest greenhouse gas emissions per barrel of oil produced.

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

IPCC Sixth Assessment Report: En route to 3.2°C temperature increase with current policies

The IPCC’s latest special report deals with climate initiatives in various parts of society and what effects these may have on the climate and other sustainable development goals. The report suggests some areas of opportunity, but does not provide concrete policy proposals. It points to positive developments over the last ten years regarding the lower rate of increase in greenhouse gas emissions and a broader involvement of society for climate action. Nevertheless, it emphasises that the gap between policy and the need for emission cuts is widening, and the window of opportunity to achieve climate goals can only be kept open through more vigorous and immediate measures, otherwise there will be significant negative emissions later on.

According to the IPCC, current policies will lead to a temperature increase of 3.2°C by 2100, and even with all announced climate ambitions, the target of 1.5°C will not be met. According to the IPCC, global emissions must be halved by 2030 to realistically meet 1.5°C target. This should be possible for a maximum cost of $100 per tonne of CO2e, of which around 1/3 of the measures can be implemented without additional costs. In particular, renewable energy, electrification, adjusted transport habits and new technology for energy efficiency are the most affordable initiatives. CCS is also included in the IPCC list of necessary measures up to 2030, though on the more expensive end. The extent of CCS adoption up to 2050 will depend on which decarbonisation strategies deployed. CCS is most important in scenarios where initiatives are delayed and carbon negative measures become necessary, and less important in scenarios involving a rapid transition in consumption and more renewable energy.

Occidental enters into net-zero oil contract

In March, US-based Occidental Petroleum published a Memorandum of Understanding to sell 1 million barrels of “net zero oil” over five years to a Korean refinery from 2024. The announcement should be seen in light of Occidental’s 2020 announcement of their goal of being climate-neutral by 2050. Their stated strategy is to continue focusing on oil and gas production combined with significant use of CCUS and DACCS in order to offset their customers’ emissions (known as scope 3). The strategy is in line with the oil and gas industry standard published by the IIGCC investor group last autumn, which outlines the use of international credits or DACCS to achieve climate-neutrality. Compared with other carbon credits (such as afforestation), buying credits from a DACCS project is likely more expensive, but may be viewed as more measurable and credible, and not to mention more scalable.

The contract with the Korean refinery involves Occidental offsetting the buyer’s carbon emissions by storing atmospheric CO2 at a DACCS facility, which will be built using technology from Carbon Engineering in Texas. The facility will have a capacity of 1 million tonnes of CO2 per year and be ready by 2024. Airbus has also agreed to buy carbon storage from the project. The costs associated with large-scale carbon capture using DAC are uncertain. The most relevant technology suppliers have announced their expectation that costs will fall to $100 per tonne of captured CO2, but a recently published report from IEAGHG estimates that a cost of around $200 per tonne of CO2 is more realistic. Credits are currently sold in a range of markets, which may justify these costs. One such example is California’s Low Carbon Fuel Standard (LCFS). Carbon Engineering stated last year that the energy consumption needed to capture one tonne of CO2 from the air could fall to 8.81 GJ. In comparison, one barrel of oil contains an equivalent of around 6 GJ and leads to emissions of around 430 kg of CO2 during combustion.

Lack of climate leadership gets personal: Shell directors sued

Over the last few years, courts in Europe have heard several important climate-related cases, and some of them have ruled in favour of the plaintiffs resulting in international attention. Shell has seen its fair share of such cases. In May last year, a lower court in the Netherlands ruled that it needed to do more to reduce emissions resulting from the production and use of oil and gas sold internationally. This includes emissions across the entire value chain, including as a result of the use of fossil fuel-based energy (known as scope 3).  This case has attracted special attention because it deals with corporate responsibility outside of the direct control of companies, as well as whether a court can make a ruling affecting matters outside of a country’s own jurisdiction. Shell appealed the ruling at a higher court last summer. The winner of the case against Shell, Milieudefensie, indicated to 29 multinational companies the impacts they believe this judgment will have on their climate efforts.

In March, a new climate-related case against Shell gained attention when the environmental organisation ClientEarth sued 13 Shell UK directors for breaching the UK’s Companies Act. The basis of the case is that ClientEarth, as a Shell shareholder, believes that Shell management has not made an adequate assessment of the climate risks facing the company when presenting a strategy that is not in line with the goals of the Paris Agreement. ClientEarth is arguing that its intention is to protect Shell and the long-term interests of its shareholders.

Germany turning on to blue hydrogen – but war is creating increased uncertainty

When the new German government entered office before Christmas, it was announced that they would increase production of renewable energy by 100 TWh per year by 2030 compared to its original target, and double its green hydrogen electrolyser capacity to 10 GW. According to the German National Hydrogen Strategy, this should provide 28 TWh of hydrogen. The strategy estimates that there will be a need for 90-100 TWh of hydrogen by 2030. In order to have enough hydrogen available in the transitional phase, it will be necessary to import primarily green hydrogen. However, an analysis released last autumn by Fraunhofer points out the challenges related to the availability of hydrogen on global import markets, and that solutions for the transport of large quantities of hydrogen are still not mature and will probably not be in place before 2030. In the past month, there have, however, been several reports of Memorandums of Understanding on deliveries of both green and blue hydrogen from countries such as Australia, the UAE, and Norway.

The situation for blue hydrogen has changed somewhat in the last few months. According to DNV and other stakeholders, it is not likely that natural gas will be used for hydrogen production due to uncertainty about future gas deliveries from Russia. In an analysis from Rystad Energy, it is pointed out that the rise in natural gas prices over the last 6 months means that blue hydrogen is now losing out to green hydrogen. Today, natural gas accounts for around 30% of Germany’s energy mix, and is almost exclusively based on imports, and primarily through gas pipelines. Energy loss in the process of converting natural gas into hydrogen is typically 30%.

New Dutch government increases climate efforts

When Mark Rutte’s fourth term began in December last year, it was with a declaration of significantly more ambitious climate goals than previously. The EU’s 55% reduction by 2030 has been topped by the Dutch government with a goal of a 60% reduction in emissions, followed by further cuts of 10% every five years. To become less reliant on gas imports, two new nuclear power plants are needed, as are efforts to increase the adoption of CCS. As a result of this, the authorities announced in March that the SDE++ subsidy scheme will be strengthened and that €13 billion will be available at this year’s funding announcement, a significant increase from previous years. The scheme is intended for projects developing renewable energy, hydrogen production, CCS and other industrial climate initiatives.  The Dutch government had previously set a ceiling on its CCS support of 7.2 million tonnes of CO2 by 2030. This has now increased to 8.7 million tonnes of CO2. Support from SDE++ is provided as a contract for differences and is awarded according to an auction principle. This year’s auction will take place from June to September. The first auction is for projects asking for a maximum support of €65 per tonne of CO2. Last year, the CCS project Porthos received funding from this scheme.

Please visit our CCS dictionary if there are professional expressions or abbreviations in this text you are not familiar with.

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

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.

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

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.

G20 still agrees that the Paris Agreement’s climate goals will be met

At the end of October – before the climate talks in Glasgow (COP26) – the world’s most powerful states (G20) gathered in Rome. The global economy, climate issues and sustainability were on the agenda. In a closing statement, the G20 states that, among other things, it stands by the Paris Agreement and its goal that global warming should be limited to ‘well below 2°C and to pursue efforts to limit it to 1.5°C above pre-industrial level’, and that this must entail ‘meaningful and targeted measures’ in all countries, taking into consideration each country’s capabilities and limitations. The statement allows for continued investment in coal-fired power plants, but does not allow for the financing of such facilities outside of one’s own country. This closing statement does not mention other fossil energy sources, but emphasises the importance of energy security, open energy markets and market stability on the way to achieving climate goals. Among some commentators and the media, there is a general consensus that the G20’s statement is characterised by compromise, and that it isn’t binding.

 

UN report: A large gulf between climate talk and action

 

Ahead of the annual climate negotiations, the UNEP published its annual Emission Gap Report, which shows how countries are faring with the implementation of policies to achieve climate goals. This year’s climate negotiations are significant because this is the first time since the Paris Agreement was signed in 2015 that all countries will submit more ambitious Nationally Determined Contributions (NDCs). This year’s report from UNEP notes that the new, updated NDCs, along with already announced plans, will make real positive contributions to the climate. Nevertheless, the updated NDCs are not nearly enough to meet climate goals; This year’s calculations show that emissions in 2030 will only be 7.5% lower than similar calculations made last year, while they need to be 30% lower by 2030 in order to meet the 2°C goal, and 55% lower for the 1.5°C goal. In concrete figures: Under current policy, global emissions in 2030 will be 55Gt of CO₂, which is on par with current emissions, while the 1.5°C target requires that emissions in 2030 are brought down to 25Gt. UNEP also states that although all stated national ambitions (such as net-zero emissions by 2050) will be fully implemented by those countries who have agreed to them, the global temperature rise in 2100 could be 2.2°C.

Europe’s energy crisis: A story of a difficult reopening and a difficult transition

The IEA, the World Economic Forum, and many others, have helped to shed light on the causes of the recent energy crisis. There seems to be a consensus that the main reasons are related to increased energy demand in connection with the post-pandemic reopening of the economy, as well as the failure of energy companies to increase supply quickly enough due to low investments over time. The fact that the crisis has hit Europe harder may be linked to its considerable dependence on imported natural gas, less gas storage than usual and less wind than normal, to name a few reasons. As the reopening happens across the world, it puts pressure on all suppliers of coal and gas. This has increased energy prices, which in turn will drive inflation in society, which can lead to social unrest over time. At its highest in October, gas prices in Europe were 7x what they were a year ago.

Even if the IEA believes that the energy crisis cannot be attributed to the growing dependence on variable renewable power, opinion on this is divided. Nevertheless, it is difficult to estimate how the energy crisis will impact Europe’s energy strategies, and thus its climate efforts. The EU president’s perspective is that the EU is currently too dependent on natural gas, especially from Russia, and that focusing on renewables, batteries and energy security will become more important in the future. Others believe that the EU’s energy transition has not been sufficiently thought out, should have a longer timeline, and should invest more in natural gas to faster phase out coal. Nuclear power and CCS will certainly become more relevant in public debate going forwards.

UK appoints two CCS clusters in its first announcement

In October, the UK government announced that it will enter into negotiations with two industrial clusters to develop CCS infrastructure, to be operational around 2025. The chosen clusters are HyNet North West (Merseyside and nearby areas) and East Coast Cluster (Teesside/Humber). By 2030, the Government plans to have established four such CCS clusters, with a combined capacity to capture and store 20-30 MT CO₂. Infrastructure development will receive funding from the government’s CCS Infrastructure Fund, which has set aside £1 billion. HyNet will develop a hydrogen net, so that local industry is able to change from fossil fuel-based energy to hydrogen. 24 companies have signed a memorandum of understanding with HyNet, which is led by gas distribution company Cadent and project development company Progressive Energy. East Coast Cluster is led by Northern Endurance Partnership, which consists of the energy companies BP, Eni, Equinor, National Grid, Shell and Total Energies. The purpose is to capture CO₂ from various types of local industry and store it in the UK’s side of the North Sea. A final agreement will be signed by the Minister once necessary socioeconomic assessments have been made. If a deal cannot be made with one of these clusters, the Scottish Cluster is listed as a reserve candidate.

GCCSI: Significant increase in CCS projects in development

In GCCSI’s annual status update of CCS projects globally shows that, since 2017, there has been a growing number of CCS projects in development, with a planned capacity of over 140 tonnes of CO₂ per year. In total, 102 projects are currently in development, while projects that are operational or under construction have remained mostly unchanged since 2013 – 32 projects – with a total capacity of around 40 million tonnes of CO₂. In Europe, the UK (18) and the Netherlands/Belgium (10) dominate the synopsis of projects in development. When sorted by emission source, hydrogen production (13) and power generation (10) dominate.

IEA WEO: Advising politicians on increased efforts for climate improvements

This year’s edition of World Energy Outlook (WEO) from the IEA is designed to help COP26 delegates make efficient choices that can drive the energy sector towards net zero emissions. The IEA does not paint a very positive picture with regard to the policy implementation of the participating countries in relation to registered ambitions, and it points out that efforts must be considerably strengthened if targets are to be achieved. On the other hand, the IEA highlights the fat that an increasing degree of electrification is contributing to the rise of a new energy economy driven by political priorities, technological innovation, and a broad desire to tackle climate change. The IEA estimates that these changes could drive a market that, by 2050, could be larger than today’s oil industry. Four recommended priorities will be presented for 2030; 1) Increased pressure on electrification, almost doubling power generation using renewables and nuclear power, etc, 2) A sustained strong focus on energy efficiency, including altered consumer behaviour, which can overall contribute to a fall in energy use of one third measured against GDP, 3) Almost 80% reduction in methane emissions, especially in oil and gas production and 4) Almost tripling investments in advanced, clean technologies, including CCUS, batterers, biofuels, DACCS and synthetic fuels.

Article 6 of the Paris Agreement: A source of international climate cooperation and lower initiative costs

One important topic at this year’s climate negotiations is the formation of procedures for international trade in climate quotas, ensuring, among other things, that double counting is avoided. Today, the EU restricts the use of such carbon credits bought outside the EU. If climate negotiations succeed, this will increase confidence in various ‘voluntary carbon markets’ and increase demand for international projects which cut greenhouse gas emissions. In 2021, it is expected that the turnover of such voluntary credits (i.e CO₂ credits that are not directly regulated by national authorities) is expected to reach $1 billion, with a price of well below $10/tonne. The volume in voluntary markets is limited when compared with regulated quota markets, but this volume is increasing and may allow for more technology transfer to emerging economies and access to more affordable climate initiatives for countries and industries with fewer alternatives.

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