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You are here: Home / Archives for Emissions Reduction

9 June 2021 By David McEwen

Climate of Care. A New Risk for Corporate Australia

In a landmark judgement, Australian Federal Court Justice Mordecai Bromberg recently established that the Commonwealth Government has a duty of care to protect Australian children from future harms related to climate change. 

Photo by Bill Oxford on Unsplash

Accepting evidence that was uncontested by the legal team representing the Minister for the Environment, Bromberg agreed that a particular coal expansion project (the subject of an injunction sought by a group of teenage applicants) would incrementally contribute to future climate harms if approved. While stopping short of granting the injunction to prevent the Minister from approving the mine, the judge was very clear that such a decision would be open to judicial review given the facts established in the case. 

Corporate Australia Take Notice

By extension, this principle could now be applied to any corporate action or inaction that causes an increase in the greenhouse gas emissions that are heating the planet at an unprecedented rate. Activists are lining up and crowd funding to apply this principle, along with principles established by favourable litigation offshore. And they’re no longer your stereotypical activists either: respected groups such as doctors, parents, farmers, engineers, lawyers, athletes and many other professional groups are engaged in a global version of “whack a mole”, fighting emissions intensive projects and exploring litigation to bring governments and corporates to account to achieve the objectives of the Paris Climate Agreement.

On the same day as the Bromberg judgement, for example, a court in The Hague ordered Royal Dutch Shell to slash its emissions by 45% by 2030 (off 2019 levels). Not just its direct scope 1 and 2 emissions, but also the scope 3 emissions associated with its supply chain and, most significantly, customers’ end use of its products. 

The 45% ruling reflects the global average emissions cuts needed by 2030 to maintain a chance of limiting global heating to the safe(-ish) level of 1.5oC: for developed countries such as Australia the target is significantly higher. For example, updating the Climate Change Authority’s 2014 methodology (which recommended reductions of 40% to 60% by 2030), researchers found earlier this year that – due to minimal emissions reductions in the intervening years, and the cumulative impact of greenhouse gases in the atmosphere – Australia’s 2030 target has increased to 74% off the 2005 baseline.

As such, climate litigation must now be considered a significant corporate risk. While both the aforementioned cases are subject to appeal, the global mood is clearly shifting. Companies that are not seen to be making serious and genuine efforts to cut their emissions, across their entire value chains, are at risk of actions that could scuttle expansion plans; render parts of their business unviable; and sink asset valuations. Governments may be compelled to refuse project approvals that were until recently seen as legitimate and societally beneficial.

It’s not just fossil fuel firms that are under the microscope. Major energy users such as airlines and logistics firms; big organisations with massive supply chains such as supermarket and FMCG giants (whose size means they have the influence to transform industries); producers of emissions intensive building products and the construction giants who use them; and “big meat” agribusinesses, are just a few sectors that will increasingly feel the heat for their actions or inactions. 

Next Steps for Boards

The implications for boards? 

  1. Identify, assess and evaluate your physical and transitional climate risks. 
  2. Understand the emissions intensity of your supply chain, assets, processes, products and services. 
  3. Adopt Science Based emissions reduction Targets (SBT) that go beyond greenwash to encompass upstream and downstream scope 3 emissions, and establish delivery accountabilities. 
  4. Accept that purchased offsets are a complement – not a substitute – for genuine, near term emissions reduction.
  5. Appreciate that achieving genuine emissions reduction may require transforming your business model or product range. 

Above all, embrace climate change as an opportunity, rather than a threat. Accept that the business environment is changing, it’s gathering pace, and it’s already unstoppable. Treat climate change as a disruptor, much like digital has been for the past two decades. Avoid having a Kodak moment: neither size nor venerable history will protect your organisation from the shift to a net zero emissions economy.

Filed Under: Climate Litigation, Climate Risk, Emissions Reduction Tagged With: Climate Litigation, Climate Risk, Emissions Reduction

5 January 2021 By David McEwen

Climate Ambition is Rising – What Does it Mean for Your Business?

In December 2020 a virtual meeting of 70 world leaders took place, with many countries including the European Union and UK strengthening their emissions reduction ambitions through new pledges as part of the 5 yearly Paris Climate Agreement ratchet clause. [1] Australia – with a 2030 target that is less than half of what would be consistent with the IPCC’s recommendations to limit temperature rise to 1.5 degrees above the historical average, and with no net-zero commitment – was not invited to present to the forum. [2]

What are the implications for businesses?

It is clear that the world is shifting, at least in terms of policy announcements, towards a downwards emissions trajectory. Emissions peaked in 2019, and though dampened by the Covid-19 pandemic during 2020, are expected to trend upwards in 2021 as economies reopen and more normal travel patterns resume. However, the year has been marked by significant changes of stance and tone in the politics of emissions reduction amongst Australian trading partners that collectively purchase nearly three quarters of our emissions, including the UK, Europe, China, South Korea and Japan. [3] The US Presidential election result will see the incoming Biden team snap back to pre-Trump policies, including re-joining the Paris agreement and announcing a formal net-zero by 2050 target. [4]

In Australia, while there was a slight change in language since the US election, as yet there has been no shift in Federal emissions reduction policy, despite all states and territories now having net-zero policies or legislation. [5] This is cementing Australia’s position as a laggard amongst developed nations, particularly given our extremely high per-capita emissions. [6] This puts most businesses at a distinct disadvantage.

Let’s get physical

From a physical risk perspective, Australia is experiencing national temperature increases significantly above the global average due to the thermodynamics of its large dry landmass, which is on its way to becoming significantly hotter and dryer. The Murray Darling basin, home to much of the country’s agricultural output, has seen river flows has seen an 11% winter rainfall decline over the last two decades and is on its way to a projected 20% decrease in river flows even in a comparatively good case scenario of 2 degrees average global warming. [7]

Throw in higher rates of evaporative soil moisture loss, heat stress on plants; fewer frost days in winter (which are essential for some crops’ growth cycles); and more weather extremes including extreme precipitation events that denude topsoil and take juvenile plants with them, and you have a recipe for lower overall agricultural productivity and much greater output variability. It’s all very well as a wealthy country to say “we’ll just import more in a bad year”, but there is a growing likelihood that, with increasing frequency, multiple growing regions will experience bad years simultaneously. [8]

It’s not just agriculture that is exposed. As unusually intense storms pummelled Australia’s East Coast this week, threatening infrastructure and leading to significant erosion of Byron Bay’s iconic main beach [9] we had a taste of the growing threat of extreme coastal weather, particularly the damage that storm surges propelled by high tides and magnified by even small levels of sea level rise (to date mostly caused by thermal expansion of the heating ocean, but increasingly from melting land ice in polar regions). [10] Climate models project that both tropical cyclones and East Coast Lows, while not necessarily more frequent, are generally likely to be more intense when they do occur. [11]

Indeed, recent analysis by insurance broker Aon found that so-called secondary perils including hail, flood, storms and bushfires (that generate small to mid-sized losses compared with primary perils such as earthquakes and cyclones) have generated over half the global insured losses between 2017 and 2019. All of these phenomena are expected to become more damaging due to climate change. [12]

Globally, economic losses from extreme weather events have increased significantly over the last four decades, partly due to the increasing value of assets built in exposed areas. [13] With multi-metre sea level rise over the long term (beyond 2100) now locked in even if the Paris climate goals are met, and the majority of coral reefs almost certainly devastated by mid-century, billions of dollars of coastal infrastructure (including major roads, ports and airports) and tourism assets is at risk. [14] As such, affordability of insurance is decreasing: following Townsville’s 2019 flooding, premiums rose as much as four-fold. [15]

From Transition to Transformation

Then there are the transitional risks, which could affect companies’ revenues, asset valuations, or costs of doing business. Take the recently floated Dalrymple Bay Coal Terminal, which Queenslanders have an ill timed stake in through the government-owned QIC’s 10% share. Down 25% in its first week, during which the ASX shed just 0.6%. [16] The ASX200 energy sector has significantly under performed the broader Materials Index (covering all resources) over much of the last five years. [17]

While fossil-fuel related electricity and resources assets are currently the most affected, with major managers responsible for trillions of dollars of investment decisions announcing Paris-aligned net-zero mandates for their portfolios, it won’t be long before the malaise spreads to other major users of fossil fuels, particularly in transportation and in turn energy intensive industries such as steel. Just last week a new initiative – Net Zero Asset Managers – was launched with 30 founding signatories, adding to the UN-convened Net-Zero Asset Owner Alliance, launched in September 2019, which now has 33 members. [18] Emissions intensive businesses will come under increasing pressure to adopt transformative business models. Australian businesses may be disadvantaged to the extent our energy system remains fossil fuel dependent.

Unless Australia embraces a net zero 2050 target (along with a coherent plan to get there) – and particularly while it remains the highest per-capita emitter and one of the largest global producers of fossil fuels – exporters are likely to start feeling the pinch. The European Union has proposed a tax on imports from countries whose emissions reduction targets are not Paris-aligned, and one of the top contenders for the head of the OECD is proposing a global roll out of such a scheme. [19]

Most Australian businesses would benefit from policy decisions that accelerate the transformation towards a clean energy system encompassing electricity, transport, industry and agriculture. Economist Ross Garnaut and other analysts predict that a renewable grid would push electricity prices down, in turn lowering operational and transportation costs as vehicle fleets are electrified (or converted to green hydrogen in the case of some heavy transport). [20] As NSW’s recent renewable energy zone auction demonstrated, there is considerable private sector appetite to fund this transition given the superior economics of solar, wind and storage. [21]

Contrary to public perception, Australia’s coal and gas industries are responsible for only about 1% of jobs. [22] Clean and circular services, manufacturing, agriculture, energy and non-fossil resources industries are key to our future economy. Talk to Adaptive Capability today to understand the risks and opportunities of climate change and turbo charge your business.

David McEwen is a Director at Adaptive Capability, providing strategic risk and project management advice to help businesses create and preserve value in the face of climate change. His book, Navigating the Adaptive Economy, was released in 2016. Visit www.adaptiveeconomybook.com.

[1] https://www.theguardian.com/environment/2020/dec/12/world-is-in-danger-of-missing-paris-climate-target-summit-is-warned

[2] https://www.9news.com.au/national/united-nations-pressure-to-declare-climate-emergency-scott-morrison-snubbed-at-climate-ambition-summit/e158f9b6-ea6e-480c-b0f6-1f11e04e2d1a

[3] https://www.ft.com/content/185e5043-fd72-4fef-a05c-f2a5001c7f4b

[4] https://www.bbc.com/news/science-environment-54858638

[5] https://www.theguardian.com/environment/2020/nov/29/scott-morrisons-climate-language-has-shifted-but-actions-speak-louder-than-words

[6] https://www.bbc.com/news/science-environment-55222890

[7] https://www.smh.com.au/politics/federal/stop-fighting-and-start-adapting-to-climate-change-basin-authority-says-20201214-p56nbc.html

[8] https://www.bloomberg.com/news/articles/2020-05-18/climate-change-may-double-the-risk-of-breadbasket-failures

[9] https://www.theguardian.com/australia-news/2020/dec/14/byron-bay-beach-damage-worst-in-a-generation-as-storms-batter-1000km-of-coastline

[10] https://cleantechnica.com/2020/04/23/the-number-of-people-affected-by-floods-will-double-by-2030/

[11] https://climatechange.environment.nsw.gov.au/Impacts-of-climate-change/East-Coast-Lows/Future-East-Coast-Lows

[12] https://www.insurancejournal.com/news/international/2020/09/23/583704.htm

[13] https://www.bankofengland.co.uk/knowledgebank/climate-change-what-are-the-risks-to-financial-stability

[14] https://www.theguardian.com/environment/2020/sep/23/melting-antarctic-ice-will-raise-sea-level-by-25-metres-even-if-paris-climate-goals-are-met-study-finds

[15] https://www.abc.net.au/news/2019-12-21/high-premiums-driving-uninsured-homes-in-northern-australia/11819814

[16] https://www.afr.com/companies/infrastructure/dalrymple-bay-infrastructure-shares-sink-on-first-day-of-trading-20201208-p56lj8

[17] For example, graph in section 3 of this article: https://www.marketmatters.com.au/blog/post/market-matters-weekend-report-sunday-19th-july-2020/

[18] https://www.ipe.com/news/net-zero-asset-manager-initiative-kicks-off-with-30-founding-signatories/10049545.article

[19] https://www.smh.com.au/world/europe/economy-and-ecology-cormann-s-top-oecd-rival-pledges-climate-reform-20201210-p56m75.html

[20] Garnaut, R., Superpower – Australia’s low-carbon opportunity, La Trobe University Press, 2019.

[21] https://reneweconomy.com.au/dubbos-new-renewables-zone-shows-the-path-away-from-fossil-fuels-79082/

[22] https://www.canberratimes.com.au/story/7055572/how-australia-could-move-away-from-fossil-fuels-without-mass-layoffs/ 

Filed Under: Uncategorized Tagged With: Ambition, Climate change, Emissions Reduction, Energy Transition, Export, Paris Agreement

15 October 2020 By David McEwen

Is hydrogen in buildings the right approach?

83 years after the Hindenburg disaster highlighted the dangers of this highly flammable and explosive gas, hydrogen is now being touted as an energy saviour that will help humanity reduce its greenhouse emissions to avert catastrophic climate change. There’s a lot of talk and a growing investment pot, but not all of it is realistic or beneficial in helping countries achieve net zero decarbonisation targets.

Hydrogen is the lightest gas; colourless, odourless, and an excellent energy carrier: around three times more so than natural gas (methane, a fossil fuel) on a weight for weight basis. When burnt, its only emission is water, with no greenhouse gases or other toxins released.

On the other hand, in terms of energy density (per litre) it is considerably less efficient than natural gas and oil, and it involves a number of technical challenges to handle, store and transport safely and efficiently for different applications. Nevertheless it’s already used at reasonable scale in industry, mainly for applications like fertiliser production and refining petroleum products. Perhaps surprisingly, on many measures hydrogen is considered safer than methane or petrol. [1]

Where Does Hydrogen Come From?

Due to its tendency to bond with other elements, pure hydrogen (H2) is typically not found in abundant quantities either in the atmosphere or underground – it has to be made, using chemical processes that consume energy and, depending on the method, may involve significant greenhouse emissions themselves. And, it’s currently relatively expensive.

Those seeking action on climate change have their hopes pinned on hydrogen produced by splitting water molecules into their component H2 and O parts using electrolysis. Kids can do this at home using two conductors placed in a cup of water and connected to a battery. Bubbles of hydrogen form at the negatively charged cathode, while oxygen collects at the positive anode. Commercial electrolysers are improving rapidly in cost and performance.

If the electricity for the electrolyser is sourced exclusively from a renewable source (such as a wind or solar farm) then the hydrogen is known as “green”: it involves no operational emissions in its production or use. Electrolysers at large scale could provide a valuable demand response solution for the grid, by skimming excess renewable generation, or bespoke wind/solar farms could be established near production sites (see https://asianrehub.com/ for one such example).

(Of course, if processes involved in its transportation and storage create emissions, then it may not be a truly emissions free source. It also consumes a lot of fresh water, but so does the extraction and processing of fossil fuels and their use in electricity production.)

On the other hand, most of the hydrogen produced today comes from a process called steam methane reformation (SMR) using fossil gas; another method involves coal gasification. Both of these approaches produce significant greenhouse emissions.

Some (including the Australian Government in its recently released Technology Roadmap [2]) argue that SMR with carbon capture and storage (CCS) – i.e. trapping and burying the greenhouse emissions deep underground) can produce low emissions hydrogen, referred to as “blue”.

However:

  1. CCS technologies are relatively unproven and in any case do not trap 100% of emissions;
  2. CCS consumes additional energy, which would itself need to be renewably produced; and
  3. the extraction and transportation of the fossil methane to the hydrogen production facility involves significant “fugitive” emissions of methane, a greenhouse gas 86 times more potent than carbon dioxide.

Perhaps they call it “blue” because its emissions reduction outcomes are pretty sad compared to green hydrogen.

What should hydrogen be used for?

Currently, fossil methane (marketed as natural gas) has a wide range of applications including electricity production; vehicle fuels; many industrial processes, including where high heat is required; plus cooking, space and water heating in homes and commercial buildings. Theoretically, green hydrogen could be used for most of these (apart from industrial processes that rely on the specific chemical composition of methane or other hydrocarbons).

Hydrogen in Electricity Production
Does hydrogen have a place in electricity production? Renewable electricity generation supported by batteries and other storage systems can replace most use of gas (and coal) in the grid (much more cost effectively than hydrogen). There is likely to still be a need for dispatchable generation for odd times when wind and solar under-produce for multi-day periods depleting battery and pumped hydro storage capacity. A well designed renewable grid will limit but probably not eliminate those occurrences, and as we’ll see the grid is expected to grow significantly over the next few decades due to electrification. For a fully decarbonised grid, we will likely need green hydrogen turbines (as production costs become competitive) to fully phase out coal and fossil gas generation. For the foreseeable future however, hydrogen is likely to be relatively uncompetitive against fossil methane for such peaking requirements.

Hydrogen in Transport
Transport falls into two camps. The vast majority of personal transport needs will soon be able to be cost effectively met by battery electric vehicles, with hydrogen fuel cells remaining uncompetitive. Given the enormous advances in technology and manufacturing scale, BEVs are expected to be available before mid-decade for the same or lower cost of an equivalently featured internal combustion engine (ICE, i.e. petrol or diesel) car. They will have battery ranges more than equivalent to similarly sized ICE vehicles.

At that point (and assuming fast charging infrastructure matches uptake), only enthusiasts and those in remote parts of the country would buy an ICE vehicle given the much lower running costs of BEVs (charging costs a fraction of filling a tank, and with far fewer moving parts the outlook is bleak for motor mechanics). Charging a national fleet of BEVs is expected to increase grid demand in the order of 20%. [3]

Hydrogen fuel cell personal vehicles could gain a small foothold in remote communities given their ability to carry additional fuel, particularly if sales of ICE vehicles are banned and hydrogen refuelling infrastructure is established.

Conversely, for heavy transport, including buses, trucks, un-electrified trains, and shipping (but perhaps not aircraft), green hydrogen is emerging as a sensible way to go, cost effective given the emergence of a  network of refuelling depots and once its cost drops a little more, as it already has with growing scale and experience. The Australian government has set a target of A$2 per kilogram, at which point it is expected to become competitive with liquid transport fuels. According to UNSW research it’s currently in the $4-8 range [4]). 

In the case of shipping, green hydrogen converted to ammonia (another fuel that is emissions free when burnt) may be a good substitute for the heavy (and highly polluting) fuel oil that is currently used. Ammonia produced in this way is more energy efficient than current processes and can also be used in other applications such as fertiliser production (currently a major source of emissions associated with agriculture). [5] 
Suitable replacements for aviation fuel are more problematic. Battery powered planes may work for short haul commuter flights in the future, but hydrogen’s density issue may prevent it from replacing avgas. Synthetic carbon neutral  fuels — which green hydrogen might play a part in manufacture of — may be the solution here. 

Hydrogen in Industry
In industry, replacing natural gas and coking coal with hydrogen for a range of high heat applications including major emitters steel and cement offers great potential if the cost of hydrogen falls or carbon pricing is applied to traditional processes.

Why Hydrogen Doesn’t Make Sense In Buildings

For both residential and commercial buildings, replacing fossil methane with renewable hydrogen does not make sense for three key reasons:

1. To be competitive with gas for in-building applications, hydrogen would need to be significantly cheaper than is predicted for the foreseeable future. And that’s with domestic gas prices having climbed in Australia since the emergence of the LNG export market. Even if hydrogen prices reach US$1 per kg, it remains relatively uncompetitive with fossil gas, particularly in the absence of a carbon price. [6] 

2. Electric substitutes, generally with superior energy efficiency, can replace gas appliances in both homes and larger buildings. There is no economic case for expensive hydrogen to be used in buildings when electricity is available. As the emissions intensity of electricity generation continues to decrease with greater renewables penetration, neither fossil methane nor hydrogen can compete. 

3. Above about 10% concentration, hydrogen in the existing fossil methane transmission network (made of high tensile steel) will make the pipes brittle. While the local distribution network has mostly been replaced with HDPE pipes, which are acceptable for hydrogen use, many appliances in buildings will need to be adapted or replaced to cope with for high concentrations of hydrogen. 

The ACT government has already introduced mandates for new subdivisions, resulting in the first intentionally gas-network free suburbs. A number of recent commercial building projects have announced net zero targets, requiring all energy consumed to be fossil free. In such cases, fossil gas has been designed out in favour of all electric building systems and power contracted from renewable generators. This trend is expected to grow rapidly as more companies announce plans to achieve carbon neutrality.

What Future for the Gas Network?

If hydrogen in buildings doesn’t make sense, what is the future for the fossil gas network?

Proponents argue that there is merit in starting to inject “clean” hydrogen into the existing gas network. The NSW Government has set a target of 10% green hydrogen in the network by 2030. Australia’s Chief Scientist, Professor Alan Finkel, believes this early use of hydrogen will allow production to scale up over the decade before “pure” hydrogen applications can be rolled out at scale, providing much needed learning opportunities.[7]

We note, that unless there is a clear signal regarding the future of the gas network (i.e. its path to net zero emissions), blending hydrogen with fossil gas will slow down the uptake of electrification in buildings and lead to investment in gas-based plant that could become stranded assets as policies shift to achieve decarbonisation targets. Since going much beyond 10% concentration of hydrogen will require costly upgrades to transmission and building plant (as well as a material impact on energy prices), it is essential that government policy is resolved to provide investment certainty. 

Hydrogen is clearly in our future as a vital part of measures to achieve net zero emissions. A pure hydrogen gas network will be required, but it can be much smaller and more distributed than the current fossil gas grid. Rather than serving millions of buildings, it will only need to connect local hydrogen supply points (of which there will be many given the distribution of renewable energy generation), with connections to industrial and generation users, heavy transport vehicle fuelling stations and export terminals, collectively numbering in the hundreds or thousands. 

[1] For example, https://blog.ballard.com/hydrogen-safety-myths
[2]https://www.industry.gov.au/sites/default/files/September%202020/document/first-low-emissions-technology-statement-2020.pdf
[3] https://www.aph.gov.au/Parliamentary_Business/Committees/Senate/Electric_Vehicles/ElectricVehicles/Report/c03
[4] https://newsroom.unsw.edu.au/news/science-tech/how-green-hydrogen-can-become-cheap-enough-compete-fossil-fuels
[5] https://arena.gov.au/projects/hydrogen-to-ammonia/
[6] https://reneweconomy.com.au/renewable-hydrogen-to-undercut-gas-on-price-but-not-the-answer-for-transport-99853/
[7] Alan Finkel answering the author’s question at the Australian National University’s Energy Change Institute webinar “Digging deeper into the Technology Investment Roadmap”, 8 October 2020

Filed Under: Clean Energy, Uncategorized Tagged With: Climate change, Decarbonisation, Emissions Reduction, Energy, Hydrogen

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