UPDATED: The 3 New Friends of Aggressive Climate Action, Their 2 Enablers: What it Means for Investors Globally (2)

By Mathew Carr

NEWS/OPINION: Nov. 10-11, 2020 — LONDON: Big emission cuts hinge on three technologies and how they link together, and on how the biggest countries incentivise them.

The world — big emitters the EU, the U.S. and China at least — seems to be, finally, getting on board, but it still might be too late.

Natural gas, carbon capture and hydrogen, working together, are set to change the world, cutting emissions, according to an influential group advising the British government.

Number 1 technology: Gas will provide a bridge to much lower emissions, but ONLY if it’s used to produce hydrogen (Number 2 technology — H2) and/or its burning results in clean electricity generation because that includes capturing and storing of the associated carbon dioxide (Number 3 technology — CCS).

This three-way friendship will be underpinned by at least two enablers, according to the U.K. Climate Change Committee, which advises government: higher carbon prices (Number 1 enabler) will spur a shift away from unabated gas burning, while contracts for difference (Number 2 enabler) will prevent new investment in unabated coal, oil and gas and encourage spending ONLY on the three, interlinked friends.

What this means for investors: Think very carefully before selling carbon allowances and credits at current prices, because carbon prices will need to rise to create the new investment environment, according to CCC.

The committee is clear: Its plan to cut British emissions by almost 80% vs 1990 levels by 2035 means don’t invest in new natural gas projects now unless they can include carbon capture and storage AND/OR clean-hydrogen production.

Otherwise, your investment may end up as a stranded asset.

See this from the CCC:

There is a choice between:
• ‘Green hydrogen only’. Limiting the role of hydrogen over the next 20 years only to what can be supplied via electrolysis from zero-carbon sources, likely placing substantial limits on hydrogen’s potential contribution to getting to Net Zero; or
• ‘Blue hydrogen bridge’. This would entail supplementing electrolysis with scalable production from routes involving carbon capture and storage (CCS) to enable sufficient low-carbon hydrogen production to meet a fuller range of emerging demands.

We recommend the latter approach, as this will both reduce emissions more quickly in the near-term (compared to lesser use of hydrogen to displace unabated fossil fuels) as well as developing the role of hydrogen across a range of sectors, reducing risks around achieving Net Zero.

Source: p140 of the policies report here:

To be sure: the committee says electrification is preferred immediately over hydrogen (which is less energy efficient and more expensive)

The committee recommends policies that may include carbon prices that are more than double current levels.

It recommends expanding the contracts for difference regime that was so successful in cutting offshore windpower costs IN THE U.K. — into CCS and other industries that require big investment including hydrogen fairly immediately.

These contracts for difference auctions may happen as soon as the next two years.

So, all this is happening quicker than you might realise. See this:

p119 of the same CCC report. See link above.

Hydrogen technology is happening more quickly than many think.

This award-winning hydrogen company in Australia is seen providing demand for hydrogen more quickly:

See this story:

Chinese President Xi is scheduled to speak at a virtual UN Climate Ambition Summit on Saturday, where more than 70 leaders will mark the fifth anniversary of the landmark Paris Agreement by sharing new steps their countries are taking to slow global warming. All speakers have to present robust, updated commitments — a requirement that led to the exclusion of major polluters including Australia, Brazil and Saudi Arabia, Bloomberg News reports.

See this:

China and the U.S. is seen working together on climate action as Trump departs White House.

The incoming administration of U.S. President Biden, is seen returning to global climate cooperation, with carbon pricing centre stage of that.

The potential for U.S.-China cooperation is important because together those two nations have a huge portion of global emissions — 44% of global energy emissions in 2019, according to BP Plc data. The EU, with another 10% of global emissions, has approved a much-more ambitious 2030 target. It has not ruled out buying emission credits from emerging nations under the Paris climate deal for additional reductions on top.

Michael Mann, an American climatologist and geophysicist, currently director of the Earth System Science Center at Pennsylvania State University, told a recent BBC Worldwide climate radio program that the cooperation between China and the U.S. is “critical.”

“I am optimistic. China is ready to act. The problem has been the lack of leadership on our part (ie USA).”

“There is every reason to be cautiously optimistic. That having been said, we have to hold their feet to the fire.”

Philip Duffy, president of the Woodwell Climate Research Center, who served as a Senior Analyst in the White House Office of Science and Technology Policy during the Obama administration, said on the same BBC program about the immediate challenges:

“The single most important thing that could be accomplished would be carbon pricing (Number 1 enabler). Because that just changes all the incentives throughout the economy and then allows market forces to do a lot of the work.”

Of the Green Climate Fund created under global climate talks to provide climate finance for emerging nations from richer countries, he said: “That is VERY import. The battle for the climate will be won or lost in the developing world.”

“It’s in the interests of developed countries to make sure the developing countries turn to low-carbon energy sources.”

See this: https://www.bbc.co.uk/programmes/w3cszcnv

(Updated Friday morning to include Star Scientific win, potential for China, U.S. cooperation, EU’s new target)

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