In January 2023 during the annual loving of the world's richest people known as the World
Economic Forum held in the delightfully exclusive Swiss ski resort of Davos,
a brand new research paper was launched by an energy industry consultancy called Systemiq in
conjunction with the University of Exeter and the UNFCCC's director of Economics, Simon Sharp. The
report analyses the potentially transformational influence that new technologies will have on our
future sustainability and survivability. You get a bit of a clue from the title don't you?
So me being me, I couldn't resist delving into the guts of the thing to find out
how that apparently very positive assertion might really stack up in the real world. And,
me being me, I made a pretty little video about it. Which is this video
Hello and welcome to Just Have a Think. This latest report from Systemiq was backed by the
Bezos Earth Fund. That'll no doubt provoke a variety of reactions depending on your view of
Amazon's founder, but I don't propose to debate that today. You can make your own mind up. I'm
just declaring it for full disclosure. One of the main tenets of the report is the concept
of what the authors refer to as 'Cascading Tipping Points'. What they mean by that is
that the sectors of our economies that have the highest greenhouse gas emissions don't
exist in isolation from each other, so if you can positively influence one area you'll most likely
cause a positive knock-on effect in another. Take batteries for example. They're being increasingly
utilized in the power sector for stationary grid balancing energy storage, and in the transport
sector for electric vehicles. That's leading to greater demand for clean energy to power our cars
and trucks, which in turn is driving the cost of renewables down still further and reducing
EV running costs. Those cheaper renewables are also starting to make things like air source heat
pumps more price competitive, which is driving up their volume and reinforcing the demand for
more renewables on our grids. More renewables on the grid will help spark an exponential rise
in the production of genuinely green hydrogen for example. Not for anything as ridiculous as heating
our homes, as our mad politicians would have us believe, but for decarbonizing several industries,
from shipping and aviation to steel making and fertilizer production. That kind of cross
fertilization, so to speak, is one of the contributing factors resulting in the famous
S-curves that economists often refer to. There are loads of examples of S-curves throughout history,
and not just in major infrastructure projects like canals, railways and roads. They were often very
banal and apparently dull products like flushing toilets, radial tires, fridges, microwaves and
washing machines. All things we take totally for granted today but which completely upended their
sectors when they first arrived, not because some government legislation dictated it,
but simply because the products themselves were just better and usually cheaper than
what was currently available. So people bought more of them and less of the existing stuff,
which meant prices went down even further, so demand increased even faster, and so on and so on.
As new producers enjoyed a rapid upward surge, existing producers experienced feedback loops that
went in the opposite direction, accelerating their decline. They very quickly lost their structural
advantage as diseconomies of scale kicked in. Falling demand led to cuts in production,
job layoffs, financial devaluation, a loss of investors and an increase in the cost of
capital. In other words, the 'perfect storm' of business nightmares that, in the case of
capital intensive and highly leveraged sectors, can lead to stranded assets. The coal industry
in America is a very good example. According to the Systemiq analysis, demand for coal peaked in
2012 followed by a sharp drop in profitability as production site utility rates fell to less
than 50 percent. Within two years half of the companies in the sector went bankrupt.
Having scrutinized and factored in as many variables as they could turn up in the course
of their extensive research, the Systemiq team arrived at an assessment of the status of tipping
points for key zero emission solutions by sector using the tried and tested 'green/ amber/ red
colour coding notation that I'm sure many of us have seen in our everyday workplaces on delightful
documents like our annual employee review forms for example. It's not an overwhelmingly verdant
table is it? So let's have a brief look at what created this particular colour pattern. A green
box means there's no cost disadvantage to the new technology and there's no current barrier
to it creating the sort of tipping points that we just looked at. Amber means cost parity is less
than five years away and that, although strong progress is underway, there do still remain some
impediments to tipping points kicking in. And unsurprisingly, red means cost parity is more
than five years away and current impediments are acting as a significant break on progress.
Only three of the 11 key Industries outlined here give the Systemiq team high confidence
that they have the potential for near-term tipping points. They're the power sector,
which is currently responsible for 26 percent of all global emissions, road vehicles which make up
12%, and the fertilizer industry which represents two percent. Battery costs have come down by 90%
since 2010 and the levelized cost of electricity or LCOE of solar plus batteries is expected to be
cheaper than gas power in the US by 2023. And, by the way, if you want a really understandable
description of LCOE and what the current state of play is across all energy technologies,
you really need to pause this video and click up there to watch the brilliant Rosie Barnes provide
the best explanation of how it all works in this video on her Engineering with Rosie Channel. It
sets it all out in layperson's terminology with understandable animations that help make sense
of some complicated facts and figures, and I learned a lot of useful stuff from watching it.
Anyway back to renewables. Solar and wind made up more than 75 percent of all new global capacity
additions in 2022 and now represent more than 10 percent of global power generation.
But the power sector gets a red mark for accessibility because, as you folks in the US
don't need me to point out to you, much greater investment is needed from central government,
not just in America, but all over the world, in the infrastructure required for transmission
and distribution, rising from about 300 billion dollars last year to at least 500 billion by 2025.
They'll also need to be far shorter planning and permitting timelines for those new infrastructure
installations. According to the Systemiq research, every single EU country currently
exceeds legal time limits and some countries take five times as long as their legislation demands.
In the electric vehicle market the Systemiq team projects that in the EU, the US and China, EVs
will reach cost parity with internal combustion engine vehicles during 2025, so that gets an
Amber. And in fact there's arguably already no cost disadvantage to owning an EV over its entire
lifetime, so the box for attractiveness gets a green. But once again it's the infrastructure
controlled largely by central government that's holding back progress. At the end of 2021 there
were 1.8 million EV charge points around the world. What the market requires is at least 5
million chargers, plus the requisite upgrades in electricity grids to really hit a tipping point.
So, you know, we need to get a wiggle on! You might not immediately think of fertilizer as a
game-changing industrial sector, but more than 99 percent of all the ammonia used to make the stuff
today is derived from so-called grey hydrogen that comes from the steam reformation of methane which
releases a large volume of carbon dioxide into the atmosphere. Green hydrogen on the other hand
is made from the electrolysis of water with no carbon emissions at the point of use as long as
it gets powered by renewables. So it potentially represents an industry's disrupter which is being
enthusiastically pursued by some big operators including Andrew Twiggy Forest over in Oz,
who has almost literally bet the farm on capturing a very large part of the new hydrogen economy from
vast new production facilities planned for sites in Western Australia. Many other companies in
the industry are also now implementing plans for large-scale green fertilizer production and policy
support from central government is finally starting to trickle in, but industrial scale
electrolysis for hydrogen production is still a very nascent industry and the technology is
currently several times more expensive than steam reforming methane. That represents a major hurdle.
The systemic report argues that to get green ammonia to a lower cost than grey ammonia and
therefore to hit the tipping points we're after, there will need to be a globally agreed carbon
price of about a hundred dollars per ton. And as so many of this channel's U.S viewers have pointed
out to me over the years... good luck getting that one through Congress! So while the attractiveness
box goes green on this one, affordability and accessibility currently only just reach amber.
But centralized government support for genuinely green hydrogen could produce really
very significant cascading tipping points for the steel industry, which currently spews out about
seven percent of global emissions, the shipping industry which makes up three percent of emissions
today and which is an open door of receptiveness as shipping companies race to find alternatives to
the absolutely filthy gunk known as 'Bunker Fuel' that they currently use, and for the aviation
industry which accounts for about two percent of emissions today but which is projected to rocket
up to nearly 15% by mid-century if it continues using fossil fuels to power its jet engines.
All those sectors get a green rating in their attractiveness box but the Systemiq team only have
medium confidence that they'll hit tipping points that could unlock those mass-market S curves.
And then we come to food and agriculture and land use change which is usually the point where
a large number of viewers hit the off button because they just don't want to hear about it.
That's actually one of the reasons why these two categories score so badly in the analysis. But
like it or not it's a massive problem and until it's faced properly there's really no chance of
a long-term solution to the climate emergency. The report projects that alternative proteins
will gain about a 10% market share by 2035 rising to about 20 percent with the right technological
and policy advances. The good news is that there's already been a 50% increase in the
so-called plant-based meat alternative market in Europe and believe it or not a 73% increase
in the States. And the market is even bigger over in China. So there are very clear signs that these
sorts of foods are heading towards mass market adoption. But in order to get there the quality
of taste texture and nutritional value as well as the cost of course will need to outperform
existing meat products, and that's by no means a given. So it's an amber across the board here I'm
afraid. And that moves to full red when we get to avoiding land use change. This one, say Systemiq,
will require strong regulation, once again from central governments around the world. In fairness
there is a notable shift towards the notion of preserving land rather than continually ripping
up more and more of it to make way for grazing and crops. There's been a five-fold increase in the
size of the voluntary carbon market or VCM, which is where big companies pay money to buy so-called
nature-based carbon credits or NBCs which ostensibly help redevelop land through things
like rewilding or reforestation and then they use those credits to offset their own emissions.
It's a far from perfect system though. There are tons of problems with regulator reinforcement and
the quality of credits which often pay for stuff that would have happened anyway or for projects
that don't last long enough to make any difference like for example planting a bunch of trees that
might not survive in their new environment and then die off within only a few months.
There's no Silver Bullet being proposed by the Systemiq research team in this
category. The lack of transparency here really is proving to be a major barrier to adoption.
So while this report's headline title could be construed as suggesting the world was on the
cusp of some sort of major revolution in the way we operate our systems and run our everyday lives,
I have to say that if I'd ever received an annual performance review form with
that distribution of colours on the right hand side I think I'd have been looking
for another job pretty quickly. If only some of our key lawmakers felt the same way, eh?
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