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Leonard Hyman & William Tilles

Leonard Hyman & William Tilles

Leonard S. Hyman is an economist and financial analyst specializing in the energy sector. He headed utility equity research at a major brokerage house and…

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Decarbonization Is Happening Faster Than You May Think

  • Savvy entrepreneurs and science will dramatically speed up decarbonization efforts.
  • The efficiency of solar cells and new types of semiconductors are crucial to decarbonization in power generation.
  • Toyota claims it can build an EV with solid-state batteries in 2027.

You must have seen those zero-carbon-emissions-by-2050 charts by now. They show up in almost every corporate report or presentation. You know, that bar chart that shows a vertical bar indicating current carbon emissions at the left, followed in various years by segments of carbon eliminated for various reasons, ending up with no emissions by 2050. Planning by PowerPoint. The kind of presentation that satisfies unconcerned corporate directors, gullible ESG investors, and perhaps a few delusional executives. Don’t waste your time on them. They all suffer from a fatal flaw. They assume that the rest of the world will wait around while the zero-by-2050 corporation gets all its ducks lined up. We don’t think the rest of the world will wait as evidenced by just a few recent news items.

Clean ammonia project with royal blessings—Spanish energy company Cepsa and Norwegian fertilizer producer Yara signed an agreement, with kings of Spain and Netherlands present, to transport green ammonia produced in Spain by Cepsa to the Netherlands, where Yara has facilities, for use in the region. Yara, an established ammonia producer and distributor, provides maritime transport and storage facilities while Cepsa owns the hydrogen production facility. Previously, the Portuguese, Spanish and French governments announced a project to build an undersea hydrogen pipeline from the Iberian Peninsula to France scheduled for 2030 opening. These projects seem designed to reduce European consumption of natural gas, which should, eventually affect global gas sales. The projects are subsidized to make them happen for a reason—to kick start the hydrogen market, which we would expect to expand as these projects make it more available and as the added demand helps to reduce production costs. For that see below. (Offshore Energy, 14 June 2023, Reuters, 9 December 2022). 

Better ways to make green hydrogen— Researchers in the US and Australia have reported processes that would allow production of hydrogen from sea water, which would considerably reduce costs. Then another team of scientists reported that they had developed a solar cell to split water into hydrogen and oxygen that is cheaper, more efficient, and does not corrode as quickly in water as previous cells. Before these developments, international energy experts thought that green hydrogen would be competitive with fossil fuels by 2030 in areas with low cost renewable resources. Mind you, the green hydrogen folks are not waiting for this. They are already building facilities. Once this market develops, new technology and economies of scale will drive down costs, which should in turn accelerate demand. (Science, 17 March 2023, Nature Communications, 26 June 2023).  Related: European Natural Gas Prices Plunge As Norwegian Supply Rises

More efficient solar cells— European and Australian labs think they can exceed 31% efficiency level in perovskite/tandem cells. They have been trying for years. Compare this to 15-20% efficiency for many cells in use. Photovoltaic solar output, which has grown 22% per year (vs 1% a year for all electricity generation) in the past five years, now accounts for about 5% of total US electric generation. Continuation of that sort of growth coupled with a doubling of efficiency over not too many years would make a significant dent in fossil fuel used to generate electricity. Possibly, more important, better solar cells would encourage more users to reduce their dependence on the grid. (Science, 7 July 2023). 

Better outlook for superconductors— Superconductors and nuclear fusion, are the two technologies of the future, and always have been, it seemed. Sort of like a production of Waiting for Godot. You keep waiting and he never shows up.  High-temperature superconductors can carry far more electricity than conventional lines, but the electricity industry never took to them. Too expensive.  Good for electromagnets, though. So the high-temperature superconductor industry languished.  Now for the potential changes, better technology and a potentially new market,—compact fusion reactors. If promising fusion research activity creates a viable product, those new reactors will need high-temperature superconductors in their innards, thereby creating the demand that yanks superconductors out of their rut. So say a Japanese-located superconductor expert and an American lab researcher, argue that increased volume (due to sales to fusion reactor manufacturers)  will lead to a sharp drop in superconductor prices, which in turn will make the fusion reactor more likely and increase demand. A virtuous circle and maybe an inducement to use the superconductor in the grid as well, which would reduce line losses and perhaps encourage new transmission networks (Science, 23 June 2023).

Toyota commits to solid-state batteries— Several years ago, a Panasonic executive said  that the solid-state battery was the way to go. But nothing happened and electric vehicle skeptics kept complaining about lithium-ion batteries. Not enough lithium, Chinese control the market, too big, too heavy (one third of the car’s weight), takes too long to charge, and is prone to fires. Now Toyota, an admitted automotive laggard in the EV space, has announced that it will have a solid state lithium battery in its cars by 2027, with twice the driving range and half the charging time of existing batteries. Not to mention being much smaller. The number of electric vehicles on the roads of the world has quintupled from 2019 to 2022. Electric vehicles now account for 7% of new vehicle sales in Europe and the US and 33% in China, and the market is growing by over 30% per year. (Add to the impetus the fact that Chinese electric vehicle manufacturers have too much production capacity and need to sell more.) If Toyota pulls this off, the company will prove excellent evidence for Andrew Carnegie’s comment on technology, “Pioneering don’t pay.” It might even supercharge the already fast-growing electric vehicle market (Financial Times, 6 July 2023). 

Some critics have argued that making these carbon-dioxide-reducing investments is daft from a business perspective. They depend on subsidies so they distort the market. They won’t earn their cost of capital. And, maybe so, but those objections are beside the point.  Governments have splashed out the subsidies to change the trajectory of the market, and there are plenty of takers. Once these new facilities go up, they will stay up and produce, thereby affecting the profitability of the old legacy firms. By and large, the facilities that will supply the nuclear or renewable energy, or the water,  hydrogen, or electric transmission are all fixed-cost businesses.  Variable costs might constitute only at only 20% of total costs for the energy-production-transport ecosystem. Once in service, the no carbon facilities will operate as long as the price they receive exceeds variable costs. That’s the competition. So watch out. 

Fossil fuel lobbyists may have assured their clients that they have the politicians under control, so don’t worry. But politicians can neither control the technologists nor entrepreneurs that see opportunities ahead. Even worse for legacy interests, the economics of the new technologies guarantee that they will stay in the business, competing even if making the original investment was a big mistake. Decarbonization may come sooner than expected. Before 2050, that is.

By Leonard Hyman and William Tilles for Oilprice.com


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