Decarbonization in the Real World

Decarbonization in the Real World

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Thank you. That's it. Thank you so much. And thank you to my wonderful panel this morning in Singapore to discuss what is one of our most important themes of of the year and on the 21st century, how we decarbonise our economies, our lives. Andrew, let me let me start with you, and you will kind of do a bit of our back in time and look at what has happened over the last year in terms of decarbonisation, progress on climate change or lack of progress. When did you look at that?

And you have to give us a bit of our grade. How are we doing? Is that a plus or is an f? A You look at the last year. Look, the last year has been incredibly interesting from a climate science perspective. Are the signals the climate is giving us, it probably give that a ten out of ten. It's just so obvious now. But that's that's an F from the climate that that is thank you climate for making it so obvious to even the biggest moron that we are going straight into global heating in terms of the human reaction, I'd probably give it a one or two out of ten. Most leaders have leapt on to the safety

of geo strategic issues without running the numbers. Who's going to die more out of lethal humidity, global warming, or even a hot war between superpowers, let alone between Russia? Ukraine have a few. Well, it's the numbers are very clear. Global warming, global heating will kill a multiple more people.

So if you're a leader, I think you should also always hit the crocodile, which is closest to your canoe. And that crocodile, the biggest dog. This croc is global heating. Thank you so much. That's that's so climate is effectively a ten on ten in terms of the signal. And our response is basically nowhere to be seen. It it is it is so fractional compared to the urgency of the problem.

John, you're running a publicly listed company in a similar fashion. When you look at your conversation with shareholders, with investors over the last year, how those conversations have evolved and it has become more urgent, less urgent, are investors more interested and less interested Because we see a lot of investors say this is one big problem. But then what investors are doing is a bit different at times.

Well, I think, look, I think the decarbonisation of the building space where we are active is is not a choice. That's a must for a company like Holcim. So we are have to prepare and even we have lately some people think the ESG talk is softening, but that's just maybe the mood of the week, the decarbonisation of buildings. So if about 38% of all carbon is emitted in the construction phase and more of that is in the operating phase, so that's a must and any responsible company in that industry has to decarbonise and has to go with fast steps.

And that's what we have been doing. We reduced our CO2 footprint by 40% in only the last three years and why it's a massive decarbonise re It's not a miracle. We have a lot of technology available and you have to just deploy them properly and decarbonise your business step by step. But you mentioned that perhaps investors

are not so much ESG as they were a year ago. Do you see that as a new trend or this? As I said, perhaps journalists like me are basically talking about it now. I'm thinking that this is a permanent shift. But you don't you don't agree with that. Well, if I was to understand investors better, maybe I would be much richer. No, but look, the investors are there. Some are short time, short term focused,

some long term. I think for the long term, it's all clear and why the world has other hot topics at the moment. Maybe the ESG came to a second level, but this is a very short term perspective. You better be ready as a company to walk the talk and decarbonise your business hands similar to a theme in terms of money, you come from a different angle. Venture capital. Where is that kind of early stage? The big bad in new technologies? What do you see in terms of money flows and money interest? If I use your grading mechanism, I think I give an A on innovation, I give an A on intent and willingness to deploy and. Maybe a C minus on actually deploying it

because it's hard. Right. But the money is coming in. We've got a little bit of an adrenaline rush. During the heydays of 1920, when the stock market sort of confused people and our sector has a tendency when things are good, people get too excited. And when things are bad, they get too depressed and we are somewhere in between right now.

But a lot of it is coming in our way, which is exciting. Okay, Cindy, what is the view from from Asia? Because this region has different needs that America has of Europe. Everyone share the same ambition that is decarbonized, but not everyone is in the same stage of their energy evolution and and also economic development. So how do you see the equation from Asia? Thank you. I think where we address energy transition, we have to look at the context, which is very important. In Asia. We are faced with the energy trilemma, which is a factor of energy sustainability, energy resilience, as well as energy affordability.

Israel is a rising population and this rapid urbanization, which also means that the demand for energy is projected to grow rapidly. In fact, by 2040, the energy demand for Asia will double. And we have a problem here because the bulk of the energy mix in Asia is fossil fuel based. However, there is a hope because Asia is there, especially Southeast Asia. We are very fortunate to be blessed with

abundance of renewable energy. Now, the challenge will then be how do we deploy technology, infrastructure and capital to harness the abundance renewable in a form that is predictable, secure, affordable. Thank you. Please, before I forget, you will be sending questions to the panelists, which I will ask them. Are you using need to use the app? I think that we will get the QR code that you need to use, but at any time feel free to send the questions.

I will be getting them on their on their on the device and then I can put those questions to our panelists. When we look at decarbonization, it is a journey. You start doing new things and the first steps are usually harder, easier because of the low, low hanging fruit. Next steps that get more complicated. I have my personal experience put in solar panels in the house was relatively easy, even with their nightmare that planning permission in the United Kingdom can be. And I you are on on the business side. I have a lot of sympathy now about

planning permission and dealing with governments. Mine was my local government, but this was that was difficult. Then you go into the materials industry and you do more insulation. That's more complicated. I'm now into their cycling to work. That is really hard. So when you look at things that you've seen that we should be doing on this path to decarbonisation and we need to focus on things that they are really that they are on the money, that the technology is there. What do you think is the next big thing

that we should be trying to do? And a question for all the panel. But Andrew, let me start with you. What is the next thing that you say? This is we are this is a scalable it is on the money and we have the technology to do it. Let's do it now.

Okay. So so do we have all the technology we need for solar, wind, hydrogen, electrolyzers, hydrogen fuel cells. That's all basic technology. It's all there. What's lacking really is the will or even the character of leadership to get on and use those technologies, stop putting up excuses and just get on and do policy.

What we need to solve for that. Look, it's not just policy. It's the character and will of business leaders to push policy. This is not a this not a resource. We are running out of solar, infinite wind, infinite renewable energy, infinite. The resource we're sure of is really the character of leaders to actually bite the bullet, to answer the question, When will you stop burning fossil fuel and answer truthfully? It's a great answer.

Is this decade average out to first half of next decade? Wrong answer is after 2035. And you know, that question needs to be put to leaders. And if you leave it to your workforce, so work it out for me. They'll go work it out. So it's really the collective of leadership, which is the scarcest resource right now.

John. Look, I think for. Building and construction. A big way forward is a recycling of construction demolition materials, and that was basically not used in the past. And now this will be a big future for construction industry and especially for Holcim. We have last year alone, we have recycled 1000 full truckloads every single day into new products and we need the governments to follow to allow us in the building codes to use more recycling material compared to virgin material. And but there's nothing to complain. We have to propose the solution. And then the building codes, you know,

they have to be properly tested, but that's a big area for us. So we are growing. We have already 7 million tonnes of construction demolition material recycled last year and this is growing at 20% every year. And we want to be the recycler of those materials in all the metropolitan areas. So talk to me about numbers. How does recycling materials look like to our final customer? Is buying is it going to be more expensive? Is actually cheaper? How would that compared to for you? It will be only a minor premium on the more sustainable solutions.

But I know the the product is great. It's a local product, construction, demolition materials. We recycle it to use it as a raw material or to even replace virgin material directly with it. So we have one of our most advanced cement types already introduced in Europe, has 25% of the product is construction demolition material. You can imagine that the recycling of such a material is rather easy and no down cycling can be fully reused 200%. So it's actually quite a high return

operation. Hans, you are investing in dozens of different companies. I mean, when you look at through that prism, what do you see today as the most exciting opportunity for really scalable on the money decarbonization technologies or or initiatives? So the roadmap to decarbonize the global economy is pretty straightforward, right? You start with decarbonising supply. Wind and solar is probably a good winner. They are not the only one but a meaningful one. You electrify demand, you start to have the vehicles, you go the home heating and other places and then you, you know, clean up the rest of clean molecules for the real hard challenges that both of you are facing here.

So the road map is clear where we I think we have the biggest disconnect today is sort of dealing with the intermittency or connecting supply and demand on on the electron. You know, the you know, power will go up two times over the next decade or two in this region. Know, Elon Musk is out there saying it's three times because the generative AI data search takes 50 to 100 times the computing power and the electrons of a Google search. So you have that. But the peak power might be five times. So you somehow have to connect the two

with EVA wires wherever. That's to Malaysia from here or to Australia. I'm not sure that's going to happen. But where you use chemical storage and a lot of developments, a lot of attention, we are paying to that long term seasonal storage. It could be scalable solutions like dispatchable microgrids using renewable natural gas, etc. a big role making the communication smarter between demand and supply. Telling your vehicle charger don't charge at 6:00 when everybody does it, do it at midnight. So those are three big themes that I

think will will pay a lot of attention to storing heat. Right. 25% of the world's emissions, energy consumption around heat. We invested in a company called RONDEAU. They basically take 200 year old technology bricks and heat them up, and it's much more efficient than anything else out there. So a lot is happening. There's not one silver bullet,

unfortunately. The you know, Noel said it earlier today, it's not black or white, you know, and different answers for Australia, for Singapore, for Switzerland. And but there are a lot of opportunities because a lot of money will be spent in technology around the grid. And that kind of how we manage the electricity grid seems to be a big area. And sometimes I'm surprised with how unsophisticated our grids are.

As to the fact that I only got a smart meter about a year and a half ago, which is almost I suppose that in computer terms it will be like saying that I have only got the Internet about yesterday, why that is taking so long to make our grid smarter. What is the big difficulty? I think Cindy mentioned probably one of the key bottlenecks. It's we call it the trilemma. Everybody wants to go clean. They go from the corporations to the you go in the schools today.

They all want to work on it and then they realize the world has to be secure. And, you know, I'm from Germany. Originally they learned the lesson. They were thankful that the winter was not that cold because they would have. Basically not gotten the heat and the electrons and it has to be affordable and sort of doing that.

It's a really difficult equation to solve. That, in our view, requires innovation and collaboration. The grid that you're referring to has been built over 100 years. One of our partners, the Southern Company, built the last nuclear power plant in in the U.S., took them decades and a lot of money, but that would be operating for 80 years. Right.

So you cannot just ignore the money that has been spent. Otherwise, it's not affordable. Cindy, what do you think that for this region in particular, are technologies, ideas on decarbonization that we can be pushing now? Well, I think scale matters. So when it comes to grip, I think reliability of the grid is the utmost priority. For example, in Singapore, we have one of the world's most reliable grid system. Your, if I recall correctly, dealer

statistics that was done reported. We have a disruption of less than a quarter minute for the whole entire year, and that was back in 2016. So to have a reliable grip, you need to have very reliable power generation. And one of the large scale utility scale power generation unit, which Keppel is currently building, is a 600 megawatt hydrogen ready combined cycle gas turbine.

This is significant because upon commercial operation this will be hydrogen ready. It can take up to 30% of the hydrogen by volume. And as we all know, natural gas is by far the cleanest source of fossil fuel. It is always on flexible and dispatchable. Whilst you are building this and securing the sources of natural gas to ensure reliable power generation.

We also future ready the power generation by making sure we have accessibility to low carbon hydrogen. And this is where we are very optimistic about hydrogen as a potential zero emission energy vector. Now the challenge lies in accessibility to continuous storable source of hydrogen. So what is that energy vector or

derivative that we can transport and store hydrogen in? This is along this line of thinking that we are developing green ammonia as a potential source of low carbon and zero emission energy. So in order to produce low carbon ammonia at a very competitive cost, you have to pursue location where you have very competitive level rise, cost of renewable. And for that I don't mean instantaneous generation of renewable. I mean from renewable generation. So this is where hybridization becomes very important. We would love to chase location whereby

you don't have only just a single source of renewable energy, but multiple sources such that we can hybridize it, optimize the round the clock, competitive, renewable. So Australia is one such location where we are pursuing a hydrogen hub project in central Queensland. We will hybridize the production of renewable with hydro, solar and of course a bit of battery storage to ensure continuous electrolysis of hydrogen and then synthesis into green ammonia. And by the way, skill matter in order to drive down costs, if we were to produce high ammonia and transport and storage for power generation, we might as well aggregate demand to use ammonia for the decarbonisation of hot to a bit sector like maritime transportation. And this is along this line. Singapore is creating a end to end value chain for the manufacturing of green ammonia, transportation and potential power generation and bunker fuel use. I think coming together all sectors and large scale applications will help drive down costs over time. Andrew You are obviously very interested

on hydrogen and when I speak to some executives on the sector, perhaps they are coming from the fossil fuel industry that they are now exploring hydrogen. One of the things I hear is, yeah, everyone is talking about hydrogen, but the buyers are not committing to buy. They are not signing offtake agreements for ten, 15, 20 years that will justify our investment. Are they saying that to me because they are coming from the fossil fuel industry and they don't really want to invest? Is a reluctance from buyers to to to to commit for long term offtake. Agreements on hydrogen or green ammonia. What what trends do you see there?

Yeah, look, there is reluctance at the early stages because people are wanting to see a regular supply. People like Cindy, I'm really pleased to be on this panel because I'm not saying shortage of character and leadership here, but it's this chicken or the egg scenario, which is why we've decided just to go first. And basically we're not building. We're just saying I'm going to produce the supply and the demand will come and the demand will come. Look, I've actually done it before with

with crates of iron ore, which were considered to be not commercial enough if the biggest volume product in the global iron ore sector, which is the biggest shipping by tonne sector in the world. So, you know, I believe we know how to do this. There is a massive demand for green hydrogen. It's great to see 30% Cindy G screaming at my doorstep saying we've started to produce turbines which can use 100% LNG or 100% hydrogen and at a bias of buying these machines first and then saying, where's the green hydrogen? And so it is it's not easy to get these industries going. Government has to support them. Government has to get in behind them. That's government's entire role. We shouldn't forget that when all it all

got going, it was 1600 dollars a barrel. It got a truckload of support because it was popular. That's because people wanted a more convenient source of energy. Now it's much more dangerous. We need a source of energy which won't destroy us.

And the simple fact is that the human race, a bit like how it is my American friends and I will we'll do the right thing after we've exhausted all other options. And I think from an investment perspective, this world is going to go green because the the obvious destruction in front of us if we don't, is becoming clearer and clearer. So I think, A, let's keep putting capital into it because it is going to get a good deal. Be have risk takers like myself step up and supply Sydney with green hydrogen or green ammonia, whatever she wants. We need great green ammonia for our own trucks for China or finding green ammonia for our own trains. I'll be going out to one of Singapore's shipyards this afternoon to see the world's first green ammonia fuel. So ship, we're getting this ecosystem

going as a supplier and as demand. So that Cindy gentleman is where we want to push the green hydrogen ecosystem. Hands in the world of energy. Sometimes we talk about the energy trilemma there, that triangle of how clean our sources of energy are, how secure or reliable they are and how affordable they are. When you look at that energy trilemma, what do you see today, particularly looking at investing in decarbonization technologies? Well, I touched on that briefly before. What excites us is that there's so much enthusiasm from corporations to get involved, right.

Sort of the utilities that control the network that they want to be a part of, that the oil and gas companies who are really good at drilling things and transporting molecules around, they want to get involved so that the fact that they want to collaborate and get in a room together with those innovators is very encouraging. We the way we operate as a firm, we create our shark tank. I think you watch British television, it's called the Dragon's Den. Anybody's seen that.

So we put those experts in a room and they talk among each other. They learn from each other, and they learn with the with the innovators to come up with the solutions. So that that that process is amazing because when we started, you know, before Paris, it was eight companies that had a net zero commitment of some sorts. I think we added 1200 last year. It's 2400 now. So that that train has left the station. And and that's really the exciting part. Just to comment on yours. Chicken and egg, but they need to be in

the same henhouse because it's very difficult, difficult to transport that egg too to the other places. I just want to notice, as you say, we've allowed a lot of money, but in America with the IRA, you know, $3 a kilogram, that's sort of that makes a big difference. And there are places where that will come very quickly. Yeah. And also in America, you can put the production system next door to the demand system.

It's just a pipe that I actually love pipes and that's easy in Texas. In Oklahoma, it's hotter in Saudi. It may still happen. Yeah, Kansas. When I mention the IRA, the inflation reduction ad in the United States, a lot of support subsidies, perhaps better permitting common front from the US government that is different in other. Places.

But what do you. What do we need from government to how the decarbonisation path and particularly is it about money? It's the biggest thing that we need is more subsidies or is about perhaps, you know, regulation permitting. John, what what do you want to see? Are you are you are based in Europe.

What do you want to see from from the Europeans going. Yeah. I think I join Andrew with we have to start you know it's we shouldn't complain too much and raise too much time on the different dilemmas we're having. I would say we have different situation. So to decarbonise my company, which is a manufacturing company, you have to talk about renewable energy, maybe green hydrogen. We have different formulations.

We have to process, we have to final solution for the customer and the decarbonisation steps are all the same for all markets, but depending on the local situation, they vary in intensity and speed and we see that at the moment. The European Union with the Green Deal is let's see the most supportive framework, economic framework to decarbonise fast as they put a significant price or incentive scheme on CO2. As they provide regulation, they have water adjustment mechanisms. So that's the most and for us that's incentivise framework.

And then you have other markets which have maybe on a different level. But, but I would not complain and just say we let's get ready and maybe the speed and the intensity is a bit different or we all have to courage like Andrew and we just, we just do it and we have the chicken and the egg in the same moment. Cindy what do you think that Asian governments need to do in terms of supporting the industry, particularly with money? I think maybe you can put it into three big buckets, right? One being the cost in in power, how to narrow the cost gap versus, I mean, the green molecule versus conventional molecule already stimulate production. There's a lot of production subsidies by suppose industry policies in terms of demand or usage would be helpful to encourage and much of ticker. So I think a bit of subsidies or CSDP to close the gap on the demand side would be so that's number one.

And number two, I think a lot of sector coupling will be very useful. Say for example, ammonia is not unfamiliar to the fertiliser industry or to the chemical explosive industry, but it is being traded as a chemical commodity. So by is optica I familiar with spy by spot one year contract to your contract small volume.

If you look at ammonia as a source of energy or as a fuel or as an energy in itself, we are used to underwriting long term contracts. So I think the definition is a new definition and a new end use. So coming the coming together of sectors, understanding the standards, the do the ways of commercial contracting. Who bears what risk will be very helpful. So I think standardisation sector coupling will be very, very useful I think. But and most importantly is the time

long term technology roadmap. I think we have to support directionally places where R&D dollar and technology development dollars, SKU and capacity upgrading are being placed in. So directionally I think hydrogen and its derivative will be the norm for the new energy system. So however it takes time and I hope the other thing that will help encourage fast tracking of this is shortening the permitting time required. There's a lot of puts developer operator and investors need to jump behind in order to actualize large scale projects for permitting authority approval. You know, coming together of

cross border markets will be very helpful to encourage speedier decarbonisation at scale. Thank you. A reminder, do you have any questions for our panelists, please? You're you're apt to to send the questions to me and I will receive them to all the panel. We will add live discussing of the things that we should be trying to do and is speed in those technologies. But let me ask the question in a different way now. And as we have been on this path of decarbonization already for a number of years, and we we know has we have now experience of things that don't work, we. Try it.

It's good to try, but it doesn't really work on the scale that we were hoping or it's too complicated or tonnes turns out to be choo choo expensive is anything that you will say. We try it and I don't think that that's going to be a solution or is not going to be a solution on on greater scale and we need to move on from that. Hans, If I, if you don't mind me starting with you, what is the, the things that you have learned? This is not going to be that really the solutions that we were hoping there are so many. Last year they got there were 10,055 companies worldwide. They got $1,000,000 investment in our

broader sector. The amount of innovation out there is incredible. So the technology that we need are there for the most part are getting there closely. So it's a lot about deploying the deploying those. And just following on, the last question is sometimes, you know, the government as an allocate of capital, I'm not sure it's helpful, but they can help a little bit getting those deployed. A lot of it is about industrializing deploying technologies that that are developed, that are in the trenches.

People know of NIMBY, I'm assuming. Have you heard of bananas? Anybody heard of that? You know, build absolutely nothing. Anyone anytime soon, though? That's kind of what I say. Well, you need to repeat that more slowly, because you told me that earlier. I was very familiar with NIMBY, but the

BANANAS acronym is completely new to me. So go ahead. It's absolutely nothing. Anyone any time soon. And that applies to bringing the cheap electrons from Quebec to New York ten years waiting for the planning process that applies to the copper mines, as some of them are sitting for ten years, 15 before something happens that will have to that is applying to the nuclear industry and in many other places. So a lot of it is deploying industrializing. What we have today will get us 80%.

They know some of the tougher problems, you know, from the steel making to the built environment to the cement that will take more development. But 80% of the challenges deploying the things we have economically and and there's not one size fits all for that. John, is anything that you have learned over the last few years that it doesn't really work and that you you decided we're going to try a different approach? Well, I think for me, it's the opposite. As a company, we did the net zero pledge, I think, four years ago, and then we know it took us quite some courage to make a road map. And then you can do net zero. And when I see now the innovation we had

on the way from and the momentum we have from renewable energies to electrification of all the logistics, we are having also all the way down to carbon capture technologies. I am rather surprised about the speed and the scalability of those innovations which we need. So I have the opposite to report. I'm rather surprised about how fast we are moving on that technology side. Undue is is something that you have tried to do. You have became a bit like now that that's not working. Oh look it.

It's the pure reliance on batteries. My organisation is one of the largest investors in in batteries and battery technology and I think batteries, we've got a long way to go. But when we worked out that if we tried to just run the world on batteries, it was never going to happen. It's very fine. Why will not happen? Because it's finite material. A battery with a tank of hydrogen, which is an infinite material. It's simply a function of renewable

energy, electricity price, electrolysers. And you have as much hydrogen you'll ever want. Hydrogen with the battery is the solution.

Battery on its own is very short sighted and we're moving away from batteries on their own. And, you know, I said to my engineers, Look, I want a hydrogen fuel cell truck. These are trucks. We go, not much smaller than the size of this room said, look, make me a hardened fuel cell track. And they said, it's not even one invented yet. I said, okay, how long is it going to take? They said, Three years. I said, Well, no hundred days. We have got a truck to retrofit 99 days.

We don't have a shed to retrofit it in 98 to just stop, stop. We'll have a crack at it. That first truck, hydrogen fuel cell truck, rolled out of a shed in 93 days. So if we really try if we really have a crack, which is saying on this panel, then we can we can make this difference. I would just say rely on batteries just because easy that's going to be very short term and lead to a bigger problem. But with the battery now you've got the global solution, a big difference over the next at least a few months, perhaps gas, if if we listen to the different central banks of the world, is that we are going to be doing decarbonisation in a in an environment of much higher.

Got interest rates. We started this path with money which was almost free, and now money is more expensive. As a holder of our mortgage. I'm beginning to realize that how that how that is impacting the way that you think. And and also how is that impacting the investors who are put in the money? Because, you know, at the end of the day, they can put their money in treasuries and get almost 5% risk free.

You think that the American government is risk free, but that obviously the premium that they are going to demand for the returns on new projects in venture capital is going to be very, very different. What happens? How how high interest rates are affecting your business? It makes a big difference, as we've got used to two decades of a really, really low interest rates and venture capital levels that, you know, when when that change happened, the overall venture market valuations came down by 50%, fundraising is down 80%. So it's a bit of a cold winter for the general we see market. Our sector, the energy transition is faring better, so it's down 30% or so.

And we're still, you know, standing up a we've in general active air and in climate change, it's still more positive, but people have to be more thoughtful on on what what they do. And again, I said it before, during those heydays of the SPAC market, the valuations were crazy. Some people came in on two weeks to diligence throughout their valuation and we're hoping that they can arbitrage it in some SPAC story within a few months and make a ton of money. And they, you know, they all collapsed

95%. So I think it's a healthy reset for us, for the industry on on the innovation venture capital side. But people will have to be more forceful in that interest rate environment because we do decarbonization at 5% interest rates. So it again, can we do decarbonization at five into a 5% tax rate? So we haven't I mean, the beauty about decarbonization is that at the end of the day, it makes economic sense. I mean, doing good is one good motivator. But the way the, you know, the electric vehicle, the overall cost structure will be it's cheaper to drive an electric vehicle. It's more fun, Right?

So those are the real motivator and that will get us a long way. There are some areas where we face a monopoly with China, where it's something that is really hard, like hydrogen a little bit government helps, but ultimately it has to be economic, it has to make economic sense for the energy transition to work. And it will, I think. Thank you so much for that. We are running out of time.

So I think that we are going to leave it there, which I think is a very important message that for the decarbonization to work, it needs also to make economic sense. Business need to to thrive while doing the right thing for the planet. Going green. Thank you so much. And join me, please, thanking the panelists who.

2023-11-13 08:03

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