In 2022, CO2 emissions from international shipping rebounded to just short of the industry’s all-time high of 708 Mt of CO2.<a href='https://www.iea.org/energy-system/transport/international-shipping' target='_blank'>1</a> The industry’s target of net zero carbon emissions by 2050 is now in serious jeopardy.<a href='https://www.imo.org/en/MediaCentre/PressBriefings/pages/Revised-GHG-reduction-strategy-for-global-shipping-adopted-.aspx' target='_blank'>2</a>According to Jeremy Nixon, CEO of Japanese shipping and container company Ocean Network Express (ONE), shipping companies must take urgent action in the short term to minimise CO2 emissions while also working on solutions for the future.“The industry is trying to minimise the carbon intensity of ships running on fuel oil by building more efficient ships and engines, or larger ones to get economies of scale, and running ships at slower speeds to reduce the total amount of fuel used,” he says.“But new technologies and new green fuels are the future, so they have to be a focus as well. We can’t just switch our ships to electric vehicle-style batteries: the vessels are too big and they travel too far.”<h2>New fuels to the rescue?</h2>This means that shipping needs alternative fuels, and Nixon says there are two good options. “The two most promising alternative fuels we’re exploring are green ammonia and green methanol,” he says.Green ammonia and green methanol are in their infancy as fuels, but they are better suited to the demands of the shipping industry than hydrogen. Both are easier to store in bulk, without the need for the same highly pressurised or refrigerated storage as hydrogen, and have higher energy density.However, low-carbon fuels accounted for just 0.1 per cent of all fuels used in the shipping industry in 2022.<a href='https://www.iea.org/energy-system/transport/international-shipping' target='_blank'>3</a> This proportion needs to rise to more than 13 per cent by 2030 if the industry is to stay on track to meet its 2050 target.<h2>Hard-to-abate industries should be a priority</h2>Interest in the use of low-carbon fuels is now growing with increasing pressure on the shipping industry to decarbonise. Methanol, for example, is fossil fuel-based. But if combined with CO2 and green hydrogen, produced using renewable electricity, it can be classified as a low-carbon fuel.The infrastructure and supply of green hydrogen needs to be urgently improved to give hard-to-abate industries any chance of meeting 2050 targets. Hydrogen is currently expected to make up 5 per cent of the world’s energy mix in 2050, which is a long way off the 15 per cent required to meet the targets of the Paris Agreement.<a href='https://www.dnv.com/news/hydrogen-at-risk-of-being-the-great-missed-opportunity-of-the-energy-transition-226628' target='_blank'>4</a>“We need a massive scale-up as an industry, but we are not the only industry looking at green hydrogen as a fuel feedstock,” says Nixon. “The hard-to-abate industries should get priority for green hydrogen initially, because this would go a long way to decarbonising the whole supply chain. Alongside shipping, the Scope 1 emissions of other industries — steel, land transport, airlines — represent the Scope 3 emissions of countless other businesses.”<h2>The public and private sectors must pull in the same direction</h2>Like other shipping companies, ONE is buying vessels that can be retrofitted to run on green fuels. “By ordering more ships which can run on green fuels, shipping companies can send a very strong message to energy companies that forward investment needs to be in green fuels,” says Nixon. “In the past 12 months, we've ordered 20 new container ships that will be built to run on fuel oil but can be retrofitted to run on methanol when it’s available.”Regulatory support from the International Maritime Organization (IMO) is also important. “At the moment, green fuels are two to three times more expensive than conventional fuel oil,” says Nixon. “As an industry, we are encouraging the IMO to put a cap on carbon fuels or introduce a tax on them to encourage companies to start using green fuels.”

<h2>Collaboration in shipping can be a blueprint for other sectors</h2>As a founding partner of the Global Centre for Maritime Decarbonisation (GCMD) and a partner of the green corridor between Rotterdam and Singapore, ONE is collaborating with other parts of the shipping industry to support the decarbonisation of the shipping industry.The GCMD is a joint venture between the Maritime and Port Authority of Singapore and six founding partners.<a href='https://www.gcformd.org/' target='_blank'>5</a> A large focus area is research into the supply and infrastructure of green fuels, such as a recently completed project on ammonia bunkering.<a href='https://www.gcformd.org/ammonia-bunkering-safety-study' target='_blank'>6</a>The Rotterdam-Singapore Green Corridor, meanwhile, aims to improve costs and availability by attracting investment and starting joint trials of green fuels by the companies involved in the partnership.<a href='https://www.portofrotterdam.com/en/news-and-press-releases/maritime-and-port-authority-of-singapore-and-port-of-rotterdam-to-establish' target='_blank'>7</a> ONE is working with other partners to establish more concrete plans and targets to encourage the use of low- and zero-carbon fuels along the corridor.Nixon believes that these cooperation models, which bridge the gap between private and public sectors and bring competitors together to work towards a common goal, could become a blueprint for other industries.“I look at other industries that don't have the same level of collaboration, and they are clearly much more siloed in the way they are approaching decarbonisation,” says Nixon. “There’s no use in lots of different companies reinventing the wheel. It's better to collaborate to move towards our collective goals faster.”

For decades, rail transport has been a vital contributor to movement in cities—carrying people to and from work and to sporting and cultural events. Now, the railways could be about to play a new role — one with environmental and social benefits that include renewable energy generation and local community empowerment.“Everyone thinks of railways as a way of moving people from A to B, and that is our core function,” says Jason Brooker, head of environment at Govia Thameslink Railway (GTR), which manages greater London’s Southern, Thameslink and Great Northern services. “But there's so much more we can do.”<h2>Power to the community</h2>In 2021, GTR formed a partnership with Energy Garden, a London-based non-profit that works with local communities to invest in renewable energy generation and improve air quality and biodiversity.“Energy Garden installed solar panels on the roof of our depot in Streatham Hill in south London,” explains Brooker. “We have a power purchase agreement in place whereby we buy 40 per cent to 45 per cent of the energy that's generated and the rest of it is exported to Patagonia, the clothing brand. All of the profit then goes back into the local community through social outreach schemes.”The scheme was then followed by a collaboration with Network Rail at nearby Denmark Hill, and between them the two installations generated 236,000 kWh of renewable energy and avoided the release of 46 tonnes of CO2 in 2022.Rail has long presented substantial investment in fixed infrastructure. This includes the steel rails, but also a host of buildings and structures: stations and depots, maintenance facilities and terminals. The roofs of many of these buildings can be homes to solar arrays.To overcome challenges caused by ageing infrastructure and red tape, in Denmark Hill, for instance, where the roof of the depot did not have the structural capacity to bear heavy solar panels, the project Network Rail fitted a new type of lightweight, photovoltaic sticky film to power the new platform canopies.As part of GTR’s decarbonisation strategy, which aims for net zero carbon emissions by 2050, it has announced plans to expand the Energy Garden partnership to three further engineering depots in Bedford, Three Bridges in West Sussex and South London’s Selhurst.In total the three depots are expected to produce more than 2GWh of electricity and save more than 9,000 tonnes of CO2.“All of our 250 stations, depots and offices across our network are powered by electricity from renewable sources,” says Brooker. “And increasing our on-site renewables is very much part of our net zero strategy.”Bringing more non-passengers into railway stations to use amenities can also have benefits for local communities, such as improved air quality from fewer engines idling in car parks. “Historically, railways have always been at the centre of towns and local communities, and there's no reason why that shouldn't still be the case.”

<h2>New contracts unleash creative ideas</h2>National Rail Contracts have recently replaced the UK’s franchising model, and part of GTR’s contract working with public transport authority National Rail is to look for opportunities for renewable energy schemes.One of the advantages of the new rail contract is its length — which could be up to six years before renewal — which provides better project continuity. And there is a high level of buy-in for sustainability topics “from top executives down to every level of the business,” according to Brooker, which is increasing the scope of what they can do.“There’s been a real increase in awareness of what we do in the environmental space,” he says. “I’ve been looking into all sorts of things from wind turbines to kinetic floors that generate energy when people walk over them. The sky’s the limit for us in a lot of ways — it’s just about finding the things that are going to work.”<h2>The industry is getting on board</h2>Other train operators are also getting involved. Industry working groups meet regularly to share best practices and the initiatives companies have been working on, and to discuss strategies around climate change adaptation and the decarbonisation of transport.“We are not going to solve the climate crisis and the ecological crisis individually as one company, and that's also why we want to see where there are opportunities outside of rail — Energy Garden being a great example of this,” says Brooker. “We don't want to work in our own silo within GTR, but we also don't want to work in our own silo within the industry.”Brooker says that GTR’s mission goes beyond decarbonisation. “We’re in a climate crisis, but we're also in an ecological crisis,” he says. “So we’re working with the London Wildlife Trust Consultancies to carry out biodiversity assessments across our network.“When you look at a railway station, you don't automatically assume it's a thriving hub of ecology. But people would be amazed at what can be done.”

In 1800, scientists William Nicholson and Anthony Carlisle discovered the process of electrolysis — running an electric current through water to produce hydrogen and oxygen. Their discovery later led physicist William Grove to invent the fuel cell in 1842, which made hydrogen a viable, and potentially greener, alternative energy source for transportation.Trains are ideal candidates to be powered by hydrogen, because they are big enough to accommodate the equipment and fuel its use requires. A fuel cell installed on a train produces electric power by mixing hydrogen with oxygen from the air. This zero-emission process makes hydrogen trains a crucial player in systemic decarbonisation. Compared with airplanes and trucks, trains are already a lower-carbon mode of transport. Fuelling trains with hydrogen holds the potential to fully decarbonise this vital mode of transporting people and goods, including heavy duty long haul.<h2>From diesel to hydrogen</h2>French transportation multinational Alstom’s Coradia iLint is the world’s first passenger train powered by a hydrogen fuel cell. The regional train with zero direct carbon emissions has been running in the German state of Lower Saxony since 2018 and has reportedly stopped 4,400 tonnes of carbon being released into the atmosphere each year.<a href='https://www.pipeline-journal.net/news/germany-launches-worlds-first-fleet-hydrogen-powered-passenger-trains' target='_blank'>1</a>Alstom says there is enthusiasm for the technology — especially in Europe, where 25 per cent of trains are powered by high-polluting diesel instead of electricity. “We have Coradia iLint contracts in Germany that are already in commercial service,” says Brahim Soua, VP regional rolling stock platform at Alstom. “We also have contracts in Italy where Alstom is building hydrogen trains in the region of Lombardy. The Coradia iLint has been successfully tested in Austria, the Netherlands, Poland, Sweden and in France. And since June 2023 we have had a train running in Canada and in the autumn, the train will be on demonstration in the Middle East.”<h2>Rail’s carbon footprint goes beyond the trains</h2>Decarbonising the railway industry will depend on the adoption of cleaner fuels, but it also depends on reducing the carbon footprint of the rolling stock’s production process. Alstom is one of the firms that has set science-based targets to reduce 40 per cent of Scope 1 and 2 emissions — the emissions generated by a company’s operations — by 2030 through energy efficiencies and switching to renewable sources.For Scope 3 emissions, those that occur in a company’s value-chain, Alstom is aiming for a 42 per cent reduction per passenger-kilometre of emissions from the use of sold products and a 35 per cent reduction per ton-kilometre of emissions from the use of sold products covering freight by 2030.“For this, we are using a specific digital platform, because we need full visibility of our suppliers and the real footprint of what we are buying,” says Soua. Alstom is also reinforcing its factories’ local presence to be closer to its end customers and thus reduce the transportation of equipment and materials during the manufacturing phase. Aluminium and steel, which the company has identified as emission hotspots, now come from recycled parts.“For example, TGV M, which is the new generation of high-speed trains in France, is using aluminium profiles from recycled sources and produced with renewable electricity,” says Soua. “This cuts emissions by 50 per cent. We are aiming to use this ‘ecodesign’ approach on 100 per cent of our new products by 2025.”

<h2>Targeted policymaking and collaboration can overcome the barriers</h2>Alstom’s promising start does not mean implementation is easy. “Adapting existing fuel cells from other industries to a rail environment was one of the challenges of Alstom’s R&D programme, and securing a robust supply chain for the equipment has been demanding,” says Soua. “We’re also continuously working to improve the level of hydrogen consumption of our trains.”However, the only way to fully decarbonise rail is to use green hydrogen for the fuel cells. One big issue is the price of green hydrogen, which is made using renewable energy. At a price of between €6 and €8/kg, depending on the region where it is produced, green hydrogen remains more expensive than fossil-fuel based grey hydrogen which costs €1 to €2/kg. However, Soua says that Alstom “expects the price of green hydrogen to drop in the near future”. Green hydrogen will become more economical thanks to potential subsidies and steadily decreasing renewable energy production costs, economies of scale, technological advances.<a href='https://www.pwc.com/gx/en/industries/energy-utilities-resources/future-energy/green-hydrogen-cost.html' target='_blank'>2</a>The next step for hydrogen trains has to start with policymakers and regulators. It might mean applying the types of commitments that have been made in other sectors — such as requiring all cars sold in Europe to be low emission from 2035 — to the rail industry. Government incentives can also accelerate the transition of fleets to hydrogen and the development of infrastructure.“We need that political will to implement a clear diesel ban,” says Soua. “Another important topic is funding. When you are introducing a new technology, you need help to invest at the beginning and then to deploy it.” The EU’s important projects of common European interest (IPCEIs) scheme is a start: in September 2022 it committed to granting up to €5.2 billion in public funding to hydrogen projects, which is expected to attract an additional €7 billion in private investment.<a href='https://single-market-economy.ec.europa.eu/industry/strategy/hydrogen/ipceis-hydrogen_en' target='_blank'>3</a>Another key driver will be cross-industry collaboration. Transportation sub-sectors would benefit from breaking down existing silos to work towards a common goal, such as the development of refuelling solutions. This could lead to the creation of refuelling hubs that also serve other hydrogen-powered vehicles, such as trucks or buses. In Germany for example, the Höchst Industrie Park in Frankfurt houses a hydrogen filling station that enables hydrogen buses and Alstom rail cars to refuel.<a href='https://www.infraserv.com/en/company/sustainability/hydrogen/' target='_blank'>4</a> “We need an ecosystem involving all modes of transport,” says Soua. “It is this kind of collaborative approach that will drive innovation and investment in the hydrogen economy.”

The transport sector is responsible for 37 per cent of global CO2 emissions and is more reliant on fossil fuels than any other industry.<a href='https://www.worldbenchmarkingalliance.org/news/transport-benchmark-pr-2022/' target='_blank'>1</a> As the world’s population increases, demand for transport will grow; for net zero to remain a realistic goal, radical changes are needed across road, rail, shipping and aviation.Many of these changes are already technically possible thanks to innovations such as sustainable aviation fuels (SAF), electric vehicles, hydrogen-powered rail and methanol-based fuels that replace marine diesel fuels on ships. But technology alone will not be enough to transform transport. With petroleum-based fuels still accounting for 95 per cent of the sector’s energy consumption,<a href='https://www.epa.gov/ghgemissions/global-greenhouse-gas-emissions-data#:~:text=Almost%20all%20(95%25)%20of,fuels%2C%20largely%20gasoline%20and%20diesel' target='_blank'>2</a> large-scale decarbonisation will not happen without support for clean fuels across the entire transport ecosystem. What is stopping them from taking off?<h2>Sustainable transportation comes at a price</h2>Although global capacity for renewable energy is increasing,<a href='https://www.weforum.org/agenda/2023/03/electricity-generation-renewables-power-iea/' target='_blank'>3</a> the pace of change is still far too slow. This is partly because of a lack of enabling regulatory frameworks combined with a lengthy permit-granting process that can involve multiple jurisdictions and several complex layers of review and approval.Another barrier is the lack of supporting infrastructure, which means that supply is unable to meet growing demand. For example, SAF needs specialised production and storage systems that are not yet widely available.<a href='https://www.greenairnews.com/?p=4210' target='_blank'>4</a> The expansion of electric vehicles, meanwhile, is hampered by a global shortage of precious metals and charger components<a href='https://europe.autonews.com/guest-columnist/why-lack-charging-points-will-hamper-ev-transformation' target='_blank'>5</a> as well as challenges with vehicle-grid interoperability. Electromobility is difficult to scale up without clear, coordinated plans for grid expansion, and a backlog of grid connection requests is a major bottleneck for new electrification in both the US and Europe.<a href='https://emp.lbl.gov/news/grid-connection-requests-grow-40-2022-clean' target='_blank'>6</a>, <a href='https://www.theguardian.com/business/2023/may/08/uk-green-energy-projects-in-limbo-as-grid-struggles-to-keep-pace' target='_blank'>7</a>Cost is also prohibitive. Gas, oil and coal benefit from long-established production methods and infrastructure. But most sustainable technologies lack economies of scale. At the same, the wide variation in carbon pricing around the globe means the playing field between fossil fuels and low-emissions technologies is not always level. As a result, lenders and investors are hesitant about supporting new fuels and infrastructure, and potential first movers are often discouraged by the extra cost of more sustainable products and services — the so-called green premium. For example, a switch to green e-methanol would increase bunker costs by 340 per cent, and in <a href='https://www.strategyand.pwc.com/de/en/industries/aerospace-defense/real-cost-of-green-aviation.html' target='_blank'>aviation SAF</a> can reduce CO2 emissions by up to 80 per cent but is three times more expensive than conventional jet fuel.<a href='https://www.freightwaves.com/news/why-do-green-premiums-exist' target='_blank'>8</a>, <a href='https://www.offshore-energy.biz/counting-the-cost-of-going-green-the-steep-price-of-switching-to-e-methanol/' target='_blank'>9</a>This creates an imbalance of supply and demand, which increases the green premium on sustainable fuels and technologies. Some renewable energy sources, such as wind and solar, have a low premium or no premium at all in certain regions. However, most other clean technologies remain prohibitively expensive as long as the environmental cost of carbon emissions is not adequately priced into conventional fuels. And the green premium is likely to increase as the pressures of inflation and the cost of living crisis continue.<a href='https://www.mckinsey.com/industries/metals-and-mining/our-insights/capturing-the-green-premium-value-from-sustainable-materials' target='_blank'>10</a> Some customers will be willing to pay that premium, but others will balk at the extra cost during an economic downturn. <h2>Policymakers and the private sector are getting on board</h2>To incentivise long-term development, it is vital that policymakers help create an enabling environment for sustainable transport investments. This will require coordinated policy efforts from governments and regulators, explains Harald Wimmer, partner and global automotive leader for PwC Germany. “The establishment of the ecosystem requires an orchestrator that is grounded in traditional industries and well connected with the public sector, governments, regulators and legislators,” he says. “This will help create global standards and facilitate localised adoption while reducing uncertainties for all parties by coordinating efforts.”The US’s Inflation Reduction Act includes several measures designed to encourage a sustainable transport ecosystem. It is investing $1bn in replacing heavy-duty vehicles with clean, zero-emission vehicles, training and developing workers and supporting zero-emission infrastructure such as charging and fuelling stations.<a href='https://www.epa.gov/inflation-reduction-act/clean-heavy-duty-vehicle-program#:~:text=The%20Inflation%20Reduction%20Act%20invests,to%20train%20and%20develop%20workers' target='_blank'>11</a> It also offers tax credits to reduce renewable energy costs for businesses, non-profits, educational institutions and local organisations.<a href='https://www.epa.gov/green-power-markets/summary-inflation-reduction-act-provisions-related-renewable-energy' target='_blank'>12</a>The EU, meanwhile, has introduced its own legislation to incentivise investment: the Net Zero Industry Act, which promises a reform of the electricity market to make sure that consumers benefit from an increase in renewable energy.<a href='https://ec.europa.eu/commission/presscorner/detail/en/IP_23_1591' target='_blank'>13</a>The private sector can also play a role in mitigating the risk of renewables with offtake agreements, which secure fixed prices for energy before it is produced. German logistics company DHL, for instance, has announced a big offtake deal with biofuels producer Neste, which will supply 320,000 tonnes of SAF over a five-year period.<a href='https://www.neste.com/releases-and-news/renewable-solutions/neste-and-dhl-express-announce-one-largest-ever-sustainable-aviation-fuel-deals' target='_blank'>14</a> Long-term contracts like these can help to stabilise the renewable energy market by providing consistent supply and demand.<h2>No action, no future</h2>So investment in sustainable transport depends on potentially challenging cross-industry collaboration. But decarbonisation is essential to the sector’s long-term survival.“We need to keep in mind that what is commonly viewed as cost is actually an investment in the ability to remain relevant,” says Wimmer. “It brings access to future returns on investment, and allows us to replace value that is going to disappear.”

Welcome to Masdar City, a state-of-the-art community in Abu Dhabi, the capital of the United Arab Emirates. This pioneer of low-carbon living and urban development was devised by renewable-energy company Masdar and funded by the Abu Dhabi government. It represents a milestone in the UAE’s long-term plan to achieve net zero by 2050 and diversify the economy beyond oil.The city is a site for innovation and home to a rapidly growing clean-technology cluster, including Siemens, the International Renewable Energy Agency (IRENA), GE and the Advanced Technology Research Council (ATRC). More than 1,000 public- and private-sector organisations are now based in the city, which covers 6 sq km and is also an economic free zone.Masdar City today has more than 4,000 residents, but its ultimate future capacity is estimated close to 50,000. The community is powered partly by on-site renewable energy and constructed using sustainable materials. Its eco-friendly buildings are designed to reduce energy and water consumption by at least 40 per cent<a href='https://www.mubadala.com/en/what-we-do/masdar-city#:~:text=Each%20building%20in%20Masdar%20City,Pearl%20Building%20Rating%20System%20baselines' target='_blank'>1</a> — although some have surpassed this figure. Three net zero energy buildings, which will produce as much energy as they consume, are currently under construction. Could this be a viable model for urban living in a low-carbon future?Ahmed Baghoum, Masdar City’s CEO, believes this to be the case. Baghoum joined the company in 2009 as director of the Masdar City Free Zone and is now responsible for driving Masdar City’s sustainable growth strategy.“We're accelerating the transition to net zero by creating buildings, infrastructure and systems that reduce energy use, produce clean energy, and offset emissions,” he says. “The faster we can get there, the closer we are to a full transition.”<h2>Building for the future</h2>Despite the arid climate, Masdar City is designed for pedestrians, oriented to channel prevailing winds and designed with narrow, shaded streets that help the city feel 5 to 10 degrees Celsius cooler than the surrounding area. Residents can take advantage of several electric transportation options, including autonomous underground vehicles and above-ground buses.The principles of designing urban architecture with minimal environmental impact are reflected throughout Masdar City. It hosts one of the world’s largest clusters of LEED Platinum buildings, which are constructed with low-carbon cement, recycled aluminium, and other sustainable materials. Windows are angled and shaded to minimise direct sunlight, and exterior walls are airtight, with high-quality insulation.

“Now most of our buildings are, at a bare minimum, LEED Gold or Platinum. There’s a lot of design, a lot of engineering, really a lot of granularity in terms of how you achieve net zero energy buildings—particularly in a climate like Abu Dhabi’s,” he says.An existing net zero energy prototype, the 405-sq-metre Eco Villa, completed in 2017, is designed to use 72 per cent less energy and 35 per cent less water than a home of a similar size,<a href='https://news.masdar.ae/en/Press-Release?News/2018/11/28/09/52/Eco-Villa-prototype-opens-its-doors-at-Masdar-City' target='_blank'>2</a> owing to a suite of ‘passive’ design features, including insulated concrete walls and a rainwater-harvesting system. Its 87 rooftop solar panels also produce up to 40,000 kWh of electricity per year.<a href='https://masdar.ae/-/media/corporate/downloads/masdar-city/eco-villa-leaflet-en.pdf' target='_blank'>3</a> Any energy not needed to power the Eco Villa is fed back into the local grid.As host of COP28, the UAE has an opportunity to showcase Masdar City as a blueprint for other developers. The event will also be a chance for Masdar City to debut Abu Dhabi’s first net zero energy office building, to be followed by another two net zero energy commercial and residential buildings in 2024 and 2025.“We’re trying to export the model to the wider UAE, creating pilots within Abu Dhabi and beyond,” Baghoum says. “The aim is to support the UAE government’s net zero targets.”

<h2>Stepping up solar</h2>Masdar City’s aim is to meet all its energy needs from renewable sources. While currently, some power is still drawn from the national grid, a large portion is generated by 11 MW of solar panels located on building roofs and an on-site solar photovoltaic plant. This offsets more than 15,000 tonnes of carbon emissions per year.When Masdar opened the solar facility in 2009, it was the first grid-connected renewable-energy project in the UAE and the largest in the Middle East,<a href='https://masdar.ae/Masdar-Clean-Energy/Projects/Masdar-City-Solar-Photovoltaic-Plant' target='_blank'>4</a> but, at 40 US cents per kWh, the energy it produced was among the most expensive in the world. As solar electricity became more economically viable, however, the investment paid off: today, Masdar’s solar power costs as little as 1.35 US cents per kWh, making it some of the cheapest solar energy globally.<a href='https://www.arabnews.com/node/2250521' target='_blank'>5</a><h2>Circular solutions</h2>Masdar City is also incubating solutions for waste disposal. One of its start-ups, Circa Biotech, has developed the region’s first project to upcycle organic waste into animal feed, fertilisers and oils.<a href='https://news.masdar.ae/en/News/2022/05/30/11/40/UAE-launches-regions-first-waste-to-feed-project' target='_blank'>6</a> When the project reaches full industrial scale, Circa Biotech plans to treat 200 tonnes of food waste per day, diverting it away from landfill and reducing methane emissions.By acting as an incubator for such projects, Masdar City can support the development and scaling of sustainable technology across the wider region.“Making sustainable technologies commercially viable is a challenge we need to overcome,” Baghoum says. “We’re solving that through innovation, partnership, and investment, and the free zone is playing an instrumental role in that. And of course, as the ecosystem grows, it attracts more of what we need. It’s a snowball effect.”“We also want to share what we’ve learned with others,” he continues. “It’s not a competition. Ultimately, what is important to us is sustainability. It’s a global challenge.”

As part of its Reimagine strategy, luxury car manufacturer JLR will introduce a pure electric model to each of its Range Rover, Defender and Discovery collections by the end of the decade, while Jaguar cars will become completely electric. This will enable JLR to reach its target of net zero carbon emissions across its supply chain, products and operations by 2039.<a href='https://media.jaguarlandrover.com/news/2022/09/jaguar-land-rover-invites-suppliers-align-2030-sustainability-commitments' target='_blank'>1</a> JLR is committing significant resources to decarbonising the processes and operations under its direct control.<a href='https://www.jaguarlandrover.com/news/2023/04/jlr-invest-ps15-billion-over-next-five-years-its-modern-luxury-electric-first-future' target='_blank'>2</a> But how is the company going to reduce the trickier Scope 3 emissions – those that are produced by its suppliers and end users?End-user emissions are the most consequential for automotive manufacturers, accounting for up to 70% of their total Scope 3 emissions.<a href='https://www.mondaq.com/uk/climate-change/1126868/its-time-for-vehicle-manufacturers-to-shift-gear-on-scope-3-emissions' target='_blank'>3</a> The most direct way a car manufacturer can reduce the emissions from people using its vehicles is by switching its products to electric vehicles, which can operate on electricity generated from renewable sources. JLR has committed to this transition as part of its Reimagine strategy, which is expected to result in 80% of all JLR sales being battery electric vehicles (BEVs) by 2030.However, considering its target of reaching net zero carbon emissions across its supply chain, products and operations, how does JLR intend to tackle the Scope 3 emissions produced by its supply chain?“Emissions are generated at every point along the supply chain — from the mining of materials to the manufacturing process to end use,” says Aram Kradjian, director of research and innovation at JLR. “It’s vitally important to consider sustainability in every new area of innovation. We need to show that we’re reducing emissions at their source and not offsetting them through planting trees.”<h2>A gear change for the supply chain</h2>For JLR, collaboration is an important way to reach the goal of a net zero carbon supply chain by 2039. It is encouraging its suppliers — direct Tier 1 suppliers in particular — to establish a clear decarbonisation roadmap, transparent emissions reporting and to join it in committing to the Science Based Targets initiative.<a href='https://media.jaguarlandrover.com/news/2022/09/jaguar-land-rover-invites-suppliers-align-2030-sustainability-commitments' target='_blank'>4</a> JLR also expects its suppliers to reduce emissions across their own supply chains through the same cooperative approach. Given its global network of more than 5,000 suppliers, the trickle-down effect of these new requirements could be considerable.JLR does not expect its suppliers to face this challenge on their own. Through its Open Innovation programme, designed to accelerate electrification, digital connectivity and new decarbonisation technologies with external partners, JLR is addressing the most carbon-intensive parts of the supply chain. Recent collaborations include working with DeepForm, a novel metal stamping design start-up to reduce scrap and save material, and Ascend Elements, which manufactures battery materials from discarded lithium-ion batteries.“Open Innovation is all about collaborating with different types of companies —start-ups, universities and institutions that work in the sustainability and decarbonisation space,” says Kradjian.

<h2>Software is as important as hardware</h2>Rapidly evolving AI and machine learning technologies will also play an important role in reimagining the car and reducing automotive emissions, by simplifying the reporting of emissions produced during the mining and manufacturing stages.“Through our Open Innovation programme, with the likes of Circulor, we are working with start-ups to use machine learning and blockchain to track the provenance of the materials we use,” says Kradjian. “We believe that AI and machine learning will enable similar advancements throughout the technological chain.”JLR’s partnership with the technology company NVIDIA, which is considered an authority on AI and in May 2023 was valued at $1tn,<a href='https://www.ft.com/content/fd317e1b-0440-4840-bc0a-0aa35c776ffd' target='_blank'>5</a> positions the car maker to capitalise on new developments in AI and help to make its EVs more efficient.“Working with a market leader in AI like NVIDIA is critical for our technology and sustainability development,” says Kradjian. “Software is equally as important as hardware and plays a critical role in maximising the efficiency of electric vehicles. It optimises powertrain performance, manages energy usage, controls regenerative braking, enables adaptive driving modes, and allows for continuous improvement through over-the-air updates.”<h2>Manufacturers now consider a lifetime of emissions</h2>Creating a culture of sustainability also supports decarbonisation across the entire value chain, because it reframes employees’ approach to everyday tasks with the goal of net zero emissions front of mind.“The research and innovation team has learned so much about Scope 1, 2 and 3 emissions in the past few years, and this has given us the awareness, knowledge and insight to think about how to implement sustainability in our work,” says Kradjian.This insight and knowledge can help organisations think about sustainability in the supply chain in a smarter way. For example, small changes in the mining and procurement stage can significantly reduce a vehicle’s total emissions.“Emissions from mining magnesium can be up to 10 times worse than mining other metals we use in a vehicle,” says Kradjian. “Magnesium is a great material, very lightweight with a strong torsional stiffness, but limiting its use in a vehicle will result in a huge reduction in lifetime emissions.”Sustainability at the end of a vehicle’s life is another aspect that car makers need to consider, with an emphasis on working towards a circular economy.“We are working with partners to develop second- and third-life opportunities for our batteries, and to make them as easy to recycle as possible at the end of their life,” says Kradjian.“We need to keep innovating through EV technology but doing so with a true sense of sustainability with a long-term horizon. It’s key to make sure this transition happens in the right way, because we don’t want current solutions to cause further environmental challenges down the line.”

The stability of every city depends on an uninterrupted supply of energy to power its buildings, transport, digital infrastructure, water supply, commercial and industrial activities. With most cities still relying largely on fossil fuels, this creates a huge carbon footprint: cities consume 78 per cent of the world’s energy and account for more than 60 per cent of its greenhouse gas emissions.<a href='https://unfccc.int/blog/seven-ways-cities-can-take-climate-action' target='_blank'>1</a>Cities are under increasing pressure to become carbon neutral, and it is within their power. Local government can, in some cases, be more aggressive in setting sustainable growth priorities than national government. The US state of Rhode Island (the smallest among the 50 states), for example, recently committed to sourcing 100 per cent of its electricity from renewable sources by 2030.<a href='https://energy.ri.gov/renewable-energy/100-percent-renewable-electricity-2030' target='_blank'>2</a>Cities can play a vital role in shaping the energy transition and building momentum for a net zero economy, says Hazem Galal, global leader for cities and local government at PwC Middle East.

<h2>New technology is helping with energy efficiency</h2>Fifty-seven per cent of the world’s population lives in cities; by 2050, this proportion will rise to about 70 per cent<a href='https://www.pwc.com/gx/en/issues/esg/the-energy-transition/sustainable-cities-tackling-climate-change-through-urban-energy-transition.html#:~:text=By%202050%2C%20about%2070%25%20of,according%20to%20the%20United%20Nations' target='_blank'>3</a> with the addition of 2.5 billion new city residents.<a href='https://ec.europa.eu/commission/presscorner/detail/en/speech_23_3254' target='_blank'>4</a> The massive growth will have an impact on demand for energy infrastructure. Cities have an advantage over rural areas here: it is easier to distribute energy efficiently in areas of high population density.Many cities, including London,<a href='https://www.ukpowernetworksservices.co.uk/insights-news/london-city-airport-check-in-with-smart-and-sustainable-microgrid/' target='_blank'>5</a> San Diego,<a href='https://www.microgridknowledge.com/google-news-feed/article/11427204/a-dozen-more-microgrids-move-forward-in-san-diego' target='_blank'>6</a> Tokyo<a href='https://www.power-technology.com/marketdata/yokota-microgrid-project-schneider-japan/' target='_blank'>7</a> and Delhi,<a href='https://greennetwork.asia/featured/india-integrates-solar-energy-into-new-delhi-electricity-supply-with-shakti-microgrid/' target='_blank'>8</a> are embracing microgrids. This form of localised community power network distributes energy based on patterns of supply and demand, and can help to integrate renewable energy by connecting sources such as solar panels to the larger electricity grid.Cities are also reducing carbon emissions using advanced digital technologies such as smart meters that optimise energy consumption. Digitalisation is particularly advanced in Singapore, where a digital twin of the national power grid is increasing its efficiency by improving the operation and maintenance of power generation assets. It will also support the integration of renewable energy by assessing the impact of new electricity demand, such as the charging of electric vehicles.<a href='https://govinsider.asia/intl-en/article/how-singapore-is-future-proofing-its-energy-grid-with-digital-twins-jeanette-lim-energy-market-authority' target='_blank'>9</a>These measures are important steps towards net zero. But the biggest challenge for cities is likely to be decarbonising their heating systems. Many cities — particularly those in colder regions — have strong district heating networks that could integrate low-carbon energy sources on a large scale. But the vast majority are still using fossil fuels.<a href='https://www.iea.org/reports/district-heating' target='_blank'>10</a>Interest is growing in networked heat pumps,<a href='https://www.iea.org/commentaries/global-heat-pump-sales-continue-double-digit-growth' target='_blank'>11</a> which replicate the gas grid model but use renewable energy from air, soil or groundwater. In Helsinki, home to the world’s largest heat pump plant, the integrated system both heats and cools — and emits 80 per cent less CO2.<a href='https://www.helen.fi/en/company/energy/energy-production/power-plants/katri-vala-heating-and-cooling-plant#:~:text=Katri%20Vala%20is%20the%20largest,production%20with%20heavy%20fuel%20oil' target='_blank'>12</a><h2>Legislators tackle the problem of buildings</h2>Buildings, which account for up to 60 per cent of urban carbon emissions,<a href='https://www.weforum.org/agenda/2022/11/net-zero-cities-retrofit-older-buildings-cop27/' target='_blank'>13</a> are another challenge for cities that are trying to reduce their energy use and emissions. Necessary modifications, such as better insulation, can give them an opportunity to transform energy demand in the long term.Some cities have introduced legislation that encourages or enforces energy-efficient retrofits of buildings. These policies, such as performance disclosures, benchmarking, auditing and fiscal incentives, are often aimed at tenants as well as building owners.In Korea, for example, Seoul’s Building Retrofit programme includes a loan scheme for energy-efficient refurbishments, which is open to all building stakeholders. The initiative also offers lower prices for building materials such as high-performance insulated windows and doors.<a href='https://c40.my.salesforce.com/sfc/p/#36000001Enhz/a/1Q000000Mo5i/z8xF0YmnG3TNkgWkgrvbtLXL1NeW1YWT_1O6DVdaHI8' target='_blank'>14</a>New York has taken a firmer approach with its Climate Mobilisation Act, which from 2025 will require all buildings larger than 25,000 sq ft to meet strict emissions standards.<a href='https://accelerator.nyc/ll97#:~:text=The%20law%20establishes%20carbon%20emission,2024%20energy%20usage%20and%20emissions' target='_blank'>15</a> This kind of legislative intervention can be a powerful way to force change, but city officials can also use urban planning and zoning laws and initiatives to improve conditions for business. These can be particularly useful if they do not have the budget to offer financial incentives.<h2>Getting cities to net zero is a team effort</h2>As major contributors of carbon emissions, cities are on the frontline of climate change. But many are showing how they can contribute to sustainable growth as they pave the way for new low-carbon energy sources and greater energy efficiency.In order to succeed, they will need to bring together every part of their energy ecosystem: the political leaders and regulators, the power generators, transmission and distribution, the technology start-ups, the financiers, the manufacturers and the consumers.“As we look at how cities will contribute to the battle against climate change, it’s important that we consider how to implement innovations in energy use,” says Galal. “We must not only be able to pay for it, but also to scale it up, share learnings between cities and work seamlessly with national governments, start-ups and the private sector to change how we use energy in our cities.”This article is based on a Financial Times round table discussion under Chatham House Rules held in collaboration with PwC.

After 150 years of fossil-fuel based manufacturing, innovations in clean energy technologies are paving the way for new systems based on circular concepts, renewable energy and sustainable energy use. Industrial manufacturers are now trying to capitalise on the opportunities.Carbon capture, utilisation and storage (CCUS) and hydrogen are generating particular interest in industrial sectors where emissions are harder to abate. They are using captured carbon in fertiliser and synthetic fuel production, for example, and hydrogen fuel cells to power everything from buildings to vehicles.Now, these new applications need to achieve commercial viability. CCUS and hydrogen have the potential to decarbonise heat and industrial processes, but many applications are still in the planning or trial stages and lack incentives to scale up. And this needs to happen at speed in order to meet net zero targets and society’s demands for decarbonisation.“The magnitude of the shifts we're about to go through are going to be bigger and happen over a shorter period of time than ever before,” says Ryan Hawk, global industrial manufacturing and automotive leader at PwC. “We are going to see greater cross-industry collaboration and a shift to value-chain ecosystems from the traditional linear value chains. And I would argue that it's not only the hard-to-abate sectors that have to deal with this, but every sector.”Strategic partnerships allow companies to share knowledge, talent and organisational and financial capabilities, expand their core offerings and cater to the rising demand for energy transition-related technologies. They also help them to spread the cost and risk of investing in large infrastructure projects.One good example of this is the UK’s HyNet North West development, which will generate and supply low carbon hydrogen for local industry.<a href='https://hynet.co.uk/about/' target='_blank'>1</a>

<h2>Circular solutions are an important part of the puzzle</h2>We will start to see more of these ecosystems of connected processes, technologies and value chains as hard-to-abate industries seek to decarbonise. The circular economy also forms part of this ecosystem for many sectors, including steel, by reducing the extraction and processing of new raw materials. Many companies are now embracing more circular models of manufacturing, incentivised by society’s growing customer demand for sustainability as well as a need to insulate themselves against commodity price spikes and limited supplies of raw materials.There is particular scrutiny on the steel industry, which accounts for 7–9 per cent of global CO2 emissions.<a href='https://ec.europa.eu/research-and-innovation/en/projects/success-stories/all/reaching-new-heights-co2-capture-cement-plants' target='_blank'>2</a> Some firms are focusing on remelting and reusing structural steel, which can cut a significant portion of emissions while introducing cost savings. Others, such as the US-based manufacturer Nucor, are capitalising on the emerging market for green steel. Nucor recently designed a new form of low-carbon, high-strength steel for the offshore wind industry made with more than 90 per cent recycled content, and with an electric arc furnace that produces one-fifth of the emissions of an average blast furnace.<a href='https://www.recyclingtoday.com/news/nucor-introduces-elcyon-sustainable-steel-product-for-offshore-wind-energy-applications/' target='_blank'>3</a>Other sectors, such as transport, manufacturing, steel, chemicals and refining, aim to use and monetise the carbon they extract. The US-based carbon capture firm LanzaTech, for example, ferments industrial carbon to create ethanol for fuel, clothing, beauty products and household cleaners.<a href='https://www.fastcompany.com/90850275/lanzatech-industrial-carbon-emissions-products' target='_blank'>4</a> And in cement manufacturing, new technology that captures process emissions during combustion reduces CO2 emissions by 90 per cent.<a href='https://ec.europa.eu/research-and-innovation/en/projects/success-stories/all/reaching-new-heights-co2-capture-cement-plants' target='_blank'>5</a> The carbon can then be stored or sold to other companies as a raw material for the synthesis of basic chemicals or fuels, or reused in cement production.<h2>Competition should not come at the expense of collaboration</h2>First movers with a differentiated value proposition will gain an advantage in the race to net zero, and will cascade the demand for low- and zero-carbon products and services emissions down the supply chain. The rewards will be even greater for those that find ways to decarbonise more cheaply and competitively.As decarbonising technologies gain traction, companies can generate stronger financial returns by capturing government subsidies for green industries, increasing their profit margins with a green premium on more sustainable goods and services. The competition for market share will be fierce, but companies must be willing to balance their competitive instincts with the need to create collaborative partnerships that will form a net zero ecosystem.“The technical solutions are out there, but many things need to happen to make those solutions a reality,” says Hawk. “How do you create that environment, that framework, that level of trust to make the ecosystem work? As competitors, we have to come together to build the market for decarbonisation.”This article is based on a Financial Times round table discussion under Chatham House Rules held in collaboration with PwC.

Steel producers face a thorny investment dilemma: refurbish the coal-fired blast furnaces that have been the industry standard thus far or invest in new less emissions-intensive technology. Globally, 71 per cent of coal-fired blast furnaces need major refurbishment by 2030. The rest, by 2040.<a href='https://www.irena.org/-/media/Files/IRENA/Agency/Publication/2022/Mar/IRENA_Green_Hydrogen_Industry_2022_.pdf' target='_blank'>1</a> Meanwhile, like all manufacturers, steel producers are facing regulatory and societal pressures to decarbonise their operations, and manufacture steel without the use of fossil fuels.“This is a make-or-break decade for green steel,” says Dr. Alexander Fleischanderl, senior vice president and head of green steel at Primetals Technologies, a UK-based subsidiary of Mitsubishi Heavy Industries that provides engineering, plant building and lifecycle services for the metals industry. “Steel makers will have to decide whether it is better to extend the lifespan of a blast furnace — for what is likely to be the final time — or make the switch to full electrification and hydrogen.”Switching to low-carbon steel production poses several challenges. It requires significant capital investment in new technology, including electrification, and has to be implemented across an extensive and complex supply chain.<h2>Green steel is on the rise</h2>But steel producers may find the decision taken away from them. Steel is the biggest greenhouse gas emitter of all the manufacturing sectors, accounting for some 7% of all man-made emissions, so it is vital that its producers prioritise decarbonisation.<a href='https://www.weforum.org/reports/the-net-zero-industry-tracker/in-full/steel-industry/' target='_blank'>2</a> Alongside the environmental imperative, failure to decarbonise will leave them facing regulatory penalties, reputational risk and an inability to compete as the market share of decarbonised – or ‘green’ steel grows.“Demand for green steel is growing quickly,” says Fleischanderl, whose team is responsible for developing green steel production solutions across Primetals Technologies and is working closely with Mitsubishi Heavy Industries as they aim to reach net zero emissions by 2040. “By 2040, at least 25 per cent of global steel capacity is projected to be decarbonised. At a certain point, it will become difficult for producers to place steel on the market if it cannot be certified as green.”

<h2>Strike while the iron is hot</h2>Blast furnaces are a fundamental step in the steel production process, because they convert iron ore to metallic iron. But they are coal-fired, which means they produce substantial greenhouse gas emissions, and they cost up to $200mn to refurbish.<a href='https://www.bhp.com/news/prospects/2020/11/pathways-to-decarbonisation-episode-two-steelmaking-technology' target='_blank'>3</a>There is a risk that these furnaces become stranded assets if steel producers choose the refurbishment option: if the market for decarbonised steel grows in the way that Fleischanderl suggests, coal-fired blast furnaces could be obsolete before the end of their lifecycle. The cost of these stranded assets could reach up to $518bn across the industry.<a href='https://globalenergymonitor.org/wp-content/uploads/2022/06/GEM_SteelPlants2022.pdf' target='_blank'>4</a>Electric arc furnaces (EAFs) are a promising alternative to fossil-based steelmaking, because they are carbon neutral when they run on a renewable energy source. German steel producer Salzgitter, for instance, is investing more than €700mn in the world’s largest green steel transformation programme.<h2>Policy can support early movers with higher costs</h2>The transition to decarbonised steel will come at a price. Installing decarbonisation technologies requires significant investment, as does the infrastructure for the renewable energy systems that will power them.“The decarbonisation of the steel sector will require about $1.3tn of investment by 2050 in infrastructure alone,” says Fleischanderl. “If you include the cost of the renewable energy and hydrogen ecosystems required to generate this clean energy, that figure reaches $4tn.”Policy support will help steel producers to stay competitive in the market while they pursue decarbonisation. Initiatives such as the UK’s Contracts for Difference and the EU’s Carbon Contracts for Differences compensate low-carbon energy generators for the higher prices of generating energy from non-fossil fuel sources, providing long-term security for both generators and investors.<a href='https://www.gov.uk/government/publications/contracts-for-difference/contract-for-difference#:~:text=CfDs%20incentivise%20investment%20in%20renewable,when%20electricity%20prices%20are%20high' target='_blank'>5</a>, <a href='https://climatestrategies.org/wp-content/uploads/2021/03/Carbon-Contracts_CFMP-Policy-Brief-2020.pdf' target='_blank'>6</a>Early movers will also benefit from funding instruments such as the EU’s Innovation Fund, which will provide a total of €10bn of support for commercial projects using innovative low-carbon technologies up to 2030.<a href='https://www.euinnovationfund.eu/' target='_blank'>7</a> The US’s Inflation Reduction Act, meanwhile, offers almost $6bn in grants and tax credits for industrial manufacturing alone.<a href='https://www.ft.com/content/bfa67fee-01f4-45fa-b8cd-c24527b83652' target='_blank'>8</a><h2>Innovation stems from partnerships</h2>For Primetals Technologies, partnerships are vital to mitigating the risk of new technologies and establishing large-scale projects that will accelerate the decarbonisation of steel.

Primetals Technologies, in collaboration with Australian iron ore producer Fortescue Metals Group and Austrian steel-based technology company voestalpine, is leading the research on a green metal plant. This partnership will build an industrial-scale technology demonstration plant powered entirely by hydrogen — a model for the green steel industry.The plant will use a new direct-reduction technology (HYFOR), another alternative to blast furnaces, which uses hydrogen to strip iron oxide of its oxygen particles to produce metallic iron.<a href='https://magazine.primetals.com/2020/01/01/hyfor-hydrogen-based-fine-ore-reduction/' target='_blank'>9</a> By using green hydrogen from an existing electrolyser that is already available on voestalpine’s premises, the plant will produce net zero iron.<a href='https://www.primetals.com/press-media/news/primetals-technologies-fortescue-and-voestalpine-to-jointly-evaluate-groundbreaking-green-ironmaking-plant' target='_blank'>10</a>“Even if you have the technical capability, these kinds of projects are too complex and expensive to undertake on your own,” says Fleischanderl. “In order for projects like these to be successful, you need partners you can trust and with whom you can collaborate closely.”Fleischanderl says that the criteria for partner selection are shifting, and he is keen to develop relationships at trade fairs such as the upcoming METEC in Düsseldorf, Germany. “Partnerships are no longer based purely on competition, with the cheapest technology provider winning the contract,” he says. “When it comes to new technologies, trust and sharing the risk are becoming much more important considerations.”If producers do not prioritise partnerships to speed up the innovation and decarbonisation process, they risk being left behind, says Fleischanderl. “Don't miss the train,” he advises. “The first movers will be the winners in the end.”

It’s comparatively easy to abate emissions from some sectors by simply switching to renewable energy. But the challenge is bigger for sectors with energy- and emissions-intensive processes and products such as chemicals. Chemicals companies and others in hard-to-abate industries are under pressure to decarbonise and work towards Paris Agreement goals. And some are making progress. To name one example, Solvay, a multinational chemicals company with headquarters in Brussels, has embraced the need for change and innovation and is laying the foundations for its business to thrive in a net zero economy.Under the guidance of CEO Ilham Kadri, Solvay published its One Planet sustainability roadmap in 2020, which leads to the implementation of carbon neutrality for all the group’s businesses by 2040, except for its soda ash business, for which the target is 2050.Solvay has two approaches to decarbonisation. The first approach is developing innovative products that help other sectors decarbonise; in 2022, 55 per cent of Solvay’s group sales came from sustainable solutions such as battery materials and thermoplastic composites – an increase of 5 percentage points year on year.<a href='https://www.solvay.com/en/sustainability' target='_blank'>1</a> The second approach is decarbonising its own operations by developing new value chains for fuel alternatives to coal-fired plants, which the company is aiming to phase out by 2030.<h2>Business and sustainability go hand in hand</h2>“We are showing the power of ‘and’ — being profitable and caring for the planet,” says Kadri. “We walk the talk because it also impacts our pockets.”Solvay has implemented global profit sharing for KPIs linked to financial metrics, sustainability progress and diversity, equity and inclusion performance, which includes a budget of €15mn for non-executive employees.The sustainability rewards are also visible to investors. In February, the publicly traded company also made a splash on the Brussels Stock Exchange’s newly launched ESG index, which tracks companies demonstrating ESG practices.

The company has identified four growth areas: battery materials; thermoplastic composites; green hydrogen; and renewable materials and biotechnology. Amid regulation that is shifting in line with the energy transition and more sustainable consumer trends, Solvay estimates that these sectors could provide it with additional revenues exceeding €10bn in the coming decades.<a href='https://worldmaterialsforum.com/files/Presentations2022/WMF2022-PS3-Ilham-Kadri.pdf' target='_blank'>2</a>“We are focusing the company toward these mega-trends,” says Kadri.<h2>Batteries are in the mix</h2>One trend is the growing demand for electric-vehicle batteries, for which Solvay produces polymers and lithium carbonate. Solvay is also investing in a research centre in La Rochelle, France, which will play a significant role in the development of the solid-state batteries that could one day replace lithium-ion batteries.<a href='https://www.solvay.com/en/press-release/solvay-inaugurates-state-art-innovation-pilot-unit-solid-state-batteries-europe' target='_blank'>3</a>“I'm not a believer that one clean energy or one clean mobility technology will prevail over the others; to curb carbon emissions, you need a mix,” says Kadri. “We’re technology makers, but we’re not a products company. Solvay is a science company.”Solvay is also supporting the emerging green hydrogen market by developing advanced materials, such as polymers, used in electrical storage and conversion devices such as fuel-cell systems and electrolysers.<h2>New partnerships and new processes</h2>A key component of Solvay’s sustainability strategy is reducing its own emissions; forming new partnerships is crucial to achieving this goal.In Rheinberg, Germany, for instance, Solvay plans by 2025 to have phased out coal at its soda ash plant by switching to a new fuel: biomass, in the form of waste wood provided by local companies.<a href='https://www.solvay.com/en/press-release/solvay-to-phase-out-coal-energy-use-in-rheinberg-soda-ash-plant' target='_blank'>4</a>In France, it is partnering with Veolia to create fuel from waste that cannot be recycled and use it to power Solvay’s soda ash plant in Dombasle-sur-Meurthe, which currently runs on coal. This shift to renewable energy will reduce the site’s CO2 emissions by 240,000 metric tonnes a year and shrink its carbon footprint by 50 per cent – the equivalent of removing 100,000 cars from the road.<a href='https://www.veolia.com/en/our-media/newsroom/news/solvay-and-veolia-join-forces-produce-largest-amount-energy-from-refuse-derived-fuel-france' target='_blank'>5</a> Dombasle-sur-Meurthe is also the site of a pilot project to create a soda ash production process that emits 50 per cent less CO2, which is the result of a €40mn investment and 30 years of research.<a href='https://www.solvay.com/en/press-release/solvay-reinventing-its-soda-ash-process-and-targets-zero-limestone-discharge-2050' target='_blank'>6</a>Kadri, who has a PhD in Macromolecular Physical Chemistry, is excited about revolutionising an emissions-intensive chemical process. “You don't wake up every morning thinking, ‘I'm going to reinvent 160-year-old technology’,” she says. “It's great for a leader like me to be in this company at this point in time, and to transform it and reinvent that technology.”<h2>The energy transition can be profitable</h2>With its approach to innovation and pioneering partnerships, Solvay is accelerating the energy transition, while at the same time embedding decarbonisation into its own strategy and financial decisions. The company already applies an internal carbon price of €100 per tonne of CO2 equivalent on all its greenhouse gas emissions.“We want to protect the planet; we want to act on climate change; we want to save natural resources,” says Kadri. “We do it for people.”“But we’re also showing that we can make sustainability profitable. We deliver on earnings, cash, returns and debt reduction. Yes, we are becoming more sustainable, but our balance sheet is also as healthy as it can be.”With the breadth of its sustainability services, PwC supports Solvay to progress on its One Planet roadmap and with anchoring sustainability goals in the organisation.

In 2022, TenneT transmitted about 29TWh hours of electricity from wind power from the North Sea &mdash; enough to power 9 million households for a year.Now, the European transmission systems operator has set its sights on quadrupling its transmission capacity in the famously stormy body of water, where wind speeds can exceed 34 knots. Germany, the Netherlands, Denmark and Belgium have agreed to jointly install at least 65GW of offshore wind energy by 2030, and TenneT will be responsible for connecting nearly two-thirds of that capacity to the mainland in the form of subsea, wadden sea and land cables.

This expansion could not come at a more critical time. As geopolitical disruption continues, countries must navigate volatile energy markets while keeping pace with ambitious decarbonisation goals. The EU has proposed to cut greenhouse gas emissions by at least 55 per cent by 2030. Accelerating the transition to renewable energy is a key feature of all decarbonisation plans.&ldquo;The energy crisis is a wake-up call for the whole of Europe &mdash; it must be the catalyst for the energy transition we so desperately need,&rdquo; says Manon van Beek, CEO of TenneT. &ldquo;We must do everything we can to become independent of fossil fuel imports as soon as possible.&rdquo;

<h2>Infrastructure upgrades will support European value chains</h2>TenneT currently provides the vital infrastructure for offshore wind power transmission from the Netherlands and German North Sea, with capacities of 3.7GW and 7.1GW respectively.&nbsp;To scale up its offshore transmission capacity to 40GW by 2030, TenneT will install 15 to 20 offshore grid connection systems at a cost of &euro;30bn. These investments also include upgrading its current 700MW converter stations to 2GW high-voltage platforms, almost tripling the electricity transmission capacity of each station. This high-voltage technology will increase efficiency and mean that less electricity is lost in transmission.TenneT offers engineering contracts with terms for up to eight years for the production of these platforms. The tenders are expected to spur the market into action through the investment security that this type of large-scale job provides. Long-term partnerships will accelerate growth, job creation and resource development, and ultimately strengthen European value chains.

&ldquo;This is not only helpful for a stable future energy system, it's also a big opportunity for a new value chain, for new jobs and digital innovation,&rdquo; says van Beek.<h2>Plans for a green hydrogen future</h2>These plans will be a huge step towards providing more renewable energy for Germany and the Netherlands. But TenneT is laying the foundations for something even bigger. As a member of the North Sea Wind Power Hub consortium, together with Energinet, Gasunie and Port of Rotterdam, it is supporting the creation of an interconnected energy network in the North Sea.&nbsp;This wind-powered network will have the capability to convert renewable electricity to gas and green hydrogen, connecting western Europe&rsquo;s energy systems with storage opportunities and low- and zero-carbon energy.&nbsp;&ldquo;Society will become increasingly electrified,&rdquo; says&nbsp;van&nbsp;Beek. &ldquo;If you want to realise the energy system of the future even faster, you just have to look at the North Sea and grow that into a North Sea powerhouse. Not just for the Netherlands or Germany, but also for the whole of north-western Europe. We have to really start thinking differently and scale up.&rdquo;<h2>Investing onshore&nbsp;</h2>TenneT also has ambitious plans to expand and upgrade its onshore network to match the growing electricity demand from industry and the expansion of electric vehicle fleets. In the first half of 2022 alone, the company invested &euro;1.6bn in European grid integration.&nbsp;&ldquo;We will invest &euro;8bn per year in the next few years,&rdquo; says van Beek. &ldquo;Tripling our capacity in many Dutch provinces by 2030.&rdquo;&nbsp;Upgrading grid infrastructure and creating flexibility through demand-response systems will accelerate the embedding of more renewable energy. &ldquo;The general belief is that 10 per cent or less of the flexibility potential in the grid is used today,&rdquo; says van Beek.&nbsp;&ldquo;If you can unlock that, you can really speed up energy transition progress.&rdquo;PwC Germany is a key member of the Suedlink Cable project, delivering advisory, legal, procurement, contract administration and project assurance services.

Looking for innovative ways to decarbonise, Airbus is drawing inspiration from nature. &ldquo;We&rsquo;re investigating technologies where we can mimic the flight of migrant birds to reduce the drag on aircraft and optimise fuel efficiency over long distances,&rdquo; says Nicolas Chretien, the aerospace company&rsquo;s SVP head of sustainability and environment.But drawing insights from the avian world is just one piece of the puzzle. To reach net zero by 2050, the aerospace industry must execute a tremendous shift in operations. For Airbus, the world&rsquo;s largest airplane manufacturer &ndash; 661 commercial aircraft delivered in 2022, this means lower-emissions manufacturing processes and materials, low-carbon and disruptive technologies and sustainable aviation fuel (SAF).<h2>Commitments go beyond the organisation</h2>The company&rsquo;s targets include a commitment to radically reduce its Scope 1 and 2 industrial emissions and to align with the Paris Agreement&rsquo;s goal to limit global warming to 1.5⁰C. A huge scale-up in renewable energy is central to these plans: Airbus aims to source up to 100 per cent renewable energy for all its European sites by 2024, which will help to reduce the carbon footprint of its industrial activities by up to 63 per cent by 2030.For its European manufacturing sites, Airbus is entering into power purchase agreements (PPAs), which gives it access to wind and solar power at stable rates. It also hopes to extend that access to its supply chain partners. The aim, says Chretien, is to steer those partners towards the same goals as Airbus and help the wider supply chain to decarbonise.&ldquo;There is potential to make PPAs more accessible for our supply chain &mdash; specifically for smaller-tier suppliers,&rdquo; he says. &ldquo;Ultimately, we are encouraging the supply chain towards a broader sustainability commitment. We not only look at their climate impact, but also engage with them on greater circularity and efficiency in their industrial processes and sourcing.&rdquo;&nbsp;<h2>Fuel for the future of aviation&nbsp;</h2>One of the most important steps towards the decarbonisation of the sector is <a href='https://www.strategyand.pwc.com/de/en/industries/aerospace-defense/real-cost-of-green-aviation.html'>the development of SAF</a>. This fuel requires no aeroplane modifications and can reduce lifecycle CO2 emissions by up to 80 per cent compared with conventional jet fuel. The challenge, however, is sparking demand across the industry to reduce cost and increase supply.&ldquo;It becomes much more costly as you switch to SAF, because of the low volume and the low supply,&rdquo; says Chretien.&nbsp;&ldquo;Today, SAF represents less than 0.1 per cent of total fuel usage but Airbus latest generation aircraft are already capable of flying with up to 50 per cent SAF. So there is a tremendous potential that we can already develop within the current capability.&rdquo;&nbsp;

&nbsp;Airbus is leading by example. Since 2019, SAF has been used in the operation of the company&rsquo;s Beluga transport aircraft for internal logistics purposes. In 2022, flight test activities also started using SAF as part of the company&rsquo;s revised greenhouse gas emissions reduction plan. And in December 2022, Airbus launched its first test campaign to explore the use of renewable fuel for its fleet of maritime vessels over the course of 18 months. The share of unblended SAF used in these industrial activities will increase to at least 30 per cent by 2030 with an interim target of 10 per cent by end of 2023, equivalent to 33.1mn litres blended SAF.&nbsp;These efforts help to demonstrate the business case for even higher SAF usage, and Airbus is preparing its vehicles for a future in which SAF is standard. The company is working to make all of its aircraft capable of flying with 100 per cent SAF by the end of this decade, and has already been conducting test flights to this end.<h2>Hydrogen is next</h2>But sustainable aviation depends on multiple solutions, and Airbus is also exploring the possibility of liquid hydrogen as a future fuel. When hydrogen is generated through renewable energy it results in green hydrogen &ndash; a decarbonised greenhouse gas emissions fuel. Unlike SAF, however, hydrogen requires design changes to the aircraft, such as modified gas turbine engines, and the creation of hydrogen production, storage, distribution and supply infrastructure.&nbsp;To support the development of green hydrogen, companies from different industries are now partnering up to create new value chains. Airbus is paving the way for hydrogen-based aviation with a consortium of &lsquo;hydrogen ecosystem&rsquo; partners, including Air New Zealand, Hiringa Energy and Fortescue Industries. Each is contributing its expertise to developing this low-carbon fuel and the infrastructure to support it. &ldquo;We have multiple partnerships looking at fuel cell and hydrogen combustion technologies and hydrogen storage, but also at developing demonstrator engines,&rdquo; says Chretien. &ldquo;We are looking not just at the platform itself but also at the full ecosystem.&rdquo;Several factors will determine the commercial success of alternative aviation fuels, such as supportive policy and regulation and a balance of supply and demand. But Chretien says that collaborative efforts show &ldquo;there is a trajectory for us to move away from fossil fuels&rdquo;, which is encouraging.&ldquo;We have to send a stronger signal that at industry level, we are willing to engage and to converge,&rdquo; he says. &ldquo;I hope we can demonstrate that aviation can be part of the solution.&rdquo;With the breadth of its sustainability services, PwC supports Airbus on its way to&nbsp;net zero&nbsp;and&nbsp;with anchoring&nbsp;sustainability goals in the organisation.&nbsp;

Many energy companies are struggling to position themselves in the new energy environment, where demand and supply relationships are changing rapidly. To survive and thrive in a decarbonising economy, they will need to participate in co-creating new markets and international partnerships at every step of the value chain.Energy companies face twin challenges: they must decarbonise their own operations, and they must serve growing customer demand for energy overall and for low-carbon energy in particular. These challenges pose particular dilemmas for hard-to-abate sectors such as industry and transportation. And they are further complicated by changes in the macroeconomic context. Europe&rsquo;s energy transition modelling and net zero ambitions have traditionally been based on the availability of cheap and abundant natural gas. But Russia&rsquo;s invasion of Ukraine has throttled supply, so alternative sources of energy now have to be scaled up &mdash; fast. Affordability and availability have quickly become short-term challenges.<h2>New energy systems must be international</h2>Energy security has not been a major concern in Europe since the oil price shocks of the 1970s. And while oil and gas companies operating internationally typically pay attention to geopolitics, utility companies used to do this to a lesser extent because they tend to operate on a more national basis.&nbsp;But the complex new value chains needed for the energy transition &mdash; offshore wind, energy storage, electricity interconnectors, carbon capture, storage and utilisation (CCUS) and hydrogen production &mdash; cannot be developed in isolation.&ldquo;We see this desire for energy security and a lot of us, including our governments, are translating that into energy independence,&rdquo; says Jeroen van Hoof, global energy, utilities and resources leader at PwC. &ldquo;But we also need to be really open minded and continue to partner on an international basis. Is that still happening to the level that is required to achieve a successful energy transition?&rdquo;

&ldquo;There are some rough estimates&nbsp;that if you took all of the offshore wind capacity currently available in the North Sea,&nbsp;add onshore to it, as well as what is planned to be built in the next few years&mdash;and used all this capacity to produce hydrogen to generate green electricity with electrolysers, we might be able to fuel 10 per cent to 15 per cent of&nbsp;all&nbsp;north-west Europe&rsquo;s industrial needs,&rdquo; he adds.&nbsp;&ldquo;This means that interdependencies between countries and geographies will continue to exist in any case.&nbsp;Some countries will be exporters, some will remain importers. And, interestingly, Europe will be a net energy importer, where for example the Middle East and Africa remain the larger exporters.&rdquo;<h2>What does cross-industry collaboration look like?</h2>Partnerships across sectors are also going to be crucial. Energy ecosystems, will have to change as existing technologies are scaled up and new technologies, fuels and sources of generation enter the market. That means large industrial companies and energy companies are increasingly required to share technology, investments and risk in large infrastructure pilots.&nbsp;Energy companies across the spectrum have had to rethink their business models. And electricity providers and retailers have created new value chains that go as far as households (the so-called prosumers) and industrial customers who can feed self-generated electricity back into the grid.&nbsp;In the oil and gas sector, oil majors &mdash; many of which have published net zero emissions targets for 2050 &mdash; are directing investment to renewable energy, renewable liquid fuels, hydrogen and CCUS. The downstream sector in particular sees opportunities in integrating new feedstock materials and fuels such as sustainable aviation fuel.&nbsp;But to make these new products viable from a business perspective, there have to be effective markets with sellers and customers. Energy companies and their customers have to develop new value chains that create and balance supply and demand. As end-customers benefit from less carbon-intensive energy for their own emissions count, it is in their interest to conclude off-take or risk-sharing agreements to create new markets in partnership with energy companies that supply low- or zero-carbon energy.Partnerships are essential to the development and deployment of clean hydrogen, for example. &ldquo;It&rsquo;s hard to imagine a sector where partnerships are needed more,&rdquo; says an executive at an oil major. &ldquo;So many different technologies are needed to transform some of these sectors, and previously everything was developed in-house.&rdquo;&nbsp;<h2>How energy companies can act now</h2>Investments in the energy sector are big, complex and long term. Capital may be available, but there are other factors that will be necessary for energy companies to make investment decisions.&nbsp;First, projects need to have a business case that promises reasonable returns, and this usually requires a stable regulatory environment. The US Inflation Reduction Act has unlocked tax benefits for some projects, which for example make scaling up CCUS more viable in some locations. Meanwhile, the EU is still working on putting in place definitions and support mechanisms.More broadly, energy companies need to enter into active dialogues with regulators to ensure that evolving policies and market designs continue to encourage capital to flow to the energy ecosystem and provide appropriate supporting mechanisms.&nbsp;Next, projects need the right technology, talent and feedstock. Partnerships can help companies gain access to these and share the risk of new projects. And it is vital that players take an expansive view of partnerships. Partnerships will be required at all levels &ndash; technology, talent, capital, providing feedstock. Partnerships can help share risks and bring innovation to yield results more quickly while enabling the entire ecosystem to move forward in a more coordinated and collaborative manner.As they forge a new future, companies will have to focus clearly on how to remain profitable in their current and future operations. For companies and countries to stay profitable while rolling out the systems and infrastructure they need to achieve net zero by 2050, they will have to develop and scale up these new value chains and partnerships with some urgency.&nbsp;This article is based on a Financial Times roundtable discussion under Chatham House Rules held in collaboration with PwC.&nbsp;

The energy crisis is forcing society to rethink the strategic role of energy and the fuels and systems it previously relied on, but the disruption is also accelerating exciting new collaborations between energy companies and different industries. Together, they are tackling one of the biggest challenges of our time: how to progress towards a net zero economy while building energy abundance and ensuring that households and businesses have access to clean and affordable energy.

The ‘hard to abate’ industries, including transport, aluminium, steel, cement and concrete, which account for some 30 per cent of global emissions, have been impacted in particular by high energy and raw materials prices and the need to invest in decarbonisation. These are energy-intensive industries, where the decarbonisation pathways may be harder to achieve than straightforward electrification and require carbon capture technology or emissions management.

“There is a strong incentive for us to look at decarbonising our energy sources as a good way to reduce emissions in our operations while mitigating our exposure to fossil energy and future energy spikes,” says Nicolas Chretien, head of sustainability and environment at Airbus.

The energy transition of hard-to-abate industries will rely on a range of energy sources, fuels and technologies, including renewables, energy storage, green methanol, hydrogen and carbon capture, utilisation and storage (CCUS). However, many of these are still not commercially viable or available at scale, or are lacking the foundational infrastructure they need to operate.

Renewable energy is the simplest way to reduce scope 1 and scope 2 emissions, but in Europe its supply is still limited. There is a lot resting on the North Sea and transforming legacy oil and gas infrastructure to accommodate the next generation of clean energy, such as wind power. One important part of that process is building up the grid connection with power converter stations and interconnectors.

“Society will become increasingly electrified,” says Manon Van Beek, CEO of European grid operator TenneT. “Using electrons directly is always the most efficient solution. If you want to realise the energy system of the future even faster, you just have to look at the North Sea and to grow that into a North Sea powerhouse. Not just for the Netherlands or Germany, but also for the whole of north-western Europe. We have to really start thinking differently and scale up.

“Although I am responsible for electrons mainly, it is also important to say that the energy system of the future goes well beyond electrons because not all industry will be able to electrify. That is why I strongly believe in a future that is a mix of electrons, in the form of electricity from offshore wind, and molecules from hydrogen,” says Van Beek. “It is really important that [governments] have a roadmap that integrates electrons and molecules. And that we have a view on the infrastructural backbones for electricity and hydrogen, but also for heat and for carbon CO2 storage.”

<h4>There are opportunities in partnerships</h4>

Retrofitting natural gas pipelines for hydrogen, embedding CCUS in industrial processes and oil and gas value chains, and developing hydrogen or battery storage systems in combination with renewable energy are a few of the types of projects that will create new decarbonisation pathways. But they require new partnerships and ecosystems, often including the government or public sector organisations, to de-risk the large infrastructure investments needed for the energy transition and provide technology expertise, policy and permitting support and financing.

Renewable energy generated by wind power in particular will underpin many new types of clean energy ecosystems. Mads Nipper, CEO of Danish offshore wind power developer Ørsted, says there is potential in offtake agreements for green hydrogen.

Ørsted has formed a strategic partnership with German steelmaker Salzgitter to create closed value chains by bringing together the two companies’ capabilities for low-carbon steel, offshore wind power and renewable hydrogen.

“The wind typically blows more at night when there is not a lot of demand,” says Nipper. “It would be obvious to make hydrogen through electrolysis during that time, or on a very windy day when wind farms are curtailed and forced into lower production. That's a waste. If we had an electrolyser right next to it, we could use that intermittent power to generate hydrogen that can be used at any time.”

<h4>Power purchase agreements have potential</h4>

Many industrial companies are also forming partnerships with energy providers through power purchase agreements, which are long-term contracts to buy wind or solar power in large volumes at stable rates, with the option of feeding excess energy back to the grid.

Airbus, for instance, has signed a contract with GP Joule for 3.85GWh of solar electricity per year to power a helicopter production site in Germany. “We have the capacity and the capability to do this for Airbus,” says Chretien. “But we also see potential in making power purchase agreements more accessible within our supply chain, specifically for lower-tier suppliers.”

Some energy and industrial companies are already shifting to low- and zero-carbon sources of energy and are creating the infrastructure and technologies that will support them and their suppliers. But it is sharing resources, combined technology expertise and a common goal that will form an ecosystem that fuels a future net zero economy. Lasting change will come through energy intersections: the critical meeting points between energy companies and industries, transport and cities.

Singapore-based Sun Cable is looking to add to the Asia-Pacific electricity grid with its Australia-Asia PowerLink, subsea power cables that will funnel about 2GW of clean, solar energy across Indonesian waters from Australia’s Northern Territory to Singapore.

The A$35bn project will be the world’s largest solar energy infrastructure network and a huge step in the region’s renewable energy transition. By the time the link reaches full capacity in 2029, ‘the green power corridor’ could reduce Singapore’s emissions by 6mn tonnes of CO2 equivalent per year.

In early 2022, the project completed a series B capital raise of A$210mn. “The capital raise was 100 per cent funded by our existing shareholders, all taking up their entitlement,” says David Griffin, founder and CEO of Sun Cable. “So that was a really positive outcome and showed great confidence from our existing shareholders in how the Australia-Asia PowerLink is progressing.”

A final investment decision is slated for 2024, and construction will start across Australia, Indonesia and Singapore. Sun Cable’s solar generation site in the Northern Territory will also house the world’s largest battery energy storage system. It can provide the city of Darwin with 800MW of power and transmit supply to Singapore along high-voltage direct current (HVDC) subsea cables. At more than 4,000km, the cables will be the longest of their kind in the world.

“With a project of this nature, there are obviously myriad challenges,” says Sun Cable CEO David Griffin. “Think of the project as three technology groups: solar, storage and transmission. All three are being carried out at massive scale, which means that we are motivated to find every efficiency gain we can by optimising the design of the system and its components.” “We do see there is huge opportunity to improve the delivery of solar and storage projects in Asia, and that being at scale is what triggers this opportunity.”

Artificial intelligence has proved invaluable in the design phase, particularly in the complex specifications of the transmission cable system. Today, the world’s longest subsea power cable is the 720km North Sea Link; Sun Cable’s will be nearly six times as long and will pass through the Singapore Strait — one of the world’s busiest waterways.

<h4>New networks are encouraging cross-border trade</h4>

Sun Cable wants to do more with the Australia-Asia PowerLink than break records. The company hopes that it will mark the start of a new renewables export industry in Australia, while positioning Singapore and other Asian countries as renewable energy centres for Southeast Asia.

The company has partnered with several corporate and research institutes to establish the Asia Green Grid Network (AGGN) to support an interconnected renewable power grid in Asia. By combining its expertise, the consortium hopes to boost collaboration, innovation and education across the region, to accelerate cross-border renewable energy transmission.

“An interconnected green grid in Asia can flourish with support and collaboration between research, corporate and government institutions,” says Dr Fraser Thompson, Sun Cable founder and chief strategy officer. “Sun Cable is spearheading this to help educate, coordinate, and innovate, including with our R&D investments in key areas like storage and system optimisation.”

The AGGN’s mission builds on recent Sun Cable research that estimates that with greater interconnectivity, cross-border electricity trade in Asia could amount to between 2,150TWh and 3,225TWh by 2040.

“Our vision for the Asia Green Grid Network is to drive the innovation that’s needed for a connected electricity grid across Asia, tackling issues ranging from transmission through to storage,” says Dr Thompson.

PwC Australia is a key member of the Integrated Project Delivery Team for Sun Cable project, delivering equity and debt advisory, legal, procurement, contract administration and project assurance services.

<li>The Australia-Asia PowerLink will bring together the world’s largest solar generation site, its largest battery energy storage system and its longest subsea cable transmission system.</li>

<li>Construction is projected to start in 2024, with the project coming online progressively later this decade.</li>

<li>Energy demand in Southeast Asia is growing at an average of 6 per cent per year and is forecast to grow by 60 per cent by 2040.</li>

<li>For Australia, the Australia-Asia PowerLink project is expected to bring A$8bn of investment, an estimated 14,000 jobs and approximately A$2bn in annual export revenues.</li>

It’s how our planet ticks. What keeps it turning, moving and growing.

Energy generated by human activity produces almost 70% of all greenhouse gas emissions.

To accelerate the race to zero, we need to power up renewables. Generating at an unprecedented rate.

To create a strong, sustainable infrastructure by coming together to solve.

From industry leaders and investors, to regulators, policymakers and societies.

Forming alliances to find new ways to fuel our future.

Going beyond wind and solar to more innovative sources of power.

Creating sustainable, transparent change that radically accelerates decarbonization, while driving greater value.

Intersecting industries – and growing new ecosystems.

By reimagining everything: How we produce and distribute. How we travel and trade. How we power our homes and our cities.

Now’s the time to create a climate for change.

Join us. Together we can solve this.

Dr. Barbara Buchner, Managing Director of the Climate Policy Initiative, believes the energy crisis has highlighted that investment in clean energy is the fastest road to resolving issues such as price stability in energy markets and energy access and independence for countries. But critically, capital must be mobilised, especially public finances in emerging and developing economies, to start matching the huge capital requirements needed for the energy transition.

In this audio interview, Buchner joins Megan Wright, Head of Audio at FT Longitude, to discuss how the energy transition can be financed and capital flows directed effectively to where they will have the most impact.

Climate finance has increased at a cumulative average annual growth rate of about 7%. But I think what that does not show you is that current levels of increase are unfortunately not on track to meet a 1.5 degree Celsius or the internationally agreed temperature scenario. And what we need to make happen is to really ensure that we get to scale very quickly. So, just looking at the latest information, we need an increase of at least 590% or 4.3 trillion US dollars in annual finance flows by 2030, in order to really meet internationally agreed climate objectives and avoid the most dangerous impacts of climate change.

Barbara Buchner

Dr. Barbara Buchner is a leading voice in global energy transition finance. With experience advising leaders on climate, energy, and land use investments around the world, Barbara was named one of the 20 Most Influential Women in Climate Change by the International Council for Science. Today, Barbara combines her finance and policy expertise as Global Managing Director of the Climate Policy Initiative, an independent, not- for-profit organisation, that helps governments, businesses, and financial institutions drive economic growth while addressing climate change. Barbara also directs the Global Innovation Lab for Climate Finance, which has mobilised over 3.3 billion US dollars for action on climate change and sustainable development. I'm Megan Wright, and I'm delighted to have Barbara joining me today. Has the energy security crisis in Europe impacted on how you're advising governments, businesses, and financial institutions on their transition strategies?

Megan Wright

I think the business case remains the same, that transition might look a little different. So, we need to be realistic and realising that in the short-term we will be maybe using more of some of the traditional energy sources, because we obviously need to put people at the centre and make sure that we are having a just and sustainable energy transition. The average cost of really climate action, but not only climate action, of really a real transition of energy security and energy access, is just lower by really focusing on the opportunities that we see of renewable energy and clean energy more generally. So, while there might be a short-term implication, I think ultimately, the energy security crisis makes the overarching argument and the approach even stronger.

And actually, natural resource rich countries are now experiencing windfall profits from oil and gas again. The IEA just said that we'll see peak oil in this decade. So, is this the last chance to make the most out of oil? Are oil-rich countries effectively reinvesting profits in the energy transition?

We really need to have better transparency and disclosure of all that is going on at the moment, and then really making sure that you are coming up with revenue models that really ensure that whatever profits there are actually going back to more investments in research and development on the clean energy side. So I think the point on just being much more transparent and having a much better understanding of how financial institutions and governments are currently basically, both factoring and disclosing climate-related transition physical risks, but then also how their investments and their overall portfolios are aligned with specific sustainable development goals, and using taxonomists that are already existing or using, developing those for the specific regional needs. It's really the whole financial ecosystem that needs just to be stepping up and being better on being transparent and being clearer on how they can be implementing some measures that are addressing the risks or better balancing or manage some of the risks.

Do you think then we need to be more realistic about the necessity of using fossil fuels in the near-term? Or perhaps about how quick the transition can actually be, even if everything does go right?

Well, I think we do need to acknowledge that there is a little bump in the road. Again, I do think having this focus on people, having this focus on a just transition is extremely important. So I think we need to be, yes, realistic just to acknowledge we will not be able to change all our energy systems within the next year or so. But I think we can really put in place a plan and with clear milestones to make everyone basically accountable for getting towards the transformation, still in the fastest way possible. And I think another piece of the solution here is about how we can better use domestic capital. So I think half the financing that is needed at the moment for an energy transition, in emerging and developing countries, could come from domestic resource mobilisation, and that would require incremental public resource mobilisation efforts, which are relatively small compared to then the GDP of these countries. It's less than 3%.

The FT recently reported that between 2019 and 2021 there were only $14 billion of so-called climate-blended finance deals. So structured deals that use public money to de-risk green investments for poor countries. How do you think governments can help to de-risk large energy infrastructure projects or new energy technologies?

I think public funding for clean energy innovation plays really a crucial role in helping new technologies. I think there are a lot of needs to cross the valley of death between prototype stage, so where there’s very high investment risks, to early commercialisation, where there's lower investment risk until really the private markets can take off. So this funding, funded by the public sector, I think, could be of help to ensure that the startups have enough working capital to continue their development. But also, we really see that grants for small demonstration pilots or even public-private partnerships for first-of-its-kind large projects, like the infrastructure projects that you mentioned, could be really important. The risk sharing and re-managing the risk in the best way to really allocate the risks to the ones who can take them on, depending on their particular type of capital, I think, is just really important. So I think there, public funding will be key just to drive this next phase of innovative technologies, and to really help, in a way, also build the capacity in emerging and developing countries. So really have more of a focus on technical assistance and making sure that there are the right project developers or entrepreneurs, that then can really focus more also on the domestic capital mobilisation that I mentioned. So I think you mentioned also blended finance. I think scaling up of spending that needs to happen is certainly unprecedented, but I think it's feasible through strategies. There's one called the grant match financing strategy where you basically have ambitious investment programmes, but they're supported by robust policy frameworks and a balanced mix of both domestic and international finance. So really thinking about how can you work together with different types of financiers across the ecosystem and use public finance, both the international one, but also domestic one most effectively to really take on basically the right types of barriers and really ensure that you create the enabling environment in country and you build the market knowledge and expertise in country that can then really enable a transformation of the energy markets.

Thinking then about all those different organisations and sectors that you work with as well as your experience, obviously mobilising across borders, what do you think are the biggest blockers to action today when it comes to driving the policy change that's really needed?

The climate finance growth outlook is positive, but there's major differences between where the investments are needed and where they're flowing at the moment. And I think the key barrier that we have seen is, while there is this significant potential to develop clean energy in emerging markets, the cost of capital for clean energy projects is very high due to a number of real but also perceived investment risks. And they include political risk of specific countries, but actually very often also across the board they include foreign exchange risk as very often some of these, the larger projects in particular are still done in hard currencies like in US dollars, but then paid back in local currencies but they also include credit risks. So just as some more concrete information here, the cost of capital for solar PV projects in 2021 in emerging and developing markets is on average at least two to three times higher than in advanced economies and it can be up to seven times as high. And that obviously is a huge key barrier just to really get into scale quickly and that is a problem.

Thinking about the next decade ahead then, how do you see this playing out over the coming 10 years?

I think it's a challenge, but also it's a huge opportunity for investors to really scale up their action on clean energy, on climate. I think hopefully that is something that we can demonstrate more. I think we all see just strategy, renewable energy investment, clean energy, just as the clearest path towards most of the issues and the domestic agendas such as price stability, energy, independence, and energy access that I think the current energy crisis certainly has highlighted more.

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“Is 1.5 degrees C on life support?” asks Dr Angela Wilkinson, secretary general of the World Energy Council (WEC). According to research by PwC our current decarbonisation efforts need to happen 11 times faster if we are going to reach the targets of the Paris Agreement.

New measures are essential to strengthen energy markets against supply disruptions and price spikes. But the world also needs to continue to move towards the goals set by the Paris Agreement — and doing so will require going well beyond temporary solutions. To ensure the long-term focus remains on net zero, energy companies, wider industry, governments and consumers must come together.

“The complexities we face are so great that we need sectors, regulators, policymakers, digital experts and capital providers to work together to speed up the race against climate change,” says Jeroen Van Hoof, global energy, utilities and resources leader at PwC. “Sector convergence is critical — collaboration between energy companies and chemicals companies, for example between producers of batteries and electric vehicles. That all needs to happen in sync with the right policy support at the same time. This will not be done by start-ups only; it will require the capabilities of large companies in energy and their expertise.”

<h4>Technology is crucial, but it needs support</h4>

A shift to clean energy relies on a range of energy sources and technologies and the infrastructure to support them. Battery storage systems, hydrogen production, grid integration and carbon capture, utilisation and storage (CCUS) must all be scalable and commercially viable.

Elisabeth Brinton, corporate vice president of sustainability at Microsoft, says there is a role for evolving consortiums such as the Northern Lights project, where Microsoft collaborates with Shell on carbon capture and sequestration as a service to bring technology benefits to the wider market. “New business models that are cleaner and greener can create a tremendous amount of value — it is not a zero-sum game.”

For Angela Wilkinson of the WEC, it comes down to a ‘social transformation’: access and incentives as part of a just transition on a global level. “For the next decade we don't have a shortage of technologies, we don't have a shortage of money — we have a shortage of absorptive capacity,” she says. “There's plenty of money around, but how do we create an enabling environment for new technology? A lot of work is being done at the level of big projects and micro projects, but what’s missing is the middle scale.”

<h4>Policymakers step in to speed up progress</h4>

Collaboration between the public and private sectors is now crucial, and in some countries new climate policy and regulation is starting to bring them together. For example, the US Inflation Reduction Act of 2022 earmarks some $369bn for energy security and climate change programmes over the next 10 years, prioritising initiatives in disadvantaged communities. According to Teresa Mattamouros, managing director at EQT Partners, the act is already driving investment.“In practical terms, there was a lot of private capital waiting on the sidelines to invest in hydrogen, carbon capture and other technologies, but the numbers just didn't make economic sense,” she says. “With this bill it makes economic sense, so we are starting to look at a lot of projects with different eyes. We’re hoping that it's a good example of how policy can accelerate the transition and improve energy equity at the same time.”

“In practical terms, there was a lot of private capital waiting on the sidelines to invest in hydrogen, carbon capture and other technologies, but the numbers just didn't make economic sense,” she says. “With this bill it makes economic sense, so we are starting to look at a lot of projects with different eyes. We’re hoping that it's a good example of how policy can accelerate the transition and improve energy equity at the same time.”

In the EU, meanwhile, a €140bn windfall tax on fossil fuel producers is designed to help fund member states’ transitions to green energy.

Ben Wilson, chief strategy and external affairs officer at National Grid, supports reform of energy regulation and markets to deliver the energy transition. “We need regulation that allows networks to get ahead and invest,” he says. “And we need planning regimes that allow us to invest more in the local communities that host this infrastructure – and we need those regimes to deliver in a few years rather than a decade if we're going to hit our targets.”

<h4>Renewables are starting to become the most attractive option</h4>

Considerable investment is still needed to integrate electricity grids with renewable energy sources — about the equivalent of every dollar spent on zero-carbon generation before 2050, according to Wilson. But he says we are seeing the beginnings of a “self-accelerating energy transition,” whereby the cost of renewables makes them the most commercially attractive option.

“Typically, we've talked about a trilemma of reducing emissions, maintaining affordability and preserving security of supply,” says Wilson. “But if you look at the current situation — certainly in the UK and Europe, but also in the north-east of the US where we operate — renewables are now by far the cheapest source of electricity generation. All levers point in the same direction, which is more and more renewables.”

This is a reason to be optimistic, but is it enough? “The diversity in energy systems has increased globally, and there’s no one-size-fits-all solution,” says Wilkinson. “To form the new energy system, cities, communities and regions all need to be involved, with a regulatory environment that enables their voices and choices to be understood.”