Broad shoulders of industry can provide decarbonisation muscle - James Richardson comment
No one should underestimate the size of the challenge involved in tackling emissions from large, energy-intensive businesses.
Industrial decarbonisation is the elephant in the room of the climate discussion – a complicated, difficult beast that is capital-intensive, technically complex, and deeply stitched into existing international networks across much of our industrial production and transport.
Debate about the global journey to net zero regularly underestimates what will be required both now and into the future to achieve meaningful emission-reductions across this large, successful and often energy-intensive segment – which, after all, underpins the global economy.
And success will be crucial if we are to meet the collective commitment to limit global warming to below 2 degrees Celsius while maintaining the proven and positive relationship built up over the last 100 years between energy supply, national wealth, and living standards.
Collaboration between academia, government, and private enterprise is certainly one part of the formula to accelerate the cost and technology advances necessary to meet carbon-reduction commitments in this crucial area.
But the power and experience of the industrialised economy itself, facilitated by companies such as energy technology company Baker Hughes, is also essential: only by tapping into the significant capital, proven expertise, and technological muscle that these players can bring to bear will the challenge in front of all of us be met.
Hitting the target
The industrialisation of the modern era has lifted large parts of the world's population out of extreme poverty on the back of the very hydrocarbon combustion that is now threatening to wipe out the progress made. However, any overly simplistic approach to the problem – including an immediate shutdown of fossil-fuel energy production – would come with political, economic, and social repercussions.
Yes, the shift to renewable power-generation and broader electrification are already well under way across the world, but these sectors have yet to make a serious dent in the hard-to-abate CO2 produced by parts of the world's industrial base.
Decarbonisation in these areas will be built on applications such as carbon capture, hydrogen, methane-reduction, and geothermal. And while governments are focused on the policy and regulatory frameworks required to reward emission-reductions, it will be the industries themselves that carry out the heavy lifting – with technology, business, and capital markets all having a role to play.
Environmental, social, and governance (ESG) and climate-focused investing continues to grow with measures such as the EU Sustainable Finance Disclosure Regulation and the UK Task-Force for Climate-related Financial Disclosures adding much-needed rigour to the allocation of capital across various markets. As a result, financial assets are more than ever linked directly to the carbon intensity of the corresponding real-world assets, enabling investors to cut the impact of the portfolios they hold.
High-emissions sectors, however, are being disadvantaged. Agriculture, manufacturing, energy and mining are critical parts of the world economy – and enable low-emission sectors such as IT, science, arts and entertainment – but carry a “transition risk” given the level of investment required to decarbonise. Any significant long-term flow of capital away from such assets will starve these companies of the very funds required to cut emissions and achieve industrial decarbonisation. Investors may also miss out on portfolio-diversification and potential longer-term value.
Increased understanding of the complex interdependence of real-world infrastructure, the interplay between what are seen as “green” assets and more traditional sectors, will help to ensure that capital is available to support decarbonisation infrastructure.
There is a corresponding obligation – using monitoring technologies such as those developed by Baker Hughes to measure and help reduce carbon emissions – to accurately predict, and report on, the carbon intensity of the businesses so crucial to achieving our collective goals.
While governments dictate the carbon-reduction path to be travelled over the coming years, it is industry that will develop the technologies and build the projects required to cross the finish line.
Whether a wind farm, hydrogen production or carbon capture, the ability to build infrastructure of this scale, complexity, and connectedness lies within those businesses we have today; these industries excel at essentials including technology-evaluation, complex infrastructure design, integrated risk-management, political and stakeholder management, trading and capital raising.
And while renewable energy has been a success story largely built by the electricity-generating companies, addressing intermittency and hard-to-abate emissions will require further development of carbon capture, alternative fuels, and hydrogen storage.
Those strands of decarbonisation depend on complex industrial process facilities and critical infrastructure, and fall within the core competency of sectors such as oil and gas, which have the added benefit of the significant scale and added muscle required to drive rapid decarbonisation.
Energy technologies have long been harnessed to meet economic and social requirements, starting with coal, oil and gas and shifting into nuclear, hydro, wind, solar and biofuels as demand dictated.
Efforts to achieve industrial decarbonisation have a head start in that some of the advances required are already in place: carbon capture, transport, and injection is already proven at scale in North America. Synthetic fuels, alternative combustion technologies, and energy storage are all developing.
Further development is required, certainly, in areas including the scale and efficiency of hydrogen electrolysers, the impact and operational expenses of carbon capture, and a more circular economy for industrial waste streams. Meeting similar challenges to wind and solar in the early 2000s resulted in advances that dramatically reduced costs and improved efficiencies.
Established industrial players are essential to this ongoing transition. Baker Hughes recognises that a significant proportion of the skills and technology forged in response to the demand for oil and gas – compressors, wells, pipelines, subsea electrification – can be applied directly to areas such as geothermal, carbon capture, and hydrogen.
But we, along with many like-minded companies involved in industrial decarbonisation, are also committed to investing in the additional enabling solutions required to fill gaps already being identified on the road to net zero.
Shoulders to the wheel
There is rarely a simple solution to a complex problem, and the rapid decarbonisation of industry is no exception.
However, we do have businesses with the expertise to make a meaningful difference, and we have proven technologies that can make an impact today; further, the scale of our oil and gas sector, and the experience built over many decades, enables it to build – at pace – the critical infrastructure needed to reduce emissions in the short term.
It will, it must be acknowledged, be necessary to reset society's relationship with some of the industries involved. This will require a better understanding of the benefits these companies can bring, demonstrable leadership from the industry itself in the new projects that are required to reach net zero, and robust and transparent systems to track decarbonisation commitments.
Baker Hughes is among those who believe this is realistic and achievable. But success in meeting the challenges ahead requires many shoulders to the wheel – industrial decarbonisation is too important, and too onerous, to adopt any other strategy.
James Richardson, commercial director of UK industrial decarbonisation with energy technology company Baker Hughes
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