Energy – ESG Club feature


to reach full capacity. Then some countries have political issues, labour shortages and extreme weather impacts while or regulation can beis tighter in different juris-dictions. “There is a wide range of issues making it difficult to mine some of these metals,” Racanelli says.


An alternative, especially for hard to decarbonise sectors, such as transport and industrial processes, is hydrogen. Policy sup- port in this area is strong and Morningstar expects hydrogen demand to grow substantially in the coming decades. Hydrogen can be stored in in a transportable form and produces no carbon dioxide when burned. Morningstar says that $22bn of such projects have secured funding globally, which equates to about 26 million tons of clean hydrogen capacity, roughly a third of what will be needed to meet the IEA’s 2030 net-zero targets.


Step by step


It appears unlikely that there will be one source of energy that saves the day here. Many alternatives to coal must be employed to help get us to net zero and some sources will not be on eve- ryone’s wish list. “You can’t be a snob here. You can’t pick and choose what you think you need,” Bethune says. “The focus needs to be on emission reductions, not excluding one type of power over another. Nuclear energy, for example, is low car- bon, so you need to think about that as part of the solution.” Bethune says the world can’t wait for purely clean energy to be perfected. “We need to make all of our energy one step cleaner. “For example, liquefied natural gas over coal is a net win for the world,” he says. “It may still be a fossil fuel but if you look at the emissions profile of the US, there has been a dramatic reduction in emissions, mainly by moving away from coal to natural gas. “You need to think about every step,” Bethune says. “It is more about emission reduction than waiting for the perfect solution.” Liquid natural gas emits 40% less carbon dioxide on average than coal. “Liquid natural gas is a bridging fuel, but in some ways a bridge to nowhere,” Kinder says. “Whilst it has some interesting merits in introducing flexibility into the grid, it is expensive in requiring a unique infrastruc- ture,” she adds. “Ships need to be specifically retrofitted to transport this gas, while ports need to be equipped to trans- form it back into natural gas. It is expensive to move such amounts of gas around the planet.


“In a perfect world, whilst gas will be used to provide inertia when the wind is not blowing and the sun is not shining, it probably would have been best to double down into things like storage or pumped hydro, which could basically guarantee a net-zero economy,” Kinder says.


The other path to achieving net zero could be to keep burning fossil fuels and offset the harmful emissions. However, the use


of offsets to mitigate the damage caused by fossil fuels through funding green projects is controversial as there are question marks around the effectiveness of these markets. “[Offsets] are not a good justification for using coal,” Kinder says. “This could improve, but it is a difficult one.” Finding the right alternative is not the only issue. “There are challenges putting net zero at risk which I would put higher up the concern list than the available energy sources,” Kinder says. One is the lack of consensus on net zero. While most of the world has agreed on keeping temperature rises to 1.5-degrees by 2050, some of the countries making the biggest impact on climate change are not aiming for mid-century. India, China and Indonesia, for example, have set net-zero targets for 2060 or 2070. “They have huge propensity to change whether we can stay within safe limits or not,” Kinder says. With India and China building more coal-fired power plants, fossil fuels remain part of the world’s energy mix. “They can be made greener, which could be something of a positive story for coal,” Kinder says. “Attaching carbon capture and utilisation technologies to coal generators could remove a lot of the nega- tive emissions and by-products you get when coal combusts.”


The transition isn’t working


While investors are pushing companies to back cleaner sources of energy, they have to consider the social consequences of dumping oil and coal – people will lose their jobs, which could hit some communities hard. The good news is that jobs are be- ing created from a decarbonised economy. The Climate Change Committee’s A Net Zero Workforce report found that around 250,000 jobs have been created by the shift to net zero so far. However, 65% of ‘green’ employers surveyed by Generation UK, a non-profit that supports people facing barriers to employment, confirmed it is difficult to find staff with the right skills and experience. Green-skilling initiatives need to be scaled up if we are to avoid a bottleneck on the path to net zero and growing unemployment. These skills are needed. Bethune says the world doesn’t require less energy each year. “We want more green energy, but we still need more energy overall. “You need to supply enough energy to transition because if you have high energy costs today, it slows down the transition in the future,” he adds. And the transition needs to speed up if the 2050 net-zero tar- get has any chance of being achieved. The will is there with innovations being developed all the time, such as in electric vehicles (EV). “There’s a lot on the EV horizon,” Kinder says. “Re-charging is getting faster and faster every year.” Time will tell if the transition assets institutional investors are investing in will be enough to force the structural change the world needs. More reliable assets are needed. As although Brit- ain is full of wind, it will take more than wind to get us there.


Issue 124 June 2023 | portfolio institutional | 41


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