Net Zero Pathways and Policies: Defining and Driving a Global Level Playing Field

From a global perspective, the US energy market had already begun its decarbonisation journey with the election of President Biden. President Biden’s transformative goal of achieving net zero in the power sector by 2035 and the broader economy by 2050 has unquestionably accelerated the transition. But what does this mean for the energy transition in the rest of the world? Do we have the right market mechanisms? What is the European Commission’s plan? Moreover, with all these policy announcements, are they aligned, supportive, or in competition?

On the 14th of July 2021, the European Commission presented 13 policy measures to reduce greenhouse gas emissions by 55% in 2030, from their 1990 levels. Achieving these emission reductions in the next decade is crucial to Europe becoming the world's first climate-neutral continent by 2050 and making the European Green Deal a reality

The recently announced and much anticipated Fitfor55 legislation is encouraging the transition in transportation. Rigorous standards regarding CO2 emissions from new cars will be applied. By 2030, manufacturers will have to reduce emissions from new vehicles by 55% compared to a current target of 37.5%. And by 2035, emissions from new vehicles will have to be reduced by 100%, which might open the market for electric and hydrogen cars.

The reform of the emissions trading system (ETS-EU) is also at the heart of the “Fit for 55” plan. The European Commission has proposed phasing out exemptions enjoyed by the aviation sector in the emissions trading system (ETS), and also the integration of maritime transport into the system ETM.

Looking at the Middle East, how is the region positioned to address the energy transition? We have heard about the recent achievement in Saudi Arabia where the G20 Energy Ministers endorsed the Circular Carbon Economy Platform (CCE) as a tool to manage emissions and foster access to energy. The CCE approach includes a holistic, integrated, inclusive, and pragmatic approach to managing emissions that aims to provide new pathways towards economic growth. In addition, the Saudi and Middle East Green Initiative, was announced as a valuable contribution to tackling the worldwide energy transition. The initiatives include several ambitious projects designed to reduce carbon emissions in the region by 60%.

Downstream will be key to delivering the energy transition with opportunities arising, for example, the move to EVs increases the demand for manufacturing plastics, which in turn increases demand for heavier grades such as carbon black and anode grade coke used for manufacturing materials required in batteries.

The Middle East needs to examine the product slate and deliver more flexible products as the region is in an ideal position for global competitiveness due to less and less assets operating in Europe as we get close to 2035 and 2050 timeframes so refineries need to make the most of this and position themselves well.

The region is blessed with the abundance of resources with big opportunities such as solar and wind.

In terms of regulations, it has been commented that more drive is needed and more support. We have seen companies setting their own targets and agendas meaning the sustainability goals are not unified. Regulation has the potential to give consistency, incentives and guidance to all involved and deliver a common goal to achieve together to meet regulatory requirements.

On the other side, policy is developing too slowly and industry needs to act now to support the development of technologies through collaboration on pilot plants and scale up of investment in capital to ensure the solution deployed in the future is as cost effective as possible whilst setting targets and a roadmap to meet the 2050 goals. Any regulation that will be implemented will reinforce the strategy set by the industry, rather than drive it. If the region waits, it will end up behind the curve and the overall solution will end up costing more.

Europe is leading the way in the push from hydrocarbons to any energy that can provide lower carbon with the world overall becoming more environmentally cautious over the last year. One of the most talked about alternatives is Hydrogen. This has been at the forefront of many discussions and debates.

“In the transition phase we will need all low-carbon hydrogen solutions,” said EU Energy Commissioner Kadri Simson at the launch of ‘Fit for 55’. Hydrogen has been very present in the European energy scene these past few years. Hydrogen can help decarbonise heavy industry and long-distance transport – aviation, shipping and trucks, and to store wind and solar power. Whether be it green or blue hydrogen, of course green hydrogen is the preferred route, but members of the commission also see a transition role for blue hydrogen made from natural gas with carbon capture and storage (CCS). Although blue hydrogen will limit our abilities to reach the target ambitions, but the reality is that until there is enough renewable power for the electrification of crackers or until the development of a non-energy intensive route to produce olefins, blue hydrogen is an already proven key mechanism to allow the industry to reduce its emissions consistent with the required timelines.

Across Europe’s 40 crackers the technology at scale is available today to convert 40 million tonnes of CO2. Blue hydrogen is a key pathway that needs acceptance to achieve this transition.

It was suggested that the use of blue hydrogen be limited to certain sectors for example, the cement industry and refining. Clear boundaries and annual allowances for blue hydrogen can be set during this transition period which can be reviewed, reassessed, and displaced by green as/when the capex for electrolysers comes down, more renewable feedstocks are readily available, and the cost of renewable electricity has come down. It was suggested that from a policy perspective, blue hydrogen needs supporting, but only green hydrogen as the end goal should be funded.

UK industrial cluster says blue hydrogen is now needed to reach net-zero goals in the future. These industrial areas that are traditionally reliant on fossil fuels are in competition for funding to help create the world’s first net-zero carbon industrial cluster by 2040.

At Essar’s Stanlow refinery, part of the UK’s leading industrial decarbonisation cluster, HyNet Northwest, the production of low carbon hydrogen will help decarbonize 40% of the site where CO2 emissions currently stand at around 40 million tonnes per year. The first stage will remove 300,000 tonnes. CO2 capture is a key part, and the first wave of hydrogen production will see 97% of the CO2 captured. Subsequent units will use natural gas from the grid. HyNet is enabling closer integration between industries in the UK’s Northwest with a common focus of reducing collective carbon emissions. HyNet is about using established technologies in a new way, with efficiency at the core.

However, it can be agreed that there is a lack of coherency in the regulations that are currently on the table. Looking at the different sector roadmaps and regulations, be it Fitfor55, Fuel Exempt, or the Waste Framework Directive, they are not connected in their objectives. Consequently, one of the most difficult challenges for the European downstream players is that the legislation in Europe is not developing consistently and coherently. Adding to that, what we are seeing today is that the development of regulations is faster than the deployment of capital expenditure for projects to enable the industry to satisfy the regulation. The industry needs the time to build the technologies, capabilities, and competitiveness to succeed in these pathways, and there is a danger that the industry is not seen to be moving fast enough. The reality is that the technology is not sufficiently ready to develop the projects.

With the ever-increasing companies’ commitment to carbon neutrality, there is a growing concern about the accessibility and availability of renewable and bio feedstocks. Clearly a balance is needed but what remains are concerns and constraints about the availability of appropriate feedstock.

That segues into circularity and the challenge of how to convert waste into value. Today only 8% of the economy is circular. With such expectations from stakeholders on Scope 3, how can we get more of our products/services to be circular? Innovation, regulation, integration, and infrastructure are all needed to ensure that waste becomes a valuable material that comes back into the chain.

There is a big innovation challenge for the whole industry to make these technologies scalable and affordable especially to be successful by 2050. Whilst there are issues regarding the scalability of technologies it is believed that the industry will get there but the supply chains still need establishing. Looking back to the history of the integrated business model, rather securing access to the crude stream, today’s refiners and petrochemical producers need secure reliable access to alternative feedstocks, which might mean partnering with others, such as with municipal waste companies for example.

The decarbonisation challenges for the refining industry and those producing fuels can be split into three main categories. First the manufacturing and production of fuels, the refinery, the plant, and the systems around it. Second, the fuels and products themselves, needing to be decarbonised and third and perhaps the most crucial, the innovations, infrastructure, and the regulations that will enable the first two to be delivered in a commercially viable manner.

To stay relevant, there is no option for the industry but to move forward with the transition, but crucially, the industry should be enabled and supported to move as fast as they can, in the (technology) direction that’s best for them and society.

Energy Transition should be seen as a journey with many steps. Cooperation and collaboration are needed between different sources of energy and the many opportunities available today must be embraced in parallel.