COP26: The Sustainable Innovation Forum highlights the mechanisms needed to deliver decarbonisation

• IMF fiscal policy expert calls for global carbon pricing
• Industrial clusters seen as the key to successful carbon capture strategies 
• Bringing hydrogen on stream is no longer a technological problem - the challenge is demand

Can industry adapt to a world in which CO2 is priced at $100 per ton or more? Or viewed from another perspective, can we rapidly transition to a net-zero economy without radical measures to disincentivise the consumption of fossil fuels?

These were the questions that dominated the third and final day of the Sustainable Innovation Forum, an event that has brought together industry leaders, policymakers, scientists and NGOs to explore how the carbon reduction commitments made in the COP26 Blue Zone can be translated into practical action on a global, national and local basis.  

Wednesday’s discussions were given added impetus by the publication of research by Climate Action Tracker warning the world was on track for 2.4 degrees of warming by the end of the century, despite measures agreed by COP negotiators. Meanwhile, a draft text of the COP26 agreement was accused of failing to finalise crucial carbon reduction measures, choosing instead to push major decisions forward to the next conference. 

Against that backdrop, the International Monetary Fund principal environmental fiscal policy expert, Ian Parry set the set out the case for a global approach to carbon pricing that could see CO2 priced at $100 per ton or higher.

“To limit ourselves to a rise in temperature of 1.5 per cent, we have to reduce emissions by between 25 and 50 per cent by the end of the decade. To do that we need an international pricing regime and it needs to cover the EU, China, US and India,” he said. 

As he acknowledged, the introduction of a global regime would have profound implications for businesses and consumers. “A $50 per ton price would add 50 per cent to the cost of electricity, 40 per cent to the price of gas and 150 per cent to the cost of coal,” he noted.

But even that might not be enough to bring newer and cleaner power sources on stream. “You would need a price of $200 per ton to incentivise a switch to hydrogen,” Parry added. 

Parry’s contribution was a reminder that carbon pricing mechanisms are set to play an ever-more-urgent role in moving businesses and customers towards cleaner forms of energy.

But while there is no global tax-based system of pricing on the horizon, carbon is being traded on a country-by-country base by a mix of border taxes and cap and trade systems. 

As Gillian Harrison, CEO of engineering consultancy, Whitefox Technologies reflected, cap and trade regimes can be a successful driver of energy efficiency. “The message we give to managers is that if you measure your performance, you can improve. And if you reduce your energy consumption you bring down your emissions. And in a state like California, you can monetise that,” she said.

Enabling Carbon Capture

Incentives and disincentives are only part of the picture. As panelists identified, big emitters in particular would find it hard to cope with any sudden change in carbon pricing. “If the cost of carbon rose to $100 per ton tomorrow, that would represent 150 per cent of profits for many companies, “ said Yvonne Ruf, a partner at global consulting firm, Roland Berger. “They would go out of business very quickly.”

Thus, heavy users need a pathway to decarbonisation. Carbon capture technologies are expected to play an increasing role in the transition to net-zero. Kentaro Hosomi, executive vice president at Mitsubishi Heavy Industries explained why. “Hydrogen is on the way but by 2040 it will be only 10% of the energy mix. Emitters will need to capture carbon.”

But as Hosomi added, carbon capture requires an ecosystem connecting emitters with technology partners and specialist companies to sequester, move and store the CO2.

Clusters Point the Way

The UK government outlined one vision of how this might work in practice. Stef Murphy, director of Industrial Energy at Britain’s Department for Business Enterprise and Industrial Strategy cited collaboration within clusters, with businesses pooling resources and expertise while also sharing the cost of carbon capture strategies. The UK is currently supporting two such clusters - HyNet and East Coast Carbon Capture with more to come on stream. “Our aim is to take out 30 megatons of carbon by 2030,” she said. In parallel, the development of hydrogen is being supported by a £240 million Net-Zero Fund. 

Why Hydrogen

Hydrogen was seen as essential to enable the net zero journey of hard to abate industries such as steel and shipping. “We know how to produce low-cost hydrogen but now the challenge is to pull forward demand,” said Lord Adair Turner, head of the UK Energy Transition Commission.

Lord Turner cited the US Mover Alliance, which is encouraging companies like IKEA and Amazon to commit to buying services from ship operators who have hydrogen-powered vessels. “But this has to be backed up by a carbon pricing regime,” added Lord Turner.

Joachin Steinbauer of Siemens Mobility agreed that government support was needed to encourage the manufacture of hydrogen power ships and trains. This, he said was essential to seed demand. There would be a range of industrial and transport use cases.

Panellists agreed that the scope for hydrogen was enormous - particularly in hard to electrify industries - and this will be covered in-depth at the Hydrogen Transition Summit, at the Innovation Zone on Thursday. 

The world faces an enormous task and despite some real progress at COP26, the feeling now is that there is much more to be done, both in terms of agreed targets and implementation. There is perhaps also a need for additional scrutiny by shareholders and regulators. Kentaro Kawamori - founder of the climate management and accounting company, Persefoni  - warned of “goalwashing” and called for close examination of company claims. “We need to ask what data can be attributed to net zero performance targets,” he said.

The importance of delivery has crystalised discussions at the Sustainable Innovation Forum. If the world is to meet targets agreed at COP, a lot of moving parts must work in concert and relatively untried technologies such as carbon capture brought on stream, supported by policy frameworks. The direction of travel is clear, but there are still questions over the speed of change.

---

Missed the Sustainable Innovation Forum at COP26? You can watch all sessions on demand here.