As the famous green activist and former Vice-President of the U.S. Al Gore once observed, the Chinese expression for crisis involves two signs: the symbol for “danger” and that for “opportunity”. In that spirit, we have chosen as a springboard for our upcoming report on the global fight against climate change the following projection: the new green economy may be valued at $10.3 trillion by 2050. For this prediction to materialize, however, key actors across the global economy must work hard to ensure that our universally accepted climate goals are seen as more than an obligation to the environment. The green transition, if it were to be successful, must and can be driven henceforth by a strong economic rationale too. By way of introduction to our forthcoming in-depth Newsweek report Pillars of the Green Transition, we display here a sketch of business perspectives on some of the more interesting trends and remaining challenges for the green economy.
The Key Problem for Renewables
From the days when Poul la Cour experimented with aerodynamics and came up with the first wind turbine design the price of green energy has gone down dramatically. In fact, renewables today are the cheapest form of energy, according to the International Renewable Energy Agency. This should be great news for the planet. Yet, substantial infrastructure challenges persist, standing in the way of a full-scale transition to renewable sources. Whereas investment in renewable generating capacities has been considerable in recent years, governments have failed to channel sufficient resources to establish the corresponding infrastructure. One of the principal challenges associated with renewables is the instability their volatile nature brings to the grid. Since the production of solar and wind energy varies, depending on the time of the day and weather conditions, voltage and frequency fluctuations are common. Mismatches between supply and demand can lead to shut downs and system damage. To address such issues, proper transportation and storage facilities are essential. As the CEO of BASF Renewable Energy, Horatio Evers, shares: “The challenges in that respect can be illustrated by our investment in the Netherlands. Grid bottlenecks make it hard to transfer the produced power to our sites in Belgium and Germany, so more investment in grids is essential.” The chemicals giant’s newly founded green energy subsidiary expects that their offshore wind park in the Netherlands will be the biggest in the world once it is in full operation by the end of this year. Yet, delivering all this new energy to where it is needed remains a hurdle.
Similarly, the U.S.’ IRA (Inflation Reduction Act) provides for a marked increase in green energy production, but does not cater sufficiently to the problem of transportation and storage. “The IRA is accelerating the building of renewable generation capacity, thus supporting the long journey that is the energy transition. However, we have determined that, with every 10% of penetration, the market structure changes, therefore we expect to see increasingly challenging situations where intermittency can affect the aging electric grid of the U.S. Designed in a centralized pattern, the grid must be retrofitted to become more flexible and be closer to the renewable resources,” tells us Tristan Grimbert from EDF Renewables.
In addition to improved transmission, one of the promises to solve grid issues comes from electric vehicles (EVs). EV batteries can serve as storage facilities, providing promptly the system with the needed energy during peak demand times. The Mobility House is a company that seeks to combine the EV and the energy industries by offering vehicle-to-grid solutions and monetizing the valuable car batteries: “By integrating those two industries (auto and energy), you have a win-win situation, creating an economic and ecological incentive for EVs owners while solving the risk for mismatch between supply and demand”, affirms Robert Hienz, CEO. As of this moment, The Mobility House has deployed a considerable number of stationary storages consisting of 1st and 2nd life batteries, and they expect that, as the EV market grows, mobile car batteries will be increasingly joining the grid.
The Quiet Revolution
Unlike renewables, sustainable building rarely makes it into the news, yet the sector is vital for the green transition. According to some estimates, the built environment (i.e. building operations, construction, and building and infrastructure materials) accounts for about 40% of annual global CO2 emissions and just cement production is responsible for nearly 8% of global GHG. Fortunately, the green buildings market is projected to grow at an annual rate of 9.50% reaching $1.3 trillion in 2030 (from $634 billion in 2023).
One company we spoke to, CarbiCrete, proposes an alternative to cement by utilizing steel slag. Its CEO, Chris Stern, tells us: “The green buildings market will, on the one hand, be pushed by the industry, as many of the large general contractors are asking for products like ours. But, quite separately, in Europe there are penalties for using CO2 so there is a lot of impetus to utilize cleaner products to the point where building companies are desperate to have products like ours. This is also happening in Canada and the US.” To the question whether green buildings must necessarily come at a higher cost, our interlocutors reaffirm the same message: that higher capital costs pay off quickly. KONE is a global elevator company that focuses more broadly on developing sustainable smart urban environments. Its CEO, Henrik Ehrnrooth, reiterates: “If you look at the high energy costs in the building industry, you see that there is a strong case for incorporating sustainable technologies. And higher costs associated with installing basic infrastructure like windows, insulation, facades, and elevators also improve the life cycle of buildings that in turn help reduce emissions.”
Focusing on new buildings, however, is only a part of the solution: indeed, it is the smaller part. Even more crucial is to optimize the sustainable profile and energy efficiency of existing buildings. According to an estimate, 80% of the building stock in 2050 already exists. As Lynne McArthur, President & CEO of Ecosystem Energy, a company that improves the energy efficiency of standing buildings, remarks: “That is one of the reasons we focus on existing buildings. We see the market growing continuously. Sustainable practices are now not merely discussed in board meetings as in the past but are being seriously implemented. So, we are well positioned in terms of our experience and in terms of where the market is headed. To illustrate: our average energy savings across our portfolio now is between 30% and 35%.”
Addressing the Financial Gap
Regardless of the many efforts, a huge financing gap still separates us from achieving our climate ambitions. Annually, only about 16% of climate finance needs are being met. The voluntary carbon market was developed about 15 years ago with the hope to partly mitigate this problem. Unfortunately, the carbon credits space has attracted many money-spinners that seek fast profit and often engage in greenwashing. “Carbon finance is theoretically intended as a catalyst finance but due to a stampede of players interested in making money fast regardless of impact, this initial meaning has been somewhat lost recently,” informs us HCBL’s CEO, Philip Hardwick. This problem is especially acute in Canada today, where some speak of a new ‘gold rush’ for carbon credits. In response to that, Mark Zekulin, the Chairman of Invert, which funds carbon reduction and removal projects across the globe, recalls the fundamentals of the carbon credits market: “We now accept that there is a cost to pollution. The flip side is that there must be a reward for those whose activities sequester carbon or prevent it from being released. This is the fundamental reason why carbon credits exist.” Zekulin believes that educating the public on the genuine principles of carbon credits is key to tackle practices that lack integrity.
But carbon credits are just a piece of the puzzle, as a much broader mobilization of funds is necessary. Indeed, given the colossal figures that are called for, a genuine transformation is hard to imagine without the proactive involvement of all major economic actors. Making decision-makers see the ‘why’ will also make them find a ‘how’. Presently, investing in the global fight against climate change may not appear as economically viable to many. Yet, as Dr. Günther Thallinger, Member of the Board of Management of Allianz exemplifies, next to the ethical element, businesses have a strong economic reason to invest in green projects even when this is not obvious at the surface level: “We now see insurance companies withdrawing from offering services in parts of Texas, California or Arizona, preventing house owners to build on formerly approved spots due to droughts and other climate-related issues that render insurance unaffordable. This clearly illustrates the need for insurers to act on climate change. If climate change or its impact is not limited, people will not be able to buy insurance anymore because the risks will be too high for an insurance policy to remain affordable.” Examples like this one point to the simple fact that, if we fail to revert it, climate change will be catastrophic for the entire global economy.
Last but not least, multiple actors have told us that one of the reasons why more investment is not directed to green projects is the lack of concrete data and information available to companies. In addition to optimized standards, which is a regulatory matter, tech developments in data analytics and AI hold many promises in that regard. We spoke to IBM, a leading tech corporation, to learn more about their vision of the link between their core work and the fight against climate change: “According to a recent study we conducted, 95% of organizations have set ESG or sustainability goals, propositions, or plans, but only roughly 10% of them have made significant progress on those goals. And we believe that data poses the greatest challenge for many of these corporations,” explains Justina Nixon, Vice-President and Chief Impact Officer of IBM, stressing that her company is now more focused than ever on addressing such issues.
To read the full story about the global economy’s green transformation, look for the next pre-releases and the final report published in November 2023 in Newsweek’s print and digital edition.