Creativity, embracing risk will be key to next wave of carbon reduction

The easy steps to reduce carbon emissions have already been taken, and further cuts will require innovation from planners and policymakers to maximize natural gas and hydrogen fuels, experts on an industry conference panel in Houston said.

"The future of gas is the biggest uncertainty around the future of the energy system," David Victor, an innovation and policy professor at University of California, San Diego, said March 9 on a panel devoted to the decarbonization of heavy industry at CERAWeek by S&P Global. "Obviously, gas has some really important industrial applications" such as operations that require high heat, Victor said. Other solutions that involve natural gas include hydrogen fuels and cutting emissions by using carbon capture and storage techniques.

Victor's paper on how oil and gas producers need to change through the energy transition provided the intellectual firepower for activist investors at Engine No.1 LLC to wage a proxy fight against Exxon Mobil Corp. in 2021 and gain three board seats as investors tired of Exxon's lack of motion on climate change.

One way to reduce uncertainty is to spread the risk across multiple companies through partnerships, Victor said. "But not collaboration of the very thin type where you have a press conference, say you're collaborating, and you go back and try to crush each other."

Government purchases of new technology can provide some certainty in an uncertain world, said Julio Friedmann, the chief scientist and "chief carbon wrangler" at research and investment firm Carbon Direct.

"Governments buy 50% of the concrete in the world. They buy 20% of the steel in the world. They buy 5% of the fuels. That is an incredible lever that they can exercise," Friedmann said. "They've done it for solar panels, with windmills. ... You can reduce the uncertainty by having a contract with purchase. And that contract for purchase creates standards, creates supply chains, creates contractual mechanisms that reduce the uncertainty in the space."

Friedmann's most ambitious example was to repower the ships and boats of the U.S. Coast Guard with ammonia from natural gas for use in fuel cells and power turbines.

"We're under-imagining what we can do to accelerate this transition. We're not being creative or ambitious enough," Friedmann said.

A price on carbon, from a tax or some other mechanism, would bring more certainty to technology development to reduce emissions, a top executive with French energy technology company Schneider Electric SE said.

"Today, we can reach at least 25% of decarbonization with proven and existing technologies," said Astrid Poupart-Lafarge, Schneider Electric's global segment president of energy and chemicals. "The next step is about process change, and process changes around, first, electrification."

Electrification represents the next step after efficiency in terms of the decarbonization path, Poupart-Lafarge said. The final step is carbon capture and storage, Poupart-Lafarge said. That stage is "often still the most expensive" because it requires adequate infrastructure in place to support the supply chain to transport and store the carbon.

Like the other panelists, Poupart-Lafarge encouraged thinking creatively. "Nothing is easier than repeating what we used to do, especially in industry," Poupart-Lafarge said. "As leaders, if we want this to change, we really need to create a framework that incentivizes the change."

Victor returned repeatedly to the challenge of an uncertain future. "These are enormously risky investments for firms. Nobody really knows which will work," Victor said. "We've got to run experiments, in effect, and then run a portfolio, explore the details. Some will win, some will lose and, and we just don't know."

But the risks and unknowns are a necessary part of the path forward, Victor said. "'Uncertainties' is life, like gravity. Deal with it."