Environmental challenges

The climate transition also means a technological transition

Manufacturing, transports, construction and agriculture consume fossil fuels, either directly or indirectly (via electricity), and emit large quantities of greenhouse gases (GHGs), which are responsible for climate change.

Published on 16 May 2024


Christian Lopez

Sustainable Investment Business Intelligence CPRAM


In order to mitigate emissions on a global scale, we will have to either avoid them altogether by switching technologies, or capture them and either store them more or less permanently underground or recycle them chemically. So, there is a real need to roll out new climate transition technologies. Meanwhile, the increase in average temperatures, along with more frequent and more intense natural disasters are forcing us to adapt to the ongoing climate change.

First of all, how do we avoid GHGs emissions?

Most emissions can only be avoided by rolling out new technologies that reduce dependence on fossil-fuel-driven sectors, which emit the most GHGs.

The main solution consists in generating more electricity from renewable (e.g. hydroelectric, solar, wind, etc.) or nuclear (e.g., EPRs, SMRs and MSRs) sources. However, as renewable energies are intermittent, it is also necessary to develop power-storage technologies (such as batteries, hydrogen, molten salts, etc.). And, lastly, the electrical grid will have to be managed and adjusted to this new paradigm, both onshore (Iberdrola) and offshore (Prysmian).

In addition, it will be necessary to alter heavily emitting industrial processes. In steelmaking, for example, electric furnaces are already being used to recycle scrap iron, and steelmaking coal will soon no longer be necessary, thanks to new technologies such as direct reduction of iron ore with hydrogen. This is the decision made by the entire German steelmaking sector, with 7 billion euros of government support approved by the European Commission. To implement this decision, steelmakers will use large quantities of clean hydrogen, obtained mainly through water electrolysis. ThyssenKrupp and SHS have just put out for bid two historic projects (about 200,000 tonnes per year). Another example is in the chemicals industry, which is also beginning to decarbonize the production of ammonia, fertiliser (Yara) and methanol (OCI Global and Oersted) based on clean hydrogen.

In light transport, internal combustion engines are gradually being phased out in favour of battery-powered electric ones. Like wind turbines, these electrical engines rely on permanent magnets made mainly in China from rare earths. In heavy transport, the consensus and regulations are shifting gradually towards the use of sustainable fuels made in some cases from clean hydrogen (clean kerosene, clean methanol and clean ammonia for ships).

What about heating? One good solution is geothermal technologies in urban settings or individual thermodynamic heat pumps to make power consumption more efficient.

And, lastly farming and waste management are still remain major challenges for methane emissions, a very harmful GHG over 20 years.

Governments often support companies in these changes. China, for example, has devoted massive subsidies to electric vehicles. The US reacted with the Inflation Reduction Act (IRA) in 2022 and Europe with the Net Zero Industry Act (NZIA), which, among other things, pick and choose strategic technologies. In Europe, the transition will also be promoted by the phasing out free CO2 quotas for heavy-emitting activities as well as the carbon border tax.

However, these technologies are being rolled out quite unevenly – very fast in the case of solar modules and EV batteries (from China) and far less quickly than announced in hydrogen, due mainly to delays and insufficient public funding.

    And, second, how do we manage GHG emissions?

    As things currently stand, it is not always possible to avoid emissions from certain industrial processes. So, we have to learn to manage them.

    Dozens of European cement makers, such as Heidelberg Materials, have launched CO2 capture, transport and storage projects in Europe and the US. Similar projects are being developed near facilities that produce hydrogen and ammonia from natural gas (e.g., Exxon in Texas and the Netherlands). Such projects are competing with those based on water electrolysis on two critical criteria: price and carbon emissions. They require capture technologies at industrial facilities and geological storage techniques, often below the sea.

    Some industrial companies are also launching projects to recycle captured carbon in order to produce e-methanol (Oersted and Siemens Energy) or sustainable methanol from biomass (OCI Global), for maritime transport. Recently, eight of them even launched a coalition to recycle CO2 into synthetic natural gas, which would make it possible to retain the entire current global infrastructure of natural gas.

    In addition to CO2 capture processes at industrial facilities, many initiatives have been launched to capture CO2 directly from the air (Carbfix in Iceland) or directly in the ocean (Equatic).

    And, lastly, to promote greater data transparency, projects have been launched by companies, governments and NGOs to monitor GHG emissions.

    Many satellite observations have brought to light massive methane leaks, particularly at oil & gas exploration sites. Recently, the MethaneSat satellite was placed into orbit and will soon disseminate accurate and free-of-charge data on methane emissions via Google. The United States have even planned to charge a fee on oil & gas sector leaks beginning this year (900 dollars per tonne).

    And, lastly, how do we adapt to climate change?

    The huge emissions accumulated in recent decades are already producing the effects that scientists had been expecting, including higher air and ocean temperatures, receding glaciers, an acceleration in the rise of sea levels, more frequent and more intense natural disasters, and so on. Efforts at reducing GHG emissions must continue but must also be supplemented with efforts to adapt to climate change. For example, increasingly frequent droughts are accelerating demand for seawater desalination, which often combines reverse osmosis technologies with renewable energies. Droughts have even affected river transport (on the Rhine and the Mississippi rivers) and maritime transport (the Panama canal). These droughts and the need to protect biodiversity are also encouraging expanded wastewater recycling.

    In addition, Google is putting forth artificial intelligence technologies to forecast flooding in more than 80 countries, such as India. Other companies offer similar solutions for early detection of forest fires.

    However, to properly adapt to climate change, better understanding is also necessary. Scientific research in this field is therefore vital, particularly for getting ready for future tipping points.

      To sum up, what is at stake in these investments?

      In 2023, more than 1700 billion dollars were invested globally in climate transition technologies (source: Bloomberg NEF as of 30 January 2024), and this has already slowed the rate of growth in GHG emissions considerably in 2023 (source: IEA as of March 1, 2024). Moreover, these technologies will help make businesses’ climate transition plans more credible, something that investors are demanding more and more (including a mandatory French ISR [SRI] certification for funds by 2026). However, such investments are still spread very unevenly by country and sector.

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