Cleantech’s second coming: Is salvation in sight for hard to decarbonise sectors?
Can the aviation industry ever reach Net Zero? Are we on the brink of a green steel revolution?
In the final episode of our series, Nina and Simon explore emerging solutions to the hardest decarbonisation challenges, with Faustine Delasalle, CEO of Mission Possible Partnership, Rob Trezona, Co-founder of Kiko Ventures, and Ross Bruton, Head of Ventures at the Carbon Trust.
Transcript
[00:00:23] In the boom year of 2008, there was about six billion of venture funding dispersed In 2021, it was 21 billion. Uh, so there's been a huge increase. This is now the second coming, if you like, of cleantech. And people mean it now.
[:[00:01:09] Today's episode is our series finale and we're rounding off our exploration of innovation with a deep dive into the decarbonisation of the so called hard to abate or hard to decarbonise sectors such as heavy industry, aviation and shipping. Now these sectors are responsible for around a Third of global CO2 emissions, but reducing these emissions is very challenging because existing technologies are either not effective or they're highly costly.
[:[00:02:10] And of course, that's where innovation comes in. And in some hard to abate sectors, That innovation is already starting to bear fruit. So coming back to the example of steel, it's now beginning to be produced using electric arc furnaces across the EU. But are solutions emerging in other sectors? How should effective innovation be supported?
[:[00:02:51] Kiko Ventures. And Ross Bruton, head of ventures at the Carbon Trust, where he leads the delivery of business acceleration support for the UK government's one billion pound net zero innovation portfolio, otherwise known as ENZIP. Welcome Faustine, Rob and Ross. Before we dive in, I have to ask about the wonderful names your organizations have.
[:[00:03:35] And the conclusion we reached at the time, which was quite groundbreaking back in 2018, uh, was that it was possible to decarbonize those hard to abate sectors, even if it was harder. Um, hence the very popular title Mission Possible, which has now translated into a full organization. Fantastic. And Rob, what inspired the name Chicco?
[:[00:04:17] We did actually approach Fastin and said, how about transition ventures? Um, but they weren't that excited about that. Uh, so we spent a bunch of time with some, um, sort of agencies. We chose Kiko because it means climate in Japanese. Um, and we should talk to a bunch of people we know from Japan, it's just okay, it's not cultural appropriation.
[:[00:05:00] Oh, there are many. Absolutely. The net zero innovation portfolio was essentially a billion pound portfolio, as you mentioned, launched in 2019, running up into 2024. Um, so Another acronym, I guess, for us to all memorize. Absolutely. Well, let's begin our conversation by understanding a bit more about the sectors that are more challenging to decarbonize.
[:[00:05:37] When we invented the term, we opposed it to what we considered as easier to abate sectors, sectors that could benefit from the ongoing trend in terms of cost reduction of clean energy and clean renewable electricity in particular. So it was by opposition to all sectors that already use electricity as their main source of energy, like for instance our home appliances and in opposition to sectors that could easily be electrified like road transport.
[:[00:06:41] Uh, trips to, uh, Australia, um, uh, are things that are difficult to handle with batteries at this stage. Ross, it's clear that those sectors, therefore, are more in need of innovation to decarbonize than others, such as domestic transport. But what type of innovation is most needed? Is it a case of more research and development into new technologies or demonstration and incubation of existing ones?
[:[00:07:23] They need the infrastructure, they need the policy alignment, they need the supply chains to be able to reach maturity and reach prosperity with a lot of the incumbent technologies. that exists. So we need to support early stage innovation. We need to get them to embed customer centric designs, customer centric thinking into the commercial models and the business models that they, that they develop.
[:[00:07:57] We get a lot of technologies that become commercially ready, but the market isn't ready to accept those technologies to scale just yet. So better understanding and getting that early stage understanding for innovators to know How to develop their business models so that they can take advantage of the market as it is today and make sure they read to scale once that alignment takes place.
[:[00:08:37] Oh, there are many. And we work with, we work with quite a few of them. I think within, within the hard to abate sectors, two key areas is that of fuel switching. So moving from fossil fuels to different forms of hydrogen or different forms of hydrogen gas based blends. Uh, Yeah. Carbon capture utilization and storage or direct air capture are key areas there as well, as well as just general electrification, whether that is from a mobility perspective, whether that's from an industry based perspective.
[:[00:09:17] Uh, we have the likes of Bramble, uh, which, um, Rob will know really well, which is essentially developing low cost, high performance, uh, fuel cells, leveraging a significant base of printed circuit board manufacturing capacity globally in order to scale their technologies, whether that's for on site power, whether it's for motive power.
[:[00:09:52] develop different forms of polyols or oil based products and materials that can be used in common consumable products, whether that's cars, clothes, construction materials, mattresses. Other interesting technologies, the likes of CCM Technologies, their technology is leveraging different forms of carbon that's been captured.
[:[00:10:30] Have you seen any promising technologies for decarbonizing that sector? I think there's a range of technologies that are of interest in aviation, and there's a kind of short term range of technologies that can be used in existing planes, which is really interesting because that enables you to blend traditional conventional jet fuel with fuels that are more sustainable.
[:[00:11:15] Uh, that will require more investment. infrastructure at airports in particular and a rethink of the airframes themselves. Um, but there's a lot of potential there too. And I was in a very good session at COP last year where the different innovators developing hydrogen planes and electrified planes were competing on the date by which they hope to put their first commercial airplane.
[:[00:12:06] In decarbonizing these sectors, for instance, reducing demand for flights with the goal of reaching net zero in just 26 years in mind, and the clock obviously ticking. What do you think the balance should be between focusing on behavior change on the one hand and developing new technologies on the other?
[:[00:12:41] We need to play on energy efficiency as well. And we need to play on innovative technology developments. Um, In in our own kind of assessments, we've we've developed sector transition strategies for all harder to abate sectors. And overall, we considered about 30 percent of the solution is demand reduction, a shift to a more circular economy and energy efficiency combined.
[:[00:13:34] It will be a cheaper pathway and a faster pathway if we really maximize alongside investments in new technologies. That's an important point. Thanks, Faustine. Yeah, let's get on to that investment because we heard about some fascinating technological innovations there, like zero emissions distilling, which sounds very appealing to me.
[:[00:14:12] You're actually investing in the solutions of the future. So to what extent was finance a barrier to clean tech back at the start of your career? And how has that changed? Yeah, interesting question. So I started my career in the 2000s and be fair to say there was a bit of a clean sake boom at that period.
[:[00:14:47] So places like California with very bad air quality, um, were thinking of, you know, how do we replace gasoline engines? Uh, and it was, I would say, a period of optimism. Absent the sort of overall roadmaps that we talk about now for net zero was sort of, can we try and improve the environment more generally?
[:[00:15:24] Yeah. But then there was a bit of a sort of reaction against clean tech, even to the point where in the mid 2010s, clean tech was regarded as a sort of failed sector. There's a famous M. I. T. paper nicknamed the clean tech is dead paper that came out that reviewed all that, all that stuff. So when I started, it was a lot of well meaning, um, Um, and inexperienced people, very talented, um, in a small corner of, of venture that was sort of, you know, good intentions, places like California, the UK as well was quite busy, but it wasn't part of systematic, um, overall industrial government policy.
[:[00:16:17] Um, the world's changed from a sort of, this is fun thing to do on the side, semi philanthropic to this is core government policy. We in the UK should be very proud of having legally binding climate targets that take us to net zero. Uh, and that's fundamentally changed the way finance and industry thinks about the sector.
[:[00:17:00] This is kind of core strategy for people, um, in terms of steel, in terms of aviation, in terms of shipping. Uh, and so people mean it now, which is a bit late actually, uh, as Faustine was saying earlier. Uh, but it's, and that's at least happened. Uh, and I'd say the second coming, if you like, is. A lot more capital, much more joined up thinking, there are infrastructure specialists as well as the venture specialists and growth equity as well.
[:[00:17:43] Mm. Fascinating to hear about this second coming of cleantech. Um, and you mentioned the UK, um, having its own legally binding net zero target. And that's, that really drives innovation. And actually we kicked off this series on Um, with a conversation with Sir Patrick Vallance, the former chief scientific advisor to the UK government, and he told us that when the government is approaching innovation, um, it needs to take a portfolio risk, accepting that some solutions will fail while others succeed.
[:[00:18:28] Uh, and so a lot of other people in the venture community who back software companies. Just ask questions about how is this possibly scalable? How can you get, you know, 10 X, 20 X return that you might want as a venture investor, and we're also backing new technologies. So there's a double challenge. It's capital intensive and it's quite risky.
[:[00:19:06] Um, there are several organizations around the world who influence policy, like IEA would be another one, uh, but we are finding that the ETC is influencing policy, and the Mission Possible report in 2018 had a massive impact on people seeing the, the role of, uh, vectors like hydrogen. to make things like sustainable aviation fuels to allow green steel to be possible.
[:[00:19:45] Um, so we're also interested in What those organizations see as the priorities for them on. So as an example, um, a big area focus when I was at the carbon trust was low carbon buildings on the built environment. We think the built environment has not progressed as rapidly as some of the other sectors in hard to abate.
[:[00:20:21] It's sort of love the technology. It's aligned with EU. Or IRA US policy around the space. And we know three, four or five corporates who would adopt this would help a pilot it would fund, uh, you know, pilot manufacturing facility. Uh, and that allows us to sort of still deliver decent returns, um, while working in both a A risky policy and capital intensive space.
[:[00:21:01] Development of technologies, I think, within the UK and venture capital investment isn't a larger problem. I think the larger problem is scaling these technologies into commercial scalable businesses. And in order to do that, you need to have a lot of mechanisms that Faustina and Rob has been alluding to.
[:[00:21:43] I think there is a lot of support. That can be provided from a funding based perspective and an incentive based perspective to support these innovators scale. We've touched on it a few times in this discussion, and that is the readiness of the supply chain or value chains, as well as the market, to accept these technologies.
[:[00:22:18] But there are also activities that can be taken to support in these technologies in reaching different forms of price, price parity or standards that we put in place in order to standardize components and the supply of materials for first of kind projects to reduce the costs of those as well as to de risk the offtakers or first customers of those projects In, in putting them into, into place.
[:[00:22:55] If we're going to solve all the challenges that we've mentioned, well, let's get into that then how we actually support those innovators, not just to be technical specialists, but commercial specialists as well. Um, in your work, you're, you're helping startups to take their technology from concept to commercial viability.
[:[00:23:27] And I think one of the biggest challenges when it comes to clean tech and, you know, we like to think about net zero innovators and climatic innovators as sitting under a simple, a similar banner, though they're not really, there is a, significant range of different sectors, different applications, different forms of customer groups that these companies ultimately need to find a beachhead market in and ultimately need to scale in.
[:[00:24:09] I think something that is critical when it comes to these companies is the team that's put in place. Uh, we get a lot of fantastic innovators, a lot of fantastic founders that know absolutely everything about their technology, but to talk about around my A lot of these individuals, this is the first time they're developing a company.
[:[00:24:51] I think. From something that is often not considered by these companies is thinking about their technology as a wider system, right? These technologies are being developed in isolation because we're looking at novel markets as much as we're looking at novel technologies. There are a variety of different technologies that often need to work in concert with this technology in order for that technology to reach commercialization and the system to reach commercialization.
[:[00:25:32] can only develop as fast as the market or the system is able to develop in its stead, at least within the country. Uh, you know, there's, there's, these systems develop at different rates internationally. So I think thinking of a technology, not as just as technology, but thinking of it as a system is something that we need to, that we consistently try to engage with companies about as well.
[:[00:26:17] Um, you want to believe that The exit environment to which that company is being being sold is a large market. And we use various sources to understand that. But a lot of it is the work that the ETC does on what is the necessary roadmap to net zero? By when do we need You know, low carbon hydrogen, some sort of marine fuel that replaces bunker fuel.
[:[00:26:55] So that gives us a perspective on. Sort of not just what the needs are, but the time scales over which they may scale. So anything that we see, we see a huge amount of innovation. I've got about 200 different startups in our investment pipeline at the moment. And we're looking at, you know, is this something that's relevant to one of those big problems?
[:[00:27:39] Most of what we do is in the latter. Um, so we're looking at maybe a spin up from a university, uh, with some sort of breakthrough. Uh, and, you know, that is relevant to this. And, and I mentioned earlier the sort of, um, conversations with the corporate. So quite early on we'd be talking to people we know in large organizations saying, Uh, we found somebody, let's take, um, sustainable aviation fuels and a particular company, OXCCU, uh, we found someone who can, um, in a single step reaction, combine carbon dioxide and hydrogen and make, you know, C8, C16 jet fuel.
[:[00:28:26] Has anyone else got this? And does it mean something? Uh, because there's no use building a wonderful new technology and it's just not, um, on the strategies of some of those companies. Fascinating. You've all, in different ways, articulated how interconnected this is. And for success to materialize when it comes to the race to net zero through, um, decarbonizing sectors, including hard to abate ones through new technology, there's a huge alignment that needs to happen across a multitude of stakeholders.
[:[00:29:20] I think coming back to the basics and what I was saying earlier, you need a business case that holds for investment to flow. And the business case of an energy intensive company like a steel company doesn't rely exclusively on their own technologies and their own performance. It also relies on the cost of all of their supply, uh, clean energy supply in the future, but also supply of, uh, mining materials, for instance.
[:[00:30:16] Now, uh, it's not necessarily a traditional way of operating for big industrial players to think through the story. supply chain and value chain. And it's also difficult for them because you have to work with a number of new players. A big steel company that is used to buying caulking coal for its blast furnaces knows its caulking coal providers really well, but they might not know hydrogen providers as well.
[:[00:31:14] We started that work through in the Energy Transitions Commission and then deep dives through the Mission Possible Partnership on the sector transition strategies for each of the harder to abate sectors. And those transition strategies have been endorsed by the Commission. By more than 200 corporates.
[:[00:32:04] I think there's a lot of competition in the technology space. There's some work on pre competitive technology development, but I think it's fairly limited actually. Uh, where we see the bigger space for collaboration is really on creating the enabling conditions for investment. So, uh, helping develop the, um, clean energy supply chain that will serve multiple sectors.
[:[00:32:52] And all of them will need some form of hydrogen infrastructure and some form of carbon, um, management infrastructure. And so that's where there's a space for collaboration, is for them to work together. on that shared clean energy infrastructure that they will all need if they want to decarbonize. Rob, we've heard from both Faustina and Ross in different ways about the importance of system level change.
[:[00:33:36] Where are the gaps and what are you interested in? How does that feature in your work? So, um, one of the things that happened in my career, which didn't necessarily have to happen, is that wind and solar got cheaper than fossil. I remember being on the Google campus in 2008 and they were like, you know, Hey, Google's going to turn up and solve this.
[:[00:34:11] And a lot of the solutions that we talked about now in hard to bait, rely on. The availability of low cost green electrons from wind and solar. Um, again, it's worth reading the ECC work on this. Whilst things like nuclear and hydro can contribute, You know, moving up towards we think about 100, 000 terawatt hours a year of power, most of that needs to come from wind and solar.
[:[00:34:54] So, so. Those two sources of, of clean energy are essential and are not being deployed fast enough. Um, solar is just about keeping up. Um, it will need more integration with battery storage over the next few years. Um, and you know, they take Germany as a country heading towards 80 gigawatts of solar. In the summer, the marginal value of additional solar now is just starting to become almost negative.
[:[00:35:41] Um, so for once the answer, even though I love funding innovation. for wind and solar is not more innovation. It's just get them deployed. Um, they're pretty popular and they deliver very low cost power for, for everyone, you know, not just in Europe, but Africa, you know, the global South, um, they are the cheapest form of new build power in most countries now.
[:[00:36:20] First Dean, from your perspective, Mission Possible Partnerships, what more do you think governments should be doing, particularly to foster the sort of collaboration that you believe so much in to crack, um, you know, the hard to abate sectors in particular? Yeah. Like I think there's three, four major areas of intervention that we need going forward from governments.
[:[00:37:11] But if you put that aside, I think in terms of just, you uh, creating the right conditions for investment, uh, in the harder to abate sectors and into the carbonization of the harder to abate sectors. Uh, you can basically play with three major levers of change that fundamentally affect the business case of investment.
[:[00:38:06] So I think that's an interesting one. Uh, common pricing itself is, I think, um, uh, uh, not going to be as efficient as it would be. If we don't also remove fossil fuel subsidies that continue to exist across the globe. Uh, and that's something that, um, uh, we need to come back to again and again and again.
[:[00:38:55] So I think those are really the critical areas. And the last one I would throw in is the one Rob was mentioning right now. It's clean energy supply scale up, where we know that the technologies exist, but we're not deploying them fast enough. to meet the needs of all of those energy intensive players that in some shape or form, directly or indirectly, will rely on green electrons in the future.
[:[00:39:38] But with the kind of technological solutions we have for hard to abate sectors, there are earlier stages. So I'm interested, Faustine, is there a risk that these technologies are too costly at this stage and maybe not globally accessible for nations that, for instance, have have less resource to put towards climate mitigation?
[:[00:40:27] S. And so, uh, the complexity of making that happen in emerging economies like India or Brazil that don't have the equivalent of an IRA, and also face, uh, higher financing challenges. is enormous. Um, I think there's still an opportunity we can seize at the fact that solar and wind resources might be much better in some developing economies than they are, for instance, in continental Europe represents a big opportunity for those countries.
[:[00:41:45] And it's something that is, uh, lagging behind today. It's also the purpose of the new initiative, Industrial Transition Accelerator, that was launched at COP last year, that MPP will be hosting from now onwards, where we will particularly focus on how do we create better conditions for investment in green industry in emerging and developing economies.
[:[00:42:37] And I'm going to start with you, Ross. Oh, thanks. Thanks, Simon. I think from an early stage innovate perspective, firstly, the, the, the, the reach of this is broad, right? There's, there's so many things that can be done. I think the, one of the quickest solutions, if, if, if I can say that when it comes to providing an intervention for the early stage innovators that we work with in particular is far more clarity around how policy development from a sector development perspective links in with innovation development within each one of those sectors.
[:[00:43:28] So there's a lot that. that government can do in this area. But I think one of the most efficient ways to get innovators to be able to develop tech, not their technologies that are market ready, scalable market ready products is a far higher degree of engagement from a policy angle in the innovation ecosystem.
[:[00:44:09] Um, but the energy intensive players were not going to invest if there's no buyers for their products. And so one of the underleveraged areas of policymaking, I think, is policy around how do you create demand through mandates, through regulations, through bans as well. And we've seen of, um, uh, end dates for, um, uh, the purchase and the sales of internal conversion engines, uh, in the road transport sectors.
[:[00:45:00] So I'm going to endorse Faustine's sort of support of demand side in policy, which I think is more European, it's more sophisticated. And I'll mention one intervention, which is never going to happen, but it illustrates the economics of this whole problem, which is a global science derived carbon price.
[:[00:45:37] Um, so the, the externality that people using carbon intensive processes, so the marginal CO2 that they're emitting, um, is a number you can get to. Um, and if you did, um, actually apply that cost, that real cost that will cause real suffering and extreme weather events and flooding and heat waves and, and sort of, you know, forced, uh, migration, um, all this goes away.
[:[00:46:21] So, it is far cheaper to deal with it now. Um, so that would, it's not going to happen. We have some carbon trading in Europe and the UK and in North America, and it's been helpful. But that lens that this is cheaper, including difficult things like green steel and SAFs, um, is one for everyone to remember.
[:[00:47:06] I am so glad we chose to focus on this topic. Um, as time runs out to tackle the climate crisis, the race is on to unlock the cutting edge and transformational changes that will power the net zero transition. So we need all the innovation we can get. Throughout the series, we've had the pleasure of speaking to some world renowned experts on how innovation can be used to achieve the unprecedented challenge of decarbonizing the global economy.
[:[00:48:01] But the big lesson from our series, I think, is it won't happen on its own through each of our episodes. We've heard how important it is that That policy makers, businesses, and financiers collaborate to achieve innovation. When that happens, we've seen extraordinary results and we urgently need more of that to get to net zero.
[:[00:48:41] We need business leaders, finance, decision makers. He also spoke about being prepared to accept some risk. And that was obviously a major theme of today's discussion because we know that not every innovation will succeed. And then finally, and you mentioned the important role of government, Sir Patrick spoke about the importance of public private partnerships because we need collaboration in terms of supply chains, policy development, um, uh, global collaboration as well.
[:[00:49:34] Our producer Matt Hopper at Trisonic. Our amazing research and production team at the Carbon Trust, in particular, Mariana Guerrero and Chloe St. George, as well as many other colleagues at the Carbon Trust, who have helped us with everything from sector expertise to design and marketing. And thank you, our listeners, for joining us and our guests for this series of fascinating conversations.
[:[00:50:13] Thank you.
