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Updated: Oct 8, 2022

Why do we need to decarbonize the world, what that means and why now? In a nutshell, around the Industrial revolution and beyond, several human-based activities started to produce gaseous emissions to the atmosphere that later on, we discovered based on several (and not linked, so we called independent) researches that some gases identified as Greenhouse Gases or GHGs can create a “greenhouse” effect in the atmosphere blocking the radiation from the sun to exit the earth, and this generates an increase in the average temperature of the world, including the oceans. GHGs were always present and the planet earth has its own regulation mechanisms, but the incredible increase in the emissions and therefore concentration of such gases in the atmosphere result in a problem. This GHGs are changing the climate, producing more floods, hurricanes, tsunamis, rise in the level of the oceans, and many other harmful results that we commonly call “Climate Change”. So for every species in the planet that wants to keep living here (maybe some wants to colonize Mars with Elon Musk and it’s fine) should be important to understand better the Climate Change, and most importantly what you can do about it.

The decarbonization of the world, means basically to avoid by different means the emissions of Carbon Dioxide (CO2) and Methane (CH4) because these two gases are abundant and between the most harmful GHGs inventory. Many years ago, some scientist and environmentalist started to talk about Climate Change, the audience in general was quite skeptical but after some decades of research and the validation from the Intergovernmental Panel for Climate Change (IPCC) of the United Nations, the majority agreed that Climate Change is real, dangerous and happening. People like Greta Thunberg (Greta is a Swedish environmental activist who fights for immediate action on climate change mitigation, check @fridaysforfuture on Instagram for more information) and many others are working restless to increase the awareness and pushing for actions around Climate Change, and many young people is very involved, much more that the adults sometimes. Putting all these together, we have more and less the answer of what it is, and why now.

Renewable Energy is playing a role, can do it all by itself? We don't think so, or at least not in the coming 30 years. Renewable Energies are a key pillar in the fight agains the Climate Change. Every year we see records of new Wind, Solar PV and Tidal coming into operation, sometimes replacing old coal-based power plants (coal power plants are normally between the most contaminating, so this has a double impact) that shows a light at the end of the tunnel. Still, the participation of Renewable Energy on the world energy matrix it’s still low. We have countries like Denmark or Uruguay with most of the energy coming from renewables, but if you see the global picture, the race it’s just starting. The increase in productivity, lower manufacturing costs and fine-tuned supply chains and logistics are helping to make these technologies more competitive and more efficient, and this will continue moving on that direction in the coming years. Renewable Energies are in the good path, but unfortunately will take some decades to have majority of renewable energy, but also we still need other ways of energy (thermal) and type (gas turbine generators, batteries, energy storage) to maintain a reasonable quality of service, grid stability and safe operation. In the other hand, there are many other activities like transportation, manufacturing, construction, mining and others that are not related to power generation and cannot be fully electrified, so even if some of those activities can shift their electric energy consumption to renewable sources, the energy topic itself it’s much more complex and not only related to electric energy.

But why we called Energy Transition? Good point, not sure how the name came-up, but from a holistic approach the Energy Transition involves any activity, plan, execution or technology that will be used from now and until the mid-term, to “transition” from a fossil fuels based energy matrix into a renewable and net-zero carbon energy world. As energy experts, we can say that this is not an easy task, and will take a massive effort from different stakeholders, this is one of the reason it is a transition and not something that could happen overnight. Some industries will take years or even decades to be decarbonized, this mainly because not all the technology is available today and not all the technology is cost-reasonable. So, yes it will be a transition. The positive aspect is that already started, we have several companies working to develop new and more efficient decarbonization technologies, we have Governments playing active roles in terms of taxes, subsidies, funding and regulatory frameworks, we have investment funds and asset management funds performing “sustainable and responsible investment” and focusing more in the ESG, and most important we have people using the right to chose carbon neutral product and services that finally force the market.

Ok we are in, what solutions are available today? Well, we can separate in different sub-kinds to make it easier. In terms of mobility and transportation, electric vehicles (EV) Hydrogen and fuel cell technology, and the use of sustainable aviation fuels (SAFs) are taking the main-stage. Some car companies already committed to do not manufacture internal combustion engine powered cars latter than 2040 or 2050, showing at least a target. Companies for truck EVs are getting a lot of attention and performing record IPOs and some Countries are pushing to have Hydrogen fueling stations along the heavy truck roads to facilitate the transition from Diesel to H2. In terms of Industry, the steel producers being major players, are working in different ways to decarbonize their massive plants, that are also big contributors to GHG emissions. In terms of Power Generation, in one hand several companies are analyzing how much can be shift into renewable keeping the system safe and operational, while transforming former coal plants to natural gas, including more energy storage in the systems to increase the grid stability versus renewables intermittency and evaluating pre and post-combustion solutions for the thermal power plants with gas turbines that needs to stay in operation (because yes, we still need those ones, mainly for peak sheaving, grid stability and frequency regulation, don’t worry we will touch this deeper soon). In terms of pre-combustion (it is when you replace a fossil fuel that a thermal machine such as a gas turbine uses, from natural gas for example to hydrogen in order to avoid carbon emissions) the hotspot it’s around hydrogen in all its forms (yellow, grey, blue and green H2) with different timing, cost and characteristics each one. There are numerous activities ongoing globally to better understand the Hydrogen economy, value chains, fuel logistic, adaptation of existent assets, etc. In post-combustion solutions the focus it’s mainly in carbon capture, utilization and storage (or CCUS) and that it’s a world by itself like Hydrogen (two big topics that we will go deeper in future articles). There are CCUS technologies that can be applied to combustion machines (like gas turbines or engines) and others than can be applied to massive processes like steel production (yep, size matters). Some are more sustainable than others and of course cheaper or more expensive, but several are available since decades already and applied with reasonable proven success.

Other important factor that we mentioned is the energy storage, and it’s important because wind and solar renewable energy are intermittent, and happens when the resource (wind or solar irradiation) are available, no when we actually need it. This balance between availability and needs sometimes can be handled it by the grid itself with different sources of renewable (hydro for example) or using thermal or other sources rather than renewable. But, in order to increase the participation of renewable and reduce the use of fossil fuels (at least until pre or post-combustion solutions being fully adopted) energy storage is key. The reason is pretty obvious, if you can store electric energy when it is produced in excess from renewable sources, and inject it into the grid when we need it, it sounds like a smart solution. The issue is that all that energy storage has a cost, and we must be willing to pay for it (this is gaining momentum in the energy market with better arbitrage and the need of ancillary services). However, the cost of batteries is lower every year, and the population is more conscious about climate change and therefore asking for more renewable energy, all in all, electric energy storage is a boom and make sense.

We want to close the article with a message. Every day we see more and more companies starting their own internal discussions about decarbonization, more and more are looking ways to decarbonize their assets or value chains, the investment banking and asset management world is more conscious about their role and the power they have to make a change using their voting rights and engagement, countries and Governments are more active about the subject, working in regulatory frameworks and legislations that will allow the Energy Transition move quicker, and sometimes leveling the ground. But above all, it’s critical the much easier access to information we have today and the importance that the topic is gaining in our dinner tables. In 2012 the topic was not new, but in some countries and some organizations was a niche and just a few spoke about it. Today, Energy Transition including the massive adoption of Renewable Energy it’s a much common topic than 10 years ago, and it is something we can even discuss during a dinner with family or friends. Schools are making a key difference as well, including these topics in their curriculum and helping to bring awareness between the youngest. We truly believe we are on track, and we will see changes in the next 10 years or sooner. Be informed, participate, take action and fight for the change, it’s our responsibility to make it happen.

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