Why is the transition away from fossil raw materials not happening faster?

The need to rapidly move away from fossil fuels and fossil raw materials is now embedded in global diplomacy, national and corporate targets and the public consciousness.

At COP28 in the UAE, nations agreed to “transition away from fossil fuels”, as well as to triple global renewable energy capacity and to double the rate of energy efficiency improvements.

Yet despite all the efforts to move away from fossil fuels, greenhouse gas emissions have continued to rise, reaching record levels in 2023, according to the Global Carbon Budget.

“Is the energy transition happening fast enough to avoid a climate crisis? Clearly not,” says Eliot Whittington, Chief Systems Change Officer at the Cambridge Institute of Sustainability Leadership (CISL).

“The power side of the transition is going extremely quickly and it’s accelerating. And we’re getting there on road transport, particularly light vehicles. But everywhere else, it’s not happening fast enough, in sectors such as steel, cement, shipping and aviation,” he explains.

“There are economic, political, technological and social reasons that emissions are not falling fast enough,” adds Carrie Song, Senior Vice President for Renewable Products at Neste, the leading producer of renewable diesel, sustainable aviation fuel (SAF) and one of the leading suppliers of renewable feedstock for plastics manufacturing. “Investment in renewables and other lower-carbon technologies is growing, but not at the level required to enable us to achieve the complete energy transition towards more sustainable alternatives. And investments in fossil fuel infrastructure are continuing, locking in emissions for decades to come.”

So, while the green transition away from fossil raw material is indeed underway, it is clear that the shift is dependent on a complex web of factors, which need to be properly understood and dealt with holistically, so that we can come to a new world order for energy as effectively and fairly as possible.

As the tide slowly changes, let’s take a closer look at the technologies that are needed, the bottlenecks in electrification, the role of consistent regulation worldwide, and how a just transition is crucial for the long-term.

The technologies to change the global energy foundation

Alongside new alternatives for fossil raw materials, many technologies that enable a complete energy transition are already in existence but not yet at full maturity.

Great strides are being made to develop innovative and stable energy storage solutions,  critical to enable improvements in the capacity of battery storage, but also to enable the long-term storage and long-distance transport of non-fossil energy, such as “green” hydrogen.

Another area where further technological developments are needed are in industries, which contribute a great deal to GHG emissions but are difficult to transition away from fossil fuels.

Such technologies include ”Power-to-X'', which involves making hydrogen from water using electricity – when renewable electricity is used this produces renewable or “green” hydrogen, with a very low carbon footprint. It is this green hydrogen, together with carbon dioxide from captured CO2 emission sources, that has the potential to transform currently carbon-intensive industries such as steelmaking and cement, with also exciting potential applications for example in aviation.

Another key component of cutting emissions in hard-to-abate industries is carbon capture, utilization and storage (CCUS), which will enable emissions reductions where other options are impractical or too costly.

The electrification bottlenecks

For many sectors, the now well-known answer to transitioning away from fossil fuels is a switch to electrification and, crucially importantly, for that electricity to come from renewable sources.

One of the key bottlenecks for electrification is the slow pace of grid upgrades to allow more renewable energy capacity onto the network. “Everyone likes renewable energy in the abstract, until developers try to build it near your house,” says Samantha Gross, Director of the Energy Security and Climate Initiative at The Brookings Institution.

Meanwhile, for passenger cars and light commercial vehicles, electrification works well because the vehicles are carrying lighter loads for shorter distances and they can recharge often. It is, however, a different story for example for aviation and maritime shipping or in heavy machinery used in remote locations. They are heavy, they carry large loads and they are unable to stop frequently to recharge.

Where electrification is challenging, there are other alternatives to fossil fuels, such as renewable diesel and sustainable aviation fuel i.e. “SAF”. These are an effective drop-in solution with an immediate impact on emissions – but while upfront costs to switching are low, the higher price compared to fossil fuels can still be a barrier. “Renewable fuels, such as SAF, can be three to four times more expensive, but we need to look at why that is. Conventional fossil fuels don’t include the cost of emissions, local air pollution and other problems. Having said this, we are only talking about an added cost of what amounts to a couple of euros per passenger, the same that many pay for a coffee at the airport,” says Song.

“In the wealthy world, a lot of this is a marketing problem,” Gross adds. “If you present something as a sacrifice, it doesn’t sell. You need to sell this as going somewhere better.”

Consistent regulation and more investment needed to drive the energy transition

Currently, there is little consensus on the best approach to removing fossil fuels from the energy system, and regulation is uneven in different parts of the world.

“Policies to encourage the energy transition are still insufficient and inconsistent across different cities, countries and regions,” Song says, “and they often have to compete with fossil-fuel-friendly policies. We need clear, consistent, ambitious policies to drive continued investment and to encourage business to make the right decisions.”

Neste has invested €1.6 billion to double the annual renewables capacity at its refinery in Singapore and € 0.9 billion to establish a joint operation and expand renewables production capacity on the West Coast of the U.S. The company also has an ongoing €1.9 billion renewables production capacity expansion project at its Rotterdam refinery, while it has additionally announced a €2.5 billion investment program at its Porvoo refinery in Finland, to turn it into “a leading renewable and circular solutions refining hub” capable of producing annually about 3 million tons of renewable and circular products, such as renewable diesel, sustainable aviation fuel and both renewable and circular feedstock for the polymers and chemicals industry.

“The payback for these investments will take many years, so if you want companies to make investments on that scale, you need to give such large-scale suppliers confidence that there will be long-term demand for their products,” says Song. “That means we need to see clear, consistent policies that will drive investment.”

We are seeing green shoots of such regulations and policies with European Union’s mandate that at least 14% of energy in transport should come from renewable sources by 2030, including a minimum share of 3.5% of advanced biofuels, and another regulation mandating an increasing share of SAF to be blended into jet fuel in Europe, starting with 2% in 2025 and increasing to 70% in 2050. Another example is California’s Low Carbon Fuel Standard (LCFS), a trading mechanism designed to reduce the CO₂ intensity of the state’s fuel mix. As a result, more than half of the diesel sold in California is renewable. At a national level in the U.S., the Inflation Reduction Act is driving billions of dollars of investment across the clean economy.

But a study by the Climate Policy Initiative and law firm Allen & Overy estimates that almost €184 trillion of investment is needed for the world to reach net zero by 2050, or more than €5.5 trillion a year to 2030 and more than €6.4 trillion every year from 2030 to 2050. Only €920 billion was invested in this area in 2022, suggesting there is a massive investment gap that has yet to be filled.

“This is really hard. It’s one of the biggest transformations mankind has tried to do. The level of investment needed to completely change the energy system that underlies the entire economy is gigantic,” says Gross.

A just transition: taking it slower to get it right

Any big change impacts people, their lives and their futures – this impact has to be considered and taken into account in a transition that will extinguish entire industries, turn others upside down, while also creating new ones.

So the global energy transition must be a just transition as envisaged by the Paris Agreement: one which delivers green and decent jobs and creates resilient communities where everyone can thrive. “If we lose the public, we are sunk. If you go too fast, you won’t get buy-in from people, and then everything stops,” Gross says.

“In many countries, particularly in emerging markets, the focus is on lifting living standards and incomes, not cutting emissions,” she adds. Hundreds of millions of people still lack access to energy, while billions have no access to modern cooking fuels. “Any solution that does not have them developing is not a solution. But they can do so without damaging the environment as much as we did.”

Another challenge is that the green economy is capital intensive to get going. Operators need to spend a lot of money upfront, which can be a challenge particularly in poorer countries. This upfront expenditure has risen even more as inflation has surged and interest rates shot up around the world, creating challenges for project developers.

The increase in the cost of living is also impacting individual consumers, for whom spending more on more sustainable alternatives is a luxury that they either simply cannot afford or that they are no longer willing to prioritize over meeting more immediate living needs.

Finally, geopolitical instabilities are also greatly hampering progress on sustainability goals, as security, defense and warfare take a greater share of the world’s attention – and money.

With all this in mind it would be easy to fall into a doom-and-gloom outlook. There is no doubt that the challenges with moving away from fossil fuels and fossil raw materials are considerable and that there are many moving parts to consider – none easy to tackle nor possible to be solved in isolation from one another. Given the enormity of the task at hand it is probably the wrong question to ask how we could accelerate the energy transition and why it isn’t going faster. The key is to get it right.

There have already been huge success stories in the development of renewable fuels, renewable energy technologies, energy storage and electric vehicles. This gives hope that we might observe a snowball effect in the transition away from fossil resources, picking up pace and scale, while crucially at the same time ensuring it is done in a way that is just and indeed sustainable in the long-run.

Credits:

Mike Scott, An award-winning business and environmental journalist whose work has appeared in publications including the Financial Times, the Guardian and Forbes.