This is Dana Perkins and you're listening to Switched on the bn EF podcast. Today we have another bonus episode focused on the twenty twenty four Things to Watch series from BNF. Today's topic is materials, and we draw upon research that's found in the note Industrial Decarbonization Things to Watch in twenty twenty four. I'm joined on the show by Julia Atwood, an industrial decarbonization specialist here at BNF.
She shares the potential bottlenecks for carbon capture in storage and direct air capture, along with what the future holds for CO two storage and why twenty twenty four might be the year that we see real progress in capacity editions and announcements. We also discuss chemical recycling and the potential impact editions of recently commissioned large scale plants could have on the sector, and finally we get into one
of the hardest to abate sectors, cement. With more government subsidies and assistants available, will twenty twenty four finally be the year that green cement becomes an economically viable alternative. To access this research note, subscribers can find it at BNF dot com and at BEENF, go on the Bloomberg Terminal.
If you like this podcast, make sure to subscribe to receive updates when future episodes are published, including bonus episodes like this one, and if you give us a review on Apple Podcasts or Spotify, other people will be able to find us more easily. But right now, let's speak with Julia about what lies ahead for materials in twenty twenty four. Julia, thank you for coming back to switched On today.
Thanks for having me Dana here.
We are to talk about things to watch in the material space, But let's start off with the definition. How would we or how would you and your team define materials?
You know, we often explain it as industrial decarbonization because if you're looking at the emissions from industry, so the emissions involved in making material, you're really looking at the way you make steel, aluminum, padcams, or petrochemicals and cement, and that's basically what we focus on. Now. We also talk about circular economy and CCS or carbon capture and storage, because those are two really important technologies to decarbonizing industry.
And of course we get a lot of help from our friends over on the Hydrogen team, and.
We have a separate things to watch, note and things to watch, podcasts on switched on about the industrial material. So today we're going to focus on that kind of ladder half that you listed off. But before we talk about twenty twenty four and what's in store, let's have
that retrospective look back on twenty twenty three. So this time last year you also put out of things to watch, Note and will you help us better understand what scorecard you're giving yourself and actually, even broadly, would you consider yourself to be an optimist?
I definitely consider myself an optimist, especially about people and especially about the weather, often to my detriment. So we were pretty optimistic about twenty twenty three and it turned out to be kind of a disappointing year for us. So being b enough, we put together a scoring system and we gave ourselves sixty five percent on what we said last year, so not great. I think the way we approached it was we thought that twenty twenty three
would finally be a year of normalcy again. After COVID. We figured supply chains are starting to sort themselves out. You have the Inflation Reduction Act or the IRA in the US in full force. We felt that everything was starting to come together for industrial decarbonization, and what we found was that either too much regulation or the lack
of it was really holding everything up. So we're still waiting on guidance, the really important information, all the nitty gritty staff on the IRA that's holding up a bunch of projects. In the US. Permitting is incredibly difficult right now for carving, capture and storage sites. That's using some problems. There's no consensus on green steel. We have a bit more clarity on the Carbon Border Adjustment Mechanism or SEABAM in Europe, but there's still a lot to figure out,
and the supporting infrastructure justicen't there. So all of that meant that anything we were hoping would happen that required any kind of consensus, like steel standards, like Canada countering the IRA with new credits for ccs, didn't really happen. However, there was a brighter side. The things that we did well on were the things that were outside a lot of policy and regulation, So announcements we did pretty well on. Today there is eleven point two million tons of direct
air capture capacity that's been announced. That's much higher than what we saw a couple of years ago. Double seventy eight percent of that is in the US, as we expected, so the US is really the hub for director capture DAK right now. We also saw the first commercial green steel making facility come online and that was from HBIS, which is a Chinese steelmaker. So they brought on zero point six million tons of capacity that uses fifty five
percent hydrogen, it is fuel. And then trade, our predictions on trade went pretty well. So a lot of EU countries are now net importers of plastic waste because they need that in order to make the recycled plastic packaging that they have some policy on.
So a lot of the work that your team is looking at are regarding some of these really hard to transform industries and you know, the hard to abate space. One of the bottlenecks that has presented itself is an issue both for direct air capture technology, so that removing of carbon from the air and carbon capture and storage technology, which is this capturing of carbon and technology that actually has been around for some time but is improving and
making strides. Is once we capture everything, where are we going to store it? That has been a point of friction is twenty twenty four. Is there an optimistic view on this and are there developments that we should be keeping an eye on in the year head when it comes to storage, both for direct air capture and CCS.
Definitely, one of the things that we're expecting to see in twenty twenty four is a little bit of relief
for developers on those permitting issues. So in a lot of cases, you start out by saying, Okay, I need to capture CO two from this highly emitting source and I want to store it somewhere, but there is a massive supply chain there that all has to come together, and a lot of the problems, as you've rightly pointed out, are coming from the storage side, either technically getting the CO two in there has been difficult, or as we've seen in the US recently, the pipeline to get the
CO two there has been denied permits, or the CO two storage site itself has been waiting often for years to actually get permission to put CO two there. So the anecdote that we've heard right now is oh, it's taking six years for the US to permitid any kind of CO two storage site. What we've seen this year is some movement of the federal government to actually allow the states to do that permitting process. So North Dakota
and Wyoming already have that power. Louisiana was just given it, and so we think that's going to help speed up some of these applications because you just have more people, more engineers and geologists looking at them and figuring out whether they're safe. So we think that about five of the storage sites in the US that are waiting for permitting could be granted this year, and for context, in Louisiana alone, there's twenty two sites waiting for a permit,
so that's on the storage side. The pipelines we still expect to be a bit of an issue because there's been so much community pushback. Everyone is very wary of pipelines because they've seen the oil and gas industry use them. They don't want them on their land, and they're often crossing pretty large swathes of land, so it's been tough for those to get permits, and we think that's going
to persist. But if you can find a storage site closer to where you're emitting the CO two, as you can with direct air capture, you may have an easier time of it. In twenty twenty four.
Is this largely something that's being moved forward in twenty twenty four in the US, or is there CO two storage that's coming online in Asia as well?
In Asia and actually in Europe, we're seeing more and more announcements there. The reason why we're not as concerned about Europe is that there are a lot of countries and companies involved in a single site in the North Sea called lang Skip. The EU has committed to an
eighteen month permitting cycle. In the US, the EPA says that that's probably going to be more like twenty four months, so there are at least some guidelines on this, but we think permitting is going to be the most difficult in the US because of the number of government bodies involved.
So when we're not thinking about storing the CO two, we're thinking about this other term CCUS, and with the U part, utilization of the waste byproduct that we actually discussed in one of our previous shows can make its way into our soda. I want to know what's in the year head for this utilization part of CCUS and what should we be keeping an eye on.
We think there's going to be a renaissance in CCS and CO two utilization, so ignoring the S part of CCS and just going with the U. And we think that people are going to see how difficult the permitting is, throw out their hands and be like, I'm not going to deal with this anymore. I'm going to find a buyer for my CO two and they're going to use it. The places that we think will be the best to put that CO two is either a synthetic fuel, so a fuel that's made from captured CO two and hydrogen,
because there's a big market for that. In terms of sustainable aviation fuel, the aviation industry doesn't have a lot of decarbonization options, so it's really looking at fuels. We've already seen a few say that they're going to take CO two, either from director capture or from ethanol plants
and turn it into fuel. The tricky thing here is that you have to be really careful where you're getting your CO two from if you're going to turn it into a fuel, because that fuel is eventually going to get burned, so you want to make sure that your CO two was either coming out of the atmosphere in the first place, so that's dak or it was coming
from a biogenic source, so that's ethanol. If you're just a regular old cement plant or steel plant and you want to use your CO two, in order to be really clear with your carbon accounting, you have to make sure that that CO two is going somewhere where it can't escape as it would when you burn a fuel. So the options there are really using it for enhanced weathering, so you're creating aggregates with carbonates in them from that
CO two, or you're putting it back into cement. So it's going to be tough for the industrial users to find someone to buy their CO two and store it in a different way. But dak ethanol, they can turn to fuels and there's already demand and a supply chain there.
Now let's turn to chemical recycling, and if I'm not mistaken, this might be the very first show that you and I did with each other, Julia a few years ago. One of the issues that we discussed at the time was that there is a limiting factor here, So it's the scale and the ability to actually tackle the problem with chemical recycling. Is this going to continue in twenty twenty four or are we going to see a breakthrough.
So this was actually one of the phases where we were a bit too optimistic. Last year, we thought that about a million tons of chemical recycling capacity was going to come online. When we tallied it up at the end of the year, we got to just under seven
hundred and fifty thousand. So we still think that chemical recycling has a really big place in the circular economy and in decarbonizing petcems or petrochemicals, but we're being a little bit more measured with our predictions this year, so we're expecting to see two large scale chemical recycling plants come online, and we would define large scale as more
than fifty thousand tons of capacity. Chemical recycling has really been hit pretty hard by the huge increase in construction costs that we saw this year and all of the supply chain issues. If you can't get the pumps and the pipes and the bars that you need to build your plant, it's pretty tough to commission on time.
Okay, now let's turn to green steel and the decarbonization of steel manufacturing. Steel is incredibly important for so much of the infrastructure across the world, and hydrogen has increasingly been used to be a part of the solution for decarbonizing well steel and actually other hard to abate spaces, but invariably hydrogen is still expensive and is really quite
limited in its application up until this date. Do you see green steel and then as a second part of that, hydrogen use really taking off in the airhead.
Green steel is the success case that everyone loves to turn to and they look at industrial decarbonization because we've seen plants be announced, we've seen the customers be really enthusiastic about signing up for off take agreements, and we're starting to see the early stages of all of the technical issues being worked out. So there are three places that we're watching for green steel and especially hydrogen made green steel this year, and they are Canada, Brazil, and
the Middle East. Most of the green steel that we've seen so far has been made in Europe, but we think that now is the time for those announcements to start to diversify. And there are a few things that we look for when we are choosing these regions that we're going to be watching. One is you want to have a steel maker in the region who knows what they're doing, because these are not small technical changes. You really need to have people there with the technical expertise
to build the plants and then run them. We think all of those regions that I just listed have that. You also want access to really high quality iron ore. The process that you use hydrogen in isn't as effective as the typical cold based process at removing impurities from iron ore, So you need the really good stuff and you can get that in Brazil and the Middle East in particular, and Canada has some access to it as well. And then the third thing that we're really looking for
is cheap hydrogen. Brazil is due to have some of the lowest cost hydrogen in the world according to our calculations, and so that makes it a really interesting place for us to be watching. So green steel isn't just going to be for the Europeans anymore. We're going to see a lot more diversification.
So let's keep building something on the show today. And let's turn next to cement. Costs for green cement have been far exceeding traditional cement making it and not particularly competitive up until this point. So from a cost standpoint, what's in store for us in the cement space?
You know, I've been really surprised by the cement industry. Those companies are moving much faster than I expected. Back in twenty twenty one, when we looked at how much material capacity is covered by a net zero target, cement was at seven percent. By the start of twenty twenty three, it was at forty seven percent. Now, the cost of making green cement is still pretty high. You can see premiums of more than one hundred percent, so double the
cost right now, but those should fall. There's still a lot of new equipment that needs to be designed and tested, like electric kilns, But by twenty fifty we could see premiums that are much more reasonable, so much like thirty
five to forty percent. This is really the year that the demand side needs to help out all of those cement makers with their net zero targets, though, because they'd won't have the confidence to build a green plant until they're sure that somebody's going to buy what they're making at the end of it. So what I'll be watching for is whether you see some really big off take agreements from the major cement producers who have announced green projects.
Now you took a closer look at the just transition and the overlap with materials so can you talk a little bit about how this interplays with steel and cement in the material space.
Steel and cement are really the bedrock of any industrialized society, So whenever we start to see GDP rising in a country, we figure they're going to have a lot more demand for steel and cement. Most countries think of those materials as strategic, so they not only want to be able to produce them in the country, but they also want to benefit have their people benefit from all of the jobs that they create as well. So we're expecting to see countries really working hard to try and save their
domestic cement and steel industries. In developed countries and in developing countries, we're expecting to see a lot more capacity being built. Now, the question is whether that new capacity is green and whether developed countries decide to save their capacity by making it green. So we think this will be a huge question. It's about not leaving anyone behind and ensuring that the jobs in those industries become green jobs. In the next few years.
Let's finally come to financing the transition. We're moving from a high carbon to a low carbon future. For what are some of the most difficult to green parts of the economy, and transition finance can sometimes be controversial, with fears over green washing really coming to the front, but also incredibly important for a lot of the different areas that you cover as they are, like I said, moving from high carbon to lower carbon means of manufacturing their products.
So is there.
Anything we should be keeping an eye on in the year ahead when it comes to the role of transition finance and how transition finance might be perceived by the outside world.
Transition finance is going to be a really important tool for industrial decarbonization, and that really stems from the fact that transition finance sits in this middle ground. It's not green finance, but you're probably not using it for the highest emitting project. The thing about industrial decarbonization is that it often happens piecemeal. So there are very few projects that we see that are going to be one hundred
percent green, zero carbon from the start. Most people want to make investments in order to get to their thirty percent reduction target, or they want to take an old plant and make it a lot more efficient. Now, those definitely provide emissions reductions, but not enough to qualify for green finance. So you have all these projects that are
stuck because they're an extra cost. They may be a new technology and they're finding it hard to get the financing for that because of the technology risk or the emissions risk. So that's really where transition finance can step in and fill the gap. And we're expecting the countries with outsized industrial and like Japan and China to be
the places where you see a lot of growth. So Japan is expecting eleven billion in transition finance, and China things that it's going to grow faster than green finance, which given its industrial base and all of the work that it has to do to decarbonize, probably isn't a surprise.
Well, Julia, thank you for taking me through the things to watch in twenty twenty four for materials.
Thanks Dana.
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