Cleaning Up Episode 110 Edited Highlights - Adair Turner


Adair Turner gave a masterclass in nearly every aspect of the net zero transition in an interview for the latest episode of Cleaning Up,the finale to our seventh season.

Baron Turner of Ecchinswell chairs the Energy Transitions Commission, a global coalition aiming to accelerate the net-zero transition. Turner has had an extraordinary portfolio career across finance and climate, including as chair of the UK Financial Services Authority, and the UK Committee on Climate Change.

Below are edited highlights of the discussion, condensed for brevity.

Michael Liebreich You’ve got this prolific output as the Energy Transitions Commission. Let's go topic by topic, starting with: what overall will the power system look like in 2050?

ATFar, far bigger than it is at present; a much bigger system as we electrify as much of the economy as possible. And we see the direct use of electricity going from 20% of final energy demand today, to 60% or higher by 2050. We think that anywhere between 70% and 90% could be produced by variable renewables. Some countries will find it easy to go to 100% renewables, but does vary around the world. In the UK, we have this fantastic offshore wind resource, Spain and Australia, onshore wind, and sunshine. Go to Malaysia, you've got low wind speeds, and you've got rather hazy cloud. So, you can't simply turn up everywhere in the world and say, it's always going to be 70%, 80%, 85%, wind and solar. But wind and solar will be by far the biggest bit of the system.

MLNow, let's move on; what about cars?

ATI think cars will go electric. I think within five or ten years, we are going to have plenty of electric cars on the road which have a range of 600 kilometres. For most people, they won't even need to go to a motorway fast-charging point. Hydrogen is going to play an enormous role in the overall path to net zero, but I think almost no one is going to ever drive a passenger hydrogen car. And I think that some work has not caught up with that reality. On trucking, each time we look at it, the segments that can be purely electrified tend to go up, both in distance and in tonnage. I don't exclude the fact that there may be some hydrogen trucks. Also, do not exclude for trucks, battery swap, and do not exclude overhead wires to pick up electricity over them on the motorway.

MLI'm going to assume that we think that the world is a better place for having aviation. But how do we do that in a net zero world?

ATAt short distance it goes electric or hydrogen or electric-hydrogen hybrid. Currently, nobody assumes that we're going to be able to get across the Atlantic with a battery-fired plane. And so, we go for a drop-in fuel, we go for sustainable aviation fuel. We can make those sustainable aviation fuels either from hydrogen plus direct air capture CO2, synthetic jet fuel, or we can use a bio resource. It will add to the cost of aviation. But if the fuel is 50% more expensive, but by 2050, the planes are 30% more fuel efficient, that still means that the real ticket prices will be the same in 2050 as they are today.

MLLet's move on, let's do shipping. How do we do shipping?

AT Like aviation, there's a short distance bit which is pure electrics. For long distance, there are two competing technologies: one is methanol, one is ammonia. Our own belief so far is that ammonia will win in the long term. The crucial thing to realize with shipping is even if freight rates were double the current level, you wouldn't even notice it. Shipping will be more expensive, but shipping is such a fundamentally low cost and efficient way to move stuff around the world that it won't matter. We are uncertain about hydrogen in LNG ships in a liquid form; if you are a place which knows how to produce lots of cheap green hydrogen, you probably want to say, I'm going to turn it into ammonia, and then I'm going to turn it into fertilizer before I export it, or I'm going to turn it into green steel before I export it, rather than trying to export it as green hydrogen in itself.

MLThat sounds like deindustrialization. Surely, steelmaking in Europe is going to become highly uncompetitive?

ATWhat becomes uncompetitive is the ironmaking. The steelmaking may still be done close to the end industrial customer. We probably will see some shifts, but if the majority of the employment is in the downstream speciality steelmaking, it's not as dramatic as you might think. The steelmaking can be done either at the beginning or the end of the transport process.

MLLet's go to bio resources. What should we use it all for?

AT Do not use them for road-transport biofuels, because we have better alternatives. Yes, for aviation, though, probably we eventually move aviation away from bio to synthetic. Build things out of wood, because then you're doing really a form of carbon capture and storage. And use them as a bio feedstock for the chemical industry.

MLHow much work have you done at the commission on buildings?

ATIn the UK, the most crucial issue is the insulation of buildings, and the issue of how do we both improve the insulation of the UK and decarbonize the heat source. I do think it will primarily be heat pumps. The UK will decarbonize its electricity: if we just build enough offshore wind, it will happen. When I look at how do we get 20 million people each to spend £10,000, £15,000, per household? How do we make sure we've got enough plumbers and electricians, enough small and medium enterprises? This to me is the big unanswered question in UK policy.

MLThe question of how UK housing gets decarbonized is absolute trench warfare with people promoting hydrogen…

ATI mean with the hydrogen, you're pushing against a big inefficiency. Whereas you put it through a heat pump, you can get a 300% efficient solution most of the year. With heat pumps we're a long, long way away from the technological frontier - I'm sure we will never get anywhere near it. But there's a lot to go for trying to squeeze out greater efficiency out of heat pumps.

MDirect air capture, where are we going with that?

ATWe believe we will need negative emissions, carbon removals. Once you've done direct air capture and put it underground, it will definitively stay there, but it's pretty expensive, $300 per tonne. With nature-based solutions, it’s much lower cost, but there are a lot of risks. We think both have a role to play; the nature-based solutions more in the short term, the direct air capture more in the long term. We also obviously see a role for carbon capture and storage in industry.

MLWhat role do offsets play in all of this?

ATWe are pretty wary about the idea of paying somebody to invest in renewable electricity in another part of the world and claiming that that was additional to what they were going to do in any case. It's very important that all companies and countries have commitments to get to net zero in themselves. If a company, which is on a path to net zero by 2050, wants to spend some money to claim that they’re net zero today, as well as on a path, there's no downside of them buying offsets. We would encourage them to buy either real removals, or particular categories of offsets, where we can't see why anybody would do what needs to be done unless they were paid.

MLYou've got 50 members of the ETC, and that includes some big oil companies…

ATThe situation with oil and gas is you have to introduce this idea of scope one and scope two, and scope three. Shell and BP have said that they are committed to getting their scope one and scope two to real zero in itself. And as for the scope three, the stuff that they sell, yes, they will have a role for offsets on the scope three. If you believe there is any use at all of fossil fuels, in 2050, or 2060, then to get to zero, there will have to be some carbon removal, some offsetting approach. Our vision of the energy system in, let's say, mid-century, is 65% direct use of zero carbon electricity, 15% use of hydrogen, 10%, maybe of bioenergy, and 10%, is still fossil fuels, but fully offset by some category of carbon offset.

MLWhat is the role of a regulator, particularly in finance? ESG is a bit of a Wild West, free-for-all.

ATI see the role of both financial regulation and of voluntary commitments by financial institutions as useful, but ancillary to what I call the crunchy policy levers, which are: we are going to ban the purchase of internal combustion engines by 2025; we are going to have a carbon price; we are going to do enough pump priming investment in offshore wind that the offshore wind is cheaper. I don't think we should ever assume that the financial sector, even with whatever regulation they have, can do the real heavy lifting there. On the other hand, if you have a lending portfolio, it is possible to do work, which says, to whom am I lending? I think when you're lending to an oil and gas company, you have to be doing a scope three, because otherwise, it's meaningless.

MLWhat about the developing world? One of the core issues that time and again I've come up against over the last few decades is cost of capital in those countries.

ATThat's the crucial thing. In Sub-Saharan Africa, the per capita use of electricity is so low, you might as well say they have no electricity system. This isn't about transitioning away from an existing electricity system; it's about building a far bigger one. We will need to mobilize much more money through the multilateral development banks. More money from them, but more effective ways of using their money to leverage the private sector. Without that ambitious mobilization of technical assistance, and of finance flows at a reasonable cost of capital, I just don't think we will see economic development, let alone green economic development.