Moniz wants to turn more focus to clean alternative fuels, negative emissions

Source: By Jasmin Melvin, S&P Global • Posted: Thursday, September 16, 2021

Full electrification of the economy is simply not an attainable goal, former US Energy Secretary Ernest Moniz said at an industry forum Sept. 15, as he advised policymakers and the private sector to turn more attention to low-to-no-carbon fuels and carbon-negative technologies.

“I believe when you think this through that you reach the conclusion that while electricity and electrification are the lead horse in the decarbonization race, we also need a fuel,” Moniz said during a fireside chat at Siemens Energy’s North America Energy Week conference.

The economy in general and particularly the hard-to-decarbonize sectors, such as the transportation, industrial and agricultural sectors, will need a fuel source, and there are a number of possibilities if sufficient attention is paid to the issue, Moniz asserted.

Among those possibilities are biofuels, which Moniz said “have been a promise for a long time without fulfilling the promise,” as well as newer fuel alternatives such as an emerging class of carbon-neutral electrofuels produced with hydrogen and hydrogen itself.

Renewable Fuels Association members in July pledged to President Joe Biden that ethanol would achieve a net-zero carbon footprint, on average, by 2050 or sooner. Renewable fuel producers on RFA’s board further committed to reducing greenhouse gas emissions from ethanol by at least 70%, on average, compared with gasoline by 2030. Corn ethanol already cuts GHG emissions by about 50% compared to petroleum, according to experts at the departments of Energy and Agriculture, Harvard University, MIT and other institutions.

Deflecting from innovation needs

Moniz warned that statements about full electrification of the economy were deflecting from the need to innovate to usher in significant volumes of low-to-no-carbon fuels at a low cost.

But even with electrification and a green fuel option, the US cannot fully decarbonize the economy, he argued, insisting that direct air capture and other carbon dioxide removal (CDR) technologies will be necessary to eliminate carbon from dilute sources, namely the atmosphere and the upper layers of the ocean.

He took issue with “detractors who view [CDR] as a focus on offsets and … a bad thing.”

Because CO2 in the atmosphere is a cumulative issue, Moniz said “How you get to net-zero, the trajectory through 2030 and 2040 is very important.” Further, “we don’t want to stop at net-zero,” but continue on to “an economywide negative carbon world,” he said, asserting that some are getting too caught up in the net-zero emissions by 2050 mantra.

“You cannot have a net negative economy without negative carbon technologies, and so we should be working on that much, much harder than we are today,” Moniz said. “And we should not equate negative carbon technologies just with direct air capture, which is getting a lot of attention and I think is very important, but there are many, many other pathways to negative carbon.”

A concerted effort must be made to make those pathways “viable, starting by the end of this decade and growing to a very substantial contribution by midcentury,” he said.

DOE’s role

Along those lines, if he were back in office at the Department of Energy, he said a top priority, from the energy transition context, would be to steward the energy innovation agenda in the US and abroad, with an emphasis on “stimulating major international collaboration” on the three big pillars for reaching success: electricity, fuel and CDR.

Secondly, he said DOE should take a look at its large-scale demonstration projects and deployment efforts.

“Let’s face it, we’re fairly desperate to accelerate the pace of change,” he said. So things like the DOE loan program, for example, need to play a larger role, he contended.

“Back in the earlier Obama period, one failed loan became a big fiasco,” he said. “The reality is the loan program as a portfolio was extremely successful in deploying $30 billion of debt financing and doing its job, starting up some areas, bringing in private capital, and then being able to walk away from them, and letting the private sector do the job.”

He pointed to DOE’s debt financing of the first five utility-scale solar plants in 2009 and 2010 and how that helped spur 60 or 70 more plants without government backing. “That’s the kind of success story that I think we need more of.”

A military coup in West Africa has underscored the potential benefits of stockpiling critical and strategic metals essential for the energy transition.

The detention of Guinea’s president, Alpha Condé, saw the alumina ex-works China price assessed by S&P Global Platts hit $480.40/mt on Sept. 6, the highest in almost three years. The rise in prices occurred despite no immediate signs of supply disruption in the world’s second-largest producer of alumina, the material that is used to smelt aluminum.

The non-ferrous metal is increasingly playing a role in energy transition through the manufacture of wind turbines, batteries, electric vehicles and solar panels. Guinea was the largest exporter of bauxite to China last year, according to data from the S&P Global Platts Atlas of Energy Transition.

Unlike oil markets, the stockpiling of metals and ores—such as alumina bauxite, lithium, and copper—is opaque. There is no equivalent intergovernmental watchdog to the International Energy Agency, which was established in 1974 to protect energy markets from supply shocks caused by security threats, wars and political turmoil. The IEA requires its 30 member nations to hold emergency stocks of oil to cover at least 90 days of imports.

The Paris-based agency is now urging countries to establish, or expand, strategic reserves of metals used in the energy transition to ensure bottlenecks do not slow progress in reducing carbon dioxide emissions, or cause price spikes. Some countries have already built up their own stockpiles and are using them to intervene in an overheating market. However, reporting of stockpile levels is inconsistent and, unlike in the oil industry, there is no coordinated or transparent approach to providing data.

“Security of supply tensions are directionally shifting toward metals which are crucial to the energy transition, national defense industries, and other supply chains,” said Paul Sheldon, chief geopolitical adviser at S&P Global Platts Analytics. “In the years ahead, the lack of internationally coordinated strategic reserves, combined with some geopolitically unstable sources of supply, portend a high likelihood of volatile prices.”

Absorbing risk

The US has the Defense Logistics Agency, which holds metals in reserve, and Russia’s secretive Rosrezerv serves the same purpose for the Kremlin. The EU has published an extensive list of what it classifies critical raw materials. Anticipating an uptick in demand, Brussels added lithium to this list last year, but the bloc still has no centralized system of stockpiling energy transition metals, or legal requirement to do so, despite its ambitious goal of reducing greenhouse gas emissions by 55% during the decade.

China—the world’s largest importer of raw materials—has been much more aggressive. Beijing has stashed away its own horde of essential metals, ores and other crucial industrial commodities used in the energy transition. For example, its National Food and Strategic Reserves Administration recently sold off some of its stocks of copper, aluminum and zinc to ease surging prices from hitting factories in China.

Maintaining large strategic reserves has helped the oil market to absorb a sharp rise in security-related incidents this year targeting major Middle East producers of crude. The Platts Oil Security Sentinel has recorded 27 separate confirmed security events aimed at oil infrastructure this year, from 61 incidents in total since 2017.

In Africa, Beijing has gone much further than simply building up its commodity stockpiles. China has invested billions directly through its Belt and Road Initiative to forge deeper economic and security ties with the continent’s biggest producers of critical and strategic metals used in the energy transition.

Strategic sense

Guinea’s coup also highlights the challenge of diversifying the supply of critical and strategic metals. Global demand for lithium and cobalt is expected to at least quintuple by 2050, spurred on by production of electric vehicles. However, production is hinged on regions most exposed to geopolitical risks, making investment difficult and expensive.

South America, a major producer of battery metals and copper, is seeing growing political support for resource nationalism, including calls for higher taxation on mineral extraction. Meanwhile, in the Democratic Republic of the Congo, human rights abuses are making cobalt mining look toxic for investors that are increasingly sensitive to environmental, social and corporate governance concerns.

“Diversifying the global resource base for key battery metals makes strategic sense but developing projects in some emerging countries comes with risk,” said Paul Bartholomew, lead metals analyst at Platts Analytics. “There are several graphite projects in Mozambique; the East African country was supposed to be the next big metallurgical coal basin, and it’s largely been a failure. It’s also extremely worrisome that the DRC remains the major supplier of cobalt.”

In the case of Guinea, it’s not just investment in bauxite mining—or the risk of geopolitical uncertainty slowing down the energy transition—that is at stake. The country is home to the $15 billion Simandou iron ore project, classed as the world’s largest untapped high-grade deposit of the commodity used to produce steel.

“The coup in Guinea shows that banking on the Simandou project as the future of iron ore supply now looks extremely precarious. It’s no surprise that established exporting countries like Brazil and Australia remain the major suppliers as they are largely politically stable and experienced in building new projects,” said Bartholomew.

Of course, Guinea’s new military leaders have little to gain from shutting down the country’s mines. However, the episode is a reminder of how building strategic reserves can help the energy transition avoid uncertainties caused by geopolitical supply disruptions and price volatility.