Good climate news from aviation and shipping
Rasmus Valanko, Director of Systems Transformation at We Mean Business Coalition
Today, I am optimistic about progress to tackle climate change. We seem to be transitioning from what has often felt like a mission impossible to a mission possible!
I’m optimistic because I had the pleasure to participate in Temasek’s Ecosperity Week 2021 earlier this week as the moderator for a panel discussion on future fuels. Our task for this panel was to explore how the liquid fuel value chain is transforming itself given climate change, especially for aviation and shipping. These two sectors are great examples of a handful of sectors that are often called “hard to abate”. That means that we don’t have all the answers yet about how we can fully decarbonize them. Don’t get me wrong, there are solutions available to fly an airplane or ship goods from A to B with minimal greenhouse gas emissions, but the problem is that we don’t yet know how to scale these up to cover their entire industries. While we do not have the full answer, the panel this week showed that we are beginning to see a pathway of possibility and opportunity.
With me on the panel were: Mr Soren Skou (CEO, A.P. Moller – Maersk), Mr Peter Vanacker (President and CEO, Neste Corporation) and Ms. Juliet Teo (Head Transportation & Logistics, Temasek). In other words, we had a wealth of insight from aviation, shipping, fuels and logistics at our disposal. I might add that I’ve been involved in climate change mitigation for about 20 years now and the We Mean Business Coalition is a core partner of a unique new partnership called the Mission Possible Partnership (MPP). MPP is focused on supercharging efforts to decarbonize 7 of the hard to abate sectors: Aviation, Shipping, Trucking, Steel, Aluminium, Chemicals and Concrete.
Let’s start from the beginning of our discussion. I’m optimistic because no one is talking about “if” we should act or even “when”. This was not the case only a couple of years ago and today leading large businesses are truly unanimous about acting now. Those who had not taken action earlier are now scrambling to align their strategies with a decarbonized future. So all the discussions that I am part of today are about the details of the transition for each sector. But even this discussion has changed. We heard this clearly in the panel, companies and other stakeholders are not so much pointing the finger at each other, instead they are taking collective responsibility. This means that each actor understands their role in the system and plays their part in a more coordinated response to climate change. That is exactly why MPP is so important and different. We are not just collecting the most ambitious supply-side companies in each sector, but also bringing in their customers, the financiers and governments to share a roadmap and coordinate their actions. This helps de-risk the significant investments that need to be made by the leaders.
I love the example that Maersk has made by ordering 8 container ships that can run on methanol. They have done so, freely admitting that they have not yet secured enough supply of renewable methanol. Importantly, this sends the signal to those in the fuel value chain that they can make their own investments into production capacity because there will be a customer. We also discovered that this kind of leadership is possible because over half of Maersk’s customers have set science-based targets and in turn have signaled that they will be willing to pay a premium to have their goods shipped on a decarbonized shipping route. This last point is actually not surprising, since we found out from Soren that the premium may sound large when thinking about all the fuel used by one ship but in actual fact it may only translate into 10 cents per pair of sneakers or jeans. That is a price we should all be willing to pay for decarbonizing shipping.
We asked the audience what kind of a price premium they would be willing to pay for a 6+ hour flight if it were flown on sustainable aviation fuel and the overwhelming majority voted for 50 USD or more. This is another reason to be optimistic. Perhaps we have been thinking about the cost of climate action the wrong way. Could it be that companies can not only pass-through costs but actually increase their net revenues by differentiating their products as climate friendly? It’s about time that we switch outdated mental models about climate change being costly and see this as an opportunity. For too long companies have seen green products and services as a niche customer segment. This is now going mainstream.
A big focus of our discussion was how to accelerate investment. A key theme was this new model of collaboration across value chains and adopting new business or revenue models but we also discussed policy and regulation. Most of us don’t tend to get very excited when bringing up the topic of regulation (at least not in a positive way) but I guess I’m special. I’ve worked on climate related policy and regulation over the years, but what makes me optimistic now is three things. Firstly, companies who are leading on climate ambition and action are consistently being invited to the table to help co-design regulations so that they can be more effective and efficient. There is now also an unprecedented wave of new regulations being put in place across key jurisdictions. This shows that governments are waking up to the urgency of climate change, but more importantly it shows that they have the backing of the majority of the public. Finally, through our work with stakeholders in the Mission Possible Partnership alignment is happening on a grand scale between business and government. Plans are actually being aligned so that governments can support the investments in technologies that we need in sectors like shipping and aviation. I can’t reveal too much right now, but just to say that you should stay tuned in to MPP.
The very last point I’d like to highlight to you from our discussion is something that I have always said to people who have difficulty understanding how companies make decisions: Companies are not inanimate objects, instead they are made up of people. Peter highlighted this so clearly when he explained how Neste is able to be a leader on climate action and sustainable fuels. He listed out the key ingredients for success as: employees inspired by the company’s purpose, creating a company culture around this purpose and innovation. And this clearly works, Peter added that “it’s happening” since they now have more than 30 customers and over 20 airports that are using sustainable aviation fuels.
In conclusion, I am optimistic because we have solutions, people willing to show leadership and making it happen – together.
Watch the recording of this Ecosperity Week event here. And register for the upcoming MPP webinar on October 14.