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Speaker 1: This is Dana Perkins and you're listening to Switched on

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Speaker 1: the bn EF podcast. Today we have another bonus episode

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Speaker 1: focused on the twenty twenty four Things to Watch series

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Speaker 1: from BNF. Today's topic is materials, and we draw upon

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Speaker 1: research that's found in the note Industrial Decarbonization Things to

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Speaker 1: Watch in twenty twenty four. I'm joined on the show

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Speaker 1: by Julia Atwood, an industrial decarbonization specialist here at BNF.

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Speaker 1: She shares the potential bottlenecks for carbon capture in storage

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Speaker 1: and direct air capture, along with what the future holds

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Speaker 1: for CO two storage and why twenty twenty four might

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Speaker 1: be the year that we see real progress in capacity

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Speaker 1: editions and announcements. We also discuss chemical recycling and the

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Speaker 1: potential impact editions of recently commissioned large scale plants could

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Speaker 1: have on the sector, and finally we get into one

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Speaker 1: of the hardest to abate sectors, cement. With more government

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Speaker 1: subsidies and assistants available, will twenty twenty four finally be

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Speaker 1: the year that green cement becomes an economically viable alternative.

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Speaker 1: To access this research note, subscribers can find it at

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Speaker 1: BNF dot com and at BEENF, go on the Bloomberg Terminal.

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Speaker 1: If you like this podcast, make sure to subscribe to

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Speaker 1: receive updates when future episodes are published, including bonus episodes

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Speaker 1: like this one, and if you give us a review

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Speaker 1: on Apple Podcasts or Spotify, other people will be able

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Speaker 1: to find us more easily. But right now, let's speak

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Speaker 1: with Julia about what lies ahead for materials in twenty

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Speaker 1: twenty four. Julia, thank you for coming back to switched

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Speaker 1: On today.

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Speaker 2: Thanks for having me Dana here.

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Speaker 1: We are to talk about things to watch in the

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Speaker 1: material space, But let's start off with the definition. How

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Speaker 1: would we or how would you and your team define materials?

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Speaker 2: You know, we often explain it as industrial decarbonization because

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Speaker 2: if you're looking at the emissions from industry, so the

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Speaker 2: emissions involved in making material, you're really looking at the

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Speaker 2: way you make steel, aluminum, padcams, or petrochemicals and cement,

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Speaker 2: and that's basically what we focus on. Now. We also

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Speaker 2: talk about circular economy and CCS or carbon capture and storage,

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Speaker 2: because those are two really important technologies to decarbonizing industry.

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Speaker 2: And of course we get a lot of help from

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Speaker 2: our friends over on the Hydrogen team, and.

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Speaker 1: We have a separate things to watch, note and things

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Speaker 1: to watch, podcasts on switched on about the industrial material.

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Speaker 1: So today we're going to focus on that kind of

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Speaker 1: ladder half that you listed off. But before we talk

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Speaker 1: about twenty twenty four and what's in store, let's have

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Speaker 1: that retrospective look back on twenty twenty three. So this

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Speaker 1: time last year you also put out of things to watch,

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Speaker 1: Note and will you help us better understand what scorecard

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Speaker 1: you're giving yourself and actually, even broadly, would you consider

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Speaker 1: yourself to be an optimist?

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Speaker 2: I definitely consider myself an optimist, especially about people and

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Speaker 2: especially about the weather, often to my detriment. So we

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Speaker 2: were pretty optimistic about twenty twenty three and it turned

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Speaker 2: out to be kind of a disappointing year for us.

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Speaker 2: So being b enough, we put together a scoring system

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Speaker 2: and we gave ourselves sixty five percent on what we

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Speaker 2: said last year, so not great. I think the way

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Speaker 2: we approached it was we thought that twenty twenty three

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Speaker 2: would finally be a year of normalcy again. After COVID.

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Speaker 2: We figured supply chains are starting to sort themselves out.

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Speaker 2: You have the Inflation Reduction Act or the IRA in

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Speaker 2: the US in full force. We felt that everything was

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Speaker 2: starting to come together for industrial decarbonization, and what we

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Speaker 2: found was that either too much regulation or the lack

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Speaker 2: of it was really holding everything up. So we're still

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Speaker 2: waiting on guidance, the really important information, all the nitty

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Speaker 2: gritty staff on the IRA that's holding up a bunch

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Speaker 2: of projects. In the US. Permitting is incredibly difficult right

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Speaker 2: now for carving, capture and storage sites. That's using some problems.

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Speaker 2: There's no consensus on green steel. We have a bit

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Speaker 2: more clarity on the Carbon Border Adjustment Mechanism or SEABAM

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Speaker 2: in Europe, but there's still a lot to figure out,

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Speaker 2: and the supporting infrastructure justicen't there. So all of that

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Speaker 2: meant that anything we were hoping would happen that required

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Speaker 2: any kind of consensus, like steel standards, like Canada countering

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Speaker 2: the IRA with new credits for ccs, didn't really happen. However,

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Speaker 2: there was a brighter side. The things that we did

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Speaker 2: well on were the things that were outside a lot

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Speaker 2: of policy and regulation, So announcements we did pretty well on.

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Speaker 2: Today there is eleven point two million tons of direct

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Speaker 2: air capture capacity that's been announced. That's much higher than

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Speaker 2: what we saw a couple of years ago. Double seventy

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Speaker 2: eight percent of that is in the US, as we expected,

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Speaker 2: so the US is really the hub for director capture

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Speaker 2: DAK right now. We also saw the first commercial green

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Speaker 2: steel making facility come online and that was from HBIS,

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Speaker 2: which is a Chinese steelmaker. So they brought on zero

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Speaker 2: point six million tons of capacity that uses fifty five

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Speaker 2: percent hydrogen, it is fuel. And then trade, our predictions

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Speaker 2: on trade went pretty well. So a lot of EU

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Speaker 2: countries are now net importers of plastic waste because they

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Speaker 2: need that in order to make the recycled plastic packaging

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Speaker 2: that they have some policy on.

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Speaker 1: So a lot of the work that your team is

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Speaker 1: looking at are regarding some of these really hard to

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Speaker 1: transform industries and you know, the hard to abate space.

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Speaker 1: One of the bottlenecks that has presented itself is an

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Speaker 1: issue both for direct air capture technology, so that removing

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Speaker 1: of carbon from the air and carbon capture and storage technology,

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Speaker 1: which is this capturing of carbon and technology that actually

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Speaker 1: has been around for some time but is improving and

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Speaker 1: making strides. Is once we capture everything, where are we

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Speaker 1: going to store it? That has been a point of

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Speaker 1: friction is twenty twenty four. Is there an optimistic view

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Speaker 1: on this and are there developments that we should be

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Speaker 1: keeping an eye on in the year head when it

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Speaker 1: comes to storage, both for direct air capture and CCS.

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Speaker 2: Definitely, one of the things that we're expecting to see

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Speaker 2: in twenty twenty four is a little bit of relief

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Speaker 2: for developers on those permitting issues. So in a lot

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Speaker 2: of cases, you start out by saying, Okay, I need

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Speaker 2: to capture CO two from this highly emitting source and

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Speaker 2: I want to store it somewhere, but there is a

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Speaker 2: massive supply chain there that all has to come together,

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Speaker 2: and a lot of the problems, as you've rightly pointed out,

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Speaker 2: are coming from the storage side, either technically getting the

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Speaker 2: CO two in there has been difficult, or as we've

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Speaker 2: seen in the US recently, the pipeline to get the

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Speaker 2: CO two there has been denied permits, or the CO

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Speaker 2: two storage site itself has been waiting often for years

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Speaker 2: to actually get permission to put CO two there. So

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Speaker 2: the anecdote that we've heard right now is oh, it's

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Speaker 2: taking six years for the US to permitid any kind

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Speaker 2: of CO two storage site. What we've seen this year

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Speaker 2: is some movement of the federal government to actually allow

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Speaker 2: the states to do that permitting process. So North Dakota

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Speaker 2: and Wyoming already have that power. Louisiana was just given it,

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Speaker 2: and so we think that's going to help speed up

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Speaker 2: some of these applications because you just have more people,

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Speaker 2: more engineers and geologists looking at them and figuring out

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Speaker 2: whether they're safe. So we think that about five of

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Speaker 2: the storage sites in the US that are waiting for

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Speaker 2: permitting could be granted this year, and for context, in

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Speaker 2: Louisiana alone, there's twenty two sites waiting for a permit,

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Speaker 2: so that's on the storage side. The pipelines we still

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Speaker 2: expect to be a bit of an issue because there's

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Speaker 2: been so much community pushback. Everyone is very wary of

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Speaker 2: pipelines because they've seen the oil and gas industry use them.

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Speaker 2: They don't want them on their land, and they're often

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Speaker 2: crossing pretty large swathes of land, so it's been tough

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Speaker 2: for those to get permits, and we think that's going

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Speaker 2: to persist. But if you can find a storage site

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Speaker 2: closer to where you're emitting the CO two, as you

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Speaker 2: can with direct air capture, you may have an easier

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Speaker 2: time of it. In twenty twenty four.

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Speaker 1: Is this largely something that's being moved forward in twenty

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Speaker 1: twenty four in the US, or is there CO two

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Speaker 1: storage that's coming online in Asia as well?

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Speaker 2: In Asia and actually in Europe, we're seeing more and

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Speaker 2: more announcements there. The reason why we're not as concerned

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Speaker 2: about Europe is that there are a lot of countries

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Speaker 2: and companies involved in a single site in the North

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Speaker 2: Sea called lang Skip. The EU has committed to an

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Speaker 2: eighteen month permitting cycle. In the US, the EPA says

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Speaker 2: that that's probably going to be more like twenty four months,

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Speaker 2: so there are at least some guidelines on this, but

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Speaker 2: we think permitting is going to be the most difficult

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Speaker 2: in the US because of the number of government bodies involved.

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Speaker 1: So when we're not thinking about storing the CO two,

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Speaker 1: we're thinking about this other term CCUS, and with the

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Speaker 1: U part, utilization of the waste byproduct that we actually

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Speaker 1: discussed in one of our previous shows can make its

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Speaker 1: way into our soda. I want to know what's in

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Speaker 1: the year head for this utilization part of CCUS and

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Speaker 1: what should we be keeping an eye on.

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Speaker 2: We think there's going to be a renaissance in CCS

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Speaker 2: and CO two utilization, so ignoring the S part of

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Speaker 2: CCS and just going with the U. And we think

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Speaker 2: that people are going to see how difficult the permitting is,

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Speaker 2: throw out their hands and be like, I'm not going

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Speaker 2: to deal with this anymore. I'm going to find a

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Speaker 2: buyer for my CO two and they're going to use it.

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Speaker 2: The places that we think will be the best to

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Speaker 2: put that CO two is either a synthetic fuel, so

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Speaker 2: a fuel that's made from captured CO two and hydrogen,

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Speaker 2: because there's a big market for that. In terms of

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Speaker 2: sustainable aviation fuel, the aviation industry doesn't have a lot

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Speaker 2: of decarbonization options, so it's really looking at fuels. We've

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Speaker 2: already seen a few say that they're going to take

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Speaker 2: CO two, either from director capture or from ethanol plants

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Speaker 2: and turn it into fuel. The tricky thing here is

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Speaker 2: that you have to be really careful where you're getting

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Speaker 2: your CO two from if you're going to turn it

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Speaker 2: into a fuel, because that fuel is eventually going to

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Speaker 2: get burned, so you want to make sure that your

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Speaker 2: CO two was either coming out of the atmosphere in

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Speaker 2: the first place, so that's dak or it was coming

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Speaker 2: from a biogenic source, so that's ethanol. If you're just

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Speaker 2: a regular old cement plant or steel plant and you

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Speaker 2: want to use your CO two, in order to be

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Speaker 2: really clear with your carbon accounting, you have to make

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Speaker 2: sure that that CO two is going somewhere where it

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Speaker 2: can't escape as it would when you burn a fuel.

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Speaker 2: So the options there are really using it for enhanced weathering,

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Speaker 2: so you're creating aggregates with carbonates in them from that

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Speaker 2: CO two, or you're putting it back into cement. So

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Speaker 2: it's going to be tough for the industrial users to

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Speaker 2: find someone to buy their CO two and store it

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Speaker 2: in a different way. But dak ethanol, they can turn

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Speaker 2: to fuels and there's already demand and a supply chain there.

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Speaker 1: Now let's turn to chemical recycling, and if I'm not mistaken,

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Speaker 1: this might be the very first show that you and

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Speaker 1: I did with each other, Julia a few years ago.

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Speaker 1: One of the issues that we discussed at the time

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Speaker 1: was that there is a limiting factor here, So it's

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Speaker 1: the scale and the ability to actually tackle the problem

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Speaker 1: with chemical recycling. Is this going to continue in twenty

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Speaker 1: twenty four or are we going to see a breakthrough.

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Speaker 2: So this was actually one of the phases where we

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Speaker 2: were a bit too optimistic. Last year, we thought that

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Speaker 2: about a million tons of chemical recycling capacity was going

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Speaker 2: to come online. When we tallied it up at the

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Speaker 2: end of the year, we got to just under seven

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Speaker 2: hundred and fifty thousand. So we still think that chemical

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Speaker 2: recycling has a really big place in the circular economy

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Speaker 2: and in decarbonizing petcems or petrochemicals, but we're being a

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Speaker 2: little bit more measured with our predictions this year, so

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Speaker 2: we're expecting to see two large scale chemical recycling plants

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Speaker 2: come online, and we would define large scale as more

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Speaker 2: than fifty thousand tons of capacity. Chemical recycling has really

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Speaker 2: been hit pretty hard by the huge increase in construction

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Speaker 2: costs that we saw this year and all of the

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Speaker 2: supply chain issues. If you can't get the pumps and

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Speaker 2: the pipes and the bars that you need to build

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Speaker 2: your plant, it's pretty tough to commission on time.

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Speaker 1: Okay, now let's turn to green steel and the decarbonization

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Speaker 1: of steel manufacturing. Steel is incredibly important for so much

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Speaker 1: of the infrastructure across the world, and hydrogen has increasingly

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Speaker 1: been used to be a part of the solution for

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Speaker 1: decarbonizing well steel and actually other hard to abate spaces,

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Speaker 1: but invariably hydrogen is still expensive and is really quite

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Speaker 1: limited in its application up until this date. Do you

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Speaker 1: see green steel and then as a second part of that,

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Speaker 1: hydrogen use really taking off in the airhead.

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Speaker 2: Green steel is the success case that everyone loves to

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Speaker 2: turn to and they look at industrial decarbonization because we've

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Speaker 2: seen plants be announced, we've seen the customers be really

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Speaker 2: enthusiastic about signing up for off take agreements, and we're

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Speaker 2: starting to see the early stages of all of the

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Speaker 2: technical issues being worked out. So there are three places

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Speaker 2: that we're watching for green steel and especially hydrogen made

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Speaker 2: green steel this year, and they are Canada, Brazil, and

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Speaker 2: the Middle East. Most of the green steel that we've

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Speaker 2: seen so far has been made in Europe, but we

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Speaker 2: think that now is the time for those announcements to

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Speaker 2: start to diversify. And there are a few things that

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Speaker 2: we look for when we are choosing these regions that

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Speaker 2: we're going to be watching. One is you want to

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Speaker 2: have a steel maker in the region who knows what

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Speaker 2: they're doing, because these are not small technical changes. You

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Speaker 2: really need to have people there with the technical expertise

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Speaker 2: to build the plants and then run them. We think

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Speaker 2: all of those regions that I just listed have that.

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Speaker 2: You also want access to really high quality iron ore.

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Speaker 2: The process that you use hydrogen in isn't as effective

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Speaker 2: as the typical cold based process at removing impurities from

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Speaker 2: iron ore, So you need the really good stuff and

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Speaker 2: you can get that in Brazil and the Middle East

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Speaker 2: in particular, and Canada has some access to it as well.

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Speaker 2: And then the third thing that we're really looking for

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Speaker 2: is cheap hydrogen. Brazil is due to have some of

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Speaker 2: the lowest cost hydrogen in the world according to our calculations,

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Speaker 2: and so that makes it a really interesting place for

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Speaker 2: us to be watching. So green steel isn't just going

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Speaker 2: to be for the Europeans anymore. We're going to see

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Speaker 2: a lot more diversification.

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Speaker 1: So let's keep building something on the show today. And

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Speaker 1: let's turn next to cement. Costs for green cement have

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Speaker 1: been far exceeding traditional cement making it and not particularly

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Speaker 1: competitive up until this point. So from a cost standpoint,

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Speaker 1: what's in store for us in the cement space?

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Speaker 2: You know, I've been really surprised by the cement industry.

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Speaker 2: Those companies are moving much faster than I expected. Back

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Speaker 2: in twenty twenty one, when we looked at how much

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Speaker 2: material capacity is covered by a net zero target, cement

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Speaker 2: was at seven percent. By the start of twenty twenty three,

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Speaker 2: it was at forty seven percent. Now, the cost of

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Speaker 2: making green cement is still pretty high. You can see

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Speaker 2: premiums of more than one hundred percent, so double the

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Speaker 2: cost right now, but those should fall. There's still a

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Speaker 2: lot of new equipment that needs to be designed and tested,

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Speaker 2: like electric kilns, But by twenty fifty we could see

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Speaker 2: premiums that are much more reasonable, so much like thirty

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Speaker 2: five to forty percent. This is really the year that

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Speaker 2: the demand side needs to help out all of those

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Speaker 2: cement makers with their net zero targets, though, because they'd

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Speaker 2: won't have the confidence to build a green plant until

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Speaker 2: they're sure that somebody's going to buy what they're making

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Speaker 2: at the end of it. So what I'll be watching

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Speaker 2: for is whether you see some really big off take

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Speaker 2: agreements from the major cement producers who have announced green projects.

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Speaker 1: Now you took a closer look at the just transition

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Speaker 1: and the overlap with materials so can you talk a

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Speaker 1: little bit about how this interplays with steel and cement

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Speaker 1: in the material space.

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Speaker 2: Steel and cement are really the bedrock of any industrialized society,

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Speaker 2: So whenever we start to see GDP rising in a country,

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Speaker 2: we figure they're going to have a lot more demand

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Speaker 2: for steel and cement. Most countries think of those materials

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Speaker 2: as strategic, so they not only want to be able

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Speaker 2: to produce them in the country, but they also want

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Speaker 2: to benefit have their people benefit from all of the

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Speaker 2: jobs that they create as well. So we're expecting to

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Speaker 2: see countries really working hard to try and save their

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Speaker 2: domestic cement and steel industries. In developed countries and in

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Speaker 2: developing countries, we're expecting to see a lot more capacity

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Speaker 2: being built. Now, the question is whether that new capacity

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Speaker 2: is green and whether developed countries decide to save their

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Speaker 2: capacity by making it green. So we think this will

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Speaker 2: be a huge question. It's about not leaving anyone behind

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Speaker 2: and ensuring that the jobs in those industries become green jobs.

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Speaker 2: In the next few years.

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Speaker 1: Let's finally come to financing the transition. We're moving from

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Speaker 1: a high carbon to a low carbon future. For what

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Speaker 1: are some of the most difficult to green parts of

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Speaker 1: the economy, and transition finance can sometimes be controversial, with

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Speaker 1: fears over green washing really coming to the front, but

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Speaker 1: also incredibly important for a lot of the different areas

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Speaker 1: that you cover as they are, like I said, moving

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Speaker 1: from high carbon to lower carbon means of manufacturing their products.

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Speaker 2: So is there.

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Speaker 1: Anything we should be keeping an eye on in the

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Speaker 1: year ahead when it comes to the role of transition

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Speaker 1: finance and how transition finance might be perceived by the

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Speaker 1: outside world.

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Speaker 2: Transition finance is going to be a really important tool

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Speaker 2: for industrial decarbonization, and that really stems from the fact

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Speaker 2: that transition finance sits in this middle ground. It's not

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Speaker 2: green finance, but you're probably not using it for the

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Speaker 2: highest emitting project. The thing about industrial decarbonization is that

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Speaker 2: it often happens piecemeal. So there are very few projects

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Speaker 2: that we see that are going to be one hundred

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Speaker 2: percent green, zero carbon from the start. Most people want

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Speaker 2: to make investments in order to get to their thirty

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Speaker 2: percent reduction target, or they want to take an old

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Speaker 2: plant and make it a lot more efficient. Now, those

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Speaker 2: definitely provide emissions reductions, but not enough to qualify for

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Speaker 2: green finance. So you have all these projects that are

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Speaker 2: stuck because they're an extra cost. They may be a

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Speaker 2: new technology and they're finding it hard to get the

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Speaker 2: financing for that because of the technology risk or the

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Speaker 2: emissions risk. So that's really where transition finance can step

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Speaker 2: in and fill the gap. And we're expecting the countries

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Speaker 2: with outsized industrial and like Japan and China to be

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Speaker 2: the places where you see a lot of growth. So

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Speaker 2: Japan is expecting eleven billion in transition finance, and China

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Speaker 2: things that it's going to grow faster than green finance,

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Speaker 2: which given its industrial base and all of the work

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Speaker 2: that it has to do to decarbonize, probably isn't a surprise.

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Speaker 1: Well, Julia, thank you for taking me through the things

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Speaker 1: to watch in twenty twenty four for materials.

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Speaker 2: Thanks Dana.

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