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CARBON FOOTPRINT

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UK Paves The Way for A Greener and Carbon-Free Future

The UK is working to create a policy for building a more sustainable future for itself through the New Green Industrial Revolution, aiming to attain net-zero emissions in the UK by 2050. As the country separated itself from the EU through Brexit, it is also setting its own environmental goals and in that, its own version of the EU’s 2019 Green Deal (we wrote about it in The EU Green Deal – Good on Paper but Is That Enough? in March 2020). With highly ambitious targets, the proposed investments are worth GBP12 billion, creating 250,000 jobs in the process. While this seems like a promising funds allocation, the plan’s success will actually depend on significant investments in next-generation technologies, which have currently not been proven commercially. Moreover, a lot will depend on an equal involvement from the private sector that might be more cautious with investments than the public sector.

The UK is in a bid to position itself at the forefront of global markets for green energy and clean technologies. To achieve this, it proposed a 10-point Green Industrial Revolution in November 2020, which aims to mobilize GBP12 billion funds and create 250,000 jobs in the UK. Through this plan, the UK aims to achieve net zero carbon emissions by 2050. The key areas covered under the plan include offshore wind, hydrogen, nuclear, electric vehicles, public transport, jet zero and greener maritime, homes and public buildings, carbon capture, nature, and innovation and finance.

UK Paves The Way for A Greener and Carbon-Free Future

Offshore wind

The new Green Industrial Revolution outlines the UK government’s commitment to put offshore wind energy at the forefront of the country’s electricity needs. It has increased the offshore wind targets from previous 30GW to 40GW by 2030, aiming to produce enough energy to power all homes in the UK by 2030.

In addition to this, the government plans investments of about GBP160 million to upgrade ports and infrastructure in localities that will accommodate future offshore wind projects (e.g. Teesside, Humber, Scotland, and Wales).

This investment in developing offshore wind energy is expected to support about 60,000 direct and indirect jobs by 2030 in construction and maintenance of sites, ports, factories, etc.

While the government’s plan is great on paper, meeting the 40GW target will require 4GW of offshore wind projects to be commissioned every year between 2025 and 2030, which is extremely ambitious and challenging. Moreover, just developing offshore wind projects will not be enough until works are also done to update the electricity grid. Further, the target 40GW generation is calculated based on current electricity demand by households, which in reality is bound to increase as a shift towards electric vehicles is being encouraged.

Hydrogen

With the help of industry partners, the UK government plans to develop 5GW of low carbon hydrogen production capacity by 2030 for industries, transport, and residences. The government is expected to publish a dedicated Hydrogen Strategy in 2021, to position the UK as a front runner in production and use of clean hydrogen. It plans to develop 1GW (of the planned 5GW) hydrogen production capacity by 2025.

A central part of the UK’s Hydrogen Strategy is expected to have hydrogen potentially replace natural gas for the purpose of heating. The government is undertaking hydrogen heating trials, commencing with building a ‘Hydrogen Neighborhood’ and potentially developing a plan for the first town to be heated completely using hydrogen by 2030.

In addition to this, works with industry partners are under way to develop ‘hydrogen-ready’ appliances in 2021, such that new gas boilers can be readily converted to hydrogen if any future conversion of the gas network is commissioned. To facilitate this, the government is working with Health and Safety Executives to enable 20% hydrogen blending in the gas network by 2023. However, this is subject to successful trials.

In transportation, an investment of GBP20 million in 2021 is planned to test hydrogen and other zero emission freight truck technologies in order to support the industry in developing zero-emission trucks for long-haul road freight.

To achieve these targets, a GBP240 million Net Zero Hydrogen Fund is planned to be set up. It will provide capital co-investment along with the investment from private sector to develop various technologies. These will include carbon capture and storage infrastructure for the production of clean hydrogen that can be used in home, transport, and industrial requirements. The policy is expected to support 8,000 jobs by 2030 and push private investment worth GBP4 billion by 2030.

However, the government’s ambitious 2030 hydrogen policy requires significant investment and participation from the private sector. While several global companies such as ITM Power, Orsted, Phillips 66, etc., have come together to collaborate on the Gigastack project in the UK (which aims to produce clean hydrogen from offshore wind), such private participation will be required on most projects to make them feasible and meet the targets.

Nuclear power

In search of low-carbon electricity sources, UK plans to invest in nuclear energy. In addition to development of large-scale nuclear plants, the investments will also include small modular reactors and advanced modular reactors.

To this effect, the government has set up a GBP385 million Advanced Nuclear Fund. Of this, GBP215 million is to be used towards small modular reactors, i.e., to develop a domestic smaller-scale nuclear power plant technology that could be built in factories and assembled on site. Apart from this, GBP170 million is to be used towards research and development of advanced modular reactors. These are reactors that could operate at over 800˚C, and as a result, unlock efficient production of hydrogen and synthetic fuels. These are also expected to complement the government’s other investments and initiatives with regards to hydrogen and carbon capture.

While the government expects the design and development of small modular reactors to result in private sector investment of up to GBP300 million, these next generation small reactors are currently considered a long shot as no company has created them yet. While Rolls Royce has offered the government to design one, it is conditional on them receiving a subsequent order worth GBP32 billion for 16 such reactors as well as the government paying half of the GBP400 million design cost.

Moreover, nuclear power plants are expensive and long-term investments and are considered to be one of the most expensive sources for power. Thus it is very important to evaluate their economic feasibility. While the government is bullish on the role of nuclear power in decarbonizing electricity, it is very important for large-scale projects to be economical, while small-scale projects still remain at a conceptual stage.

Electric vehicles

It is estimated that cars, vans, and other road transport are the single largest contributor to the UK’s carbon emissions, making up nearly one-fifth of all emissions emitted. Thus the government is committed to reducing carbon emissions produced by automobiles. To achieve this, the country plans to ban the sale of all new petrol and diesel cars and vans by 2030 (10 years earlier than initially planned). However, hybrid cars will be allowed to be sold till 2035.

The government has planned a support package of GBP2.8 billion for the country’s car manufacturing sector, which in turn is expected to create about 40,000 employment opportunities up till 2030. Of this, GBP1 billion will be used towards the electrification of vehicles, including setting up factories to produce EV batteries at scale. In addition to this, GBP1.3 billion is planned to be spent to set up and enhance charging infrastructure in the country by installing a large number of charge points close to residential areas, office and commercial spaces, highways, etc., to make charging as convenient as refueling. The government plans to have a network of 2,500 high-power charging points by 2030 and about 6,000 charging points by 2035. Lastly, grants are planned to the tune of about GBP582 million up till 2023 to reduce the cost of EVs (cars, vans, taxis, and two-wheelers) for the consumer. In addition to the investment by the government, private investment of about GBP3 billion is anticipated to trickle into the sector by 2026.

While this is considered to be a very important step in the right direction, it is estimated that it will still leave about 21 million polluting passenger vehicles on the UK roads by 2030 (in comparison to 31 million in 2020). Moreover, the government continues to allow the sale of hybrid cars for another five years beyond 2030, which means that carbon emissions-producing vehicles will still be added to UK roads even after the target dates set in the New Green Industrial Revolution plan.

Green public transport

In addition to reducing carbon emissions from passenger cars, the government also wants to make public transport more approachable and efficient. It plans to spend about GBP5 billion on public transport buses, cycling- and walking-related initiatives and infrastructure.

In addition, funding of GBP4.2 billion is planned on improving and decarbonizing the cities’ public transport network. This will include electrifying more railway lines, integrating train and bus network through smart ticketing, and introducing bus lanes to speed up the journey. The plans also include investment in about 4,000 new zero-emission buses in 2021, as well as funding two all-electric bus towns (Coventry and Oxford) and a completely zero-emission city center. While York and Oxford have shown interest in becoming the UK’s first zero-emission city center, the government has not yet formally announced the city for the same.

Improvements in public transport networks in other cities are also planned to bring them on par with London’s system. A construction of about 1,000 miles of segregated cycle lanes is in plans to encourage people to take up this mode of transportation for shorter distances.

While it is expected these investments will encourage people to use public transport more, the current COVID pandemic has created apprehensions when considering such shared transportation. Although this is expected to be a short-term challenge, it may be a slight damper to the government’s plan for the next year or so.

Jet zero and green ships

Apart from road transport, the government also aims at decarbonizing air and sea travel. It plans to invest GBP15 million in FlyZero – a study by Aerospace Technology Institute (ATI) aimed at identifying and solving key technical and commercial issues in design and development of a zero-emission aircraft. Such an aircraft is expected to be developed by 2030. In addition to this, the government plans to run a GBP15 million competition for the development of Sustainable Aviation Fuel (SAF) in the UK. The plans also include investing in upgrading airport infrastructure so that it can service battery and hydrogen fueled aircrafts in the future.

In addition to aviation, the government is also investing GBP20 million in the Clean Maritime Demonstration Programme to develop clean maritime technology.

While the plans to develop greener fuel for aircraft and ships is a step in the right direction, it is still somewhat of a long shot as a lot more investment is required into this than proposed. Moreover, the shipping industry in particular has shown little interest in wanting to reform in the past and it is likely that both the sectors will continue to follow international standards (that are high in carbon emissions) to remain competitive globally.

Greener buildings

The UK has a considerable number of old and outdated buildings that the government wants to put in the center of its Green Industrial Plan, thus making existing and new buildings more energy efficient. The plan is to slowly phase out carbon-heavy fossil fuel boilers currently used for heating buildings and instead promote the use of more carbon efficient heat pumps. For new buildings, an energy efficiency standard is to be developed, known as the Future Home Standard. To achieve this, the domestic production of heat pumps needs to be ramped up, so that 600,000 heat pumps are installed annually by 2028. This is expected to support about 50,000 jobs by 2030. In addition to this, the government is providing GBP1 billion to extend the existing Green Home Grant (launched in September 2019) by another year, which is aimed at replacing fossil fuel-based heating in buildings with more energy efficient alternatives.

While the subsequent shift to heat pumps from gas boilers will definitely help reduce the buildings’ carbon footprint, heat pumps are currently much more expensive and more difficult to install. Thus, the government must provide ongoing financial incentives for consumers to make the switch.

Carbon capture, usage, and storage

Carbon capture, usage, and storage (CCUS) technology captures carbon dioxide from power generation, low carbon hydrogen production, and industrial processes, and stores it deep underground, such that it cannot enter the atmosphere. In the UK, it can be stored under the North Sea seabed. A the technology has a critical role to play in making the UK emission free, a GBP1 billion investment is planned to support the establishment of CCUS in 4 industrial clusters by 2030 to capture 10Mt of carbon dioxide per year by 2030. Developed alongside hydrogen, these CCUS will create ‘SuperPlaces’ in areas such as the North East, the Humber, North West, Scotland, and Wales. The development of the CCUS is expected to create 50,000 jobs by 2030.

CCUS is a very new technology, with no large-scale or commercially successful projects operational across the world. While the technology has been proved in pilot projects, its feasibility is yet to be seen. Also, a significant amount of private investment will be required to carry through the proposed project. While some private players, such as Tata Chemicals Europe have begun constructing the first industrial-scale CCU plant (expected to capture 40,000 tons of CO2 per year) in Northwich, the government needs several more private players to step up to meet its ambitious targets.

Nature

In addition to the above mentioned programs, the government plans to safeguard and secure national landscapes as well as restore several wildlife habitats to combat climate change. To achieve that, it plans to reestablish several of the nation’s landscapes under National Parks and Areas of Outstanding Beauty (AONB), as well as create new areas under these two heads. The National Parks and AONB program is expected to add 1.5% of natural land in the UK and will help the government in reaching the target of bringing 30% of the UK’s land under protected status by 2030.

In addition to this, the government plans to invest GBP40 million in nature conservation and restoration projects, which in turn is expected to create several employment opportunities across the country. Moreover, it plans to invest GBP5.2 billion over six years into flood defenses, which will help combat floods and damage to homes as well as natural environment. This is also expected to create about 20,000 jobs up till 2027.

Green finance and innovation

The last agenda on the 10-point Green Industrial Revolution entails developing new sources of financing for supporting innovative green technologies. To this effect, the government has committed an R&D investment of 2.4% of its GDP by 2027. This will extensively be used towards developing high risk, high reward green technologies, which will help the UK attain net zero emissions by 2030.

Additionally, the government launched a GBP1 billion Net Zero Innovation Portfolio that will focus on commercialization of low-carbon technologies mentioned in the 10-point agenda, including development of floating offshore wind, nuclear advanced modular reactors, energy storage, bioenergy, hydrogen, greener buildings, direct air capture and advanced CCUS, industrial fuel switching, and other disruptive technologies. In November 2020, the government launched the first phase of this investment, GBP100 million, towards greenhouse gas removal and in the coming year it plans to invest another GBP100 million towards energy storage. It also plans to invest GBP184 million for fusion energy technologies and developing new fusion facilities. Moreover, GBP20 million will be directed towards development and trials of zero emission heavy goods vehicles.

Apart from this the government plans to issue the UK’s first Sovereign Green Bonds in 2021. These bonds, which are likely to be first of many, are expected to finance sustainable and green projects and facilitate the creation of ‘green jobs’ in the country. Furthermore, similar to the EU Green Deal, the government plans to implement a green taxonomy, which helps define economic activities into two categories – the ones that help limit climate change and others that are detrimental to the environment – to help investors make better investment choices.

EOS Perspective

The UK’s Green Industrial Revolution seems to be a comprehensive policy with a multi-pronged approach to tackle climate change, promote green technology and investments, and achieve net zero emissions by 2050. With Brexit in action, it seems like a worthy counterpart to the EU’s Green Deal, which the UK was initially a part of. Moreover, it is an important framework for the UK to show its commitment towards controlling climate change, especially with the country hosting the upcoming 26th session of the Conference of the Parties (CoP 26) to the United Nations Framework Convention on Climate Change summit in Glasgow in 2021.

However, currently the UK’s Green Industrial Revolution is not a legally binding policy document but more of a proposal, which would need to go through several legislative procedures to become binding. Moreover, while the plan is ambitious, it depends heavily on next generation innovative technologies that require hefty investments to achieve the targets. Thus, its success depends on whether the government is seriously committed and prepared to spend heavily on commercializing these technologies along with managing to attract significant amount of private investment to complement own efforts. While few aspects of the 10-point approach have already received investment from the private sector and first phase of funding from the government, it is yet to be seen if the UK’s ambitious net zero emission goals are truly feasible.

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Beyond the Low-cost Price Tags – the Real Price of Fast Fashion

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Gone are the days when consumer bought a pair of jeans and wore it for years. Fast fashion culture has conditioned consumers to expect a constant stream of new clothing that feeds their desire to buy more in order to keep up with the changing trends. Owing to fast fashion, affordable clothes are being manufactured at a warp speed, worn, and quickly discarded, making clothes disposable commodities rather than keepsakes. About 100 billion clothing items are manufactured globally each year and consumption has increased by 400% in the last two decades. Fast fashion has undeniably democratized high fashion by providing affordable apparel for everyday shoppers but it comes at an enormous cost, not reflected in its bargain-basement price tags.

Fast fashion is the fashion now

Selling large quantities of inexpensive clothing has made fast fashion a dominant business model in the garment industry. Another reason for its popularity is the taste of luxury clothing that it offers to shoppers without paying the full price. Fast fashion brands, such as Zara and H&M, are able to produce low-cost mimics of high-end fashion brands. The moment a model walks down the ramp wearing clothes of luxury brands such as Louis Vuitton, fast fashion brands mass produce replicas of a similar design and sell them at astonishingly low prices.

While established luxury clothing brands take months to design and distribute a clothing item, Zara is able to design, produce, market, and distribute a new piece of clothing to its stores located across 93 countries in mere two weeks. This enormous efficiency in producing mass clothing at an economical format provides an edge to fast fashion companies that traditional clothing brands will always struggle to replicate.

Fast fashion has transformed dynamics of the whole fashion industry, changing the traditional four-season fashion calendar to 52 micro-seasons. Fast fashion companies such as Missguided launch about 1,000 new products monthly, while Fashion Nova rolls out 600 to 900 new styles every week.

The blindingly fast pace at which clothes are being manufactured and discarded has its consequences. The manufacturing process is environmentally damaging and speedy supply chains depend on underpaid and overworked factory workers.

Environmental cost of fast fashion

The environmental menace linked to manufacturing and consuming fast fashion is hidden across the lifecycle of each piece of clothing. The production process is tremendously polluting to begin with, as factories indiscriminately dump toxic chemical-laden wastewater into rivers and tonnes of greenhouse gases are emitted while manufacturing – about 1.2 billion tonnes of CO2 is emitted annually by the global textile industry, which is more than aviation and shipping industries combined.

Even the choice of fabric for manufacturing fast fashion garments is posing environmental risks. Proportion of synthetic materials, such as polyester in our clothing has increased two-fold since 2000, rising to 60% in 2019. These fibers are oil-based and a single polyester shirt has 5.5 kg of carbon footprint, as compared to 2.1 kg from a cotton shirt. Moreover, polyester generates vast amounts of greenhouse gases, sheds microfibers that cause plastic pollution in oceans, and when disposed, it does not naturally decompose, compounding the waste problem.

A major ramification of fast fashion is that clothes move from consumer’s wardrobes to garbage as fast as they are manufactured. It is likely that within 7-8 uses, a jeans or shirt would be discarded for clothing that is newer and trending. The shorter lifespan of garments is not only generating enormous amount of waste but is also putting strain on production resources such as water that is extensively used in the manufacturing process.

Globally, about US$ 400 billion worth clothing is discarded prematurely and 21 billion tons of textile is sent to landfills annually. The ecological cost associated with these garments is tremendous – 3,000 liters of water is required to manufacture one cotton shirt and a pair of jeans needs about 8,000 liters of water, almost the amount of water an average person drinks over two years is utilized in production of garments that will be quickly discarded.

Social cost of fast fashion

With rise of globalization, supply chains have become international, which has led to increased outsourcing of textile production to countries that offer low-cost labor. Fast fashion’s low price tags largely depend on even lower production costs. Hence, countries such as USA produce only 3% of its garments, while the rest is outsourced to developing countries, such as Bangladesh, India, Vietnam, etc.

Low-cost production means factory owners need to cut down costs, which is usually done at the expense of safety and results in providing appalling working conditions for factory workers. Fast fashion production uses 8,000 synthetic chemicals, several of those chemicals are carcinogenic affecting health of factory workers. Moreover, workers are constantly exposed to fumes of toxic chemicals, which pose serious threat to their lives.

Fast fashion frenzy has led retailers to indulge in unfair labor practices in an attempt to keep production costs low and simultaneously increase production. About 85% of textile factory workers are women, who work overtime and are highly underpaid. Lack of regulation has given way to exploitation of labor in countries such as Bangladesh, where retailers pay as little as US$ 2-3 per day to garment workers, a larger portion of them are engaged by fast fashion brands. Even in developed economies such as the USA, companies such as Fashion Nova have been found to pay employees far below the minimum wage – the brand was reported to pay US$ 2.77 an hour to its workers in Los Angeles.

Additionally, cases of child labor have been registered in countries including Bangladesh, Brazil, China, India, Indonesia, Philippines, Turkey, and Vietnam.

A move towards sustainable production

In the past decade, changing consumer attitudes associated with sustainability and corporate transparency have propelled fast fashion retailers to rethink impact of their production processes.

Notable steps have been taken by some of the largest fast fashion brands such as Zara and H&M. Zara aims to use 100% organic, sustainable or recycled material in its clothing line by 2025. Also, it has plans for its facilities not to produce any landfill waste by 2025. Currently, Zara has a sustainable clothing collection, Join Life, which uses sustainable raw materials such as organic cotton, tencel (cellulose fiber), or recycled polyester.

H&M also has a similar vision of using 100% sustainably sourced or recycled materials in its garments. It also aims to reduce water consumption and CO2 emissions in production processes. The company already has a clothing line, Conscious, which uses sustainable materials for manufacturing garments.

Both companies also claim to be striving to provide better working conditions for workers and pay fair wages.

Beyond the Low-cost Price Tags – the Real Price of Fast Fashion by EOS Intelligence

EOS Perspective

Thanks to fast fashion, for many consumers, what used to be a thoughtful and occasional purchase, has turned into a series of impulse buys at shorter intervals. The rate at which garments are being produced is not environmentally sustainable and putting profits ahead of workers’ welfare has led to abuse and exploitation of laborers globally.

Fortunately, the number of eco-conscious consumers is on the rise, a fact that has pushed fast fashion retailers to reevaluate strategies and focus on sustainable production. However, a question still remains how much of those sustainability pledges and greener production goals actually hold true.

Can fast fashion really be sustainable?

The fundamental problem lies in the business model of fast fashion that is based on selling more products. The industry’s profitability hinges on luring consumers to fresh stream of new clothes and designs that are launched almost weekly. A business model that is based on over-production is far from being sustainable.

Fast fashion companies are often criticized for greenwashing and distracting consumers from their harmful practices. For instance, H&M’s recycle program encourages shoppers to donate their old clothes, which H&M claims to recycle to create new textile. However, only 0.1% of all collected clothing is believed to be actually recycled, while the rest is most likely dumped in landfills. H&M’s clever marketing tactics make shoppers believe that it is a green company, but in reality, H&M offers discount vouchers to shoppers in exchange of their donated clothes, which pushes consumers to buy even more clothes.

Claims made by fast fashion companies on using 100% sustainable fabric have been questioned by various experts and critics, as all fabrics utilize enormous amount of natural resources and energy in the production process. Fast fashion companies might be shifting to fabrics with lower environmental profile but it cannot be completely sustainable, as claimed.

Moreover, H&M and Zara’s sustainable clothing lines, Conscious and Join Life, have been called out for misleading consumers with vague sustainability claims. It is unclear to consumers why these companies are labelling their clothing lines as sustainable. The companies have never defined terms such as ‘sustainably sourced’ or ‘sustainable materials’, used to describe their clothing lines. Hence, it is ambiguous how they source the materials, what is meant by sustainable materials, and what portion of garments they actually constitute.

While making an effort to use environmentally-friendly materials is definitely a step towards better production practices, it is not enough to compensate for the overall damage that fast fashion companies impose on the environment, hence, consumers also need to do their part.

Time to slow the fast fashion

Fast fashion thrives because companies create demand for clothing. To curb this demand, consumers need to make changes in shopping behavior to reduce their own environmental footprint.

A conscious choice needs to be made to purchase less clothes and to use the existing ones for longer time period. Solely wearing a garment for nine months longer can reduce carbon footprint of that garment by 30%.

Buying used clothes is another way to reduce environmental impact. Wearing used garments is a sustainable way to recycle clothes which would otherwise be discarded in landfills. If every shopper purchased one used item in a year, it could save CO2 emission equivalent to pulling out half a million cars from roads for a year.

Nonetheless, if consumers make mindful choices and fast fashion brands commit to doing business differently, we would be able to produce and consume less.

by EOS Intelligence EOS Intelligence No Comments

Decarbonization of Steel Industry: A Rocky Road Ahead

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Continuously rising carbon dioxide (CO2) emission is a leading cause of climate change which is considered to be one of the most pressing issues the world is facing today. Being one of the biggest contributors to CO2 emission, steel industry has garnered wide-spread criticism over the years. Several alternatives to conventional steelmaking process have been developed in an effort to reduce CO2 emission, however, the question is whether the producers of this shining grey alloy are ready to face the challenges in implementation of cleaner technologies.

Steel industry strives to move towards a low-carbon future

Global crude steel production increased from 1,808.6 million tons in 2018 to 1,869.9 million tons in 2019, registering 3.4% year-on-year growth. World Steel Association indicated that, on average for 2018, for every ton of steel produced, 1.82 tons of CO2 were emitted. In the same year, steelmaking accounted for 7% of the total CO2 emissions globally.

UN Paris agreement on climate change, inked in 2015, outlines a global framework to ensure global temperatures do not rise above 2 degrees Celsius compared to pre-industrial levels. To align with the goals set out in the Paris agreement, the steel industry will be required to reduce its CO2 emissions by 65% by 2050, as compared to 2014 emission levels.

Leading steel producers along with other stakeholders in the value chain, including automotive giants, banking and financial institutions, raw materials suppliers, and environmental organizations, came together in 2016 to establish ResponsibleSteel, an initiative to develop global standards and certification program aimed at reducing carbon emission in the steelmaking process and improve sustainability. Besides ArcelorMittal, the biggest steel producer in the world and one of the founding members of the ResponsibleSteel initiative, other steel producers such as Aperam, BlueScope Steel, Outokumpu, VAMA, and Voestalpine have also joined the initiative.

Alternative technologies to reduce CO2 emission at every stage of steelmaking process

Steel is produced either from iron ore or scrap. Conventionally, ore-based steel is produced in blast furnace-basic oxygen furnace (BF-BOF) which is undoubtedly the most carbon-intensive steelmaking process. This is because BF-BOF route uses coking coal as reducing agent as well as source of energy. World Steel Association indicated that, in 2018, coal accounted for about 90% of a BF-BOF’s energy input, while 7% energy input came from electricity, and remaining from natural gas and other sources. Overall, for every ton of steel produced through BF-BOF route, about 2.3 tons of CO2 is emitted.

To reduce CO2 emission in BF-BOF route, it has been proposed to substitute coking coal with biofuel. Biofuel is also carbon-based but it does not contribute to greenhouse gases upon combustion. Hence, its impact on the environment is comparatively lower. By using biofuels in BF-BOF, the CO2 emissions can be almost halved.

Moreover, combining BOF route with Carbon Capture and Storage (CCS) technology can also help to reduce CO2 emission

by almost 60%. CCS technology allows to capture the CO2 emissions pro­duced from the use of fossil fuels in steelmaking process, thus preventing the CO2 from entering the atmosphere. CCS technologies are quite advanced and can be retrofitted with the existing infrastructure used for BF-BOF production processes.

Direct reduced iron (DRI) is another steelmaking technology in which the metal is reduced directly from the ore in solid state without the need to melt it. DRI route generally uses natural gas as reducing agent, which reduces the carbon emission by about 50% as compared to BF-BOF route. About 5% of the global steel production is done through DRI route.

Electric Arc Furnace (EAF) is a dominant technology used to produce recycled steel from scrap. EAF are smaller and less expensive than BF-BOF. Moreover, in case of EAF route, coking coal is not consumed as a reducing agent, and thus the CO2 emission is much lower. Further, as per World Steel Association estimates, in 2018, for EAF route, electricity was the main source of energy accounting for 50% of the total energy input, followed by natural gas which accounted for 38% of energy input. In the same year, coal represented only for 11% of the total energy input for EAF route. EAF emits only about 0.4 ton of CO2 per ton of steel produced. The CO2 emission can be further reduced in the EAF route by using zero-carbon sources for electricity.

There are a few other technologies which are still in the research phase, but have the potential to provide a breakthrough in future. For instance, research is ongoing on use of hydrogen in place of coking coal, as reaction of hydrogen with the iron ore generates water vapor as a by-product instead of CO2. Several leading steel companies including SSAB, ArcelorMittal, and Thyssenkrupp Steel are exploring and conducting feasibility studies to test this new concept. Another technology being explored involves reduction of iron ore through direct electrolysis at temperatures of about 1,600 degrees Celsius. This technology is already being widely used in aluminum production, but it is still in early phase of research for steel production.

Challenges in implementation

Eco-friendly steelmaking process is technically achievable but there are several challenges in implementation at commercial scale. Thus, steel industry lacks the incentive to adopt environment-friendly low-carbon technologies in the current business environment.

Even though a number of alternatives to BF-BOF route have been developed for ore-based steel production, about 95% of the ore-based steel is still being produced through BF-BOF route. The industry has been making constant efforts to make changes and improvement in BF-BOF process with a view to reduce carbon emissions. For instance, the replacing of coking coal with biofuel in BF-BOF route is a mature technology, but feasibility to implement this on large-scale depends on availability of biofuel, which varies from region to region. Thus, countries such as Brazil that have large biofuel resources have commercial-scale biofuel-based BF-BOF steel production, but it is not feasible for countries that do not have sufficient biofuel resources.

Similarly, DRI technology uses mainly natural gas as input and as the natural gas availability varies significantly from region to region, the feasibility of implementing DRI technology depends on the location.

CCS seems to be a promising alternative but it demands a large investment in construction of infrastructure for storage and transportation of CO2. A study released by Global Carbon Capture and Storage Initiative (GCCSI) in 2017 indicated that costs for capturing CO2 from steel furnaces could be estimated around US$65-US$70 per ton of CO2. For steel producers operating on competitive margins, this is a significant cost; thus, they seek strong incentives or policy reforms from their governments to support their investment in CCS. At present, only a handful of countries including, the USA, UK, Canada, Australia, and Denmark have CCS-specific policies and these policies vary significantly from country to country. Since steel is a globally traded commodity, the difference in government policies and framework may impact the competitiveness of the steel producers. Thus, lack of global regulatory framework for CCS is a major barrier in wide-scale implementation of the technology.

Scrap-based steel produced using EAF technology accounts for over one-fourth of the total global steel production and it is less carbon-intensive than ore-based steel. Hence, in order to keep the CO2 emissions in check, it is essential to increase the contribution of scrap-based steel in fulfilling the overall steel demand. But the quality of recycled steel is low compared to primary steel produced directly from iron ore, which makes it unsuitable for some specific applications such as construction. Moreover, steel scrap generally has high copper content which becomes problematic during the recycling process because it causes cracks. Application of such type of recycled steel is extremely limited. In order to give a boost to production of recycled steel over ore-based steel, it is important to overcome these downcycling problems.

Decarbonization of Steel Industry A Rocky Road Ahead by EOS Intelligence

EOS Perspective

While there are several challenges in implementation of alternative technologies in steelmaking process to reduce CO2 emission, steel producers are under pressure to act in wake of rising carbon prices. 86% of the industry’s production comes under the purview of existing or planned carbon pricing markets.

A study published in July 2019 by CDP, a non-profit environmental advocacy group, pointed out that the world’s 20 largest publicly-listed steel companies, which together account for over 30% of the global steel production, could suffer an average loss of 14% if the carbon price rise to US$100 by 2040. The report also indicated that about 60% of the companies have set some target for carbon emission reduction, of which, target of only two companies align with the Paris agreement goals. The 20 companies under study are expected to cumulatively reduce the CO2 emissions by less than 50% by 2050, which is much less than the target of 65% reduction in CO2 emission required to meet the Paris agreement goals. This clearly shows that the steel producers are underprepared to align with the global climate change goals. The need of the hour is to embrace radical technology changes, but high cost, limited resources, and lack of unified and global policy framework are the main barriers disincentivizing the steel industry to move towards low carbon future.

However, with the support of the governments, technology innovators, and other stakeholders, some steel giants are working on several green initiatives to reduce the CO2 emissions. Most pilot projects are concentrated in Europe, as companies in this region are receiving immense support from the European Commission in view of its goal to make EU carbon neutral by 2050. The table highlights key projects undertaken by the leading steel companies to move towards low-carbon future.

Decarbonization of Steel Industry A Rocky Road Ahead - projects by EOS Intelligence

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SEK1 = US$0.10

 

 

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The EU Green Deal – Good on Paper but Is That Enough?

The EU, which has always been ahead of the curve in tackling climate change and ensuring emission control, has rolled out a new EU Green Deal in December 2019. The Green Deal is the most ambitious environmental policy devised by the EU and encompasses several targets and policy measures that will require a complete overhaul in how business across sectors is currently done in the region.

In the beginning of December 2019, European Commission President, Ursula von der Leyen, unveiled a suite of policies known as the EU New Green Deal and called it Europe’s ‘man on the moon moment’. EU’s Green Deal is aimed at decarbonizing the economy and encompasses a host of policy measures including a plan to ensure EU reaches net-zero emissions by 2050.

To this effect, it has also increased its carbon emission reduction targets from 40% to 55% for 2030. This is the ubiquitous goal for the Commission and all its measures and policies are to be aligned to achieve this objective. Thus, the EU Commission is expected to review and align laws and regulations, such as the Renewable Energy Directive, Energy Efficiency Directive, and Emissions Trading Directive among many others, over the next couple of years to ensure that they are tuned to support the ambitious climate goals. Moreover, taxation will also be aligned with climate objectives to ensure effectiveness.

Policy measures

In order to achieve this objective of carbon neutrality, the EU Commission is focusing on energy efficiency since the production and use of energy across the EU states accounts for 75% of EU’s greenhouse gas emissions. The EU member states are revising their energy and climate plans to ensure higher dependence on renewable sources (especially offshore wind energy production) and phasing out coal and gas-based energy. Moreover, the Commission has also guided member states to review and update their energy infrastructure to ensure the use of innovative and energy-efficient technologies such as smart grids and hydrogen networks.

The Commission is also working towards adopting a new EU industrial strategy along with a new circular economy action plan. The plan will focus on decarbonizing and modernizing several energy-intensive industries, such as steel, chemicals, and cement. It will also include a ‘sustainable product policy’ that will prioritize reducing and reusing materials before recycling them. Moreover, while the circular economy action plan will be applied across all sectors, it will be most relevant for resource-intensive sectors such as textiles, construction, electronics, and plastics.

The plan will focus on fostering new business models that drive sustainable use of resources, set regulations and minimum standards to prevent environmentally harmful products from being sold in EU markets, as well as set a regulatory framework to ensure that all packaging in the EU is reusable or recyclable in an economically viable manner by 2030. In addition to this, the Commission aims at achieving ‘clean steelmaking’ by 2030 by using hydrogen for the process and introduce new legislation by 2020 to ensure that all batteries are reusable and recyclable.

Understanding that construction, use, and renovation of buildings account for a significant part (about 40%) of energy consumed in the EU, the Commission aims at improving energy efficiency in this sector by focusing on more frequent renovations. A quicker renovation rate helps improve the energy performance of buildings and is effective in lowering energy bills and reducing energy poverty. Currently, the annual renovation rate of buildings in the EU states ranges between 0.4% and 1.2%. However, the Commission is looking to at least double the renovation rate to reach its energy efficiency and climate objectives.

In addition to this, the Commission is also working towards curbing carbon emissions from transportation, which accounts for about 25% of EU’s total greenhouse gas emissions. In order to achieve carbon neutrality by 2050, the current transport emission levels would be needed to be cut down by about 90%. To attain this, the Commission has planned for significant investment in boosting electric vehicles and plans to deploy 1 million public recharging stations across the EU states by 2025. Moreover, in July 2021, the Commission plans to revise the legislation on CO2 emission performance standards for cars and vans to achieve its target of zero-emission mobility by 2025.

With regards to commercial transport, the EU Commission aims at pushing automated and digitized multimodal transport. It aims at shifting 75% of inland freight currently carried by road to rail and inland waterways. Moreover, it aims at deploying smart traffic management systems and sustainable mobility services that will facilitate a reduction in congestion and pollution.

The EU Green Deal – Good on Paper but Is That Enough by EOS Intelligence

The Commission also plans to align agriculture and food production with its climate goals. To this effect, the Commission is expected to present a ‘Farm to Fork’ strategy in spring 2020, which aims to introduce and strengthen policies in the agriculture and fisheries space so that they are well equipped to tackle climate change and preserve biodiversity. As per the Commission’s new proposal, 40% of the agricultural policy’s budget and 30% of the maritime fisheries fund within the EU 2021-2027 budget will contribute to climate action and objectives. In addition to this, the ‘Farm to Fork’ strategy aims at significantly reducing the use of chemical pesticides, fertilizers, and antibiotics and in turn increase the area under organic farming.

In addition to agriculture, the EU Commission also aims at preserving and restoring biodiversity. To this effect, the Commission will present a new ‘Biodiversity Strategy’ by March 2020, which will be shared at the UN Biodiversity Summit to be held in China in October 2020. The biodiversity strategy is expected to be brought to action in 2021 and will cover measures aimed to address the key drivers of biodiversity loss such as soil and water pollution. The policy will also encompass a new EU forest strategy that will focus on afforestation, forest preservation, and restoration, which in turn will increase CO2 absorption and aid EU’s ambitious climate goals.

Lastly, the EU Commission plans to reach a ‘pollution-free environment’ by 2050. For this purpose, it plans to review and revise measures that monitor pollution from large industrial installations. Moreover, to ensure a toxic-free environment, the Commission will present a sustainable chemicals strategy that will protect the environment (and citizens) against hazardous chemicals and encourage innovation for the development of safe and sustainable alternatives.

Global trade

The EU’s Green Deal is ambitious, with measures in place to achieve this goal. However, the economic bloc cannot realize this goal in isolation. To get other countries to act on climate change and also prevent the influx of cheaper imports from countries that do not have similar strict policies on carbon emissions, the EU plans to propose a border adjustment carbon tax. This carbon tax is expected to be introduced by 2021 with an initial focus on industries such as steel, cement, and aluminum. The tax may hamper imports from the USA and China as well as smaller countries that cannot afford such climate-based policy measures. However, there is still some ambiguity regarding the tax as it may breach WTO rules, which require equal treatment for similar products, whether domestic or international.

Investment

To achieve this arduous goal, the EU will require a significant amount of additional investment. For starters, the Commission will require additional investment of about EUR260 billion (~US$288 billion) per annum only to achieve the 2030 goal (of reducing carbon emissions by 55%). This is about 1.5% of the EU’s 2018 GDP. Thus it is safe to assume that the investment required for achieving zero emissions by 2050 will be much higher.

The magnitude of the investment requirement will call for participation from both the public and private sector. To achieve this, the commission will present a Sustainable Europe Investment Plan, which will help meet the additional funding needs. The Plan will provide dedicated financing to support sustainable projects in addition to building a proposal for an improved regulatory framework. The commission has also proposed to dedicate at least 25% of the EU’s long-term budget towards achieving climate-based objectives. Moreover, the European Investment Bank (EIB), which has about EUR550 billion funds in its balance sheet, has also pledged to increase its lending towards green projects, thereby becoming a climate bank of sorts. While EIB is already in the process to phase out financing fossil fuel dependent projects by 2021, the bank aims for 50% of its financing to go towards green projects by 2025 (up from 28% in 2019).

In order to ensure an easy and fair transition to climate neutrality, the Commission plans to mobilize a EUR100 billion fund to help regions most dependent on fossil fuels or carbon-intensive sectors. The fund, also called the ‘Just Transition Mechanism’ fund will be funded from the EU’s regional policy budget as well as the EIB. The fund will be used primarily to support and protect citizens most vulnerable to the transition by providing access to re-skilling programs, technical assistance, jobs in new sectors, or energy-efficient housing.

Moreover, the Horizon Europe research and innovation program will also contribute to the Green Deal. As per a new agreement between the EU members in May 2019, 35% of the EUR 100 billion (US$110 billion) research budget for 2021-2027 will be used for funding clean tech and climate-related projects.

With regards to the private sector participating in this green transition, the commission will present a Green Financing Strategy in Q3 2020, which is expected to incentivize the private sector to invest in sustainable and green projects.

To this effect the Commission has created a classification system that for the first time defines what is considered as ‘green projects’ or ‘sustainable economic activities’. This classification is also termed as the ‘green list’ or ‘taxonomy’. This will help redirect private and public capital to projects that are actually sustainable and in turn help the transition to climate neutrality and prohibit ‘greenwashing’, i.e. the practice of marketing financial products as ‘green’ or ‘sustainable’ when actually they do not meet basic environmental standards.

Moreover, it will be made mandatory for companies and financial institutions to provide full disclosure on their climate and environmental impact to clearly lay out how their portfolio stands with regards to the set taxonomy criteria. This is expected to not only increase the transparency of the financial markets but also steer more private investments towards financing an economy that is aligned towards a green transition.

 

The Taxonomy Criteria

The EU Commission set out a basic framework to define what can be termed as a sustainable economic activity. It sets out six environmental objectives and four requirements that need to be complied with in order to make it to the green list.

Six objectives are as follows:

1.       Climate change mitigation

2.       Climate change adaptation

3.       Sustainable use and protection of water and marine resources

4.       Transition to a circular economy

5.       Pollution prevention and control

6.       Protection and restoration of biodiversity and ecosystems

 

Four requirements that need to be met to qualify are as follows:

1.       Must provide a substantial contribution to at least one of the six environmental objectives

2.       Must not provide ‘any significant harm’ to any of the other environmental objectives

3.       Must have compliance with robust and science-based technical screening criteria

4.       Must have compliance with minimum social and governance safeguards

While this provides a general framework, detailed rules and thresholds along with a list of sustainable economic activities will be assessed and developed based on recommendations from a ‘Technical Expert Group on Sustainable Finance’, which is advising the European Commission on this matter.

 EOS Perspective

The Green Deal makes EU the world’s largest economic bloc to adopt such ambitious measures that aim to cease or offset all emissions created by them by mid-century. As per climate scientists, this is necessary to ensure that global temperatures do not rise by more than 1.5-2˚C above the 1990 levels.

While these goals sound promising, they are rarely achieved because they are usually not binding. However, in this case the commission announced that the net-zero emission target would be made legally binding. While that does make achieving the Green Deal objectives more promising, many experts still remain skeptical about the bloc’s capability to achieve it. This is given the fact that the EU has failed to meet 29 (out of 35) environmental and climate targets for 2020. These include energy savings, air, water, and soil pollution, etc.

Moreover, the plan can only be achieved if the EU Council, Commission, and the Parliament, come together and work in tandem and in a timely manner and also work individually with member states to ensure guidelines are converted into actions. For instance, currently CO2 are taxed at different levels across member states (EUR 112 (US$123) per ton in Sweden, EUR 45 (US$50) per ton in France and tax-exempt in Germany). To get all member states to agree at a common point and have a pan-EU strategy is a difficult task. Thus, while the EU has devised an all-encompassing strategy and dedicated significant funds to the same, results will only materialize if there is inclusive and credible implementation of the plans.

In addition to this, there is also some criticism of the policy at a global level, with some nations indicating that it has more to do with protectionism rather than climate goals, owing to its policy on border adjustment carbon tax. Since the EU has more measures and flexibility to cut emissions in its own region, it creates an unfair disadvantage for its trade partners (some of who are still in the developing stage and cannot afford such measures). Moreover, given the technical and political complexities of the carbon tax (with regards to WTO and other trade treaties), it is unlikely that it will be implemented before 2024, which is when the current President Ursula von der Leyen’s term gets over. This will further make its implementation dicey.

However, all being said, the EU Green Deal is a policy in the right direction. With the blueprints being laid down, now it all depends on the implementation. While few measures may be difficult to achieve, there is a lot of unanimous backing for green finance. An increasing number of investors is moving away from ‘brown’ assets towards climate-friendly investments. Irrespective of the outcome or success of the Green Deal, green investments are definitely the future. Thus companies, both within the EU as well as globally, must look at innovating their processes as well as products/services to align them with climate goals to lure both public and private funding in the long run.

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Growing Appetite for Plant-Based Foods Disrupts the Meat Market

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Not many years ago, veganism or consumption of only plant-based foods, was considered an extreme form of lifestyle. Food options that were available for vegans were very limited and meat alternatives were based mainly on tofu, tempeh, and nuts. However, this is not the case anymore. Not only has the mindset regarding vegan food changed in the recent times, but also plant-based alternatives have become the fastest growing food category in the USA. This is also driven by a greater number of meat eaters experimenting with plant-based meat alternatives, whether due to health benefits, growing awareness regarding animal cruelty, or environmental reasons. Moreover, tremendous amount of investment and research in this space has resulted in wide range of food options, including vegan cheese and vegan meats that taste similar to animal-based proteins.

Vegan food has been around for quite some time now, but it was largely considered to be a niche market having a separate shelf in the supermarkets or being served in vegan-only restaurants and cafes. Moreover, it was considered an extreme lifestyle by many. However, over recent years, vegan meal options have found their way into the mainstream, with more and more people embracing veganism and meat-eaters adding plant-based food options in their diet. This is clearly evident from the steep growth witnessed by this food category, especially in the western world.

As per a study commissioned by the Good Food Institute (GFI) and the Plant Based Food Association in the USA, the retail market for plant-based foods was valued at about US$4.5 billion in April 2019, registering a year-on-year increase of about 11% and a growth of 31% in the two-year period from April 2017 through April 2019. The largest segment of vegan food market in the year ending April 2019 was the plant-based milk segment, which comprised about 40% of sales (US$1.9 billion). This category witnessed a y-o-y increase of about 6%. To put this in further perspective, animal-derived milk sales for the same period declined by 3%. While plant-based meat alternatives, cheeses, yogurts, eggs, and creamers are relatively new and smaller categories, they are driving growth in the vegan food segment too.

The growing sales across most vegan food segments indicate a momentous shift towards a vegan diet, which is not only propelled by an increasing number of people turning purely vegan but also a rise in meat eaters that prefer plant-based alternatives in some food categories, such as milk and milk-based products. This is due to growing lactose intolerance among consumers, with about 65% of the world’s population estimated to be lactose intolerant. The environmental benefits (i.e. lower carbon footprint) of maintaining a vegan diet and a growing uproar regarding animal cruelty have also driven conscious consumers to adopt a vegan lifestyle.

The environmental benefits (i.e. lower carbon footprint) of maintaining a vegan diet and a growing uproar regarding animal cruelty have also driven conscious consumers to adopt a vegan lifestyle.

The trend is further supported by the launch of vegan meat substitutes that resemble meat products in taste, look, and even texture. US-based players, Impossible Foods and Beyond Meat, are leading this space with the latter having received investments from the likes of Bill Gates, Leonardo DiCaprio, and Twitter co-founders Biz Stone and Evan Williams.

Industry players are diversifying into plant-based foods

Understanding that this trend is more than just a fad, several food companies (including large meat producers) have started entering this space, by either buying or investing in plant-based food start-ups.

Tyson Foods, USA’s leading meat producer, invested in Beyond Meat in 2016 and 2017, by acquiring a 6.52% stake in the company. However, in April 2019, Tyson Foods sold its stake in Beyond Meat with an intention to develop its in-house line of alternative (plant-based) protein products.

Nestle, which is one of the largest food companies globally, has also been expanding its portfolio with a keen focus on plant-based alternatives. In 2017, the company purchased Sweet Earth, a California-based producer of vegan meals and snacks, while in 2018, it purchased majority stake in Terrafertil, a plant-based organic food player that was founded in Ecuador and has presence across the USA, UK, and Latin America.

In January 2019, Nestle expressed its plans to launch its in-house vegan burger patty, called the Incredible Burger under its Garden Gourmet brand. The company is also looking to develop a portfolio of dairy-free beverages, such as purple milk (which is made with walnuts and blueberries) and blue latte containing spirulina algae. It is also adding vegan options to its existing brands, such as Haagen-Dazs (which launched a range of dairy-free ice creams in July 2017) and Nescafe (which introduced vegan protein-based coffee smoothies in December 2018).

Similarly, Marfig, Brazil-based leading meat processor, also entered the plant-based food alternatives market through a partnership with Archer Daniels Midland in August 2019. Under the partnership, Archer Daniels Midland will produce the raw material while Marfig will produce and sell the end product through foodservice and retail channels.

Canada-based Maple Leaf has also made significant investments in plant-based food players to expand its product portfolio and brand positioning. In February 2018, it acquired US-based plant protein manufacturer, Lightlife Foods, for US$140 million. Through this acquisition, it added Lightlife’s refrigerated plant-based products, such as hot dogs, breakfast foods, and burgers, to its portfolio and garnered a strong footprint in the US plant-based food market. To further strengthen its hold in this market, in December 2018, the company entered into an agreement to buy US-based Field Roast Grain Meat Co. for US$120 million. Field Roast Grain Meat supplies grain-based meat alternatives (including sausages, burgers, etc.) and vegan cheese products to the North American market.

Danone, a global food company with large number of dairy products is also bullish on the growing popularity of plant-based foods. In April 2017, it purchased WhiteWave Foods, a US-based leading player in plant-based food and beverage for US$10 billion. It rebranded the company to DanoneWave and in October 2017, further invested US$60 million into its plant-based milk operations. In 2019, the company expressed plans to triple its revenue (to about US$5.6 billion) from its plant-based food line by 2025.

In addition to these, many other large food processors and retailers have entered the plant-based food market either through acquisitions or the launch of in-house products and brands. These include Brazil-based JBS Foods, US-based Smithfield Foods, UK-based Hilton Food Group, Germany-based Wiesenhof, UK-based Heck Food, Canada-based Saputo, and US-based Dean Foods Company, among many others.

In addition to these leading food producers, many other large food processors and retailers have entered the plant-based food market either through acquisitions or the launch of in-house products and brands.

Fast food chains have also joined the vegan bandwagon. In April 2019, Burger King introduced a vegan version of its classic sandwich, called the Impossible Whopper. Similarly, Dunkin introduced a vegan breakfast sausage made by Beyond Meat, while KFC launched vegan fried chicken also made by Beyond Meat. In 2017, McDonald’s launched a vegan burger in Finland and Sweden and has plans to launch the same in Germany. In 2016, UK-based café, Pret a Manger opened a vegan pop-up store in central London and later made it permanent in 2017. Over the years, it opened three more stores (two in London and one in Manchester) under the name Veggie Pret. In April 2019, the company purchased rival food chain, Eat, and aims to convert about 90 of its stores into its vegan chain, Veggie Pret.

Just like the food producers and quick service restaurant chains, supermarkets have also been quick to respond to the vegan trend. In 2018, Tesco, a leading UK-based supermarket chain, launched its own range of vegan foods under the name Wicked Kitchen. Similarly, British department store chain, Marks & Spencer has also introduced a vegan food range in its food department. Vegan options have been introduced and are easily available across a wide range of US-based departmental stores such as Whole Foods, Target, and Kroger.

However, the key shift seen in departmental stores regarding plant-based meals is their placement. Traditionally, vegan food including plant-based meats and dairy were stocked together in a ‘vegetarian’ or ‘vegan’ isle or section. However, recently, these options have begun to be stored alongside their animal-based counterparts. For instance, plant-based dairy has now been moved to the beverage or dairy case. This exposes shoppers to a wider range of options for milk and increases the shopper’s chances of trying plant-based alternatives. This thereby opens the category to shoppers who otherwise would have not explored the separate vegan section in the store.

Similarly, plant-based meat options are also being increasingly stored along with traditional meat items, widening the choice for consumers who are flexitarians (i.e. consumers who are not completely vegan but do also consume vegan food from time to time). UK-based department chain, Sainsbury, was the first supermarket in the UK to place vegan products that are designed to look and taste like meat within the meat section.

Challenges ahead

While the number of vegan consumers is on the rise, it is still very low when compared with people consuming a meat-based diet. Moreover, while a great number of people are exploring vegan options, vegan meals are still largely perceived as offering limited nutritional value when compared with traditional meat-based meals, especially with regards to protein intake. While there is limited truth to this, companies offering vegan options have to invest substantially to educate consumers regarding the nutritional value of vegan meals.

In addition to this, vegan or plant-based meal options face another mindset block. Meat eating has long been associated with masculinity. This by contrary gives vegan meals a perception of being less ‘manly’ and thereby limiting the number of men who are open to embracing this meal option. To counter this, market leaders such as Impossible Foods and Beyond Meat have been avoiding terms such as vegan and vegetarian in their marketing strategy and have been promoting their burgers at male-centric locations such as sports events. Instead of pushing men to eat less meat, they are working towards expanding the definition of meat in the consumer’s mind to include plant-based options. They have also included ingredients (such as beet juice) in their burger to resemble a bleeding beef, making it clone the beef burger in terms of appearance, texture, and experience of consuming.

Other than mindset, price is also currently a considerable barrier for consumers. Plant-based meat substitutes are more expensive when compared with animal meat. While the Beyond Burger sells for about US$12 a pound at Whole Foods (a leading retail chain), its beef counterpart retails for about US$5. Similarly, Beyond Meat’s, Beyond Sausage retails for US$10.30 a pound, charging a premium of about 70% over a comparable pork sausage. Higher price points are off-putting for a big chunk of consumers, who may otherwise be willing to change eating habits owing to health or environmental reasons. While currently, the prices differ greatly, it is expected that the price difference will reduce in the long run (or be wiped off completely). Understanding price to be a big limiting factor, companies such as Beyond Meat are researching and investing into alternative plant protein sources that would lower the cost.

Price is also currently a considerable barrier for consumers. Plant-based meat substitutes are more expensive when compared with animal meat. While the Beyond Burger sells for about US$12 a pound at Whole Foods (a leading retail chain), its beef counterpart retails for about US$5.

However, one of the biggest roadblocks faced by the vegan food producers in making them mainstream is the backlash from the meat industry, which has in some cases resulted in labeling regulations that are damaging for the growth of the plant-based food sector.

In 2017, the EU banned the use of the term ‘milk’ and other dairy products, such as ‘cheese’, ‘yogurt’, etc., for plant-based alternatives (however, traditional versions such as almond or coconut milk and peanut butter are excluded from the ban).

In April 2018, France banned meat names for plant-based alternatives, such as vegetable ‘steak’, soy ‘sausage’, and ‘bacon-flavored strips’. Similarly, in May 2019, the European Parliament’s agriculture committee proposed a ban on the use of meat-related terminology on their labels and product description for vegetarian or vegan products. This includes terms such as ‘steak’, ‘sausage’, and ‘burger’. The proposal will be voted upon by the Members of the European Parliament in autumn 2019 and if passed, will be a big setback to the vegan industry as they would be required to remove the word burger from any product that does not contain meat.

In the USA, a Dairy Pride Act, which requires FDA to stop all plant-based dairy alternatives from being labeled as ‘milk’, was reintroduced in Congress in March 2019 (after being squashed earlier in 2017). While the chances of the bill being passed remain slim, if passed, it could seriously dampen growth in the vegan dairy market in the USA. Most of these legal actions are likely to have stemmed from strong meat and dairy lobbies that are directly impacted by the growth witnessed in the vegan market.

EOS Perspective

There is no doubt that the plant-based food market is growing exponentially and the food industry is taking notice. Meat producers and animal-based dairy companies are currently at a fork, where they may face some level of cannibalization of sales (especially in case of dairy) when they introduce vegan alternatives to their portfolio. The cases of Kodak and Apple are important examples when discussing the prospects of cannibalization of sales. While Kodak failed to innovate at the time of camera digitalization due to a fear of cannibalizing sales of its then popular camera films, Apple has made this one of its strength by innovating and launching new products that have (to an extent) cannibalized its own sales (IPhone for IPods and IPad for Mac).

While most players in the food industry have been quick to understand the potential of plant-based food market and have started to invest in this segment, several others still remain resistant to change. This may cost them dearly. Moreover, evaluating the future prospects of this industry, it may be prudent for meat producers to be focusing more on their plant-based food section than their long existing meat business. In a first of its kind case, in May 2019, Vivera Foodgroup, a leading European meat company sold off its meat business retailed under the brand name, Enkco, to Netherland-based Van Loon Group so that it could solely focus on its vegan food line.

However, while plant-based foods seem to be the future now, things may stir up again when clean meat (also known as lab-grown meat) goes mainstream. Currently, a lot of industry players (such as Tyson Foods) and business tycoons (such as Bill Gates) have begun investing in companies that are researching and developing lab-grown meat. It is expected to become a reality very soon, however, it may still take some years for lab-grown meat to match the prices and volume of farmed animal meat as well as obtain the required regulatory approval. While clean meat will definitely upset sales of farmed meat, it may also have a considerable impact on the plant-based food market as several consumers (who turned to vegan options due to animal cruelty and environmental reasons), may switch to clean meat instead of vegan alternatives. Thus vegan companies must stay ahead of the curve in terms of pricing as well flavors and product range to not only thrive but also survive in the coming times.

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China EV Policies: Is It A Bumpy Road Ahead for EV Players?

Over the past several years, the Chinese government has been taking steps towards promoting green energy projects and building eco-friendly New Energy Vehicles (NEVs). Since 2008-2009, investments in green sector projects in China have witnessed tremendous growth, which is pushing development of the Chinese NEV industry. As China is slowly shifting focus from fossil fuel vehicles to electric vehicles, its involvement in developing technologies such as green energy and NEVs has equipped the country to compete at global level with western giants such as the USA, Germany, France, etc. While currently China is the largest producer of NEVs globally, it is still debatable whether in the future it will be able to sustain this growth to stay competitive and lead the global EV industry.

China has always aimed to become one of the global leaders in automobile industry similarly to its neighbors, Japan and South Korea, but for the longest time it was not able to produce vehicles that would be globally competitive in terms of quality and safety. In 2009, the Beijing government introduced Automotive Industry Readjustment and Revitalization Plan to strengthen China’s position in the global automotive market. The key objectives of the plan were to support domestic auto manufacturers, commercially as well as technologically, and allocate more resources to environmental friendly vehicles’ research and promotion. The government started promoting electric cars to tackle the environmental threats that China was facing. Electric and hybrid cars were relatively new concepts in 2009-2010, but this did not dissuade China and it started building strategies to increase production of such vehicles to compete and lead in the NEV market.

Since 2010, the Chinese government has been providing incentives, in various forms, for the NEV sector. For instance, the government introduced direct subsidies for NEV manufacturers, deductions for local authorities opting for green cars, and tax waivers and free registration incentives for consumers purchasing electric cars. These incentives accelerated the growth of NEV industry, which sold around 507,000 units in 2016 as compared with 480 units in 2009. Currently, the top ten global EV manufacturers are all Chinese producers. China aims to sell around two million electric cars annually and introduce a fleet of five million electric cars on the country’s roads by 2020. China’s goal, in terms of NEV sales, is quite ambitious but also necessary, as the country aims to limit its carbon emission rate by 2030 and curtail air pollution.

With the Chinese government shifting its focus on promoting green energy and green vehicles, changes have been made in various policies laid down for the auto sector. For instance, the 13th Five Year Plan, introduced in 2016, promotes adoption of NEVs. Government is also considering to ban gasoline and diesel vehicles, indicating that in near future, automakers may have to redesign their production and shift to green vehicle manufacturing.

In June 2017, the Chinese government made it compulsory for automakers selling more than or equal to 30,000 cars annually to increase share of EVs in their total auto sales. China’s Ministry of Industry and Information Technology (MIIT) introduced the carbon credit trading program, which mandates manufacturers to earn carbon credit score on their automobile production and sales. The policy is aimed to encourage production of various types of zero and low-emission vehicles. Effective 2019, manufacturers will be required to earn EV credits equivalent to 10% of sales, which would eventually rise to 12% in 2020. The credit score will be calculated on the basis of electrification level of the cars produced, indicating that fully electric cars will earn more credits than plug-in hybrid cars. Manufacturers not complying with these quotas will either have to buy credits or pay penalties. A credit score equivalent to 12% of sales will be equal to about 4-5% of EV sales, which could lead to the production of more than a million green energy vehicles in China in 2020. Certainly, this policy will be beneficial to the domestic EV manufacturers, who have massive EV production, as their income from credit sales will increase.

In January 2017, the Chinese government introduced another change in EV policy to subsequently phase out the tax benefits on purchase of EVs by 2021. The announcement has resulted in slight decline in consumer demand for EVs in China.

Further, the government has mandated the foreign players to form a 50-50 joint venture (JV) with domestic firms to operate in China. Consequently, the foreign players are forced to share their intellectual property and technology with local Chinese automakers. Some of the countries perceive this move as intellectual property theft by China. In the future, the Chinese government is likely to relax the JV terms and increase the foreign player’s percentage share in a JV.

China's Emergence in EV Market

 

EOS Perspective

Currently, China holds a bright spot in the global electric vehicle industry. Fuel-run vehicles are expected to lose their dominant position in a couple of decades if the EV industry continues to grow at the anticipated rates. Being the largest market for NEVs globally, China is likely to play a major role in this progress. But to continue leading the EV market, foremost requisite is to solve issues such as the price to performance ratio of batteries, and lack of sufficient charging stations and EV infrastructure in China.

In near-term, undoubtedly, China will remain a huge market for NEVs with foreign players aiming to be a part of it. It is yet to be seen what changes the Chinese government makes in JV terms for foreign players, but they will surely face a stiff competition from the well-settled domestic EV manufacturers. Selling in the competitive environment of China will surely affect their profits, but the main concern for them will be sharing their intellectual property with Chinese OEMs. Another challenge for all players would be to understand whether consumer demand for EVs will continue to thrive after the price increase related to the gradual withdrawal of subsidies and tax benefits. China has strategically kept NEV prices low to increase popularity and awareness of EVs amongst consumers. However, the government does not plan to sustain the low-priced regime, with the recent policy changes and subsidy phase outs likely to gradually increase EV prices in China, which might impact demand for EVs (it is likely to still remain high as compared with demand in other countries). The government plans to focus more on research and innovation to supply EVs at lower prices without any subsidies as well as to build robust infrastructure to support growth of the industry.

China also plans to export EVs to other major markets such as the USA, Norway, the UK, Germany, and Korea. With the current low quality and performance of domestically manufactured EVs, local Chinese players are not getting many buyers in these countries. But forging JVs with foreign players to produce EVs at lower rates and better quality may improve the export figures in future.

China has definitely raised the bar for other countries with its aggressive EV policies launched in 2017, which are future-centric and focused on ushering in a revolution in the auto industry by promoting EV vehicles over the traditional diesel/gasoline-based vehicles. In the future, NEV manufacturers in China are likely to focus on building economical and efficient vehicles, and with foreign players bringing in their latest EV manufacturing technologies, the future drive looks smooth for Chinese NEVs.

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China’s Green Energy Revolution

China is widely criticized as the world’s largest emitter of carbon dioxide and other greenhouse gases. Less noticed, however, has been the fact that the country is also building the world’s largest renewable energy system. China plays a significant role in the development of green energy technologies and has over the years become the world’s biggest generator and investor of renewable energy. As China heads towards becoming the global leader in renewable energy systems, we pause to take a look at the major drivers behind this development and its implications on China as well as on the rest of the world.

Reducing CO2 emissions has become one of the top priorities and the Chinese government has set its eyes on developing sustainable energy solutions for its growing energy needs. To support this objective, China has set forth aggressive policies and targets by rolling out pilot projects to support the country’s pollution reduction initiatives and those which reflect the strategic importance of renewable energy in country’s future growth.

Why has China suddenly become so environmental conscious and investing billions on renewable energy?

  1. Air and water pollution levels have become critical, causing tangible human and environmental damage, which lead Chinese authorities to rethink on the excessive use of fossil fuels. Considering current and potential future environmental hazards of burning fossil fuels, China decided to decrease the use of coal and is actively seeking for greener energy solutions. While serious concerns about climate change and global warming are key drivers towards expanding the use of renewable energy for any country, for China, the motives are well beyond abating climate change; they are creating energy self-sufficiency and fostering industrial development.

  2. China is witnessing a dramatic depletion of its natural gas and coal resources and has become a net importer of these resources. China’s increased dependency on imported natural gas, coal and oil to meet its growing energy demands bring along some major energy security concerns. The current political volatility in Russia, the Middle-East and Africa pose serious challenges not only for China, but, for other countries as well to secure their energy supplies for the future. Not to mention the risks associated with energy transport routes.

Taking into account these geo-political risks and in order to achieve a secure, efficient and greener energy system, China started its journey towards developing an alternative energy system. A new system that reduces pollution, limits its dependency on foreign coal, natural gas and oil was envisioned.

China’s Ambitious Renewable Energy Plans

According to RENI21’s 2014 Global report, in 2013, China had 378 gigawatts (GW) of electric power generation capacity based on renewable sources, far ahead of USA (172 GW). The nation generated over 1,000 terawatt hours of electricity from water, wind and solar sources in 2013, which is nearly the combined power generation of France and Germany.

The country has now set its eyes on leading the global renewable energy revolution with very ambitious 2020 renewable energy development targets.

China’s Renewable Energy Development Targets













In May 2015, we published an article on the solar power boom in China, in which we presented the revised, higher solar power generation targets.

To achieve the 2020 renewable energy targets, China has adopted a two-fold strategy.

  1. Rapidly expand renewable energy capabilities to generate greener and sustainable energy.

    It has significantly expanded its manufacturing capabilities in wind turbines and solar panels to produce renewable electricity. As per data from The Asia-Pacific Journal, China spent a total of US$56.3 billion on water, wind, solar and other renewable projects in 2013. Further, China added 94 GW of new capacity, of which 55.3 GW came from renewable sources (59%), and just 36.5 GW (or 39%) from thermal sources. This highlights a major shift in energy generation mix as well as China’s commitment towards cleaner energy technologies.

  2. Reduce carbon footprint.

    The government has banned sale and import of coal with more than 40% ash and 3% sulphur. Government’s Five year plans have stringent targets on reducing coal consumption as well as CO2 emissions. It is expected that environmental and import reforms will become more stringent along with greater restrictions, which would help accelerate China’s migration to a green economy.

The government has also announced a range of financial support services, subsidies, incentives and procurement programs for green energy production and consumption. Solar PV and automotive industries are good examples.

  1. By supporting domestic production and providing export incentives, China has become the global leader in solar panels. Over the last few years, the government has also financed small-scale decentralized energy projects, deployed and used by households and small businesses, in order to make them self-sufficient in their energy needs

  2. China has also positioned itself as the leading manufacturer of electric vehicles globally. According to Bloomberg, China is mandating that electric cars make up at least 30% of government vehicle purchases by 2016. To achieve this target, the government has started investing on essential infrastructure and providing tax incentives for purchasing of electric vehicles.


China has laid the foundations for a future where renewable energy will play a vital role. The advancements in technology and changes in policies will further enhance the country’s renewable energy landscape and will drive affordable, secure and greener energy. How the Asian giant achieves to balance between its economic, industrial, regulatory and environmental goals with sustainable renewable energy investments will, however, only become clear in the next few years.

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South Africa: Clearing the Air with Renewable Energy

South African ailing energy sector seems to have found a new lease of life in clean energy. In 2012, South Africa witnessed investment of $5.5 billion in new renewable energy projects, leaving behind some well-known usual suspects such as Brazil, France, and Spain. With the local government looking at renewable energy as a long-term answer to the country’s energy problems, we evaluate the scope for private sector involvement in developing South Africa’s energy infrastructure.

In March 2013, Eskom, the national electricity provider in South Africa, warned about the possibility of power outages during the coming winter season. As soon as the news spread, millions of South Africans were left reflecting on the energy crisis of 2008, which brought the mining and industry sectors, and thereby, the economy, to a halt.

Increasing winter demand and planned electricity network maintenance are putting pressure on the power system. In May this year, long before the peak winter season, South African power system capacity exceeded demand by just 0.17% (let’s just point out that the recommended reserve margin for a power system is 10-15%). With consumption expected to increase further during winter (June and July), Eskom will be forced to look at extreme measures to prevent scenarios similar to those of 2008. Some of such measures include power buy-backs from large consumers, and triggering of ‘interruption clauses’ included in contracts, through which Eskom can cut supply to consumers in case of tight supply situations, in return for discounts.

While these measures could help deal with the short-term spike in demand this year, the South African government is looking for alternatives to achieve long term sustainability of the country’s energy sector. Investment in clean energy (particularly renewable technologies such as wind and solar) is one of the possible solutions contributing to solving the country’s energy supply problem. While achieving energy sustainability, clean energy investments will also help South Africa adhere to its commitment to achieve a 42% cut in carbon emissions between 2011 and 2025, by reducing dependence on coal for power generation. Furthermore, renewable energy projects can come online on a shorter horizon compared with coal and nuclear power plants.

Let’s focus on clean energy

According to a 2013 report published by Bloomberg New Energy Finance, South Africa stood 9th in the world with US$5.5 billion worth of new clean energy investments in 2012 (a whopping 20,563% growth over 2011). Majority of this investment (US$4.3 billion) has gone into developing solar photovoltaic (PV) technology based power plants, with the remaining being spread across wind, concentrated solar plants, landfill, biomass and biogas, and hydro-projects.

The onset of clean energy investment projects in South Africa is correlated with the introduction of the Integrated Resource Plan (IRP) in 2010, as well as Department of Energy’s Renewable Energy Independent Power Producers Procurement (REIPPP) program in 2011. As a part of the 2010 IRP, South African government outlined its plans to increase electricity generation capacity by additional 18,500 MW by 2030. About 42% of this additional capacity is envisaged to be generated through renewable energy technologies.

Introduction of REIPPP program in 2011 facilitated private sector’s involvement in electricity generation. Through this program, the government plans to procure 3,725 MW of renewable energy from independent power producers by 2016. A significant focus has been laid on procuring power generated through onshore wind and solar PV technologies. The REIPPP program sets up a bidding system through which independent power producers can bid for power generation allocations. Electricity thus generated is purchased by Eskom on a 20-year Power Purchase Agreements (PPAs). The tariff for purchasing electricity is decided through a bidding process. Some independent producers cashed on the first mover advantage, and received tariffs as high as R2.6/KWh ($0.26/KWh) during the first phase of bidding in 2011 (more than Eskom’s electricity price). With increasing competition, these tariffs have fallen in the successive bidding rounds to as low as R0.89/KWh ($0.09/KWh).

Private sector holds the key

One possible mode of involvement is continued private sector participation in the REIPPP program, selling the generated electricity to Eskom at rates agreed in the PPAs. However, several independent power producers (IPPs) have raised concern about the attractiveness of such a system, where only a single buyer (Eskom) is present in the market.

IPPs feel that lack of certainty about feed-in-tariff structures and a single buyer model are likely to deter large scale investments from the private sector. In 2012, the South African Independent Power Producers Association put forward a proposal to set up an independent grid to challenge Eskom’s dominance of the transmission (grid) network.

In March 2013, the South African government passed the Independent System and Market Operator (ISMO) Bill, which will create an independent entity by 2014, to manage procurement of energy from Eskom’s power generation business and independent power producers. Establishing an independently operated power grid would encourage competition in the power generation sector while keeping a lid on prices.

Another possible form of investments could be in the shape of independent (off-grid) solar/wind power projects by large enterprises (particularly in mining sector) to meet part of their internal demand. Industries could reap several benefits from these independent projects. Benefits of a solar power project could include:

  • Several large energy consumers are required to operate diesel generators to meet the surplus demand from their operations. Even though the current cost of producing solar energy is higher than what is procured from Eskom, the cost is lower than that of electricity produced through diesel generators. In the short-term, solar energy projects could replace generators, as an additional input source of energy

  • The national energy regulator (NERSA) recently approved an annual 8% hike in electricity tariffs charged by Eskom till 2018. With price of solar PV panels expected to decline further, the cost of solar energy production could even be lower than Eskom’s prices 5-6 years down the line

  • Furthermore, solar power plants have an effective life of 25-30 years, greater than the typical 20 year PPAs offered by Eskom. Independent projects enable more efficient utilization of electricity generation capacity over a longer horizon, compared with the REIPPP program

Foreign investors also to step in

With the removal of subsidies on renewable power in several European countries, South Africa becomes an ideal investment location for both foreign renewable energy developers and infrastructure financing organizations.

Participation of foreign firms in the REIPPP program has increased in subsequent bidding phases. Working as a part of a consortia, several foreign developers, such as Abengoa (Spain), Gestamp Wind (Spain), SolarReserve (USA), and Chint Solar (China), have already won bids for setting up power projects, working in partnership with local developers and BBBEE partners.

International financial institutions, such as European Investment Bank and IFC (member of the World Bank Group) have also invested in several renewable energy projects being undertaken by international developers in South Africa. In 2012, European Investment Bank agreed to provide €50million ($64.9 million) for the Khi Solar One Project being undertaken by Abengoa.

So is the energy sector out of the woods?

With a power crunch looming, the mining and industry sector companies are left searching for options to keep their operations running, or risk large-scale shut-downs during the winter season. With the declining cost of setting up and generating renewable power, investment in renewable energy projects could be a sensible option to achieve sustainability of power supply, over both short and long-term.

Setting up of an independent transmission company will go a long way in reducing Eskom’s dominance over the electricity networks, urging more private sector participation in the REIPPP program. But, is this enough? Will there be further deregulation/liberalization of the renewable power generation sector to additionally boost competition in the market? The fate of private sector investments hinges on government’s willingness to risk its control over probably the most important utility system.

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