The Climate Crisis: How to Avoid Disaster

Iman Olya

23rd March 2021

Part 1: My Interest in Climate Change

Part 2: Problems in the Face of Extinction

Part 3: Opportunities and Their Achilles Heel

Part 4: Conclusion

Part 1: My Interest in Climate Change

Growing up, I didn’t believe in Climate Change. How could 200 years of human activity undo millions of years of evolutionary development? Were we truly that powerful, and the world’s ecosystem that fragile?

The below diagram highlights how insignificant humankind is in the grand scheme of this planet, let alone the universe. So how could the Lindiness of the planet be in danger from us?

Courtesy of Live Science — *Courtesy of* *Live Science*

I was kidding myself, hiding behind the cloak of supposed Cartesian Doubt – revelling in my antagonistic contrarianism.

And the thing is, I’ve always been like this. Taking the road less travelled as a method of bolstering my own arguments. It’s what makes a good strategist, founder or thinker. But often I’d get lost in the arguments, which did nothing but confuse my position. Then I’d become bitter and contrarian for the sake of it. Strong opinions loosely held. Felt more like opposing opinions strongly held.

What I hadn’t realised was my intellectual scepticism toward Climate Change had developed due to two forces in my early life. And this position would serendipitously lead me into the world of renewable energy.

Teachers often cast doubt on climate data. I distinctly remember a Geography class in year 10, where the confident teacher shook her head and remarked that recorded temperature changes were in line with the planet’s previous warming periods. We were not the danger, but just subject to natural phenomena beyond our control. Contrarian. Provocative. Authoritative. I was sold.

Add to that my Iranian heritage, and a staunchly indoctrinated belief that oil and gas were our nation’s right. As you can imagine, a country that had suffered almost a century of hostilities from the British and Americans for its natural resources (e.g. the rise of BP), would necessarily develop a nationalist fervour built around those resources. And then supposedly seeing the same narrative unravel with the Iranian nuclear crisis seemed to further aggravate that nationalist sentiment. Taking all our resources, then staining it as dirty? Not allowing us to move to cleaner fuels? Smelled fishy to me, like colonial hypocrisy. Sold again. Hook line and sinker.

Of course, a cursory glance into Iran’s revenues would show you oil accounted for just 2.2% of GDP in 2020, down from 17% in 2017. There was no real economic detriment from transitioning away from oil revenue, beyond what the country had already experienced. What’s more, the data to support Climate Change is unequivocal. In fact, evidence shows that most of the observed global warming over the past 50 years cannot be explained by natural causes and instead requires a significant role for the influence of human activities.

But of course, even knowing this information, my mind was made up. Even if this data were true, it would be impossible to transition to an alternative fuel source so quickly. Either this was all blown out of proportion, or we were all fucked.

It was this exact thinking that led me into the energy market. And this exact immature understanding of invention that made me believe in humanity’s innovative capability.

I joined the energy team at a consultancy. Desperate to both test my early scepticism and to see if there was any hope, for humanity and for Iran’s economy. Explaining in a first interaction with a colleague that I could not get my head around the enormity of the issue, he decided to pull me onto my first project. A Japanese client bidding to enter the UK’s Enhanced Frequency Response auction. This was trial by fire. As with everything in the energy space, I almost instantaneously realised this industry was more nuanced and complicated than I’d imagined. But interestingly, companies from around the world were looking to get in on the ground floor of change, regardless of complexity. There was hope. In this case, it was about grid stabilisation and connecting large scale batteries to our electricity systems, to support the intermittency associated with renewables. But over the next 6 years I learned of the variety of ways change was inevitable.

By 2020-end, I’d have worked on 30+ energy-related projects from generation through to retail. Seen so many market adjacencies, from electric vehicles, to in-home connectivity and data centres. All with one aim: to reduce and ultimately delete our dependency on fossil fuels.

But this is not a therapy piece (although writing undoubtedly helps clear my mind). Short of making this a life story, I will share where I believe the future opportunity lies in the energy space. I do this not as a flex, nor as I think I’m an expert. I’m doing this to prove to my younger self this is real AND there’s a solution. As such, I firmly believe the next generation of billionaires will be born from this space - there is nothing more valuable than solving the most existential of problems.

Part 2: Problems in the Face of Extinction

As with any problem, determining the underlying cause, not dwelling on the symptoms, will help ground us at the root of the problem.

So, what do we know?

First, we know that humans are unequivocally causing the climate to become inhospitable.

Fingerprinting analysis for example, shows that observed climate changes of the past several decades cannot be explained just by natural factors. We can also prove that the planet is becoming inhospitable. Studies like the recent impact assessment by Chi Xu et al., highlight that in the next 50 years, 1 to 3 billion people will be living outside of climate conditions that “have served humanity well over the last 6000 years”. This translates to 19% of the world being inhospitable come 2070.

Taleb explains why this is a problem in his Incerto series. I’ll paraphrase. The Lindy Effect is being tampered with, but do not fuck with Lindy. It’s also why Elon has a Mars contingency plan even though he’s striving to solve the climate crisis on Earth. Shit looks bleak.

Second, we know that energy demand is increasing.

The world population has grown to almost 8 billion. The rate of growth has accelerated over the last 50 years and is expected to decrease over the next 80 years. But the UN still expects total population to hit almost 11 billion by 2100. That’s insane. In just 100 years we have seen an almost doubling of people on the planet.

This coupled with the rapid growth in economic development of many countries and a resultant increase in living standards, means that demand for energy has skyrocketed. Overall, from 1980 to 2018, we saw a 105% increase in total energy consumption. According to IEA data from 1990 to 2008, the average energy use per person increased 10% while the world population increased 27%. Developing countries were the main driver, with the Middle East increasing energy use by 170%, China by 146%, India by 91% and Africa by 70%.

We can clearly see a correlation between economic development and increased energy usage. But why is this important? Simply put, the world cannot sustainably produce this energy.

We’re struggling to produce energy sustainably as it is. We’ve been adding fuel to that fire instead of dousing the flames. And look, I get it. We can’t impede the development of other nations in the name of sustainability, when the West has built its economic and military might on the same foundations. However, we can look for solutions and deploy them fast.

Third, we know that industrial processes, buildings and transport are the largest primary uses of energy. And this energy is mostly coming from non-renewable sources.

According to bp (yes, I know biased source but it’s generally in line with market data), the industrial sector consumed around 50% of global ‎energy in 2018 (including non-combusted use of fuels and electricity losses). The ‎remainder was used within residential and commercial buildings (29%) and transport (21%).‎

Bear in mind, I’m not highlighting where carbon is emerging from. I’m merely tackling the question of where we use the most energy. Hence, I don’t look into agricultural carbon contribution or the impact of population growth on the oceans, land or water usage. I’ll do another piece on this soon…

It’s no surprise that with rapid economic development, industrial processes are the leading energy consumer. But this isn’t the issue. The problem is that 84% of energy use today is coming from finite dirty sources.

This is not sustainable. But what we can see is those who will solve the Climate Change issue, should focus on solutions that reduce oil, coal and gas usage primarily for industrial processes, buildings and transport.

Now each of the three primary use areas of industry, buildings and transport will have thousands of sub-categories for decarbonisation potential.

Take transport; we know that Elon’s been flying the EV flag for a while now, and with incoming ICE vehicle sales being halted by policy makers around the world, we’re seeing real change incoming. But that’s the tip of the iceberg. There’s aviation, marine transport, commercial vehicles etc. that also need decarbonising. This is a herculean task that presents massive opportunity.

Industrials are a good example too. These processes use high temperatures and/or chemical processes, and high temperatures are easy to reach by burning carbon fuels, leading to greenhouse gas emissions. The byproducts of these processes also create compounds that are detrimental to the planet’s ecosystems. So, there are two problems that require solutions: the actual powering of the processes and the clean-up / removal of byproducts.

A recent report by McKinsey finds that ammonia, cement, ethylene, and steel companies can reduce their CO2 emissions to almost zero with energy-efficiency improvements, the electric production of heat, the use of hydrogen and biomass as feedstock or fuel, and carbon capture. The decarbonisation of these sectors will cost between $11 trillion and $21 trillion to 2050 and will require accelerating the build-out of renewable-energy capacity. So there is hope, there is room for innovation and there is a huge pool of cash to be spent.

Part 3. Opportunities and Their Achilles Heel

We’ve determined what the issues are. Now, solutions are needed.

Electrification

For each of the use-cases of energy above, there are a plethora of solutions. As a society, we seem to have moved in the direction of electrification as the first step. And of course, with subsidy support, disincentivisation of dirty fuel use (e.g. taxes) and increased deployment and manufacture, prices of these technologies have dropped. This is the beauty of economies of scale at work. For example, historically every doubling of utility-scale solar PV has led to a 20% decrease in solar prices. And that’s why between 2010 and 2019, there was an 82% drop in solar PV prices.

Electrification has taken many forms, including solar PV, wind, battery-powered vehicles, electrification of heat (e.g. using electricity generated from renewable assets to power large industrial processes) and storage for intermittent supply. It’s also creating systems where energy is becoming decentralised. People, neighbourhoods and communities are able to be self-sufficient in their energy creation, with solar panels on home roofs, heat pumps in large residential apartments and batteries in people’s cars and garages allowing the individual to take control of their supply and usage. Not only is this an opportunity for innovation, but it’s also an opportunity for the shovel sellers in a gold boom.

This is where the real tech entrepreneurs can make money. With the rapid onset deployment of renewables, the energy market as a whole is becoming completely flip turned upside down. The fresh prince knocking at the door is the need for energy management. I explained earlier that renewables are typically intermittent. They can only function when the wind blows and the sun shines. Any additional power can be housed in batteries and held for deployment when needed. But how do we know when this is? This renewable supply needs to be optimised and automated given requirements for immediate release in times of low supply. The grid also needs to be stable at all times. We can’t have a grid supplying energy at different rates throughout the day. If you’ve ever lived through a blackout, you’ll know what I mean.

Tech companies developing and selling network solutions for data management and electricity management are the missing piece. This includes distributed automation, advanced metering, forecasting etc. that will support in the management and deployment of electricity when and where it’s needed. And this doesn’t have to be complicated large-scale B2B-level application. It also applies to in-home energy management and the control of personal energy. Say you want excess electricity from your EV battery to support the grid in times of need and get you paid, while turning off heavy-usage appliances in the home when electricity is expensive and not having to yell at the kids to constantly turn off your home lights. There are apps for that. And they save the household money, while reducing energy usage. Whoever controls this data will have access to insights Apple and Google dream of.

But there’s a huge issue with electrification. And I don’t think it is to do with the enormity of the required change. With renewable technologies, we hold excess energy generated in storage such as batteries. Storage was hailed as the holy grail. But something is becoming quickly evident; batteries are hard to build. They need a shit-ton of natural resource and there’s a serious lack of supply chain resilience.

Tesla currently uses NCA chemistry (lithium-nickel-cobalt-aluminum) while most other suppliers use NMC chemistries (lithium-nickel-manganese-cobalt). Cobalt is the most expensive of these elements and is mostly sourced from mining in the Democratic Republic of the Congo. Now even though this is a serious problem, put aside the moral issues associated with unsafe working conditions and child labour in cobalt mining in the DRC. I want to focus on the supply chain dependency on one country’s natural resource.

The DRC accounts for 70% of the world’s cobalt supply. This doesn’t change in the future either. Globally, there are an estimated seven million tonnes of measured cobalt reserves, of which over half is in the DRC. We are critically dependent on one country to fuel battery development and solve the Climate Crisis. One country that is amongst the most corrupt on Earth (ranking 170 out of 180 countries for corruption), where 80% of public servants were bribed in 2020. Not to mention, one country that uses child labour to dig up the resource. This is obviously a bottleneck.

But thankfully, as a result, the industry has been trying to reduce cobalt usage. LFP cathodes (lithium-iron-phosphate) are now coming back into fashion in China and Tesla is using them too (recently partnering with CATL). Model 3s will use this chemistry in China, while its Powerpacks will also use LFP globally, given lower energy density and battery pack volume isn’t as constrained. China’s BYD is using LFP, while VW (with their huge supercharged EV plans) are also bullish on this tech and recently purchased a stake in Chinese battery supplier Gotion-High Tech.

Ok, so why am I reeling off battery stats? Well, one country accounts for almost all the LFP production… China. In fact, China is way ahead of the competition with battery production: 93 gigafactories to the US’ 4. And if current trends continue, China is projected to have 140 gigafactories by 2030, while Europe will have 17 and the United States, just 10.

Another monopoly. Another potential bottleneck.

But hold on, supply chain dependency doesn’t stop there. Nickel’s also a critical element for battery building. Norilsk Nickel is the world’s second largest producer, and holds the world’s largest nickel reserves. Now you’d think a massive mining company holding critical supply chain dependency for a core component of the most important storage technology in the world, could run nickel mines. You know, could do its job…

In the All-In Pod, Chamath explains how flimsy Norilsk’s standards are. The company had to suspend two big nickel mines because there was flooding. Why? Because the plug to localise flooding was washed away three times. Three times. Chamath says removing water could take a year, but Norilsk says 3-4 months. Regardless, a lack of due care to the risk management process in a couple nickel mines will now cause a significant disruption to worldwide battery supply: a 37% to 40% shortage (according to the dictator-skinny legs Chamath).

We’re still critically dependent on our natural resources. We’re still critically inefficient in managing these precarious supply chains. There is too much dependence on individual aggregated bundled entities. Not only is this dangerous, politically and economically so, but it also deviates from the decentralisation narrative that our shift to renewables is meant to herald.

Hydrogen

But thankfully, electrification ain’t the only game in town. There are also many use-cases proposed for hydrogen, biomass, carbon capture and storage, carbon capture and usage. Not to mention new tech we don’t even know about. To get to commercial viability, these technologies need the same level of regulatory support and rapid deployment we’ve seen with the OGs of solar and wind.

Hydrogen offers a unique proposition. Renewable hydrogen is central to the European Commission’s vision for achieving net-zero carbon emissions by 2050. The Australian government announced a $370m hydrogen stimulus package. It’s also high on the Japanese government’s agenda, having commissioned the IEA to report on the state of the market recently. So why are political elites getting excited over this technology? Because this solves the intermittency and supply chain issue.

Well, as explained earlier, renewables may go long periods with no supply. Prolonged periods of darkness or lack of wind mean backup generation is needed, which currently comes from gas, coal and nuclear. Electricity storage is still expensive, it can’t be used if the supply isn’t there in the first place and has its own supply chain problems I explained earlier (e.g. lithium mining). Hydrogen can run with the baton.

And new technological developments in hydrogen are coming at pace. A new class of electrolyzers is entering the market; solid oxide electrolyzers that produce almost 30% more hydrogen than the industry-leading proton-exchange membrane electrolyzers. Hydrogen’s also bountiful: it is the most basic element on Earth and is the most occurring component taking up 75% of the universe. As such, it can be sourced at point of need. No need for excavation at single sites and distribution. It fits neatly into the decentralisation play. Its bountifulness also means we’re not going to head into another crisis of depleting our natural resources. Other benefits include its high efficiency rate with hydrogen fuel cells capable of generating electricity of up to 65% efficiency: triple that of conventional power plants. And this makes it ideal for space travel. I believe the next Elon will deploy mass hydrogen, while Elon doesn’t believe in the tech.

Fuel cells should be called fool sells! Such a silly choice for cars. Not great even for a rocket upper stage imo, but at least not absurd.
— Elon Musk (@elonmusk) March 11, 2021

I’m no technical expert. Elon is. But I cannot reconcile the dependency issues we continue to have, on our natural resources and on large-scale bottlenecks. But with policy support and funding incoming, I won’t be surprised if this hydrogen space rockets into orbit, even if it is a fool’s errand.

Part 4. Conclusion

This isn’t a complete view of the climate problem, nor is it an outline of every solution. It’s me giving my view of a couple of key areas of opportunity and putting the problem through a simple lens. If anything, this is termed in simple language so my junior self can at least feel satisfied, and at best feel proud.

I’m not sure what the future holds, but if I were a betting man my chips would be down on all things electrification and hydrogen. We can’t fail at it. Otherwise we’re doomed. Or we’ll be living on Mars. Either way, a clean life here is the Royal Flush and we shouldn’t try bluffing our way out of this.