By definition Mundus Nordic Green's focus is normally the Nordics. But this week, I participated in two virtual events with a heavy German element.
The first was a webinar by the German-Swedish Chamber of Commerce on a fossil-free transport sector. The participants were senior, including the Swedish Ambassador, the Deputy Head of the German mission to Sweden, the Director General of the Swedish Transport Administration and representatives from Scania, EON, H&M amongst others. The presentations and discussion were good. Although some of the facts are well-known, they are still worth acknowledging. As the diplomats were keen to point out, there are many similarities between the Swedish and German economies. Both are high-income welfare states, and both have successful industrial companies with a large auto and trucking industry. Given similar political, diplomatic and economic outlooks, there is a lot to benefit from working together.
Much of the discussion was about electric roads, which is fascinating in itself. The effort to retrofit rails or overhead cables onto tens of thousands of kilometres of highways would be a fantastic feat. There is a difference of opinion though between the two countries. Germany is committed to an electricity only strategy, whereas Sweden sees that biofuels are a necessary intermediate step to make emissions reductions before 2030 - a natural difference in perspective, given that Sweden has the potential for the biofuels, whereas Germany lacks the feedstock.
There is also the possibility for battery trucks. At the moment, Scania says that these cost 100-200k more each (I assume that this is in SEK), but it thinks that electric trucks to be at cost parity by 2030.
Even more interesting than the facts provided, were the conclusions and thinking that senior leaders are forced to consider. One blunt statement made by Lena Erixon, Director General of the Swedish Transport Administration was that Sweden wanted very much to avoid being locked into a “Swedish-solution”. An obvious Sweden-only solution is biofuels. Sweden has both the technology and the feedstock to develop them, but if they lack political support at an EU-level, then it can be problematic – witness the debates over taxonomy. And, even if Sweden is allowed to develop such a technology, it does so with the small scale of its own domestic market (perhaps plus other Nordics), and without the opportunity for its industry to later exports products globally.
The need for immediate action creates a big challenge. Again, Erixon was frank, saying that her organization was not very good at the simultaneous need for learning and doing. Business is probably a little better at that sort of decision-making, but faces different issues to the same challenge of the future being so uncertain. Many of the business models that large industry employs are heavily-dependent on cheap debt-finance, as the need for equity-type returns (>15%) tends to make multi-billion projects uneconomic. But debt-finance requires stable and secure cash flows in order to attract lenders. Would anyone consider that laying an electric road from Stockholm to Berlin is anything other than speculative?
And there are also interlocking dependencies. Technologically it may be possible to build and finance a network of electric-roads or battery-trucks. But there is little point in doing so unless there is the clean electricity to run it on. Given that around half of Germany’s electricity is generated from coal, there would need to be a simultaneous plan to build massive new wind farms to provide the basic energy that current comes from fossil fuels. [As an aside, the same goes, but even more so, if hydrogen is used as an energy carrier. It is only around 50% efficient, meaning that even more wind farms would need to be built.]
Can there be any solution to this challenge? Mundus sees more potential for market-led solutions to break the deadlock than command-and-control guesses within a democracy. Here there is perhaps some light at the end of the tunnel, with two pieces of news today. Firstly, the EU’s Energy Commissioner, Kadri Simson said that the Commission was going to propose the extension of the emission trading scheme to sectors such as building and road transport. This would send a serious message to business, and there would be a technological race for the most efficient solution. However, there would be a plethora of political challenges, from Gilet Jaune protests to the need to compensate those living in the countryside with long commutes. On the other side of the Atlantic, the American Petroleum Institute reversed its long-standing opposition to carbon pricing, in order to cooperate with the Biden administration.
The second event was a press conference by BASF, under the title “Our journey to net zero 2050”. The tagline was supported by a statement from Dr. Martin Brudermüller, Chairman of the Board of Executive Directors that “We are setting a more ambitious reduction target for 2030 and, for the first time, we are setting a target for 2050: net zero emissions! At BASF, we do not take such commitments lightly. Over the past three years, we have made great progress in developing new technologies. This gives us the confidence that we will be able to reduce our emissions faster than anticipated so far.” [see also the supporting slides via the link]
Credit goes to BASF, which appears to have done a lot of homework on how it could, in theory decarbonize its business. But the challenge that the chemical company makes clear is that it is simply not possible for it to decarbonize without a massive boost in wind-power (or other low carbon) generation. BASF’s plan would require it to invest well in excess of €10 billion, much of this beyond 2030. Such plans remain contingent on the company getting support from policy-makers designing the right sort of industry and innovation policies.
On March 24, Mundus Nordic Green News reported that Svebio questioned the claims being made about forests and carbon sequestration. During February a headline appeared in Dagens Nyheter “500 researchers call on the EU and the US to stop providing support for biofuels from the forest”. Svebio had fact-checked this story, and argued a good case that most of the Swedish researchers cited had little to no relevant competence in carbon storage in forests. Amusingly, Svebio writes that “Three of the researchers are meteorologists, a couple are social scientists, one is a researcher in clinical neuroscience, one is a researcher in cell and molecular biology, one is a protein researcher, one is a mathematician and one is a limnologist and specialist in freshwater fish.” Your correspondent is not a specialist in forest carbon storage either, but feels at least as qualified to comment as those who know about freshwater fish.
Our house view is that there is a fair debate to be had about the time horizons for storing carbon. Forests felled today take decades to regrow to their full height, and during this time any biofuels burned may be a net release to the atmosphere. But, a counter argument is that at this stage the climate needs all the solutions it can find. The world urgently needs to break the nexus between crude oil and road transport. Biofuels are a pathway to that, possibly leading into electrofuels (eg e-methanol, DME). Furthermore, we have heard it argued that given that the trees are being felled to make timber and paper, there exist large amounts of material that is unusable for these primary purposes, but is suitable for the production of biofuels. And if it is not used for biofuels it decays on the ground releasing CO2. We think it would be better for those who want to protect the planet to stick to solid facts, and not try to stretch science.
Having read claim and counterclaim we guess that there are some valid arguments being made on both sides. But the way that the media is fed (or chooses to interpret) the information is problematic. Lopping down pristine rainforest to burn as woodchips is likely bad, but not all biofuels do this, so lets be transparent about the facts and the rhetoric.
What we’re reading
The Nordic countries are some of the most dynamic and successful economies in the world. They are also leaders in sustainability, from renewable energy, biofuels, carbon capture and storage and the hydrogen economy, circular economy business models and battery development, the Nordics are pioneers in policy design, technology development and consumer uptake. Mundus Nordic Green News is covering this transition for the international community. Every day we clip the stories of most relevance to international businesspeople and policy experts from the flow of news. We supplement these with our own opinion pieces and commentary, in English.