Low-Carbon Ventures From High-Carbon Industries: Q&A

By Richard Stubbe, BloombergNEF. This article first appeared on the Bloomberg Terminal. 

The world’s oil and gas companies are often the target of efforts to reduce greenhouse-gas emissions, given that their products are burned for transportation and electricity, two of the leading causes of those emissions. Yet they’re also putting money into finding marketable ways to reduce those emissions, in part by joining to create the Oil and Gas Climate Initiative, an investment fund announced in 2014.

Among the members of the $1 billion-plus fund are BP Plc, Exxon Mobil, Royal Dutch Shell Plc, and Total SA. The idea is to find promising businesses that can be scaled up to significantly reduce carbon emissions and turn a profit as well, said Pratima Rangarajan, the initiative’s CEO. She joined in 2017 after working in the wind units of both General Electric Co. and Vestas Wind Systems A/S.“We invest in practical solutions and business models that can lower the carbon footprint of energy and industrials,” Rangarajan said. “If we search hard enough, we can find technologies that improve operations, lower costs, and are good from a climate perspective.”So far they’ve found 15 investments. Among them are Boston Metal, which has developed a more efficient way to produce metals including steel; Clarke Valve, which sells a valve designed to reduce methane emissions; and Solidia, which has developed a process to make concrete with lower emissions by using carbon dioxide for curing.

Rangarajan answered questions from BloombergNEF in a September interview.

Q: What’s the initiative, what does it do, what’s next?

A: The OGCI is a consortium of some of the world’s largest oil and gas companies representing about 30% of oil production and about 25% of gas production. The group came together in 2014 and announced it would take practical action on climate change, and that they could do more together than individually. They announced $1 billion for the fund, which is now more since Exxon, Chevron and Occidental have joined, plus Petrobras in Brazil.

We invest in practical solutions and business models that can lower the carbon footprint of energy and industrials. We consider transports as well. We have a sector bias and a focus bias because about three-quarters of manmade greenhouse gases are from energy and industrials.

Our focus areas are reduction of methane emissions, reduction of CO2 emissions, lowering the carbon intensity of energy and industrial, and recycling CO2, or carbon capture and utilization.

Q: What successes have you had to date?

A: We’ve been up for about 2 1/2 years. We’ve made about 15 investments — five in methane. The way we think about methane is two issues — detection and measurement, and how to mitigate those. We need to make methane detection and measurement operational. We have a satellite investment, one in aircraft technology, and drones with handhelds. You need to be able to look around the globe and know when you’ve got a big issue somewhere. Then you have to come in closer and pinpoint it, so we have an aircraft technology. Then we have drones and a handheld to get even closer and figure out how to fix a leak.

Q: Texas is a huge source of methane leaks. They’re not even leaks but planned flaring. The state regulator has never failed to grant a waiver allowing methane flaring.

A: It’s lit up at night! It’s crazy! The OGCI companies have an announced position that they support methane regulations. This is not good for any industry, and it’s not good for climate. All the companies that join the OGCI have agreed to stay below a certain number for methane emissions, which is about 10% of the industry average.

Q: What do you look for when you’re deciding where to invest?

A: Impact is our first criterion. If the investment does not have the potential to lower the carbon footprint in the sector of choice, we don’t invest. That’s a deal-breaker. Then we look at scalability. We need them to succeed, so the next few criteria are financial and commercial, just like any other investment fund.

Q: How about an example?

A: One of our investments is in Clarke Valve, a valve that almost eliminates pipeline leakage of methane. But a lot of companies aren’t buying it for that reason; they’re buying it because it’s so much cheaper. It’s a win-win for them. If we search hard enough, we can find technologies that improve operations, lower costs, and are good from a climate perspective.

Q: What about CO2 emissions?

A: In that area, we have three investments on our website. We do cement, steel, transport, and buildings, heating and cooling. One is Boston Metal, which promises to lower the cost and environmental impact of steelmaking. Metals are 7% of global CO2, and cement is 6%. In transport, we’re investing in a hybrid-electric truck. We’ve also made a lot of progress with fleets.

Q: What about geography?

A: We’ve run two investment days, what we call venture days — the first one was for methane in 2017, and the second was at CERAWeek in Houston this year, on efficiency. We get worldwide applications. We have investments in Canada and in the U.K., and with a U.S.-based company that has operations in Asia that make heating and cooling equipment. Asia’s going to go crazy with air conditioning over the next three or four decades, and that is of interest to us.

Q. Why the emphasis on carbon capture utilization and storage (CCUS)?

A: Humans emit about 50 billion tons of greenhouse gases a year and 15 billion are going into the atmosphere. Until we stop the emissions, we have to get started on recycling so that it doesn’t go into the atmosphere.

Q: Opinions differ as to whether CCUS can be effective. How much progress has there been?

A: You can do it. We haven’t used it enough to get it down the cost curve. With wind power, it took us 30 years to get from 3 kilowatts to 3 megawatts. All these technologies need some time to get costs down. And that’s really what we’ve not done. We have to.

Energy storage costs came down much faster than expected. I was once laughed out of a room for projecting a steep decline in battery costs, and the cost actually came down even faster than I predicted. So I take the same approach to everything I do here. We just have to get shovels in the ground and get started.

Q: Is there enough money going into CCUS to drive down the cost curve?

A: Not yet. But the 45Q tax incentive in the U.S. is a good place to start. It’s a tax credit for carbon reuse and recycle, which provides you $50 a ton if you capture CO2 and $35 a ton if it’s used where you are.

We do have two investments — one in Inventys, which is a sort of capture technology that can bring the costs down if it’s scaled up properly, and another in Solidia, which has a cement process that uses CO2 as the water for curing the concrete. The process might even end up being cheaper than regular cement. They also have a lower energy use, and the CO2 is locked into the concrete. They have a 70% lower CO2 footprint and an 80% lower water footprint than traditional Portland cement. They are being looked at globally by many companies. It’s compelling but hard to commercialize.

That first phase where you make something ubiquitous and scalable is where we come in.

Q. What roles do regulators have to play here, and how are they doing?

A: Governments all over the world seem a little confused as to which way they’re going, left or right, these days. You do need a regulatory structure where the risk around long-term storage is managed, because a company can’t take on a 100-year risk on storage. What we’re finding across the U.S. is the different states are starting to make a lot of progress supporting the legislation. Indiana has been helpful. We just need to develop a marketplace.

Q: That’s literally the issue, right? Putting economic value on the desirable outcomes of reducing emissions and then creating an incentive to achieve them?

A: The value part is a tough one still. It’s true for all of energy. To get things started, you do need some help from the government so we can unlock the value. There’s a value that people want and that people see in these technologies, but the transactional value requires a lot of work to unlock.

We subsidized wind and solar in different countries and in different ways because there’s a value in the zero-carbon world. We recognized the threats to the ozone layer and took regulatory action to preserve the ozone. Now we need to start pressuring governments to give us tools that we need — like carbon pricing and carbon taxes — to speed this up. My concern is not whether we will be successful, because we will. It’s whether we’ll be fast enough.

(Updates with Texas methane question-answer in 12th paragraph.)

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