In this issue: Tipping Points, Clean Jet Fuel Plant and US Incentives

Signal from MPP | Issue No. 2306-1?

In this issue: Tipping Points – a long view; Sustainable Aviation Fuel – announced projects on track as EU sets mandate; US Hubs – unlocking incentives in the Inflation Reduction Act.

Mission Possible Partnership is a movement of climate leaders and companies driving industrial decarbonisation across the entire value chain of the world’s highest-emitting sectors: aluminium, cement, chemicals, steel; aviation, shipping, and trucking. We’re charting the inventive steps and radical collaboration to enable commercial-scale First Projects in this decisive decade.

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?1. S-curves???

Climbing the ‘S-curve’ for heavy industry decarbonisation??

Cross-sector analysis points to rapid adoption of green technologies?

IT’S OFTEN CALLED the “iPhone effect”, the inflection point in the take-up of a new technology where it enters mainstream markets – a pattern of steep or exponential growth that economists know as the S-curve.??

Mobile phones are just one celebrated example among many. Similar tipping points -- to coin another phrase – are well documented in the roll out of historic technologies: from refrigerators to colour televisions, microwave ovens and even modern port infrastructure.?

S-curve transitions are a valuable point of reference to understand the real prospects for transforming the energy system in this decisive decade -- Nigel Topping, former UN High-Level Climate Action Champion?

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Fig 1. Technologies move up S-curves all the time?

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Analysis by MPP shows key technologies to decarbonise hard-to-abate heavy industry and transport are close to tipping point in this decade. Recent precedents include renewable power in Denmark (80% current market share), and the take-up of battery-powered electric vehicles in Norway.?

Fig 2. The S-curve adoption of technologies?

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Reviewing data sets from MPP’s transition strategies in seven hard-to-abate sectors, our cross-sector analysis highlights the scale of the overall challenge. Industry decarbonisation is a steep hill to climb, requiring innovation up and down value chains.??

Key findings:

• Downstream sectors most dependent on carbon-intensive inputs are key to demand for green materials: cars, construction and consumer goods consume more than half of all cement, steel, aluminium and plastic.?
• Clean power sources for indirect electricity from green hydrogen or maritime fuel are essential first step for decarbonising heavy industry.??
• New electrification technologies play a crucial enabling role, with further potential for carbon capture and storage.??

Fig 3. Exponential energy change is all around us?

Non-linear thinking?

Drawing on diverse data sets, MPP has mapped the distribution and roll-out of enabling technologies in both high-income countries and China. “We’ve consistently seen that high income countries alongside China are leading the way. They’ve had supportive policy frameworks that have driven down the costs and enabled economies of scale,” said Andreas Wagner, MPP cross-sector lead.??

By comparing historic data against projected uptake in renewables, hydrogen and other green power sources, MPP’s analysis of the project pipeline charted prospective growth trajectories for transformative technologies in seven hard-to-abate sectors.??

Fig 4. Policy levers in high-income countries drive adoption of technologies

MPP's analysis drew on our published sector strategies, plus research from The Breakthrough Effect , a report by Systemiq Ltd. which developed a forward-looking perspective on future trends.??

This approach highlights progress towards tipping points for hard-to-abate sectors, in contrast to the ‘snapshot’ analysis of surveys such as the annual pre-COP Global Stocktake.??

"At a moment when the currency of trust in our progress towards global goals is low, MPP's new analysis of enabling technologies for rapid decarbonisation demonstrates the forward momentum that is missed by more pessimistic assessments. The many historical precedents for S-curve transitions are a valuable point of reference to understand the real prospects for transforming the energy system in this decisive decade," said Nigel Topping, CMG , MPP Senior Fellow and former UN High-Level Climate Action Champion.

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2. SAF First Projects??

ReFuelEU blending mandate for Sustainable Aviation Fuel will de-risk investment?

MPP analysis finds announced projects to date ‘on track’ for 2030?

Aviation accounts for about half of all emissions from transport in the European Union. As EU parliaments take steps to ratify a blending mandate approved in Brussels in April,?ReFuelEU is a key piece of legislation to stimulate demand for sustainable aviation fuels (SAF).?

Carbon emissions per passenger fell by more than 80% over the past 50 years.... but the historic pace of improvement is becoming tougher to sustain -- The Economist ?

The blending mandate will make increased use of alternative fuels compulsory: “A big achievement – but not a silver bullet for the decarbonisation of air transport,” said MPP aviation lead Maximilian Held . Increasing supply of SAF is dependent on installed capacity, but the pace of announcements of new SAF projects is picking up.?

?After two years of intense debate, adoption of alternative jet fuels of non-fossil origin will become mandatory in the EU starting in 2025. National parliaments across the EU are expected to adopt the deal – a process routinely seen as a formality - before it can pass into European law.?

The innovative steps to achieve zero-emissions flight remain daunting, as The Economist noted in this May 14 article , citing scenarios from MPP’s aviation transition strategy.??

? Click here for May 14, 2023 article in The Economist (paywall)?

SAF plant: announced projects on track for 2030??

Analysis by MPP to map announced first decarbonisation projects in hard-to-abate sectors found that plans for new SAF plant – if converted to operational infrastructure, and assuming momentum is sustained – are broadly in line with the real-economy thresholds charted in MPP’s 2030 Milestones.??

• Current pipeline of announced SAF plant implies a rapid scaling of e-fuels capacity to about 20 mT of SAF production by 2025, contingent on announced projects reaching final investment decision (FID).??
• ReFuelEU will require suppliers to ensure that SAF makes up 2% of all aviation fuel made available at EU airports by 2025, rising to 6% in 2030, 20% in 2035 and to 70% by 2050.?
• Mandate expected to de-risk investment and strengthen business case for clean fuels technology and infrastructure. Increasing volumes are expected to drive down the green price premium.??

MPP x World Aviation Festival?

We’re delighted to be joining the World Aviation Festival , to be held in Lisbon from September 26-28, as official Sustainability Partner. The agenda will assess the impact of the EU blending mandate, and other factors – infrastructure, market readiness, feedstocks - which determine current timelines for SAF production, with a particular focus on enabling technologies.?

3. US Inflation Reduction Act?

Three funding pools every decarbonisation leader should know

How to unlock local, state and federal incentives in the US??

Heavy industry accounts for 30 percent of US carbon dioxide emissions. While decarbonising this sector is difficult, the combination of emerging green clusters and a panoply of US government incentives have turbocharged the decarbonisation agenda.??

MPP is supporting development of two such hubs, on the Texas Gulf Coast and in southern California, by helping project developers and local governments to tackle obstacles and unblock bottlenecks.??

Eligibility criteria for tax credits such as wage and apprenticeship requirements could be worth up to 80 percent of their value.?

RMI’s Shravan Bhat has posted this primer on public loan guarantees , grants, and tax credits. He assesses how first-of-their-kind, low-carbon production facilities in the US can unlock hundreds of billions of dollars in incentives via a myriad of federal, state and local agencies.?

Under the Inflation Reduction Act (IRA), government funding is available for demonstration and commercial projects in clean energy such as ammonia, hydrogen, sustainable aviation fuel; and low or zero carbon production of hard-to-abate materials including aluminium, cement and concrete, and steel.?

Fig 5. Industry can’t do it alone: incentives reward ecosystem collaboration?

Funnelling US government dollars from the federal balance sheet to fast-track investments in a system-level energy transition requires careful coordination. Federal agencies are keen to hear directly from industrial stakeholders to understand what’s needed and what works.??

Here’s a snapshot of the principal mechanisms:??

• Office of Clean Energy Demonstration: $6 billion (grants)?

In December 2021, a bipartisan Infrastructure Law created the Office of Clean Energy Demonstration (OCED) within the Department of Energy (DOE) to “accelerate clean energy technologies from the lab to market” by providing competitive grants. David Crane heads the agency.??

The Inflation Reduction Act (IRA) boosted provision for OCED’s grant programme from an initial $500 million budget to support industrial emissions reduction demonstration projects, to $6.3 billion with a brief to de-risk technologies that are not yet demonstrated at commercial scale.??

In collaboration with the Office of Manufacturing and Energy Supply Chains and the Industrial Efficiency and Decarbonization Office, OCED will cover up to 50 percent of demonstration project costs.??

The deadline for applications—from projects that have already submitted qualifying concept papers—is August 4. OCED will assess criteria including speed, cost, quality, impact, and location. Further details of the Industrial Demonstrations Program here .?

• Loan Programs Office ‘Bridge to Bankability’: $400 billion (loans)??

After a quiet decade, the DOE Loan Programs Office (LPO) has roared back to life with new funding announcements worth an estimated $412 billion . Like any commercial lender, the LPO wants projects with a reasonable prospect of repayment.?

Unlike commercial banks, however, LPO’s strategic priority is to direct capital to riskier, first-of-a-kind projects in markets where commercial funders have been wary. LPO loans may in many cases provide first debt funding for first-of-a-kind clean industrial projects.??

A typical LPO application process may take a year, as LPO vets project developers for criteria including secured offtake, a solid management team, demonstrated technology, credible feedstock and suppliers, and so on. The lender will seek confidence that cashflows cover debt servicing costs, with adequate protection against downside risks.?

LPO helps project developers secure support from 10,000 scientists and engineers in the DOE’s in-house National Environmental Policy Act (NEPA) team . Projects do not compete against each other for LPO funds; LPO will fund all projects that meet eligibility criteria. Find LPO application resources here .?

• Tax Credits: Full Steam Ahead??

By far the biggest pot of prospective federal funds administered by the US Treasury are new, uncapped section 45 tax credits for hydrogen , heavy industry, and carbon management.?

Tax credits have been transformed by the IRA in at least five ways:?

1. Extension of existing credits – and increased value – for the Investment Tax Credits, Production Tax Credits and the Carbon Capture and Sequestration Credits (eg: Section 45Q credits for sequestration projects are now $85/ton).?
2. New credits for technologies, such as Section 45V for clean hydrogen, and Section 45Z for clean transport fuels including sustainable aviation fuels.?
3. More labour-related eligibility criteria for credits such as wage and apprenticeship requirements. The Internal Revenue Service (IRS) is ironing out the details, potentially worth up to 80 percent of these credits’ value.?
4. Potential for more than 100 percent credit value via “10% adders” for projects that meet domestic manufacturing thresholds and/or are located in an “energy community ”. Click here for new IRS guidance on bonus credits.?
5. New ways to monetize tax credit, through two new mechanisms: direct pay and transferability. Direct pay reduces developers’ dependence on offsetting tax liabilities, or on tax equity investors, to unlock full credit value. Transferability allows developers immediately to sell on credits to anyone with a big enough tax bill, albeit tax credit buyers will likely want a discount.??

For more insights, read this IRA tax credit analysis from Sidley Austin.?

Regulators want feedback, particularly from industry; the principal agencies routinely issue notices clarifying previous ones, as needed. In November, the IRS invited public comments on clean fuel production credits. IRS representatives also attend industry conferences and events to guage feedback.??

A question of how, not if?

From multinational conglomerates to private equity-backed start-ups, nimble management teams are busy number-crunching federal incentives for next-generation industrial clusters. While some project leaders have hesitated , we believe sufficient information is already in the public domain for developers to make a start.??

City and state agencies also play a role, on topics from faster permitting to local participation and working with community stakeholders to ensure that federal dollars build shared wealth.?

From regulatory precedents in wind and solar, we expect further clarifying guidance from the IRS on issues such as eligibility, and to extend the variety of projects. In principle, policy aspires to complement, not supplant private markets — recognising that decarbonisation at scale will require ready access to both private and public dollars.?

The?Mission Possible Partnership ?is a movement of climate leaders and companies driving industrial decarbonisation across the entire value chain of the world’s most carbon-intensive heavy industry and transport sectors: aluminium, cement, chemicals, steel; and aviation, shipping, trucking. These ‘hard-to-abate’ industries account for a combined 30 percent share of global carbon dioxide emissions.

How fast those sectors reach net zero emissions will make or break the world’s chances to stay well below a 2°C rise in global temperatures by mid-century. MPP and partners have developed sector-specific roadmaps to decarbonise these sectors, with quantitative 2030 targets endorsed by more than 200 companies.

MPP’s work to date has demonstrated that there is a technical and economic path to net zero in each of those sectors, by deploying technologies which are available or near market-readiness. Working with stakeholders in policy, industry, energy supply, demand and finance, MPP is supporting a portfolio of first commercial-scale decarbonisation projects in this decade.?