By Hassan Badrawi, Chief Financial Officer
Today’s industries are focused on delivering their energy transition plans and are increasingly embracing innovative solutions to curb harmful emissions.
The manufacturing sector, in particular, faces unique challenges in decarbonization. As crucial drivers of economic growth and human development, the industry is made up of complex, wide-ranging and extensive supply chains – supply chains that can be sensitive to disruption and for which emissions are difficult to manage. With global production sectors responsible for one-fifth of carbon emissions and consuming 54% of the world’s energy sources , it is imperative that manufacturers look at their own processes and supply chains and find innovative ways to meet their decarbonization targets. The complexity and financial burden on the manufacturing facility of the task ahead cannot be underestimated. The good news is that, as leaders of innovation and technology, the sector is also the best positioned to drive forward changes to industrial processes, technology upgrades, and shifts to renewable energy sources. I see two key priorities that will propel us more quickly on this journey of achieving carbon-neutral manufacturing and creating a resilient and productive sector.
- Investment in technology to drive the hydrogen transition
As part of the accelerated global shift to clean energy, hydrogen will play a vital role in the energy transition as one of the most viable pathways to carbon neutrality by 2050. Although most countries are working towards developing a hydrogen economy, it is not feasible to produce sufficient hydrogen to meet expected demand given limitations on renewable energy power in many regions, including Europe. This means that hydrogen will need to be transported over long distances. Given that hydrogen needs to be cooled down to -252 degrees Celsius, transportation results in a huge loss of scarce green energy and the cooled hydrogen has a very low energy density. Accordingly, ammonia and methanol, as the most effective carriers of hydrogen, are the keys to the hydrogen economy. Representing more than 50% of grey hydrogen use today, ammonia and methanol can decarbonize approximately 90% of today’s GHG emissions across agriculture, fuel, feedstock, and indirect markets in power and waste.
OCI Global is at the forefront of this shift, with multiple low-carbon and green ammonia and methanol projects in development. An example of this in action is our small-scale green ammonia plant in Egypt which we recently commissioned with pioneering technology, and our blue ammonia project in Texas, which will be the first greenfield blue ammonia facility of this scale to come on stream in the United States.
However, widescale adoption in the manufacturing sector faces some challenges, including the need for infrastructure development and the cost of production. The lack of offtake at scale to support these projects is another challenge. The policy and regulatory landscape that has not yet caught up with the demand needs to make low-carbon projects viable and adequately support innovation around alternative fuels.
- Government regulation and financial support
One of the biggest drivers towards an accelerated move to carbon neutrality today remains regulation and financial support from governments. While high natural gas prices might encourage people to think more about alternatives, the reality is that it takes long-term planning and investment to bring these projects online and businesses that want to make the move – like OCI – are doing it anyway.
Today, making a lower carbon version of methanol or ammonia is more costly, whether this is the cost to capture carbon dioxide or to utilize renewable feedstocks that cost much more than fossil fuels. However, with economies of scale and time, the costs will come down as we have seen with so many other new technologies in the past like solar and wind.
In the short-medium term, the higher cost would need a green premium to justify it economically, and that is where regulatory support must come in to establish that premium. The IRA in the US, for example, has allowed global distributors and producers of low-carbon fuel alternatives to accelerate decarbonization projects thanks to the tax credits system supporting Carbon Sequestration. And on that basis, organizations like OCI can take the low-hanging fruit and move forward more quickly with less risk.
What we need now is for governments to provide the regulatory landscape and support through infrastructure and finance. There are markets opening today for low carbon fuel alternatives, and business need to focus on leveraging those markets where possible. We are already starting to see evidence of this in the fact that the only industries that have made any significant moves to cleaner versions are those that have been compelled by regulation – namely the fuels markets – first road transport, and soon marine.
- A steadfast commitment to manufacturing excellence
In addition to the longer-term decarbonization that can be achieved by investing in new technologies, manufacturing sites can and must ensure they continuously look for ways to maximize their production efficiencies, minimize emissions and waste, while maintaining health and safety records. Operational excellence is integral to optimizing energy efficiency, which in turn is necessary to minimizing scope 1 GHG emissions.
The path forward
Now is the time to take responsibility for our planet and its future generations. Already today, companies like OCI are making big strides toward supporting carbon neutrality. However, this can only be achieved with support by an ascribed regulatory value to lower carbon ammonia and methanol, which means that the public sector needs to be heavily involved to activate demand and shift it away from regular fossil fuels.
Manufacturers around the world need to have a unified message to policymakers on that front. OCI is optimistic that our industry can make this change – we just need to make the move together. We need to speak the same language, focus on the right goals, and focus on contributing to the hydrogen economy, creating a brighter future for our industry and society at large.
This article was first published in the May edition of Manufacturing Today on 25th May 2023