It should not be surprising that 2021 has seen a rebound in emissions as nothing has changed fast enough over the last 24 months in terms of renewable power additions and carbon abatement to offset more than the underlying growth in power demand, and based on what we are seeing in European and Asia LNG markets, we have fallen short of demand growth. The wind capacity chart below has one main conclusion – not enough. One of our main inflationary fears for 2022 is that both wind and solar installation rates need to step up meaningfully from current levels to make a difference – the IEA suggests that installation rates need to double (at a minimum). It has already proven difficult to meet installation targets in 2021, in part because of supply chain issues but also in part because of material shortages, all of which have led to rising installation costs, against the longer-term run of falling costs because of learning curve gains. We believe that costs will rise again in 2022 and 2023 as installers/projects compete for limited solar module and wind turbine components
The decarbonization of the airline industry remains a hot topic. The energy density issue shown in the exhibit below is a correct assessment of why commercial aviation faces a challenge to transition to electric power. Not only is the energy density too low - which restricts weight/range - but electric power can only turn things, and propellor-based flying has speed limitations relative to jets. The announcements from the airlines to date on electric power have focused on low capacity short-haul opportunities. With this in mind and as noted in the article headlining of the exhibit below, electric power is not the only decarbonizing option for airlines. Hydrogen is the very long-term future - Airbus is saying not before 2050, but in the meantime, the push should be for low carbon or carbon-neutral biofuels. These are essentially plug-in fuels that are identical to current aviation fuel but made either from waste oils or from carbohydrates. Many of the oil majors are working on waste oil or vegetable oil-based processes, especially in California where the LCFS credit helps pay for the conversion, and companies like Gevo and Aemetis are working on carbohydrate-based routes through fermentation. If the carbohydrate, corn in the case of Gevo, is sourced from sustainable agriculture the carbon values of the fuel can be very low and potentially zero or negative through the life cycle. The airlines are going to have to pay up for the low carbon fuel if they want to bid the fuel away from the high credit markets like California diesel and gasoline, but this route could decarbonize the airlines significantly and relatively quickly with the right pricing structure and enough capital.