Kim Sung-woo
On May 22 and 23, the Asian Leadership Conference (ALC) was held in Seoul. Similar to the Davos Forum, the ALC has been a place where renowned global leaders such as former U.S. President Barack Obama, former U.N. Secretary-General Ban Ki-moon and Alibaba Group Chairman Jack Ma Yun have gathered to discuss potential solutions to major challenges faced by our society in international politics, global economy, low birth rates and, of course, climate change.
For the past eight years, I have had the honor of moderating sessions on ESG, or environmental, social and governance, at the ALC. This time, I moderated a session titled ESG/Drivers and Opportunities for Increased Climate Technology Investment Amid Ultra-Uncertainty. With the CEO of Marunouchi Innovation Partners, one of the world's largest climate technology fund managers, the session explored the outlook of global climate technology investment in the future. Marunouchi Innovation Partners's strategy is to find good investment targets by tapping into strong networks with multinational companies that have long been investing in the climate sector. Operating on a large scale of more than 1 trillion won ($726 million), the fund invests in commercialization and scale-up stages to find opportunities in relatively more mature markets. Major investment targets include next-generation energy, batteries, renewable energy and energy distribution systems.
Good climate technology can fly only if industries have a strong demand for it, and decarbonization of the industrial sectors will certainly drive the demand for climate technologies.
During the session, a research fellow at France's Institute Montaigne presented potential solutions to expedite decarbonization and practical challenges the industry faces in reducing carbon emissions. According to the International Energy Agency, about three-quarters of the world's industrial emissions come from steel, cement and chemicals. In the steel industry, the main tool for carbon emission reduction is the electric arc furnace, which uses electricity to melt scrap metal, and hydrogen direct reduction, which processes iron ore with hydrogen instead of coal.
Securing low-carbon power and pure scrap metal, as well as building clean hydrogen infrastructure, nevertheless, pose other challenges. In the cement industry, the primary approach to reducing carbon emissions has been to replace cement raw materials with slag or fly ash, which are industrial byproducts, or to remove carbon already emitted by using carbon capture utilization and storage (CCUS) technology. However, the lack of reliable supplies of alternative raw materials and the difficulty in gauging the CCUS capacity make the reduction in carbon emission practically challenging in this industry.
Further, in the chemical industry, the technology to replace fossil fuel-based naphtha raw materials with biomass-based naphtha and the technology to replace process fuels with renewable electricity or clean hydrogen are the main decarbonization solutions.
Again, securing a reliable supply of clean raw materials and low-emission fuels would be a key hurdle to overcome. In short, we have potential solutions, but it would take some time for us to see them working in practice.
We need to step up the game to tackle the increasingly accelerating climate change. First, we need to expedite the commercialization of common industrial decarbonization technologies that can be adopted broadly across various industries. Examples of such general-purpose technologies include clean hydrogen and CCUS.
Lowering the prices of these technologies would be the key to accelerating the mass use of such technologies. To this end, the government should not only incentivize companies to decarbonize their business by charging carbon taxes but also nurture market conditions that are friendly to the development of the technologies by, for example, providing government subsidies until the technology price reaches a competitive level.
The government should also take the lead in building infrastructure and supply chains to ensure the stable supply of clean raw materials and fuels needed for industrial decarbonization, such as biomass and waste plastic. Plus, I hope to see more risk-tolerant capital in the financial market. To scale up novel technologies, which necessarily present high uncertainty, we need more risk-bearing capital that serves as a bridge for emerging technologies to enter the market and attract more capital as the technologies mature. Various social responsibility funds in the form of grants from the private sector or concessional loans from multilateral development banks could serve as the bridge. Decarbonization on an accelerated basis requires close collaboration of experts in technology, government policy and finance.
Asia is the main producer and seller of industrial products supplied to countries around the world. For this reason, Asian countries' GDP, in large part, relies on its industrial sectors. In addition, about half of global carbon emissions come from Asia.
If Asia lags in decarbonizing its industries, decarbonization will be delayed at a global level. Without accelerating decarbonization, ever-worsening climate change will outpace our solutions. This is why governments and companies in the European Union and the United States are demanding industrial carbonization in Asia even more seriously than ever. Industries in Asia are crucial to addressing global climate change — it's also the land of opportunity.
Kim Sung-woo is the head of the Environment & Energy Research Institute at Kim & Chang.