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Two weeks ago, you read about why climate innovation remains the key to solving climate change. Today you will learn about Green Premiums, a framework which helps you to decide in which Greentech innovations you should invest your time and/or money.

Some sectors are still missing sustainable solutions to their decarbonisation challenges, but more often, existing sustainable solution are just not good enough yet. Green Premiums can help us identify in which innovations to invest first and can even help you to decide in which area you want to work or in which startup you want to invest.

In today’s article, you will discover:

Today’s article takes 6 minutes to read. Let’s get started!

🎯 We must prioritise where we invest our time and money to solve climate change

In a previous article we discussed that innovation is needed in every area. And to reach net-zero, we require many more innovations. So, it might seem counter-intuitive that we must stop spending time, effort, and money on some innovations and focus our time and money on only a few of them. But there is a simple reason we must choose wisely when investing our resources into innovative technologies and solutions.

All Greentech solutions require funding, but some require it sooner than others

We know that progress and innovation can sometimes be painstakingly slow. It can take decades for novel technologies to come from the research lab to being a commercial product. All these years are spent on reducing costs by figuring out how to create a globally scalable process. This goes for the product itself (e.g., producing e-fuels), but also for the process of manufacturing it (e.g., figuring out how to build large-scale, mass-manufactured electrolysers.

Looking at solar PV and wind, it took us over 30 years (okay… 20 years of really trying) to drive down their costs so far that they now have the lowest levelized costs of energy of all energy sources. Compared to renewable energy sources, other sustainable alternatives are still in their infancy. For example, carbon-neutral cements and e-fuels still require more time and resources to achieve commercial viability.

In general, there are sectors which are much further ahead than others and this can become a problem. While renewables might be a no-brainer for many players by now, other sectors don’t have their no-brainer solutions yet. But since we need to get to net-zero in all sectors, we must ensure that we have all solutions commercially and on a global scale available in time.

if we don’t start investing in the ones which are farthest away from commercialisation now, they won’t be available in time for closing the gap to net-zero. Instead, not focusing our resources in terms of time and money on the right areas will lead to incremental “innovations” in other areas that won’t help us in getting to zero.

Animated gif of Dr. Evil saying "innovation" sarcastically
Source: Giphy

📉 We need to bring down Green Premiums to solve climate change

There is one tool that can help us assess which areas require more attention and which we can let go on by themselves now: The Green Premium.

When there is an additional cost of choosing a clean technology over one emitting a greater amount of greenhouse gases, we call this difference the Green Premium.

For example, e-fuels could replace fossil fuels like gasoline or kerosene. They might even be the only scalable option to decarbonise the aviation or maritime sector. However, a litre of jet fuel cost $0.49 in the U.S. on average over the past few years. In comparison, advanced biofuels for jets cost on average $1.18 per litre. That’s appx. 140 % more than the fossil fuel and this difference represents the Green Premium on aviation fuels.

The Green Premium concept: When there is an additional cost of choosing a clean technology over one emitting a greater amount of greenhouse gases, we call this difference the Green Premium.

If we want people everywhere to choose the sustainable option over a greenhouse gas emitting one, we must reduce the Green Premiums on these solutions. Some people who worry about climate change might be willing to pay some Green Premiums to buy sustainably. But in other sectors or regions, consumers as well as companies might not be able to afford the sustainable alternative. Advanced biofuels cost 600 % more than currently used cargo ship fuels. No cargo ship operator would be able to operate commercially with increased costs like that.

And there are billions of people who will increase their consumption of energy and products on their way to more wealth. 860 million people don’t even have access to electricity, yet, but they will in the future. And we must make sure that they won’t even need to choose between the sustainable and a cheap alternative. Both have to be the same thing.

If we want to increase the adoption of the sustainable options, the green premiums must become cheaper. This means we need to focus our attention on the areas where there still are high Green Premiums and innovate until they drop.

🚀 Focus on climate innovation in fields with high Green Premiums

Over the past two decades, we have spent billions on developing renewable energies and more efficient heating systems. This has led to a strong decrease in the green premiums of renewable electricity and electric heating & cooling.

Thanks to the cost reduction of wind, solar PV, and battery storages, in a 100 % renewable electricity system, one kilowatt hour (kWh) of zero-carbon electricity will only cost 12 % more than it costs today. And an air-sourced heat pump is even 27 % cheaper than the natural gas furnace and electric air conditioning it replaces.

Two sectors with low or negative Green Premiums: Electricity has a Green Premium of 12 %, when comparing today's system with a 100 % renewable one.

We can see all over the world that renewable energies and heat pumps are growing every year and require little or no subsidies as they are already the cheapest option or near to becoming it.

Instead, we should focus on the sectors where Green Premiums are still high, including transport (+237 %), agriculture (+86 %), and construction (+75 %).

Three sectors with high Green Premiums: 
- Transport (+237 % for one litre of electrofuel versus one litre of gasoline)
- Agriculture (+86 % for plant-based burgers versus beef burgers), and 
- Construction (+ 75 % for climate-neutral cement versus regular cement)

And when I say we should, I mean “you and I” should. So, let’s discuss how you and I can bring down these Green Premiums.

💪 How you can bring down Green Premiums

In general, there are multiple ways to get involved in driving the solutions forward.

If you are super interested in a sector with high Greem Premiums, e.g., transport or agriculture, dive into it. Look for a job at a company which tries to drive down Green Premiums or found you own startup. Most innovations are solutions to specific niche problems in the production and value chain. So, get into the details and do the work that is needed!

Alternatively, make yourself aware that you create the markets for these sustainable solutions. Every time you buy a plant-based burger, an electric vehicle, or decide to compensate your flights by buying sustainable aviation fuels, it’s a message. You are telling the world: “There is a market for this. I will buy it.”

If you are an investor, keep in mind that hard to abate sectors will be willing to pay the most for carbon-neutral alternatives as soon as carbon prices are forcing them. If a startup can reduce costs strongly in one of these sectors, it can lead to high margins.

For me and for you, I’ll continue this newsletter to inform about needed innovation and highlight what’s already being done.

“The world needs dreamers, and the world needs doers. But above all, what the world needs most are dreamers that do.”

Sarah Ban Breathnach

How are you going to drive innovation forward? Are going to switch jobs? Start a company? Share this post with someone who should read it?

Tell me on LinkedIn or Twitter!

See you next week! 😉


Source: Time, Breakthrough Energy

Photo by Clark Tibbs on Unsplash

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Hey 🙂 I'm Lars

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