One obvious response to the climate crisis – no matter where in the world you are – is a rapid decarbonisation of the energy sector. This involves a push for carbon neutrality by 2050 and then onwards to negative emissions. That aligns with the global warming limits enshrined in the Paris Agreement, which is accepted by most countries.
For some sectors – buildings, chemicals, cement and steel – cuts are still difficult and technical roadmaps need to be worked out from scratch. But for others, cuts will be no more expensive and might even boost profits.
Take renewables and electric vehicles (EVs) as examples. The cost of electricity from wind and solar PV is now half or less that of electricity from coal or gas power. And in April, the International Energy Agency head Fatih Birol said “the combination of solar PV and batteries is today competitive with new coal plants in India”. He predicted the same for China “in the next few years”. Meanwhile, EVs currently compete with traditional vehicles on price, range and performance, thanks to Tesla, China’s low-cost mass manufacturing, and further innovation. EVs account for over 50% of all new car annual sales in Norway and Sweden. The same milestone was reached in China during the first half of April. In India, EVs are even the cheaper option in some circumstances.
From a purely economic perspective, green solutions with price advantages will win a larger market share, and this could result in emissions mitigation. But things are a bit more complicated in the real world. Two attempts to switch to lower-carbon fuels illustrate this. In China, coal power plants are set to blend variable amounts of biomass or fashion green ammonia into their fuel. In Germany, internal combustion engine cars may end up being powered by synthetic fuels.
Similar forces are at work in both cases. As we will see, rather than waiting to be phased out, established and well-organised industries are influencing policy in an attempt to slow the transition.
Alternative fuels for Chinese coal power stations
In mid-July, the National Development and Reform Commission published a fuel-switch action plan for China’s coal power fleet up to 2027. To reduce the carbon intensity of power generation, plants will be allowed to burn alternatives to coal, such as biomass and green ammonia. Meanwhile, carbon capture and sequestration technology will be installed.
The action plan’s first batch of changes should be underway in 2025. Carbon emissions at participating power plants are expected to fall by about 20% per kilowatt hour from 2023 levels. By 2027, the anticipated reduction in setup and operating costs will enable the plan to be implemented more widely. Emissions per kilowatt hour are expected to have fallen again – approximately 50% from 2023 levels – and match those of gas-fired power.
This plan has the potential to cut carbon intensity, but its costs and feasibility at large scale beg the question: is the approach cheaper and more scalable than the alternatives, like simply replacing coal power with renewables?
A reliable biomass supply chain will be needed to produce, transport and store the new fuel. The cost of that supply chain will grow exponentially with distance. Moreover, fuel procurement has been an ongoing problem for biomass power plants in China. Geological sequestration (injecting CO2 into rock formations deep underground) is a particularly promising carbon-removal technology, but deployment remains limited. It is also unclear how this action plan’s full costs will be met, or how much of a difference this will actually make to China’s 1,200-gigawatt coal sector.
Outcomes will of course depend on the particular facilities and technologies chosen. Currently, funds are to be sourced from special, very long government bonds or similar. A way to allocate the financial burden between the government, power companies and customers will be developed, along with periodic policy support. The action plan says a methodology for calculating emissions cuts will be created and power generated with biomass or green ammonia will be treated separately. Grid dispatch systems will be adjusted to prioritise facilities with significantly lower emissions – defying the economic logic that cheaper sources of power are used first.
There is another practical issue. How to verify what the power plants are burning? For plant managers, it would be understandably tempting to report the burning of cleaner fuels while using coal. Monitoring this remains hard. It was once an open secret that “biomass” power plants only burned biomass sometimes. At other times, they shovelled in coal, while still getting preferential on-grid prices for their power.
Germany sticks with the internal combustion engine
Retaining fossil-fuel facilities is not a problem in itself. The question is, how can those facilities become low-carbon and economically viable? Let’s look at a case in Germany.
In early 2023, the EU was discussing a ban on the sale of internal combustion engine (ICE) cars from 2035. A car lasts about 15 years, so to hit carbon neutrality by 2050, you need to start taking new ICE cars off the road from 2035. At the last minute, Germany blocked the deal to demand a loophole be left open. It wanted an exemption for ICE cars running solely on synthetic fuels, also known as electrofuels or e-fuels.
E-fuels are made by splitting water into hydrogen and oxygen with electricity. Carbon dioxide is then combined with the hydrogen to produce diesel, jet fuel or fuel oil. ICE vehicles running on e-fuels could therefore avoid being phased out. This attractive prospect could be part of a zero-carbon transportation solution. But there are countless practical issues.
Manufacturing e-fuels requires obtaining hydrogen via electrolysis of water and setting up fuel supply chains. Both are cutting-edge innovations in need of research, development and testing. Making the switch for cars would be a complex process. The better choice would be to start this process in energy-intensive industries and the power sector.
Also, the problems seen with the use of biomass or green ammonia in China’s coal power plants reoccur here. How to build the logistics infrastructure from production to transportation to final user? How to kick-start the market and help it grow? And who should pay the inevitable start-up costs?
Moreover, ICEs are inherently inefficient. A car run on e-fuel may be five times less efficient than an EV. How can that be competitive? And how can we ensure those cars never run on petrol or diesel again? Will there need to be different nozzles for e-fuel cars? A separate supply chain for zero-carbon fuels? Whatever happens, it feels as though some are unwilling to replace the internal combustion engine.
Beyond tech and economics
Whether it’s power plants in China or cars in Germany, switching fuels doesn’t seem to make sense.
In both cases, the change would allow a lot of existing infrastructure to be retained. This is an important factor. Both industries have huge logistical networks and assets set up; significant social, economic and political influence; and perhaps even a sense of pride in their mission. There are 35,000 people working on engine development at BMW alone. They take great pride in their engines, which rely on thousands of components seamlessly working together. It must be hard to imagine that being lost to “creative destruction”.
With coal power plants, the aim is to avoid the social costs of rapidly shutting down existing assets. But the current approach ignores market mechanisms and risks slowing the energy transition.
While technological advances are important for the transition, we also need effective measures to overcome resistance from business and ensure our goals are met. For coal plants and cars, fuel switches look like positive steps towards combatting climate change and achieving low-carbon targets. But in practice, they are accompanied by many technical, economic, political and market complications and variables.
