Climate technologies are essential for corporate decarbonization and achieving global net zero because they cut emissions, which combat climate change. They also have a great deal of potential as fresh sources of business opportunities. By 2050, it is predicted that low-carbon hydrogen alone will reduce emissions by up to three to five gigatons annually (or roughly 8% of the world’s greenhouse gas emissions), opening up a $3 trillion to $4 trillion worldwide market.

The legislative changes in the IIJA (Infrastructure Investment and Jobs Act), the CHIPS (Creating Helpful Incentives to Produce Semiconductors) and Science Act, and the IRA (Inflation Reduction Act) are reducing the cost premium of these technologies via incentives. Major countries like the European Union (EU) are considering global responses to the IRA. IRA, the levelized cost of solar was reduced by 41% from $40 to $24 per megawatt-hour (MWh). Moreover, with a 57% price reduction from $35 to $15 per MWh, onshore wind has received an even greater boost, making it more cost-competitive than the fossil fuel option.

Business executives can reassess opportunities over two time periods — immediate-term value capture to enable decarbonization while lowering the cost of doing business and mid-term growth resulting from diversifying into new sectors or forming new partnerships because of new incentives proliferation. 

In the immediate term, new regulations have significantly altered the economics of many important decarbonization technologies. Businesses could begin by reevaluating their marginal abatement cost curves (MACCs) in order to uncover decarbonization levers that have become more appealing because of net cost savings. By using the pharmaceutical sector as an example, the IRA can save 56% on the cost of reducing emissions.

These regulations provide incentives for manufacturers to encourage local production, which may open up more business prospects for corporations. With CHIPS now allocating up to $62 billion to manufacturing and technological clusters until 2026, it’s logical to locate near-term investments in these geographies. Furthermore, the IRA provides additional domestic manufacturing incentives. 

Opportunities for midterm growth 

According to the Boston Consulting Group (BCG) study, by 2050, there will be a market opportunity worth over $300 trillion for firms in the climate technology industry and those involved in their value chain. Additionally, Canada’s ongoing investigation into a clean hydrogen production tax credit may present new market opportunities for firms.

In order to take advantage of the mid-term growth potential presented by the legislative amendments, several companies have already modified or expedited their existing production plans for low-carbon hydrogen. For instance, there has been an exclusive agreement between Fusion Fuel and Electus Energy to build a 75-megawatt solar-to-hydrogen facility in California. This project will produce enough hydrogen daily to run over 1,000 Class 8 trucks or buses.

According to BCG data, there is an increase in the sales of “green” items with a compound annual growth rate (CAGR) of 15% pp (percentage point). Companies should accelerate the timelines for bringing sustainable and low-carbon products to market to take advantage of this potential. For instance, the U.S. demand for electric vehicles is already so high that it takes only a few minutes for new models to sell out. Similarly, corporate economics and governmental policy will accelerate the adoption of electric trucks in major markets like the United States, Europe, and China. 

Building blocks for success

Supply chains, necessary infrastructure, and resources will be under pressure due to accelerated timescales and the growth of climate technologies. Raw materials like underlying infrastructure and critical minerals underlying infrastructure fall short of IRA requirements in the U.S. For example, the private sector and state governments will have to bridge the gap of approximately 500,000 public EV charging facilities in the United States by 2025.

Critical climate technologies are becoming considerably more appealing as a result of recent regulatory and economic changes. Companies should take action right now to take advantage of short- and long-term opportunities throughout their operations and supply chains in order to maximize profits, achieve climate goals, and promote the global net zero goal.

Source: Fortune Connect