Advanced technologies will be critical to stopping climate change. McKinsey’s analysis of the net-zero pathway for Europe indicates that some 40 percent of the necessary emissions abatement could come from technologies that are either still in R&D or demonstrated but not yet mature. The remaining 60 percent could be achieved by widely deploying proven, mature technologies.
A key to achieving those goals is innovation, whether to develop and refine technologies or to achieve cost and production-capacity breakthroughs. And with innovation comes uncertainty and risk. At McKinsey’s COP26 sessions in Glasgow today, entrepreneurs and investors considered the outlook for various climate technologies, with a focus on hydrogen.
The prospects for climate technology
Supporting novel business cases: “With geothermal, you have a utility-like revenue stream. You will not double revenues overnight because of a genius idea or a new market. And upfront, you have an exploration risk, familiar to the energy industry. So you need to match that exploration risk with the long-term utility-like return. That is not such an easy hurdle to overcome. But I think it can be overcome.”
—Dr. Herbert Pohl, CEO and founder, Deutsche ErdWärme
Fostering technology adoption: “Some of these technologies also require a revolution, whether in business models or in government policy. Even if you’re taking CO2 out of a cement plant, it’s ultimately a byproduct that someone’s going have to pay for that no one’s paying for today, right? If you want markets that are buying and selling carbon in a real sense, you also need all of the regulatory governance, and verification and certification and all the plumbing for that.”
—Will Gardiner, CEO, Drax
Anticipating the pace of implementation: “On the technology side, we think there’s a revolution. But the challenge, I think, for most of the companies in this space is that they operate where technology meets the real world—and the real world still moves at the pace of real world. This is why implementation will be more of an evolution, even if the underlying technologies are probably a revolution.”
—Andreea Constantinescu, partner, Planet First Partners
Bringing climate technologies together: “Carbon capture has to be a solution that works along with other things that companies are thinking about, such as green hydrogen, biomass minerals, and other options. If they can get a modular carbon-capture unit that works at a certain scale, then between now and 2025, they can try other things and look at combinations.”
—Aniruddha Sharma, CEO, Carbon Clean
The scale-up path for hydrogen
Following the cost trajectory: “In 2017, there was a strong perception that cost would be the main impediment. But we’re seeing the cost trajectory follow the path that was charted back then. … The cost barrier indeed is being overcome by scale. With all of this excitement and momentum, the key thing is how we actually operationalize and get projects happening on the ground.”
—Daryl Wilson, executive director, Hydrogen Council
Targeting large markets: “Back in 2015, people thought about hydrogen as a fuel for passenger cars, which is probably the worst application. Today, the whole discussion is not around this topic but around using hydrogen to decarbonize the hard-to-abate sectors. … I’m convinced that the first big applications for green hydrogen are going to be in the chemical industry and in the steel industry.”
—Nils Aldag, CEO, Sunfire
Widening the range of applications: “For things like mobility, we’re starting to see good applications if you want an entire hydrogen value chain that works with no subsidy today—materials handling in big warehouses, for example. … You start with that and look at other applications where you want relatively high power for long periods of time, and you don’t want to tie your productive asset up in charging.”
—Robert Trezona, partner, head of cleantech, IP Group
Creating a supportive environment: “If we continue to assume that green hydrogen needs to reach a competitive cost with gray hydrogen, we are on the wrong path. The technology is there. We have technology to transport hydrogen by pipeline, as ammonia. Liquid transport will come. Technology is not the point. Even if electrolyzers were free, green hydrogen would not be competitive with gray hydrogen. It’s all about market mechanisms.”
—Roland Käppner, executive director, hydrogen & green fuels, NEOM
Expanding from regional to global: “In many cases, refineries are often located in areas where other industrial customers are going to need low-carbon hydrogen to decarbonize. That’s an opportunity to start getting after projects and start doing and learning and building out an overall energy hub to unlock a regional market that then over time we see developing into a global market.”
—Louise Jacobsen Plutt, senior vice president, hydrogen & CCUS, bp
On COP26’s opening week
As week one of COP26 drew to a close, Dickon Pinner, a senior partner in the San Francisco office who co-leads McKinsey Sustainability, highlighted the private sector’s involvement in the summit.
At a glance
McKinsey research suggests that climate technologies could attract $1.5 trillion to $2 trillion of capital investment per year by 2025. In “Innovating to net zero: An executive’s guide to climate technology,” our experts lay out five areas with considerable promise.
For more analysis and ideas about climate technologies, see these McKinsey publications: