A ‘green premium’ is often viewed as a barrier to the transition to cleaner energy sources.
But it needn't be.
That is the latest finding by sustainability analysts at investment banking and financial services group Jefferies Group (NYSE:JEF).
The investment bank's analysts warned in a report on Wednesday that the road to net zero is “about to get bumpy”.
They warned that the UK’s path to net zero and ability to reduce emissions has been “called into question” by Prime Minister Rishi Sunak’s decision to delay a ban on new petrol and diesel cars and gas boilers.
“Over the past 18 months, significant pushback on net zero policies has emerged in the EU,” Jefferies analysts said in the ESG Strategy note on Wednesday.
“This indicates the need in the short to medium term for a shift towards pragmatic solutions that cause less disruption to the status quo.”
Procrastination on the energy transition would not be the smartest approach, as the analysts state: “It is evident there is still a way to go in order to reach emission targets.”
But there are pragmatic solutions out there that can provide a win-win by offering cost-effective ready-to-use alternatives to existing fuels.
Given the market pushback against a ‘green premium’, amid wider increases to the cost of living, analysts spy the greatest potential in technologies that serve as direct ‘drop-in’ substitutes to existing infrastructure.
These include fuels that could be used in internal combustion engines and jet engines that are already investable and commercially viable and could contribute to decarbonisation.
They doubled down on “incremental, pragmatic, drop-in decarbonization solutions that provide less disruption to existing infrastructure and technology”, such as e-fuels.
Seven green fuels that avoid a 'green premium'
Drop-in fuel replacements include sustainable aviation fuels, e-fuels, green methanol, renewable diesel, biodiesel, bioethanol, biogas, renewable natural gas and carbon dioxide removal technologies.
1. Bioethanol is probably the most similar alternative to conventional fuel, the analysts noted, and can be used in regular vehicles. It can be produced through fermenting feedstock such as corn, soybean, wheat, wood chip or even microalgae, though the rise in electric cars is weakening its appeal.
2. By contrast, biodiesel is a fatty acid methyl ester made from vegetable oil, animal fat, or recycled grease, that can be readily used in diesel vehicles with power compression ignition engines.
3. Renewable diesel can be made from waste and biomass sources and has useful applications in the agriculture and mining sectors.
4. A lesser-known alternative, biomethanol, is made through biomass gasification and e-methanol can be created from combining green hydrogen with direct air carbon capture. Both fuels have potential applications in shipping.
5. Biogas is readily produced through anaerobic digestion of organic matter such as waste, and can be used at landfill sites to produce heat and electricity.
6. Renewable natural gas is similar to regular natural gas, but is produced by removing the carbon dioxide (CO2) in biogas through the gasification of solid biomass followed by methanation.
7. Carbon dioxide removal technologies more broadly can also be used to help remove CO2 from fossil fuel projects and the wider environment.