How we can curb climate change by spending two percent more on everything Jens Burchardt
Transcriber:
This is a lump of coal.
It was mined a while ago
in the Ruhr region in Germany,
about 50 miles from where I grew up.
As coal goes,
it’s actually quite high-end.
It’s very dry, it has
a high share of carbon in it.
Both those things mean
you can’t only burn it
to produce power and heat,
but you can use it to make steel.
Now why am I telling you this?
By the end of this talk,
I want to have convinced you
that we can make a huge step forward
in the great fight against climate change
by just spending one to two percent more
on things that we buy.
And the path of this coal
is going to help me with it.
But …
back to steel.
What you have to know about steelmaking
is that it’s a humblingly brutal process.
These huge furnaces that tear apart
and recombine elements and materials
that have literally been around
for millions of years,
at temperatures of up to
more than 2,000 degrees Celsius.
It’s a triumph of industrialization,
but it’s terrible for the climate.
More than five percent
of all man-made emissions
currently come from making steel.
And of all the many challenges
we face to save the climate,
this one’s particularly hard to solve.
Now, why is that?
The first reason is technical.
There are technologies
to produce low-carbon steel.
We can, for example, capture the CO2
and pump it back under the earth –
that’s called carbon capture and storage.
Or we can move to entirely new processes
that, for example, run on low-carbon
hydrogen instead of coal.
But all of these are currently
only at a piloting stage.
The second reason is economical.
This is likely going to be expensive.
And to illustrate that,
let’s compare the steel challenge
to that of companies in other sectors.
If you’re in, say, manufacturing,
most of your emissions
come from the power you consume
for things like conveyor belts,
robots, drives and so on.
You can eliminate them
by switching to renewables,
which isn’t that expensive anymore.
In most cases, this won’t cost you
more than 10 euros per ton of CO2,
probably a lot less.
Other companies have
more energy-intensive processes
that require a lot of heat to operate.
They generate more emissions
by burning fossil fuels directly,
and that’s more expensive to get rid of.
Now let’s assume,
across all of their processes,
it costs them, on average,
five times as much,
somewhere between
40 and 50 euros per ton of CO2.
Now if a steel company
wants to move to zero emissions,
it either needs to invest significantly
in upgrading all of its current plants
and into infrastructure
that transports CO2
from its plants to a storage site,
or it needs to close all its plants
and build entirely new ones
that, for example,
run on low-carbon hydrogen.
According to industry studies,
this can cost them 10 times as much,
in the ballpark of 100 euros
per ton of CO2,
and the costs for a ton of steel
could increase by as much as 50 percent.
Now, to make matters even worse,
our steel company operates
in the commodity business;
it almost exclusively competes on price.
And it has shitty margins already:
that means saving CO2 is expensive,
but its profit per ton
of CO2 is very low,
and this puts it
in the uncomfortable company
of only a few other sectors,
the so-called hard-to-abate sectors club,
all the industries
like cement and chemicals,
that have equally messy
industrial processes
and require very high
temperatures to operate,
or aviation and shipping,
that need to invest a lot of energy
to move very large and heavy objects
over longer distances.
And hard-to-abate sectors
are one of the larger dilemmas
of international climate action,
because discussions around decarbonization
usually go roughly like this:
Well, the activist says,
“Your emissions are harming the planet
and threatening humanity.
You need to change immediately.”
And the company answers,
“I know. But if I invest
in low-carbon technologies,
and the next guy doesn’t,
we’ll be more expensive
and go out of business.
It won’t help the climate.
So first, I need a level playing field.”
Both understandable positions,
but bringing down emissions
is kind of urgent,
and a global level playing field,
in which, say,
all countries agree on one
mutual price for carbon emissions,
probably won’t materialize
anymore in my lifetime.
So this is where the discussions
usually reach a stalemate,
and where my talk would therefore end.
But would it end here,
I wouldn’t have been invited to hold it,
and I already promised you
that saving the planet
does not have to break the bank.
So let’s maybe follow
the path of our lump of coal
just a little further.
The last time we left it,
it had helped make steel,
which, climate impact notwithstanding,
is one of the key building blocks
of our economies.
It’s in many, many things,
from huge structures
to everyday household items
like refrigerators or washing machines.
We use it to build wind turbines,
which we need to save emissions
in the power sector,
and we use it to build our cars,
which is the part of the journey
I’d like us to follow next.
Now, in today’s typical car,
steel can be found
in many, many different parts.
You can assume that an average
European midsized sedan
with a 30,000 euro price tag
contains about one ton of it.
To produce one ton of steel, in Europe,
generates a bit less
than two tons of carbon emissions.
In other countries, like China,
it’s a bit more, so let’s round to two.
Now we’ve learned earlier
that moving to low-carbon steel
can increase its costs
by as much as 50 percent.
If history tells us anything,
then these costs will likely decrease
over the long run,
if humans truly put their mind,
their muscle, their money behind it.
But, for the sake of this argument,
let’s stick to these costs,
plus 50 percent.
In the case of our European midsize sedan,
this translates into …
wait for it …
200 euros.
Wait, that can’t be right.
That’s not even a percent
of the final sales value.
Well, let’s do the math.
If you spend 30,000 euros for a car,
what are you actually paying for?
Well, first of all, the car company
needs to make money.
So the first 20 percent
are for its margin, for marketing,
the whole sales organization,
overhead and so on.
The car needs to be assembled –
another 20 percent goes to production.
First, the parts of the car
have to be assembled –
40 percent go to suppliers.
In this whole process,
many things need to be moved
from A to B and back,
so more goes to transportation.
Now only 15 percent
of the price of the car
is actually for the materials in it.
Things like the battery, aluminum,
plastics, glass,
and two percent for the steel.
This means that materials
that make up 90 percent
of a car’s emission footprint
by the time that I can buy it
in the dealership
make up only 15 percent of its costs.
And it means that even [though]
the car company has to pay 50 percent more
for the steel in the car,
this only translates
into a very small markup
on my final sales price.
Now you would rightly argue
that steel isn’t the only thing
creating emissions in the car.
And that’s, of course, correct.
So we did the math for other commodities
and processes as well.
And it turns out building
a 30,000 euro car
out of exclusively
carbon-neutral materials
would only increase its price
to 30,500 euros,
only 500 euros extra.
It’s less than two percent more.
Buying that same car
in sunset red instead of black
would cost me 700 euros extra.
Fancier rims – 1,000 euros extra.
Leather seats – 2,000 euros extra.
You get the picture.
So let’s imagine:
that same discussion we had earlier,
but with a car producer in the middle,
where the activist says,
“Your emissions are harming the planet
and threatening humanity.
You need to change immediately.”
And now a car producer answers,
“I know.
But if I invest in low-carbon materials,
and the next guy doesn’t,
my car will be two percent more expensive.
Wait …
My customers might actually pay that.
And I can market all my cars
as carbon-neutral.
Steel producer,
your steel is creating
too many emissions in my car.
You have to change immediately.”
“I can make low-carbon steel for you,
but it will be more expensive.”
“How much more expensive?”
And now, we at least have a dialog.
Almost everything about the way
we currently live
currently contributes to global warming.
Most of the things we buy
come with a heavy emissions backpack
that few of us are really aware of.
What I want you to understand
is that we can eliminate
a lot of these emissions
by just spending one to two percent more
on things that we buy.
We’ve learned what it would cost
to produce a carbon-neutral car.
So how about a carbon-neutral smartphone?
Three euros extra.
That’s 13 cents a month
on a two-year plan.
A carbon-neutral pair of jeans?
60 to 70 cents extra.
Even building a house
out of carbon-neutral materials
would only increase its costs
by two to three percent,
and even less in good locations.
There are six supply chains
that are responsible for almost half
of all global emissions
that we can impact directly
through our purchasing decisions.
Those are things like food,
construction, fashion,
consumer goods, electronics
and, of course, automotive.
And just like in the car example,
materials make up only a fraction
of the final sales price in most of them.
Addressing these emissions
could be a huge step forward
for international climate action.
It would enable customer-facing companies
that can benefit from marketing
carbon-neutral products
to address a multiple
of their direct emissions footprints.
And many of these emissions
are in sectors like steel,
that can shoulder the costs on their own.
Some are in countries that don’t yet
regulate emissions aggressively enough.
Take the Chucks I’m wearing now.
Me being willing to spend
two percent more on them
could have reduced
the production emissions in China.
Now I’m well aware
that not everyone can easily afford
to spend these two percent extra,
but we have to be aware
that the economic consequences,
let alone the human ones,
of not spending this money,
would be far, far worse.
We have to move to net zero.
Fairly distributing the costs of this
is one of the many challenges
that we as a society
will need to deal with.
I’m also not saying
that this will be easy.
Understanding supply-chain emissions
is unbelievably cumbersome.
Engaging with suppliers to address them
takes a lot of effort.
What we would argue
is that, for many companies,
the chance to market
a truly carbon-neutral product
at just a one-to-two percent higher price
should be well worth this effort.
Just imagine:
you’re standing in a store,
with two brands of the same
product in front of you.
One is carbon-neutral –
it costs two percent more.
Which of these two products
would you rather buy?
Imagine you had the chance
to work for either one
of these two companies.
Who would you rather work for?
Imagine you were an investor.
On which of these two companies
would you bet your money?
Which of these two do you think
will be more successful in the long run?
To solve the climate crisis,
there’s still a lot we need to figure out.
There are many challenges
we need to overcome.
But economics
don’t have to be one of them.
Thank you.