Coming Clean – Cracking the Sustainability Advantage: Part 2

What’s an Energy Trilemma? Find out in part two of this special sustainability-focused thought leadership miniseries. Ben Sawford, KBR vice president of Sustainable Energy, discusses the major challenges of the current energy crisis, possible ways of navigating it, and opportunities for accelerating change.

More episodes in this miniseries will follow in the coming months.

Transcript

IN ORBIT A KBR PODCAST

Season 2, Episode 13

Coming Clean – Cracking the Sustainability Advantage Part 2

INTRODUCTION

Lubna Salim

Hello, all you wonderful listeners. I'm Lubna, your host for this episode of In Orbit. And I welcome all of you to the podcast. We are glad you are with us. If you are new to the show, welcome. And if you're tuning in again, thank you and welcome back. I hope each one of you is doing awesome, is having a great week ahead. And to give you a little intro about this episode, this is the second one in a special sustainability-focused thought leadership miniseries with KBR's Ben Sawford. And the focus, dear listeners, of this episode is the Energy Trilemma. Yes.

So in case you are wondering what the Energy Trilemma is, I'd like to tell you. It is a term for our current energy crisis, and it refers to the balance between affordability, security and sustainability in how humanity accesses and uses energy. Yes, it is that interesting.

So without further ado, I'm going to let all of you listen to this amazing episode where interviewer Nick Easen talks to our guest, Ben Sawford, who's the vice president of Sustainable Energy at KBR. Let's listen.

TRANSITION

Nick Easen

Hi, my name is Nick Easen and I'm a journalist. And I'm on an inquiry journey with KBR. The theme of this podcast is the Energy Trilemma. And I'm joined by Ben Sawford. He's KBR's Global Vice President of Sustainable Energy. Welcome Ben, and thank you for joining me today.

Ben Sawford

Well, as always, Nick, it is an absolute pleasure to be here, and I'm really, really looking forward to this chat, especially given everything's going on geopolitically this year. And my goodness me, the energy markets, generally they are all over the place. So hopefully it'll be a really cool conversation.

Nick Easen

Oh, you're absolutely right, Ben. And firstly, let me introduce the topic. With facing kind of an energy crisis right now — and for many, it's a trilemma involving three major challenges — how do you create energy systems that are secure, affordable, yet environmentally sustainable? And it's kind of a real hard nut to crack. But nations must find a balance. And for many, there are some difficult choices between three equally undesirable outcomes — high prices, unsecured supplies or high carbon emissions. So Ben, how do businesses, the economy and politicians balance this Energy Trilemma?

Ben Sawford

I think “trilemma” is spot on. And hopefully it will just rest at three, right? But I guess, if I reflect on that question, I'm also reflecting on what a difference I feel like a year makes. And it's probably less than a year, we were focused really on levelized cost of energy from renewables, so L-O-C-E, as the jargon goes, and how really the energy transitional sustainability would become what we all hoped then would be a reality in meeting a great thing, COP26 Paris goals, et cetera.

And we are now, rightly as you say, we've got a coin, a very old-shaped coin. It's got three sides. You've got that risk of supply, the cost of supply and overall the carbon intensity of supply. And how do you balance? It's not an easy one. It's really not easy to manage for me, Nick. And my clients and our clients that we speak to — really, really hard, whether they're government, investors, developers, financiers, the M&A market — the solution is different for each one of them. And it's also really dependent on the geography, the specific economies and the geopolitical nature of what's going on.

I think also, and this is kind of high level, Nick, but the balance of all of this, all three elements — the key is it's way beyond a five-year political term. And you've really got to look at how do you make that decision? It would be very easy — and some governments you can see this — it's very easy to say, “Well, it's a political challenge. We need to keep the voters happy. Let's deal with the price. Let's deal with the cost of living.”

But that for me, I'd liken this to being a marathon runner and running a hundred-meter race and winning it. But actually, it's a pretty empty win. The opportunity, for everybody on the planet, and locally, and UK PLC, it's actually, it's the long term. And it's a long-term win, Nick. And that's what people really need to focus on. And that's how you'll balance the three elements, I believe.

Nick Easen

And that's really interesting, Ben. And what do you think the risks are if we prioritize one side of that three-shaped coin over the others? What do you think, what are the risks are, do you think?

Ben Sawford

So I'm going to start with a bit of a tree hug, which isn't like me, normally. I think the risks are clear and I personally would put this one at the top, which is climate. The climate needs addressing.

We are having this conversation in one of the hottest years on record. And today, in particular, is incredibly warm. We have had countless records broken in the UK, around Europe, this year. We've got wildfires, we've had wildfires. We've had flooding in Australia three or four years on the trough. This is a climate emergency. There is very little denying that the climate has changed.

So for me, if we prioritize something like cost of energy and jump into — Köhlers been talked about in Germany and other parts of Europe, then I think we've got a problem. But we are sat at a trinity, if you like — the energy trinity, the trilemma — and we can't ignore price or security.

Luckily, in the world that I operate in and KBR advisory are operating in, security of supplies inherent to sustainable energy and sustainable molecules … the sun shines, the wind blows, geothermal energy is pretty much boundless. And wave and hydro, well, that's not going anywhere soon. The key is going to be, “How do you capture and manage that?” And that's the clever bit. And that's the technological advancement, and that's what we really need to get our arms around.

But it's obvious right now, politically, that we're probably going to need to try and prioritize affordability over anything else. If we do that though, we will probably end up, and pardon the pun, we'll take the wind out of the “sales,” if you like, of technology and investment. And that community that's really built up a head of steam over the last two years or so.

In fact, I was just reading an article this morning that looked at the amount of lithium that has been taken into the market over the last eight years. It's gone up by 300%. So the market is there, decarbonization and energy transition is happening. So it is happening. And we really don't want to slow that down. We would run the risk, I think as UK PLC, of probably letting others on our planet take the leadership position in technology, and indeed, the overall supply chain of clean electrons and everything that goes with it.

Nick Easen

And what's interesting from what you're saying, Ben, is that we've got short-term and long-term dilemmas here, or trilemmas, and we have to think of a clever way of navigating the energy trilemma here. Do you think there is a sweet spot?

Ben Sawford

So there probably is for different parts of the world. There probably is for different investments. And economically, I think it's got to involve a continued push to invest in new technology. We've done so much over the last few years, and there has been new technology coming out. I haven't necessarily felt that we've advanced that much in the last, say six to 12 months because of everything that's going on in the world.

But it's all part of a mix. And it's a mix that countries need to be in control of. It's a mix that does involve new technologies that we can actually export internationally. So it's not just about the molecules, the energy and the electrons. It's also about the technology that we can send around the world. And it's not also about generating just energy on our doorstep, but actually having some tentacle, if you like, into the global world. That is the long term.

And I think short term, though, there is a solution. There is a kind of sweet spot solution here. And I think if we start looking at the subsidies that are involved — move a few of these around — it's often suggested that renewables and clean fuel attract the vast majority of subsidies. And the only way they work is because governments chuck subsidies at them.

Actually, there is a vast amount of subsidies that go into the fossil fuel market, in fact, far more than renewables, to the tune I believe globally, and this is a staggering figure, of around 11 million U.S. dollars a minute. Now, if, if those subsidies were moved around the balance sheet, just in part, forget windfall taxes — I think there's possibly an answer here.

To move some of those subsidies around you would accelerate renewables. Energy majors would not suffer. They're still investing in renewables. After all, it's part of their plans. All you're doing really is moving some of those renewables around their balance sheet. And it's interesting, because typically the renewable part of their businesses tend to be less profitable because the power purchase agreements that they've got aren't as strong as fossil fuel offtakes.

And so, from a corporate tax perspective, it might actually be quite efficient. I just feel that there's something hidden there that could actually help. No windfall tax, just move some of the subsidies around.

Nick Easen

That's really interesting, Ben. And you talked about subsidies and some of the solutions are well published and well known. Do you think we need some new thinking on this? And to shift the dial with some new thinking on this? And what do you think that might be?

Ben Sawford

Well, look, we are living through the largest change in humanity ever, right? This is massive. It's an energy transition. The last one we probably could say, there was the LNG transition. Before that you had coal, and then gas, and the industrial revolution. This is massive. And the shift in power and geopolitics is one that's never been seen before.

Now, I believe that there are real blind spots going down these different alleys and unintended consequences as part of the energy transition. So new thinking is needed. And that's really to ensure that we stay ahead of the game and we don't fall into the trap of the last energy transition, where dominance of the product — oil and gas, including the supply chain actually — was controlled by very few and still is controlled by very few for so many.

And this is fundamental, I believe, Nick. That the long term, and it's kind of like, “How do you deal with this trilemma?” and it isn't as simple as just looking at your local situation. It's got to be a global solution, but owned by more than just a few small parties. So it's about geopolitical control of resources that are needed to build the technology that's responsible for the conversion of energy through the value chain to the final use.

So what am I saying here — that it's not just about the molecules, but it's actually the vast majority of raw materials that are associated with energy transition, actually with special rare earth elements and minerals. They come from typically underdeveloped locations and nations, generally areas of extreme poverty. There're also, incidentally, on the highest level of corruption index.

So you could say they're actually quite vulnerable on those three grounds. But also, they happen to be locations where the highest level of ecological damage could be done and really impact our world. So it's like a perfect storm. If we don't extract correctly and manage the process correctly, we end up with probably some nations being adopted by countries or taken down a channel which doesn't necessarily lead to global energy transition.

And interestingly, most of these materials, Nick, most of them, over 90%, actually are shipped to China, where they are processed. So China operates the majority of the processing from these countries, where actually they're probably hugely vulnerable. So I think, again, globally we have to look at how do we manage the extraction of those materials, because they are critical, absolutely critical to our energy transition, and of course, security of supply, and of course, cost of supply.

Nick Easen

That's great, Ben. And you've kind of highlighted some of the major challenges and issues. What do you think we need to do now to start addressing some of these challenges and issues? What do you think, Ben?

Ben Sawford

So it's about horizon scanning. It's looking into the future, it's looking outside of perhaps a kind of myopic view, if you like. And what do I mean? Well, I'm concerned, I'm really concerned that as a society — because we are in this bubble at the moment of, crikey … “What are we going to do with our energy crisis?” As a society, we could just fall back to what we know and love. Well, it's coal, it's oil, it's easy to do. And we can pull it out the ground across the UK. So there you go.

We're a country, though — and we're in Europe actually — great thinkers, huge technological advancement. And we can make a difference. But we probably need a platform to really make that work. It's kind of global leadership. This is going to be something that brings our technologies together so that we're seeing beyond just the obvious, just hydrogen. But actually, what can you convert hydrogen into so you can move it around the world a bit quicker, or a bit safer, and store it for longer without too much energy?

So we probably, with that, to make that actually happen, we probably need some fiscal instruments in our toolbox. Tax management, maybe in the UK development zones, with zero tax for maybe energy parks, beneficial power purchase agreements, PPAs that I mentioned earlier, that benefit zero carbon energy, as opposed to ones that perhaps don't encourage you to generate solar electrons and put them in the grid on a sunny day. So that's one area.

I guess another aspect that I'm really keen on is how energy, when it's verifiable zero carbon, how it's traded. At the moment, it's pretty opaque, really, as to where the energy is coming from that goes into the market. And energy is typically — well, gas and an oil — it's typically traded in petrodollars. So it's linked to the U.S. dollar. If you had a different platform that is specifically around clean energy, it would allow funds, investors, developers and, of course, governments to invest and trade green electron-based energy and the molecules and the derivatives that come from them. It would be a verifiable system. Governable. It would be a platform in which you could trade with some confidence. It would also, Nick, it would decouple the green molecules from the carbon-intense energy. And I think that in itself would probably drive a slightly different investment curve into different energy markets.

Nick Easen

I like the idea of petrodollars, and that kind of takes the argument or the initiatives forward. Do you think there are other real opportunities going forwards? And how we can sort of really drill down and tackle the energy trilemma? What do you think, Ben?

Ben Sawford

Aside from gaining security of supply, I think countries need to balance their desire for, obviously, the immediate cheaper power over the other two aspects. And we've probably got the opportunity here to maybe take a leadership role a hundred plus years or so for advancing technology and deploying that technology, and as a UK, having real influence over that global supply chain — what's required to master the trilemma, your trilemma as you've outlined at the top of this session.

And one or two immediate opportunities that I see, they're in the sustainable aviation fuel, known as SAF. And that's really taking products from zero-carbon energy sources and taking that really to an affordable and locally grown fuel that we can use for flight. I think that's an immediate opportunity and certainly one that we as KBR Advisory, having discussions in KBR, generally, all around the world.

Another immediate one, which is really going to tackle the trilemma is green ammonia. Ammonia is a powerful energy vector. It packs a punch. And I think the real opportunity here is how do you crack ammonia back into hydrogen? It's made of nitrogen, hydrogen — cracking it back into hydrogen so you can move it around the world and deliver it as hydrogen molecules. Those two things over the next 12 to 24 months — I believe they're going to be key really to moving the needle on the trilemma.

Nick Easen

That's interesting, Ben. We've talked about technicalities and technology innovation and some areas where we could see change. Are there economies and businesses, nation states, investors out there making real progress? And are they alleviating the issues around the trilemma? And what can we learn from them, do you think?

Ben Sawford

So Nick, we can learn a lot from different parts of the world. It's a big old place, the world, as we both know. But they're all slightly different and the way they sit on the trilemma is quite different. So example — South Africa last week, where I spent a week working with a couple of energy majors, NOCs in the government, on the decarbonization strategy. They happen to be one of the biggest, the largest CO2 emitters on the planet. So kind of important.

We've been looking at energy production opportunities on their western seaboard, so the Atlantic Coast, how you integrate clean energy into what is effectively one of the poorest developed networks for a large country. How do you decarbonize transportation? Gradually, sustainably, as well, we'll introduce green molecules into what is effectively a really hungry set of chemical processes.

Now, looking at all of that as a strategy, while — and this is really brings it starkly into vision — the country's experiencing rolling blackouts due to energy scarcity … so every four hours, five hours the power's off. And it's their winter at the moment, so it's already quite dark and all the lights go off. It's a really hard one to work through, Nick, especially when you start looking at the amount of investment that's required.

But, and this is crucially where our role comes in, the returns on that investment, the global export markets from what is a massively, massively rich environment from natural resources, is huge. Coming from the Far East, coming from Northwest Europe, the opportunity is absolutely clear. So for something like South Africa, it's happening. Early stages, but I believe that the considered approach that a country like South Africa is taking is really, really critical. They're not going to walk down any blind alleys and the unintended consequences will not be there.

There are others. We could talk Trinidad, Singapore, Australia and, of course, the UK. They're all different though. They're different demands. Singapore is a great example of one that's really benefiting from its government-to-government relationships, it's trading position in energy derivatives. And actually, it's a data-hungry location. So they have many, many data centers using vast amount of energy.

And so, with a really loud voice, probably the loudest after Japan, they are wandering around the planet, pulling together supply chains for clean energy projects to provide them with energy that they can then turn into other things, whether it be other forms of energy, or chemicals, or even energy for data. So digitalized energy transition, if you like. So very different. And every part of the world has a completely different way of approaching this, Nick.

Nick Easen

That's great, Ben. And if we get the trilemma right, what do you think the future looks like? Can you … what are those sunny uplands look like if we get it right? How can we go faster and be bolder? With climate change sort of ratcheting up and so forth, we do need to go faster and be bolder. So how do you think we can do that?

Ben Sawford

Independence. Independent energy mix. And it's not all about renewables. It's a mix of — it's zero carbon, zero to low carbon. It's a mix of nuclear, little bit of gas, reducing the gas as we go through, and lots of renewables to power to molecules, and, crucially, a significant storage system.

Some people look at this and go, “Yeah, but this is going to take forever.” I just reflect on the fact that we, actually, in the UK, we've only actually had a gas grid, a proper gas grid, and an electric grid — it's like 40 odd years. Prior to that, you had regional gas authorities, and gas was actually a byproduct of coal processing. So the people forget that. They believe we probably had a grid for way over a hundred years. And we really haven't.

So we need bold thinking — bold thinking that we had when we created gas from the North Sea. It can happen, Nick. We just need to provide the technology and the bold thinking to bring this stuff together really quickly. And again, I've said this before, but Tesla 10 years ago, it wasn't even a proper manufacturer. It's now the biggest car manufacturer in North America. You put this thinking together and you absolutely can do it, without forgetting that we need heritage oil and gas just to put us through the next 10, 15, 20 years.

Nick Easen

We're coming to the end of the podcast. And you said some amazing things and a lot of food for thought, Ben. What's the one thing, perhaps, from our conversation today that could be done to really accelerate, really take on this challenge and solve some of the issues with the trilemma?

Ben Sawford

I've obviously come to this session with a few ideas that I wanted to talk to you about. And for me, the boldest thing that I think globally we could do, and it is a bold old thing to do, is the currency. It's the currency in which new energy and its derivatives are traded in. It answers things like, “How much carbon is in something?” It answers carbon trading. But it also moves us away from a single currency, a single geopolitical driver for how energy is traded.

So you move away from petrodollars. It moves away from a single country or countries having dominance of that currency to a truly open, globally traded electronic currency. It's not pegged then to oil and gas, but it's transparent. It's also visibly and provably carbon neutral or negative — negative ideally— and provides a surety to investment houses, investment communities, trading governments, that the energy is zero carbon.

It also avoids any connection with the instability of what we are seeing right now, of geopolitically charged fossil fuel markets. They are not stable. It is a bold step, Nick. Massive. But I feel that if it's got right, you could probably do a lot more for humanity than just provide an answer to your trilemma.

Nick Easen

That's a really interesting thought, Ben. And if you think about it, also rewards all energy payers for the right behavior, and for the direction we want to go down. So that's a very good point to end on, Ben, and a lot of food for thought there. And thanks, Ben, for joining us. And I'm afraid we've come to the end of the podcast, but lots of things to think about. And I look forward to the next time, Ben, and thank you so much for your time this afternoon.

Ben Sawford

Thanks, Nick. It's been an absolute pleasure.

TRANSITION

Lubna Salim

Wow. Now wasn't that a super cool episode, guys, and educational too? I'm curious to know what you felt about it because I really enjoyed this one. I think there was a lot of takeaways from it. And in fact, Ben's team has co-authored a paper, which is called “Solving the Energy Trilemma,” and that paper will be available at kbr.com. So you can try to find it by finding KBR on our social media. And you can stay tuned for more episodes in the series that are going to be aired in the coming months.

But meanwhile, do let us know what you think about this miniseries. How are you liking it? Is there any other topic that you would like us to touch upon? And we would be very happy to do so. And I'm very, very happy to have had the opportunity to listen to Ben enlighten us on this energy trilemma, which is something amazing and new for me to learn as well.

Other than that, guys, if you're interested in watching videos about our technologies, they are also available on KBR's LinkedIn page. All you need to do is just go to the homepage, look for the videos on top, just go and all the videos will be there. So we have our leaders talking about everything from energy transition, to decarbonization, to blue ammonia, to our chemicals, and how each of these technologies is a sustainable technology. So please go ahead, listen to our podcast, watch our videos, tune into our webinars, and please, please stay connected because we have amazingly exciting stuff coming up at all times at KBR.

So thank you so much for listening up, and I hope you enjoyed this episode as much as me. So until next time, stay safe and stay healthy and very, very sustainable. Bye-bye.