Dr. Hitoshi Kaguchi on the role new technologies will play in decarbonising hard-to-abate sectors

Climate Action caught up with Dr. Hitoshi Kaguchi, Executive Vice President, Chief Strategy Officer at Mitsubishi Heavy Industries, to discuss the key role new technologies will play in decarbonising hard-to-abate sectors.

Dr. Kaguchi, thank you for joining us for this Climate Leaders Interview series. I wanted to talk with you today about the growth of the heavy and especially hard-to-abate industries.

We have just entered what many believe to be the decade to deliver on climate action, where do you see the opportunities for Mitsubishi Heavy Industries Group (MHI Group) to have the greatest impact with solutions across so many industries like transportation, energy, mining, and industrial sectors?

‘Solutions’ is the keyword here. Nowadays, our job at MHI Group doesn’t end with the delivery of a good product; our task is to provide entire solutions that will enable our customers, in turn, to deliver better products and services to their own customers and society as a whole.

This mindset is more critical then ever to realize a carbon neutral world through energy transition, where issues need to be addressed throughout the entire energy value chain, including the supply, transportation, storage, and use of primary energy.

Traditionally, MHI Group has many of the world’s leading hardware and control technologies. Now, providing entire solutions with integration of hardware and technologies across different businesses both inside and outside of MHI Group is key. So, to ensure our internal thinking leads to practical results, we set up a new Growth Strategy Office (GSO) earlier last year. The role of the GSO, which I lead, is to analyse major social, political and technological changes globally and then to mobilize the relevant parts of MHI to speedily address these. Along with generating synergies across businesses among the group, we will increasingly pursue technical collaboration with companies that have interesting potential technologies.

Many believe the industrial sectors, what some may call the hard-to-abate sectors, pose one of the greatest challenges to decarbonisation, since they account for almost 40% of global carbon-related emissions together with heavy transport. What are your thoughts on the future of these industries?

I agree that decarbonising hard-to-abate sectors such as steel, chemicals and cement is more difficult than cleaning up power generation itself – and it will take longer. The first and easiest step is to reduce their power or energy needs by using optimized automation and demand forecasting to improve efficiency. MHI’s "ENERGY CLOUD®", a proprietary energy solution service that is able to accurately predict and detect customers' energy usage and equipment operating status with outstanding precision, can help with that.

However, new technologies will be the key to solving this issue. Some are still being developed, but many are already in use. MHI Group, for example, has developed solutions that capture waste heat and gases from industrial processes to generate electricity or used in district heating. Separately, capturing the carbon from manufacturing processes, combining that carbon with hydrogen, and converting them into other chemical feedstocks can be significant contributors in the future to decarbonise the hard-to-abate industries. Again, the end result is greater efficiency and lower or zero emissions.

In terms of opportunities for MHI Group and, more broadly in the hard-to-abate sectors, where do you see the biggest growth technologies and business opportunities?

In hard-to-abate sectors, which consume large amounts of energy and where electrification is not practical, a preferable strategy is to switch to carbon-free fuels including hydrogen and/or recover CO2. Primetals Technologies, a metals production equipment provider in MHI Group, for example, is developing a process using hydrogen in place of coking coal as a reduction agent for iron ore. A pilot plant is being built at a production site of Austrian steelmaker voestalpine to test this new direct reduction process, and to ensure it can directly reduce different types of ores found in various parts of the world.

Along with our resources, we are also keen to look for external partnering opportunities, including investment and technical collaborations.

Our collaboration to make a hydrogen society possible span the globe – from capital investment into a green hydrogen/ammonia project developer in Australia, to a next-generation chemical and energy company enabling the production of hydrogen and carbon black from methane in the US, and to a coalition agreement to examine the feasibility of establishing a green hydrogen hub at Hamburg, Germany.

But we make sure that the same spirit of innovation is found across our other businesses as well. As a company with a history that started in shipbuilding, we continue to share technological developments in that sector, and one way is by participating in the founding of a joint R&D institute, the Maersk Mc-Kinney Mølller Center, for decarbonization of the shipping industry.

These will require new technologies rather than scaling up existing ones, as well as significant human and financial resources over an extended timescale. I believe MHI uniquely possesses the technical know-how, the people and the financial foundation to turn such efforts into reality over periods of 10-20 years or longer.

MHI Group is committed to helping make a carbon neutral world in 2050 a reality, and we believe our solutions and technologies across many sectors can help do this.

Traditionally, decarbonising sectors such as steel has been extremely slow and very expensive. MHI just released its first “green bond”. Is this one of the methods that can be adopted to recalibrate the economics and create the right investment environment to accelerate change?

Yes, I believe so and MHI’s first green bond represents our support for this market. As you may know, the first green bond was launched by the World Bank in 2008. The year 2020 has seen a record high of almost $270 billion of new issuance and by the end of this year, the outstanding volume of bonds could reach $400 billion. This rapid growth shows that investors are becoming more willing to finance environmentally-friendly projects as long as these are tied to clear and measurable environmental goals.

So, this is a new source of financing to achieve a decarbonized world and by entering the market we are adding further liquidity to it. We will use the proceeds of our bond to invest in wind, hydrogen and geothermal power systems, all of which have huge potential. And we have engaged a third-party institution that will measure our progress and report this to those investing in the bond.

Collaboration between leading countries and industry groups is critical for establishing workable policy frameworks and incentives, and to enable joint investment into low-carbon infrastructure. What would you like to see from governments, to incentivize more opportunities in these sectors?

Setting challenging overall goals is a critical first step. There has been much recent progress in this respect, with East Asian economies announcing ambitious timelines to reach net zero emissions in the past several months. This builds on already existing plans in the European Union and the United Kingdom, and the new US administration has also officially re-joined the Paris Agreement and is to execute its own ‘new green deal’.

Turning to the more granular level, we need common international standards and definitions, clear global rules and financial incentives such as carbon pricing to promote green technologies. Only then will the private sector and investors have the confidence to make the necessary investment. Of course, industry groups and companies such as MHI can contribute ideas and opinions – and we do.

Another important aspect is to bring society along. Decarbonising the world will not happen for free and it is important to be honest about this so that ordinary people understand both the costs and the benefits of the energy transition. We believe the latter far outweigh the former: for example, using decarbonized rather than traditional steel will only raise the price of a car by 1%. But few people know this. So proactive communication is vital. 

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Mitsubishi Heavy Industries Group were an Industry Partner at the Hydrogen Transition Summit that took place last week on the 23 & 25 Feb. You can now watch the sessions on demand by clicking here.