How can COOs get ahead of the climate technology curve? Build a coalition.

As technologies reach a higher level of production, their costs become more competitive. Left to itself, however, this process can take decades. By following the lead of other high-impact coalitions, chief operating officers (COOs) can position their organizations for early-mover advantage by being a part of the process to accelerate the maturation of the climate tech market.

More on that in a moment. First, let’s review the conditions that make climate tech ripe for collaborative industry action.

A drawn-out learning curve

The green premium for carbon-neutral technologies can be significant. One example is low-emission steel, which costs more than $300 extra per ton.¹ Then there are jet biofuels, which cost at least 140% more than traditional fuel.²

Economies of scale should bring the cost of climate tech down. This is fairly predictable thanks to Wright’s Law, which observes that the cost to produce an item falls by a constant percentage every time the production volume doubles. The reason is that the more times organizations produce something, the better they become at it. The farther they get along this learning curve, the cheaper the item becomes.

Wright’s Law equally applies to products that come with a green premium. The price of solar panels, for instance, has fallen more than 99%.³ However, this decline—from $106 to $0.38 per watt—took more than 40 years.⁴ The cost of lithium-ion battery packs (the kind that power electric vehicles, or EVs) is coming down faster, from $1,355 per kilowatt-hour in 2008 to around $153 in 2022.⁵ But that’s still 14 years, and meanwhile EVs have yet to reach even 1% of all cars on US roads.⁶

Taking risk out of adoption

As the EV market shows us, cost isn’t the only barrier to adoption. Although more consumers are interested in electric vehicles, auto dealers in the United States are reportedly having a hard time moving their stock, partly because of concerns about the lack of a charging infrastructure to support EVs.⁷ The challenge of an immature ecosystem is only exacerbated when it comes to industrial supply chains, given the significant investments and long-life cycles involved. These value chain and technological uncertainties result in long maturity times and, consequently, persistently high costs for emerging climate tech.

Intervention is required if this impasse is to break anytime soon. Climate scientists say global greenhouse gas emissions will need to reach net-zero by 2050 in order to limit global warming to 1.5°C.⁸ That means we don’t have the luxury of waiting decades for the climate tech learning curve to reach critical mass on its own. Deloitte’s GreenSpace Tech effort aims to accelerate implementations by combining data and information with relationships across the vast climate tech ecosystem, using advanced technology and artificial intelligence to help clarify strategy.

Although organizations can support the development of climate tech individually, coalitions can speed up the process by laying the groundwork for mass-market adoption. They accomplish this through advance purchases from climate tech suppliers, funding the build-out of supporting infrastructure, and other activities. A number of such coalitions have formed in the past few years. For example:

• First Movers Coalition, of which Deloitte is a member, invests in innovative green technologies so they become available for massive scale-up by 2030.
• Sustainable Aviation Buyers Alliance (SABA) brings corporates together to decarbonize air travel through investments in high-integrity sustainable aviation fuel, or (SAF).

While the number of buy-side coalitions is growing, supply-side collaboration is much more complicated. For one thing, there’s much less standardization on the supply side. There are a few standards of jet fuel that SAF producers need to meet even as production pathways remain quite varied. Nowhere is this more evident than in the Cambrian explosion of atmospheric carbon capture techniques, which range from direct air techniques to capturing carbon from biogenic sources and from the oceans.

There are still ways in which supply-side organizations can benefit from coalitions. A number of organizations are involved with various activities on the supply side. Examples include industry organizations which give visibility to carbon capture suppliers, such as in the trucking industry.

Whether on the demand or the supply side, by participating in a coalition, a COO can help their organization shape developing standards to their business’s advantage, capture important supply earlier than the competition, and boost its credentials on climate action.

A market intervention that works

Industry or public–private coalitions aren’t a new idea. Many form to accomplish a specific goal—think standards development or policy reform—then disband once the goal is achieved. Others expand their scope over time to respond to evolving challenges. Either way, they can make large-scale investments less risky for both buyers and suppliers, jump-starting the ecosystem necessary for mass markets to develop.

So how can COOs get involved with building a coalition? We’ll get into that in our next blog. In the meantime, if you’d like to continue the conversation, please get in touch.

Endnote

¹Julia Bolotova and Ross Yeo, “Green premium for flat steel stable in first European assessment,” Fastmarkets, June 12, 2023.
²Bill Gates, “The one thing I hope people take away from my climate book,” GatesNotes, February 14, 2021.
³Max Roser, “Learning curves: What does it mean for a technology to follow Wright’s Law?,” Our World in Data, April 18, 2023.
⁴Ibid. 
⁵US Department of Energy Office of Energy Efficiency & Renewable Energy (EERE), “FOTW #1272, January 9, 2023: Electric vehicle battery pack costs in 2022 are nearly 90% lower than in 2008, according to DOE estimates,” January 9, 2023.
⁶Feilding Cage, “The long road to electric cars,” Reuters, February 7, 2022.
⁷Joann Muller, “Unsold electric cars are piling up on dealer lots,” Axios, July 10, 2023.
⁸“For a livable climate: Net-zero commitments must be backed by credible action,” United Nations.