Climate technology: a challenge and opportunity

By Kim Sung-woo

On March 20, 2023, 195 member states of the Intergovernmental Panel on Climate Change (IPCC), the United Nations body for assessing the science related to climate change, unanimously adopted the Sixth Assessment Report on the climate crisis following the panel's 58th session in Switzerland. According to the report, it is "more likely than not" that the Earth's temperature will rise by more than 1.5 degrees Celsius by 2040, which goes against the target set at the Paris Climate Accords.

To stay within the 1.5 degrees range, we must reduce greenhouse gas (GHG) emissions by 43 percent, from the 2019 level, by 2030 so that we can achieve net zero emissions in early 2050. Advanced technology to achieve these tough targets is increasingly becoming important ― carbon capture and storage (CCS), electrification, increase in energy efficiency and renewable energy conversion are a few prime examples of promising technological solutions. The increasing demand for GHG control and climate crisis solutions means that there is a huge growth opportunity ahead of us.

At last year's World Knowledge Forum (a platform that aims to promote balanced global growth and prosperity via knowledge-sharing), panels including leadership of strategy consulting firms, presented significant predictions about climate technology. Since the world has to spend $10 trillion every year to achieve carbon neutrality, there is a big opportunity from now until 2030. The race to advanced technology will lead to technological innovation worldwide and even those technologies that currently lack economic feasibility will be developed at a rapid pace with huge fiscal support from the government as well as the investment capital from the private sector, according to the panel.

In fact, the size of funds collected in the area of climate technologies proves this trend. The funds raised by U.S. climate startups in 2022 were about $20 billion, tripling in two years from $7 billion in 2020. The U.S. is not an outlier. Investments into climate technology worldwide, which covers various technologies to address climate change such as clean energy, carbon emission reduction, and resource circulation, nearly doubled year-on-year to $70.1 billion in 2022.

In the wake of the Ukraine-Russia war and growing concerns over the unsettled global economy, the sharp increase in climate technology investment is a very clear signal. The signal is becoming stronger as governments all around the world start to tighten carbon-related regulations and companies begin to commit to carbon neutrality followed by the implementation of carbon reductions. This is why some in the venture capital industry believe that climate technology is very resilient and one of the few industrial sectors with promising prospects despite the recent economic downturn.

Data on corporate short-term investment plans also point to the rise of climate technology. According to a survey of 584 executives of investment firms and energy companies in 29 countries conducted by the global law firm White & Case from April to May 2022, 42 percent of the respondents answered that they would invest in decarbon/low carbon technology, ranking first, when asked which field they would invest in over the next 18 months.

Analysis of the International Energy Agency, a global think tank in this field, is also on the same page. The think tank noted that 50 percent of the technologies needed to achieve global carbon neutrality by 2050 have not been released in the market or have no market competitiveness yet. This means that half of climate technologies such as renewable energy, electrification, energy efficiency, hydrogen and carbon removal have not been brought to the market with sufficient economic viability, indicating ample opportunity to be the first in the market.

Countries already started the race to advanced climate technology. In September, the U.S. government announced a roadmap to connect industrial decarbonization to technology development, and in the process of its implementation, the U.S. government subsidizes will help lower technology costs through the Inflation Reduction Act (IRA). For example, in the case of green hydrogen, which costs $5 per kg of production, the actual production cost will go down to $2 as $3 will be supported under the IRA.

Utilizing economies of scale as its competitive edge, China is increasing its influence over the global market by producing about 80 percent of electric vehicle batteries and supplying 97 percent of solar panel materials worldwide. Japan expects an increase in Japanese companies' value in stock market share by more than 40 percent, thanks to the rise in the value of climate technology patents held by Japanese companies such as those in the areas of automobiles, energy and chemicals.

Korea is facing a challenge. While the country has managed to make remarkable growth out of its close-to-zero natural resources (especially energy resources) in its environment, now as one of the major energy-consuming industrial countries, Korea is faced with the daunting task of carbon-neutralizing its energy-consuming facilities and infrastructures, which are of significant size.

As a result, Korea is in dire need of cutting-edge technologies to cope with climate change, more than any other country, given the high ratio of energy assets even in a more energy consuming-economic structure. Thus, achieving a competitive edge in the green technology market, which is worth $1.3 trillion, is not only a millennial opportunity for Korea but is a make-or-break challenge for the entire country.

Kim Sung-woo is head of Environment & Energy Research Institute at Kim & Chang.