EUDR, Traceability & Data Transparency - A Webinar Wrap-Up

Earlier this year, we attended a series of online discussions on the EUDR, traceability and reconciling public and private data to enhance transparency. Here’s a quick wrap up on key points from each session:

Tackling Traceability: Exploring Opportunities and Challenges under the European Deforestation Regulation (EUDR)

On June 20th, Competere.eu, an EU policy institute for sustainable development, hosted a roundtable session to discuss the most complex requirement in the EUDR - ensuring traceability throughout the entire supply chain.

• Pietro Paganini, President of Competere, moderated the discussion between:

• Jose Angel Olivero, Sales Director of LIPSA (a leading supplier in the market and the largest vegetable oil refinery in southern Europe

• Luis Francisco Dangond-Lacouture, Director-General Manager of Oilsum Olequimica de Colombia

• Louis Roy, CEO & President of OPTEL Group

Key points:

Jose Angel highlighted that importers will have to trace the supply chain of their vegetable oil imports prior to the arrival of shipments, emphasizing that this is a big change for local players. He expressed his doubts on whether smallholders will be able to provide GPS coordinates, or polygons, stating that blockchain technology will be needed to trace the origins of raw materials. Jose stressed that compliance is still mainly on the onus of producers. He recommended that their costs should be transferred to the European export markets.

Luis Francisco emphasized that track and trace has to be accessible, comprehensible and manageable, but most importantly, meaningful to smallholders. He underlined the importance of reliable, secure and accessible technology that would allow the consensual transfer of information without contravening national and international data privacy laws. He stated the initial costs should be a shared responsibility along the value chain.

Louis Roy believes the technology is mature, but the timeframe to execute changes is challenging. He urged industry players to clean their supply chains from the very first transaction, which will be made easier through mobile phone verifications. This connectivity will accelerate the digitalization of smallholders, improving their financing while reducing their carbon footprints. He recommended that smallholders join corporations or federations to help with consolidation and enhance ease of traceability.

Politics, Plots, and Smallholders: The Palm Oil Industry and The EU Deforestation Regulation

On June 21st, MapHubs hosted a webinar to tackle the implementation of the EUDR, focusing on the mapping of smallholders, interpretations of the regulation and clarifying the meaning of the term, “plot”.

List of panelists:

• Perrine Fournier, Trade and Forest Campaigner at Fern

• Tobias Zobel, Director of Global Procurement Lauric Oils & Primary Oleochemicals at BASF Mansuetus Darto, National Secretariat General of SPKS

• Leo Bottril, Founder and CEO of MapHubs

Key points:

On the biggest challenges of the EUDR, Perrine emphasized that the regulation should not become a political tool while Darto highlighted the difficulties in obtaining data from smallholders and the importance of including farmers in talks with the EU. Tobias outlined a lack of clarity in the regulation’s implementation, stating that an open, unique and standardized approach is needed. Leo identified that a universal mill list is vital for effective tracking and tracing.

On specific actions that have been taken to prepare for the EUDR, Perrinne spoke about Fern’s efforts in reminding EU member states of their obligations and gathering inputs from various countries on how they intend to use the regulation. Darto described how SPKS is collecting smallholder data on a massive scale and engaging with companies to develop EUDR implementation plans. He urged more support from the EU in training farmers and enhancing monitoring efforts, along with fostering partnerships between companies, farmers, indigenous people & local communities. As a direct importer, Tobias explained that BASF will be focusing on due diligence obligations and ensuring transparency in output production. He believes a unified plot approach is the best way to go.

The panelists agreed that the EU would interpret the term ‘plot’ by reference to polygons around existing estates, and not according to concessions. They also hope the EU authorities will provide more clarity in the near future to help with compliance mechanisms.

Data Wars: Can We Unlock the Power of Private Data for Public Good?

On July 19th, the Forest Data Partnership organized a webinar to discuss the use of private and public data to address key challenges, while exploring how to reconcile the two in order to create greater transparency and trust.

List of panelists:

• Andrew Wilcox, Senior Manager, Sustainable Sourcing & Digital Programs, Unilever

• Leo Bottrill, Founder and CEO, MapHubs

• Rob McWilliam, Director of Technical Services, Earthworm Foundation

• Jackson Harris, Senior Geospatial Analyst, Mighty Earth

• Tara O’Shea, Senior Director, Forests & Land Use, Planet

• Fred Stolle, Deputy Director, Forests, WRI

• Crystal Davis, Global Director, Food, Land & Water Program, WRI (Moderator)

Key points:

Jackson highlighted that while data transparency has been enhanced in the past decade, more must be done, citing the need for information on concession boundaries of palm oil plantations. However, he emphasized that certain datasets must be kept private for security reasons, especially in relation to smallholder land rights and the risk of eviction. Leo echoed his sentiments, also stating the importance of establishing a universal plot list. He added that the Malaysian and Indonesian governments need to make industrial plot information public; Malaysia specifically is seeing increased deforestation due to this lack of open data. Andrew hopes that we learn from experiences with tree maps and deforestation alerts, and apply these to the question of data transparency.

The discussion then moved to the respective roles of public and private data, their conflation and funding. Tara spoke about the importance of sustainable business models in creating commercial datasets and how companies must be innovative with licensing models for different user groups and sectors. These models would democratize access and sustain operations of commercial data providers like Planet. Agreeing with this point, Andrew added that a natural economy for this data must be seen. It was also highlighted that public data is not ‘free’, largely funded by taxpayers and donors.

The panelists commented that these market imperfections should never be the reason behind inaction, with Jackson emphasizing that the common goal is to end deforestation.

BFM - Missed Opportunity to Act on Transboundary Haze

On November 17th, Natural Resources, Environment, and Climate Change Minister Nik Nazmi Nik Ahmad replied in Parliament that the government had decided not to proceed with the Transboundary Haze Act, aimed at punishing Malaysian companies or individuals whose conduct had contributed to haze in the country, regardless of where the burning occurred. This decision earned the ire of environmental watchdogs and activists.

However, a day later, the ministry announced that it was "not closing the door" on the legislation, and working to gather feedback on measures to address the issue.

Segi Enam Advisors’ Principal, Khor Yu Leng, was invited to BFM to give her thoughts on the feasibility of the law and any other available options for recourse. She was also asked to share her views on the issue of undocumented migrant workers in Malaysia, the contributing loopholes and potential solutions.

Catch the full interview: Missed Opportunity to Act on Transboundary Haze.

Green Hydrogen: Part 3 - Barriers in Green Hydrogen Production & the Malaysian Perspective

In case you missed the previous article, we looked into the driving factors of green hydrogen and why various stakeholders are enthusiastic about its role in expediting a climate neutral economy. However, green hydrogen is not without its shortcomings.

Let’s dive into the drawbacks associated with the production and utilization of green hydrogen (as with the previous article, this is a non-exhaustive list).

What is standing in our way of a green hydrogen future?

1. High production costs and sustainability concerns. Previously, we discussed the decreasing costs of green hydrogen production. However, are they truly competitive and wholly sustainable? 

As of 2021, it was reported that green hydrogen cost approximately USD5 per kilogram, whereas grey hydrogen amounted to USD1.50/kg (S&P Global, 2021). This vast difference has deterred many companies and industry players from investing in green hydrogen technology. Many choose to adopt blue hydrogen instead. Before the Russia-Ukraine war, S&P Global reported that blue hydrogen cost between USD1.69/kg and USD2.55/kg.

When considering the production costs of green hydrogen, the capital expenditure (CAPEX) must be taken into account. Substantial investments and subsidies are required for electrolysers and the relevant technologies to improve and maintain their efficiency. 

At present, Proton Exchange Membrane (PEM) electrolysers are the most viable option as they are flexible, efficient and tend to have a smaller carbon footprint (IRENA, 2018). These electrolysers can be connected to a grid or an off-grid variable renewable energy (VRE) plant. If it is connected to a grid, the load factor is greater and as a result, the investment costs are spread across larger units of hydrogen. However, despite the lower costs, IRENA observed that hydrogen produced from grid-connected electrolysers (that utilize fossil fuels) will not be completely renewable. 

If electrolysers are connected to off-grid, VRE plants, the load factor decreases as it would depend upon the availability of renewable energy sources (ie: sunlight and wind). As a result, investment costs are spread across fewer units of hydrogen. The upside of this is that hydrogen produced will be completely renewable, green hydrogen (IRENA, 2018). 

Additionally, the cost of producing renewable energy is still relatively high in comparison to its alternatives, thus driving up the levelized cost of electricity (LCOE)* from VRE plants. As such, the ideal equation for green hydrogen production is a combination of low LCOE and a high capacity factor. 

*LCOE is an economic metric used to compare the lifetime costs of generating electricity across various generation technologies (S. Raikar & S. Adamson, 2020).

Spolight: The US Context

In the United States, the Inflation Reduction Act (IRA) introduced a 45V Hydrogen Production Tax Credit, which awards up to USD3 per kg of hydrogen produced to projects with a lifecycle greenhouse gas emissions intensity of less than 0.45kg per kilogram of hydrogen (kg CO2e/kg H2) (CSIS, 2023). The US Treasury Department is currently working out how emissions will be calculated. 

A critical factor under review is the extent to which grid power can be used to run electrolysers when renewable energy sources are unavailable (Hydrogen Insight, 2023). Developers argue that the use of grid power will allow around-the-clock operations, yielding lower hydrogen costs. The use of this electricity will be later compensated by sending renewable energy back to the network when there is excess supply. However, Hydrogen Insight has reported that a coalition of scientists, environmental campaigners and energy companies are against this suggestion as it could double net emissions when compared to grey hydrogen.

The coalition is calling for the Treasury Department to introduce hourly matching and additionality, requiring plants to prove that electrolysers have sourced their electricity from a qualified renewables facility. Analysts and developers argue that hourly-matching would significantly increase costs as operations of electrolysers are limited to the availability of renewable energy sources. 

They are instead encouraging the Treasury Department to adopt annual-matching as operations of electrolysers would not depend solely on renewable energy sources. In Arizona, electrolyser plants that operate in this manner require grid electricity 19-35% of the time. It was found that these plants do in fact lead to greater emissions from the Arizona grid (Hydrogen Insight, 2023). It appears that a middle ground has to be met between the economies of green hydrogen and a truly sustainable yield from production. 

*To learn more about the 45V Hydrogen Production Tax Credit, check out this podcast episode by The Hydrogen Podcast*

2. Water worries. Where’s the water coming from? This is a central, but lesser discussed, issue surrounding the production of green hydrogen. It has been estimated that green hydrogen production will reach 530 Mt/year by 2050 (COAG Energy Council, 2019). This would require approximately 7950 GL of water, taking into account demineralization and water cooling requirements for electrolysis (Woods et. al., 2022). This amount will gradually increase as the green hydrogen economy fully matures.

Although water needs for agricultural and industrial sectors are much greater, the amount of water required for the production of green hydrogen is nevertheless a cause for concern. Water scarcity is already a problem across regions, especially due to extended droughts, decreased rainfall and other related impacts of climate change.

As such, relevant stakeholders must develop new frameworks and strategies to ensure security and sustainability within the energy-water nexus.

At present, there are a few sources of water in the production of green hydrogen - freshwater, seawater, brackish water and wastewater. The utilization of freshwater has the lowest treatment costs but it is not the preferred option as it diverts water away from more important economic sectors (GHD, 2021). Desalination plants for seawater or brackish water are also not a viable solution to the water issue for green hydrogen production. A large-scale desalination plant would require increased investments, but it would still not yield a sufficient quantity of water to produce 530 Mt of green hydrogen by 2050 (it is estimated that only 0.4% of water required can be sourced from desalination plants) (COAG Energy Council, 2019).

Use of desalination plants for green hydrogen production could also interfere with initial objectives of improving overall water resilience in the region. For instance, in Western and Southern Australia, desalination plants are increasingly used as a source for drinking water (Woods et. al., 2022). Additionally, overall costs would increase as treatment measures would be required to mitigate the environmental impacts of desalination (e.g. brine management) (Panagopoulos et. al., 2019). The use of seawater would also increase water extraction up to 5 times, adversely affecting ocean diversity (E. Jones, 2019). Due to these many disadvantages, we can safely conclude that desalination plants are not the optimal solution to water worries surrounding green hydrogen production.

It has been argued that utilizing tertiary effluents from wastewater may be the best alternative source. Producing hydrogen from these recycled effluents would prevent wastage and ensure climate independency. In Australia, 1720 GL of tertiary effluents are returned to the environment each year. Utilizing this water would yield a yearly production of 0.1 Gt of green hydrogen, with none of the additional costs that come with desalination plants (Woods et. al., 2022).

3. Infrastructure Deficiencies. Over the years, as green hydrogen production expands to meet growing demand, the limitations posed by infrastructural deficiencies have become evident. Storage and transportation facilities are the main barriers in the transmission of green hydrogen. Let’s first take a look at the issues surrounding transportation.

Hydrogen is mostly transported through pipelines, much the same as natural gas. Ships are used for longer distances. At present, about 2,600km of hydrogen pipelines are operating in the United States and approximately 2,000km in Europe (IEA, 2022). This is extremely limiting when compared to the 1.2 million km of natural gas pipelines installed worldwide. You’re probably wondering - why not just use the existing natural gas pipelines to transport hydrogen? It is unfortunately not that simple. 

Hydrogen’s chemical makeup is different to that of natural gas’. Its density and boiling points are much lower. For instance, hydrogen has a boiling point of -253 degrees Celsius (°C), compared with -162 °C for natural gas (IEA, 2022). Due to these difficulties, hydrogen is usually produced close to industrial areas, where it is most used. 

It is possible to reconfigure and repurpose natural gas pipelines to suit hydrogen transportation but this will require significant readaptation and more research into the technical challenges that may arise, especially for offshore pipelines. At present, there is very limited practical experience in repurposing natural gas pipelines for hydrogen transportation. Thus far, only the Netherlands has successfully reconfigured the 12-km Yara-Dow pipeline in the south (ReThink Research, 2022).

However, with more research and advancements, the adaptation of pipelines would be much more expedient and cost-effective than constructing new hydrogen networks (IEA, 2022).

Transportation by ship for longer distances requires hydrogen to be converted to ammonia or liquified hydrogen (X. Li et. al, 2023). While the technologies for liquefaction are readily available, it is an energy intensive process. These plants have an average electricity consumption of approximately 10 kilowatts per kg, which is approximately 30% of the hydrogen energy content (IEA, 2022). This is a significant loss and would result in increased costs. There is also the question of whether these plants will be powered by renewable energy. 

Ammonia storage and transportation is readily available, with meticulous safety measures in place. However, the conversion of ammonia back to hydrogen, also known as ammonia cracking, involves energy losses of up to 30% and rarely includes hydrogen purification (IEA, 2022).

Source: IEA, 2022

Difficulties with storage also act as hindrances to the commercialization of green hydrogen. Facilities for storage are needed to meet fluctuations in supply and to maintain energy security in the event of disruptions (IEA, 2022). 

Natural gas storage can also be repurposed for hydrogen use. Salt caverns, aquifers and depleted natural gas fields are among the types of storage facilities which can be used for green hydrogen. For instance, hydrogen is stored in salt caverns along the Gulf Coast in Texas (Journal of Petroleum Technology, 2023). However, the announcement of these storage projects have been slow and they would require considerable lead times to be ready for use due to limited technological advancements and practical experience (IEA, 2022).

The next issue to consider vis-à-vis transportation and storage is safety. 

When you mention hydrogen, the first thing that most people think of is the Hindenburg. The iconic airship, containing approximately 7 million cubic feet of hydrogen, burst into flames in May 1937. This disaster has been a precautionary tale against the use of hydrogen as a renewable energy carrier. 

While it was landing, the Hindenburg burst into flames in Lakehurst, New Jersey (Smithsonian via NASM Archives).

Due to its high diffusivity and low viscosity, hydrogen leakage is a real and probable issue. It also has low minimum ignition energy, wide flammable range, wide explosion range and embrittlement effects (Green, 2006). In the course of its storage and transport, spontaneous combustion as a result of leakages could cause jet fire or explosion accidents (H. Li, 2022). In 2019, the explosion of a hydrogen fuel storage tank in South Korea caused two deaths and six injuries (Yang et al., 2021). Experts argue that more research needs to be conducted to ensure safety mechanisms when transporting and storing hydrogen, especially in repurposed natural gas pipelines (IEA, 2022). 

The list of issues preventing the uptake of green hydrogen projects seem somewhat endless but with further research, investments and national policies in place to reach net-zero emissions, the commercialization of green hydrogen is most definitely an achievable feat. 

In fact, we’re seeing a growing interest in green hydrogen right here in Malaysia.

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The Malaysian Perspective

As a signatory of the Paris Agreement, Malaysia has committed to reducing GHG emissions by 45% by 2030 (MIDA, 2021). This is an ambitious goal, but one that is definitely achievable if we enhance efforts to transition away from a fossil fuel-intensive economy. 

Although stakeholders are focussing mainly on renewable electricity as an alternative source of energy, green hydrogen will also play a part in achieving these climate goals. Hydrogen sourced from renewable energy is expected to comprise up to 5% of total final consumption by 2050. It will facilitate the decarbonisation of some industrial sub-sectors and meet growing export demands (IRENA, 2023).

IRENA estimates that demand for green hydrogen in Malaysia could reach 25 petajoules (PJ) by 2030, then further increase to 213 PJ by 2050. 55% of demand would be for ammonia and methanol production, while the remainder would be fed to domestic industries (such as transportation) and export to countries such as Japan and South Korea. 

As indicated in the National Energy Policy, the Malaysian government is currently working on a roadmap for the hydrogen economy (NEP, 2022). Deputy Minister of International Trade and Industry (Miti) Liew Chin Tong has stated that once the roadmap is implemented, his ministry will collaborate with relevant stakeholders to execute incentives and opportunities to boost investments in the green hydrogen economy (The Edge, 2023).

However, domestic energy companies and distributors such as Petroliam Nasional Berhad (PETRONAS), Sarawak Energy, SEDC Energy, amongst others, have already begun investments and developments. 

Sarawak, with its immense renewable energy resources (hydropower and mini hydro) is set to begin large-scale commercial production of hydrogen, with the aim of export by 2027. In September 2022, a Memorandum of Understanding (MOU) was signed between Sarawak Energy, SEDC Energy and South Korean companies Samsung Engineering, Lotte Chemical and Posco Holdings to research renewable hydropower supply for the state's green hydrogen and ammonia project (Project H2biscus) (The Star, 2022).

As part of this MOU, the companies will develop Malaysia’s first hydrogen plant at the Sarawak Petrochemical Hub in Bintulu. It will produce 630,000 tonnes of green ammonia, 600,000 tonnes of blue ammonia and 220,000 tonnes of green hydrogen each year (The Star, 2022). Premier Datuk Patinggi Abang Johari Tun Openg revealed that 7,000 tonnes will be channeled for domestic use and the remainder exported to South Korea.

The East Malaysian state is also in the midst of developing a state-of-the-art Automated Rapid Transit (ART) powered by hydrogen fuel cells. It is predicted to facilitate a 15% reduction of Sarawak’s carbon footprint (The Borneo Post, 2022). 

Through a collaboration with Universiti Kebangsaan Malaysia (UKM), PETRONAS has successfully increased the efficiency of their PEM electrolysers for green hydrogen production. These electrolysers are able to produce highly affordable green hydrogen at a cost of less than USD4/kg from market rate of USD5-6/kg - a game changer in the production of cost competitive green hydrogen (PETRONAS, 2022). In its recent Energy Transition Strategy, PETRONAS detailed its objective of pursuing up to 1.2 MTPA of hydrogen by 2030 - however, the methods of hydrogen production were not specified.

The goal of transforming Sarawak into a green energy hub does, however, raises concerns.The sourcing of electricity for green hydrogen from new hydropower dams would bring into question environmental issues, such as biodiversity loss, and the displacement of indigenous communities.

The Bakun Hydroelectric Plant (Sarawak Energy, 2021)

As such, Sarawak’s green hydrogen push should ideally only source hydropower from existing large scale infrastructure which would also secure a competitive advantage over production costs. infrastructure (e.g. the Bakun dam). But experts have expressed apprehension, citing Sarawak’s inability to cope with this influx of energy-hungry projects without enhanced hydropower generation.

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Khor Yu Leng (principal of Segi Enam Advisors) summed up her findings on green hydrogen from the recent ASEAN Green Hydrogen Conference. She concluded that specialists are advocating for grey hydrogen with carbon credits due to logistical costs, concerns over water sources and raw material considerations associated with green hydrogen production. This renewable energy carrier will only be able to replace grey hydrogen once costs become more tenable and policy support is enhanced via subsidies. 

To conclude, it is evident that a green hydrogen economy is most definitely a potential pathway to preventing irreversible climate disasters and achieving net-zero emissions by decarbonizing hard-to-abate sectors.

However, as observed, this pathway is heavily dependent upon the expansion of renewable energy sources, costs of technologies and policy implementations by governments. 

We hope this series has given you an insight into the green hydrogen economy and its potential as an alternative renewable energy carrier.

Till next time!

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This is the third and final article of a three-part series on the topic of green hydrogen as an alternative source of energy by Khor Reports.

By Nithiyah TAMILWANAN, Segi Enam Intern, 28 June 2023 | LinkedIn

Green Hydrogen: Part 2 - Key Reasons for the Surge in Green Hydrogen Demand

Following our first article on hydrogen and its potential as a renewable energy carrier, we’ll now venture into a common curiosity - what has pushed the recent launches of green hydrogen projects?

The list below is not exhaustive and there are a plethora of reasons (which could possibly take up a series on their own!) why green hydrogen has been pegged as the ‘energy carrier of the future.’ But let’s take a look at the main factors driving this wave:

1. Declining costs of renewable electricity: The cost of green hydrogen is greatly influenced by the cost of electricity procured from solar photovoltaics (PV) and onshore wind plants. As observed in the diagram below, the global weighted levelized cost of electricity (LCOE) produced by solar PV and wind plants have significantly decreased in recent years. This has resulted in launches of green hydrogen projects around the world.

 Change in global weighted levelized cost of electricity by technology, 2020-2021 (IRENA, 2021).

Since the pandemic, costs of raw materials and freight have been on the rise, however, this has not negatively impacted the competitiveness of renewables (IEA, 2022). Governments and large energy consumers have been intent on reducing dependency on imported gas due to supply chain disruptions and soaring prices caused by lockdowns and the Russia-Ukraine War. 

Installation of renewables has been the focus, particularly in Europe and North America (S&P Global, 2023). S&P Global reported that between 2021 and 2030, Europe and North America will install 2,000 square miles of solar panel, which is approximately the area of Los Angeles. This will further decrease the cost of renewable electricity in these countries. 

Furthermore, with regards to the manufacturing of equipment for solar and batteries, various policies have been introduced in Europe and North America to circumvent China’s dominance over the industry. 

2. Technologies scaling up: Expansion, expansion, expansion - the key to achieving economies of scale in green hydrogen production. 

Electrolysers are central to hydrogen supply chains and their deployment will decide the potential capacity of renewable energy and thus, the future of green hydrogen (Odenweller, A et. al., 2022). It has been reported that the capital cost of electrolysis has declined by 60% since 2010, resulting in a decreased cost of green hydrogen from USD10-15/kg to USD4-6kg (Hydrogen Council, 2020). 

The average unit size of these electrolysers has increased from 0.1 MWe in 2000–09 to 1.0 MWe in 2015–19. This indicates a transition from small demonstration projects to commercialized applications (IEA, 2019). A move necessary to reach economies of scale and ensure cost-competitiveness of green hydrogen.

The IEA reported that electrolysis deployment reached a new high in 2021, with 200 megawatts of additional installed capacity, three-times more than the previous year (IEA, 2022). Due to the energy crisis, there has been an unprecedented surge of projects with the aim of enhancing electrolysis capacity. However, it is worth noting that a large majority of these pledges and announcements have yet to be backed by final investment decisions (Odenweller, A et. al., 2022).

3. Wide array of existing and potential application: At present, hydrogen is predominantly used for the production of ammonia and in oil refining. It is applied at a smaller scale in the production of iron and steel, glass, electronics, specialty chemicals and bulk chemicals (IRENA, 2018). IRENA has segmented the applications of hydrogen to four industry categories: 

IRENA based on FCH JU (2016)

As observed in recent years, hydrogen use has been making inroads into hard-to-abate sectors where it had been mostly absent. These include transportation, buildings and power generation (X. Li et. al., 2023). In fact, hydrogen buses are already at their infancy stages around the world. In Europe, a hydrogen bus consortium has been established, with a goal of deploying 1,000 commercially competitive buses powered by green hydrogen, with the first 200 scheduled for use by this year (World Energy, 2020). In Kuching, three hydrogen-powered buses have begun trial operations, with plans to utilize them for public transportation and as feeder buses for the upcoming autonomous rapid transport (ART) system (Malay Mail, 2022). 

Green hydrogen has the potential of channeling considerable amounts of renewable electricity to these hard-to-abate sectors. It is highly advantageous as it can be stored in large amounts, thus ensuring it can cope with swings in demand as well as allowing for inter-seasonal storage, where demand could peak (IRENA, 2018).

Manufacturers of heavy-duty vehicles are also increasingly considering replacing lithium ion batteries with hydrogen as the latter can store more energy in smaller spaces and at lower weight (McWilliams & Zachmann, 2021).

4. Prospects for net-zero emissions: More than 120 countries have announced net-zero emission goals, with some including this target in legislations and policy documents (ECIU, 2023). We’re already on the precipice of surpassing 1.5℃ - so it is pertinent that this goal is at the forefront of all economic and industrial agendas. Fortunately, countries across continents share this sentiment, and many of them are adopting a green hydrogen pathway. However, industry players and experts are still questioning the viability of these pathways, emphasizing the need for heavy investments and subsidies.

Selected countries and blocs with a green hydrogen plan  

The European Union’s hydrogen strategy, published in July 2020, sets out a vision for decarbonising various sectors through clean hydrogen (European Commission, 2020). In line with the REPowerEU Plan, the EU aims to produce 10 million tonnes of renewable hydrogen by 2030 and to import 10 million tonnes by 2030 (European Commission, 2022). The strategy is centered on scaling up electrolysis production with renewable electricity. 

The European Commission understands the behemoth task ahead of them - their plan to produce 10 Mt of green hydrogen would require 80 to 100 GW of electrolyser output capacity and roughly 150 to 210 GW of additional renewable electricity capacity (Reuters, 2023).

The EU intends on exporting hydrogen through pipelines in the UK and France, and by sea using tankers. It also plans on the increasing hydrogen storage capacity of salt caverns in the UK, Central Europe and Spain (V.A. Panchenko et al., 2023). 

The implications of Brexit on the application of the Commission’s policies in the UK are still unclear. However, it is expected that the UK will not deviate too much due to shared infrastructure (such as gas pipelines) and trade with EU counterparts (Machado et al., 2022).

Over in Asia, China has established the Hydrogen Industry Medium and Long-Term Development Plan (2021–2035), focusing on green hydrogen production. With demand of more than 33Mt/yr, China is the largest hydrogen producer and consumer in the world (RMI, 2022). However, at present, most of China’s hydrogen supply is produced from fossil fuels, resulting in coal-based hydrogen costing about half as much as green hydrogen (CSIS, 2022). This cost factor has curbed the production of the latter.

Nevertheless, this status quo is quickly shifting due to China’s renewable power capacity. Currently, the largest in the world, the East Asian nation plans on doubling its solar and wind generation capacity from approximately 600 GW to 1,200 GW by 2030 (CSIS, 2022). As such, the Hydrogen Council predicts that electrolysis will become the most affordable low-carbon production technology in China (Hydrogen Council, 2021). The country’s short-term goal is to reach a 100GW green hydrogen deployment target by 2030, by focusing utilization in the chemicals, steel and heavy-duty transportation sectors (RMI, 2022).

Chinese state-owned oil giant Sinopec is in the midst of constructing the world’s largest green hydrogen facility in Kuqa, Xinjiang, with commercial operations set to begin by June 30th (Hydrogen Insight, 2023). Green hydrogen produced at this facility will be channeled via pipelines to a nearby oil refinery where it will replace the existing use of grey hydrogen.

However, questions have been raised regarding the extent of renewable energy supplied to the facility. It has been said that only 58% of the electricity needed will be sourced from a solar farm, with the rest supplied from a coal-reliant grid (Hydrogen Insight, 2023). This may negate the effectiveness of the Kuqa facility in reducing carbon emissions. 

The start of construction at the Kuqa green hydrogen project in December 2021 (Sinopec via Hydrogen Insight).

In 2019, Australia published its National Hydrogen strategy, with the aim of creating a clean, innovative, safe and competitive hydrogen industry that will be a major global player by 2030 (COAG Energy Council, 2019). The strategy focuses on removing market barriers, building supply and demand, and accelerating global cost-competitiveness. A key feature of this strategy is the establishment of hydrogen hubs which will promote economies of scale, innovation and cost-effective developments. 

In addition to production for domestic use, the strategy also places emphasis on exporting hydrogen, with the aim of becoming among the top 3 exporters of hydrogen to Asian markets by 2030. The strategy is currently under review to take into account recent global developments, in light of the US’ Inflation Reduction Act (IRA) (S&P Global, 2023). 

Although a large share of Australian hydrogen production is sourced from natural gas, the country has shifted its focus to green hydrogen in recent years. This is largely due to Australia’s vast potential in harnessing solar and wind energy, especially along its southern and western coastlines (COAG Energy Council, 2019). The shift to green hydrogen is exemplified in Australia’s 2023-2024 Federal Budget, where it introduced Hydrogen Headstart, an AUD2 billion initiative to underwrite the biggest green hydrogen projects to be built in Australia (ARENA, 2018). This investment will reduce the cost of hydrogen production and scale up the industry.

The United States’ Department of Energy published their National Clean Hydrogen Strategy and Roadmap in 2022, setting out strategies, opportunities and goals for the country’s green hydrogen future (DOE, 2022). 

With a goal of 50 million metric tonnes of clean hydrogen produced annually by 2050, the roadmap predicts that US emissions will reduce by approximately 10% from 2005 levels. Among the three strategies put forth, the Hydrogen Shot (launched in June 2021) has gained the most traction - this ambitious initiative aims to reduce production cost to USD1 for 1kg of hydrogen in 1 decade (111). This goal will be supported by investments in clean hydrogen hubs and electrolysis programmes. 

Prior to the publication of this roadmap, the Biden-Harris administration had successfully passed laws to galvanize the production of clean hydrogen. The Inflation Reduction Act (IRA) provided for policies and incentives, including a Production Tax Credit to encourage the proliferation of green hydrogen across industries (This tax credit will be further discussed in our next article).

The IRA has prompted several green hydrogen projects, including a USD$4 billion green hydrogen production facility in North Texas (the largest to date in the US) (S&P Global, 2022). With 1.4 GW of dedicated renewable power, the facility is expected to begin operations in 2027, providing clean hydrogen to industries and the mobility market. 

Now that we’ve explored the basis of green hydrogen projects and their driving factors, stay tuned for the next and final part of this series, where we’ll dive into the shortcomings of this climate neutral energy carrier.

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This is the second article of a three-part series on the topic of green hydrogen as an alternative source of energy by Khor Reports.

By Nithiyah TAMILWANAN, Segi Enam Intern, 27 June 2023 | LinkedIn

Green Hydrogen: Part 1 - A Pathway to Decarbonization

1.5 Degrees Celsius. The World Meteorological Organisation (WMO) reported that we are on a path to breaching this key climate threshold set out in the 2015 Paris Agreement (CNN, 2023).

But why should we care? If global temperatures do, in fact increase by 1.5℃ to 2℃ from pre-industrial levels before 2050, we will witness catastrophic and potentially irreversible climate disasters. To prevent this reality, there is a pressing need to galvanize the transition to renewable energy sources. This will have the resounding result of decarbonization, thus minimizing GHG emissions.

Green hydrogen could be one of the world’s renewable energy hopes, keeping climate risks at bay. This three-part series seeks to demystify green hydrogen and answer all your questions on this up and coming energy carrier.

What is the significance of hydrogen?

Hydrogen, discovered by British scientist Robert Boyle in 1671, is the most abundant chemical structure in the universe (S. Griffiths et. al., 2021). It literally means ‘creator of water’ as the element only releases water upon combustion (IRENA, 2020). This factor has made it highly attractive as an alternative source of energy as it does not emit carbon dioxide during its production.

Similar to electricity, pure hydrogen can act as an energy carrier of high density, containing nearly three times as much energy by weight as natural gas, gasoline and diesel (US DOE, 2019). 

Throughout history, hydrogen has played a key role in several areas including its use in fuelling the first internal combustion engine, acting as storable fuel for travel to the moon, feeding populations through ammonia fertilizer, and supplying energy to the oil refining industry (IEA, 2019). 

However, hydrogen has only really started to contribute to the global energy mix in recent years as production and utilization technologies have improved, and countries all around the world have committed to net-zero carbon emissions by 2050 (Data-Driven EnviroLab & NewClimate Institute, 2020).

As observed in the chart below, the International Energy Agency (IEA) has recorded a stark increase in demand for hydrogen, which has tripled from 1975 to 2018 and continues to rise. In 2021, demand for hydrogen was approximately 94 million tonnes (Mt) (IEA, 2021).

Rise in demand for hydrogen since 1975 (IEA, 2019).

This increase in demand is attributed to a number of factors associated with the production and utilization of hydrogen that makes it a more viable energy source than its competitors.

What is green hydrogen? Is it truly a viable renewable energy option?

To answer this question, we have to demystify the types of hydrogen and their various methods of production.

Most people assume that hydrogen-based fuels and energy sources are non-carbon emitting as they only produce water from combustion. However, as depicted in the graph below, approximately 96% of global hydrogen production is sourced from fossil fuels. This results in nearly 830 million tonnes of CO2 emissions per year, equivalent to the emissions of Indonesia and the United Kingdom combined (IEA, 2019).

Sources of hydrogen generation (Khor Reports adapted from X. Li et. al., 2023).

World renowned energy organizations, such as the International Renewable Energy Agency (IRENA), utilize a color code nomenclature to describe the various methods of producing hydrogen based on its feedstock:

Shades of hydrogen (IRENA, 2020).

Of the four shades, it is evident that green hydrogen is the only realistic pathway to low-carbon emissions throughout the production process. Blue hydrogen does provide for the added fixture of carbon capture and storage at estimated levels of approximately 80-90%. However, in reality, these high levels of capture have yet to be achieved. Turquoise hydrogen results in the solidification of CO2 (carbon black), thus negating emissions, but production is still very much at its pilot stages (Philibert, 2020). 

With such potential, industry players and academicians have deemed green hydrogen as a ‘critical part of a sustainable energy future’ and ‘key to decarbonizing hard-to-abate sectors like steel manufacturing, shipping and aviation’ (RMI, 2021).

However, up until 2019, IRENA reported that there has been no significant production of hydrogen from renewable sources, and that it had been limited to demonstration projects. But the status quo is quickly changing.

If this article has piqued your interest in green hydrogen and its potential in facilitating net-zero emissions, stay tuned for our second article where we discuss the driving factors of the recent green hydrogen wave.

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This is the first article of a three-part series on the topic of green hydrogen as an alternative source of energy by Khor Reports.

by Nithiyah TAMILWANAN, Segi Enam Intern, 26 June 2023 | LinkedIn

Panel Session at the 3rd German-Malaysia Business Forum on ESG

On 12 April 2023, Segi Enam’s Khor Yu Leng moderated a panel session on "Building sustainable supply chain management in Malaysia - headwinds vs tailwinds" at the 3rd German-Malaysian Business Forum on ESG - organised by the Malaysian-German Chamber of Commerce and Industry (MGCC). The main focus of this forum was on ESG Supply Chain Management.

The list of panelists:

• Klaus Burkart, COO & Co-Founder of Cargodian GmbH;

• Vimala Arumugam, Managing Director of BASF (Malaysia) Sdn Bhd;

• Dr Meenachi Muniandy, Senior Director and Head of Industry ESG Division of the Ministry of International Trade and Industry (MITI); and

• Bilal Parvaiz, Executive Director & Head Islamic Corporate, Commercial & Institutional Banking of Standard Chartered Saadiq Berhad.

Here are some key points from this panel discussion. The panelists spoke about how net zero commitments drive scope 3 and supply chain efforts on ESG. The financial sector is helping to drive changes while offering some incentives, with a push from central banks in each country. The actions of large corporations have led the way, and buyers can help supply chain partners understand requirements. MITI and other government agencies are working to help smaller players confused by ESG needs.

New Malaysia ESG policy frameworks for the industry is coming out in 3Q this year, and carbon pricing scenarios for Malaysia are being assessed. The increasing availability of cost-effective solutions is a positive. The opportunity is in leveraging OPEX and CAPEX spending into billions for company bottom-lines. Moreover, new jobs in green and support sectors will be on the rise.   

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research@segi-enam.com | 13 April 2023

ASEAN makes big push to use local currencies - China Daily

Recently, during a meeting between the finance ministers and central banks of ASEAN countries, a decision was made to reduce reliance on the US dollar and to reinforce the use of local currencies in intraregional trade.

Segi Enam's Khor Yu Leng said to China Daily:

…the plan to shift to local currency-based transactions shows that the ASEAN has acknowledged changing commercial and geopolitical realities.

"A bifurcated or multipolar approach would reduce trade and currency-related risks."

This also aligns with Southeast Asia's "balancing role" in global geopolitics.

Read more about it here.

POC2023 Panel Session - Palm Oil Sustainability: The Way Forward

Khor Yu Leng, from Segi Enam, was part of a panel during POC2023 titled "Palm Oil Sustainability: The Way Forward", which was cleverly moderated by Datuk Darrel Webber with football analogies. Other panellists included Joseph D'Cruz from RSPO, Perpetua George from Wilmar International Limited, Renaka Ramachandran from Sime Darby Plantation, and Tan Chee Yong from MPOCC.

During the Panel Discussion - Palm Oil Sustainability: The Way Forward. [From the left: Tan Chee Yong (MPOCC), Renaka Ramachandran (SDP), Perpetua George (Wilmar), Joseph D’Cruz (RSPO), Khor Yu Leng (Segi Enam) and Darrel Webber (IRGA)]

Panellists on stage receiving tokens of appreciation from Bursa Malaysia.

During the panel discussion, speakers discussed the challenge of meeting the constantly evolving sustainability standards and how companies always needed to catch up with the moving “goalpost”. The business sector representatives shared that certification bodies always add new standards, making it difficult for businesses to anticipate or prepare to ensure they meet the standards to remain certified.

Joseph, of the RSPO, explained that new sustainability standards are not added arbitrarily, but rather in response to environmental factors. The industry, must understand where it should move towards and consider drivers and trends to meet the demands for sustainability and greater transparency from the market.

Yu Leng highlighted the sustainability progress within the industry, citing a 20% growth in certified growers who have embraced the opportunities presented by certification. She also noted a decrease in certification costs and increasing demand for sustainable palm oil and good premia, which might be off-putting for buyers. Recent new planting data from RSPO showed that 43% of estates are now developed on grassland and other areas (non-deforestation), while 24% of such landbank are conservation areas.

Renaka described SDP’s activities at the forefront of sustainability as there is a lot of demand from customers and stakeholders. She acknowledged that the goalpost for sustainability standards is constantly changing and improving. Businesses should prioritize decarbonization and take action as soon as possible. (Editor’s Note: Let’s all say yes, to continual improvement! While keeping an eye on the cost effectiveness ways to achieve this.)

The discussion then shifted to regulatory standards, focusing more on the EU non-Deforestation Regulation (EUDR). Yu Leng noted that the 2020 cut-off includes millions of hectares of conversion, but a central/national registry is required to benefit from it. Indonesian smallholders are optimistic as this is a pathway for them to enter the EU market. This aligns with our read that the EU is making efforts to be more pro-smallholder (after criticisms from some countries). Attesting to this is an update that smallholders of up to 4 hectares can use geolocation points (rather than shape files of their farms).

Wilmar’s Perpetua believes that Malaysia is a low-risk country under the EUDR. She cited several reasons for her opinion, including the fact that Malaysia's certification for palm oil is now mandatory under the Malaysian Sustainable Palm Oil (MSPO) regulation, and oil palm dealers are also required to obtain MSPO certification. Additionally, Malaysia's major expansion in oil palm cultivation occurred before the 2020 cut-off date of the EUDR. Finally, Malaysia has readily available palm oil data that can be compiled and presented to meet regulatory requirements. (Editor’s Note: Not sure if Malaysia can be classified as a low-risk country as this is based on sector annualized growth rate of production areas and such; but by virtue of Malaysia’s administrator bureaucracy and its data, it can be easily demonstrated as low-risk to comply with the EUDR, if there is an effort to do this.)

On the labour issue, Perpetua noted it is “a big scapegoat issue,” but this is also a problem for other commodities. However, finding a solution to this problem is difficult as it requires action from the government. Other speakers agreed that it is a politically sensitive issue that government administrations may be hesitant to tackle as it could have negative consequences. (Editor’s note: This likely relates to the problem of granting rights to migrant workers. Doing so might anger voters).

On the future of certification and whether it is still relevant now with EUDR, MPOCC’s Chee Yong shares that as more and more criteria are being added and now regulations are being introduced, there needs to be a centre point to see how this is workable. Certification bodies can be the centre point, but government effort is needed as well. For RSPO, Joseph said that it is a space for the industry to allow companies to convene for discussions. That was how RSPO was formed.

The speakers discussed how MSPO and RSPO can be more proactive. Yu Leng suggested that Malaysia could establish a national or central registry and become more data-ready, especially for the SME sector. More financial institutions are willing to provide green funding to companies, indicating a growing market for sustainable products. Joseph noted that sustainability standards serve as a measuring tape to assess companies' compliance and that the industry is accountable to those who set the bar.

There was a question from the floor regarding certification fatigue. Renaka shared that there is value in aligning with sustainability measurements. It is now part of a company’s image. Yu Leng worried that the narrative is misguided by a minority of the stakeholders. She suggests companies use certification and sustainability for business opportunities e.g., how do you participate in supply for Sustainable Aviation Fuel (SAF) that Argus notes is now around USD3,000/tonne (versus below USD1,000 for palm oil)? Top buyers want reliable data from suppliers.

Links: PalmTrack 25 Jan 2023, PalmTrack 21 Feb 2023

Read our other post about POC2023:

• Stocks, prices and more at POC 2023 KL

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Reported by Wong Ivan (ivan.segienam@gmail.com) | 27 March 2023 (Edited on 4 April 2023, 9:00am. Updated data from RSPO on new planting data.

BFM - Will the Palm Oil Sector Adapt To New EU Sustainability Standards?

Segi Enam’s Khor Yu Leng was recently interviewed by BFM to comment on the new EU Non-Deforestation Regulation.

Listen to the full interview here.

FSC Stakeholder Consultation and Awareness Building Workshop

On 8 February 2023, the Forest Stewardship Council (FSC) organised a stakeholder consultation workshop for its newly launched Natural Rubber Project in Malaysia, which is projected to be completed by the end of 2023. This project is in collaboration with Control Union, CMO Group, Malaysian Rubber Council (MRC) and supported by WWF-Malaysia. The project aims to encourage more smallholders to adopt sustainable practices through FSC certification and make them self-resilient. The project will provide technical expertise and will be empowered through training, capacity building and market entry.

The event was held at Menara PGRM, and there were around 50 attendees, mainly business owners in the rubber industry, consultants and civil society organizations. Presenters:

• Supun Nigamuni, Control Union

• Charmaine Chee, FSC Malaysia

• Michal Brink, CMO Group

• Norazwa Mohd Akhib, MRC

• Allen Lian, WWF

Some key stats about Malaysia’s rubber industry were highlighted during the presentations. Malaysia is the 7th natural rubber producer at 0.29 million tonnes, with Thailand leading at 3.79 million tonnes. Malaysia is also the 7th top consumer at 0.34 million tonnes, with China being the top consumer at 4.12 million tonnes.

Production of Natural Rubber, MRC (2022)

Consumption of Natural Rubber, MRC (2022)

In terms of trade, Malaysia is the 5th largest exporter at 0.73 million tonnes, and Thailand is the largest at 3.31 million tonnes. Malaysia is the 2nd top importer at 0.91 million tonnes, with China leading at 3.95 million tonnes. Malaysia, which was a “global supplier” of natural rubber back in the 1960s and 70s, is now a net importer of natural rubber.  

Natural Rubber Export, MRC (2022)

Natural Rubber Import, MRC (2022)

The presenters also shared problems faced by the industry. With the low rubber price, many rubber smallholders are shifting to oil palm, which offers higher incomes. Malaysia is also regarded as overly focused on manufacturing one natural rubber product - gloves. And yet, the higher-value rubber latex is widely regarded to be underdeveloped. There is also the issue of value being captured mostly downstream i.e, tyre manufacturers, while upstream - the farmers often face fluctuating and often low prices.

In order to attract more smallholders to be FSC certified, both the presenters and the audience agreed that a premium is needed to get smallholders on board. However, FSC-certified rubberwood has a higher value (the premium amount or percentage premium was not openly shared), and apparently, not enough of this value-add is shared with smallholders. 

CMO group, a forestry training and consulting firm, presented its app, PerForm. It is working together with FSC to help with group certification, which varies by country (note: certifications have national interpretations, to jive with local regulations and conditions).

Interest in FSC-certified natural rubber is increasing. Pirelli produced the world’s first FSC-certified tyre, the P-Zero tyre, which will be equipped on the BMW X5 plug-in model. Mentioned by FSC that other tyre manufacturers are also looking to produce tyres using FSC-certified rubber.

As for the much talked about EU Deforestation Regulation or EUDR, FSC highlighted its ready-traceability that fits in with the due diligence needed to export to the EU (May/June 2023 implementation). For more on this, WWF-Preferred by Nature is running a roadshow next week, 6 March in KL, 8 March in Kuching, and 9 March in Kota Kinabalu to offer more information on EUDR and FSC’s new cutoff date of 2020 in its new conversion rule and remedy framework.

Supun from Control Union giving opening remarks.

Source: FSC LinkedIn

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research@segi-enam.com | 3 March 2023