Creating a green economy is not plug-and-play

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Container ships are engineering marvels. The largest ones have a length equivalent to four soccer fields, can carry over 15,000 containers, and can travel over 400 nautical miles per day. And to do it safely, these vessels depend on talented crew and advanced electronic and navigation systems.

These ships are also essential to the global economy. In 2019, the total value of annual world shipping exceeded 14 trillion USD.

But for all of their sophistication and economic importance, cargo ships have a big problem: they’re one of the most carbon-intensive modes of transport. In 2023, shipping accounted for 2.3 per cent of global CO2 production – a key greenhouse gas driving climate change.

Electrification is widely seen as an important lever in lowering global emissions. But when it comes to global shipping and countless other systems, the solution isn’t as simple as “put a battery in everything.”

“Electricity from renewables is a fundamentally different kind of fuel,” said Michael Raynor, Professor at Ivey Business School, in a Delve podcast interview. “If you try to slam it into a fossil fuel engineered system, it will be dramatically suboptimal.”

Indeed, to completely electrify cargo ships, you will face some tough challenges. For one, building such a vessel costs almost three times as much as a fossil-fuel powered one. And what happens if the battery dies in the middle of the ocean?

The same is true for other systems, said Raynor – from how we mine the Earth for minerals to how we produce fertilizer. The sustainable alternatives exist, but they’re not always the best fit for our current production systems.

So maybe it’s time to change the systems.

Disrupting the disruption

Climate change is disruption on a colossal scale. Forest fires are disrupting rail-based freight transport. Warehouse workers are being injured from extreme heat. Hurricanes are destroying critical infrastructure, like electric grids. These pose unprecedented challenges and costs, and demand some of kind adaptation.

“Firms and organizations need to identify ways to make themselves more resilient,” said Sanjith Gopalakrishnan, Assistant Professor of Operations Management at McGill University.

And that’s just to cope with the current effects of climate change. Parallel to that, humans must lower their overall carbon emissions to decrease the severity of climate disasters.

To get there, Raynor believes it’s time to create a little disruption of our own. Not in terms of inventing new technologies; but inventing new systems. And this can create new opportunities for small actors to make a big impact.

“It’s classic disruptive innovation,” said Raynor. A market gap exists, incumbents don’t address it, innovators step in to capitalize on it.

Ammonia fertilizer is a strong example here, he said. It’s essential for agriculture around the world, and its production accounts for about two per cent of global emissions. And that’s before we put it on a fossil-fuel powered ships to reach farms around the world.

Thankfully, ammonia fertilizer can be almost completely decarbonized. The process is expensive, though. For large fertilizer producers, at the scale they’re operating, the market for sustainable ammonia fertilizer is not big enough to be worth the cost, said Raynor.

That’s where disruptive innovation comes in. The market for sustainable ammonia fertilizer is small, but it still includes farmers from around the world. Among them are coffee producers in Kenya.

“Those folks pay about six times as much for ammonia fertilizer as the rest of the world,” said Raynor. “Largely as a result of logistics.”

Kenyan coffee farmers already pay high prices for regular ammonia fertilizer, because it costs so much to import from centralized facilities thousands of miles away.

Sustainable ammonia, however, doesn’t have that problem. It can be produced with small, modular units. And you can put them directly on the coffee plantation, said Raynor.

This solution works on a few different levels, he said. It reduces the carbon emissions of ammonia production, because it’s being done sustainably. It also reduces emissions from shipping, since it can be produced locally. And it can actually save money for small farmers, who no longer need to pay exorbitant fees for fertilizer transport.

“I refer to it as broad scope, small scale,” said Raynor.

It’s a focused innovation, but it solves many problems across many systems. And it’s solutions like these that can make the energy transition exciting.

“On the other side of the energy transition lies a better future,” said Raynor. “Not one that is somehow riddled with compromise.”