Fund Insight: ODDO BHF AM Green Planet

Story of the month

According to latest IPCC¹ data, the industrial sector is responsible for around 24% of the world’s greenhouse gas emissions. Four sub-sectors, which can be described as heavy industry, account for two-thirds of these emissions: cement, petrochemicals, steel, and aluminum. While the road to achieving net-zero emissions is complex, the tripling of investments over the last five years (to $48.6 billion in 2023) in the decarbonisation of the industry is very encouraging. From the technologies deployed to the support policies that are beginning to emerge, the decarbonisation of the industry holds the potential for growth and value-creating innovation within the investment universe of the ODDO BHF Green Planet fund.

TECHNOLOGY OPENS UP NEW CHANCES

Until now, heavy industries have relied on two main sources to reduce their greenhouse gas emissions: the use of recycled raw materials (metals, plastics) and the purchase of clean energy. However, the acceleration in investment in recent years has mainly focused on projects involving two technologies that are likely to be at the heart of production processes by 2030: low-carbon hydrogen and carbon sequestration.

• Still ​ ​ marginal ​ ​ today, ​ ​ with ​ ​ 0.5 ​ ​ million ​ ​ tons ​ ​ of capacity, ​ ​ the ​ ​ annual ​ ​ production ​ ​ of ​ ​ low-carbon hydrogen could increase 30-fold by 2030 to reach 15 ​ million ​ tons. ​ More ​ than ​ half ​ of ​ the ​ projects announced ​ concern ​ “green” ​ hydrogen, ​ produced from ​ ​ ​ the ​ ​ ​ electrolysis ​ ​ ​ of ​ ​ ​ water ​ ​ ​ fueled ​ ​ ​ by ​ ​ ​ a renewable ​ ​ energy ​ ​ source. ​ ​ But ​ ​ “blue” ​ ​ hydrogen, produced ​ from ​ natural ​ gas ​ with ​ carbon ​ capture, remains ​ the ​ most ​ economically ​ attractive ​ in ​ the short term and is enjoying strong demand from the United States ​ and Asia. ​ Today, ​ the petrochemical (17% ​ of ​ demand) ​ and ​ refining ​ (19% ​ of ​ demand) sectors are the main growth vectors for low-carbon hydrogen, ​ ​ while ​ several ​ projects ​ ​ announced ​ for 2023 also concern the steel sector.
• Global ​ ​ ​ ​ investment ​ ​ ​ ​ in ​ ​ ​ ​ carbon ​ ​ ​ ​ capture ​ ​ ​ ​ and sequestration ​ ​ almost ​ ​ doubled ​ ​ in ​ ​ 2023 ​ ​ for ​ ​ the second ​ ​ year ​ ​ running, ​ ​ reaching ​ ​ a ​ ​ record ​ ​ $11.3 billion. ​ While ​ the ​ dominant ​ technology ​ between now and 2030 ​ is ​ likely ​ to remain “liquid” ​ capture (based on chemical loops that bring the captured air into contact with a basic aqueous solution such as potassium ​ ​ hydroxide, ​ ​ which ​ ​ removes ​ ​ the ​ ​ CO2), “solid” ​ capture ​ (based ​ on ​ solid ​ sorbents) ​ looks ​ in the ​ cement ​ ​ sector. ​ ​ In ​ ​ the ​ ​ light ​ of ​ ​ the ​ projects announced, ​ ​ hydrogen ​ ​ and ​ ​ electricity ​ ​ production should dominate the CO2 capture market between now ​ and ​ 2030 ​ (36% ​ of ​ announced ​ capacity), ​ but cement ​ manufacturers ​ are ​ continuing ​ to ​ increase their capacity at a rapid pace, with almost 28 million tons of CO2 capture per year expected to come on stream.

WITH THE SUPPORT OF PUBLIC POLICY INCENTIVES

Given the challenge of decarbonizing industry (which accounts for 24% of global greenhouse gas emissions), public authorities have taken up the issue in recent years, introducing initial support measures. While still in their infancy in China and India, public incentive policies are much more advanced in the major industrial zones of developed countries, particularly the United States and Germany.

• In ​ ​ March ​ ​ 2024, ​ ​ the ​ ​ US ​ Department ​ ​ of ​ ​ Energy (DOE) ​ ​ selected ​ ​ 33 ​ ​ decarbonization ​ ​ projects ​ ​ in several ​ ​ ​ ​ ​ ​ sectors, ​ ​ ​ ​ ​ ​ including ​ ​ ​ ​ ​ ​ cement, ​ ​ ​ ​ ​ ​ steel, petrochemicals, ​ aluminum, ​ and ​ glass, ​ to ​ receive ​ a total of $6 billion in subsidies. This financial support is ​ part ​ of ​ the ​ major ​ infrastructure ​ development programs ​ (Bipartisan ​ Infrastructure ​ Law) ​ and ​ the Inflation Reduction Act, giving project sponsors the opportunity to benefit from tax credits. The main beneficiaries are the cement and steel sectors for projects linked to low-carbon hydrogen and carbon capture.
• In ​ ​ Germany, ​ ​ as ​ ​ part ​ ​ of ​ ​ a ​ ​ new ​ ​ program ​ ​ called “Carbon Contracts for Difference”, the government launched ​ ​ ​ an ​ ​ ​ initial ​ ​ ​ series ​ ​ ​ of ​ ​ ​ auctions ​ ​ ​ at ​ ​ ​ the beginning of 2024 for ​ decarbonisation projects ​ in the chemicals, steel and cement sectors. Applicant companies ​ are ​ required ​ to ​ submit ​ a ​ carbon ​ price that ​ ​ ​ will ​ ​ ​ enable ​ ​ ​ them ​ ​ ​ to ​ ​ ​ profitably ​ ​ ​ deploy technologies ​ to ​ reduce ​ their ​ emissions, ​ with ​ the government covering the difference with the price under ​ ​ the ​ ​ European ​ ​ Union ​ ​ Emissions ​ ​ ​ Trading Scheme. The funding envelope for this first auction is €4 billion, and does not ​ currently cover carbon capture and sequestration technologies

OUR EXPOSURE TO THE DECARBONIZATION OF HEAVY INDUSTRY

The ODDO BHF Green Planet fund is currently invested in two key players in the decarbonisation of the industry:

• Linde, ​ ​ an ​ ​ American-German ​ ​ group, ​ ​ and ​ ​ world leader in industrial gases, generates 35% of its sales from ​ industrial ​ customers ​ (chemicals, ​ metals). ​ In recent months, Linde has announced new long-term contracts ​ for ​ the ​ supply ​ of ​ low-carbon ​ hydrogen and ​ carbon ​ capture, ​ notably ​ with ​ the ​ American group Celanese;
• Air Liquide, the French group and the world’s second-largest producer of industrial gases, generates 26% of its sales by working with major industries to decarbonize their production processes. In June 2024, Air Liquide announced a record investment of $850 million in the United States as part of a long-term agreement with ExxonMobil to produce low-carbon hydrogen.