Person: Zheng, Derek
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Zheng
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Derek
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Zheng, Derek
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Publication The Future of Energy Value Chains in the Transition to a Low-Carbon Economy: An Evaluation Framework of Integration and Segmentation Scenarios(Belfer Center for Science and International Affairs, 2023-08-14) De Blasio, Nicola; Zheng, DerekThe transition from energy systems dominated by fossil fuels1 to ones based on renewable electricity and “green” molecules will significantly impact existing value chains2 and forge new pathways, interactions, and transformation steps from production to consumption. Regulatory and business models must rapidly evolve to manage the resulting substantial cost challenges and dramatic shifts in stakeholder interactions while continuing to create value. Fossil fuels have paved the way for rapid industrialization and economic growth for many decades, but business-as-usual would only exacerbate existing socioeconomic imbalances. Due to these disparities, we tend to divide the world into Global North and Global South, which from a semantics perspective seems to imply that the former has already reached the achievable and the latter only need to catch up. But if the rest of the world were to attain the same per capita energy consumption (and associated emissions) as the Global North, the results would be environmentally catastrophic. The critical question is how to navigate the delicate balance of sustaining growth while achieving prosperity for all and accelerating the transition to a low-carbon economy. The answer must lie not only in globalization but increasingly in technology innovation. Innovation is everywhere - policy, finance, technology, and business - driving dynamics not seen in the energy sector since the Industrial Revolution. As new technologies and processes develop to sustain growing energy needs, understanding how these will impact existing energy value chains or cause new ones to emerge is crucial for navigating the energy transition successfully. The first step in this process is identifying key technologies driving disruptive change and understanding how they create value. To do this, it is critical to recognize that a technology by itself is not necessarily valuable for all stakeholders. Technologies, no matter how innovative, can offer little to no value unless contextualized to a specific company and its asset portfolio because technologies cannot be decoupled from their applications. In other words, the actual value of a technology lies in its potential to drive business opportunities rather than its overall innovative content. This is why a game-changing technology in one sector may hold little or no use in another. For example, a lumber company will derive little to no value from a medical artificial intelligence imaging technology, even if extremely valuable for the healthcare sector. Elucidating the role of innovation in shaping future value chains also requires understanding who could best leverage a specific technology – and how. The key to maximizing overall value and accelerating the transition to a low-carbon economy can be found only by understanding the opportunities and challenges of deploying technology at scale and the complex role that different stakeholders could play. Analyzing existing energy value chains highlights the many ways stakeholders position their offerings—including adopting sustainable business models, specializing in key technologies to gain a competitive advantage, or responding to regulatory constraints. These decisions generally result in two outcomes: integration or segmentation. As we move toward a more decarbonized and decentralized future enabled by technological innovation, the public and private sectors must work together to rethink their roles. To facilitate this discussion, we propose a framework to guide the understanding of how innovation can drive integration or segmentation scenarios and why stakeholders may want to pursue a specific outcome. While it is challenging to encapsulate in this framework all the factors influencing the process, we have identified three criteria encompassing the key determinants: Strategic Value, Techno-Economic Relatedness, and Risk. We apply the proposed framework to three technologies that, if adopted at scale, could significantly change energy systems as we know them: renewable hydrogen3; carbon capture, utilization, and storage (CCUS)4; and blockchain.5 Only a cohesive and collective understanding of how energy value chains will evolve can enable each participant to best prepare for and succeed in the energy transition. Stakeholders who can embrace the new energy landscape will gain significant competitive advantages, while the others risk fading into obsolescence. This paper is structured as follows: after a literature review, Section 2 defines the concepts of value chains, value-chain analysis, and integration and segmentation scenarios. Section 3 introduces a comprehensive framework to explain innovative technologies’ role in the transition to a low-carbon economy based on the three criteria mentioned above. Section 4 applies the framework to the three indicated technologies. Finally, Section 5 offers recommendations for catalyzing innovation’s successful development and deployment in an accelerated transition to a low-carbon economy.Publication Technological Innovation and the Future of Energy Value Chains(Belfer Center for Science and International Affairs, 2022-04) De Blasio, Nicola; Zheng, DerekThe transition from energy systems dominated by fossil fuels1 to ones based on renewable electricity and carbon-free molecules will significantly impact existing value chains2 and forge new pathways and transformation steps from production to consumption. This transition will bring not only substantial cost challenges but also promises to dramatically alter stakeholders’ interactions along value chains. Technological innovation is driving dynamics not seen in the energy sector since the Industrial Revolution, and it will be key to accelerating the transition to a low-carbon economy while sustaining growth and achieving prosperity for all. But as new technologies develop to meet growing energy needs, understanding how these technologies will impact existing energy value chains is crucial for navigating the energy transition successfully. To elucidate these dynamics, we must first identify the key technologies3 driving disruptive change and then understand how their deployment at scale might impact existing value chains or cause new ones to emerge.