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Management in Practice

Delivering Decarbonized Transport

The burning of fossil fuels is the primary driver of climate change, so what’s the role for the energy industry in the transition to decarbonization? Dan Kim ’97, chief strategic officer and director of Next Renewable Fuels, argues that existing elements of the energy and transport sectors can evolve to contribute to a future decarbonized economy, alongside more disruptive innovations.

The hood of a semi truck with a hydrogen fuel cell logo

A Toyota semi-trailer truck powered by a hydrogen fuel cell, on display at AutoMobility LA in 2017.

Patrick T. Fallon/Bloomberg via Getty Images
  • Dan Kim
    Chief Strategic Officer & Director, Next Renewable Fuels

Q: How important is transportation to addressing climate change?

If you look at the 51 billion tons of annual global greenhouse gas emissions, 31% comes from making things, 27% is powering things, 19% is growing things, 16% is for transporting things, and the remaining 7% come from heating and cooling things. So transportation is a significant part and has to be integrated into the total decarbonization goal.

Q: What will decarbonized transport look like?

Different approaches make sense for different parts of the sector—rail, marine, aviation, trucks, and cars. The Department of Energy highlights how crucial weight and distance are in choosing future solutions.

Electric batteries make sense for short distance, light- and medium-duty vehicles whereas hydrogen fuel cells make sense for medium- and heavy-duty vehicles. When it gets really heavy—ships and airplanes—you focus on synthetic fuels: renewable diesel and sustainable aviation fuel. In fact, the solutions overlap across the different transport sectors.

You must look at the full value chain of every option, including fossil fuels, and ask, how do we get to our targets? What is the scalability for electrical vehicles, for hydrogen solutions, for synthetic fuels? How does each fit within the total market? Electric vehicles get a lot of attention, but if that’s the only thing we focus on we’re not going to drive solutions that meet the needs of the 80% to 90% of the demand that requires other complementary solutions.

I own an electrical car. I charge about 80% of the time at home but when I charge elsewhere, I don’t like paying more than I would be paying for gas. Paying two times the gasoline equivalent for peak hours charging isn’t going to scale because consumers want economic solutions.

One of the things I talk about with both public and private stakeholders is the importance of building economic scalability into decarbonization. How do you provide a framework that leads to a self-sustaining solution that doesn’t need to be propped up indefinitely by subsidies? I think we must strike a balance between economics and greenhouse gas emissions.

Q: What happens if you look for that balance?

Here’s an example. Everyone thinks using synthetic fuels is less desirable because what’s coming out of the tailpipe is not zero emissions. But renewable diesel can reduce greenhouse gas emissions up to 80%. It’s not zero emissions but it’s a lot better than the alternatives. Even with zero emissions, you have to look upstream and consider the life-cycle greenhouse gas emissions. Where’s the zero-emissions car getting its electricity? People see electricity as 100% clean when it’s not. Cleaner electricity through renewable energy is critical in driving decarbonization.

Q: How do you figure out the economics of decarbonization when carbon is still an externality that isn’t accounted for in prices?

You can ground it in what’s already in place. North America has voluntary carbon credit markets. California has Low Carbon Fuel Standards (LCFS). Canada has a carbon tax that will escalate over time.

Fundamentally, we look at the total greenhouse emissions and the total value chain proposition for decarbonization, whether it’s through carbon credit pricing or LCFS, and say, “Where can we have an impact that moves the needle?” That will make clear where the opportunities are and how to align and incentivize stakeholders.

Unfortunately, decarbonization gets lumped in, too many times, with bets on regulatory policy rather than looking at the market. That’s why transparency is so important. Getting real transparency can be hard because either people don’t know or don’t want to share information for a variety of personal, corporate, political, or other reasons. But transparency is how we get proper allocation of risk and economics in decarbonization. It’s also an opportunity for the aligned collaboration we need to reach our targets.

Q: In the transition to a decarbonized economy, some people see an opportunity; some people see a risk to their existing business or career. How important are these different perspectives in shaping what happens and how fast it happens?

I think there need to be two efforts happening simultaneously. We need people and projects focused on high-risk, think-differently opportunities that might lead to something hugely disruptive. I’m sure there are many early-stage venture capital unicorn opportunities already underway. Bill Gates’ Breakthrough Energy Ventures is supporting solutions that may be nonconventional, but high impact.

But there’s also tremendous opportunity for a traditional approach to the transition that recognizes the impact existing industries can have in driving decarbonization.

I started my career at Exxon as an engineer at a manufacturing facility. Later, I was the chief financial officer of World Energy, a producer and distributor of sustainable aviation fuel, renewable diesel, and biodiesel. Most recently I focused on the development of sustainable alternative energy platforms with the Pilot Company, the largest travel center network in North America. Having worked in the energy industry for 25-plus years and with firms across the spectrum in terms of views and solutions helps me to appreciate the importance of collaboration, including all perspectives, and recognizing the expertise that exists.

“The whole industry is evolving. How do we effect that change? It’s done by understanding the different views people bring to the market instead of dismissing or marginalizing people from traditional oil, gas, or even coal.”

The whole industry is evolving. How do we effect that change? It’s done by understanding the different views people bring to the market instead of dismissing or marginalizing people from traditional oil, gas, or even coal. I know that might raise red flags, but coal gasifiers can be used to make hydrogen from waste. Natural gas experts can help develop a much cleaner and more robust hydrogen logistics market. Refining assets can make renewable fuel and sustainable aviation fuel.

It’s possible to see the outlines of the sustainable energy industry to come. You can generate fuel from a range of agricultural and waste products, including used cooking oils, cow manure, and municipal solid waste. That’s a future upstream feed stock business. The technologies that convert feed stocks to fuel is the downstream business. Then there’s the midstream business that manage logistics of storage and transport. Folks in the energy industry now will recognize all of that and will help in the proper stewardship of the transition.

We need more understanding of all sides, meaning up and down the value chain, meaning public and private sector, meaning bipartisan support. Getting support is easier if you recognize that a single solution isn’t the answer to either the future of transport or, more broadly, decarbonization across all industries.

Q: What do you see as the biggest hurdles to moving faster?

I look at it as less about making it faster than ensuring it doesn’t slow down. We also have to be sure we succeed in the race to 2050 over the race to 2030. It is very possible to take actions to meet 2030 targets that slow down the path to 2050.

We need time to grow decarbonized transportation markets. We need time for them to reach maturity. The best way to make sure that process isn’t slowed: transparency and collaboration.

Collaboration means stakeholders putting all the cards on the table and saying, “Here’s the transparent view of the economics today. What do we need to get to our goal? How do we get initial and scalable adoption? How do we solve the problem longer term with real impact?”

Transparency brings accountability. It can help us get out of the echo chamber. Right now, there’s so much excitement, which is great, but there’s not enough transparency. In this digital age, it’s so easy for people to tell a story. Asking whether the stories make sense can force more transparency.