Wed, June 29, 2022


What comes after GEs 129 years of greenhouse gas

The lights stayed off for years after the 2013 closure of the Ormet Corp. aluminum plant near Hannibal, Ohio. Until someone finally noticed the valuable electrical infrastructure sitting alongside the mothballed smelting operation.

All that high-voltage wiring, and all those pipelines and barge docks on the Ohio River, looked like gold to Fortress Transportation & Infrastructure Investors. "It was the perfect spot for a power plant," says Robert "Bo" Wholey, president of Long Ridge Energy Terminal, which is now a unit partly owned by Fortress. He bought General Electric Co.'s 7HA.02 turbine, a core component used in natural gas power plants, and set out to attract heavy-duty customers.

Then Wholey ran into a problem. He wanted to supply electricity to data centers in the region, but they didn't want his kind of electricity. "What we found out pretty quickly is that most data center companies want carbon-free electricity," he says. So he turned back to GE for help.

For much of its 129-year history, GE has been producing carbon dioxide emissions and selling equipment to companies that do the same. It was once among the top suppliers to coal-burning plants and provided gear and services to oil and gas drillers before largely withdrawing from both markets over the past few years. GE remains the biggest maker of jet engines, with at least 37,000 in the skies today. It's also the top manufacturer of natural-gas-powered turbines, with more than 7,000 busy generating what the company says is about half of the world's gas-fired electricity.

The full carbon footprint of GE's businesses-something the company doesn't yet disclose but independent analysts can try to estimate-is comparable to that of the Philippines, a nation of 108 million. It's enough to put GE on the target list of 167 top emitters published by Climate Action 100+, a group coordinating climate-motivated investors with more than $55 trillion in assets. Among them: BlackRock Inc., GE's fourth-largest shareholder, which has called for companies to figure out how they fit into a net-zero world.

Danielle Merfeld, chief technology officer of GE Renewable Energy, is seen speaking virtually during the Bloomberg Green Summit on April 26, 2021. MUST CREDIT: Bloomberg photo by Daniel Acker.

GE's ability to move beyond its enormous legacy of greenhouse gas will likely define its future. Under pressure from climate activists and shareholders, in July it announced an aspiration to zero out CO₂ within three decades. Critically, its latest climate goal includes eliminating emissions created by the use of its products. Reaching net-zero will take more than putting some solar panels on its factories and offices. For GE to fulfill its promise, it must also prompt customers who form the backbone of today's fossil fuel economy to ditch carbon. Success could put a company synonymous with the heyday of American manufacturing at the center of a new, cleaner industrial era.

This is where customers like Wholey come in. As it turned out, there was a fix for his problem. "What GE told us at the time was, really, with no modifications to the turbine, we could go up to a 20% hydrogen blend," he says. Hydrogen's major advantage over natural gas and other fossil fuels is that burning it produces water, rather than CO₂. When it's created using renewable electricity, hydrogen is free from planet-warming emissions-making it extremely attractive to governments, industries, and investors. But it's still difficult to produce hydrogen, especially the cleanest kind, at scale and without great expense.

The good news was that the less-clean hydrogen fuel readily available right now can blend into the natural gas used in Wholey's power plant, slightly curbing its pollution. Eventually, GE assured him, the turbine he'd already purchased could be modified to handle 100% hydrogen.

Long Ridge plans to start with a 5% hydrogen mix when it commences operations in October, then quadruple that by 2023, on the way to producing carbon-free electricity by 2030. It's the first U.S. power plant purpose-built to generate electricity by burning hydrogen, according to GE.

The project in Ohio is an example of how the company says it's helping customers pivot to a cleaner future, even as much of its business remains firmly entrenched in fossil fuel. GE Chief Executive Officer Larry Culp says the energy transition is a challenge "no company is better positioned to help solve."

He's currently orchestrating a multiyear turnaround, partly organized around society's lower-carbon shift. "You've got need, you've got demand, and you have, if you will, incumbency in certain places and access in others," Culp says. "If we do our job, I think we've got a far better business than we have today."

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The concept of fueling natural gas turbines with hydrogen has been around for decades. Going back to the 1990s, GE has sold dozens of gas turbines operating on hydrogen blends, and all of its turbines can burn fuels that include at least some hydrogen. But that capability hasn't been a major selling point until very recently, says Jeffrey Goldmeer, emergent technologies director at GE Gas Power and one of the company's top hydrogen specialists. It helps that regulators are prodding utilities to slash emissions.

Overt preparation for a hydrogen future is evident in GE's HA turbines, its newest and most advanced class of the hulking machines, which made their debut in 2014. They feature a combustion system with roots in a 2005 hydrogen push by the U.S. Department of Energy. While the HA is commercialized mostly for natural gas applications, GE tests have confirmed it can handle up to 50% hydrogen. That gives the company something to pitch to customers as a decarbonization option. The first turbine with that system began producing power last year. "Because of that legacy, now these HA machines have very high hydrogen capabilities that they can bring to the market very quickly," Goldmeer says. "The amount of interest from our customers has grown massively in the last 18 to 24 months."

GE has been tapped to supply Australia's first power turbine capable of running on hydrogen and natural gas, which is set to come online by 2024. It also signed an agreement with Uniper to help curb emissions from the German company's natural gas plants and storage facilities. Plus, there's a hydrogen demonstration program planned on Long Island as part of a clean electricity effort by the state of New York.

Hydrogen-capable turbines are part of how GE turns its emissions-heavy power business into something that will one day be cleaner. But the company is also a large force in today's clean energy boom. Equipment orders and revenue from GE Renewable Energy, which sells wind power turbines, have exceeded those from GE's fossil power division for three years. GE was the top supplier of wind turbines globally last year, with installations totaling 13.5 gigawatts, according to clean energy researchers at BloombergNEF.

The company last year also secured its first orders for the Haliade-X offshore wind turbine, the largest and most powerful model to date, and it has more than 5GW of offshore orders in its pipeline. It anticipates annual offshore wind sales will reach $3 billion in 2024, in a market expected to grow rapidly over the next decade.

Within GE's renewables unit is an electricity-grid business that, after years of restructuring, could also burst into prominence as trillions of dollars flow into upgrades of power networks. There are even greener prospects for GE Aviation, the prolific maker of jet engines, which in June announced a push alongside Safran SA of France to slash jet fuel consumption by more than 20% by 2035. The joint venture is working to incorporate biofuels and hydrogen for even deeper reductions in future designs.

Roughly half of GE's sales today come from products that either eliminate greenhouse gases or prevent future emissions, according to estimates by Nick Heymann of investment bank William Blair & Co. That, he says, positions the company to become the largest green industrial manufacturer by the middle of the decade. "For their customer base," Heymann says, "they're going to want them to know that any asset they buy in this space is going to be able to be economically viable in the future."

Still, there's no getting around that the bulk of GE Power's business-for now, even after rapidly shrinking-remains rooted in fossil fuels. The division reeled after former CEO Jeffrey Immelt made a gargantuan bet on fossil-generated power, acquiring parts of France's Alstom for about $10 billion in 2015. The deal prompted a $22 billion write-down three years later, and the division ended up cutting costs and jobs as it sank from $17.1 billion of revenue in 2017 to $12.7 billion last year

In a not-unrelated development, GE Power must also contend with wind and solar emerging as the cheapest sources of new electricity in most of the world. The clearest sign of a limited future for natural gas came in May from the International Energy Agency's road map for achieving net-zero emissions by 2050. The group called for unabated natural gas generation to peak by the end of this decade and then decline 90% by 2040. If the world doesn't take these steps, the IEA warned, it risks blowing past climate goals and locking in majorly disruptive changes to the global climate.

Remaining natural gas plants in the IEA's post-2040 scenarios would have to adopt low-carbon fuels such as hydrogen and carbon-capture technology. For customers interested in the latter, GE Power's website offers both a webinar and form to contact its sales staff.

If it's possible to squint over the horizon and imagine the green industrial supplier GE might become, it's much harder to scrutinize the emissions that are its responsibility today. That's because the company discloses only a tiny fraction of its total contribution to climate change-an omission that sets it apart from other big emitters, such as General Motors Co., and even some giant oil companies, like Royal Dutch Shell Plc.

It's not just a disclosure issue; GE doesn't know the size of its own pollution problem. The company reported to CDP, a nonprofit tracker of corporate emissions, that as of last year it had never completed a full assessment of emissions tied to its customers and supply chain. This is the category carbon accountants call Scope 3, which makes up the overwhelming majority of emissions for many large industrial companies.

GE is hardly alone in its limited approach to climate metrics and disclosures. Power turbine peers such as Siemens Energy and jet engine rival Pratt & Whitney, a part of Raytheon Technologies Corp., haven't revealed their total emissions. And there's no legal imperative for them to do so. But the practice violates a basic corporate sustainability principle: What isn't measured can't be cut. Perhaps that's why GE also hasn't set detailed targets for reducing customer and supplier emissions. The company has said it plans to adopt near-term targets and is working on additional climate disclosures, but there's no timeline on either process.

For now, investors and the public can only triangulate GE's full climate impact from bits and pieces of available information, so Bloomberg Green asked the experts at CDP to do just that. Their estimate put the 2019 emissions of GE's suppliers and customers at 135 million metric tons of CO₂ equivalent. That means the emissions GE had disclosed-2.4 million metric tons from its own operations-account for less than 2% of its overall carbon footprint. Most of the discrepancy comes from customers that buy and use all of its planet-warming products. CDP's analysis puts emissions from end users at about 97 million metric tons, comparable to the carbon dioxide output of Colombia or Bangladesh.

Yet GE's true carbon footprint is almost certainly greater still. CDP derives estimates in part from a company's revenue in a given year, and those calculations don't account for previously sold products that remain in use. That means CDP's estimate excludes tens of thousands of engines and turbines sold before 2019 and built for decades of action.

Disclosing emissions is just a first step. "For companies that are impacting climate change at the scale that GE is," says Simon Fischweicher, head of corporations and supply chain at CDP, "we need to see intermediate or short-term targets."

Naturally, GE has become a prime target for activists. Until 2019 the company remained involved in more than a dozen coal plant installations around the world, which led the Natural Resources Defense Council to call out its "coal plant profiteering." Shareholders have weighed in, too, with 98% voting in May to approve a resolution demanding a net-zero commitment. GE's board supported the measure.

That followed the company's decision last year to drop the business of outfitting new coal-fired plants and work to zero out the sliver of emissions from its own operations by the end of the decade. The corporate accountability group As You Sow, which put the shareholder proposal before GE investors, called the company's pledge this year to reach net-zero by 2050 a "major step."

Daniel Stewart of As You Sow compares GE in the current moment to another American industrial icon: GM. The automaker has pledged to produce exclusively electric vehicles by 2035, even though the bulk of its sales and profits today come from gas-guzzling SUVs and pickups. Two of America's long-lived corporate giants are caught between the carbon-intensive present and a cleaner future. "Before making these commitments, a lot of these companies want to have all the answers, which is impossible," Stewart says. "So there's a certain leap of faith."

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At GE headquarters, not everyone has made that leap with both feet. Executives frequently uphold the idea of natural gas power as a linchpin in the decarbonization process, since it tends to displace coal and provides a reliable backup for renewables that can go offline when the wind dies down. As Culp says, "We believe we've got to take a global view relative to gas, particularly vis-à-vis alternatives."

The company's gas turbines are currently being installed in Greece, Israel, and Poland, replacing 4GW of coal-fired electricity, GE Power CEO Scott Strazik told investors in March. Customers in Asia accounted for the largest share of orders for the HA-class turbines at the end of 2020, with 17 bound for Taiwan that will come online by mid-decade. A Colorado utility earlier this year purchased six of GE's smaller gas turbines, derived from jet engines, to be a power backstop, putting a large coal plant into retirement 12 years ahead of schedule.

The executive tasked with translating GE's net-zero ambitions for the future into action today is Roger Martella, the company's first chief sustainability officer. He meets twice a month with the CEOs of the divisions-including Culp-and leads a working group of about two dozen people from each business charged with carrying out sustainability initiatives. "We're going business by business to look at how we can achieve carbon neutrality," he says.

Martella joined GE in 2017 as an environmental health and safety attorney and became the sustainability boss in June. A self-avowed environmentalist who's active in international climate law, he co-authored a legal framework last year, published by the International Bar Association, outlining how citizens could use the courts to address government inaction on global warming. Martella was also the top lawyer at the Environmental Protection Agency in 2007, under George W. Bush, when the Supreme Court rebuked the agency for its refusal to regulate CO₂ from automobiles. Later, in private practice, he represented a coalition of industry groups that tried to stop Barack Obama's Clean Power Plan to cut greenhouse gas from the electrical grid. The measure was eventually blocked by the Supreme Court and rescinded by Donald Trump.

Martella says his experiences should illustrate how climate progress can be undone if it rests on a shaky foundation. "If we put a lot of effort into something that's not going to be legally sustainable," he says, "we would lose time."

Long Ridge's natural-gas-to-hydrogen plant is starting to take shape. In October, Wholey will install tubes and valves used to mix 5% hydrogen into the fuel for the turbine. The hydrogen supply will come from a nearby chlorine plant, where it's produced as a byproduct and trucked over. "It's pretty minimal new infrastructure that needs to be built," Wholey says. "To the extent we can use existing infrastructure to displace natural gas, that's how this is going to move forward, at least initially."

He's planning to sell into the grid while working to line up customers for the part-hydrogen electricity. Although interest in low- and no-carbon power is high, cost remains a hurdle. Hydrogen is much more expensive than natural gas and expected to remain so for years. But Wholey is still all-in on the fuel because of its potential to provide continuous, carbon-free power.

Eventually he'll need to produce hydrogen on-site, since transportation accounts for about half the cost of what he's buying today. Wholey plans to host multiple pilot projects, trying his hand at "green hydrogen" produced with renewable energy and "blue hydrogen" derived from natural gas combined with carbon capture. H2Pro, an Israeli startup backed by New Fortress, plans to launch a zero-carbon hydrogen pilot project at Long Ridge in 2023.

By 2030, BNEF forecasts, green hydrogen will become the cheapest kind in all major markets. But Wholey wants to be ready for anything-just like GE. "There's uncertainty. You could have said the same thing about wind and solar 10 or 15 years ago," he says. "Do I have a concern that it will play out that way? No. Is there uncertainty around the timing involved? Of course."

Published : October 18, 2021

By : Bloomberg