We have the power to unlock exponential growth in green industry
A
Market forces have historically propelled widespread adoption of new technologies and can be unleashed to drive a green industrial revolution.
History shows that the uptake of new technologies becomes exponential, once a tipping point is reached. We’ve seen this in the deployment of rail, electric power, telegraph, oil pipelines and now solar power.
A tipping point is typically triggered when a new technology reaches 5-10% of market penetration and becomes sufficiently affordable, available, and attractive to displace the incumbent option. This triggers reinforcing feedback loops that lead the new technology to rapidly dominate the market.
Green industry can benefit from the same market forces if we nudge key green commodity markets towards a tipping point, unlocking both a green industrial revolution and significant cuts in global greenhouse gas emissions.
B
New markets are slow to scale at first, but targeted interventions can bring forward exponential growth.
The deployment of green commodities like clean ammonia, green steel or low carbon cement is primarily inhibited by their production cost, which still carries a green premium, and the limited demand for expensive low / zero-carbon commodities. To address this challenge, market formation instruments, primarily policies such as mandates and subsidies, can scale demand and reduce the green premium.
Once a green market with both supply and demand starts to exist, transactions are still slowed down by many additional market failures like heightened delivery risks, price uncertainty or absence of a common definition of “green” products. Market acceleration instruments such as product standards, buyers’ alliances, and book & claim systems can increase the scale and pace of transactions.
C
Green Market Makers are a dynamic and innovative solution to overcome multiple market failures at once.
Green Market Makers (GMMs) are intermediaries that step into the value chain to buy and sell green commodities via a price discovery and optimisation mechanism to achieve the lowest costs from producers and highest willingness to pay from offtakers respectively. The residual “green price gap” can be covered by concessional capital, most often government funding.
H2Global is the first and only concessional capital-backed Green Market Maker operating globally as of September 2024 and has pioneered an approach that can be replicated across sectors and regions, jump-starting markets and absorbing risk.
D
The sweet spot for Green Market Makers is commodities with a small to moderate green price gap.
Green Market Makers are best suited to support the scale up of transactions in commodity markets where there is a small to moderate green premium and some willingness to pay from buyers. These include clean hydrogen and its derivatives, biofuels, green steel and green cement.
The funding model can vary depending on market maturity: if the market is expected to become profitable in the near future, it may be possible to attract market capital alongside concessional capital.
E
A series of Green Market Makers could bring several heavy industry sectors to their tipping point.
If major economies join forces, tipping points unlocking exponential growth can be reached faster for each key green commodity. Green Market Makers can be positioned strategically to achieve critical mass.
A key priority is to scale up renewable ammonia for fertilisers. This can potentially unlock in turn a cascade of tipping points across multiple industry sectors by driving down the cost of green hydrogen.
F
The green industrial revolution is in sight, let’s unleash market forces to make it happen faster.
Governments can support Green Market Makers to build their competitive advantage in green industry while pushing global green commodity markets toward a tipping point.
Private financial institutions can contribute capital and join forces with green commodity buyers and sellers and market making experts to inform GMM development.
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ABOUT THIS PUBLICATION
The transition to low-emission production of commodities such as steel, cement, aviation fuel and chemicals has begun but needs to accelerate. Unleashing Market Forces provides insight into a toolbox of practical approaches governments and the private sector can use to accelerate towards sectoral tipping points, unleash market forces and drive the scale up of green commodity markets.
Within this toolbox, learn how emerging instruments called Green Market Makers can offer an innovative approach to address multiple market failures and potentially bring several industrial sectors to their tipping points simultaneously, delivering an outsized impact on the heavy industry and transportation trajectory towards net zero.
