1、ARTHUR D.LITTLE102/2024 ISSUE 044MAKING SUSTAINABILITY SUSTAINABLE2THE PRISM BOARDShinichi Akayama Etienne Brumauld des Houlieres Rick Eagar Sally Menassa Dr.Michal Kolk Florence Carlot Michael Majster Francesco Marsella Dr.Albert Meige Daniel Monzon Dr.Andreas Schlosser Ben van der Schaaf PRISM:MAK

2、ING SUSTAINABILITY SUSTAINABLEARTHUR D.LITTLE3Arthur D.Little has been at the forefront of innovation since 1886.We help companies continuously anticipate,innovate,and transform to achieve sustained business success in todays disruptive business environment:Anticipate future trends and build resilie

3、nt strategies that embrace complexity.Innovate to deliver more,faster,cheaper products,services,and business models,accessing the best external talent.Transform organizations,processes,and cultures to continuously adapt.We are problem solvers and combine deep industry insight,functional skills,and e

4、ntrepreneurial flair to find and deliver new solutions.With our open consulting approach we bring the best global experts to every assignment,complementing our internal strengths.We are proud to be present in the most important business centers around the world,serving the worlds leading corporation

5、s and public sector organizations.PRISM is published biannually by Arthur D.Little,the global management consultancy.We are eager to hear from our readers!Please address your comments to our editorial office at Arthur D.Little,New Fetter Place West,2nd floor,55 Fetter Lane,London EC4A 1AA,United Kin

6、gdom Telephone:+44 7710 536 471.Copyright 2024,Arthur D.Little.All rights reserved.Editing and design by Catalyst Comms,London:infocatalystcomms.co.uk.4PRISM:CONTENTSCONTENT SMAKING SUSTAINABILITY SUSTAINABLEADAPTING TO AN UNCERTAIN FUTURE HOW TO DEVELOP A CLIMATE CHANGE ADAPTATION STRATEGY 8Whateve

7、r progress we make toward mitigating global warming,many impacts of climate change are already being felt.Businesses and society,therefore,must adapt to a changing world.Based on an ADL Blue Shift study,this article explains how adopting a projection-based approach helps focus strategy and drive dec

8、ision-making.Dr.Albert Meige,Zoe Huczok,Rick Eagar OPENING THE URBAN MINE BUILDING A PROFITABLE CIRCULAR ECONOMY BASED ON A LITHIUM BATTERY RECYCLING EXAMPLE 22Creating circular supply chains is essential to the green transition,but many such initiatives are not yet profitable.Using the example of l

9、ithium-ion batteries,the authors set out a blueprint for“urban mining”to ensure access to the valuable materials they contain while providing best practices for other recycling initiatives.Dr.Michal Kolk,Dr.Philipp Seidel,Felix HoffmannGETTING A GRIP ON DECARBONIZATION WITH EFFECTIVE INTERNAL CARBON

10、 PRICING 36While many organizations already use internal carbon pricing(ICP)techniques,these are not yet central to their strategies,decision-making,and procurement.This article argues that now is the time to step up ICP programs and adopt a much more holistic approach to navigating a world of incre

11、asing carbon prices.Pavel Kubika,Martijn Eikelenboom,Ji Steif,Trung Ghi,Louay Saleh,Erik van der Wurff ARTHUR D.LITTLE5MAKING THE SHIFT CHANGING GEAR IN THE JOURNEY TOWARD SUSTAINABLE MOBILITY 50Previous predictions about the switch to sustainable mobility have not fully materialized.Based on data f

12、rom the fifth ADL“Future of Mobility”survey,the authors outline how to change this through high-impact solutions that could double the global share of sustainable mobility within the next decade.Francois-Joseph Van Audenhove,Mickal Tauvel,Arsene Ruhlmann,Vadim Panarin,Dr.Philipp Seidel,Alexander Hen

13、sler,Rick EagarBACK TO THE FUTURE WHAT MIRRORS IN SPACE CAN TEACH US ABOUT INNOVATION FOR SUSTAINABILITY 88The concept of harnessing energy from space has captured the imagination since the mid-20th century,but progress has been slow.A new project based on orbiting mirrors aims to revitalize the con

14、cept,and this article explains current advances and the lessons that can be learned for broader sustainability innovation.Arnaud Siraudin,Matteo Ainardi,Amaury KlossaACCELERATING THE FINANCING OF SUSTAINABLE TRANSPORT FUELS HOW TO ACHIEVE LIFT-OFF 76Sustainable,low-carbon fuels are the only answer t

15、o fully decarbonizing long-haul flights and shipping.Yet,despite growing demand,regulatory imperatives,and customer pull,theres a worrying lack of available finance to kickstart production.The authors outline how to overcome this imbalance between supply and demand.Amaury Klossa,Kirill Kalinkin,Math

16、ieu Blondel,Trung Ghi,Daniel Monzon,Andrea Visentin IS STEEL SCRAP THE NEW GOLD?64Steel production is integral to the global economy yet is responsible for an outsized percentage of CO2 emissions.New techniques aim to reduce this impact,but steelmakers must transform to create more circular economie

17、s that secure and effectively use scrap metal.This article explains where to start.Arnaud Jouron,Martin Rajnoha,Ji Steif,Marta Prez 6PRISM:EDITORIALDE AR RE ADERLast year saw a backlash against ESG investment and climate change regulation in the US,with similar examples of watering down or postponem

18、ent of sustainability-related regulation in some parts of Europe.Despite this,businesses evidence suggests a continued,and indeed increased,commitment to sustainability as it becomes more central to business strategy.But this also comes with a new realism about the massive challenges of achieving ne

19、t zero and the huge costs involved.We have devoted this issue of Prism to exploring some of the challenges and how we can address them.As one might expect,there are no easy solutions,so be prepared for some in-depth content that hasnt been dumbed down!Climate change adaptation is now finally coming

20、to the fore,not as an alternative to mitigation but as an essential complement to it.Yet today,there is still very little adaptation regulation or investment.Based on a major in-depth study by Arthur D.Littles Blue Shift Institute,our first article explores the nature of the adaptation challenges ac

21、ross the industry,imagines scenarios for how it could unfold,and proposes what businesses should be doing now in response before its too late.Lithium-ion(Li-ion)batteries are central to the green shift.Battery demand is forecast to increase sevenfold in the next decade.Creating a circular economy to

22、 recycle spent batteries is essential,yet circular models are currently unprofitable in many regions,such as Europe.We set out a blueprint for“urban mining”how to successfully and profitably recycle Li-ion batteries locally,a template that can also be applied to other materials,such as electronics,p

23、lastics,and metals.Carbon pricing has existed for over two decades,and today,national and regional schemes cover about one-quarter of all global greenhouse gas emissions.Many companies already use internal carbon pricing to help factor the economics of emissions into investment decision-making,but t

24、here are challenges in finding accurate data,and commercial pressures often push it to the periphery of the business.Our third article outlines a way for companies to get a better grip on internal carbon pricing to make it more effective and meaningful.Our next three articles dive into different imp

25、ortant domains for our future sustainability.The first is mobility.Transport accounts for around 15%of global CO2 emissions,the only sector with a steady increase since 1990.Despite the high hopes of 15 years ago,most journeys are still by private car.Our renowned Future of Mobility Lab and transpor

26、t industry EDITORIALARTHUR D.LITTLE7partner POLIS have made an in-depth study of what we need to do next to accelerate the shift toward sustainable,resilient,safe,efficient,and human-centric mobility systems in our cities.We offer a taster of the full results in this edition of Prism.Next is steel p

27、roduction,which is responsible for a not-insignificant 5%of global CO2 emissions.Along with green electricity,hydrogen,and new production technologies,scrap recycling is the key to decarbonization,and we offer a strategic approach to making this more commercially viable.Aviation needs to move to sus

28、tainable,low-carbon fuels.The main issue here is the lack of investment in building adequate green fuel production capacity.There are no easy answers,but we look in depth at what governments,producers,investors,and customers must do to unlock what we believe is a very attractive market.To wrap thing

29、s up for this issue,we bring you the latest developments in a promising energy-from-space technology mirrors in the sky to increase the output of existing solar energy farms greatly.Once thought of as too costly,impractical,and even fanciful,this concept has suddenly started looking much more feasib

30、le.How it has developed provides us with some valuable lessons for approaching innovation for sustainability.Ultimately,we will only have a realistic chance of making sustainability sustainable through finding new ways of collaborating globally and harnessing the power of technological innovation.We

31、 hope you enjoy the issue!Rick Eagar Chief Editor,Prism Arthur D.Little 8PRISM:SIMULATING STRATEGY THE REAL POTENTIAL OF THE INDUSTRIAL METAVERSEADAPTING TO AN UNCERTAIN FUTURE HOW TO DEVELOP A CLIMATE CHANGE ADAPTATION STRATEGY PRISM:ADAPTING TO AN UNCERTAIN FUTURE HOW TO DEVELOP A CLIMATE CHANGE A

32、DAPTATION STRATEGY ARTHUR D.LITTLE9Mitigation gets most of the big headlines in the global discourse on the changing climate.However,no matter how successful or not the world is at mitigating global warming,many of the impacts of climate change are already underway and will greatly affect our future

33、.As well as efforts to reduce emissions and achieve net zero targets,businesses have an unavoidable need to adapt to climate change.Adaptation forms part of a broader set of sustainability goals,along with mitigation of climate impacts and improvement of resilience.Indeed,these concepts have many ov

34、erlaps.For example,reducing water usage in a manufacturing process is an adaptation measure that also mitigates impacts.Protecting assets against severe weather events is an aspect of both adaptation and resilience.Businesses need to consider all three being good at adaptation doesnt mean you can de

35、prioritize mitigation,and vice versa.And theres more to adaptation than just becoming more resilient.However,developing a strategy to help focus investment and development efforts for adaptation is particularly difficult.The technologies needed are,for the most part,specific,numerous,and fragmented.

36、Adaptation solutions are diverse across different industries and often strongly driven by local circumstances,making scalability hard to achieve.At the same time,funding for adaptation tech remains low less than 10%of all climate technology funding is estimated to have gone to adaptation in 20202021

37、.AUTHORSDr.Albert Meige,Zoe Huczok,Rick Eagar9AS WELL AS EFFORTS TO REDUCE EMISSIONS AND ACHIEVE NET ZERO TARGETS,BUSINESSES HAVE AN UNAVOIDABLE NEED TO ADAPT TO CLIMATE CHANGE.1 0Furthermore,the suitability and viability of adaptation solutions in the future will be greatly affected by a range of u

38、ncertainties,such as competitive dynamics,regulation,and consumer behavior.This complexity leads all too often to decision paralysis or at least an extended“wait and see”philosophy,which many companies are pursuing today.Based on an in-depth study led by Arthur D.Littles(ADLs)Blue Shift institute,th

39、is article considers what adaptation means for businesses,future projections,some“no-regret”technology choices,and how to shape an adaptation strategy.About the ADL Blue Shift study on climate change adaptationThe study was led by ADLs future technology institute,Blue Shift,in collaboration with the

40、 United Nations World Intellectual Property Organization(WIPO),which has established a green technology database comprising some 150,000 patents.It incorporated the results of 40 interviews with corporate executives,climate adaptation experts,venture capitalists,and start-ups,as well as two surveys

41、covering 70 respondents.One of the“elephants in the room”affecting the future course of adaptation is geopolitics,and clearly,issues such as international conflict and human migration will weigh significantly.Analyzing geopolitics is outside our expertise and mission,but we have sought to co-create

42、a set of plausible projections together with our design fiction agency partners,Making Tomorrow,for which geopolitical events,both positive and negative,could be easily imagined as contributory factors.4 K E Y ASPEC T S OF THE ADAP TATION CHALLENGE A good place to start is to consider the range and

43、extent of the challenges that adaptation poses for businesses.While these are many and diverse,they can be conveniently split into four generic business functions:1.SOURCE:SECURING THE AVAILABILITY AND SUPPLY CHAIN OF CRITICAL RAW MATERIALS AND RESOURCESClimate change will affect companies raw mater

44、ials and supply chains,such as decreasing agricultural yields and disruptions to supplies of critical materials due to severe climate events.For example,drought reduced the Panama Canals capacity in 2023.PRISM:ADAPTING TO AN UNCERTAIN FUTURE HOW TO DEVELOP A CLIMATE CHANGE ADAPTATION STRATEGYARTHUR

45、D.LITTLE1 1Companies need to consider how they can make their supply chains more resilient to disruptions.2.MAKE:ADAPTING MANUFACTURING AND OTHER INDUSTRIAL PROCESSES TO A CHANGING CLIMATEEnergy and water shortages and grid instability are likely to be one aspect of climate that affects manufacturin

46、g processes.For example,in India,lower rainfall has reduced the efficiency of hydroelectric and nuclear power plants,causing greater grid instability.Fresh water is another critical resource with declining availability,hence the increased importance of solutions for water treatment,reuse,and recycli

47、ng or,in certain cases,desalination plants.Working conditions for employees,such as extreme heat,will also need to be addressed.Companies need to ensure that their processes can continue delivering the required product/service quality,volume,and continuity in a more extreme climate environment.3.PRO

48、TECT:PROTECTING INDUSTRIAL SITES AND ASSETS FROM CLIMATE CHANGE IMPACTSFirst,organizations must ensure they have better capabilities for prediction and early warning of climate-related disruptions.Second,they need to take physical measures to better protect their assets from floods,storms,and sea le

49、vel rise,including new shielding or designs with built-in resilience.Third,they must improve their ability to respond rapidly to sudden damage or losses.Finally,they may need to consider wholescale relocation of assets away from high-risk locations,such as parts of China,Vietnam,and Bangladesh,which

50、 are vulnerable to sea level risk and flooding,or parts of sub-Saharan Africa,India,and Southeast Asia,which are vulnerable to droughts and heatwaves.4.SELL:MARKETING COMPETITIVE AND DIFFERENTIATED GOODS AND SERVICES TO MEET THE NEEDS OF A CHANGING CLIMATEClimate change will alter customers needs fo

51、r certain products and services and create new needs.For example,in late 2023,tire manufacturer Michelin started marketing a range of inflatable solutions for sun protection in large areas,including inflatable parasols to reduce heat islands in cities.New consumer expectations and sales and delivery

52、 channels may need to be considered,especially if consumer behaviors change because of ongoing climate-related events.Thus,social listening supported by natural language processing may help track changing and increasingly localized consumer preferences.Circularity and more sustainable ways of consum

53、ption may also become a higher priority,especially for B2B organizations.1 2Considering each of these generic business functions systematically helps ensure that an adaptation strategy is comprehensive,though some industries may be disproportionately affected by specific challenges(e.g.,agrifood is

54、particularly exposed to“Source”).DE ALING WITH FUTURE UNCERTAINTIESOne of the biggest challenges in shaping an adaptation strategy is dealing with the significant uncertainties about the future environment.Our study identified 11“shaping factors”that determine these uncertainties across four categor

55、ies(see Figure 1).For geophysical and biological factors,we adopted a“+3C by 2100”trajectory.This falls within the confidence interval for the Intergovernmental Panel on Climate Changes(IPCCs)Representative Concentration Pathway(RCP)6.0,which predicts a temperature increase of+2.8C versus pre-indust

56、rial levels,with a possible range between+2.0 and+3.7C.This trajectory considers the likely target gap in 2030 based on the current delay in policy and climate action at large.Therefore,it allows for a cautiously pessimistic but realistic outlook against which to consider adaptation challenges.To un

57、derstand what this future means,it is worth considering some representative impacts across our five relevant shaping factors (see Figure 2).PRISM:ADAPTING TO AN UNCERTAIN FUTURE HOW TO DEVELOP A CLIMATE CHANGE ADAPTATION STRATEGYCATEGORIESSHAPING FACTORSEXTREMECLIMATE EVENTSFRESHWATERAVAILABILITYSEA

58、 LEVEL RISEBIODIVERSITY LOSSINCREASED PESTS/INVASIVE SPECIESREGULATIONSCONSUMERBEHAVIORURBANIZATIONFINANCIALMECHANISMSCOMPETITIVEPRESSURESUPPLY CHAINDISRUPTIONGEOPHYSICALBIOLOGICALBEHAVIORAL&DEMOGRAPHICECONOMICASSUMPTIONSGEOPHYSICAL&BIOLOGICALAS PREDICTED BY SCIENTIFIC CONSENSUSFOR A“+3C BY 2100”GLO

59、BAL WARMING TRAJECTORYHUMANADDRESSED AS VARIABLEACROSS DIFFERENT PROJECTIONS1234567891011Source:Arthur D.LittleFIGURE 1:SHAPING FACTORS FOR CLIMATE CHANGE ADAPTATIONARTHUR D.LITTLE13Of course,uncertainties still exist regarding how these geophysical and biological factors will react and develop over

60、 time,but even at the most optimistic end of the range(+2C by 2100),the need to adapt will be unavoidable.Turning to the behavioral and economic factors(factors 6-11 in Figure 1),we can collectively consider these“human shaping.”Using our survey of 70 experts,we ranked these in terms of level of unc

61、ertainty and impact on a 1-5 scale(see Figure 3).Source:Arthur D.LittleFIGURE 2:LIKELY CLIMATE IMPACTS FOR A“+3C BY 2100”TRAJECTORYSource:Arthur D.LittleFIGURE 3:HUMAN SHAPING FACTOR RANKING AND CRITICAL UNCERTAINTIESLIKELIHOOD THAT WILDFIREEVENTS WILL INCREASE BYNEARLY 30%GLOBALLY BY2040-2050 EXTRE

62、ME CLIMATEEVENTSFRESHWATERAVAILABILITYSEA LEVEL RISEBIODIVERSITY LOSSPESTS&DISEASES123451 IN 4 PEOPLE MAY LIVE INA COUNTRY AFFECTED BYCHRONIC SHORTAGES OFFRESH WATER BY 2050OVER 500 CITIES&1 BILLION PEOPLE WILL BEEXPOSED TO SEA LEVELRISE BY 2040-2050MORE THAN 90%OF LIVE CORAL REEFSCOULD VANISH BY 20

63、40PEST DAMAGE TO WHEATRICE&MAIZE PRODUCTIONMAY RISE BY 10%-25%PER DEGREE OFGLOBAL WARMINGEXTREME CLIMATE EVENTSFRESHWATER AVAILABILITYSEA LEVEL RISEBIODIVERSITY LOSSPESTS&DISEASESREGULATIONSCONSUMER BEHAVIORURBANIZATIONFINANCIAL MECHANISMSCOMPETITIVE PRESSURESUPPLY CHAIN DISRUPTIONCRITICALUNCERTAINT

64、IESGEOPHYSICAL&BIOLOGICAL FACTORSHUMAN FACTORSUNCERTAINTYLOWHIGH245831116107912345678910111 4Four factors emerge as the most critical because they have both high potential impact and high uncertainty on how adaptation will evolve:1.Regulations refer to the extent to which new regulations will enforc

65、e or encourage adaptation,similar to how they drive mitigation today.It is by no means certain that this will happen for adaptation.2.Consumer behavior means how far consumers will shift toward a preference for adaptation-related goods and services.3.Financial mechanisms refer to public and private

66、finance availability for adaptation.While adaptation finance for climate change hit a record US$63 billion in 2021/2022,increasing by 28%,it is still significantly below the$212 billion yearly need projected by 2030 for developing countries alone.4.Competitive pressure is the extent to which market

67、forces will drive adaptation.It is led by big industry leaders requiring all suppliers to comply.For example,today,Apple is demanding that its entire value chain reduce its impact on global warming.By considering each“on/off”combination of these four factors,we generated 24 future projections,of whi

68、ch the following five are the most plausible,differentiating,and technologically relevant:Green Communities:This projection features a strong consumer behavior shift but limited finance.It characterizes a resource-scarce world where grassroots adaptation initiatives flourish without large-scale proj

69、ects.It could happen if climate catastrophes start to change consumer opinion,yet ROIs for adaptation projects continue to be poor,and geopolitical or economic constraints limit public finance.Lonely at the Top:This projection features no consumer behavior shift but high competitive pressure.Here,ad

70、aptation is driven by global industry market leaders with deep pockets within a two-speed economy.Most less affluent consumers cannot support the higher price levels associated with adaptation,focusing instead on surviving in a tight economic environment.Wild Green West:This projection features stro

71、ng finance but little regulation.There is a creative chaos in which adaptation initiatives sprout up everywhere,fueled by private capital but lacking any regulatory backbone.In this essentially neoliberal projection,governments fear imposing further heavy costs on industries to enforce adaptation,es

72、pecially with the already huge mitigation costs,leading to a lack of globally agreed regulations and standards.PRISM:ADAPTING TO AN UNCERTAIN FUTURE HOW TO DEVELOP A CLIMATE CHANGE ADAPTATION STRATEGYARTHUR D.LITTLE15 Dont Look Up:This projection features limited finance and no consumer behavior shi

73、ft.It is a pessimistic future in which neither customers nor financial institutions have adjusted to the new climate reality.This could be,for example,due to more pressing economic or geopolitical crises that have taken precedence over adaptation.Adaptation Surge:In this projection,all variables fav

74、or adaptation.It represents a relative utopia in which adaptation is the norm,resetting expectations,creating new markets and new needs,attracting finance,and being supported by appropriate national and international regulations.The projections dont seek to describe a full world but rather illustrat

75、e a set of plausible tensions that may partly coexist in different regions or industries.Projections such as these are useful tools for companies wishing to develop long-term strategic plans.FINDING YOUR WAY THROUGH ADAP TATION S TR ATEGIESOne of the challenges of developing an adaptation strategy i

76、s deciding which technologies to focus on:what will be needed,where and when,and what could be the best solution.Because adaptation is highly local,multivariate,and multidisciplinary,a huge range of technologies must be considered.Undoubtedly,this is one reason adaptation technologies have,up to now

77、,remained in the shadow of mitigation technologies in terms of public debate.Considering future projections such as those above is one way to help prioritize.Each future projection implies a partly different set of functional needs and priorities for which particular technological solutions are more

78、 or less relevant.For example,a Wild Green West future would favor less mature solutions with high potential ROI,such as synthetic biology for critical materials manufacturing and crop production and digital twinning for improving productivity and limiting vulnerability to climate events.Conversely,

79、in a Green Communities future,the emphasis would be on low-cost,local solutions with more mature technologies,such as mini desalination plants for water supplies and modular designs for consumer products to reduce costs and improve reuse.In the full Blue Shift Report,we identify almost 100 of the mo

80、st relevant technology families,mapped across the five future projections and the four key business functions(Source,Make,Protect,and Sell),all ranked by maturity and impact.(Readers wishing to understand in detail what is most relevant for their industry are urged to consult the main report.)BECAUS

81、E ADAPTATION IS HIGHLY LOCAL,MULTIVARIATE,AND MULTIDISCIPLINARY,A HUGE RANGE OF TECHNOLOGIES MUST BE CONSIDERED.1 6Overall,the value of adaptation technologies lies less in cutting-edge performance or breakthroughs than in applying existing technologies to solve specific and local problems at an acc

82、eptable financial,environmental,and social cost for all stakeholders involved.This is the key area for innovation.For example,reef balls,concrete structures that mimic marine reefs,are valuable because of their low cost,shape,marine-friendly material,and arrangement,which interact with local marine

83、ecosystems to improve their resilience.Nevertheless,many technologies not developed for adaptation have a key role in this space,from advanced consumer sentiment analysis to digital twinning.There is no single best approach to solving adaptation challenges.Instead,a nuanced consideration of a busine

84、sss ecosystem on its operations,and vice versa,is needed.Adaptation strategy is,therefore,best approached as an integral part of company strategy.Looking across the whole adaptation technology space,some“no-regret”candidates are relevant for most industries,regardless of the projection.They address

85、three major recurring functional expectations:risk-proofing the industrial footprint,preserving productivity,and protecting workers(see Figure 4).Source:Arthur D.LittleFIGURE 4:NO-REGRET CAPABILITIES,SOLUTIONS,AND ENABLING TECHNOLOGIESPRISM:ADAPTING TO AN UNCERTAIN FUTURE HOW TO DEVELOP A CLIMATE CH

86、ANGE ADAPTATION STRATEGYFUNCTIONAL EXPECTATIONSEXISTING SOLUTIONSENABLING TECHNOLOGICALBRICKS PRESERVINGPRODUCTIVITYPROTECTINGTHE WORKFORCECLIMATE-PROOFINGFOOTPRINTADVANCEWARNINGSYSTEMSGIS FORASSETLOCATIONROBOTS&DRONESWATEREFFICIENCYSYSTEMSTHERMALCOMFORTSYSTEMSARTIFICIAL INTELLIGENCEDATA SCIENCEDESI

87、GN FORSCARCITYNIMBLE RISKASSESSMENTLOCALPARTNERSHIPSCAPABILITIESCOMPLEXSYSTEMANALYSISSENSINGSIMULATIONExisting no-regret solutions include advanced warning systems,thermal comfort systems,geographic information systems(GIS)for site location and relocation,drones for aerial imaging,robots for mainten

88、ance and automation of production,and water efficiency and recycling systems.As with any technology forecast,it is valuable to consider not only technology solutions but also the key enabling technology bricks and underlying capabilities necessary to realize them.From the study,three enabling techno

89、logical bricks emerged as overall most relevant for these no-regret adaptation solutions:1.Sensing technologies,including the Internet of Things(IoT),multispectral imaging,and light detection and ranging(LiDAR),provide granular,instant insights into specific metrics of interest without accessing loc

90、ations increasing safety and efficiency.2.Deep neural networks,especially graph neural networks(GNN)a branch of AI have proven particularly apt at weather forecasting and,more broadly,identifying patterns across large numbers of variables.However,deep neural networks require large training data sets

91、,and we only have one climate history.3.Simulation via generative AI helps feed the training of neural networks by providing instances of climate events that could have happened(but did not).Digital twins allow the creation of a rich data set fully representing an asset or business.Augmented and vir

92、tual reality help visualize simulations,aiding decision-making and creating a sense of urgency.Ultimately,the interaction of these technologies gives rise to a critical tenet of adaptation:complex system modeling.Complex systems are composed of many interacting units displaying emergent properties t

93、hat cannot be understood in terms of the properties of their individual isolated components.Climate and human-climate interactions can be described as complex systems.Holistically modeling a companys interactions with its environment(including assets,operations,and people)and vulnerabilities to clim

94、ate change will be a critical input into a sound adaptation strategy.Supply chain optimization is a proven use case.We predict that complex system modeling expertise will become increasingly important as companies have to make difficult choices and investment decisions in their adaptation strategies

95、.ARTHUR D.LITTLE1 7WE PREDICT THAT COMPLEX SYSTEM MODELING EXPERTISE WILL BECOME INCREASINGLY IMPORTANT AS COMPANIES HAVE TO MAKE DIFFICULT CHOICES AND INVESTMENT DECISIONS IN THEIR ADAPTATION STRATEGIES.1 71 8At the level of boosting or building underlying capabilities,four emerged as critical:data

96、 science because deep learning expertise will be critical to accurately predicting local climate phenomena and quantifying their impact;design for scarcity because the ability to design solutions in a resource-constrained environment will be key;responsive risk assessment because dynamic sensing and

97、 responding to rapidly changing risks will be important;and local partnership capabilities because climate adaptation solutions often have to be tailored to the local environment.TAK ING AC TIONShould companies take action now,or can it be postponed for a few years?In fact,some companies are already

98、 moving fast in adaptation strategy for good reasons.First,the no-regret solutions and technologies outlined above all deliver productivity and adaptation benefits.For example,IoT can help optimize the use of raw materials and utilities regardless of climate adaptation.Second,because climate adaptat

99、ion is inevitable,early movers making carefully calculated investments are likely to build competitive advantage versus those who are forced to act in crisis mode.Adaptation is not just a matter of avoiding downsides businesses with the right strategy have major opportunities.Finally,implementing ma

100、ny adaptation solutions requires long development lead times not least because climatic conditions cannot be controlled.In many cases,commitments to new technology development and testing must be made many years ahead of when they will be needed.A survey conducted as part of the study confirmed that

101、 lack of knowledge on the best course of action is the biggest hurdle to business adaptation,followed by resistance to change,lack of funds,and technology limitations.To move forward with adaptation strategies,companies need to consider four key questions:1.How to predict:Decision makers should begi

102、n by creating their own global warming trajectory assumptions and identifying the shaping factors most critical for their industry and global footprint.They need to conduct site-by-site assessments of potential risks,both acute and chronic,and pilot improved risk-monitoring and modeling approaches,l

103、everaging digital technologies such as digital twinning and AI.PRISM:ADAPTING TO AN UNCERTAIN FUTURE HOW TO DEVELOP A CLIMATE CHANGE ADAPTATION STRATEGYIN MANY CASES,COMMITMENTS TO NEW TECHNOLOGY DEVELOPMENT AND TESTING MUST BE MADE MANY YEARS AHEAD OF WHEN THEY WILL BE NEEDED.ARTHUR D.LITTLE1 92.Ho

104、w to decide:A suitable governance approach is needed to oversee the adaptation agenda,which often spans several functions.New metrics will likely be needed.Approaches such as heat maps can help allocate priorities.The key is thinking globally,acting locally,and enhancing customer listening.3.How to

105、finance:Mobilizing funding for adaptation requires updating financial metrics,including pricing climate-risk vulnerabilities in terms of damage to assets,production loss,and possible reputational effects.It may also involve the complex task of pricing positive externalities(productivity gains and em

106、ployee retention)and potential market opportunities from adaptation(market share gains or new product-market fit).It also requires working with longer timelines(more than 15 years)than is customary for most corporate decision-making.Blended finance solutions,which combine concessional public funds w

107、ith private capital,can be leveraged when corporate adaptation investments impact communities.Adopting a portfolio approach,balancing risks and returns,means various project types can be accommodated.4.How to build:Because adaptation problems require local solutions,developing local ecosystems of pa

108、rtners is essential.As with any collaborative innovation effort,setting clear ground rules for intellectual property is important.Ultimately,the effectiveness of adaptation to climate change will depend on how governments,businesses,local communities,and individuals collaborate to meet local,nationa

109、l,and global challenges.Climate change will become an increasingly consequential constraint on business strategy and forward planning.By 2040 and beyond,we may already be in a situation where“adaptation strategy”has become almost inseparable from“business strategy.”2 0PRISM:ADAPTING TO AN UNCERTAIN

110、FUTURE HOW TO DEVELOP A CLIMATE CHANGE ADAPTATION STRATEGYARTHUR D.LITTLE2 1DR.ALBERT MEIGEis the Director of Arthur D.Littles Blue Shift Institute,based in Paris,France.ZOE HUCZOKis a Program Manager of Arthur D.Littles Blue Shift Institute,based in San Francisco,USA.RICK EAGARis a Partner Emeritus

111、 of Arthur D.Little,based in Cambridge,UK.PRISM:OPENING THE URBAN MINE BUILDING A PROFITABLE CIRCULAR ECONOMY BASED ON A LITHIUM BATTERY RECYCLING EXAMPLEOPENING THE URBAN MINE BUILDING A PROFITABLE CIRCULAR ECONOMY BASED ON A LITHIUM BATTERY RECYCLING EXAMPLE ARTHUR D.LITTLE23Creating circular supp

112、ly chains is essential to the green transition,particularly when it comes to recycling and reusing rare materials.Yet,while many circular economy initiatives may be sustainable,they are not profitable,which hampers their wider development and holds back the achievement of sustainability goals.Lithiu

113、m-ion(Li-ion)batteries are a key case in point.Powering electric vehicles(EVs)and renewable energy storage are central to decarbonization and the green transition.According to Arthur D.Little(ADL)forecasts,after surpassing the 1 terawatt hour(TWh)threshold in 2023,global annual Li-ion battery demand

114、 will increase to roughly 5 TWh by 2030 and 7 TWh by 2035.However,battery production relies on large amounts of metals(e.g.,lithium,manganese,cobalt,and nickel)that generate significant ESG(environmental,social,and governance)risks and carbon footprints when mined,processed,and manufactured.The EU C

115、ommission estimates that the global demand for active battery materials such as lithium,graphite,and nickel will double between 2025 and 2030(see Figure 1).The decade after 2030 will see a further dramatic increase in material demand.However,since the lifetime of batteries in EVs and stationary stor

116、age can exceed 10 years easily,the availability of spent batteries for recycling will remain limited during the next decade.For example,in Europe,the material will hardly surpass 1 million metric tons before 2035.1 AUTHORSDr.Michal Kolk,Dr.Philipp Seidel,Felix Hoffmann1.“Lithium-Based Batteries Supp

117、ly Chain Challenges.”European Commission,accessed September 2024.THE EU COMMISSION ESTIMATES THAT THE GLOBAL DEMAND FOR ACTIVE BATTERY MATERIALS SUCH AS LITHIUM,GRAPHITE,AND NICKEL WILL DOUBLE BETWEEN 2025 AND 2030.24Recycling end-of-life(EOL)Li-ion batteries(from laptops,consumer electronics,and,ma

118、inly,an increasing number of EVs)and reusing their components in new batteries should present a clear opportunity to marry sustainability and profitability.The EU Commission expects about half of the demand for nickel and cobalt for batteries in 2040 to be covered by output from recycling facilities

119、.2 However,in many regions,battery recycling business models are not profitable because of the need for high-CAPEX investments,low current volumes,immature technology,volatile raw material prices,and difficulties in scaling.Over three-quarters(77%)of experts in our analysis agree that recycling EOL

120、Li-ion batteries in Europe is currently not economically viable.This leads to the unsustainable practice of exporting black mass(partly processed EOL battery materials)to Asia,adding to transport emissions and impacting access to rare minerals required by the growing European battery industry.Global

121、 markets reflect this with lower prices for black mass in Europe due to lower local processing capacity,and thus demand,as well as the costs of shipping to Asia.How can an economically viable circular model be put in place?Based on ADL research of industry players and our experience within client pr

122、ojects,this article sets out a blueprint for urban mining to successfully and profitably recycle Li-ion batteries locally.This template not only helps create a circular economy around batteries but provides best practices that can be applied to other recycling initiatives,such as electronics,plastic

123、s,and metals.2.Maisel,Franziska,et al.“A Forecast on Future Raw Material Demand and Recycling Potential of Lithium-ion Batteries in Electric Vehicles.”Resources,Conservation&Recycling,No.192,2023.Source:Arthur D.Little,European Commission Joint Research CentreFIGURE 1:FORECAST OF GLOBAL DEMAND FROM

124、BATTERIES FOR PROCESSED RAW MATERIALS(IN KT)120COBALT REFINEDGRAPHITE BATT-GRADELITHIUM REFINEDMANGANESEBATT-GRADE(HIGH PURITY)NICKEL BATT-GRADE2103205702207301,6204,2502907301,5404,015601502404701405201,1002,750+174.2%+483%+452.3%+217.7%+430.9%2020202520302040PRISM:OPENING THE URBAN MINE BUILDING A

125、 PROFITABLE CIRCULAR ECONOMY BASED ON A LITHIUM BATTERY RECYCLING EXAMPLEARTHUR D.LITTLE25BUILDING A CIRCUL AR ECONOMY AROUND BAT TERIES The growth of EVs focuses attention on the importance of Li-ion battery production to national and regional economic competitiveness.This leads to an increase in r

126、egulations designed to secure supplies of specific materials while governments encourage the creation of battery gigafactories through subsidies and incentives.THE GLOBAL REGULATORY PICTURERegulations around battery recycling and sourcing rare materials vary worldwide but show an overall trend towar

127、d stricter standards.Asia,especially South Korea and China,was a notable first mover,with battery recycling regulations in place since 2013.This led to a current recycling rate of approximately 90%and a well-developed,profitable circular economy around batteries.The EUs 2006 Battery Directive set a

128、55%recycling rate target.Realizing this was insufficient,its 2023 Battery Regulation marks a shift toward establishing a closed-loop battery value chain.This includes targets for both recycling particular materials and their reuse in the production of new batteries,including:Increasing lithium recyc

129、ling rates from 50%to 80%between 2028 and 2032 Increasing cobalt,copper,nickel,and lead recycling rates to 90%from 2028,rising to 95%by 2032In the US,there is no overarching requirement for battery recycling.However,initiatives such as the Department of Energys Lithium-Ion Recycling Prize and progra

130、ms such as Call2Recycle actively promote and improve battery recycling practices.Furthermore,the Critical Minerals and Materials(CMM)Program indirectly encourages battery recycling by listing certain materials,including cobalt and nickel,as essential for clean technology.REGULATIONS AROUND BATTERY R

131、ECYCLING AND SOURCING RARE MATERIALS VARY WORLDWIDE BUT SHOW AN OVERALL TREND TOWARD STRICTER STANDARDS.26THE LI-ION BATTERY RECYCLING PROCESSBattery recycling broadly follows a three-stage process:1.Reverse logistics(collection/sorting):Spent batteries are collected/transported to operating hubs an

132、d sorted.2.Pre-treatment:Batteries are discharged,disassembled,and mechanically reduced through shredding.This results in black mass,a dark powder comprising all battery materials.3.Materials recovery:Black mass is processed to extract metals by chemical or thermal processes or a combination thereof

133、.Advanced process routes today deliver a greater than 90%recovery rate for elements including lithium.CURRENT CIRCUL AR ECONOMY BUSINES S MODEL SBatteries for recycling come from two sources:production scrap from battery gigafactories and EOL batteries from EVs,energy storage,cellphones,and laptops.

134、The average life of EV batteries in first and(less demanding)stationary second-life applications is estimated to reach 10-15 years easily.That means most recyclers focus on batteries from production scrap,especially through closed partnerships between battery manufacturers and recyclers.This will ch

135、ange in the medium term as EV numbers increase.In Europe,20302035 is forecast to be the cross-over point when EOL volumes from EVs overtake production scrap to form the majority of recycling stock.This will enable new business models,such as vehicle OEMs or battery manufacturers,to retain ownership

136、of the battery materials and use recycling companies as service providers to carry out the extraction process.In Asia,where battery and EV production picked up earlier,recyclers have already built and begun operating large-scale hydrometallurgy facilities,processing black mass,including from Europe,

137、at scale.This enables more economical operations and has stimulated a strong local market for black mass,resulting in prices around 20%higher than in Europe.The combination of these higher prices and a dearth of current hydrometallurgy operations in Europe leads to surplus black mass being exported

138、to Asia,raising concerns about material security.PRISM:OPENING THE URBAN MINE BUILDING A PROFITABLE CIRCULAR ECONOMY BASED ON A LITHIUM BATTERY RECYCLING EXAMPLEARTHUR D.LITTLE2 7THE CHALLENGES TO URBAN MININGTo gain deeper insight into economic perspectives on current and future battery recycling,A

139、DL conducted a research project with RWTH Aachen University in Germany.The project involved interviewing industry experts about the challenges and opportunities for urban battery mining.The results identified six key challenges and cost drivers that need to be overcome.1.THE HYDROMETALLURGICAL PROCE

140、SS The biggest obstacle to recycling in Europe is the cost of establishing and running hydrometallurgy facilities,as highlighted by two-thirds(66%)of experts.This covers the CAPEX investment required for building complex,specialized facilities capable of handling aggressive chemicals at scale and op

141、erating costs.Extracting valuable metals such as lithium,nickel,cobalt,and manganese in battery-grade quality requires precise controls and sophisticated procedures to ensure high-purity recovery.Residues and byproducts include toxic substances and heavy metals,requiring substantial(and expensive)tr

142、eatment processes to ensure compliance with environmental regulations.2.BATTERY TRANSPORTATIONThere are stringent safety regulations around the transport and storage of EOL or waste Li-ion batteries,some of which are country-specific.Ninety-two percent of experts identified these requirements as cha

143、llenging because of the high costs they add to battery transportation.A lack of transparency around the condition of batteries(i.e.,whether they are simply EOL or have defects)further adds to transport expenses,requiring the greater,potentially unnecessary use of heavy and space-consuming metal cont

144、ainers.Long transport distances,especially over national borders,and lack of experience with safely transporting batteries also add to costs.THE BIGGEST OBSTACLE TO RECYCLING IN EUROPE IS THE COST OF ESTABLISHING AND RUNNING HYDROMETALLURGY FACILITIES,AS HIGHLIGHTED BY TWO-THIRDS(66%)OF EXPERTS.283.

145、SITE SELECTION AND PERMIT ACQUISITION Hydrometallurgical facilities require specific conditions,such as access to sufficient bodies of water,which complicates where they can be located,while the chemical intensity of their processes requires companies to obtain detailed permits for their operation.S

146、ecuring the right permissions can take substantial amounts of time and requires complex negotiations with regulatory bodies and engagement with local communities and businesses.Permitting and regulations also vary between countries,adding further complexity and potentially leading recycling companie

147、s to set up operations in less regulated geographies.4.SECURING A CONSISTENT SUPPLY OF BATTERIES AND MANAGING UPSTREAM/DOWNSTREAM PARTNERSHIPS Industry experts see demand increasing for EOL batteries as companies position themselves for the future.Just under half(43%)of respondents perceive securing

148、 future return volumes as a significant to enormous challenge because of growing competition.Two factors exacerbate this:1.EV OEMs significantly influence the market,for example,by specifying quantities available for recycling and inviting bids for battery processing.This requires recyclers to navig

149、ate complex tender processes often for short(one-year)contracts limiting the ability to plan effectively.2.New players,often from Asia or North America,are entering the market.Many have substantial financial resources or experience,meaning they will disrupt market dynamics,potentially through aggres

150、sive pricing strategies designed to gain market share.5.REGULATORY COMPLIANCE AND OPERATIONAL EFFICIENCY Within the EU,the Battery Regulation mandates minimum recycling rates for specific battery materials,which will progressively increase.Experts believe achieving these targets is technically feasi

151、ble but will pose a significant operational challenge to recyclers,requiring substantial effort and process optimization to comply.Conversely,increasing recycled content requirements in European batteries will drive the need for recycling.PRISM:OPENING THE URBAN MINE BUILDING A PROFITABLE CIRCULAR E

152、CONOMY BASED ON A LITHIUM BATTERY RECYCLING EXAMPLENCALFPLMONMCANMC(532)NMC(622)NMC(811)LCO8,0000LiMnNiCoFePCCuAIKEY ASSUMPTIONSCommodity prices:Average 2021 material prices(before high-volatility period)Battery component composition:Cathode(30%),anode(15%),electrolyte(10%),aluminum(20%),copper(15%)

153、,and others(plastic,binder,etc.)(10%)Cathode material composition:Material mix dependent on battery chemistryComponent recovery rate:Cathode,anode,electrolyte,aluminum,and copper are recoveredMaterial recovery rate:Ni,Co,Cu,Li(aligned with regulations in EU)OPEX:Assumption for average mechanical+hyd

154、ro routeIN EURO PER TON OF RECYCLED BATTERIES BY CHEMISTRYOPEXCATHODEACTIVEMATERIALSOTHER MATERIALSARTHUR D.LITTLE2 96.CHANGING BATTERY CHEMISTRIESGiven the significant cost of rare metals,battery manufacturers are looking to alternative battery chemistries that require cheaper inputs.For example,ex

155、pensive nickel,manganese,and cobalt(NMC)batteries are increasingly being replaced by cheaper new technologies such as lithium iron phosphate(LFP),which contain neither nickel nor cobalt(see Figure 2).LFP is expected to make up 50%of recycling feedstock by 2030.However,recycling profitability is much

156、 lower since lithium is the most valuable material that can be extracted from LFP batteries besides the lower-value iron and phosphate components.This is a particular challenge in Europe and North America;in Asia,there is an established,profitable market for LFP recycling.New,lower-cost batteries su

157、ch as sodium-ion may further lower recycling profitability.Source:Arthur D.LittleFIGURE 2:THE RECYCLING ECONOMICS OF DIFFERENT LI-ION BATTERY CHEMISTRIES3 0RECOMMENDATIONS FOR BAT TERY RECYCLING PROFITABILIT Y The creation of large-scale circular economies around battery recycling is vital to the gr

158、een transition,particularly in Europe.While significant challenges exist,focusing on four recommendations helps overcome obstacles around profitability and provides lessons for businesses creating circular economies in other areas.1.ADOPT A HUB-AND-SPOKE MODEL FOR LOGISTICS Transporting EOL batterie

159、s over long distances is costly and raises safety concerns.By contrast,moving processed black mass is simpler and much less expensive.Consequently,recyclers should adopt hub-and-spoke models for their operations,with multiple local collection points for EOL batteries feeding spokes where initial mec

160、hanical processing is carried out(see Figure 3).The resulting black mass can then be transported to accessible central hydrometallurgy hubs for extraction.This model mitigates environmental impacts and bolsters economic efficiencies,streamlining collection,reducing transportation costs(and emissions

161、),and improving safety.Required capital is reduced as the number of hydrometallurgy hubs is minimized.Source:Arthur D.Little FIGURE 3:OPTIMIZED HUB-AND-SPOKE MODEL FOR RECYCLING HUBSCENTRALIZED PROCESSING OF BLACK MASSSPOKESDECENTRALIZED PRE-PROCESSINGOF BATTERIES INTO BLACK MASSCOLLECTION POINTSDEC

162、ENTRALIZED COLLECTION OF BATTERY SCRAP&EOL BATTERIESPRISM:OPENING THE URBAN MINE BUILDING A PROFITABLE CIRCULAR ECONOMY BASED ON A LITHIUM BATTERY RECYCLING EXAMPLEARTHUR D.LITTLE3 1The two main challenges to this approach are:1.The significant costs of transporting EOL batteries across borders if s

163、pokes are located in different countries.2.The reliance on a small number of large processing hubs.Hub failure or overload could paralyze operations,and securing suitable sites of sufficient size is vital to achieving economies of scale.Case example:Li-CycleLi-Cycle,headquartered in Canada,is an int

164、ernational battery recycling company that applies the hub-and-spoke logic in its operations.Geographically distributed spokes pre-process packs and deliver black mass.Concentrated hubs continue with hydrometallurgical processing of black mass.Li-Cycle set up a North American hub in Rochester,New Yor

165、k,and has announced plans to install a European hub in Portovesme,Italy.2.INNOVATE IN TECHNOLOGY AND PROCESSINGImproving current processing techniques and technologies can reduce costs,increase profitability,and optimize operations.Two-thirds of experts see presorting batteries as an area that needs

166、 to be significantly improved.Currently,many recyclers dont presort before starting to process,creating greater effort later.Presorting enables recyclers to:Distinguish between batteries with the same chemistry but different material percentages(e.g.,NMC 111 batteries are significantly more valuable

167、 because of their higher cobalt content than NMC 811)Understand the batterys condition so it can be processed differently,such as being repaired rather than recycledTWO-THIRDS OF EXPERTS SEE PRESORTING BATTERIES AS AN AREA THAT NEEDS TO BE SIGNIFICANTLY IMPROVED.3 2Additionally,current recycling pro

168、cesses are not optimized for efficiency or material separation,adding to costs and meaning valuable metals are lost,such as lithium.Innovative technologies offer the possibility of:Improving yields Reducing energy consumption(and,consequently,costs)Substituting biological solvents for more aggressiv

169、e/higher-emitting chemicals in the hydrometallurgy process,reducing environmental hazards and regulatory requirements3.USE MACHINE LEARNING AND AI TO OPTIMIZE RECYCLING Rightsizing operations and managing capacity and utilization are crucial for recycling profitability.AI supports planning optimizat

170、ion through more accurate short-/medium-term raw material price forecasting based on a much wider range of data inputs and advanced simulations.This enables recyclers to flexibly adapt their capacity planning,operations management,and procurement functions.AI also optimizes location planning for hub

171、s and spokes and related transport and logistics.In operations,better AI-powered analytics can help predict and diagnose battery health,value,and handling risks more accurately in conjunction with tools such as the EUs proposed battery passport.AI agents trained with large amounts of battery data ca

172、n enable new recycling methods such as direct recycling of cells or cell components through better diagnostics on a more granular level.Machine learning also supports greater automation to reduce and remove recycling bottlenecks.Cameras for computer vision and robotics to identify packs,their design

173、s,and conditions enable more automated disassembly processes.This will be critical when volumes of EOL batteries grow and recycling facilities are scaled for efficiency.Case examples:Circu Li-ion and Li IndustriesEuropean start-up Circu Li-ion leverages AI applications in automated sorting combined

174、with electrochemical techniques to improve efficiency in the recycling process.Batteries and cells that are fit for more direct recycling approaches than shredding and hydrometallurgy are detected and separately processed.Another example is Li Industries from the US.This cleantech company that focus

175、es on developing next-generation Li-ion battery recycling developed a smart sorting solution with AI.PRISM:OPENING THE URBAN MINE BUILDING A PROFITABLE CIRCULAR ECONOMY BASED ON A LITHIUM BATTERY RECYCLING EXAMPLEARTHUR D.LITTLE334.LEVERAGE ECONOMIES OF SCALEAsian recyclers show the benefits of econ

176、omies of scale regarding efficiency,yields,and higher profitability.For example,break-even in hydrometallurgy is achievable only with a capacity of at least 20,000 tons of black mass per year,as scaling up quantities doesnt proportionately increase plant and material costs.Six in 10 experts say Euro

177、pean recyclers need to make large-scale adjustments to achieve similar economies of scale.Adopting hub-and-spoke models helps with scale,securing sufficient supplies of black mass to drive profitability.Case example:BrunP Recycling BrunP Recycling,a subsidiary of the worlds largest Li-ion battery pr

178、oducer(Chinas CATL),is closing the battery materials loop globally with recycling operations in China and Indonesia and expansion plans for Europe.BrunPs recycling facilities in Hunan,China,are reportedly the biggest in the world,with the capacity to process 100,000 tons per year.In comparison,most

179、operational Western facilities cope with amounts of 5,000-20,000 tons per year.3 4INSIGHT S FOR THE E XECUTIVEEmbracing the circular economy for profitability,such as around battery recycling,requires businesses to focus on four key areas:1.Build partnerships across ecosystems,often with non-traditi

180、onal partners:This includes long-term relationships with all types of players along the battery lifecycle to stabilize supply and demand.It is vital not to limit partnerships to pure battery players but to look more widely;for example,to second-life users in the electricity infrastructure industry,p

181、roviders of advanced battery analytics,suppliers of machinery,and experts in waste collection and logistics.2.Monitor and understand changing regulatory plans and potential subsidies that can help underpin investment:One key driver of recycling businesses is regulatory requirements regarding batteri

182、es,such as the new European Battery Regulation.Beyond that,supply chain transparency rules or carbon footprint regulations indirectly impact the choice of processes and materials and can push demand for recycling output.3.Use AI to predict better demand and material prices,enabling more informed and

183、 accurate decision-making:Operating and developing in a highly complex and competitive environment,profitable battery recycling operations rely on well-founded decisions.These require the best available data and capable tools to make better predictions and draw smarter conclusions.AI may boost the a

184、nalytical capabilities of recycling businesses and deliver a decisive competitive advantage in the years to come.4.Plan and invest now when volumes may be low to gain a leadership position for when volumes increase:The Chinese recycling ecosystem shows that starting early and establishing a footprin

185、t and credibility is a key requirement for success and profitability.Outside China,the first major materials and chemical incumbents and some large-scale entrants have started to stake claims.New,innovative businesses can still disrupt by finding better ways to deliver profitable and sustainable rec

186、ycling in this dynamically evolving industry.PRISM:OPENING THE URBAN MINE BUILDING A PROFITABLE CIRCULAR ECONOMY BASED ON A LITHIUM BATTERY RECYCLING EXAMPLE.ARTHUR D.LITTLE35DR.MICHAL KOLK is a Managing Partner in Arthur D.Littles Amsterdam office and the Head of the Innovation practice.DR.PHILIPP

187、SEIDEL is a Principal in Arthur D.Littles Munich office and a member of the Automotive and Sustainability practices.FELIX HOFFMANN is a Manager in Arthur D.Littles Munich office and a member of the Automotive and Sustainability practices.This article is based on a joint research project with Natalia

188、 Soldan and Christopher Weinert from the Institute for Production Engineering of E-Mobility Components(PEM)at RWTH Aachen University and contribution by Tim Neumann.GETTING A GRIP ON DECARBONIZATION WITH EFFECTIVE INTERNAL CARBON PRICING3 6PRISM:GETTING A GRIP ON DECARBONIZATION WITH EFFECTIVE INTER

189、NAL CARBON PRICINGARTHUR D.LITTLE3 73 8Regulators and other stakeholders are increasing pressure on organizations to monitor,improve,and share information on their greenhouse gas(GHG)emissions.They want increased transparency around targets,timelines,and plans and are increasingly demanding actual r

190、esults from decarbonization efforts.The number of emission trading schemes(ETS)and carbon taxes is rising worldwide.In 2024,75 carbon pricing initiatives were in place,covering 24%of global GHG emissions.Other countries are discussing implementing their own carbon pricing schemes.As the world moves

191、toward pricing carbon,organizations must respond by better managing and steering their carbon footprint.They need to start pricing carbon internally,using techniques such as internal carbon pricing(ICP),which contributes to better trade-offs in decision-making and considers the likely future price o

192、f externalities(as costs will be gradually internalized in products).Without ICP,procurement and other departments will never be incentivized to purchase and create more sustainable products.While many companies use ICP,most only deploy it in the margins of their operations.They are not leveraging i

193、ts potential to become the core of their decarbonization approach,which could satisfy sustainability targets and deliver significant value to the organization.This is partially because providing effective programs in practice is not easy,thanks to the sheer complexity of organizations and their supp

194、ly chains and an absence of reliable data(both from upstream and downstream emissions).Consequently,many organizations that have launched ICP programs have only applied them to selected Scope 1(and 2)emissions and set carbon prices at conservative levels,with the actual weight of carbon pricing in d

195、ecision-making not rigorously set.AUTHORSPavel Kubika,Martijn Eikelenboom,Ji Steif,Trung Ghi,Louay Saleh,Erik van der Wurff AS THE WORLD MOVES TOWARD PRICING CARBON,ORGANIZATIONS MUST RESPOND BY BETTER MANAGING AND STEERING THEIR CARBON FOOTPRINT.PRISM:GETTING A GRIP ON DECARBONIZATION WITH EFFECTIV

196、E INTERNAL CARBON PRICINGARTHUR D.LITTLE3 9Now is the time for organizations to implement and step up their ICP programs to steer and mitigate their carbon emissions in line with their decarbonization strategies.This requires a much more holistic focus,putting in place a comprehensive,data-driven ap

197、proach built on internal and external sources,starting small and growing to cover all material emissions across Scope 1,2,and 3.It should enable granular and flexible emissions management by categories such as business unit,geography,type of emissions,or type of decisions,using parameters such as we

198、ight in decision-making or current and future carbon dioxide(CO2)price.This will give CEOs a much firmer grip on their decarbonization strategy,enabling them to guide it more confidently and effectively navigate a world where carbon will have an increasingly higher price.THE NEED TO BE T TER MANAGE

199、EMIS SIONS Multiple factors are pushing companies to manage and decrease their GHG emissions:Regulatory mechanisms:Many governments have already implemented carbon-pricing mechanisms,such as carbon taxes,cap-and-trade systems(e.g.,EU ETS),or the EUs Carbon Border Adjustment Mechanism(CBAM),to incent

200、ivize companies to reduce their GHG emissions.The direction of travel is clear,with new regulations,such as the EU Corporate Sustainability Reporting Directive(CSRD)and the International Sustainability Standards Board(ISSB)S1 and S2 standards,requiring companies to disclose their current GHG emissio

201、ns,including Scopes 1,2,and 3.Also influencing this direction are set targets and obligations to report on progress.Market-driven mechanisms:Businesses also face pressure from consumers,investors(e.g.,ESG environmental,social,and governance funds or general investment funds with ESG criteria such as

202、 BlackRock),and business partners/customers that have committed to reducing their total emissions and mandate that their supply chains,therefore,better manage their own emissions.Legal challenges:Multiple large companies have been sued for damaging the environment through fossil fuel production or n

203、ot keeping to their publicly declared promises around GHG emissions.For example,in 2021,a court in The Hague,the Netherlands,ruled that Shell must decrease its CO2 emissions by 45%by 2030 in line with Paris Agreement goals,covering both emissions from its operations and those from the use of fossil

204、fuels it produces.Voluntary initiatives:Many companies have voluntarily committed to reducing their GHG emissions by setting internal targets or joining programs such as the Science Based Targets initiative(SBTi)or RE100.ICP is critical to monitoring and meeting these targets and engaging the entire

205、 business in reducing emissions.4 0HOW DOES AN INTERNAL CARBON PRICE WORK?Figure 1 shows how an internal carbon price factors in an additional metric(the financial cost of emissions)when making investment and procurement decisions and generating a projected net present value(NPV).This is then used a

206、s part of the calculation to understand whether a project or purchase fits within company ROI thresholds and make a go or no-go decision.It is important to understand that the ICPs impact on project approvals can be both negative and positive.It can rule out investments that add significantly to org

207、anizational GHG emissions;equally,factoring in the cost of avoiding emissions can enable sustainability projects to go forward,even if they would not have been approved using traditional profitability calculations that did not consider carbon prices.In terms of legislative requirements,the use of IC

208、P is currently voluntary.New legislation such as the European Sustainability Reporting Standards(ESRS),IFRS S2,and US Securities and Exchange Commission(SEC)Climate-Related Disclosures merely asks:If an ICP is used at all?If in place,what is the price/t CO2?In addition,the ESRS and IFRS S2(but not S

209、EC climate-related disclosures)ask how the ICP is used in decision-making.PRISM:GETTING A GRIP ON DECARBONIZATION WITH EFFECTIVE INTERNAL CARBON PRICINGSource:Arthur D.LittleFIGURE 1:ILLUSTRATION OF AN INTERNAL CARBON PRICEFINANCIAL MODELS TYPICALLYACCOUNT FOR NECESSARY CAPITALAND OPERATING COSTS TO

210、 ARRIVE AT A PROJECTED RETURN ON INVESTMENT(ROI)IN THIS EXAMPLE,THE NEWROI FALLS OUTSIDE THECOMPANYS REQUIREMENTAND HENCE WILL NOT BEAPPROVEDICP FACTORS IN ANARBITRARY COST TOSIMULATE PROJECTIMPACT ON THE ENVIRONMENTINVESTMENT THRESHOLDREVENUESCAPEXOPEXPROFITCOST OF EMISSIONSIMPLIED PROFIT123ARTHUR

211、D.LITTLE4 1THE CURRENT CHALLENGES TO ICP USE Extending ICP and making it the cornerstone of a more rigorous and effective decarbonization strategy faces two current challenges:the need for reliable data and prioritization among competing concerns.NEED FOR RELIABLE DATACalculating realistic carbon pr

212、ices for projects requires an accurate understanding of the emissions that an organization generates.This includes emissions created by the organization(Scope 1),emissions from purchased energy(Scope 2),and,increasingly,Scope 3 data from upstream and downstream emissions.Collecting this data and ens

213、uring it is accurate and trustworthy,particularly from outside the organization,can be difficult.It requires a holistic approach and,importantly,relies on buy-in from different business units and external suppliers.To overcome the lack of reliable data,companies should begin by adopting an estimatio

214、n method(e.g.,spend-based,average data,or hybrid models),which provides an initial understanding of relevant GHG emissions.The weight given to ICP within decision-making should be proportionate to data quality.Suppose companies decide to give ICP greater weight.In that case,they need to gradually mo

215、ve to collecting primary emissions data,including through supplier engagement,and start with areas with a large impact and lower emission data point requirements,such as investments.PRIORITIZATION AMONG MULTIPLE COMPETING CONCERNS Companies face many serious issues,including high energy prices,infla

216、tion,and unstable supply chains.Given that ICPs are not mandatory,the temptation could be to avoid spending additional time and effort to develop one today.In fact,now is the optimum moment to start as examples show,it takes time to build an optimal ICP that is fully aligned with the companys strate

217、gy.Businesses can then use it to increase their resilience against future changes in regulations and mandatory carbon prices.GE T TING S TARTED WITH ICPFully embedding ICP now gives companies greater control over carbon-reduction strategies,demonstrates transparency,increases efficiency,and delivers

218、 first-mover advantage,providing a framework for achieving future sustainability targets,as the success of leaders shows.CALCULATING REALISTIC CARBON PRICES FOR PROJECTS REQUIRES AN ACCURATE UNDERSTANDING OF THE EMISSIONS THAT AN ORGANIZATION GENERATES.42Successfully implementing ICP requires organi

219、zations to focus on the following five areas.1.INVOLVE ALL KEY CORPORATE FUNCTIONSSetting an internal carbon price and then using it effectively requires a holistic approach that stretches across key functions,especially:Executive leadership:Setting the strategic direction for the ICP initiative and

220、 providing necessary resources and commitment ESG/sustainability:Contributing expertise on climate change and carbon management,identifying opportunities for emission reductions,and ensuring that the ICP aligns with the overall sustainability strategy Finance:Taking a lead role in designing the ICP

221、mechanism,integrating it into the companys financial systems,and tracking its financial impacts Operations:Implementing the ICP within the companys day-to-day activities,including projects to reduce carbon emissions,monitoring progress,and ensuring compliance Procurement:Modifying processes and inco

222、rporating the ICP into supplier contracts,ensuring partners are aware of the companys carbon-pricing policy HR:Communicating the ICP to employees and providing support in developing training programs and incentives Legal and compliance:Ensuring the ICP adheres to relevant laws and industry standards

223、,managing any implementation risks Communications/marketing:Promoting the ICP both internally and externally,highlighting the companys commitment to sustainability Getting buy-in from the entire business is vital to drive acceptance and support for the ICP.2.CHOOSE A MODEL/BENCHMARKICP can be applie

224、d through a range of models.The most common are:Shadow price:This approach calculates the impact of mandatory carbon prices on future business operations and acts as a tool to identify potential climate risks.This approach aims to influence decision-making.About 80%of companies that report using ICP

225、 have chosen this approach,including Panasonic and Teijin.PRISM:GETTING A GRIP ON DECARBONIZATION WITH EFFECTIVE INTERNAL CARBON PRICINGARTHUR D.LITTLE43 Internal fee:This approach takes carbon pricing a step further and involves the company charging itself a fee for every ton of carbon emissions it

226、 produces(“internal carbon tax”).Based on how it is implemented,it can provide a clear incentive for business units to reduce emissions through payment to the“corporate,”thus generating revenues that can then be assigned to sustainability projects.It is more suitable for companies in low-carbon-inte

227、nsity sectors,such as technology,financial,and professional services.Companies employing this methodology include Klarna and Swiss Re.Early in the ICP process,senior leadership should decide strategically on the models and approaches to adopt to support their strategy.This will vary depending on fac

228、tors such as the industry they are in,the level of current emissions,and how these will be reduced.For example,in 2019,insurer Swiss Re committed to net zero emissions across the company and introduced an internal carbon price for operations,initially set at$8/tCO2e.This increased to$100/tCO2e in 20

229、21,with a plan to gradually raise it to$200/tCO2e in 2030.As of 2023,Swiss Res operational GHG emissions amounted to around 28,000 tons of CO2e,and the 2023 internal carbon tax price was increased to$123/tCO2e.Through this,Swiss Re has generated an estimated US$3.4 million to cover the costs of the

230、carbon removal certificates,which it plans to use to compensate for its emissions while incentivizing business units to take concrete action on emissions reduction.The program is accompanied by other measures,including increasing energy efficiency,switching to 100%renewable electricity,and reducing

231、business air travel.3.SET THE CARBON PRICEICP is being used across sectors with vastly different carbon prices.Therefore,one of the most important tasks for each company is to set its own ICP carbon price.Five key factors should be considered:1.The social cost of carbon:This is based on externalitie

232、s caused by emitting an additional ton of CO2e into the atmosphere.According to the UN Global Compact,the recommended carbon price should have been at least$100/tCO2e by 2020,the US Environmental Protection Agency(EPA)suggested$190/tCO2e in 2022,and the International Monetary Fund(IMF)sees an intern

233、ational carbon price floor as the only viable scenario that would limit CO2 emissions sufficiently and suggests at least$85/tCO2e by 2030.EARLY IN THE ICP PROCESS,SENIOR LEADERSHIP SHOULD DECIDE STRATEGICALLY ON THE MODELS AND APPROACHES TO ADOPT TO SUPPORT THEIR STRATEGIES.442.Expected regulatory c

234、hanges:Assess existing and anticipated carbon-pricing policies and regulations,including carbon taxes,cap-and-trade systems,and other market-based mechanisms.A sufficiently high ICP can help align with future mandatory/regulatory carbon price increases.3.Organizational incentives:To fully leverage t

235、he potential of ICP,the chosen carbon price needs to be high enough to influence decision-making.Furthermore,the entire ICP structure needs to be set up to encourage innovation and efficiency.4.Industry benchmarks and market trends:Consider carbon prices adopted by competitors,industry leaders,and o

236、ther organizations with similar operations and emissions profiles.Figure 2 shows examples of internal carbon prices set by specific companies these examples are based on CDP data and information from company websites.Monitor global carbon market trends,including the prices of carbon credits and allo

237、wances and the direction of carbon-pricing policies.5.Cost of abatement:Estimate the cost of implementing emission-reduction measures.The internal carbon price should be set at a level that incentivizes investments in these measures and technologies.PRISM:GETTING A GRIP ON DECARBONIZATION WITH EFFEC

238、TIVE INTERNAL CARBON PRICINGSource:Arthur D.Little,CDP,World Bank Group,S&P,FDFIGURE 2:INTERNAL CARBON PRICES DISCLOSED PUBLICLY BY LARGE ORGANIZATIONS NOTE:EQUINOR USES AN INTERNAL CARBON PRICE OF$80/T FOR PROJECTS IN NORWAY AND$55 PER METRIC TON GLOBALLY;AMGEN USES$1000 ICP FOR PROJECTS THAT GENER

239、ATE SUBSTANTIAL CO2E.MORE EXPENSIVE PROJECTS WITH CO2E COST OF 20K2K-20K100-2K10KMRERBUSMTSUBURBAN RAILBUSWALKINGBIKE/BIKE SHARINGCAR SHARINGMOTORBIKESHARINGBUS RAPIDTRANSITDEMAND RESPONSIVETRANSITTAXIS&RIDE HAILINGE-SCOOTERSHARINGRERMTBRTTRAMWAYMETROBUSBRTLOG SCALE5 8MOBILITY AS A SERVICEThe mobili

240、ty as a service(MaaS)concept,which allows consumers to plan,book,pay for,and access various mobility services through a single digital platform,has been a prominent innovation in mobility over the last decade.It promised to facilitate a shift from ownership to usage of mobility devices and reduce re

241、liance on private cars.However,despite some progress,the overall expansion of MaaS has been sluggish and largely failed to fulfill these promises.A primary reason is that most MaaS implementations have adopted a one-size-fits-all,technology-centric approach without adequately addressing the specific

242、 needs of users,service providers,or authorities.In terms of the Gartner hype curve,with less than 5%of the potential audience adopting it,we are probably close to the“Trough of Disillusionment.”MaaS is certainly part of the solution to achieving a more“virtuous mobility system,”but it needs to evol

243、ve beyond merely serving as an“umbrella app”for existing services.It should offer added value,such as enhanced system-level functionalities that benefit both customers and cities,cater to specific target groups such as tourists and private car owners,and support broader mobility goals(for instance,b

244、y suggesting routes that favor sustainable modes).Furthermore,improved collaboration within an open data ecosystem is essential for the effective realization of MaaS.AUTONOMOUS MOBILITYAutomation of mobility services will be part of our cities and regions in the not-so-distant future,and its deploym

245、ent could help solve some of todays pressing issues,such as lack of drivers,safety,and how to service remote areas.However,autonomous L46 technology is progressing more slowly than predicted and has not yet achieved the breakthrough needed for general application in mixed traffic,even if it is now e

246、xpected sooner rather than later.We expect the benefits of autonomous not to be realised through individual automated vehicles but through connected vehicles in smart traffic systems.Vehicle manufacturers need to prepare technology for integrated mobility systems rather than just individual vehicle

247、solutions.The right use cases and applications must be selected for the post positive impact at overall system level(rather than talking about technology readiness).Today,low-hanging fruit can be found in traffic,such as automated bus rapid transit systems on dedicated lanes or remote-controlled veh

248、icles,as well as within premises,such as automated bus driving in depots.TO MEET MARKET DEMANDS,MAAS MUST EVOLVE BEYOND MERELY SERVING AS AN“UMBRELLA APP”FOR EXISTING SERVICES.6.L4 refers to autonomous vehicles that are fully self-operational within set boundaries and require no attention or assista

249、nce from a human driver.PRISM:MAKING THE SHIFT CHANGING GEAR IN THE JOURNEY TOWARD SUSTAINABLE MOBILITYARTHUR D.LITTLE5 9MOBILIT Y DEMANDMOBILITY DEMAND AND ACCESS MANAGEMENT MEASURES Prioritizing a shift toward sustainable mobility behaviors is crucial for enhancing transportation systems.Our lates

250、t“Future of Mobility”survey7 study shows that the availability of alternative mobility services influences only about 30%of potential readiness to abandon personal cars.The other 70%needs to be addressed through effective demand management strategies.Mobility demand and access management strategies

251、can be diverse and must be supported by thorough cost-benefit analyses that include externalities and are carefully tailored to each unique context.Our study examined 40 potential measures and found that while some high-impact options such as urban planning,land-use models,and dynamic tools such as

252、congestion charging can be challenging and expensive to implement,other effective measures are more feasible if there is sufficient political will and courage.We refer to these as“sweet spots.”They include regulatory actions aimed at reducing cars and freight in urban areas,such as low-emission zone

253、s,freight transport restrictions,and parking regulations and pricing;specific infrastructure initiatives such as intermodal mobility hubs;personal travel management measures including smart parking solutions or MaaS apps;and marketing strategies that promote sustainable mobility.The importance of ef

254、fective marketing cannot be overstated,particularly when considering the marketing spend by the automotive industry.private companies and public organisations can also play a key role in promoting sustainable mobility behaviors among their employees through initiatives such as mobility plans or mobi

255、lity budgets.RETHINKING THE MOBILITY FUNDING EQUATION Expanding mass transit,especially into less densely populated areas,requires significant investment because of higher marginal costs per passenger.Similarly,transitioning to net zero and enhancing resilience require considerable financial resourc

256、es for fleet electrification,new e-vehicle infrastructure,and the maintenance or replacement of existing infrastructure.Solving the financing gap will require concerted efforts on both sides of the“mobility funding equation”identifying new funding sources and enhancing the effectiveness and efficien

257、cy of expenditures.7.“Future of Mobility Worldwide Survey(Q4 2023).”Arthur D.Little,forthcoming 2024.PRIORITIZING A SHIFT TOWARD SUSTAINABLE MOBILITY BEHAVIORS IS CRUCIAL FOR ENHANCING TRANSPORTATION SYSTEMS.6 0On the expenditure side,transport authorities must focus on maximizing the cost-effective

258、ness(value for money)of capital investments.This involves prioritizing funding toward the most efficient transport modes based on their usage rates and cost-effectiveness.Additionally,cultivating new mobility as part of the menu might necessitate partial public funding,especially in areas where thes

259、e services enhance the overall mobility system but may not yet be commercially viable.This must be complemented by operational efficiency measures to reduce operational costs.Effective revenue management is crucial,particularly in fare policies,which typically generate 30-50%of total revenues.Explor

260、ing subscription models(including within a broader MaaS framework),enhancing service appeal by improving time competitiveness,and increasing the cost of car usage are viable strategies.Diversifying to identify new sources of revenue is also relevant.Additionally,exploring all available public financ

261、ing options(e.g.,the European Investment Bank in Europe)and fostering innovative public-private partnerships can provide both financial resources and operational benefits.However,it is essential to recognize that revenues ultimately come from only two sources:users and taxpayers.Successful public-pr

262、ivate collaborations require a mutual understanding and acceptance of private sector expectations for a reasonable ROI.PUT TING IT ALL TOGE THER OVER ALL CONCLUSIONSThe potential for transformation is evident,yet the real challenge lies in putting it into action.Insights from our Q4 2023 survey of m

263、obility leaders8 reveal significant discrepancies between the acknowledged importance of these solutions(an average importance rating of 81%)and the current readiness of the ecosystem to implement them(an average readiness rating of below 60%).Therefore,system-level coordination and enablement are i

264、mperative to bridge this gap and turn potential into reality there are no shortcuts.Local and regional authorities must reevaluate their roles in shaping and guiding mobility ecosystems.This means moving beyond their foundational“framing”activities,such as putting in place a forward-looking mobility

265、 vision and suitable regulatory frameworks/policies,toward“enabling”activities.This includes steering and orchestrating roadmaps to facilitate the implementation of solutions that necessitate a multi-stakeholder approach guided by users actual problems and needs and requiring innovative public-priva

266、te partnerships.For example:8.Ibid.PRISM:MAKING THE SHIFT CHANGING GEAR IN THE JOURNEY TOWARD SUSTAINABLE MOBILITYARTHUR D.LITTLE6 1 Roadmaps to facilitate the setup and implementation of a MaaS ecosystem.Adopting a comprehensive,system-level approach to autonomous transportation,integrating automat

267、ed public transport with individual transport modes such as robo-taxis.Undertaking specific roles or actions that serve the wider public interest.An example of this is the future necessity for a“control tower”role in urban centers,which will be essential for the real-time management of traffic flows

268、 and transportation assets.Achieving this will require expanding mandates and capabilities for authorities and developing more agile operational methods.The solutions necessary for a transformative shift toward a more virtuous mobility future are already within our grasp,with clear“game changers”alr

269、eady identified to accelerate the transition.Making it happen demands political will,courage,and determination.Increased collaboration among public and private stakeholders within the extended mobility ecosystem is key.Transport authorities in cities and regions,in particular,play a crucial role in

270、accelerating the shift.6 2PRISM:MAKING THE SHIFT CHANGING GEAR IN THE JOURNEY TOWARD SUSTAINABLE MOBILITY63ARTHUR D.LITTLEFRANOIS-JOSEPH VAN AUDENHOVE is a Managing Partner in Arthur D.Littles Brussels office and head of the Travel&Transportation practice.MICKAL TAUVEL is a Partner in Arthur D.Littl

271、es Paris office and Head of Mobility Segment.ARSENE RUHLMAN is a Manager in Arthur D.Littles Paris office and a member of the Travel&Transportation practice.VADIM PANARIN is a Principal in Arthur D.Littles Brussels office and a member of the Travel&Transportation practice.DR.PHILIPP SEIDEL is a Prin

272、cipal in Arthur D.Littles Munich office and a member of the Automotive,Travel&Transportation,and Sustainability practices.ALEXANDER HENSLER is a Manager in Arthur D.Littles Frankfurt office and a member of the Travel&Transportation practice.RICK EAGAR is a Partner Emeritus of Arthur D.Little,based i

273、n Cambridge,UK.IS STEEL SCRAPTHE NEW GOLD?PRISM:IS STEEL SCRAP THE NEW GOLD?ARTHUR D.LITTLE65Steel production is responsible for 7%1 of global carbon dioxide(CO2)emissions,underscoring the urgency of reducing its carbon footprint to meet net zero targets.Regulators are intensifying their efforts;for

274、 instance,Europe aims to cut CO2 steel production emissions by nearly 25%by 2030.Steel is integral to the global economy,playing a crucial role in the construction,automotive,and industrial machinery industries.It is also essential for green technologies such as wind turbines,electric vehicles,and a

275、dvanced manufacturing processes.Despite volatility,steel demand is projected to rise,making its decarbonization pivotal for achieving a greener economy.Two key technologies promise a more sustainable future for steel production:direct reduced iron(DRI)for primary steel and electric arc furnaces(EAFs

276、)for secondary production,which reuse scrap steel.Deploying these green steel technologies is crucial for reducing emissions and replacing traditional,coal-fired blast furnaces.However,successfully building and running DRI and EAF steel mills requires substantial investments,a supply of competitivel

277、y priced green energy,and the primary lever for EAF acquiring sufficient scrap steel.In 2022,out of the 1,885 million metric tons(Mt)of crude steel production,1,340 Mt were produced using blast furnaces(around two tons of CO2 per ton of liquid metal),which should be replaced by DRI and EAF.EAF produ

278、ction was 538 Mt in the same period.This will drive large-scale demand growth in the scrap market.Scarcity will probably drive prices higher,particularly for clean scrap generated by manufacturing processes.AUTHORSArnaud Jouron,Martin Rajnoha,Ji Steif,Marta Prez1.According to IRENA(“Towards a Circul

279、ar Steel Industry,”July 2023),steel production accounts for roughly 7%of global CO2 emissions.STEEL IS INTEGRAL TO THE GLOBAL ECONOMY,PLAYING A CRUCIAL ROLE IN THE CONSTRUCTION,AUTOMOTIVE,AND INDUSTRIAL MACHINERY INDUSTRIES.6 6To secure their futures and meet the need for this vital material,steelma

280、kers must transform to create more circular economies to secure and effectively use scrap.They need to move from digging in the ground for materials to digging in recycling sources.That requires closer collaboration with recyclers and manufacturers across the ecosystem that create scrap as a byprodu

281、ct of their activities,such as automotive manufacturers,to collect sufficient volumes to power their new mills.These changes are prompting steel producers to look globally for scrap,sourcing this new“gold”from Africa,China,Latin America,Europe,and North America.This expansion necessitates new strate

282、gies and operational models.How can steel producers manage the green transition,and what are the lessons for other sectors as economies become more sustainable and circular?MEE TING THE GLOBAL IMPER ATIVE TO DECARBONIZE S TEEL REGULATORY PRESSURESTraditional steel production methods involve blast fu

283、rnaces that use coking coal as fuel and inevitably produce large amounts of CO2.Around 85%of steel production was powered by fossil fuels in 2022,according to the World Economic Forum.2 While efforts are ongoing to reduce or capture emissions,such as by carbon capture and storage(CCS),large-scale de

284、ployment remains limited because of economic,technical,and infrastructural challenges.Many projects are still at the proof-of-concept stage,such as ArcelorMittals Steelanol Project in Belgium,which aims to capture CO2 from steel production and convert it into ethanol through a biological process.Mea

285、nwhile,the regulatory clock is ticking.Annual emissions from steel production represent 5%of the EUs total CO2.This has led EU regulators to target reducing emissions from 191 Mt in 2021 to 150 Mt by 2030.Individual firms have also set their own targets;for example,US Steel aims to reduce greenhouse

286、 gas emissions intensity by 20%by 2030 and achieve net zero emissions by 2050.Regulatory change is being driven by a combination of targets,carbon taxes(including the EUs Carbon Border Adjustment Mechanism CBAM,which aims to ensure imported materials such as steel are produced sustainably),and natio

287、nal/international subsidies for the switch to cleaner technologies such as DRI and EAF.TRADITIONAL STEEL PRODUCTION METHODS INVOLVE BLAST FURNACES THAT USE COKING COAL AS FUEL AND INEVITABLY PRODUCE LARGE AMOUNTS OF CO2.2.“Net-Zero Industry Tracker 2023.”World Economic Forum,28 November 2023.PRISM:I

288、S STEEL SCRAP THE NEW GOLD?ARTHUR D.LITTLE6 7CUSTOMER PRESSURESMajor customers are also increasingly demanding low-emission steel,driven by their own sustainability targets.For example,leading US automotive manufacturers such as Ford and General Motors have joined the First Movers Coalition,a global

289、 group committed to decarbonizing supply chains,including steel.THE IMPORTANCE OF TECHNOLOGY INNOVATIONTogether,these regulatory and customer pressures are driving a need for change in the steel industry,which is manifested in a shift away from emissions-heavy blast furnaces to cleaner technologies

290、that rely on three elements:1.Green energy 2.Hydrogen 3.Sufficient supplies of scrapDRI AND EAF DRI furnaces replace the coking coal traditionally used in the iron ore reduction process with gas or hydrogen to produce directly reduced(liquid)iron.This is then fed into an EAF,along with scrap steel,a

291、t a ratio of at least 50%scrap.This combination is melted to form liquid steel.It is then cast and rolled to transform the steel into coils or plates.Emissions are considerably reduced,particularly if green feedstock(such as green hydrogen)replaces coking coal and the electricity used within the EAF

292、 is from renewable sources.However,the cost of producing liquid metal will increase without access to cheap,decarbonized energy to power these processes.Demonstrating the potential of this green steel,steel producer SSAB,iron ore miner LKAB,and energy company Vattenfall collaborated to create HYBRIT

293、(Hydrogen Breakthrough Ironmaking Technology),a fossil-free iron and steelmaking technology.In June 2021,the three companies showcased the worlds first hydrogen-reduced sponge iron,which was then used to produce steel provided to Volvo.Volume production by SSAB is scheduled to begin in 2026.THE CHAL

294、LENGES TO THE PRODUC TION OF GREEN S TEEL Five challenges face the steel industry as it aims to transition from old-style blast furnaces to cleaner DRI-EAF steel production:technological maturity,growing CAPEX/OPEX investment,securing green energy,securing sufficient scrap,and the need for new skill

295、s/capabilities.6 81.TECHNOLOGY MATURITYEAF technology is fully mature and already makes up a substantial proportion of global steel production volumes.It is currently being extended to make new steel types.However,it requires a combination of scrap and primary steel from DRI plants,replacing inputs

296、from blast furnaces.Yet,DRI technology is currently at the developmental stage,with many existing installations relying on natural gas rather than green fuels such as hydrogen.While significant investments have been announced in DRI(over 10 billion in Europe alone),no DRI facilities of 2.5 Mt that c

297、onsume hydrogen have yet been built.Therefore,scaling green DRI pilots into mature installations is critical to reducing emissions and ensuring a green future for steel.2.GROWING CAPEX AND OPEX INVESTMENTIn mature markets,many previous investments focused on process improvements or increasing capaci

298、ty/quality.Business cases were,therefore,relatively simple to calculate based on projected market demand.Securing investment in green steel projects is much more complex,as it requires assumptions on CO2 prices,energy costs,and planned regulations/carbon taxes.According to Eurofer,meeting the EUs 20

299、30 targets requires producers to invest an estimated 85 billion 31 billion in CAPEX and 54 billion in OPEX of which 15-17 billion has been announced.This is leading to heavy reliance on state subsidies to fund new plants around the world,including:850 million from France to ArcelorMittal 2 billion f

300、rom the German state to ThyssenKrupp 500 million from the UK government to Tata Steel US$500 million each from the US Department of Energy to steelmakers Cleveland-Cliffs and SSAB for green steel plants3.SECURING GREEN ENERGYProducers must source a continuous green energy supply for DRI and EAF faci

301、lities.Consequently,replacing blast furnaces with DRI-EAF means energy will make up a much higher percentage of running costs than iron ore based on current market conditions.Securing these energy supplies at competitive prices is vital for success:Green and blue hydrogen for DRI:Competition is grow

302、ing for(currently limited)green and blue hydrogen supplies,which require renewable energy for production and carbon capture technology,respectively.A significant reduction in the price of hydrogen is necessary to make DRI cost competitive.Green electricity for EAF:Given the need for constant electri

303、city availability to power EAFs,hydroelectric and nuclear power are the most appropriate sources,rather than intermittent solar or wind.However,the availability of such sources varies considerably by country and region,again pushing up costs and handing advantages to producers located near such ener

304、gy sources.PRODUCERS MUST SOURCE A CONTINUOUS GREEN ENERGY SUPPLY FOR DRI AND EAF FACILITIES.PRISM:IS STEEL SCRAP THE NEW GOLD?ARTHUR D.LITTLE6 9Recently announced European DRI and EAF projects are estimated to require 60 gigawatt hours(GWh)of green energy annually,covering both the direct supply of

305、 green electricity and the green energy required to produce hydrogen through electrolysis.Investments are also being made in new sites that benefit from access to renewable energy and green hydrogen.Vulcan Green Steel(VGS)has begun construction of a greenfield steel complex in Duqm,Oman.When product

306、ion begins in 2027,it will run on 100%renewable wind and solar energy and incorporate green hydrogen once it becomes available.4.SECURING SUFFICIENT SCRAPScrap steel is essential for EAFs,in which it is melted alongside liquid iron from DRI.It comes from three main sources(see Figure 1):1.Internal“c

307、lean”steel mill scrap that is traditionally consumed by the producer 2.Clean scrap from downstream players that transform steel into products(e.g.,construction and automotive).For example,30-50%of steel in automotive is currently wasted 3.“Dirty”demolition scrap coming from end-of-life(EOL)goods,suc

308、h as buildings,cars,and domestic appliancesSource:Arthur D.Little,EuroferEUROPE,2022&2030,IN MILLION METRIC TONS119105126113INTERNALCLEAN/NEWTOTALPRODUCTEXPORTTOTALCONSUMPTINTERNALCLEAN/NEWTOTALPRODUCTSHORTAGEOF CLEANSCRAPTOTALCONSUMPT1426400401426419-145014796585639-22TOTALPRODUCTEXPORTTOTALCONSUMP

309、TTOTALPRODUCTEXPORTTOTALCONSUMPTTOTAL20222030FIGURE 1:SCRAP MARKET AVAILABILITY AND DEMAND BALANCE7 0Rates of scrap collection and usage are already high in regions with significant EAF penetration,such as Turkey(where it makes up 86%of production volumes),the US(79%),and the EU(43%).These figures a

310、re expected to increase with growth in EAF capacity from its current 14%of global steel production volumes(538 Mt annually of crude steel in 2022).THE ECONOMIC ADVANTAGES OF SCRAPAs Figure 2 shows,using scrap is a highly competitive,efficient option for steel production compared to alternatives such

311、 as DRI powered by hydrogen or natural gas.Taking the indexed cost of processing scrap steel at a baseline of 100,the costs for hydrogen DRI range from 130 to 164;for natural gas DRI,costs range from 93 to 158,depending on current and target-price scenarios.These figures demonstrate the economic fea

312、sibility of harnessing scrap steel,especially given that rising environmental regulations are expected to increase the cost of CO2 further.GROWING GLOBAL DEMAND FOR SCRAPThe highest demand is for clean,new scrap.Arthur D.Littles(ADLs)model shows an annual shortage of 9 Mt in Europe by 2030,which wil

313、l most likely push up prices.This means securing and improving“dirty”demolition scrap is crucial to plug the gap cost-effectively.This means that global competition for scrap is increasing,driving government and industry action across the world:Europe:Around 50 low-carbon steel projects are expected

314、 to be in place by 2030,requiring over 14 Mt of scrap in Europe alone and dramatically increasing competition for supplies.For example,Source:Arthur D.Little FIGURE 2:COST COMPARISON OF SCRAP VERSUS ALTERNATIVE DRI PROCESSES100164152141130100158911393212100100999ESTIMATESEUROPEAN UNION,2023,IN%OF SC

315、RAP E3SCRAPHYDROGEN DRINATURAL GAS DRISCRAPE3H2 5 EUR/kgCURRENTNG 120EURkgCURRENTH2 4.3 EUR/kgH2 3.7 EUR/kgH2 3.1 EUR/kgH2 1.5 EUR/kgNG 58 EUR/MWhNG 39 EUR/MWhNG 30 EUR/MWhBOFFEB 2023MODELEDMODELEDMODELEDTARGETMODELEDMODELEDTARGETCO2 COSTCOSTCO2 COSTCOSTPRISM:IS STEEL SCRAP THE NEW GOLD?ARTHUR D.LIT

316、TLE7 1to secure scrap supplies,ArcelorMittal has recently bought scrap metal recycling businesses in Poland,Germany,and the Netherlands.Since European players are currently consuming the majority of clean scrap produced in the region,they need to look further afield for additional supplies.At the sa

317、me time,the European Parliament has approved a report that may create restrictions on scrap steel exports.US:American players are modernizing,with many new DRIs planned and M&A activities underway to secure scrap supply.For example,Sims Metal purchased Baltimore Scrap Corporation for US$177 million

318、to better address the demand for scrap for green steel,adding 600 kilotons of capacity.China:China is currently structuring its scrap supply chain and seeing rapid growth in scrap use,which increased from 90 Mt in 2016 to 220 Mt in 2020.It is expected to reach 400 Mt by 2030,driven by increasing gre

319、en steel production investments.While currently behind other regions in scrap use because of low EAF penetration(under 15%of production),China is increasingly benefiting from access to growing volumes of EOL/demolition scrap.India:The Indian steel sector already has a scrap value chain,with imports

320、growing by 63%between 2021 and 2022.It is expected to grow further to meet the needs of its developing steel producers,increasing by 50%by 2047.Africa:While considerable untapped scrap reserves exist in Africa,the scrap is difficult to collect and relies heavily on informal supply chains.Nevertheles

321、s,1.8 Mt were exported in 2022,up from 1.1 Mt in 2020,showing the continents potential.The necessary equipment for processing larger volumes of scrap steel is already in place,with many facilities currently possessing sufficient capacity.However,expanding scrap-processing operations requires signifi

322、cant capital investment in large storage facilities to accommodate higher volumes.These storage facilities should ideally be located closer to ports to enhance logistical efficiency and reduce transport costs.As a result,the industry faces substantial CAPEX requirements to build and maintain these e

323、xpanded infrastructures,underscoring the financial challenges associated with scaling up scrap-processing capabilities.725.DRIVING A NEED FOR NEW SKILLS AND CAPABILITIES Over the past two decades,players in mature markets such as Europe have focused on extending the life and capacity of existing ste

324、elmaking plants through incremental investments.Green steel requires new skills companies will need the capabilities to manage the construction,ramp-up,and operation of large-scale CAPEX projects built around new technologies.At the same time,they will need strategic and partnering skills to success

325、fully manage energy sourcing and pricing(e.g.,hydrogen versus gas for DRIs)across multiple time horizons.Global operators that have already implemented EAF/DRI plants will be at an advantage if they can transfer these skills to other regions,such as Europe.LES SONS FROM OTHER SEC TORSAs they seek to

326、 build circular economies around scrap steel,companies can learn from the experiences of other sectors,notably aluminum,glass,and urban mining.AluminumAluminum recycling saves up to 95%of the energy required for primary production,making it a cornerstone of the industrys strategy to reduce carbon em

327、issions.Companies such as Novelis,Constellium,and Arconic are leading the charge by investing heavily in advanced collection and recycling facilities that turn scrap aluminum into high-quality products.GlassBy using cullet(recycled glass)in the production process,glass manufacturers reduce raw mater

328、ial consumption,lower energy use,and decrease CO2 emissions.For instance,using 1,000 kilograms(kg)of cullet saves approximately 580 kg of CO2 emissions compared to producing the same amount of glass from virgin materials.Urban miningUrban mining,the process of reclaiming raw materials from spent pro

329、ducts,buildings,and waste,was pioneered in the electronics industry,where precious metals such as gold,silver,and copper are extracted from e-waste.It is now being extended to other areas,such as lithium-ion batteries.(See our article,“Opening the Urban Mine Building a Profitable Circular Economy Ba

330、sed on a Lithium Battery Recycling Example”in this issue of Prism.)Urban mining alleviates the environmental degradation associated with traditional mining and reduces the strain on finite natural resources.PRISM:IS STEEL SCRAP THE NEW GOLD?ARTHUR D.LITTLE73S TR ATEGIES FOR SUCCES SFULLY“MINING”SCR

331、AP Alongside access to green energy,green steel production relies on access to sufficient supplies of scrap steel.Increasing demand and limited supply means traditional,informal methods of collection are no longer enough.Instead,steel producers operating EAFs should look at a combination of these fi

332、ve methods to shape their scrap steel strategy:1.Acquiring a demolition/recycling company that collects and processes steel from EOL products 2.Improving and optimizing current processing methods for pre-production clean scrap by focusing on processes such as better sorting 3.Ensuring production gra

333、des of steel can absorb a greater percentage of demolition scrap,including developing cleaning processes for dirty scrap grades 4.Ensuring melting processes can manage greater volumes of demolition scrap by developing secondary metallurgy processes 5.Building a more circular economy,supporting downstream customers,and helping with their scrap sorting to secure and maximize volumes7 4INSIGHT S FOR