Green Finance Prospects for Ammonia Energy

By Stephen H. Crolius on November 13, 2019

ANNUAL REVIEW 2019

Green finance, the deployment of capital to sustainable pursuits, has been gathering momentum for a decade.  Kristoffer Olsen, now an independent consultant and formerly a member of the Ammonia Energy Association’s Board of Directors, argued in an August 2019 Ammonia Energy post that “Green Finance and Green Bonds can directly contribute to the decarbonisation of ammonia and future production of green ammonia fuel.”  Other recent indications lend credence to Olsen’s assertion.

In June, a coalition of banks, “civil society organizations,” and maritime industry players unveiled the Poseidon Principles, under which “major shipping banks will for the first time integrate climate considerations into lending decisions to incentivize maritime shipping’s decarbonization.”  The Principles provide a methodology for tracking the alignment of the banks’ lending portfolios with the decarbonization trajectory needed to meet goals set by the International Maritime Organization.  Without endorsing individual options, the Principles’ signers anticipate the adoption of new technologies, such as “e-fuels (sometimes also called power-to-liquid or power-to-gas), made from renewable electricity or fossil fuel sources in combination with carbon capture and storage (CCS)” – which category obviously includes ammonia.

In July Yara (an AEA Platinum member) announced what may be the first-ever application of green finance to the ammonia industry.  The lead topic of the relevant press release was the signing of a USD $1.1 billion revolving credit facility, but within its body was this sentence: “The margin under the Facility will be adjusted based on Yara’s progress to meet its carbon intensity target by 2025.”  In other words, Yara’s cost of borrowing will be less if it succeeds with its decarbonization program.

Financial institutions have never been noted for their social benevolence.  As much as any group in the capitalist economy, they tend to prioritize profit above all other considerations.  But the essence of finance is the evaluation of risk.  Climate-related risk is now a factor in the calculus lenders use to set rates in industries exposed to such risk.  As Olsen suggests, this reality is likely to become a major force in the implementation of ammonia energy.

AMMONIA ENERGY REPORTING ON THIS TOPIC SINCE LAST YEAR

A YEAR IN REVIEW

This article is part of our Annual Review 2019. To mark the third anniversary of Ammonia Energy, we are highlighting ten “tip-of-the-iceberg” topics that we’ve written about over the last 12 months. In each case, we think we see something just peeking above the current flow of events that is developing into a major phenomenon below the surface.

Read all the stories in our Annual Review 2019.