Two recent and separate articles in Foreign Affairs highlight different routes forward for tacking the climate issue. One, by Michael Bloomberg, argues that the mitigation solution increasingly lies with cities (this isn’t just about city resilience) and the other puts the challenge squarely in front of the business community.

These are just two in a salvo of pre-Paris articles that seek to direct the negotiations towards a solution space, including some by me and other colleagues arguing the case for carbon pricing systems. The articles reminded me of a similar article in 2009, the Hartwell Paper, in which a group of UK economists cast the climate issue as a ‘wicked problem’, but still went on to propose a very specific solution (a big technology push funded by carbon taxes). That paper also built its argument on the back of the Kaya Identity, which I have argued simplifies the emissions problem such that it can lead to tangential solutions that may not deliver the necessary stabilization in atmospheric carbon dioxide. Nevertheless, there is still merit in focusing on a specific way forward – at least something useful might then get done.

But the description of the climate problem as ‘wicked’, is one that deserves further thought. The use of the word wicked in this context is different to its generally accepted meaning, but instead pertains to the immense difficulty of the problem itself. Wikipedia gives a good description;

A problem that is difficult or impossible to solve because of incomplete, contradictory, and changing requirements that are often difficult to recognize. The use of the term “wicked” here has come to denote resistance to resolution, rather than evil. Moreover, because of complex inter-dependencies, the effort to solve one aspect of a wicked problem may reveal or create other problems.

It is also important to think about which problem we are actually trying to solve. For example, it may turn out that the issue of climate change is immensely more difficult to solve than the issue of carbon dioxide emissions. There is now good evidence that emissions can be brought down to near zero levels, but this doesn’t necessarily resolve the problem of a changing climate. Although warming of the climate system is being driven by increasing levels of carbon dioxide in the atmosphere, the scale on which anthropogenic activities are now conducted can also impact the climate through different routes. Moving away from fossil fuels to very large scale production of energy through other means is a good illustration of this. In a 2010 report, MIT illustrated how very large scale wind farms could result in some surface warming because the turbulent transfer of heat from the surface to the higher layers is reduced as a result of reduced surface kinetic energy (the wind). This is because that energy is converted to electricity. This is not to argue that we shouldn’t build wind turbines, but rather to highlight that with a population of 7-10 billion people all needing energy for a prosperous lifestyle, society may inadvertently engage in some degree of geoengineering (large-scale manipulation of an environmental process that affects the earth’s climate) simply to supply it.

Even narrowing the broader climate issue to emissions, the problem remains pretty wicked. Inter-dependencies abound, such as when significant volumes of liquid fuels may be supplied by very large scale use of biomass or when efficiency drives an increase in energy use (as it has done for over 100 years), rather than the desired reduction in emissions.

An approach to managing wicked problems (Tim Curtis, University of Northampton) first and foremost involves defining the problem very succinctly. This involves locking down the problem definition or developing a description of a related problem that you can solve, and declaring that to be the problem. Objective metrics by which to measure the solution’s success are also very important. In the field of climate change and the attempts by the Parties to the UNFCCC to resolve it, this is far from the course currently being taken. There is immense pressure to engage in sustainable development, end poverty, improve access to energy, promote renewable technologies, save forests, solve global equity issues and use energy more efficiently. Although these are all important goals, they are not sufficiently succinct and defined to enable a clear pathway to resolution, nor does solving them necessarily lead to restoration of a stable climate. The INDC based approach allows for almost any problem to be solved, so long as it can be loosely linked to the broad categories of mitigation and adaptation. The current global approach may well be adding to the wickedness rather than simplifying or even avoiding it.

The short article referenced above concludes with a very sobering observation;

While it may seem appealing in the short run, attempting to tame a wicked problem will always fail in the long run. The problem will simply reassert itself, perhaps in a different guise, as if nothing had been done; or worse, the tame solution will exacerbate the problem.

In climate change terms, this translates to emissions not falling as a result of current efforts, or even if they do fall a bit this has no measurable impact on the continuing rise in atmospheric carbon dioxide levels.

But that is not to say we should give up, as the counter to this observation is that having defined a clear and related objective to the wicked problem that is being confronted, declare that there are just a few possible solutions and focus on selecting from among them. For me, that comes down to implementing a cost for emitting carbon dioxide through systems such as cap-and-trade or carbon taxation. As such, I am about to release a second book in my Putting the Genie Back series, this one titled Why Carbon Pricing Matters. It will be available from mid-September but can be pre-ordered now.

Why Carbon Pricing Matters

Assessing the INDCs

It is now just 100 days until COP21 in Paris.

The summer months have seen many Intended Nationally Determined Contributions (INDCs) submitted to the UNFCCC prior to the assessment deadline of October 1st. This is the date when the UNFCCC secretariat will start work on a synthesis report on the aggregate effect of the INDCs as communicated by Parties. Many organisations are already offering assessments of progress, with most basing this on reductions through to 2030 against a notional 2°C pathway.

However, the climate system doesn’t care about 2030 nor does it respond to changes in annual emissions. The real metric is cumulative emissions over time, with each trillion tonnes of carbon released into the atmosphere equivalent to about 2°C rise in temperature rise (this isn’t precisely linear, but it is a reasonable rule of thumb to use). This means that any assessment must look well beyond 2030 and make some bold assumptions as to where the emissions pathways then go. It also means that the wide variety of pledges using metrics such as the share of renewable energy in the power generation mix, installed solar capacity or emissions per GDP, whilst important in the context of energy system development, offer limited insight into the trend for cumulative emissions.

A good example of this comes from looking at the INDC from China. They have pledged the following;

  • To achieve the peaking of carbon dioxide emissions around 2030 and making best efforts to peak early;
  • To lower carbon dioxide emissions per unit of GDP by 60% to 65% from the 2005 level;
  • To increase the share of non-fossil fuels in primary energy consumption to around 20%; and
  • To increase the forest stock volume by around 4.5 billion cubic meters on the 2005 level.

From an energy emissions context, only the first part of this pledge is really important, but little information is given allowing an assessment of its real impact on the climate system. Some big assumnptions will have to be made.

According to the Oxford Martin School carbon emissions counter, global cumulative emissions now stand at nearly 600 billion tonnes of carbon (2.2 trillion tonnes CO2). Back in November 2014 when China and the USA announced their climate deal, I speculated that the Chinese side of the Sino-US deal could see their emissions rising to as much as 14.5 billion tonnes CO2 per annum by 2030 based on the following assumption;

The USA and China appear to have adopted a “Contraction and Convergence” approach, with a goal of around 10 tonnes CO2 per capita for 2030, at least for energy related emissions. For China this means emissions of some 14.5 billion tpa in 2030, compared with the latest IEA number for 2012 of 8.3 billion tonnes, so a 75% increase over 2012 or 166% increase over 2005. It also has China peaking at a level of per capita CO2 emissions similar to Europe when it was more industrial, rather than ramping up to the current level of say, the USA or Australia (both ~16 tonnes). By comparison, Korea currently has energy CO2/capita emissions of ~12 tonnes, so China peaking at 10 is some 17% below that.

Of course China could still peak at lower levels than this and the economic downturn they currently seem to be facing may ensure this. Nevertheless, two reduction pathways following 2030 give a very different cumulative outlook for the period 2015-2100. It is this cumulative outcome that matters, not where China might happen to find itself in 2030. While the period up to 2030 is important, it only tells a fraction of the story. Chinese emissions over that period will likely add some 50 billion tonnes of carbon to the global cumulative total, but this is small compared to their potential remaining cumulative contribution (i.e, before they are at net-zero emissions). The two pathways below illustrate the difference;

  1. A plateau for about a decade, followed by a long slow reduction through to near zero by 2100 means cumulative emissions from 2015 are around 800 billion tonnes of CO2, or 220 billion tonnes of carbon. In this scenario, Chinese emissions alone take the global carbon emissions total to 820 billion tonnes.
  2. A sharp decline from 2030 to zero before 2080 gives cumulative emissions of 550 billion tonnes, or 150 billion tonnes carbon. In this case the global total rises to 750 billion tonnes carbon based on Chinese emissions alone.

Either way, China will have a profound impact on global cumulative emissions. But this fairly simple analysis illustrates that the period from 2030 onwards is where the real story lies, which to date isn’t covered by any of the INDC submissions. For a 2°C outcome, even the lower of the two scenarios above leaves little carbon space for the remaining 7+ billion people living on the planet throughout the 21st century.

Impact of Chinese Cumulative Emissions

August 3rd saw the Obama Administration release its long awaited Clean Power Plan. The plan partly underpins the current US COP21 INDC (Intended Nationally Determined Contribution) to reduce emissions by 26-28% by 2025 compared to 2005. It also indicates that by 2030 the power sector emissions in the USA will be 32% lower than 2005 levels, which presumably is the beginning of the next phase of their national contribution. However, this plan if for electricity only, consumption of which represents a bit less than a quarter of final energy use in the USA.

Much of the media attention was on the proposal for existing power plants, but the rule comes in two parts; one for existing sources and a second one for new sources. For existing facilities the emphasis is on the near term (i.e. through to 2030), with the rule focussed more on portfolio transition than radical adjustment. As has been seen in recent years, the US is already on a journey of portfolio change, with significant retirement of older coal fired power stations underway and much greater utilization of surplus natural gas power generation capacity. This has been largely driven by the development of shale gas, which came at an opportune time given the age of the coal fired fleet. Back in 2010 I posted the two charts below, which contrast the ageing coal fleet (median build year around 1970-1975) with the relatively new natural gas infrastructure (median build year around 2000). The whole process has quickly and efficiently reduced emissions across the United States – a phenomena also seen in the UK in the 1990s as North Sea natural gas overwhelmed the older coal based infrastructure.

US Coal Fleet

US coal generation capacity

US Natural Gas Fleet

US natural gas generation capacity

The US journey of substitution continues today, but augmented by considerable solar and wind capacity. The new rule for existing plants encourages that transition to continue, focussing on energy efficiency in coal fired power plants (Building Block 1), continued substitution of coal by natural gas (Building Block 2) and a further push on renewables (Building Block 3). But the rule puts significant near term emphasis on renewable energy development rather than further encouraging the further uptake of natural gas. In fact, through the use of a crediting mechanism (Emission Rate Credits) within the EPA rule, the efficient displacement of coal by natural gas is curtailed, possibly even leading to a similar outcome as experienced over recent years in the EU, a higher overall energy cost and some coal growth. This happened in the EU because of near term renewable energy policies bringing more distant and costly projects forward, which in turn supressed the carbon price and the otherwise successful switching away from coal to natural gas that the carbon price was driving at the time.

In any plan to manage power sector emissions, carbon capture and storage (CCS) is almost certainly a long term requirement, so it should be encouraged from the outset. In the case of the existing source rule, there is no particular steer towards CCS. Although CCS is mentioned about sixty times in the 1,500 page document, there is a significant caveat; cost. While the rule makes several references to the cost of CCS, this is much more in the context of retrofit of facilities that have limited remaining shelf life. Although CCS is critically important over the longer term, it doesn’t make much economic sense to retrofit old facilities with the technology and as can be seen above, the new build coal fleet is relatively small.

But CCS does come into the picture when looking at the construction of new coal fired power plants. These will operate for up to fifty years, well into the period when the USA may want to reduce national emissions to very low levels, yet still make use of the vast fossil fuel resources that is has at its disposal. The EPA rule finds that the best system for emission reduction (BSER) for new steam units is highly efficient supercritical pulverized coal (SCPC) technology with partial carbon capture and storage (CCS). In such cases, the final standard is an emission limit of 1,400 lb CO2/MWh‐gross, which is the performance achievable by an SCPC unit capturing about 20 percent of its carbon pollution. This offers some opportunity for CCS to develop in the near term, depending of course on the rate at which older coal fired power stations are displaced and new ones are proposed. That in turn may be hampered by the Emission Rate Credit mechanism. A flaw in the thinking on ERCs (and also for much of the push towards renewable energy as a means of dealing with atmospheric CO2) is the assumption that a tonne of CO2 not emitted now by generating electricity from renewable energy or improving efficiency equates to a lower eventual concentration of CO2 in the atmosphere.  This may not be the case, a point I discuss at some length in my e-book, Putting the Genie Back. Given that both geographical (used elsewhere) and temporal (used later) displacement of fossil fuel is a reality, the actual offset of CO2 by using renewable energy is dependent on the future energy scenario. By contrast, a tonne of CO2 stored is over and done with. Renewable energy should certainly be encouraged, but not at the cost of pushing CCS out of the picture.

The USA is now heading towards an electricity mix that consists of efficient natural gas generation, some legacy coal, renewables, some nuclear and possibly coal with CCS. It has taken a long time to get to this position and doubtless there will be challenges ahead, but the direction appears to be set. However, I will always argue that a well implemented emissions trading system could have achieved all this more efficiently, at lower cost and therefore with less pain, but at least for now that is not to be (or is it – there are a legion of trading provisions within the rule).

The process of national governments submitting Intended Nationally Determined Contributions (INDCs) to the UNFCCC is well underway, with a number of developing and least developed economies also submitting plans. Most recent amongst these is a detailed and ambitious plan from the government of Kenya.

The Kenya INDC proposes a 30% reduction in national greenhouse gas emissions from a business-as-usual (BAU) trajectory, which it is also very clear in defining. The plan notes that Kenya strives to be a newly industrialized middle income country by 2030. Current emissions are very low, with the majority coming from land use change (LULUCF). In 2010 emissions were 73 MtCO2eq, with the IEA reporting energy CO2 emissions of 11.4 Mt for that year. Given the population of 41 million in 2010, that gives an energy linked CO2 per capita of 0.28 tonnes, amongst the lowest in the world. Kenya has projected BAU emissions of 143 MTCO2eq by 2030, so that gives them a goal of just on 100 MTCO2eq for that year on the basis of their INDC.

Kenya has also made it clear that their INDC is subject to international support in the form of finance, investment, technology development and transfer, and capacity building. With some of this support coming from domestic sources, they estimate the total cost of mitigation and adaptation actions across sectors at US$40 billion, through to 2030. My first reaction to this was that it seemed like quite a hefty bill, but better to look at the numbers.

First of all, a few assumptions. These are all open to challenge, but they help frame the issue and allow some assessment of the numbers to at least establish a ballpark estimate of value for money and the implications flowing from that.

  1. I will look at mitigation only, so let’s assume that the $40 billion is split between mitigation and adaptation, but with emphasis on mitigation. That allows ~$10+ billion for major public works and capacity building programmes focussed on areas such as water and agriculture and $20-$30 billion in the energy system.
  2. I will assume that energy system growth and adaptation funding allows for a plateau and then gradual decline in LULUCF emissions, such that by 2050 these are below 10 MT per annum.
  3. A BAU for energy emissions only would see Kenya rising to nearly 2 tonnes per capita by 2030 (current Asia, excluding China) and 6 tonnes per capita by 2050 (approaching current Europe). This would mean extensive use of fossil fuels, but supplemented by their geothermal and hydroelectric resources in particular. This is the pathway that they might be on in the absence of this INDC.
  4. Kenya’s population rises in line with the UN mid-level scenario, i.e. to 66 million by 2030 and 97 million by 2050.

Based on the above, energy emissions could rise to some 120 Mt p.a. by 2030 and 600 Mt p.a. by 2050 under a BAU scenario. But in the INDC scenario, this could be curtailed such that they are at 70 Mt p.a. in 2030 and perhaps as low as 130 Mt p.a. in 2050, or 70-80% below BAU. The 2030 number is the more important one for this calculation as this is what the $20-$30 billion delivers, although the benefits of the investment stretch beyond 2030. However, further additional investment would be required to keep emissions at such a low level through to 2050 as energy demand grows.

The deviation from BAU is nearly 50 Mt p.a. by 2030, with that deviation starting in the early 2020s. If the gains are held through to 2050, then the cumulative emission reduction over the period is around 1 billion tonnes. On a simple 20 year project life with no discounting, that equates to around $25 per tonne of CO2 against the $20-$30 billion investment in the 2020s. On that basis, this looks like a good deal and is well within the bounds of plausibility. It could equate to a mixture of expanded renewable energy deployment, natural gas instead of coal and possibly some biofuel development for transport.

What is perhaps more interesting is how this scales up across Africa and other parts of the world where energy access is currently limited. If 1-2 billion people globally need support for similar energy infrastructure, that implies a financial requirement of about US$1 trillion over the period 2020-2030 just for mitigation (i.e. 30+ times the Kenya population of 50 million, multiplied by $US30 billion). This equates to $100 billion per annum, which is also the number that was agreed in Copenhagen in 2009 as the call on increased financial flows to developing countries, although that was for both mitigation and adaptation purposes. It also implies that if the world does reach the US$100 billion per annum goal, then most of this will be for mitigation in the least developed economies as they build their 21st century energy systems.

The flip side of this is that the emerging economies will probably have to self-fund, which argues for the implementation of a carbon price on a far wider basis than is currently envisaged. China is leading the way here, but so too are countries like Mexico and Chile.

The Kenya INDC offers some interesting insight into climate politics in the years to come.

A recent article in the Guardian, which was also carried through a number of other media outlets, implied some prior knowledge within the oil and gas industry of climate change and the impact of carbon dioxide emissions from fossil fuel use long before others had recognised its impact. The assertion was based on unearthed correspondence within Exxon where carbon dioxide emissions were discussed as early as 1981. The article goes on to say that “Climate change was largely confined to the realm of science until 1988, when the climate scientist James Hansen told Congress that global warming was caused by the buildup of greenhouse gases in the atmosphere, due to the burning of fossil fuels.”

In fact, information about the role of carbon dioxide as a greenhouse gas in the atmosphere has been widely available for over a century and has its foundation as far back as the early 19th Century, nearly 200 years ago. At that time, physicists were coming to terms with radiation physics and were attempting to understand why the Earth had a stable temperature. Knowing the energy falling on the planet from the Sun and after building an understanding of the radiation outwards from the Earth itself, the expected temperature of the planet could be derived. Unfortunately the calculation resulted in a number of somewhere around -15°C, which was clearly some 30°C lower than the observed temperature (about +15°C). Something else was in play, but at the time this was unclear. By 1862, an understanding of the role of certain gases in the atmosphere had been established, now more widely known as the “greenhouse effect”.

In 1896, Swedish chemist Svante Arrhenius used this information for a paper on the role of carbon dioxide that remains the foundation of 120 years of analysis of the Earth’s temperature and resulting climate (On the Influence of Carbonic Acid in the Air upon the Temperature of the Ground).

Arrhenius

In this paper Arrhenius established a methodology for linking the change in surface temperature with the change in the level of carbon dioxide (carbonic acid as he referred to it as) in the atmosphere. Table VII of the paper showed the results of his calculation for different levels of carbon dioxide in the atmosphere ranging from K=0.67 (where K=1 for the level at the time) to K=3.0. For the latitude of the equator he derived the following results;

Carbonic acid = 0.67 Carbonic acid = 1.5 Carbonic acid = 2.0 Carbonic acid = 2.5 Carbonic acid = 3.0
Temperature change at Latitude 0° -3.02°C 3.15°C 4.95°C 6.42°C 7.3°C

The Arrhenius paper discusses the work of a Professor Högblom, another Swedish scientist of the day, who had even calculated how much the burning of coal at that time (500 million tonnes per annum) might change the surface temperature of the planet. The number was very small, but today annual fossil carbon extraction is some twenty to thirty times greater than this and more importantly the cumulative extraction (which we now know is what actually matters) since the late 19th century is hundreds of time this level.

By the late 1950s, thanks to the work of Charles Keeling of Scipps Institution of Oceanography in California, accurate measurements of atmospheric carbon dioxide were being made. In 1961, Keeling produced data showing that carbon dioxide levels were rising steadily in what became known as the “Keeling Curve”. In 1965, the first truly public warning as to the impact of rising levels of carbon dioxide in the atmosphere came from the President’s Science Advisory Committee (President Lyndon B. Johnson), with the words “Through his worldwide industrial civilization, Man is unwittingly conducting a vast geophysical experiment. . . . . This may be sufficient to produce measurable and perhaps marked changes in climate, and will almost certainly cause significant changes in the temperature and other properties of the stratosphere.

There have been many other such references and warnings, ranging from the 1988 testimony to Congress by NASA scientist James Hansen to Al Gore’s film Inconvenient Truth in 2006. Through all of these the story hasn’t really changed from the original calculations of Arrhenius in 1894, rather the understanding and methodology has been increasingly refined and improved.

The above timeline isn’t new and can be found in much more detail in many books, blogs and periodicals. Nor is it even close to comprehensive, with dozens of other scientists and institutions making important contributions to the early analysis, particularly in the 1950s. Nevertheless, it seems to need repeating. Although atmospheric warming may not have been a dinner table conversation in the 1980s, it wasn’t a secret either. A look at the use of the phrases “greenhouse effect”, “global warming” and “climate change” shows that they appeared in books in the 1970s.

Ngram

Nor was it largely confined to the realm of science. Hollywood had even picked up on the issue in the 1973 film Soylent Green, where the greenhouse effect is specifically mentioned and is to some extent a core issue in the dystopian future that is postulated.

Soylent Green

Rather, what is unusual about the climate issue is the present day questioning of the background science that has come some 100-200 years after the scientific basis was first formulated and largely established, rather than at the time. In my forthcoming book, “Carbon Pricing Matters”, I touch on this issue as follows;

The need to manage global emissions and put a halt to the relentless build-up of carbon dioxide in the atmosphere requires the intervention of governments and cooperation between them to ensure their success; particularly when implemented through a cost on carbon dioxide emissions. There is an ongoing debate around the role of government and the degree to which it should be allowed to address the issue of global warming. There are many who believe that government should have only a modest role in society; others accept a much wider role, including one to solve broad-based issues that affect society at large, for example, the build-up of carbon dioxide in the atmosphere. For the latter group, a carbon price may not go far enough; it is a tool designed to tease out the solution over a generation or more. In the case of those who seek to limit the role of government, the imposition of a pricing mechanism across the entire economy can be seen as a step too far and may even raise questions about the foundation upon which the mechanism is based; the science of climate change.

I have just returned from a personal vacation expedition to the European high Arctic, starting in Longyearbyen, Svalbard and ending in Iceland via the East Coast of Greenland. The trip was on the National Geographic Explorer, a 148-passenger expedition class vessel with ice strengthening.

It was an extraordinary trip and many aspects of it offered opportunities to reflect on the big issues of energy transition and climate change. This started in Longyearbyen itself, where it turns out that in the country of hydro electricity (Norway) this small town runs on coal, mined locally. Svalbard even exports coal, although some of the original mines have long been abandoned. Perhaps in this land of vast glaciers and freezing temperatures hydro isn’t practical, but there wasn’t a wind turbine to be seen either. Wind seems like an obvious contender here but even in the Arctic days of dead calm are possible; we experienced this for nearly two full days in the middle of the Greenland Sea. Of course solar is a non-starter with months of darkness. Powering such a location with dependable 24/7 electricity seems to come down to coal. Equally surprising was that some remote northern towns we visited in Iceland were powered by diesel generator, not geothermal.

Longyearbyen

Svalbard Coal Mine

It doesn’t require much travel in Svalbard to come across magnificent glaciers, but even here there were signs of change. Most of the glaciers we saw appeared stable, but one in particular was retreating rapidly and the early summer was already revealing large melt water streams on its surface. The retreat was clearly visible, with the slow moving foliage line marking the original and fairly recent (in glacial terms) position of the glacier.

Retreating Glacier

Glacier Meltwater

Similarly in Iceland, all but one of that nation’s glaciers are reportedly in retreat. Observable rapid change in one Svalbard glacier isn’t sufficient evidence to reach a conclusion on the state of the Arctic, but it was interesting to see nevertheless. There was also an indication of change in the permafrost, although once again this was limited to a specific observation in one of the handful of locations we visited. Close to a site where we had come face to face with several curious walruses, the soft thawing ground had collapsed into the sea as a river of mud. This might well be a regular event, but if that were the case it was hard to see how the landscape had survived for such a long period.

Walruses

Permafrost mud

Climate change was a constant topic of conversation on the ship, in part because there was a talk on the subject, further due to the link with National Geographic but also because of where we were. Being a relatively small ship it didn’t take long for most people to know of my link with the issue, so my vacation was filled with dinner discussions about carbon pricing (given the significant number of Australians on the passenger list), renewable energy and climate science. This wasn’t always easy, with a few of the American travellers arguing from the standpoint of information they heard on certain talk radio shows. But it was always interesting and I enjoyed the sparring on the issue. It was also very apparent that National Geographic travellers are deeply interested in the subject and for the most part, very well informed.

The wildlife was a highlight, but here again there was an interesting sign of change. We had two excellent encounters with wandering polar bears, scouring the ice edge for their next meal, and one sobering encounter with the remains of such a meal. This would normally be the carcass of a seal, but in this instance it was the remnants of a white beaked dolphin, a new phenomenon that has only very recently been observed in the high latitudes. These dolphins aren’t normally found in this area in spring when the pack ice is still widespread and therefore may have become trapped in shifting ice.  They then become prey to the region’s most effective predator, the polar bear. The current view on this is that warmer waters may be encouraging the creatures to move north earlier in the year, therefore exposing them to this new and more dangerous environment.

Polar Bear in Arctic Landscape

Polar Bear Food

But there is one constant in this part of the world and that is ice. Lots of ice. Although there is clear satellite evidence of ice loss from Greenland and declining sea ice in the Arctic Ocean, the ice nevertheless got the best of us. The trip included a passage through the Greenland Sea with one or more stops in Greenland itself, but the latter wasn’t to be. Thick multi-year sea ice kept us some 80 miles from the Greenland coast and no landing was possible. Although the ship is ice strengthened it is not an icebreaker, so we were defeated in a year when the ice cover was tracking below the 2012 minimum, at least until mid-June for the Arctic as a whole.

Midnight Ice

Arctic Sea Ice Extent July 2015

The ice provided a wealth of photographic opportunities, including one of the ship taken far out at sea from a zodiac, but in dead calm conditions.

Ship and Ice

We did get a consolation prize for missing out on Greenland, a visit to Jan Mayan. This is a tiny volcanic island in the middle of the Greenland Sea, but rising rapidly to over 2 kms the volcano itself was anything but small. Needless to say, it was spectacular.

Jan Mayen

You can see a complete set of my pictures of this trip here.

The call was very clear, here were “four demands” for Paris COP21 being presented to a group in London. But the surprise was the presenter; not a climate focussed NGO or an activist campaigning for change, but Fatih Birol, Chief Economist for the International Energy Agency. He was in an optimistic mood, despite the previous two weeks of ADP negotiations in Bonn that saw almost nothing happen. He opened the presentation by saying “This time it will work” (i.e. Paris, vs. Copenhagen and all the other false starts).

On June 15th Mr Birol launched the World Energy Outlook Special Report: Energy and Climate Change. The IEA usually launch a special supplement to their annual World Energy Outlook (WEO) and this one was the second to focus on the climate challenge and the policy changes required for the world to be on a 2°C emissions pathway. It was also something of a shot over the bow for the Paris COP21 process which had just completed another two weeks of negotiations in Bonn, but with little to show for the effort. Mr Birol is a master of such presentations and this one was memorable. He focussed almost entirely on the short term, although the publication itself looks forward to 2030 for the most part. With regards to the energy system, short term usually means 5 years or so, but in this case short term really meant December but with the resulting actions being very relevant for the period 2016-2020.

Mr Birol outlined four key pillars (as they are referred to in the publication) for COP21, but restated them as “demands”. They are;

  1. Emissions must peak by 2020. The IEA believes that this can be achieved with a near term focus on five measures;
    1. Energy Efficiency.
    2. High efficiency coal, both in new building and removing some existing facilities. IEA proposed a ban on building sub-critical coal.
    3. An even bigger push on renewable energy, with an increase in investment from $270 billion in 2014 to $400 billion in 2030.
    4. Oil and gas industry to reduce upstream methane emissions.
    5. Phasing out fossil-fuel subsidies to end-users by 2030.
  2. Implement a five year review process for NDCs (Nationally Determined Contributions) so that they can be rapidly adjusted to changing circumstances. I discussed the risk of a slow review process when MIT released a report on the possible COP21 outcome.
  3. Turn the global 2°C goal into clear emission reduction targets, both longer term and consistent shorter term goals.
  4. Track the transition – i.e. track the delivery of NDCs and transparently show how the global emissions pathway is developing as a result.

Interestingly Mr. Birol didn’t mention carbon pricing once, at least not until a question came up asking why he hadn’t mentioned carbon pricing – “Is carbon pricing no longer an important goal, you didn’t mention it?” asked a curious member of those assembled at the Foreign Office. He said yes it was, but given his focus was on Paris and that he saw little chance of a global approach on carbon pricing being agreed in that time-span, he didn’t mention it! I think this represents a major oversight on the part of the IEA although there is at least some discussion on carbon pricing in the publication. While it is true that a globally harmonised approach to carbon pricing won’t be in place in the near term, I would argue that an essential 5th pillar (or 5th demand) for Paris is recognition of the importance of carbon pricing and creation of the necessary space for linking of heterogeneous systems to take place. This looks like the fastest route towards a globally relevant price.

Mr. Birol didn’t mention CCS either, which is perhaps more understandable given the 5 year focus of much of the publication. However, Chapter 4 within the publication deals extensively with CCS and the IEA highlights the importance of CCS in their 450 ppm scenario through the chart below.

IEA CCS

Finally, there was some discussion around the climate statement made by the G7 the week before and their commitment out to 2100. Looking at the statement released by the G7, they said;

“. . . . .we emphasize that deep cuts in global greenhouse gas emissions are required with a decarbonisation of the global economy over the course of this century. Accordingly, as a common vision for a global goal of greenhouse gas emissions reductions we support sharing with all parties to the UNFCCC the upper end of the latest IPCC recommendation of 40 to 70 % reductions by 2050 compared to 2010 recognizing that this challenge can only be met by a global response.”

My reading of this is that the G7 are recognizing the need to be at or nearing global net zero emissions by 2100. However, this isn’t how the statement has been reported, with several commentators, media outlets and even one of the presenters alongside Fatih Birol interpreting this as an agreement to be fossil fuel free by 2100. These are two very different outcomes for the energy system; the first one potentially feasible and the second being rather unlikely. Both the Shell Oceans and Mountains New Lens Scenarios illustrate how a net zero emissions world can potentially evolve, with extensive use of CCS making room for continued use of fossil fuels in various applications. The core driver here will be the economics of the energy system and the competitiveness of fossil fuels and alternatives across the full spectrum of needs. It is already clear that alternative energy sources such as solar PV will be very competitive and could well account for a significant proportion of global electricity provision. Equally, there are areas where fossil fuels will be very difficult to displace; I gave one such example in a case study I posted recently on aviation. Energy demand in certain sectors may well be met by fossil fuels for all of this century, either with direct use of CCS to deal with the emissions or, as illustrated in the IPCC 5th Assessment Report, offset by bio-energy and CCS (BECCS) elsewhere. Unfortunately the nuances of this issue didn’t make it into the IEA presentation.

That’s it from me for a couple of weeks or so. I am heading north on the National Geographic Explorer to see the Arctic wilderness of Svalbard and Greenland.

The recent letter on carbon pricing from six oil and gas industry CEOs to Christiana Figueres, Executive Secretary of the UNFCCC and Laurent Fabius, Foreign Minister of France and President of COP 21 sent something of a tremor through the media world, to the extent that the New York Times picked up on it with an editorial on carbon taxation. The editorial transposed the CEO call for a carbon price into a call for a carbon tax (as is currently applied in British Columbia) and then set about building the case for a tax based approach and dismantling the case for mechanisms other than taxation; but their focus was on cap-and-trade (such as in California, Quebec and the EU ETS). The New York Times suggested that cap-and-trade doesn’t work, but apparently didn’t look at the evidence.

In January 2015 the EU ETS was ten years old. There were those who said it wouldn’t last and any number of people over the years who have claimed that it doesn’t work, is broken and hasn’t delivered; including the New York Times. Yet it continues to operate as the bedrock of the EU policy framework to manage carbon dioxide emissions. The simple concept of a finite and declining pool of allowances being allocated, traded and then surrendered as carbon dioxide is emitted has remained. Despite various other issues in its ten year history the ETS has done this consistently and almost faultlessly year in and year out; the mechanics of the system have never been a problem.

Effective carbon price
Comparing approaches and policies is difficult, but in general the various mechanisms can be rated as shown above. The most effective approach to mitigation is a widely applied carbon price across as much of the (global) economy as possible. Lost opportunities and inefficiencies creep in as the scope of approach is limited, such as in a project mechanism or with a baseline and credit approach; neither of which tackle fossil fuel use in its entirety.

The chart clearly shows carbon taxation and cap-and-trade competing for the top spot as the most effective mechanism for delivering a carbon price into the economy and driving lasting emission reductions. Both approaches work, so differentiating them almost comes down to personal preference, which can even be seen in the extensive academic literature on the subject where different camps lean one way or the other. My preference, perhaps influenced by my oil trading background, is to back the cap-and-trade approach. My reasons are as follows;

  • The cap-and-trade approach delivers a specific environmental outcome through the application of the cap across the economy.
  • Both instruments are subject to uncertainty, however the cap-and-trade is less subject to political change; conversely, taxation policy is regularly changed by governments. The New York Times made note of this with its reference to Australia, which has removed a fixed price carbon price that was effectively operating as a tax.
  • The carbon price delivered through a cap-and-trade system can adjust quickly to national circumstances. In the EU it fell in response to the recession and perversely has stayed down in response to other policies (renewable energy goals) currently doing the heavy lifting on mitigation. Why is this perverse; because the other policies shouldn’t be doing this job when a cap-and-trade is in place to do it more efficiently.
  • Acceptance is hard to win for any new cost to business, but particularly when not every competitor will be subject to that cost. The cap-and-trade system has a very simple mechanism, in the form of free allowance allocation, for addressing this problem for energy intensive (and therefore carbon intensive) trade exposed industries. Importantly, this mechanism doesn’t change the environmental outcome or reduce the incentive to manage emissions as the allowances held by a facility still have opportunity value associated with them.
  • Most carbon policies are being formulated at country or regional levels, rather than being driven by global approaches. Cap-and-trade systems are well-suited to international linking, leading to a more harmonized global price, while tax coordination is complex and politically difficult. Linking leads to a level playing field for industry around the world which fosters acceptance.

The economic effectiveness of both a carbon tax and a cap-and-trade system for carbon pricing means that countries and regions of all shapes and sizes have an implementation choice. For large, multi-faceted economies, the cap-and-trade system is ideally suited for teasing out the necessary changes across the economy and delivering a lowest cost outcome. At the same time it offers the many emitters considerable flexibility in implementation. Equally, for some economies or sectors where options for change are limited, the offset provisions that often feature in the design of an emissions trading system can offer a useful lifeline for compliance. Still, in some economies, a direct tax may be the most appropriate approach. Perhaps this is for governance reasons related to trading, or a lack of sufficient market participants to create a liquid market or simply to encourage the uptake of a fuel such as natural gas rather than coal.

The choice between these instruments isn’t as important as the choice of an instrument in the first place, which is why the letter from the CEOs is so important at this time.

The past few weeks, highlighted by the Business & Climate Summit in Paris and Carbon Expo in Barcelona, has seen many CEOs, senior political figures and institutional leaders call for increased use of carbon pricing. This is certainly the right thing to be saying, but it begs the question, “What next?”. Many countries are already considering or in the process of implementing a carbon pricing system, but still the call rings out. While uptake of carbon pricing at national level certainly needs to accelerate, one critical piece that is missing is some form of global commonality of approach, at least to the extent that prices begin to converge along national lines.

On Monday June 1st six oil and gas companies come together and effectively called for such a step in a letter from their CEOs to Christiana Figueres, Executive Secretary of the UNFCCC and Laurent Fabius, Foreign Minister of France and President of COP 21. Rather than simply echo the call for carbon pricing, the CEOs went a step further and specifically asked;

Therefore, we call on governments, including at the UNFCCC negotiations in Paris and beyond – to:

  • introduce carbon pricing systems where they do not yet exist at the national or regional levels
  • create an international framework that could eventually connect national systems.

To support progress towards these outcomes, our companies would like to open direct dialogue with the UN and willing governments.

The request is very clear – this isn’t just a call for more, but a call to sit down and work on implementation. The CEOs noted that their companies were already members of, amongst other bodies, the International Emissions Trading Association (IETA). IETA has been working on connection of (linking) national systems for well over a year (although the history of this effort dates back to the days of the UNFCCC Long Term Cooperative Action – LCA – workstream under the Bali Roadmap) and I am co-chair, along with Jonathan Grant of PWC, of the team that is leading this effort.

Late last year IETA published a strawman proposal for the Paris COP, suggesting some text to set in place a longer term initiative to develop an international linking arrangement. I spoke about this at length to RTCC at Carbon Expo in Barcelona.

DCH Interview

The strawman is what it implies, an idea. It could be built on to develop a placemarker in the Paris agreement to ensure that the framework mentioned by the six CEOs actually gets implemented in the follow-up from Paris – as the CDM was implemented in the follow-up from Kyoto.

From my perspective, this week wasn’t just about carbon pricing, but also about climate science. On the same day that the FT published its story on the letter from the oil and gas industry CEOs, The Guardian chose to run a front page story implying that I had tried to detrimentally influence (apparently being a former oil trader!!) the content of the London Science Museum’s Atmosphere Gallery, a display on climate science that Shell agreed to sponsor some years ago. The reporter had based his story on exchanges between Shell and the Science Museum staff when the gallery was looking to do a recent refresh.

I did engage in such a discussion and I did make some suggestions as to content which I thought was new and interesting since the Atmosphere Gallery was first established. Unfortunately The Guardian wasn’t able to publish my proposals as they were put forward during a meeting between me and two staff members from The Science Museum, so to complete the story I will publish them here. Although this particular piece of science dates back to a 2009 Nature article by Oxford University’s Professor Myles Allen and his team, it didn’t feature in the Gallery when it was first put together (the Advisory Panel met during 2009 as part of the design phase of the Gallery). But today, it is the foundation work behind the concept of a global carbon budget which has become a mainstream topic of discussion. My angle on this was to illustrate the importance of carbon capture and storage in the context of this science, but with an emphasis on the science itself. My discussion with The Science Museum staff members took place on 23rd June 2014 and I asked them to consider the following for the refresh of the gallery:

1. As background, three papers that have come from Oxford University:

  • Warming caused by cumulative carbon emissions towards the trillionth tonne

Myles R. Allen, David J. Frame, Chris Huntingford, Chris D. Jones, Jason A. Lowe, Malte Meinshausen & Nicolai Meinshausen

  • Greenhouse-gas emission targets for limiting global warming to 2°C

Malte Meinshausen, Nicolai Meinshausen, William Hare, Sarah C. B. Raper, Katja Frieler, Reto Knutti, David J. Frame & Myles R. Allen

  • The case for mandatory sequestration

Myles R. Allen, David J. Frame and Charles F. Mason

2. Consider using (or adapting) a trillion tonne video made by Shell where Myles Allen talks about CCS in the context of the cumulative emissions issue:

3. Consider putting the Oxford University fossil carbon emissions counter in the Atmosphere Gallery as this would help people understand the vast scale of the current energy system and the rate at which we are collectively approaching the 2°C threshold;

Trillionth Tonne

4. Reference the Trillion Tonne Communique from Cambridge:

5. Offer the use of the Shell “CCS Lift” (an audio-visual CCS experience) to help explain this technology to the gallery visitors.

My pitch to The Science Museum was that this approach offered a real opportunity to feature the Science Museum and the Atmosphere Gallery in the very public discussion on carbon budgets, get some good media attention in the run-up to Paris 2015 (e.g. through the very visible counter), tell the CCS story in context (the Myles Allen video and the CCS audio-visual display) and raise awareness of the cumulative nature of the problem (i.e. the science). In the end they decided not to use this material, but I stand by the proposal.

Last week many representatives of the global business community gathered at UNESCO Headquarters in Paris for the Business and Climate Summit, a prequel of sorts to the main COP21 event in December, but with only the business community involved. The goal was to demonstrate the involvement of the business community in the climate change issue and to set the stage for the business response to whatever is agreed by the Parties to the UNFCCC in December.

The event had significant political backing, with President Hollande speaking at the opening session. His speech went straight to the heart of the issue, with very matter of fact references to the important role of carbon pricing and the need for carbon capture and storage. Even UNFCCC Executive Secretary, Christiana Figures, endorsed CCS, not something she is known to do very often. The remarks by the President were backed up by many speakers, but Angel Gurria, Secretary General, OECD was perhaps the most memorable with his call for “a price, a price, a big fat price on carbon.”

The opening on May 20th set the scene for a major session on carbon pricing the next morning, with the World Bank and various business leaders taking the podium. While these speakers were all in agreement on the importance of carbon pricing, the harmony of the day before wasn’t quite as strong, with something of an argument between Tony Hayward, Chairman of Glencore and Kerry Adler, CEO of Skypower (solar) over the respective role of solar and coal in the coming decades. Mr Hayward saw little possibility of solar filling the breadth of industrial needs currently fulfilled by coal (and other fossil fuels).

The economic purpose of a cost on carbon dioxide emissions (carbon price) is as a response to the externality presented by our collective use of fossil fuels. This externality (the impact related to rising levels of carbon dioxide in the atmosphere) was discussed on several occasions during the Summit with regular reference to a new IMF report which argues that fossil fuel subsidies now stand at $5.3 trillion per annum. The vast majority of this arises from unaccounted externalities, such as the emissions of carbon dioxide and the impact of black carbon. Given that global fossil fuel production is some 10+ billion tonnes of oil equivalent per annum, then $5 trillion of externality equates to a charge for each tonne of production of some $500. The IMF report says that about a quarter of this relates to carbon dioxide emissions.

The publication of this number caused some excitement at the Summit and of course it got picked up in the media very quickly, in many cases with very little explanation as to its meaning. The IMF paper dwells at length on the need to cost in the externality and argues that despite a huge rise in energy costs that would result from such a charge, there would be a net welfare benefit to society at large. The report discusses the work of 19th Century Economist Arthur Pigou, who introduced the concept of externalities and proposed that negative externalities could be corrected by the imposition of a tax, now known as Pigouvian taxation. In the case of the climate issue, a carbon tax or the need to purchase emission allowances from the government are examples of Pigouvian taxes. The IMF report notes;

When the consumption of a good by a firm or household generates an external cost to society, then efficient pricing requires that consumers face a price that reflects this cost. In the absence of a well-functioning market for internalizing this cost in the consumer price, efficiency requires the imposition of a Pigouvian tax equal to the external cost generated by additional consumption.

. . . . . . 

. . . . . .

Eliminating post-tax subsidies in 2015 could raise government revenue by $2.9 trillion (3.6 percent of global GDP), cut global CO2 emissions by more than 20 percent, and cut pre-mature air pollution deaths by more than half. After allowing for the higher energy costs faced by consumers, this action would raise global economic welfare by $1.8 trillion (2.2 percent of global GDP).

But it is also important to consider the current value that is delivered by the availability of energy, a point also made by Tony Hayward on the carbon pricing panel. From an economic standpoint, it is worth taking this a step further. After all, why would the world be producing and using a fuel that brings such apparent economic hardship to society (i.e $5 trillion per annum worth of hardship)? The answer to this question implies that a positive externality must be outweighing this factor.

Although the IMF report doesn’t mention it, Pigou didn’t just talk about externalities in the negative sense, but also in the positive sense. Someone creating a positive externality—say, by educating himself and making himself more interesting or useful to other people—might not invest enough in education because he would not perceive the value to himself as being as great as the value to society. Pigou even advocated for subsidies for activities that created such positive externalities.

Despite the issues associated with using them, fossil fuels have brought tremendous value to society and continue to do so. Almost everything we take for granted in modern society from the food we eat to the iPhone we constantly use are here because of fossil fuels. This wealth creation that is tied to their use but not reflected in the price is a positive externality. Such a positive externality should be apparent in the price of fossil fuels, but because of their relative abundance around the world and the dislocation that often exists between extraction and use, this may not be the case. The positive externality is potentially so large that it is likely the root cause of some governments offering real incentives and (Pigouvian) subsidies to promote additional fossil fuel production. The IMF report calls these Producer Subsidies, but notes that they are relatively small.

None of the above is meant as an argument for not dealing with the environmental externalities associated with fossil fuels use. As noted many times during the Summit and as I have discussed often in the past, a carbon price is essential. But as other forms of energy scale up to the level at which we use fossil fuels, new externalities will present themselves. There will of course be the ongoing positive externality associated with energy provision, but negative externalities will almost certainly make themselves known as new industries emerge and new materials are introduced into society for everyday use (e.g. very large scale use of lithium). Perhaps the lesson from the IMF report is to start dealing with externalities much earlier in the cycle of production, before they reach a level which challenges our economic system to correct.