Archive for July, 2009

On a shopping trip in London’s West End on Saturday I came across the first real signs of the dawn of the electric car – charging poles. These have been installed by EDF, look a bit like parking meters and are available, with a free dedicated parking spot, for electric car owners needing a recharge. Then on Sunday at a BBQ I met someone who is about to take UK delivery (the 7th in the country) of a Tesla Roadster from Tesla Motors. Tesla now market two electric cars, the aforementioned Roadster which is available today and a small Sedan, the Model S which is targeted for 2012. Both seem to have excellent performance and reasonable range (some 400 km). Tesla is a US company.edf-charging-station

So has the electric car now arrived?

Certainly there are now some real models startring to appear in the showrooms and judging by the announcements by many manufacturers, quite a few more models could appear in the near future. In London today there are also a number of very small electric cars which people use for local commuting and avoiding the £8 per day congestion charge. The most popular of these is the G-Wiz car, now available with a Lithium Ion Battery. These cars are manufactured by the REVA Electric Car Company in Bangalore (India), currently the world’s leading electric car manufacturing company.

We might therefore imagine that electric cars will be everywhere in just a few years and that the days of the internal combustion engine are over. I remember getting my first digital camera in 1995, a model from Apple (who don’t even make them now). At that time I was incredibly impressed by the 1 million pixel images and imagined that within 10 years film cameras would be well and truly on the way out. Today it is hard to even find one in a camera store. But electric cars will be different. Hybrid technology has been around for over 10 years now and whilst Toyota and Honda have been incredibly successful with them, less than 2 million have been sold globally. In the same 10 years global auto production was some 700 million units.

Back in 2005 I did some work for WBCSD for an upcoming publication. We looked at how rapidly new vehicle technology might deploy throughout the world. We assumed a zero emission (at the vehicle itself) vehicle would be available in 2010 and that production would commence at some 200,000 units globally. We then assumed this would grow at 20% per annum until all produciton globally was this type of vehicle. Meanwhile, global vehicle numbers were also growing at 2% per annum. The end result is shown below – it is not until about 2040 that the number of internal combustion vehicles peaks and then begins a sharp decline. Certainly by 2050 they are well on their way out.Electric car penetration

Despite very ambitious assumptions on deployment, the size of the industry today and the reality of turnover of both the vehicles themselves and the production facilities means that the lag in the system is huge. The simple study strongly underlined the need for action to start early if there is any chance of meeting the very ambitious 2050 emission targets now being tabled. It also highlighted that we are not about to see the end of the internal combustion engine, despite our love/hate relationship with it.

But on a national level some markets may move faster.  A recent study by The Center for Entrepreneurship & Technology at UCal/Berkeley has a baseline forecast showing 64% of US LV sales to be electric by 2030, at which time the e-car will have a share of 24% in the US LV fleet. Decoupling of battery ownership (to keep upfront cost for the customer low) is seen as crucial. We certainly live in interesting times!!

Towards a global carbon market

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This week has seen a report produced for the British Government which details pathways towards a global carbon market and the benefits of doing so. A series of policy recommendations are put foprward in the report along with supporting analysis. The report makes excellent reading. Global Carbon Trading

A fully functioning global market for carbon is essential for many reasons. First and foremost, it will drive the reduction of emissions globally in an organised and equitable manner, always picking off the next best project along the abatament curve and therefore giving us a lowest cost solution to meeting reduction targets. The resulting carbon price will also act as an incentive to spur the development of a range of new technologies, such as carbon carbon and storage. The overall global cost of meeting, say, a 2050 target can be reduced significantly with a fully fungible global market, compared to the alternative of many separate stand alone systems.

But such a market will not be something that policy makers will ever be able to create in one swoop, rather it will evolve as individual systems are linked together, as sectoral approaches mature and begin to deliver credited reductions and as new policy mechanisms are introduced in areas such as land use and forestry. Today, we have just the beginnings of such a system, with the EU-ETS buying certified reductions via the CDM, thereby projecting the EU carbon price into many developing countries.

We can already see the dawn of other approaches, such as in the USA, Australia and New Zealand. But whilst both the Australian and New Zealand systems are underpinned with Kyoto AAUs, as is the EU, this is clearly not the case in the US Waxman-Markey case. The USA system, whilst architecturally very similar to the other systems, does not immediately recognise the same project mechanism nor present the possibility of fungible (AAU based) allowances, so discontinuities are already appearing. What is missing is the notion of a common currency for carbon.

This then brings into focus one of the key deliverables from Copenhagen – somehow merging the Kyoto negotiating track and the Long Term Cooperative Action track. Unless this can be achieved we may end up with emission trading systems that simply can’t link together because they are built on different platforms. Although Waxman-Markey does offer an open door for recognition, it won’t be possible to use it as it will present an unrecognised source or sink for allowances within the other systems.

Such a discontinuity will drive up the overall cost of compliance for everyone. Alternatively, we can ensure that the various systems are built on a common platform, recognising the same underlying units, thereby ensuring the shift towards a global market.

Global carbon Market (Shell)

Towards a global carbon market

Supporting standards

One of the features of cap-and-trade legislation is that it typically includes a variety of supporting standards – for example, a renewable portfolio standard in the power sector or a vehicle efficiency standard in the transport sector.

But shouldn’t we just trust the cap-and-trade system to deliver the lowest cost outcome for the economy?

With its tradable allowances, cap-and-trade is designed to move progressively along the abatement curve, driving the implementation of the next best project – which then delivers the lowest cost solution overall. Introducing standards into this mix does two things;

  • It lowers the overall carbon cost within the cap-and-trade;
  • It raises the overall cost of the system to society.

This is because the standard is interfering with the progression along the abatement curve and may be forcing the implementation of projects that are not the next best in terms of cost. Because these projects are then executed, the need to move up the abatement curve to meet the CO2 target is reduced, therefore lowering the overall carbon cost in the cap-and-trade system.

Despite knowing this, we persist in setting such standards. Why do this?

In the case of the transport sector, we (Shell) advocate for the use of standards and I have had input into that thinking. In fact we started from the perspective that cap-and-trade isn’t really the ideal tool in the personal road transport sector at all, but given that inclusion is a reality of US, Australian and New Zealand cap-and-trade policy, we came to the view that supporting standards were still necessary.

With the point of regulation shifted from the emitter to the supplier in the road transport sector, the only signal the emitter (i.e. the driver) sees is a change in price of gasoline. There is plenty of evidence that shows this sector isn’t very price responsive and certainly not at the level of a $50 CO2 price – i.e. about 50 cents a gallon on gasoline. But cost effective “projects” do exist at this price, for example switching to diesel fuel or even choosing a different vehicle when a purchase is made. So if the sector doesn’t respond very well, additional pressure is put on the other sectors, raising the overall CO2 price and of course delaying action in the transport sector itself. Of course the overall reduction is still achieved, but has the cap and trade system delivered the lowest cost outcome – possibly not?

Supplementing the action of cap-and-trade in the road transport sector with a set of standards can redress this balance – at least that is the view we came to. For example, a vehicle efficiency standard can start delivering reductions in the sector at very low cost, at least initially, as vehicle manufacturers may initially try to meet it simply by promoting different types of cars. These are things that should happen anyway under a cap-and-trade and probably would if the vehicle purchase decision was made entirely on financial grounds.

There is a similar arguement in the buildings and commerce sector – standards to drive more efficient appliances and force insulation into homes may be more effective than cap-and-trade at doing this job.

But what about the power sector? Arguably the cap-and-trade system should deliver an outcome balanced between efficiency, renewables, CCS, nuclear and fuel switching, so why have a Renewable Portfolio Standard or, as some have advocated, a CCS standard. This is where other policy objectives come in and the soluiton starts to get messy. Governments are keen to see a shift to renewables for security reasons so they add in a Renewable Power Standard – but it is important to realise that this is potentially undermining the cap-and-trade system and reducing its effectiveness in driving technologies such as CCS.

It may be costing us all more money as well!!

The last 20%

In the last 24 hours we have heard much from the G8 meeting in Italy on climate change as world leaders debate reduction targets for developed countries. Whilst they seem unwilling or unable to agree on much of anything for the near term (although in fairness most of the G8 countries have or are about to have a near term target – they are just all different), they have managed to agree on an 80% reduction in emissions for their economies by 2050.

But it raises an interesting question – can we actually reduce emissions by 80%?

In 2007 the EIA reports that total US GHG emissions were 7419 million tonnes, including international marine and aviation bunkers. Without getting into the detail of a 1990 or 2007 baseline (but it is important), let’s assume that US emissions in 2050 must be 1484 million tonnes, or an 80% reduction from 2007. I will also assume that we have long passed the point of international offsets, given that the rest of the global economy will be under tight CO2 regulation as well.

So the scramble for the last 1.5 billion tonnes is on. To make it easy for everyone else I will assume two things – firstly that the power sector is at zero emissions and second that the commercial and residential sectors only use electricity. Neither of these will be easy to achieve in just 40 years, but you will see in a minute why it becomes essential.

There are many sources of GHG in the economy other than fossil fuels. There is methane from agriculture and human waste, various other gases leaking out of our cars and old appliances in the garage, landfill methane, N2O from agriculture – the list goes on and on.

Then there are the fossil fuels that we have all come to depend on. One of the great features of a gallon of gasoline, jet fuel or diesel is the huge amount of stored energy we can get from it. Whilst we may be able to get around this with advanced battery technology in cars, it is hard to imagine anything else powering an A380 twin deck airliner. We may of course be able to synthesize these fuels from bio-sources.

So, just to put some numbers out there and I will be the first to confess this is just “back of the envelope stuff”, we end up with a transition that looks something like this (the 2007 breakdown is approximate):

USA 80 percent reduction

What we see from all this is that some huge changes have to take place – apart from the power and buildings sector. Road transport (fossil derived)gasoline effectively vanishes but some diesel remains for large trucks and industrial equipment (e.g. diggers). Big industry has to reduce by about 70% which means finding new ways to heat things like blast furnaces. Sectors such as cement and lime are going to have to use technologies such as CCS, but with plants having very long lifetimes and the processes being relatively simple, how much uptake of advanced technology might we really see from such facilities? Some certainly, but an 80% reduction is unlikely.

It would be good to get some comments from the agricultural side – because in my numbers above I imagine that 80% reductions just won’t happen. Are we really going to be able to change methane releases from cattle and capture all the methane from rotting waste products?

I saw a presentation on aviation today and it looks very hard to make huge reductions. Whilst there are still big efficiency gains to be made as we replace fleets with 787 type planes and beyond, it looks like liquid fuels are here to stay. But bio may play a bigger role than the industry can forsee today.

So that is the picture looking out to 2050 – a completely different economy to the one we see today and a real scramble to claim space for those remaining emissions.

Of course, nobody is talking about 2060 when we might need a 90% reduction. Or 2070 . . . . . ! That is when we will really need technologies such as CCS in combination with bio-processing such that we end up with net sequestering (negative CO2) industrial processes.

Meeting James Lovelock

James Lovelock's latest book

James Lovelock's latest book

Yesterday I travelled into rural Devon to meet with James Lovelock, the renowned author and scientist. James is the originator of the Gaia hypothesis, which proposes that the biosphere and the physical components of the Earth (atmosphere, cryosphere, hydrosphere and lithosphere) are closely integrated to form a complex interacting system that maintains the climatic and biogeochemical conditions on Earth in a preferred homeostasis.

James has written much about climate change and his latest book, “The Vanishing Face of Gaia“, puts forward a very different agenda for the world than that being discussed globally today. Whilst he recognises the importance of efforts to reduce emissions, his view is that the earth is about ready to jump to a new much hotter homeostatis with a transition that will be rapid and extraordinarily damaging to us.

I  must confess that whilst I had heard and read much about James in the press, I had never taken the time to read one of his books. I did so with “Vanishing” before visiting Devon and found it to be a fascinating insight into the possible reaction of the earth to our CO2 onslaught, although it does tend to leave the reader feeling a bit helpless and hopeless.

Whilst many may disagree with the views of Lovelock, they are not to be simply dismissed either. This is a man with an immense science background dotted with very significant contributions to fields such as atmospheric chemistry. But best you hear it from James himself in the short interview below. Finally, my sincere thanks to James and his wife Sandy for meeting with me and James Smith, Chairman of Shell UK.