Archive for September, 2009

Shipping makes a move

Late last week a significant development came from an equally significant slice of the global shipping community – support for action to reduce CO2 emissions from international shipping in the form of a global cap-and-trade system. International marine and aviation bunkers were excluded from the Kyoto Protocol, but if there is one thing I can be sure of seeing from Copenhagen is that this exclusion will no longer be the case. Shipping emissions will almost certainly be included and the shipping community will either grasp the opportunity to shape its future in terms of policy or it will have its future shaped for it by national governments and the UNFCCC.

Shipping Report

The announcement comes in the form of a discussion document released by the British, Australian, Belgian, Norwegian and Swedish ship owners associations. The document clearly outlines the issue and challenges, spells out the advantages of a trading approach and then outlines two different constructions for a possible system. At this stage the document doesn’t discuss the scale of reductions, but I don’t think that is important right at this moment. Rather, the industry is taking a major step into the policy arena with a view to charting its own course foward (pun intended, sorry).

What really differentiates the two models in the document is the flow of money. In the “sectoral” approach, the industry pretty much creates its own allowances (although they originally come from the UNFCCC in the form of AAUs), auctions them, manages the revenue from the auctions and establishes registries and compliance mechanisms. Revenue management is not discussed in great detail, but it is clear that some portion is directed towards technology development. By contrast, the “distibuted” approach sees national governments being issued additonal AAUs to cover international marine bunkers (but only those governments with national targets also underpinned by AAUs)  and the shipping market buying either CERs from developing country projects or AAUs from government auctions. The industry maintains its important role in the compliance process but has little control over the money flow. That rests largely with governments.

The flow of money is bound to be a divisive issue, with many shippers, as with big emitters in land based systems, arguing that they should be in control of the auction revenue raised. It is difficult not to be sympathetic with this, but the reality of our world is that governments control the money flow, not sectors or industry associations or even banks. This is almost certainly a subject for further postings.

I will certainly write more about shipping in the weeks ahead, but in the meantime I would recommend reading this document. The shipping community that put it together deserves a round of applause for taking on a difficult subject at a pivotal moment for the industry.

Yet another greenhouse gas!

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I was speaking on a panel in Oxford last week and the subject of greenhouse gases other than CO2 came up with one of my fellow panelists. It seems we can add a “new” one to the list of recognised greenhouse gases, Nitrogen Trifluoride. NF3 has a global warming potential (GWP) some 17,000 times that of CO2 with an estimated atmospheric lifetime of about 700 years. Like many of these high GWP compounds, NF3 finds a home in the electronics industry. It is not a listed Kyoto gas.

Global production of NF3 has grown from some 100 tonnes in 1992 to an estimated 4000 tonnes in 2007 and is projected to reach 8000 tonnes a year by 2010. The electronics industry tells us that only a very small (~2%) of global production is released into the atmosphere and that most industrial processes result in its destruction. However, not all observers agree on such levels (claims of up to 16% released).

Neverthless, the issue here is not NF3 itself, but the much more important need to keep a check on all the greenhouse gases. This point was really driven home for me when the Shell scenario team submitted the two Shell Scenarios, Scramble and Blueprints, to analysis by the MIT Integrated Global System Model of the Joint Program on the Science and Policy of Global Change.

Just a quick scenario synopsis first:

  • Scramble sees the world taking a more reactive approach, first focussing on increasing the energy supply and then facing the consequences later.
  • In Blueprints, the difficult decisions are taken sooner rather than later, leading to revolutionary changes and a better balance of economic and environmental needs.

The analysis is described very thoroughly in the MIT paper The Influence on Climate Change of Differing Scenarios for Future Development Analyzed Using the MIT Integrated Global System Model. In Blueprints the emission of non-CO2 gases is kept in check at about current levels whereas by 2100 the same gases under Scramble are some two and a half times current levels and still rising, even though Scramble has finally managed to see CO2 emissions plateau by the second half of this century.

The impact on atmospheric concentration of GHGs is even more marked. By 2100 Blueprints sees CO2 levels in the atmosphere plateau at about 550 ppm and total GHGs plateau at 630 ppm CO2e. In Scramble, CO2 is nearing 700 ppm and still rising, but total GHGs are now over 1000 ppm CO2e and rising. The latter translates into a near quadrupling over the 21st century of the net radiative forcing due to all long-lived GHGs, sulfate and black carbon, aerosols, and ozone which translates again to an increase, by 2100, in the Global Mean Temperature in degrees Centigrade (relative to 2000) of some 4.5 deg.C.

Whilst even the concerted mitigation efforts of Blueprints may be insufficient overall, the stark message of the analysis is “watch out for the other gases”. As we head towards Copenhagen, all eyes will be on the energy sector and CO2 emissions. NF3 and its cohorts may well miss the party, but to our long term detriment.

How many electric vehicles??

At a recent UK Government stakeholder meeting in London the issue of transport and electric cars came up. Based on information from an adviser on climate change to the government, there seems to be a working assumption that electric cars will take hold in the market with significant sales and that by 2020 we could have between 1 and 2 million such cars on the road in the UK.

Today the UK car population is some 28 million, so this would represent nearly 7% of the total fleet if we actually reach 2 million vehicles. We have just 10 years to 2020 and the statement really made me think about the feasibility of such an achievement.

A few years back when developing the WBCSD publication Facts and Trends to 2050, I did some calculations on vehicle fleets to illustrate the scale of change needed to turn over the entire global fleet. We assumed the following;

  • An “alternative (e.g. electric) vehicle” was available for large-scale manufacture in 2010.
  • Initial production would be 200,000 units per annum and production would increase by 20% per annum until the entire world’s manufacturing capacity was making this sort of vehicle.
  • The global vehicle fleet would be growing at 2% p.a.
  • Global manufacturing capacity would be increasing at 2% p.a.

This very simple calculation resulted in the adjacent chart, which shows that it is not until 2040 that the total traditional vehicle fleet start to decline, but then it falls very quickly. The point of this calculation was to illustrate that unless we start now, it will not be possible to achieve significant CO2 reductions by 2050 given the scale of the energy system we live with today and the lag before it really starts to change.

Facts and Trends Auto Chart

So getting back to the UK, what might be achievable by 2020. There are in fact two issues; the vehicles themselves and the necessary infrastructure to support an electric fleet. I will just look at the number of vehicles for this posting.

Today in the UK there really aren’t any electric cars. Although I met someone who bought a Tesla Roadster and there are a few mini-electrics in London, principally to avoid the Congestion Charge, I don’t think this really constitutes a “fleet” as such. But at least we do have a number of manufacturers showing prospective cars; the Chevrolet Volt, the Nissan Leaf, the Daimler Smart and several others talking about their plans. It looks like we might have some global manufacturing capacity by 2011.

An electric car in London today

An electric car in London today

To get to around 1.8 million by the end of 2020, the UK would have to put 10,000 cars on the road in 2011 and grow that number by some 60% per annum, such that by 2020 about a quarter of all car sales (i.e. 680,000 out of 2.5 million per annum) are electric. Assuming no cars are lost along the way, the cummulative total comes to 1.815 million.

The 2011 start won’t be easy either; this is the equivalent of the total annual UK sales of the Smart car. However, cities like London are ideal places for electric cars so there may well be the demand here, particularly with policies such as the Congestion Charge.

Globally, there are about 70 million cars produced annually. The UK takes in 2.5 million of these or less than 4%. An electric car manufacturer isn’t going to direct all its sales to one market, but let’s assume that the UK is a premium market and can attract 8% of the production of these models – i.e. double its normal market share.

If we want 10,000 cars on the road in 2011, that means global production must be 125,000. Assuming a number of manufacturers start off with modest production lines (i.e. 20,000 vehicles, similar to the initial production of the Prius), we would need at least six big launches followed by immediate production in the next 18 months. By 2020, global production would need to be nearly 10 million cars per annum, which is the equivalent of about 100 major production lines.

In 1998 annual Prius production was about 17,000 vehicles. Just prior to the recession it was close to 300,000.

Somehow I think that the UK assumption is quite a bold one.

A tectonic shift in Japan

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A tectonic shift may be underway in Japan, but not of the sort normally associated with this country and its frequent earth tremors. Rather, a new era in climate politics may dawn as a result of the recent win by the DPJ in the national elections. This is because within the manifesto pledges of the DPJ sit two key policy choices, now (Monday September 7th) formally announced by incoming Prime Minister Yukio Hatoyama;

  1. A commitment to reduce national emissions by 25% by 2020, relative to 1990 – this compares with the proposal by the LDP of an 8% reduction, one which was heavily criticised internationally as being insufficient support for the developed country contribution to an agreement in Copenhagen.
  2. A commitment to implement a cap-and-trade system within the Japanese economy. Although the previous government had talked about this policy instrument, little progress was made in implementing it given the negative position that some business groups took towards it.

Whilst much domestic “nemawashi” is still to take place, this shift could be critical for the success of an agreement in Copenhagen.

But Japan already finds itself an international leader in energy management, given the energy legacy inherited from the previous administration. However, the CO2 story in Japan, whilst positive, has not delivered an overall drop in emissions. Whilst energy diversity and efficiency have been key policy objectives for many years now, absolute CO2 emissions have risen by nearly 15% from 1990 (to 2006, IEA). At the same time emissions in the EU-27 have fallen, but only slightly. Over the same time period CO2 emissions in the USA have risen by just over 19%. 

A focus on Japan

A big difference lies in the power sector, with Japanese power emissions staying at around 430 gms CO2 per kWh over a 20 year period, but EU power emissions falling from over 430 gms per kWh to some 350 gms per kWh in the same period. This is due to the continuing rise of nuclear power in the EU, the influx of natural gas and the more recent aggressive build of renewables in countries such as Germany and Denmark.  By contrast, Japan has seen emissions from coal grow by 45% over the same period, much of that in the power sector.

With a transport sector already one of the most CO2 efficient in the world and an efficient manufacturing base, the power sector will become a particular area of focus.  But efficiency alone is not going to deliver the necessary change, so fuel switching (i.e. more natural gas), renewables and international offsets will all play important roles.

The last item above will be critical to the strategy. But to be truly effective, the tougher target must be backed by an emissions trading system, which is also a preferred policy position of the DPJ. A Japanese emissions trading system, with very open access to international markets will allow the domestic target to be met but importantly will direct significant funding to developing countries.

Some quick numbers – let’s assume domestic emissions in 2013 are down to 1100 MT (with the Kyoto target met through CER and AAU purchases) and that the country can reduce this to 1000 MT by 2020 (i.e. a ~20% reduction from 2006 to 2020). Therefore, meeting a 2020 target of 810 MT CO2 (i.e. 25% lower than 1990) could mean the purchase of over 800 million tonnes of international credits from projects between 2013 and 2020.

Between Japan, the USA, the EU, Canada, Australia and New Zealand, six cap-and-trade systems could be buyers of some 10 billion tonnes of international reductions in the period 2013-2020, giving rise to not only a very large and liquid global carbon market but also an ability to fund very significant step changes in developing country emissions. In tandem, new avenues of supply would have to be rapidly developed, including a mechanism that supports some kind of sectoral crediting, although this will likely be more successful as an outgrowth of the CDM through the creative use of methodologies rather than an entirely new approach.

The announcements by the new government in Japan, if put into practice over the next three years, could have very far-reaching effects. Rather than facing the prospect of a lone EU-ETS struggling to hold the fort for this powerful market instrument, we instead head rapidly into the brave new world of a global carbon market.