Archive for May, 2010

Sustainable Mobility: Efficiency, Electricity and CO2

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When driving in heavy traffic or sitting on the freeway with cars backed up for miles, the phrase “sustainable mobility” might seem like an oxymoron, but the Challenge Bibendum event which takes place in Rio de Janeiro at the end of this week will seek to prove otherwise. Much of the industry will be there to show that not only are they alive and well after the severe economic downturn but that a new range of products and services is on its way to trigger what may be the biggest change in mobility since the Model-T.

But change often brings challenge and always raises questions and draws comparisons with the status quo. One such area of discussion is the determination of the efficiency of electric cars. How do such vehicles compare with their internal combustion equivalent and therefore which is the better mode of transport (at least as far as efficiency is concerned). This isn’t a simple determination, particularly given that there really aren’t any cars to compare, but some data is starting to appear, notably on the website of the upcoming Nissan Leaf electric car .

According to Nissan, the Leaf has a 24 kWh lithium-ion battery, with a range of 100 miles (based on the USA EPA LA4 City Cycle]. This means that the vehicle consumes 0.24 kWh/mile or 0.864 MJ/mile – at least as far as electricity goes. But electricity has efficiency implications as well. If the source of electricity is a current “average” coal fired power station, then the efficiency shifts to 2.5 MJ/mile. By contrast, if the source is a Combined Heat and Power Natural Gas fired power station with an efficiency as high as 75%, then the efficiency of the same vehicle becomes 1.2 MJ/mile.

By contrast, compare this with a similar internal combustion engine vehicle. A good comparison vehicle for the Leaf might be a Toyota Yaris (diesel). The vehicles are about the same size, although the Yaris has a range of many hundreds of miles. According to the Toyota website the efficiency of the vehicle is about 70 mpg (UK gallon), which equates to some 2.3 MJ/mile. This means that for one particular source of electricity the Yaris is more efficient than the Leaf. But then of course there are considerations relating to the refining of the petroleum, the mining of the coal or extraction and transport of natural gas, transmission losses for electricity and so on.

 

Going a step further and comparing the CO2 emissions of the vehicles is equally if not more complex. On the face of it the Leaf has no emissions, but again it all depends on the source of the electricity. A Leaf in the EU utilizing the grid average electricity (358 gms CO2/kWh) will therefore emit 58 gms CO2/km, whereas the Yaris is listed on the Toyota website at 109 gms CO2/km. But a Leaf in Poland, which has a significant coal base, will be about the same as the Yaris.

Key to the impact that electric vehicles will have on our use of energy and the emissions that result will be the impact they have on the marginal kWh of electricity generation. For example, France exports some electricity to Germany. So a Leaf in France may well benefit from clean nuclear electricity, but that could result in less export to Germany and therefore more coal or gas used in that country. Equally, the demand may come at a time when Germany can make good use of available wind capacity.

As the use of electricity in the transport sector evolves, so too must our understanding and use of the energy systems that will feed the vehicles. Tools such as Smart Grids will be essential. But with both energy and emissions now having a clear price attached to them (at least in the EU for the CO2), perhaps the simplest way to follow the impact will be the way we have always made such judgments, the bottom line, although even that will require some form of smart metering. What is clear is that the days of simply looking at the sticker in the showroom and making a judgment that way are probably nearing an end.

P.S. A recent green car award went to the Volswagen BlueMotion line of vehicles – not electric, not hybrid, but diesel!! Meanwhile at the Shell Eco-Marathon earlier in May, the winning car in the urban concept category achieved 747 km/litre and the overall winning vehicle recorded 4896 km/litre with its hydrogen fuel cell based motor.

A new EU target?

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It is often the case that thought pieces on the future of climate change policy in the EU surface before formal publication. Such documents quickly do the rounds through various industry associations and the Commission then gets some early feedback on the reaction to the policy ideas. This has been the case in the last couple of weeks with the appearance of an early version of a discussion document on a proposal to shift the EU to a 30% by 2020 reduction target, rather than the current 20%.

The 30% target had, until now, been a negotiating position held by the EU in the context of a broad international agreement on climate change. The EU has long said that it would increase its commitment to a 30% reduction if other nations offered similar levels of reduction. But the world has changed. EU emissions have dropped sharply over the last 18 months as a result of the recession, the EU carbon market has a banked surplus which may well get bigger and as such there is a concern within the Commission that low carbon investment will not happen to the extent they envisaged. The proposed fix to this is to shift the target to 30%, irrespective of the initial idea to link this with progress internationally.

The Commission analysis argues that the cost of achieving a 30% reduction in emissions is now much lower than originally anticipated and that moving towards it will be an important stimulus for investment and “green jobs”. In the current economic situation, such measures are high on the political agenda. But simply shifting the goal posts may not be as easy as imagined. For starters, with a 30% target as part of an international agreement, much of the shift was in fact linked with a vastly expanded international carbon market, built on the back of mechanisms such as “sectoral crediting”. Although the Commission document talks about these, the lack of a detailed policy framework from Copenhagen means that it will be some years before they are available. In the medium term we only have the CDM to rely on to deliver offset capability.

The “new” target would be made up of two parts.

  1. A shift in the EU-ETS target from a 21% reduction by 2020 vs. 2005 to 34% by 2020 vs. 2005
  2. A shift in the non-EU-ETS target from a 10% reduction by 2020 vs. 2005 to 16% by 2020 vs. 2005.

In the ETS sector the more aggressive 34% target means an additional shortfall through to 2020 of some 1 billion allowances, even assuming some additional uptake of international offsets (CERs). Assuming the renewable target is met or almost met, nuclear new build taking many years and no uptake of CCS during the period other than the initial 10-12 project demonstration programme (there may well be rapid construction but little more on line by 2020), much of this differential will probably have to come from natural gas. An additional 1+ billion tonne shortfall can be bridged with 50 GW of natural gas power generation displacing coal and phasing in from 2013 to 2016. By contrast to this need, the 2009 IEA WEO reference scenario shows EU coal capacity peaking at 207 GW in 2015 and falling to 182 GW by 2020. Gas remains static at 208 GW over the period 2015 to 2020. A further shift of 50 GW is therefore considerable by comparison – but possible.

In the non-ETS sector, a 6% shift in the target may well fall on the transport sector. Progress in the buildings sector will likely be much slower. Assuming two thirds of the additional obligation falls on road transport, i.e. 4%, this would require an additional reduction of some 72 million tonnes from vehicles in 10 years. This is equivalent to a further shift in on-road (i.e. all vehicles) vehicle efficiency of some 3 mpg. This would mean new cars entering the fleet in 2015 to 2020 being some 10 mpg more efficient than currently planned (probably about 35-40 mpg).

Core to the EU framework is the Emissions Trading System. The ETS is not a short-term policy structure, but one that should be looked at in the context of a forty year journey during which time the energy system and industrial base across Europe must be fundamentally and permanently reshaped. By its very nature this journey can hardly be shorter, given the vast capital stock in place and the time and expense it takes to replace this. Power stations, chemical plants, refineries, kilns and smelters built before the ETS was even a consideration for policy makers have design lives that stretch far beyond 2020. Facilities built today could well be operating in 2050 when European emissions are targeted to be at extremely low levels compared to 1990. The ETS and the carbon price that it delivers are key to the investment decisions that will be made by companies over the coming years. The current price of CO2 will be a relatively minor consideration in these decisions, rather the focus will be on the longer term outlook for the carbon market and the expected supply-demand situation for allowances for this decade and that following. For a large project under consideration today, first emissions may not even occur until 2016 with the real economic return coming in the period 2020-2030.

In the event that the recent recession has given rise to a long-term structural shift in the allowance balance, there may be a case for some corrective action to ensure that a suitable price signal to drive change and foster innovation remains in place. Such action should always be commensurate with the shift that has occurred, rather than against some other arbitrary goal, for example the 30% that is now on the table. But the extent of this shift will not be known until the shape of the economic recovery becomes clearer.

Looking at the other sectors of the economy not covered by the ETS, the picture is very different. Policy instruments such as the Renewable Fuels target in the transport sector have an implicit cost of avoided CO2 emissions that is well above the current or indeed expected future CO2 prices in the ETS. Moreover, this cost is not sensitive to the business cycle, but is rather determined by the long-run cost of providing these alternative, cleaner sources of energy. 

The best approach for now may be to simply signal that some recalibration of the ETS may eventually be required to address any long run consequences of the unusually severe recession from which we are only just beginning to recover. However, it is probably premature to attempt any such recalibration. A commitment to do so in the future should be sufficient to stabilize the expected future CO2 price and the ongoing innovation process that is central to achieving the emission reduction goal.

Offshore or not, that is the question?

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The oil spill in the Gulf of Mexico is a tragic event, no one can deny that. As BP responds to the immediate impact, the effect could be industry wide both short and long term. In the short term industry resources are on hand to assist in stopping the leak and cleaning up. Industry participants, including Shell, will also be relooking at their operations to see what improvements can be made – even before the investigation into this event gets underway and the root cause is identified.

When such an event occurs it is also important to put it in perspective. For directly affected individuals and families there may be little or no consolation possible and seeing that will remind us all again of the tragic nature of this accident. But incidents of this magnitude are incredibly rare, not just in the USA but globally as well. Onshore and offshore production operates in many parts of the world all day and every day almost without incident, delivering the 80 million barrels per day of oil production that the world needs for transport (whilst oil is clearly an energy resource, much of it is now used in the transport sector in one way or another). US oil production stands at about 8% of this total or 6.7 million barrels per day in 2008. As demand has continued to rise, offshore production has become an increasingly important component of total production. Whereas oil and gas production started its life onshore over 150 years ago in places such as Pennsylvania and Azerbaijan, today about a third of global production is offshore. Big production areas such as the Gulf of Mexico and the North Sea have made a significant difference and many new major finds are offshore as well, such as the areas opening up off the coast of Brazil. As global oil demand continues to rise in the medium term, even as vehicle efficiency, electrification, hydrogen and bio-fuels change the nature of the transport sector, offshore access and production will be necessary not just to meet demand but to bridge the gap created by declining onshore fields.

 But putting facts and figures to one side, the longer term effect on the offshore industry and the potential expansion of offshore drilling into new areas may well be where the impact of the current event is really felt. The immediate human instinct is to say “stop”, “no more”, “put an end to it”, but that will have consequences as well. These won’t be felt tomorrow or the day after, but price pressure will grow over time as demand rises – even as alternatives and efficiency begin to have their impact.

For the USA where the issue of offshore access was already under discussion, continued offshore development, in tandem with a much more aggressive approach to vehicle efficiency in particular, are the country’s most immediately effective ways to increase energy security, reduce import payments, increase revenue for the Federal Government, and create many thousands of good paying jobs.

Looking at the numbers again – current US oil production is some 6.7 million barrels per day, but consumption is nearly 20 million barrels per day. That is a very significant gap, which means the US cannot be oil independent any time soon. Production has dropped by nearly a third since the peak in early 1970’s (when US demand and production weren’t that different) and continues to do so, despite growing offshore production. Even assuming no growth in personal transport demand, a rapid shift to transport electrification (say 50,000 vehicles in 2011 growing rapidly such that all new vehicles are electric by late 2020s), a target new internal combustion vehicle fleet average efficiency improving by 2 mpg per annum and no change in marine, aviation, chemicals or other uses of oil, it wouldn’t be until well into the 2030s that demand might equal supply again, assuming of course that supply can be maintained.