Archive for August, 2010

Food for thought

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Sitting on a beach in Italy with my family leads to all sorts of bizarre conversational directions. My 15 year old son and I were filling some time by challenging each other to estimate things based on scant information and assumptions. Having just figured out that the volume of the ocean was some 1.4×10^21 litres (we were surprisingly close as it turned out) we turned our attention to the number of boxes of Cornflakes sold in the UK each week (yes, this is going somewhere).

Assuming a population of some 60 million of whom 60% eat breakfast cereal and of those 10% eat Cornflakes, we ended up with 3.6 million servings a day. If an average box lasts 10 days then that comes to some 2.5 million boxes per week.

The next challenge was to estimate how much energy is used in just moving Cornflakes from the point of production to the point of purchase in the UK. We started by assuming that an average distribution truck (accounting for both big supermarket and smaller shop distribution) would have a capacity of 4 x 2 x 2 metres or 16 m3. If a box is 40 x 25 x 7 cms or 7000 cm3 then a truck could carry about 2000 boxes. That means 1200 truck loads of Cornflakes per week.

We then assumed that on average a purchase point is no more than 100 miles from a production point so that the average box of Cornflakes travels 50 miles at a minimum (I suspect it may be somewhat higher than this). If an average truck gets 10 miles per gallon then moving Cornflakes in the UK consumes 6000 gallons of fuel per week or about 150 barrels of oil (about 10p for each customer per year). That adds up to some 8000 barrels per annum which in turn adds nearly 3000 tonnes of CO2 to the atmosphere.

None of this may sound much, but don’t forget that we are just moving Cornflakes (no other cereal) from the point of production to the point of purchase in the UK only ! One tiny aspect of our lives.

Food for thought !

Coming to terms with power

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As the new UK government passes 100 days in office, it is clear that one issue high on the agenda of the Department of Energy and Climate Change is the shape of the power generation sector and its investment strategy.

With the UK facing up to challenging self-imposed emission targets, this one sector potentially stands between success and failure in meeting them in the years to come. There are really only four options for the UK on the table and the balance between them is all important. They are coal, gas, (offshore) wind and nuclear. One of the principle existing policy instruments designed to sort out this balance and guide investment over the coming decade is the EU Emissions Trading System (EU-ETS). The clear carbon price signal delivered by the market should provide the necessary driver for future projects. But there is growing concern from some quarters that the market is not doing its job!

A number of major projects will be required over the next 10 years just to meet demand so there will be significant investment activity. This will then set the emissions performance of the sector for the 2020’s and beyond. But with the carbon market again showing signs of surplus, this time due to the recession, the resulting price signal may be insufficient to set the UK onto the true low carbon trajectory it is seeking.

The response from the new government has been to propose two measures to address this situation – a floor price for the carbon market and an Emissions Performance Standard (EPS) for new generation capacity. The floor price is likely to be implemented through a levy approach (e.g. surrendered compliance allowances attract an additional payment where the market for the previous year has been below the designated floor) so that it applies to the UK only.

Both of these solutions are problematic in the context of the broader EU wide ETS. While a reasonably efficient EPS could be designed as an alternative to a cap-and-trade system, an EPS applied to electricity or other sectors already covered by an existing cap-and-trade system would be largely ineffective. If the EPS leads to emission reductions beyond those driven from the CO2 price, it would depress the CO2 price and reduce the incentive for emission reductions across the rest of ETS.  In other words, the leakage of emission reductions under the EPS would be 100%. Similar leakage problems will result from a UK only floor price.

In both cases, the proposed solutions will not mean any lower emissions across the EU as a whole so no net environmental benefit will result. Rather, the outcome will be that the UK economy picks up the cost of potentially more expensive reductions and although some EU funding will flow into the UK from allowance sales linked to any reductions made, the remaining EU economies will be better off as a result.

An alternative strategy for the UK to pursue would be to work with the EU Commission to define Phase IV of the ETS now and potentially establish a floor price for 2021 and beyond by creating an allowance auction reserve price within Phase IV. Such a mechanism would provide an immediate and powerful investment signal for new projects and offer support to the current market given the ability to bank allowances.

Because of the timeline associated with initial design and feasibility studies, planning approval, final investment decisions, ordering, construction and start-up, many new power projects being considered today will, in any case, see the majority of their economic return coming in the 2020s. For this reason a Phase IV based approach to supporting the ETS becomes a practical way forward and being EU wide would be preferable to a UK only solution.

Learning from history

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As society looks at the challenge of rapidly scaling up various energy technologies with a view to displacing existing CO2 emitting infrastructure, the question of policy keeps coming up. Should it be cap-and-trade, or a carbon tax, or direct regulation or perhaps, as some seem to be hinting at, just wishful thinking.

There are some good examples of rapid scale-up in history, one of which I recently wrote about in my posting Liberty Turbines. Unfortunately all of them seem to happen in the context of conflict on a global or near global scale where the need for urgent action is extreme. In such cases policy becomes a severe version of command and control with governments stepping in and directing the industrial base to produce a particular range of goods against an almost infinite order book and a similarly inflated spending programme. But it works!

Thanks to colleagues in our scenarios team, I have come across another such example (The Chemical Engineer, April 2010). Over the period 1941 to 1945 the production of aviation gasoline in the USA grew by 6000% (60x) to some 9 billion gallons p.a. thanks mainly to the development of the Fluidized Bed Catalytic Cracker (FCC), a processing unit found in most complex refineries today. Although still in pilot stage in 1941 (a 100 b/d unit at Standard Oil’s Baton Rouge Refinery built in 1940), construction of the first full-scale commercial plant (13,000 b/d) was started, followed by further improved units in 1942 and 1943. Soaring demand for high-octane aviation fuel and synthetic butyl rubber (cat cracking yields butadiene) to fuel the war in Europe meant that by 1945, no less than 34 more FCC units had been built. In fact, the demand for gasoline was so great that the construction of 32 FCC plants was underway before the first commercial plant was in operation.

The policy framework to do all this was a pretty simple one. In response to the escalating conflicts in Europe and the Pacific the President created the War Production Board (WPB) by Executive Order 9024 on January 16, 1942, replacing the Supply Priorities and Allocation Board as well as the Office of Production Management. WPB was granted supreme authority to direct procurement of materials and industrial production programs. The national WPB constituted the chair (Donald M. Nelson, 1942 44; Julius A. Krug, 1944 45) appointed by the president, the secretaries of war, navy, and agriculture, the federal loan administrator, lieutenant general in charge of war department production, administrator of the office of price administration, chair of the board of economic warfare, and special assistant to the president who supervised the defense aid program. The board created advisory, policy-making, and progress-reporting divisions.

Looking at current efforts, there are some similar examples, but not on the scale described above. The United States has increased its production of bio-diesel from 2 million gallons in 2000 to an estimated 250 million gallons in 2006. While 250 million gallons is smaller than the E.U. production (Germany alone estimates its 2006 production at about 690 million gallons), it represents significant growth. The trend has recently accelerated, and production grew at a pace of 113 million gallons per year between 2004 and 2006. According to the National Biodiesel Board, there were 105 plants in operation in early 2007 with an annual production capacity of 864 million gallons. Further capacity is under construction against expected domestic demand in 2011 of some 800 million gallons (EPA). The rapid expansion of biodiesel production observed between 2000 and 2006 was triggered by a 1998 amendment to the 1992 Energy Policy Act and cash support from the USDA Commodity Credit Corporation’s (CCC) Bioenergy Program. Further support was created through the American Jobs Creation Act (the Jobs Act) of 2004 and the Energy Policy Act of 2005.

 

In this case a much more subtle policy shift has created the impetus for change, although in comparison to total US distillate production of some 60 billion gallons per annum this is still very small and much smaller than the 1945 production of aviation gasoline in the USA – some 8-10 billion gallons. But it does show that rapid acceleration and deployment of new technology is possible, given policy instruments that are clear, focused and long term in nature. It also shows that even very rapid change still takes years given the scale of our energy system.

Finally, as something of an aside to all this, I came across the following Shell reference in trying to find some more information on this:

Before World War II, Major Jimmie Doolittle realized that if the United States got involved in the war in Europe, it would require large amounts of aviation fuel with high octane. Doolittle was already famous in the aviation community as a racing pilot and for his support of advanced research and development (and would later earn even wider fame as head of the 1942 B-25 bombing raid on Tokyo). In the 1930s, he headed the aviation fuels section of the Shell Oil Company. Fuel is rated according to its level of octane. High amounts of octane allow a powerful piston engine to burn its fuel efficiently, a quality called “anti-knock” because the engine does not misfire, or “knock.” At that time, high-octane aviation gas was only a small percentage of the overall petroleum refined in the United States. Most gas had no more than an 87 octane rating. Doolittle pushed hard for the development of 100-octane fuel (commonly called Aviation Gasoline or AvGas) and convinced Shell to begin manufacturing it, to stockpile the chemicals necessary to make more, and to modify its refineries to make mass production of high-octane fuel possible. As a result, when the United States entered the war in late 1941, it had plenty of high-quality fuel for its engines, and its aircraft engines performed better than similarly sized engines in the German Luftwaffe’s airplanes. Engine designers were also encouraged by the existence of high-performance fuels to develop even higher-performance engines for aircraft.