Archive for March, 2012

Five short stories from WEO

The IEA’s World Energy Outlook (WEO) is an annual tradition, the result of much work, data analysis and presentation. A formative volume is produced for all to read and digest, but few of  us have the time to do so in the detail required. As such we rely to some extent on IEA presentations and summary documents. One such presentation was given by IEA Chief Economist Dr. Fatih Birol in Shell Centre last week, not for Shell but for the British Institute of Energy Economics. Rather than a WEO “tour de force”, the format was closer to storytelling, or more correctly short stories. Here are five pearls that emerge from the most recent WEO:

1.  A new trend in energy efficiency

Much emphasis is placed on the need for energy efficiency from policy makers and business leaders. We hear about how well certain enterprises are doing and how we need to replace our domestic boiler, insulate our homes and use public transport. Some leaders have even argued that energy efficiency is close to a single solution to energy prices, emissions and access in developing countries. But the stark reality of energy efficiency trends at the global level is the opposite to that which is desired. There is doubtless an impact here related to the financial crisis, but even before that the trend had started shifting.

2.  Oil security concerns shift

Perhaps since the gasoline lines of the 1970’s but certainly since 9/11 in 2001, a focus of US foreign policy has been security in the Middle East and by implication oil supply security. Although Europe has long been a significant importer of oil its attention has been more focused on Russian gas supplies. But all that is due to change. In the timeframe of the WEO (to 2035) China will become the world’s largest oil importer and the US dependence on oil from outside North America will decline. With increased domestic (NA) production from oil sands and light tight oil (using a similar extraction technology to shale gas), in combination with much tougher energy efficiency standards for cars, light trucks and trucks, US import demand will fall. This could have an eventual impact on global governance as China starts to look at Middle East supply and worries about its security. 

3.  The winner was coal

In the first decade of this century, coal accounted for nearly half of the increase in global energy use, with the bulk of the growth coming from the power sector in emerging economies. Next was natural gas, then oil and after that renewable energy. Nuclear was a distant fourth. That’s an order which is almost the opposite of where we should be going with emissions reduction as a high priority.

4.   Modern energy for all

Basic energy services are an essential part of life today, yet 1.3 billion people in the world live without electricity and 2.7 billion live without clean cooking facilities. The need to correct this has become a global imperative and remarkably this could be done with almost no impact on global energy demand and global emissions.

The flip side to this story is the point that I raised back in December when the UNFCCC declared that alleviation of poverty and energy access would become a key priority with mitigation and adaptation. Although “energy for all” is a critical issue, arguably it shouldn’t be on the agenda of the UNFCCC. Their focus needs to be squarely on the other 99.3% of emissions. “Energy for all”, as the IEA have clearly demonstrated, is not a climate change issue.

5.  The weight of a world issue shifts to Chinese shoulders

One of the longstanding arguments in the global debate on climate change has been that the burden rested with developed countries in that they had created the problem during their long industrial development era. But that situation is rapidly changing. By 2035 cumulative emissions from China will have exceeded the EU and will be rapidly approaching the US. China’s per capita emissions will also match the OECD average by then. This by no means puts the USA and EU in the clear, but it does shift the burden solidly to a tripartite response. 

Thanks to Dr Birol and the IEA for a stimulating presentation.


The dash isn’t over yet

Over the weekend the UK Secretary for Energy and Climate Change, Ed Davey, announced plans to secure a continuing role for natural gas in the UK power generation sector. Mr Davey noted;

Gas will continue to play a vital role in a low-carbon economy. Modern gas-fired power stations are relatively quick to build and twice as clean as many of the coal plant they’re replacing. Carbon capture and storage promises to give gas an even longer term future in the mix.”

The announcement from the Department of Energy and Climate Change (DECC) introduced further policy additions to the Electricity Market Reform as follows;

The Energy and Climate Change Secretary set out measures to be included in the intended Electricity Market Reform legislation to provide certainty to gas investors:

  • The level of the Emissions Performance Standard (EPS), designed to limit the emissions from individual plant, will be enshrined in primary legislation. Power stations consented under the 450g/kWh-based level would then be subject to that level until 2045, a process called ‘grandfathering’ which provides long-term certainty to gas investors.
  • The Capacity Market will be designed to bring forward sufficient investment in new reliable capacity, including gas, in order to ensure security of electricity supply. This will help to ensure that there is sufficient capacity in place to cope with peaks and troughs in demand.

The Government intends to bring forward this legislation, subject to the Queen’s Speech, in the next Session of Parliament.

He also announced plans to publish a new gas generation strategy in the Autumn.

So continues the rollout of a comprehensive policy framework designed to decarbonise the UK power sector, ensure security of supply / cost and provide sufficient certainty for the necessary investments to take place. The announcement fits well with the statements made by Oliver Letwin MP, Minister of State (providing policy advice to the Prime Minister in the Cabinet Office) and Cabinet attendee, at a recent panel debate held by the Daily Telegraph. At that event Mr Letwin argued that there was a need for the government to ensure that the resulting energy mix was built on a variety of energy sources and technologies. These included renewables, nuclear and fossil fuels, the latter also supported by CCS. 

Regular readers will note that I have grumbled about some of the EMR provisions in the past, particularly the role of the carbon floor price in the context of an EU wide ETS (Emissions Trading System). However my concerns pale in comparison with those of a number of correspondents and NGOs who argued in the media this week that the level (450 g/kWh) and longevity (until 2045 for those receiving consent) of the EPS would threaten the core UK target of near complete power sector decarbonisation by 2030.

I can’t subscribe to this view.

They seem to have missed the fact that the UK power sector, like the power sector in the rest of the EU, is covered by the EU ETS. Ultimately this is what will determine the level of decarbonisation on any given date, not for the UK in isolation but for the EU as a whole. The targets set at EU level may well embed a certain desired trajectory for the UK, but once allowances are auctioned and trade is underway, actual decarbonisation in the UK may take a variety of courses. This will be influenced by the overall EU cap and the prevailing price of carbon, the economics of various UK power generation options and any local supplementary measures unique to the UK, such as the carbon floor price and the EPS. Gas will almost certainly find a home within the mix, particularly given the favourable capital cost for new facilities and the relatively low emissions from modern high efficiency gas fired CHP.

What the UK government has done is provide a level of investment certainty for the generators. This has been done for renewable energy, nuclear and now fossil energy. But the eventual mix will be determined by the overall carbon constraint in combination with other factors discussed above. The UK will find its own way forward within this, with each generator surrendering allowances against CO2 emitted. Actual UK power sector emissions in 2030 and beyond will not be determined by the EPS details announced on the weekend, but by a complex mix of factors, including the value of EU allowances.

Climate change is one of those subjects that is awash with data, leading to an almost endless capacity for analysis and ultimately conclusion drawing. The same data can be used to create different analytical output and a single analysis can lead to more than one conclusion. This comes about not just from the climate data itself, but from energy use data, energy use projections and the combination of all of these into both simple and highly complex models which seek to map out climate scenarios for the balance of this century and beyond.

A recent paper from Carnegie Institution, Stanford, CA looks at the differential climate impacts for the transition away from coal to various lower greenhouse gas energy systems, ranging from natural gas to hydro electricity. The authors modeled the temperature impact by 2100, based on a shift of 1 TW of coal generation capacity over the balance of this century. 1 TW was about the global coal capacity in 2000. Coal was picked as the base case because it is the most widespread method of generating electricity and is the most CO2 intense way of doing so. In the base case, warming from the continued use of 1 TW coal generation through to 2100 gives a temperature rise of 0.3°C.

The paper clearly illustrates the transition challenge inherent within the energy system, both from the perspective of the time it takes to replace the existing infrastructure stock and the latency of CO2 in the atmosphere. As a result of this, even the complete switch off of 1 TW of coal through conservation in the medium term does not deliver a 100% benefit. It would take some time to achieve such conservation during which the coal plants continue to emit and that CO2 then remains in the atmosphere. By 2100, the benefit is about 0.25°C out of a possible 0.3. Various other alternatives are also considered.

This is an interesting analysis, but it only looks at the 1 TW case, whereas current coal capacity is 1.7 TW and forecast by IEA (Current Policies Scenario) to reach 3.0 TW by 2035. The conclusions from this analysis vary depending on the reporter. The actual conclusion of the paper was given in the final paragraph and is as follows;

Despite the lengthy time lags involved, delaying rollouts of low-carbon-emission energy technologies risks even greater harm in the second half of this century and beyond. This underscores the urgency in developing realistic plans for the rapid deployment of the lowest-GHG-emission electricity generation technologies.

But  one coal blogger came to a very different conclusion when reporting on this paper.

. . . . . studies such as this one, which recently appeared in Environmental Research Letters, which show the limited impact eliminating all coal-fired power generation would have, according to the study eliminating coal from the mix would only reduce global temperatures by 0.2 degrees over the next 100 years. Such a change would come at a massive economic and no doubt social cost, with no real change in climate outcomes.

That post implies there is questionable benefit in tackling coal because of the claimed limited climate impact that results from doing so (0.2°C) and the potential high (but not quantified) cost of the transition, but it does not appear to account for the expected growth of coal use to three times the level used in the analysis (presumably a 0.9°C impact if we do nothing). The Carnegie analysis also assumed that the starting point was a new coal fleet, whereas the reality today is that nearly half the global coal fleet is quite old (particularly USA, EU, Australia) and therefore ready for replacement in the near term.

Conclusions aside, the paper notes that “No previous study has predicted the climate effects of energy system transitions”. I don’t think that this is the case in that the 2008 Shell Scenarios which incorporate a major energy transition were modeled by MIT  to show the climate impacts. I have shown the charts below several times in the past (including last week), but they clearly show that a substantive transition (Blueprints) can make a difference by the end of the century. What it also shows is that the transition will be very long and that we won’t really see the climate benefit until the second half of the century. Even then, the 2°C goal is missed in 2100, although the climate system is beginning to stabilize.

One of the blogs I read from time to time is that of Paul Gilding, an independent writer on sustainability and former head of Greenpeace International. He spoke at TED last week with a talk called “The Earth is Full”. His blog post this week references the talk and argues why we shouldn’t rely on the “techno-optimist” point of view that all will be okay on the night.

 Driven by their optimism bias, people use the clearly huge opportunity of technology to reassure themselves we won’t face a crisis. They believe any serious limits in the system will be avoided because technology will intervene and we’ll adapt.

I discussed this a while back in an earlier post. Two colleagues in the Shell Scenario team published an article in Nature that showed clear historic trends for the deployment of new energy technologies.


 They derived two “laws” from this work, which are:

 Law 1

When technologies are new, they go through a few decades of exponential growth, which in the twentieth century was characterized by scale-up at a rate of one order of magnitude a decade (corresponding to 26% annual growth). Exponential growth proceeds until the energy source becomes ‘material’ — typically around 1% of world energy.

Law 2

After ‘materiality’, growth changes to linear as the technology settles at a market share. These deployment curves are remarkably similar across different technologies.

The “laws” show that it can take up to a generation (i.e. 25-30 years) for an energy technology to become material. Gilding also makes the point that we shouldn’t necessarily draw lessons from the spectacular deployment of technologies such as mobile phones and then assume that the energy industry can do likewise.

But can’t technology drive rapid change? Everyone at TED holds up their smart phones as a wonderful example of such fast, transformational change. This is a good and correct example, but it needs to be put in perspective. This is what I call a “toy technology” – something that makes our lives more convenient and more fun. These technologies are adding real value to our lives and driving change, but they are not transforming the foundations of our current economy.

Unfortunately the deployment of “toy technology” also follows the “laws”, although the time scales are shortened somewhat. Although the first hand-held mobile phone call was made around 1975 and Finland had a 20,000 person subscriber trial up and running by 1980 (i.e. first adopter), it wasn’t until 1995 that the technology became “material”, reaching 1-2% of the global population. Today the global market is approaching saturation (6 billion subscriptions) although now the transition from mobile phone to mobile smart device is underway. So even in the world of fast paced technological change, materiality still takes 15 or so years and full scale deployment another 15-20 years.

So should we be techno-optimists?

For the reasons I argued in my November post, “Can global emissions really be reduced”, it will only be a major technology shift that sees emissions fall dramatically. Ideally this should be introduced through a carbon price because that will pull it into the energy economy faster than would otherwise be the case. Carbon pricing was a principal feature of the Shell Blueprints scenario, which saw electric mobility, solar, wind and CCS all playing major roles in the period to 2050. Emissions do fall in that scenario and the level of CO2 in the atmosphere reaches a plateau, albeit above 450 ppm. 

We need to be optimistic about the role of technology, but also realistic about just how fast the transition can take place. Blueprints exceeded the “laws” in some instances yet still didn’t fully deliver on a 2°C ambition. However, natural gas was not as prevalent in that scenario as it now appears to be which should be a positive development, but on the other hand the Blueprints transition to a global carbon market was already well underway.

The green economy: blessing or curse?

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The above was the title of a panel debate hosted by the UK newspaper, The Daily Telegraph, late last week. There is a short write up in the Saturday edition of the newspaper. I was fortunate to participate in this, alongside Oliver Letwin MP, Minister of State (providing policy advice to the Prime Minister in the Cabinet Office) and Cabinet attendee. Other panel members were UCL Professor Paul Ekins, Jeremy Nicholson from the Energy Intensive Users Group and renewable energy venture capitalist Ben Goldsmith.

Photo Courtesy of The Daily Telegraph

Although Mr Letwin chose not to offer any opening remarks, his subsequent comments revealed some interesting thinking in the UK Government on energy and climate change. Three particular lines of discussion emerged during the debate;

  1. With the “Green Economy” often associated with wind-turbines and solar PV, there was much discussion on how the UK determines its future energy mix. Mr Letwin put forward the view that an entirely market determined outcome was not in the interests of Britain. There was the risk that such a direction could result in over dependency on a particular energy source, bringing with it issues such as reliability, future price exposure, capital cost and technology lock-in. He argued that although the market should play a major role in driving change, there was also a need for the government to ensure that the resulting energy mix was built on a variety of energy sources and technologies. These included renewables, nuclear and fossil fuels, the latter also supported by CCS. This in turn meant that there was a role for government to promote technologies in the early stages of development and that this would remain a feature of their energy policy. The government would also ensure that sufficient incentive was in place for the first stages of deployment of such technologies.
  2. Following on from (1) there was some discussion on the potential role for CCS in the UK energy system. Mr Letwin reaffirmed the need for the government to support a large scale demonstration of the technology and that the proposed government injection of £1 billion was both justified and modest given the scale of the low carbon energy option that it had the potential to deliver, particularly given the remaining fossil fuel production potential of the UK. He expressed the view that the key issue with CCS was not the need to determine its technical feasibility but rather to determine its cost feasibility. Mr Letwin’s enthusiasm for CCS extended into his closing remarks where he concluded that the UK would have one of the first large scale CCS facilities in the world and that the demonstration therein that natural gas was a viable zero-carbon fuel would be of huge benefit to the UK.
  3. Not surprisingly the subject of the UK carbon floor price emerged during the discussion. Mr Letwin linked the need for it to the points made in (1) above and defended its introduction given the current state of the EU-ETS and the very weak price signal it was now delivering. But he also made it clear that it would be better for all concerned if the ETS delivered the necessary price signal: his “fingers crossed” hand gesture when the proposed EU allowance set aside was mentioned was pretty clear body language. 

Overall, it was an interesting evening and well attended. I am not sure that we ever really answered the question, but we did at least get some useful insight into the thinking that supports the current energy policy direction of the UK.