Archive for February, 2013

For regular readers, this may seem like a repeat of recent themes, but there is a point which will become clearer as the new Shell scenarios are released later this week.

Over recent years, the focus for managing rising CO2 emissions has been a combination of targets, energy mix mandates, efficiency drives and various attempts at carbon pricing. The climate lexicon is full of phrases such as;

  • “We need to reduce global emissions by 50% by 2050 (relative to 1990 / 2000 / 2005 . . .)”
  • “We will reduce the CO2 intensity of the economy by 30%.
  • “By 2020, renewable energy will make up 20% of the energy supply”
  • “We must first improve energy efficiency, that can have a significant impact on emissions”
  • The “Green Economy”
  • “We must stimulate clean energy investment”
  • “We need more clean energy for development”

The question is, are these the right types of policies for solving the CO2 problem? There is no doubt that such approaches have gained traction and wide support from policy makers, but in many instances they are the result of a desire to solve a broad range of topical issues, ranging from energy security and energy access to jobs and economic growth. There is apparently then an underlying assumption that because each of these has a link with reducing emissions or low emissions that this must also be a solution to the real elephant in the room, the rising levels of CO2 in the atmosphere. This may not be the case.

All of the above approaches appear to rest on the assumption that responding to climate change depends on managing the rate of emissions from the global economy, sometimes on an absolute basis but often on a relative basis, e.g. relative to GDP. But this doesn’t correspond with how the atmosphere sees our emissions of CO2. Rather, the rising level of CO2 in the atmosphere is ultimately a stock problem, meaning that what really matters is the total cumulative amount of CO2 that is released over time from fossil sources and land use change. Additional CO2 is accumulating in the ocean / atmosphere system at a much faster rate than it is being removed. The difference is several orders of magnitude when compared with its return to geological storage through processes such as weathering and ocean sedimentation, which is why in the context of managing the problem we can treat it as a stock issue or liken it to the rising level of water in a bathtub (where even a dripping tap will eventually result in overflow). By contrast, many other emissions to atmosphere don’t accumulate, they disperse, break down or drop out very rapidly.

Over the last 250 years since the beginning of the industrial era, some 570 billion tonnes of fossil and land-fixed carbon (over 2 trillion tonnes of CO2) has been released, which in turn has led to a shift in the global heat balance and a likely 1°C of warming before the ocean / earth / atmosphere system reaches a new equilibrium state. An accumulation of a trillion tonnes of carbon equates to the 2°C temperature goal, but as a median within a broad distribution of outcomes, both higher and lower (Allen et. al., Warming caused by cumulative carbon emissions towards the trillionth tonne, Nature Vol 458, 30 April 2009). As long as the total fossil / fixed carbon released remains less than this amount over, say, a 500 year period, the climate problem is contained, at least to some extent. Towards the trillionth tonne 

Thinking about climate change as a stock problem then changes the nature of the solution and the approach. Although emissions in 2020 or 2050 may be useful markers of progress, they do not necessarily guarantee success as they are measures of flow, not stock. For example, meeting a 2050 global goal of reducing emissions by 50% relative to 1990 would be a remarkable achievement, but of only modest value if emissions then stayed at this level and the stock accumulated well beyond the trillion tonne level, albeit at a later date than might have otherwise been the case.

Current global proven reserves of hydrocarbons (BP Statistical Review of World Energy) will release some 0.9 trillion tonnes of carbon when used, irrespective of how efficiently we might use them, how many wind turbines are built in the interim or even how many green jobs are created in the process. In combination with cement production and continued land use change, this will then take the cumulative carbon towards two trillion tonnes, with the likelihood of a temperature increase of well over 2°C.

  Towards two trillion tonnes

Not using these reserves and leaving them in the ground permanently (i.e. forever) so as not to contribute to the ocean / atmosphere stock will only happen if we develop alternative energy sources that out compete them, without subsidy or support, 24/7 365 days a year. Another way forward  is to recognize that many economies around the world will choose to continue using the resources that they have, and therefore the focus should be on the development and deployment of carbon capture and storage (CCS), which returns the carbon back to the “geosphere” instead of allowing it to accumulate in the biosphere.

CCS has the potential to address CO2 emissions on a scale equal to its production and at a cost that appears more than manageable by society. Most importantly, it fits the “stock model” thinking, which means that this particular solution matches the nature of the problem itself, rather than being a derivative of it. But as I have noted in previous posts, CCS is struggling politically to gain the necessary funding and momentum. There are no large scale CCS power generation plants operating in the world today, but only a tiny handful of industrial emission CCS facilities, with most under construction. New thinking and impetus will need to emerge to ensure that CCS becomes central to climate policy development, rather than it having to compete with the long list of other objectives that seem to prevail.

The issue of accumulating CO2 in the atmosphere is a relatively simple one, which can’t be addressed by energy efficiency standards, renewable directives or similar such measures. They may impact on the short term consumption of fossil fuels in one region for a limited period of time, but they offer no guarantee of permanent reductions nor do they deliver a guarantee of a lower cumulative stock of CO2 over time – in other words, the fossil fuel that they displace locally simply gets shifted geographically and / or temporally (used later) such that the same accumulation of CO2 results. The CO2 issue is only addressed by two approaches – either leaving the fossil fuel in the ground forever or using the fossil fuel and returning the CO2 to the ground via CCS.

Dear ENVI Committee,

Next week you have to make an important decision on the future of the EU ETS. The Commission has proposed that 900 million allowances due to be auctioned at the beginning of this phase of the ETS be held back and returned to the market before the end of 2020. The objective is to remove a good portion of the allowance surplus that currently exists in the trading system and is putting extreme downward pressure on the resulting price of CO2 emissions. This isn’t a full solution to the problems that confront the trading system, but it is the only politically possible route forward that has been identified. It will provide the necessary breathing room for a more structural approach which must come over the next two years and which will cover the period through to 2030 and beyond.

The ETS was designed and implemented as the principal pricing mechanism to guide investment in power generation and industrial facilities across the EU such that long term CO2 reduction goals could be met at the lowest cost to society. Quite simply, it isn’t performing that role today. While Europe should be gradually shifting away from unmitigated coal and beginning to implement carbon capture and storage (CCS), coal consumption is on the rise and the CCS Demonstration Programme is on the brink of complete collapse. This is because the CO2 price in Europe today is effectively zero. The few Euros that an emissions allowance can command in the market is a reflection of future value, but even that is a cause for concern. At €4 today, this points to a price expectation in 2030 of €7, hardly an indication of a robust market based approach to managing emissions and introducing new energy technologies.

Many have argued that the market is working and delivering on the 2020 target. For this reason they have further stated that market intervention is not necessary. Unfortunately this is misguided and poorly informed thinking. While there is no doubt that annual compliance is functioning under the ETS and therefore the system will also force compliance in 2020, there is very clear evidence that longer term investment is not being guided by the ETS. Rather, investment is either not happening at all or is being driven by other factors and policies, some at EU level but many at Member State level as well. This is not leading the EU down a path of lowest cost emissions reduction, but is instead driving up energy costs in the EU. The very low price of CO2 in the EU does not represent low cost emission reduction opportunities being implemented, rather it is a very real symptom of a high energy cost pathway. This is important as it is not, or has ever been, the cost of CO2 that is impacting the competitiveness of EU industry. Even at previous levels of up to €30, in combination with the free allocation provisions for trade exposed industries, the CO2 price is a relatively benign factor.

The vote on backloading needs to be a “yes” vote. This signals the intention of the European Parliament to begin the process of restoration of the most cost effective approach to meeting Europe’s energy needs and reducing emissions over time. A “yes” vote won’t immediately restore the ETS to good health, but it is a start. Much work remains to be done. But following the advice of those who counsel for a “no” vote would mark the start of a very different pathway for meeting Europe’s energy needs – one that is less certain, more expensive and probably with much higher emissions over time.

Yours sincerely,

David Hone

Chief Climate Adviser, Royal Dutch Shell

Chairman, International Emissions Trading Association

Climate lock-in wedges

Nearly a decade ago the then CEO of BP, Lord John Browne, gave a landmark presentation on climate change mitigation in the City of London. He introduced to the broader interest group (the work had already circulated in the academic sector) the idea of stabilization wedges, which had been developed by Stephen Pacala and Robert Socolow at Princeton within a research program supported by BP. Each wedge represented one of a number of quantifiable actions that together were necessary to move from a business as usual (BAU) global emissions trajectory to a given atmospheric stabilization of CO2. In the initial study that stabilization was 500 ppm.


Wedges were on a very large scale (up to 1 GtC/annum) and consisted of actions such as:

  • Increase fuel economy for 2 billion cars from 30 to 60 mpg
  • Replace 1400 GW 50%-efficient coal plants with gas plants (four times the current production of gas-based power)
  • Introduce CCS at 800 GW coal or 1600 GW natural gas (compared with 1060 GW coal in 1999) power plants.
  • Add 700 GW (twice the current capacity) of nuclear fission capacity

This was the first real attempt to quantify the physical changes required in the energy system and turn that into an overriding story which people could actually understand. Many variations on the approach followed in subsequent years. More recently, researchers from universities in the USA and China looked again at the wedges and concluded that the scale of the issue had grown and that an even more ambitious set of wedges would be required to address the climate issue. The team behind this analysis introduced the concept of “phase-out” wedges, or wedges that represent the complete transition from energy infrastructure and land-use practices that emit CO2 (on a net basis) to the atmosphere to infrastructure and practices which do not. But this raises the major issue of stranded assets, or assets that have to be abandoned before their useful life has ended, typically because of economic impairment.

An alternative way of looking at this issue is to consider “lock-in” wedges. Each represents a chunk of infrastructure in use today that is very likely to continue operating until the end of its normal life, emitting CO2 while doing so and therefore adding to the growing accumulation of CO2 in the atmosphere. According to the Oxford University Department of Physics, cumulative carbon emissions today stand at some 567 billion tonnes (since 1750). Limiting the global temperature rise to 2°C requires limiting cumulative carbon emissions to one trillion tonnes. Each wedge adds towards a total committed block of emissions, which in turn would lock us into a 2°C or greater outcome should that commitment block be greater than 433 billion tonnes (1 trillion less 567 billion). Major wedges are described below:

  1. The largest existing commitment is coal fired power stations. While the next generation of facilities may well be fitted with Carbon Capture and Storage (CCS) or at least be “CCS ready”, existing power stations may never be retrofitted. Today there is some 2000 GW of coal fired capacity, with each GW emitting about 6 million tonnes of CO2 per annum. More than half of this has been built in this century, so we might assume an average age of 16 years for the existing facilities. That leaves about 30 more years of operation. Even assuming that no more are built, that means cumulative CO2 emissions of 300 billion tonnes, or 80 billion tonnes of carbon. But we could well build another 1000 GW without CCS, so that alone adds another 225 billion tonnes of CO2, or 60 billion tonnes of carbon.
  2. There are about 1 billion passenger cars in the world today and production is now over 60 million per annum. Assuming the average age of a current world car is 7-8 years and the average lifetime of a car is 15 years, this population could emit a further 10 billion tonnes of carbon. We will almost certainly build another billion internal combustion engine cars, which in turn will add a further 16 billion tonnes of carbon to the atmosphere.
  3. Natural gas use in power generation is growing rapidly, with some 1600 GW in use today, growing to 2000 GW over this decade. By the early 2020s, only a tiny fraction  of this capacity will have CCS. Given that a gas fired power station emits less than half the amount  CO2 compared to a similar sized coal plant, this fleet could see a further 140-150 billion tones of CO2, or about 40 billion tonnes of carbon emitted prior to retirement.
  4. According to the IEA, residential use of gas results in 1 billion tonnes of CO2 emissions per annum. This is somewhat hard wired into cities, so difficult to dislodge any time soon (although having replaced our gas boiler at home with an electric one because of new UK flue regulations, it’s clearly not that difficult). Nevertheless, this could well continue for 30-40 years, so perhaps another 10 billion tonnes of carbon.
  5. Aviation and shipping have both an existing fleet and show almost no sign of finding viable large scale routes to zero emissions (but biofuels may be the solution for both). Expect another thirty years of emissions at a minimum, which is another 10 billion tonnes of carbon.
  6. Finally, there is manufacturing industry which emits 6 billion tonnes of CO2 per annum globally. This includes refineries, ferrous and nonferrous metal producers, cement plants, chemical plants, the pulp and paper industry and various other sectors. Capacity is renewing rapidly both because of growth and development but also because of the gradual decline of developed country capacity in favour of much larger and more efficient production in regions such as the Middle East. New capacity will operate for thirty years at least, so this sector could be responsible for another 120 billion tonnes or more of CO2 or about 32 billion tonnes of carbon.

The sum of these “climate lock-in wedges” now looks something like this:

Climate lock-in wedges (II)

This picture includes the major sources of emissions (e.g. oil fired power stations not included) and probably represents the best case in terms of retirement of existing assets. Staying within the trillion tonne limit therefore leaves little room for complacency with regards the next generation of assets and particularly the use of CCS in power generation. An alternate view of this would be to just look at the current proven reserves of oil, gas and coal which amount to about 1.3 trillion tonnes (BP Statistical review of World Energy). If totally consumed without the application of CCS, they would result in over 1 trillion tonnes of carbon emissions, bringing the total accumulation since 1750 to 1.7 trillion tonnes.