Archive for the ‘Carbon price’ Category

A bit of thermodynamics

In conjunction with the ADP meeting in Bonn last week, the UNFCCC held a Technical Expert Meeting (TEM) on Carbon Capture and Storage. It was really good to see this critical technology finally getting some airtime at the UNFCCC and even more importantly the attendance at the meeting by the Parties was good. There was plenty of interest, lots of good questions and a real desire to understand how CCS could be further advanced and more importantly deployed. On a historical note, the meeting was held in what was the German Bundestag between 1949 and 1999. The pigeon holes used by the MPs were still there and dutifully labelled with names such as Dr. A. Merkel.

The morning session covered the technology more broadly and focussed in on some major CCS projects either in operation or under development around the world. I had been invited to speak about the Shell Quest Project in Canada. The afternoon session had a focus on the “U” in a new acronym now entering the discussion, CCUS or Carbon Capture Use and Storage.

Carbon Capture and Use sounds like a great way forward; why not capture the CO2 and put it to good use? That way there will be an economic incentive to tackle emissions and the problem will be solved. This took me back to a dinner at COP19 in Warsaw last year where one participant suggested that CO2 be commoditized such that it would be used even more widely. Unfortunately, this is where thermodynamics gets in the way.

Carbon dioxide sits at the bottom of a deep thermodynamic well.

Thermodynamic well

It is a by-product from a very energetic chemical reaction, the oxidation of a hydrocarbon molecule (i.e. combustion). This releases a tremendous amount of energy (which is why fossil fuels have such value), but leaves us with CO2, which then doesn’t have the energy to react quickly with anything. As such, it is very stable and any chemical use for CO2 which converts it into something else requires a similar amount of energy to that produced when the CO2 was created in the first place. One of the key presentations at the CCS TEM was about the manufacture of polycarbonates (and other chemicals) from CO2. This was an excellent piece of work, but the tricky subject of process energy doesn’t jump out of the presentation.

There is also another tricky subject that needs to be opened up; for the most part, the use of CO2 in chemical processes has no impact on the atmospheric CO2 balance, unless of course the chemical is eventually sequestered. Otherwise the CO2 simply returns to the atmosphere when the chemical is used or the plastic degrades. Even if sequestration is the end point, chemical processes will never operate on the scale necessary to manage global CO2 emissions from energy use.

I did a bit more searching on these subjects and found an excellent paper from the University of Bath, but beware it is long, detailed and very technical. However, an extract from the early part of the paper highlights the above points:

The development of methods to activate and use CO2 to prepare chemicals and materials is an attractive research goal. Carbon dioxide is abundant, renewable, of low toxicity and is emitted as a waste product from a myriad of industrial processes. A longstanding goal of synthetic chemistry has been to develop catalysts and processes which consume it, however, such reactions pose significant challenges. As the most highly oxidized state of carbon, CO2 is the lowest energy state of all carbon-containing binary neutral species: indeed, CO2 and water are the end-products of most energy releasing processes, including combustion and metabolic pathways. The table below illustrates the free energy of formation of carbon based molecules: the large energy required to reduce it is the most significant obstacle. This energy can either be directly input as physical energy or indirectly via the use of reactive chemical species as reagents; it is the latter strategy which powers the copolymerisation of epoxides and CO2. Free energy of Formation

Nature is successful in transforming approximately 200 billion tonnes/year of CO2 into carbohydrates via photosynthesis. Synthetic chemistry has been less successful, so far there are only a limited range of reactions which can transform CO2 to useful products, those that yield materials with high market volumes and/or economics are even scarcer. Successful reactions include the synthesis of urea (146 Mt/y, 2008), inorganic carbonates (45 Mt/y, 2008, mostly Na2CO3 via the Solvay process), methanol (6 Mt/y), salicylic acid (60 kt/y, 2003, via the Kolbe-Schmitt process), organic carbonates (100 kt/y, 2009; the subject of recent reviews) and polycarbonates (a few kt/y). Current production volumes for aliphatic polycarbonates produced from CO2 are small, however, the polycarbonates sector as a whole is large and growing. In Asia alone the sector is forecast to grow by 8-10%, resulting in the construction of new polycarbonate plants and opportunities for new technologies. Finally, it is important to note that CO2 consumption by chemical processes (approx. worldwide ~ 100 Mt/y) cannot impact global CO2 levels, nor are they a means to address climate change (UK CO2 emissions in 2008 from power stations exceeded 200 Mt/y). However, they could be a means to add value to a portion of the CO2 from carbon sequestration and storage (CSS) processes.

The last point is critical and it is why processes such as described above and the use of CO2 for enhanced oil recovery (EOR) are so important. All of these give real value to a modest amount of CO2. This is nowhere near the scale necessary to impact atmospheric concentrations, but enough to allow carbon dioxide capture plants to be built, which in turn allows capture technology to develop and become more cost competitive. This then makes CCS a more attractive option over the longer term and gives confidence that it is commercially viable at a certain carbon price.

My new book, Putting the Genie Back, goes to some length picking apart the climate issue and then explaining why carbon capture and storage (CCS) is such a critical part of the solution set. It eventually becomes clear when you really think it about and consider three things;

  • The huge scale of the fossil fuel based energy system;
  • The way carbon dioxide accumulates in the atmosphere and;
  • The extraction economics of fossil fuels.

But few of us have the time to really think about an issue such as climate change, let alone read books on the subject or attend seminars, lectures and climate conferences (although quite a few of these don’t mention CCS at all and some barely acknowledge the need for a carbon price). Rather, in this word of social media, 140 character tweets and 24/7 News Channels, we often get just a few minutes to come to terms with a concept and form an opinion. As such, is it possible to explain the role of CCS in such a short amount of time?

With an eye on the UN Climate Summit and then the opportunities in the lead-up to COP21 in Paris, the World Business Council for Sustainable Development (WBCSD) has given it a try. The media they have used is video, working with an exciting graphics company called Carbon Visuals. The challenge was to help the audience understand why CCS is important in just a few minutes, not just by being told so, but by being convinced.

Carbon Visuals focussed on two key aspects of the climate issue, that being the huge scale of fossil fuel use and the way in which CO2 from this use accumulates in the ocean / atmosphere system, with further accumulation likely due to the global fossil resource base still to be extracted to meet energy needs.

The visuals depicting scale are very attention grabbing, to help the viewer recognise that fossil fuel use is highly unlikely to diminish in the near term or even vanish in the longer term. For example, daily global coal use alone buries Midtown East Manhattan.

Coal mountain

This is then contrasted with renewable energy, which while growing very rapidly, isn’t even outpacing the growth in fossil fuel use, let alone forcing it down.

The animation steps up a notch when it comes to depicting CO2, which bursts out of Central Park and literally buries New York as it accumulates. These spheres are something of a Carbon Visuals “trademark”, first appearing in an excellent video they made about New York City emissions.

CO2 pile in NYC

Finally, the animation puts this into perspective in terms of global accumulation and the likelihood of exceeding the trillion tonnes of carbon threshold (and therefore 2°C), unless of course large scale deployment of CCS takes place to mitigate such an outcome. Of course a great deal has to happen for this scale of CCS to be built, starting with more widespread application of carbon pricing.

CCS Animation

You can watch the animation here and look in more detail at the images and thinking behind it here.

Did the UN Summit shift the dial?

The UN Climate Summit has come and gone and leaders from many countries have made announcements, pledges or at least offered moral support. But are we any better off as a result? Reflecting on the last few days of meetings, events, panels and speeches in New York, I would have to argue for the “yes” case. As such, it contributes another piece to the Paris jigsaw.

UN Climate Summit Jigsaw

Although nothing that was formally pledged or offered is likely to make a tangible difference to global emissions in the medium term, one subject has resurfaced in a major way that can: carbon pricing. While there was still a focus on efficiency and renewable energy at many events, the need to implement policy to put a price on carbon dioxide emissions came through loud and clear. In recent months this has been led by the World Bank and they were able to announce in New York that 73 countries and some 1000 companies have signed their Statement, Putting a Price on Carbon, which is an extraordinary result for just a few months of concerted effort.

Given that this was a UN event rather than a national event, the focus naturally shifted to the global story, with an emphasis on how the Paris 2015 agreement might accelerate the shift to carbon pricing and a carbon market that operated globally. The International Emissions Trading Association (IETA) held a number of events around the city outlining its ideas on how this might happen.

Its kickoff was an event on Monday afternoon, the day before the Summit, where a team led by Professor Rob Stavins of the John F. Kennedy School of Government at Harvard University presented new work on linking various carbon emission mitigation approaches. The work suggests that such linkage could be the foundation mechanism behind a globally networked carbon market and can be found in summary here. It illustrates how even quite different approaches to mitigation might link and then deliver the economic benefits associated with a larger more liquid market.

But if this approach is to be adopted, the big question that would still need to be addressed is how the Paris agreement might actually facilitate it. IETA offered some thinking on is, with an outline proposal that even included some basic treaty text to enable such a process. Given that the 2015 agreement will almost certainly be structured around INDCs, or Intended Nationally Determined Contributions, the text proposal needed to embrace this concept and work with it, rather than attempting to impose a carbon price or carbon market structure by diktat. The basic reason for trading in a market is to exchange goods or services and optimise revenue and / or lower costs as a result, so the text simply suggested that parties (nations) could be offered the ability to exchange and transfer mitigation effort (INDCs) should they (or companies within their economies) wish to do so, but requires that it be recorded in some form of carbon reduction unit. The proposal by IETA is as follows;

Cooperation between Parties in realizing their Contribution

  1. Parties may voluntarily cooperate in achieving their mitigation contributions.
  2. A unified international transfer system is hereby established.

a.  A Party may transfer portions of its defined national contribution to one or more other Parties through carbon units of its choice.
b.  Transfers and receipts of units shall be recorded in equivalent carbon reduction terms.

There could be many variations on this theme, but the idea is to establish the ability to trade and require a carbon unit accounting of it if and when it takes place. Of course many COP decisions will be required in years to come to fully flush this out.

What was interesting about this proposal was the reaction it got from those closer to the negotiating process. Rather than simply acknowledging it, one meeting in New York saw several people debating the wording as if the formal negotiation was underway. I understand that this was exactly the reaction IETA were looking for and hopefully it bodes well for the development of market mechanisms within the Paris outcome.

There were of course other themes running through the various events. The new business coalition, We Mean Business, was actively marketing its new report which attempts to make the case that emission reduction strategies in the business sector can deliver returns on investment approaching 30%. This is a rather misleading claim in that it is primarily focussing on efficiency improvements in certain sectors, which of course factors in the local cost of energy, but particularly electricity. There is no doubt that reducing electricity consumption can lead to improved competitiveness and growth, hence a very attractive ROI, but this is very different to a real reduction in emissions that actually delivers benefits globally. This is a major theme of my recent book. The problem with such claims is that they shift attention away from the much more difficult task of actually reducing emissions to the extent that cumulative atmospheric carbon dioxide is impacted; such reductions require real heavy lifting as delivered through the use of carbon capture and storage.

Overall, It was an interesting week, framed by 300,000 demonstrators on Sunday and a plethora of world leaders speaking at the UN on Tuesday. Just maybe, this was the start of something meaningful.

A recent story in The Guardian expressed some optimism that “humans will rise to the challenge of climate change”. Ten reasons were given to be hopeful, but not one of them mentioned the climate basics such as a carbon price or carbon capture and storage. Rather, the offerings were largely tangential to the reality of rising CO2 emissions, with the hope that because European homes are using less energy and solar prices are dropping, then ipso facto, atmospheric CO2 levels would somehow stabilize (i.e. annual CO2 emissions falling to zero).  Without wanting to be pessimistic, but rather realistic, it may not be the case that emissions just fall and here are ten reasons why not. For those who visit this blog more regularly, sorry for the repetition, but hopefully this is a useful summary anyway.

1. There is still no carbon price

Although discussions about carbon pricing are widespread and there are large systems in place in the EU and California, pervasive robust pricing will take decades to implement if the current pace is maintained. Yet carbon pricing is pivotal to resolving the issue, as discussed here. The recent Carbon Pricing Statement from the World Bank also makes this point and calls on governments, amongst others, to work towards the goal of a global approach.

2. Legacy infrastructure almost gets us there

The legacy energy system that currently powers the world is built and will more than likely continue to run, with some parts for decades. This includes everything from domestic appliances to cars to huge chemical plants, coal mines and power stations. I have added up what I think is the minimum realistic impact of this legacy and it takes us to something over 800 billion tonnes carbon emitted to the atmosphere, from the current level of about 580 billion tonnes since 1750. Remember that 2°C is roughly equivalent to one trillion tonnes of carbon.

3. Efficiency drives growth and energy use, not the reverse

The proposition that energy efficiency reduces emissions seems to ignore the cumulative nature of carbon emissions and is apparently based on the notion that energy efficiency is somehow separate to growth and economic activity. What is wrong with this is that the counterfactual, i.e. that the economy would have used more energy but grown by the same amount, probably doesn’t exist. Rather, had efficiency measures not been taken then growth would have been lower and energy consumption would have been less as a result. Because efficiency drives economic growth, you have to account for Jevons Paradox (rebound). After all, economies have been getting more efficient since the start of the industrial revolution and emissions have only risen. Why would we now think that being even more efficient would somehow throw this engine into reverse?

4. We still need a global industrial system

In a modern city such as London, surrounded by towns and idyllic countryside with hardly a factory in sight, it’s easy to forget that an industrial behemoth lurks around the corner producing everything we buy, eat, use and trade. This behemoth runs on fossil fuels, both for the energy it needs and the feedstock it requires.

5. Solar optimism

There’s little doubt that solar PV is here to stay, will be very big and will probably be cheap, even with the necessary storage or backup priced in. But it’s going to take a while, perhaps most of this century for that to happen. During that time a great deal of energy will be needed for the global economy and it will come from fossil fuels. We will need to deal with the emissions from this.

6. Developing countries need coal to industrialize

I talked about this in a very recent post – developing countries are likely to employ coal to industrialize, which then locks the economy into this fuel. One way to avoid this is to see much wider use of instruments such as the Clean Development Mechanism, but at prices that make some sense. This then comes back to point 1 above.

7. We focus on what we can do, but that doesn’t mean it’s the best thing to do

Methane emissions are currently attracting a great deal of attention. But cutting methane today and not making similar reductions in CO2 as well means we could still end up at the same level of peak warming later this century. It’s important to cut methane emissions, but not as a proxy for acting on CO2.

8. It’s about cumulative carbon, not emissions in 2050

Much of the misconception about how to solve the climate issue stems from a lack of knowledge about the issue itself. CO2 emissions are talked about on a local basis as we might talk about city air pollution or sulphur emissions from a power plant. These are flow problems in that the issue is solved by reducing the local flow of the pollutant. By contrast, the release of carbon to the atmosphere is a stock problem and the eventual stock in the atmosphere is linked more to the economics of resource extraction rather than it is to local actions in cities and homes. Thinking about the problem from the stock perspective changes the nature of the solution and the approach. One technology in particular becomes pivotal to the issue, carbon capture and storage (CCS).

9. Don’t mention CCS, we’re talking about climate change

Following on from the point above, it’s proving difficult for CCS to gain traction and acceptance. This is not helped by the UN process itself, where CCS doesn’t get much air time. One example was the Abu Dhabi Ascent, a pre-meeting for the upcoming UN Climate Summit. CCS wasn’t even on the agenda.

10. We just aren’t trying hard enough

A new report out from the MIT Joint Program on the Science and Policy of Global Change argues that the expected global agreement on climate change coming from the Paris COP21 in 2015 is unlikely to deliver anything close to a 2°C solution. At best, they see the “contributions” process that is now underway as usefully bending the global trajectory.

The analysis shows that an agreement likely achievable at COP-21 will succeed in a useful bending the curve of global emissions. The likely agreement will not, however, produce global emissions within the window of paths to 2050 that are consistent with frequently proposed climate goals, raising questions about follow-up steps in the development of a climate regime.

Perhaps of even greater concern is the potential that the UNFCCC process has for creating lock-in to a less than adequate policy regime. They note:

Nevertheless, if an agreement is reached in 2015, going into effect by 2020, the earliest review of performance along the way might not be before 2025. In this case, an effort to formulate the next agreement under the Climate Convention, or a tightening of COP-21 agreements, would not start until 2025 or after, with new targets set for a decade or more after that. If this expectation is correct, then global emissions as far out as 2045 or 2050 will be heavily influenced by achievements in the negotiations over the next 18 months.

 

 

As we head towards COP21 in Paris at the end of 2015, various initiatives are coming to fore to support the process. So far these are non-governmental in nature, for example the “We Mean Business”  initiative backed by organisations such as WBCSD, CLG and The Climate Group. In my last post I also made mention of the World Bank statement on Carbon Pricing.

2 C Puzzle - 3 pieces

This week has seen the launch of the Pathways to Deep Decarbonization report, the interim output of an analysis led by Jeffrey Sachs, director of the Earth Institute at Columbia University and of the UN Sustainable Development Network. The analysis, living up to its name, takes a deeper look at the technologies needed to deliver a 2°C pathway and rather than come up with the increasingly overused “renewables and energy efficiency” slogan, actually identifies key areas of technology that need a huge push. They are:

  • Carbon capture and storage
  • Energy storage and grid management
  • Advanced nuclear power, including alternative nuclear fuels such as thorium
  • Vehicles and advanced biofuels
  • Industrial processes
  • Negative emissions technologies

These make a lot of sense and much has been written about them in other publications, except perhaps the second last one. Some time back I made the point that the solar PV enthusiasts tend to forget about the industrial heartland; that big, somewhat ugly part of the landscape that makes the base products that go into everything we use. Processes such as sulphuric acid, chlorine, caustic soda and ammonia manufacture, let alone ferrous and non-ferrous metal processes often require vast inputs of heat, typically with very large CO2 emissions. In principle, many of these heat processes could be electrified, or the heat could be produced with hydrogen. Electrical energy can, in theory, provide this through the appropriate use of directed-heating technologies (e.g. electric arc, magnetic induction, microwave, ultraviolet, radio frequency). But given the diversity of these processes and the varying contexts in which they are used (scale and organization of the industrial processes), it is highly uncertain whether industrial processes can be decarbonized using available technologies. As such, the report recommends much greater efforts of RD&D in this area to ensure a viable deep emission reduction pathway.

Two key elements of the report have also been adopted by the USA and China under their U.S.-China Strategic and Economic Dialogue. In an announcement on July 9th, they noted the progress made through the U.S.-China Climate Change Working Group, in particular the launching of eight demonstration projects – four on carbon capture, utilization, and storage, and four on smart grids.

Reading through the full Pathways report I was a bit disappointed that a leading economist should return to the Kaya Identity as a means to describe the driver of CO2 emissions (Section 3.1 of the full report). As I noted in a recent post it certainly describes the way in which our economy emits CO2 on an annualised basis, but it doesn’t given much insight to the underlying reality of cumulative CO2 emissions, which is linked directly to the value we obtain from fossil fuels and the size of the resource bases that exist.

Finally, Sachs isn’t one to shy away from controversy and in the first chapter the authors argue that governments need to get serious about reducing emissions;

The truth is that governments have not yet tried hard enough—or, to be frank, simply tried in an organized and thoughtful way—to understand and do what is necessary to keep global warming below the 2°C limit.

I think he’s right. There is still a long way to go until COP21 in Paris and even further afterwards to actually see a real reduction in emissions, rather than reduction by smoke and mirrors which is arguably where the world is today (CO2 per GDP, reductions against non-existent baselines, efficiency improvements, renewable energy goals and the like). These may all help governments get the discussion going at a national or regional, which is good, but then there needs to be a rapid transition to absolute CO2 numbers and away from various other metrics.

There is a well-known saying that “Politics makes strange bedfellows”. In recent weeks, carbon pricing has seen its share of media exposure and strange bedfellows, although this shouldn’t come as a surprise given that it is all about politics anyway. The good news is that this much maligned and misunderstood subject is finally getting some solid airtime, albeit from some interesting supporters.

The re-emergence of this subject has been building for some time now, but perhaps was highlighted by the June 21st op-ed by Hank Paulson in the New York Times. Paulson served as Secretary of the Treasury during the recent Bush administration, following many years at the helm of Goldman Sachs. Although his article was in part directed at the launch of the recent Risky Business report, Paulson used the opportunity to reach out to the Republican side of the political spectrum in the US and argue that a carbon price (a tax in this case) was “fundamentally conservative” and “will reduce the role of government” rather than the opposite which many opponents argue. At least in my view, he is right. Intervening in the energy mix, forcing certain technology solutions, requiring a given percentage from a particular energy source and so on are all big government steps towards addressing emissions. A carbon price is clean and simple and can get the job done.

On the opposite page of the New York Times was the reality check from Nobel Prize winning economist Paul Krugman. While Krugman made it clear that Paulson had taken a “brave stand” and that “every economist I know would start cheering wildly if Congress voted in a clean, across-the-board carbon tax”, the sobering reality from Krugman is “we won’t actually do it”. Rather, he imagines a set of secondary measures, the “theory of the second best” as he calls it, including vehicle efficiency standards, clean energy loan guarantees and various other policy measures. My view is that while all of these are important parts of a coherent energy policy, they are approaching third best when it comes to CO2 emissions.

Meanwhile, another strong advocate of carbon pricing has emerged, namely the World Bank. They have never been silent on the issue and indeed have pioneered policy approaches such as the Clean Development Mechanism of the Kyoto Protocol, but this time they have gone much further and are being considerably louder and bolder. The World Bank have produced a statement, “Putting a Price on Carbon” and have called on governments, companies and other stakeholders (e.g. industry associations) to sign up to it. The statement calls for:

. . . the long-term objective of a carbon price applied throughout the global economy by:

  • strengthening carbon pricing policies to redirect investment commensurate with the scale of the climate challenge;
  • bringing forward and strengthening the implementation of existing carbon pricing policies to better manage investment risks and opportunities;
  • enhancing cooperation to share information, expertise and lessons learned on developing and implementing carbon pricing through various “readiness” platforms.

This is all good stuff, but of course now it needs real support. A further look at the World Bank website illustrates the growing patchwork of activity around carbon pricing. It’s quite heartening.

cq5dam_resized_735x490!

To finish where I started, the strange bedfellows, perhaps nothing could be closer to this than seeing Australian mining magnate and now Member of Parliament, Clive Palmer, on the same stage as climate crusader Al Gore. Only weeks before Mr Gore had made the very clear statement that “We must put a price on carbon in markets and a price on denial in politics”, but nevertheless stood with Palmer as he announced that he would support the Government’s decision to repeal the Carbon Pricing Mechanism (there isn’t a colour for repeal on the World Bank map). I don’t think Mr Gore was particularly happy about that bit, but hopefully was there for the follow-on, where Palmer announced that his party would require a latent ETS to be established in Australia for use once Australia’s main trading partners were also pricing carbon. Given PUP’s (Palmer United Party) hold on the balance of power in the Australian Senate, this might at least mean that Australia will stay in the ETS club and emerge again as a player in the years to come. However, considering the fact that New Zealand, the EU, parts of China, Pacific North America (i.e. California, British Colombia), Japan and (soon) South Africa all have some sort of carbon price, latency may indeed be short lived.

With the USA (at a Federal level) going down the regulatory route instead, the Australian Prime Minister touring the world arguing against it and the UNFCCC struggling to talk about it, perhaps it is time to revisit the case for carbon pricing. Economists have argued the case for carbon pricing for over two decades and in a recent post I put forward my own reasons why the climate issue doesn’t get solved without one. Remember this;

Climate formula with carbon price (words)

Yet the policy world seems to be struggling to implement carbon pricing and more importantly, getting it to stick and remain effective. Part of the reason for this is a concern by business that it will somehow penalize them, prejudice them competitively or distort their markets. Of course there will be an impact, that’s the whole point, but nevertheless the business community should still embrace this approach to dealing with emissions. Here are the top ten reasons why;

Top Ten

  1. Action on climate in some form or other is an inconvenient but unavoidable inevitability. Business and  industry doesn’t really want direct, standards based regulation. These can be difficult to deal with, offer limited flexibility for compliance and may be very costly to implement for some legacy facilities.
  2. Carbon pricing, either through taxation or cap and trade offers broad compliance flexibility and provides the option for particular facilities to avoid the need for immediate capital investment (but still comply with the requirement).
  3. Carbon pricing offers technology neutrality. Business and industry is free to choose its path forward rather than being forced down a particular route or having market share removed by decree.
  4. Pricing systems offer the government flexibility to address issues such as cross border competition and carbon leakage (e.g. tax rebates or free allocation of allowances). There is a good history around this issue in the EU, with trade exposed industries receiving a large proportion of their allocation for free.
  5. Carbon pricing is transparent and can be passed through the supply chain, either up to the resource holder or down to the end user.
  6. A well implemented carbon pricing system ensures even (economic) distribution of the mitigation burden across the economy. This is important and often forgotten. Regulatory approaches are typically opaque when it comes to the cost of implementation, such that the burden on a particular sector may be far greater than initially recognized. A carbon trading system avoids such distortions by allowing a particular sector to buy allowances instead of taking expensive (for them) mitigation actions.
  7. Carbon pricing offers the lowest cost pathway for compliance across the economy, which also minimizes the burden on industry.
  8. Carbon pricing allows the fossil fuel industry to develop carbon capture and storage, a societal “must have” over the longer term if the climate issue is going to be fully resolved. Further, as the carbon pricing system is bringing in new revenue to government (e.g. through the sale of allowances), the opportunity exists to utilize this to support the early stage development of technologies such as CCS.
  9. Carbon pricing encourages fuel switching in the power sector in particular, initially from coal to natural gas, but then to zero carbon alternatives such as wind, solar and nuclear.
  10. And the most important reason;

It’s the smart business based approach to a really tough problem and actually delivers on the environmental objective.

Steps towards Paris 2015

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National climate negotiators and a number of Energy/Environment Ministers are currently meeting in Bonn as the global climate deal process slowly edges forward. Whether the steps being taken are big or small remains to be seen, but there are at least steps, so that is a start. The most well publicized have been those of the United States and China who are both active domestically with action on emissions. In the case of the USA this is the EPA rules that gained heavy media coverage and for China it is the notion that they will peak their coal use at some point in the reasonable future, perhaps as early as 2020. The idea of peak coal in China is also starting to appear in government conversations and is not just something emanating from the Chinese academic community.

But another step was also taken in Bonn last week when Ministers were in town as part of an ADP Dialogue; a new business coalition reared its head. Called “We Mean Business”, this is a coalition of a number of existing business linked organizations and has been established to demonstrate to government that a broad business base sees the need for action on climate change and is prepared to support their actions in creating the necessary policy frameworks under which emissions can then be reduced. “We Mean “Business” has started life with seven supporting organizations;

We Mean Business
The question that needs to be answered is how important is this and can such a group exert any influence over the process at all. Looking back, one parallel that comes to mind is USCAP (Unites States Climate Action Partnership), a group of some 25 companies and NGOs that coalesced around the 2007-2009 US process to implement climate legislation, but most notably a cap-and-trade bill. This was a detailed federal legislative process and USCAP certainly got into the weeds of it, with a comprehensive manifesto of requirements. When the Waxman-Markey Bill did eventually pass through the House there were many elements within it that aligned with the USCAP manifesto, so arguably that organization did have some influence on content. More importantly perhaps, the very existence of USCAP helped create the political space in which comprehensive legislation could be considered, even though the process eventually stalled and ultimately failed in the US Senate.

But Waxman-Markey was a specific piece of national legislation; at the international level the process is more complex. While a cap-and-trade system is a very tangible policy outcome with a set of well understood rules and metrics, the likely outcome from Paris may be far less defined. One aspect that is common to both is the need for political space in which to act. While the majority of this will come from the Parties themselves, business can play a role here. However, such a business coalition will have to act at both national and international levels to be truly effective, in that delegations are most likely given a certain negotiating mandate within which they can operate before they leave for the COP. As such, simply showing that business supports the process at the international level will probably not be enough.

The second area for business advocacy comes in terms of content. This is more difficult in that the business coalition will be made up of a broad range of constituents acting in many different sectors of the economy. While a cap-and-trade system may be ideal for one company in a given sector in a particular country, another company might prefer financial incentives to help it develop a particular technology. Further, the nature of the international agreement won’t include specifics such as cap-and-trade, but will be much more about the process of establishing suitable national contributions and commitments. However, a business coalition could at least ask for some basic building blocks to be included, such as the use of market instruments and the ability to transfer some or all of a national contribution between Parties , both necessary precursors to the longer term development of a global carbon market.

It is early days for “We Mean Business”, but it at least exists and is starting to mobilize resources and interest. But the hard work hasn’t started; what it will actually do and how it might positively influence the process and eventual outcome is for the days and months ahead.

Scaling up for global impact

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A visit to Australia offers a quick reminder of the scale to which Liquid Natural Gas (LNG) production has grown over recent years. This was a technology that first appeared in the 1960s and saw a scale up over the 1970s and 1980s to some 60 million tonnes per annum globally. As energy demand soared in the 1990s and 2000s, LNG production quickly rose again to around 300 million tonnes per annum today and could reach 500 million tonnes per annum by 2030 (see Ernst & Young projection below).

2012OGJcolors

Flying into Australia we crossed the coast near Dampier in Western Australia, which is currently “Resource Central” for Australia. The waters were dotted with tankers (I counted 14 on the side of the plane I was sitting on) waiting for loading, many of which had the distinctive LNG cryogenic tanks on their decks. Two days later the first shipment of LNG from the new Papua New Guinea project took place and this received considerable coverage in the Australian media. Clearly LNG is booming in this region, with even more to come. Most major oil and gas companies have projects in development and there are several LNG “startups” considering projects.

This is a great example of technology scale up, which is going to be key to resolving the climate issue by progressively shifting energy production and use to near zero emissions over the course of this century. Carbon capture and storage (CCS) is one of the technologies that needs to be part of that scale up if we are serious about net zero emissions in the latter part of the century.

There are many parallels between LNG production and CCS which may offer some insight into the potential for CCS. Both require drilling, site preparation, pipelines, gas processing facilities, compression and gas transport, although LNG also includes a major cryogenic step which isn’t part of the CCS process.

LNG production and CCS are both gas processing technologies so the comparison between them needs to be on a volume basis, not on a tonnes basis. CO2 has a higher molecular weight than CH4 (methane), so the processing of a million tonnes of natural gas is the same as nearly 3 million tonnes of CO2. As such, the production scale up to 500 million tonnes of LNG by 2030 could be equated to nearly 1.5 billion tonnes of CO2 per annum in CCS terms, which is a number that starts to be significant in terms of real mitigation. The actual scale up from today to 2030 is projected to be 200-250 million tonnes of LNG, which in CCS terms is about 700 million tonnes of CO2.

This is both a good news and bad news story. The scale up of LNG shows that industrial expansion of a complex process involving multiple disciplines from across the oil and gas industry is entirely possible. LNG took two to three decades to reach 100 million tonnes, but less than ten years to repeat this. In the following ten years (2010-2020) production should nearly double again with an additional 200 million tonnes of capacity added. These latter rates of scale up are what we need now for technologies such as CCS, but we are clearly languishing in the early stages of deployment, with just a few million tonnes of production (if that) being added each year.

What is missing for CCS is the strong commercial impetus that LNG has seen over the last fifteen years as global energy demand shot up. With most, if not all, of the technologies needed for CCS already widely available in the oil and gas industry, it may be possible to shorten the initial early deployment stage which can last 20 years (as it did for LNG). If this could be achieved, CCS deployment at rates of a billion tonnes per decade, for starters, may be possible. This is the minimum scale needed for mitigation that will make a tangible difference to the task ahead.

The commercial case for CCS rests with government through mechanisms such as carbon pricing underpinned by a robust global deal on mitigation. That of course is another story.

In the lead up to the UN Climate Summit in September this year, the Abu Dhabi Ascent was held on May 4-5th as the only preparatory event. Former Vice President Al Gore was one of the keynote speakers and perhaps got the most tweeted line, which came in response to a question from the moderator regarding the single policy he would ask for if he had only one choice. He said, “. . . . put a price on carbon in markets and put a price on denial in politics”. In fact this is two things, but I wouldn’t expect anything less of Al Gore.

This comment set the scene for Rachel Kyte of the World Bank to launch their call for countries and companies to put a price on carbon. This isn’t the first time such a call has been made, but it is perhaps the first time such a call has been made directly to governments at a forum designed for governments by a multilateral agency linked with governments.

The call is a relatively simple one at this stage and fills a glaring gap in the UNFCCC agenda as it has been developing over recent years. Arguably the UNFCCC started the multilateral process back in the 1990s with a carbon pricing approach, in that the Kyoto Protocol is in part built around the idea of allowances, offsets and trading which in turn implies a price on carbon. Over time as the Kyoto Protocol has waned, talk of carbon pricing at the international level has gone in a similar direction. By the end of the Warsaw COP last year, all talk of markets and carbon pricing had been largely put to one side in favour of the efforts just to get everybody around the table and talking about contributions.

“Contributions” may be the political language of the day, but they will do little to stem emissions if carbon pricing isn’t core to the national effort underpinning said contributions. Some countries seem to have figured this out, but the actual price on carbon that currently prevails in those economies that have tried to create it is a far cry from anything that might actually make a difference. While the efforts to date may be a good start from the perspective of building the necessary national institutional capacity for carbon pricing, there is little evidence that governments, business and consumers are actually prepared to accept a carbon price that will deliver a tangible change in energy investment.

I would suggest that this  is where The World Bank most needs to focus its attention. If not, I believe that we may end up with a complex system of carbon markets, linkages, trade and compliance all operating at under $10, which will look impressive on paper but in reality won’t make a difference to global emissions. The acid test for a carbon pricing system is its ability to deliver carbon capture and storage (probably with some additional fiscal support for the first generation of projects). At least for the next few decades, carbon pricing below this point may put a dent in the profitability of fossil fuels, but it won’t make them go away. This will inevitably lead to one thing – regulation. That might sound like the answer for some, but the reality will be a much higher cost for economies to bear for the same mitigation effort.

World bank Carbon pricing Cliff