Archive for the ‘China’ Category

Paris ratification maths

The joint announcement by the US and China that they would ratify the Paris Agreement and the more recent announcement by Brazil has raised the prospect that the agreement could enter into force sooner rather than later. Could it even happen prior to COP22 in Morocco or at least by the end of 2016? Certainly the G20 gave entry into force a boost when they included this in their Communique earlier this month.

We reiterate our commitment to sustainable development and strong and effective support and actions to address climate change. We commit to complete our respective domestic procedures in order to join the Paris Agreement as soon as our national procedures allow. We welcome those G20 members who joined the Agreement and efforts to enable the Paris Agreement to enter into force by the end of 2016 and look forward to its timely implementation with all its aspects.

Paragraph 1 of Article 21 of the Agreement specifies the requirements for entry into force as follows;

This Agreement shall enter into force on the thirtieth day after the date on which at least 55 Parties to the Convention accounting in total for at least an estimated 55 percent of the total global greenhouse gas emissions have deposited their instruments of ratification, acceptance, approval or accession.

The UNFCCC is running a tracker page and the exact status by country can be found on the UN Treaties site.

entry-into-force

The combined emissions of China and the United States account for most of the 39% shown in the tracker picture above (mid-September). But of course they are only two parties, whereas 27 have ratified so far. Many of these are small island states, such as Barbados and the Cook Islands, some of which may be challenged in the near term by rising sea levels. So what might be a potential pathway to 55 / 55?

In terms of the number of parties, the Alliance of Small Island States (AOSIS) which consists of 44 members can get us most of the way there. With AOSIS and the 12 other non-AOSIS parties that had ratified by mid-September, the 55 Party threshold is surpassed. So it would appear that entry into force on this basis is achievable as other countries will doubtless come forward as well.

But 55% of global emissions may be a bit more difficult. The 40 AOSIS countries are all low emissions, so even their combined impact will be below 1% of global emissions. Starting with the USA, China and Brazil, the bar moves above 40% and with AOSIS, Norway, Peru and others who had ratified by mid-September it will approach 42%.

The 55 country and 55% line could easily be crossed with ratification by the other major emitter, the EU, but the parliamentary process in Brussels would  normally push this into 2017. However, the political push behind the Paris Agreement can hardly be described as normal. At an EU leader summit last week, there was a strong indication given that EU ratification could happen in as little as three weeks.

If the EU fast track doesn’t happen, 13% of global emissions have to come from somewhere else. Some combinations of major emitters that could deliver this are as follows;

  1. Australia, Japan, South Korea, South Africa, Thailand, Vietnam and Venezuela gets to about 10%.
  2. Russia and India are at least 5% each.
  3. Canada, Australia, Japan, Ukraine, Mexico, Saudi Arabia, Kazakhstan also combine to about 10%
  4. Taiwan, Turkey, Algeria, Argentina, Egypt, Pakistan, Nigeria, Malaysia, Kuwait, Iran and Indonesia combines to about 10%.

Russia and India are clearly important, as was Russia with the Kyoto Protocol. But their early ratification isn’t essential. The other lists above clearly show that there are sufficient 0.6-3% countries to get this over the line. The first list, combined with Iran and Indonesia is but one example.

Given progress to date, a concerted push by AOSIS and perhaps the likes of the Umbrella Group (a UNFCCC collection of countries including USA, Australia, Japan and Canada amongst others), entry into force of the Paris Agreement is quite feasible in the nearer term. With the EU on board it is almost certain.

It’s all about the transition

The ambition embodied within the Paris Agreement argues for the need to reach a state of net zero anthropogenic emissions around the middle of the century, although the text of the Agreement is less stringent and points to the second half of the century for a balance between sinks and sources. Either way, this presents a formidable challenge.

Looking at a modern developed economy today, it is possible to imagine a state of much lower emissions, or even net-zero. The technologies to have a zero emission power sector are readily available and have been for some time; look at the level that nuclear power reached in France as early as the 1980s. Today we also have carbon capture and storage and scalable renewable energy. Vehicle electrification is now coming of age and it is not difficult to imagine a future where this dominates, with heavy transport potentially using hydrogen. Homes can also be electrified and the service sector / secondary industry economy that drives the developed world today is primarily electricity based.

But the manufacture of goods still represents a large part of the global economy. Material goods represent one facet of our economy and certainly one that is critically important in the early stages of development of most economies. For example, between 2004 and 2014 some 350 million refrigerators were produced and went into use in China with a further 250 million exported. Production in 2000 was just 12 million units. China is now the world’s 6th largest exporter (2014 by value) of refrigerators, but this is just one sixth of US refrigerator exports.

The same is true when it comes to the refining and fabrication of the raw materials that developed and developing country secondary industry requires. These products all demand considerable use of fossil fuels for combustion based processes such as smelting, refining, base chemical manufacture and similar. Nevertheless, we could perhaps imagine a world based on 3D printing using various exotic materials (graphene, certain polymers etc.) as the raw material for manufacture. But even in this world considerable chemical plant capacity and therefore process heat would be required to manufacture the printer feedstock, but carbon capture and storage could handle emissions from these sources.

China grew rapidly on the back of large scale manufacturing and at the same time it built vast swathes of infrastructure; from cities such as Shanghai and Chongqing to the high speed rail networks that now connect them. Between 1995 and 2015 cumulative emissions from China amounted to some 130 billion tonnes of carbon dioxide, or 100 tonnes per person. For the most part, this wasn’t for personal domestic use (i.e. home electricity and heating), but to make products for consumers in China and for export which in turn finances domestic infrastructure for the future. The process is far from complete, but China is already starting to look to other economies to make its raw materials and supply finished products as it attempts to develop its service sector.

The situation for the least developed economies is not dissimilar to China 30 years ago. Some 3 billion or more people live in circumstances where little or only modest levels of infrastructure exists. While they may now have basic renewable energy for lighting and some other services, their standard of living remains far below other parts of the world. The development pathway in front of them may well be similar to the one that China embarked on in the 1980s. That pathway might even be funded by products made for the Chinese economy as its service sector grows and energy use reaches a plateau or even falls slightly.

The 100 tonnes per person of development emissions is perhaps the hardest to decarbonise. It is from steel mills, cement plants, chemical plants, manufacturing industry and heavy goods transport. These are the backbone industries and services for development, many of which have long gone from developed economies. They may also be quite expensive to decarbonise, which is problematic for economies in the earlier stages of rapid development. This development also leads to a degree of lock-in as once industries are created and jobs are in place there is a strong desire to keep them; the recent concern as the last major UK steel plant shed more jobs is an example. The same industries are also needed to continue making a wide range of products, from cars to iPhones, for consumers in the rest of the world.

One particular challenge for post-Paris implementation of the Agreement is this 100 tonnes per person of development emissions and the lock-in that follows. While the net-zero goal looks feasible and can be imagined as a longer term outcome, the interim emissions bulge as development continues and the supporting industries required for infrastructure are put in place may take us well beyond 2°C rather than the goal of well below. Further to this, the energy demand that will be created just to fuel the energy transition itself could be significant as hundreds of lithium mines open, solar PV factories expand and new vehicle technologies are offered to the public.

Article 6 within the Paris Agreement makes mention of a Sustainable Development Mechanism that results in emissions reductions. Such a mechanism could be an important part of the solution set for this problem. More on that to follow.

Carbon pricing in 2015

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Perhaps more than any other aspect of the climate agenda, carbon pricing took a major step forward in 2015. This was supported by many initiatives, but most notably by the creation of the Carbon Pricing Leadership Coalition under the auspices of the World Bank. This in turn encouraged a variety of private sector interventions, such as the mid-year letter on carbon pricing from six oil and gas industry CEOs to the UNFCCC. All these actions urged governments to implement carbon pricing policies within their economies as the principle mechanism for advancing climate change action.

In terms of real policy developments, the January 2016 map (below) doesn’t look radically different to the January 2015 map, but a number of important changes took place;

  1. China confirmed the implementation of a nationwide ETS, with a proposal that would see such a system up and running over the coming 2-3 years.
  2. The fledging California-Quebec linked market is likely to see both Ontario and Manitoba join on the Canadian side.
  3. Alberta announced its intention to implement a comprehensive carbon tax from 2017.
  4. The US Clean Power Plan has elements within it that could (but not a given) lead to widespread adoption of a trading model, which in turn implies a carbon price developing in the US power sector.
  5. India again doubled its coal tax in the middle of the year, now at 200 Rupees per tonne of coal. While not a strict carbon price, it will have a similar impact. However, the level is very modest (<$2 per tonne CO2), even compared to the current low price of coal (~$40 per tonne).
  6. The aviation industry is moving closer to a voluntary carbon pricing system.
  7. South Africa moved forward with its carbon pricing legislation.
  8. The EU introduced the Market Stability Reserve as a mechanism to begin to manage the allowance surplus in the EU ETS.

The year ended with what may become the most important element of all, Article 6 of the Paris Agreement. While this doesn’t mention carbon pricing at all, it nevertheless provides fertile ground for its development through international trade of allowances and various other carbon related instruments. It also seeks to create a new global mechanism to underpin emissions reductions and promote sustainable development.

2016 will need to build rapidly on these developments if a government implemented carbon price based approach is to become the global model for reducing emissions. The ambitious goal of the Paris Agreement will need much wider and faster uptake of carbon pricing policy than is apparent from the charts below.

Carbon pricing 2016

Carbon pricing 2015Carbon pricing 2014

Carbon pricing 2013

The last few weeks have seen a flood of Intended Nationally Determined Contributions (INDC) arrive at the UNFCCC offices in Bonn, presumably to be included in the assessment of progress promised by the UNFCCC Secretariat for release well before the Paris COP21.

There are now some 150 submissions and assessing them in aggregate requires some thinking about methodology. For starters, the temperature rise we will eventually see is driven by cumulative emissions over time (with a climate sensitivity of about 2°C per trillion tonnes of carbon – or 3.7 trillion tonnes CO2), not emissions in the period from 2020 to 2025 or 2030 which is the point at which most of the INDCs end. In fact, 2025 or 2030 represent more of a starting point than an end point for many countries. Nevertheless, in reading the INDCs, the proposals put forward by many countries give some clues as to where they might be going.

For Europe, the USA and many developed economies, the decline in emissions is already underway or at least getting started, with most having already said that by mid-century reductions of 70-80% vs. the early part of the century should be possible. But many emerging economies are also giving signs as to their long term intentions. For example, the South Africa INDC proposes a Peak-Plateau-Decline strategy, which sees a peak around 2020-2025, plateau for a decade and then a decline. Similarly, China has clearly signalled a peak in emissions around 2030, although with development at a very different stage in India, such a peak date has yet to be transmitted by that government.

Nevertheless, with some bold and perhaps optimistic assumptions, it is possible to assess the cumulative efforts and see where we might be by the end of the century or into the early part of next century. In doing this I used the following methodology;

  1. Use an 80/20 approach, i.e. assess the INDCs of the top 15-20 emitters and make an assumption about the rest of the world. My list includes USA, China, India, Europe, Brazil, Indonesia, South Africa, Canada, Mexico, Russia, Japan, Australia, Korea, Thailand, Taiwan, Iran and Saudi Arabia. In current terms, this represents 85% of global energy system CO2 emissions.
  2. For the rest of the world (ROW), assume that emissions double by 2040 and plateau, before declining slowly throughout the second half of the century.
  3. For most countries, assume that emissions are near zero by 2100, with global energy emissions nearing 5 billion tonnes. The majority of this is in ROW, but with India and China still at about 1 billion tonnes per annum each, effectively residual coal use.
  4. Cement use rises to about 5 billion tonnes per annum by mid-century, with abatement via CCS not happening until the second half of the century. One tonne of cement produces about half a tonne of process CO2 from the calcination of fossil limestone.
  5. Land use CO2 emissions have been assessed by many organisations, but I have used numbers from Oxford University’s trillionthtonne.org spreadsheet, which currently puts it at some 1.4 billion tonnes per annum of carbon (i.e. ~5 billion tonnes CO2). Given the INDC of Brazil and its optimism in managing deforestation, I have assumed that this declines throughout the century, but still remains marginally net positive in 2100.
  6. I have not included short lived climate forcers such as methane. These contribute more to the rate of temperature rise than the eventual outcome, provided of course that by the time we get to the end of the century they have been successfully managed.
  7. Cumulative emissions currently stand at 600 billion tonnes carbon according to trillionthtonne.org.

The end result of all of this are the charts below, the first being global CO2 emissions on an annual basis and the one below that being cumulative emissions over time. The all important cumulative emissions top out just below 1.4 trillion tonnes carbon.

Global CO2 Emissions Post INDC

Global Cumulative Emissions post INDCs

The trillionth tonne point, or the equivalent of 2°C, is passed around 2050, some 11 years later than the current end-2038 date indicated on the Oxford University website. My end point is the equivalent of about 2.8°C, well below 4+°C, but not where it needs to be. The curve has to flatten much faster than current INDCs will deliver, yet as emissions accumulate, the time to do so is ticking away.

Even with a five year review period built into the Paris agreement, can the outcome in 2030 or 2035 really be significantly different to this outlook? Will countries that have set out their stall through to 2030 actually change this part way through or even before they have started along said pathway? One indication that they might comes from China, where a number of institutions believe that national emissions could peak well before 2030. However, the problem with accumulation is that history is your enemy as much as the future might be. Even as emissions are sharply reduced, the legacy remains.

Nevertheless, we shouldn’t feel hopeless about such an outcome. Last week I was at the 38th Forum of the MIT Joint Program on the Policy and Science of Global Change and I was reminded again during one of the presentations of their Level 1 to Level 4 mitigation outcomes which I wrote about in my first book, 2°C Will Be Harder than we Think. These are shown below.

Shifting the Risk Profile

Taking no mitigation action at all results in a potential temperature distribution with a tail that stretches out past 7°C, albeit with a low probability. However, we can’t entertain even a low probability of such an outcome, so some level of mitigation must take place. While Level 1 remains the goal (note however that the MIT 2°C is not above pre-industrial, but relative to 1981-2000), MIT have shown that lesser outcomes remove the long tail and contain the climate issue to some extent. The INDC analysis I have presented is similar to Level 2 mitigation, which means the Paris process could deliver a very substantial reduction in global risk even if it doesn’t equate to 2°C. More appreciation of and discussion around this risk management approach is required, rather than the obsession with 2°C or global catastrophe that many currently present.

Of course, extraordinary follow through will be required. Each and every country needs to deliver on their INDC, many of which are dependent on very significant financial assistance. I looked at this recently for Kenya and India. Further, the UNFCCC process needs its own follow through to ensure that global emissions do trend towards zero throughout the century, which remains a very tall order.

Final steps towards Paris?

The last ten days have seen a rush by nations to publish their Intended Nationally Determined Contributions (INDCs), with the much anticipated INDC from India amongst those submitted. On Monday October 5th, the Co-Chairs of the ADP also released a proposal for a first draft of a new climate change agreement for Paris. So it has been a very busy few days, but are we any closer to a deal and could that deal have sufficient ambition to bend the emissions curve?

The India INDC is telling as an indicator of where the developing world really is, versus where the rapidly emerging economies such as China now find themselves. In the case of the latter group, there is thinking towards an emissions peak with China indicating that this will be around 2030 and continuing signals from the academic and research community in that country indicating that it may well be earlier. One such article appeared recently in the Guardian. But for the much poorer developing countries the story remains very different.

The submissions from India is 38 pages long, but of this some 28 pages is supporting evidence and context, explaining the reality of Indian emissions, the need to grow the economy to take hundreds of millions out of poverty and the expected use of fossil fuels to power industry, including areas such as metal smelting, petrochemicals and refining. With a focus on efficiency in particular, India expects to achieve a 33 to 35 percent reduction in CO2 intensity of the economy, but in reality that means a rise in energy related emissions to around 4 billion tonnes or more by 2030, up from some 2+ billion tonnes per annum at present (1.954 Gt in 2012, IEA). This could be tempered by a further element of their contribution which aims to increase forest sinks by some 3 billion tonnes of CO2 in total through to 2030.

There has been considerable speculation as to the renewable energy component of India’s INDC, with a hope that this would show enormous progress in solar deployment in particular. The INDC took the somewhat unusual route of talking in capacity additions, rather than generation (and therefore emissions). India aims to achieve 40% cumulative electric power capacity from non-fossil fuel based resources by 2030. This is significant, but less than it might appear. In a very simple example where 100 GW of generating capacity is comprised of 40 GW solar PV and 60 GW coal, the generation mix might be around 14% renewables and 86% coal. This is assuming a 20% capacity factor for the solar PV (maximum is 50% with day-night) and 80% capacity factor for the coal.

India has also put a considerable price tag on their INDC, with a mitigation effort of some US$ 834 billion through to 2030. In a previous post I looked at the costs assumed in the Kenyan INDC, which came to some $25 billion, but for a population of ~60 million (average through to 2030). With a projected population of some 1.5 billion by 2030, the finance side is in the same ballpark as the Kenyan INDC, albeit on the higher side.

Finally, the last few days have seen new draft text appear – shortened dramatically from some 80 pages to a manageable 20. But references to government led carbon markets, carbon pricing systems or even the use of transfer mechanisms between parties are largely missing. Article 34 of the Draft Decision does hint at the need to rescue the CDM from the Kyoto Protocol by referring to the need to build on Article 12 of the Protocol, but it will be of little use if there isn’t substantial demand for credits in developing and rapidly emerging economies. Simply creating a new crediting mechanism or even bringing the CDM into the Paris agreement won’t on its own direct the finance to the likes of Kenya and India. That demand and related finance flow will only come if the developed and emerging economies are building emissions trading systems (such as in China) and have the ability and confidence to transfer units related to it across their borders. So a great deal of work remains to be done.

 

 

FASTER carbon pricing mechanisms

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Last week New York hosted amongst other events, the Papal visit, the UN General Assembly where some 150 world leaders gathered and Climate Week. Arguably this had the makings of a bigger coming together than COP21 itself, although many other issues were also on the agenda, such as the UN Sustainable Development Goals. Nevertheless, the climate issue progressed and the subject of carbon pricing was widely discussed, both how it might be implemented by governments and how companies could use carbon valuation internally in relation to project implementation and risk management.

A highpoint of the Climate Week events was the release by the World Bank of its FASTER principles on implementation of carbon pricing mechanisms . This is work to support the overall push by that organisation for greater uptake of explicit carbon pricing mechanisms at national level as governments consider how they might implement their INDCs.

FASTER is an acronym, with each of the terms further elaborated in a fairly readable 50 page accompanying document. The short version is as follows;

  • F – Fairness
  • A – Alignment of Policies
  • S – Stability and Predictability
  • T – Transparency
  • E – Efficiency and Cost-Effectiveness
  • R – Reliability and Environmental Integrity

I have a slight feeling that the acronym was thought up before the words, but each of the subject areas covered is relevant to the design of a carbon pricing mechanism by governments, such as a cap-and-trade system.

Importantly, the principles recognise many of the key issues that early cap-and-trade and taxation systems have confronted, such as dealing with competitiveness concerns, managing competing policies and complementing the mechanism with sufficient technology push in key areas such as carbon capture and storage and renewables. The latter requires something of a Goldilocks approach in that too little can result in wasted resource allocation, but too much while also being wasteful can end up becoming a competing deployment policy.

In the various workshops held during Climate Week, one aspect of the FASTER principles that did draw comment was the call for a “predictable and rising carbon price”. Predictability should be more about the willingness of government to maintain the mechanism over the long term, rather than a clear sign as to what exactly that price might be. For the most part, commodity markets exist, trade and attract investment on the basis that they are there and that the commodity itself will continue to attract demand for decades to come. We are still some way from a reasonable level of certainty that carbon pricing policies will be in place over many decades, given that they do not enjoy cross-party support in all jurisdictions.

Particularly for the case of a cap-and-trade system, a rising carbon price cannot be guaranteed. Rather, the system requires long term certainty in the level of the cap, after which the market will determine the appropriate price at any given point in time. This might rise as the EU ETS saw in its early days, but equally the widespread deployment of alternative energy sources or carbon capture and storage could see such a system plateau at some price for a very long time. Even within this, capital cycles could lead to the same price volatility as is seen in most commodity markets.

The guarantee of a rising price may not be the case for a tax based system either. Should emissions fall faster than the government anticipates, there could be popular pressure for an easing of the tax. As carbon tax becomes mainstream, we shouldn’t imagine it would be treated any differently to regular income based or sales tax levels, both of which can fluctuate.

The release of the FASTER Principles coincides with my own book on carbon pricing mechanisms, which was launched just prior to Climate Week. I cover many of the same topics, but drawing more on the events that have transpired over the last decade. Both these publications will hopefully be of interest to individuals and businesses in China, the government of which formally announced the implementation of a cap-and-trade system from 2017. This will be an interesting implementation to watch, in that it may well be the first such system that operates on a rising cap, at least for the first few years. Irrespective, the announcement ensured that Climate Week ended on a high note.

Assessing the INDCs

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It is now just 100 days until COP21 in Paris.

The summer months have seen many Intended Nationally Determined Contributions (INDCs) submitted to the UNFCCC prior to the assessment deadline of October 1st. This is the date when the UNFCCC secretariat will start work on a synthesis report on the aggregate effect of the INDCs as communicated by Parties. Many organisations are already offering assessments of progress, with most basing this on reductions through to 2030 against a notional 2°C pathway.

However, the climate system doesn’t care about 2030 nor does it respond to changes in annual emissions. The real metric is cumulative emissions over time, with each trillion tonnes of carbon released into the atmosphere equivalent to about 2°C rise in temperature rise (this isn’t precisely linear, but it is a reasonable rule of thumb to use). This means that any assessment must look well beyond 2030 and make some bold assumptions as to where the emissions pathways then go. It also means that the wide variety of pledges using metrics such as the share of renewable energy in the power generation mix, installed solar capacity or emissions per GDP, whilst important in the context of energy system development, offer limited insight into the trend for cumulative emissions.

A good example of this comes from looking at the INDC from China. They have pledged the following;

  • To achieve the peaking of carbon dioxide emissions around 2030 and making best efforts to peak early;
  • To lower carbon dioxide emissions per unit of GDP by 60% to 65% from the 2005 level;
  • To increase the share of non-fossil fuels in primary energy consumption to around 20%; and
  • To increase the forest stock volume by around 4.5 billion cubic meters on the 2005 level.

From an energy emissions context, only the first part of this pledge is really important, but little information is given allowing an assessment of its real impact on the climate system. Some big assumnptions will have to be made.

According to the Oxford Martin School carbon emissions counter, global cumulative emissions now stand at nearly 600 billion tonnes of carbon (2.2 trillion tonnes CO2). Back in November 2014 when China and the USA announced their climate deal, I speculated that the Chinese side of the Sino-US deal could see their emissions rising to as much as 14.5 billion tonnes CO2 per annum by 2030 based on the following assumption;

The USA and China appear to have adopted a “Contraction and Convergence” approach, with a goal of around 10 tonnes CO2 per capita for 2030, at least for energy related emissions. For China this means emissions of some 14.5 billion tpa in 2030, compared with the latest IEA number for 2012 of 8.3 billion tonnes, so a 75% increase over 2012 or 166% increase over 2005. It also has China peaking at a level of per capita CO2 emissions similar to Europe when it was more industrial, rather than ramping up to the current level of say, the USA or Australia (both ~16 tonnes). By comparison, Korea currently has energy CO2/capita emissions of ~12 tonnes, so China peaking at 10 is some 17% below that.

Of course China could still peak at lower levels than this and the economic downturn they currently seem to be facing may ensure this. Nevertheless, two reduction pathways following 2030 give a very different cumulative outlook for the period 2015-2100. It is this cumulative outcome that matters, not where China might happen to find itself in 2030. While the period up to 2030 is important, it only tells a fraction of the story. Chinese emissions over that period will likely add some 50 billion tonnes of carbon to the global cumulative total, but this is small compared to their potential remaining cumulative contribution (i.e, before they are at net-zero emissions). The two pathways below illustrate the difference;

  1. A plateau for about a decade, followed by a long slow reduction through to near zero by 2100 means cumulative emissions from 2015 are around 800 billion tonnes of CO2, or 220 billion tonnes of carbon. In this scenario, Chinese emissions alone take the global carbon emissions total to 820 billion tonnes.
  2. A sharp decline from 2030 to zero before 2080 gives cumulative emissions of 550 billion tonnes, or 150 billion tonnes carbon. In this case the global total rises to 750 billion tonnes carbon based on Chinese emissions alone.

Either way, China will have a profound impact on global cumulative emissions. But this fairly simple analysis illustrates that the period from 2030 onwards is where the real story lies, which to date isn’t covered by any of the INDC submissions. For a 2°C outcome, even the lower of the two scenarios above leaves little carbon space for the remaining 7+ billion people living on the planet throughout the 21st century.

Impact of Chinese Cumulative Emissions

What to make of recent emission trends?

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Recent news from the International Energy Agency (IEA) has shown that the rise in global CO2 emissions from the energy system stalled in 2014. This was unusual on two counts – first that it happened at all and second that it happened in a year not linked with recession or low economic growth as in 1992 and 2009. In fact the global economy expanded by about 3%.

Information is scant at this point, but the IEA have apparently determined this using their Sectoral Approach (below, through to 2014), which has been flattening for a few years relative to their Reference Approach (following chart, ends at 2012). The Reference Approach and the Sectoral Approach often have different results because the Reference Approach is top-down using a country’s energy supply data and has no detailed information on how the individual fuels are used in each sector. One could argue that the Reference Approach is more representative of what the atmosphere sees, in that apart from sequestered carbon dioxide and products such as bitumen, the whole fossil energy supply eventually ends up as atmospheric carbon dioxide. The Reference Approach therefore indicates an upper bound to the Sectoral Approach, because some of the carbon in the fuel is not combusted but will be emitted as fugitive emissions (as leakage or evaporation in the production and/or transformation stage). No information has been provided by the IEA at this point as to the Reference Approach data for 2013 and 2014.

Global Energy System Emissions

Reference vs. Sectoral IEA

Putting to one side this technical difference, the flattening trend does represent a possible shift in global emissions development and it has certainly got many observers excited that this may well be so. If this is the case, what is driving this change and what might the outlook be?

It is clear that many governments are now intervening in domestic energy system development. There are incentives and mandates for renewable energy, enhanced efficiency programmes and some level of carbon pricing in perhaps a quarter of the global energy system, albeit at a fairly low level. More recently in China there has been a strong government reaction to air quality issues, which has given rise to some reduction in coal demand, particularly around major cities. But there is another factor as well and that is price – it is perhaps the overwhelming factor in determining fossil fuel usage and therefore setting the level of emissions. Price drives conservation, efficiency, the use of alternatives and therefore demand. Many of the aforementioned energy policy initiatives have been implemented during the recent decade or so of sharply rising energy prices.

A chart of the oil price (2013 $, as a proxy for energy prices) and global CO2 emissions going back to 1965 illustrates that big price fluctuations do seem to have an impact on emissions. Although emissions have risen throughout the period, sharp energy price excursions have led to emissions dips and plateaus as energy demand is impacted and similarly, price falls have led to resurgence in emissions. This isn’t universally true – certainly from 2004 to 2008 the very strong demand from China in particular was seemingly unaffected by the rising cost of energy, although the end of that period saw a global recession and a very visible dip in demand.

Oil price vs. Emissions

The latter part of 2014 brought with it a sharp reduction in energy prices (2015 is illustrative in the chart at $55 per barrel). With a much lower fossil energy price, demand may rise and the incentive for efficiency and the deployment of alternatives could well be impacted, although there may be some lag before this becomes apparent. The combination of these factors could therefore see emissions take yet another jump, but it is too early to see this in the data. 2015 emissions data might show the first signs of this.

There is of course continued upward pressure on emissions as well, such as the growth in coal use that is now underway in India. Over the three year period to the end of 2014, coal capacity increased from 112 GW to nearly 160 GW. This is the equivalent of some 300 million tonnes of CO2 per annum. By contrast, a five year period from 2002 to 2007 saw only 10 GW of new coal capacity installed in that country. Although India is installing considerable solar capacity, coal fired generation is likely to continue to grow rapidly. One area of emissions growth that is not being immediately challenged by a zero emissions alternative is transport. The automobile, bus, truck and aviation fleets are all expanding rapidly in that country.

The other big uncertainty is China, where local air quality concerns are catalysing some restructuring in their energy system. Certain factories and power plants that are contributing most to the local problems around cities such as Beijing and Shanghai are being shut, but there is still huge development underway across vast swathes of the country.  Some of this is a replacement for the capacity being closed around the cities, with electricity being transported through ultra high voltage grids that now run across the country. Gas is becoming a preferred fuel in metropolitan areas, but some of that gas is being synthetically produced from coal in other regions – a very CO2 intensive process. The scale of this is limited at the moment, but if all the current plans are actually developed this could become a large industry and therefore a further signifacnt source of emissions.

As observers look towards Paris and the expectation of a global deal on climate, the current pause in emissions growth, while comforting, may be a false signal in the morass of energy system data being published. Ongoing diligence will be required.

Brazil is back; but are they a decade late?

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COP20 in Lima ended its first full week on a mixed note, but with some positive signs for the ongoing process. The detailed discussions on the role of carbon markets under the SBSTA ended in disagreement and postponement which was disheartening, but there remains hope that this key subject will still see the light of day under the ADP during the coming days. Curiously, China (and others) opposed deepening the market discussion at SBSTA because of a lack of guidance from the ADP itself, but according to the Earth Negotiation Bulletin they stated in the ADP when reflecting on the Paris Agreement non-paper (ADP.2014.11.NonPaper) that “sections on market and non-market approaches, and new market-based mechanisms could prejudge discussions under the Subsidiary Bodies”. They seem to be setting themselves up for their own private Catch-22 there. It was also unfortunate that those who will pick up the ongoing challenge posed by carbon emissions and climate change were reported on as follows; “YOUNGOs noted that markets have not delivered what they promised and called for a moratorium on markets.” Perhaps they have been reading Naomi Klein’s book “This Changes Everything”.

One document in particular that drew attention was a paper circulated by Brazil, detailing an idea they had proposed at the October ADP meeting. Brazil have a long history of creative intervention in the process, being the country that “invented” the Clean Development Mechanism (CDM), which over the decade of its operational life has delivered tens, if not hundreds of billions of dollars (depends on your measurement definitions) of carbon finance to developing countries. It appears that Brazil is back to its creative best with a paper on “concentric differentiation”, which draws together both the concept of CBDR-RC* and the need for universal acceptance and eventual implementation of absolute targets as the route to atmospheric stabilisation of carbon dioxide.

The paper is best described by referencing a diagram included by Brazil (see below). Initially the INDCs** of various parties are scattered throughout the circles depending on their capabilities, with all developed countries starting in the middle. The crucial change to previous attempts at agreement is the inclusion of the proposal;

“developing country parties are expected to include in their respective NDC a type of economy-wide mitigation targets, leading to absolute targets over time”

This means that everyone migrates inwards as their capabilities allow, but that developing country parties at least start with an emissions goal, albeit intensity based, per capita based or based on a business-as-usual (BAU) deviation. Least developed economies start in the outer ring and are encouraged, but not required to present an INDC. Eventually all parties end up with absolute targets in the middle.

Brazil concept

This is a very encouraging proposal by Brazil and it also includes an extensive reference to markets, cap-and-trade, a reformed CDM and so on. But without wanting to take away from the importance of their thinking, it does raise the question of whether it is a decade or more too late. This is the proposal that should have come when parties were negotiating onward commitment periods of the Kyoto Protocol (KP), thereby giving that agreement new life and making it fit for purpose in the 21st Century. Almost all the necessary pieces were already in place, it simply (!! – nothing is ever that simple) required the addition of the middle ring and the provisions for promotion.

In KP language, the centre ring is the AAU (Assigned Amount Unit) world, now only home to the EU, Norway, Australia and Ukraine. Even Japan has left. The outer ring is the CDM world, which relies on financial flows from the inner ring. A renegotiation and addition to KP could have inserted the middle ring and promotion requirements and even developed a new carbon accounting unit for intensity based targets. With all three rings based on carbon units, the much needed “global carbon market” could have taken off relatively quickly. Such a design might have even brought back countries such as the USA given that its objections regarding developing country actions would have been addressed.

One aspect of the Brazil proposal that has some traction in the ADP is the idea that “backsliding” on INDCs won’t be permitted. In other words, once you have declared an INDC with an absolute target, that is where you stay.

The Brazil proposal is for the ADP and not for the KP; which means that parties will have to reinvent everything from scratch. But at least Brazil is there with its creative input leading the way. On to Week 2 in Lima where the Parties are at least into the process of negotiating text, rather than negotiating the procedures under which they would even consider text.

 

* Common but differentiated responsibilities and respective capabilities

**Intended nationally determined contributions

 

The reality distortion field is as strong as ever!

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In a post earlier this year I compared the endless claims around renewable energy to the famous “reality distortion field” (RDF) that was first employed by the Talosians in the original series of Star Trek, but was later linked with the management style of Steve Jobs. The RDF was said to be Steve Jobs’ ability to convince himself and others to believe almost anything with a mix of charm, charisma, bravado, hyperbole, marketing, appeasement and persistence.

It would appear that after the announcement by the USA and China on their emissions agreement, a new reality distortion field is appearing around the subject of Chinese coal use.

It is very clear from all the reports coming from China that there is real concern about the use of coal and its link with the air quality in many major cities. It is also clear that the Chinese government is now starting to address this issue through the management of coal use, including the closure of older more polluting stations, the use of natural gas, the rapid build of nuclear and renewable energy capacity and so on. But coal use is continuing to increase, albeit more slowly than in recent years. While coal use in parts of the country may even decrease in the near term, as rapid development spreads to all corners of China over the next decade energy demand will continue to grow and total coal use will probably follow.

In the excitement around recent announcements, many organisations are now pinning their hopes on Chinese coal use peaking much earlier than the announced 2030 timeframe for a peak in overall emissions. As a result, when a revised energy strategy was announced in China recently, it was widely reported under the effects of the new distortion field.

According to two Chinese news reports that I could find (Xinhuanet and Shanghai Daily), the following is what was apparently announced;

The State Council promised more efficient, self-sufficient, green and innovative energy production and consumption in the Energy Development Strategy Action Plan (2014-2020). It included a cap set on annual primary energy consumption set at 4.8 billion tonnes of the standard coal equivalent until 2020. Annual coal consumption will be held below 4.2 billion tonnes until 2020, 16.3 percent more than the 3.6 billion tonnes burned last year, according to the National Coal Association.

My interpretation of this is that China has outlined its energy consumption goals for the period 2014 to 2020, but said nothing about the post 2020 period. However, this was reported very differently by others who decided to interpret the announcement as a cap on coal use by 2020. For example, the UNFCCC press release said;

The Chinese State Council also announced a new energy strategy action plan that includes ambitious measures to cap national coal consumption as early as 2020 at 4.2 billion tons, and reduce coal’s share of China’s primary energy mix to less than 62 percent by that same year.

The Climate Reality Project even had a small poster made to announce their interpretation of the plan;

China coal

Chinese coal use might peak in the medium term and emissions from coal will certainly have to peak before 2030 because of their announced INDC (national contribution) in-tandem with the announcement by the USA. But even then coal use may continue to grow if carbon capture and storage (CCS) can be successfully deployed at scale.

For me, the big announcement of the week is the proposed creation of a national carbon market to follow the regional trials now underway. Shanghai Daily reported the following;

China will open a nationwide carbon market in 2016 to help the government reduce emissions by 2030, the National Development and Reform Commission yesterday said in Beijing. Su Wei, an official at the climate change department under the NDRC, said he expected the market to be mature by 2020.

A robust and mature carbon market active throughout the 2020s could bring emissions from coal to a rapid standstill and even see them fall through fuel switching to natural gas and the deployment of CCS. Then it will be time to put up a poster.