David Hone

Not surprisingly, money is at the heart of the political debate now underway on climate policy, or at least its distribution within the economy. Whilst cap-and-trade is being portrayed as a taxation policy by some, other policy proposals are being presented as being without cost to families and households – both of course aim to reduce emissions. But there are no free lunches here and whichever way the issue is presented, there are costs and benefits involved.

For starters, underpinning any approach to emissions reduction is the emissions abatement curve, which plots the cost of emissions reduction against the scale of the reduction opportunity. A perfect approach to reducing emissions starts on the left hand side of the curve and progresses to the right, picking up all potential reductions before moving on. This results in the lowest overall cost to the economy for the required reduction. Cap-and-trade probably comes closest to this. At a given carbon price, the tradability of allowances means that, at least to the extent that market efficiency dictates, the next best emissions reduction project is executed somewhere in the economy. This drives a lowest cost outcome which also minimises the impact on the consumer.

But the way in which the consumer sees the impact may differ for different approaches.

Under cap-and-trade, with full auctioning of allowances, the immediate effect is that industry will attempt to pass on the cost of allowances and therefore the overall cost of goods and services rises throughout the economy. The extent of the rise for a particular product depends on the carbon footprint of its supply chain or the footprint of the marginal supplier. As a result, consumers also start to change their purchasing choices and the more carbon intense products lose market share or become less attractive to produce – either way they are forced out of the market. In return, the money collected by the government through the auctioning of the allowances is returned to the consumer through lower costs elsewhere, either directly (i.e. a legislated rebate), or indirectly as the economy adjusts to the overall change in money flow and the cost of some other service falls over time (e.g. state taxes).

Policies other than cap-and-trade also change the money flow, but their impact on the consumer may be different.

For example, government may choose to directly incentivise certain actions within the economy. Initially, money flows from government to the enterprise implementing the emission reduction and the consumer may not be impacted at all. But over time this money must be found through the fiscal process. This may result in additional taxation in some other part of the economy or a new charge on businesses or consumers. If the charge falls on business then this will ultimately be passed through to the consumer in the form of higher prices.

A second example could involve the imposition of some kind of standard or regulation. Although in some cases this is by the far the quickest and most direct method of achieveing a result, it nevertheless has a cost impact on the consumer. Eventually the affected businesses may raise prices to pay for the work required to meet the standard.

These types (i.e. not cap-and-trade)  of policy approaches also tend to pick arbitrary points on the abatement curve and require their implementation, irrespective of whether there are lower cost reduction opportunities available in the economy. This means that the overall cost to the economy for a given level of reduction is increased, which in the end may mean a greater burden on the consumer. Whilst this impact may be very indirect and slow to materialise, it will neverthless be there.

No matter what the construction looks like at the outset, any net costs to reduce emissions must be borne by the economy. Eventually this will fall on the consumers through mechanisms such as increased prices or changes in taxation. But benefits can also accrue. New jobs may be created as a result of the efforts and other costs reduced, such as for energy. But the overall cost or benefit will be largely dictated by the abatement curve and the efficiency with which the policy instrument tackles it.

Whilst many will focus on President Obama delivering the State of the Union on Wednesday, the other big event of this week is the nominal deadline for those adhering the Copenhagen Accord to submit their national targets and actions for logging in the appendices of the document. Although the UNFCCC have indicated that January 31st is a “soft deadline”, we may nevertheless see some movement in this space.

The question is, “What will make a difference?”.

The Accord offers two tables as appendices, one for developed countries to offer up absolute reduction targets through to 2020 and a second for developing countries to propose their own nationally appropriate mitigation actions. Without getting into the very specific details of what each country might specifically propose, it is useful to look at the trends that are developing in terms of direction and then see what impact this has in terms of total global emissions if continued through to 2050.

For most OECD countries, the general direction is of the order of an 80% reduction from current levels by 2050, although there will be some use of offsets along the way and reductiosn will be quite limited through to 2020. For the rapidly developing economies, a reduction in CO2 per GDP seems to be one metric and prior to Copenhagen China suggested a 40-50% reduction from 2005 to 2020. So let’s imagine that other major economic blocks also take on a similar approach (for energy related emissions), say India, the rest of Asia (not Japan or Korea) and Latin America. Let us also assume that the Middle East and economies in transition (mainly the former USSR) pledge to plateau emissions at current levels and the aviation and shipping industries offer to manage overall emissions growth such that by 2050 it is back to current levels and falling. African countries continue to grow at about 3% p.a. For non-energy emissions assume that deforestation and all other emissions (methane, cement CO2, various industrial gases and so on) are reduced significantly over the next 40 years.

The above might be seen as quite an achievement, given the way in which Copenhagen ended. But what would it mean if stacked up as a global effort? To get some idea about all this it is necessary to make some further assumptions about overall economic growth, given that so many big economies would be targeting emissions per GDP. Not surprisingly it turns out that economic growth is a major differentiator, particularly when compared to the percentage level of emissions reduction as GDP growth shifts. In doing this I have assumed that GDP growth would be higher in the early years and lower in the future – so a 6% average annual growth for China between now and 2050 would mean 9% p.a. now, dropping to 3% by 2050. The results, using IEA 2009 CO2 data, look something like this:

• Case 1: China growth at 6% p.a. through to 2050, with a continuous 4% p.a. reduction in energy CO2/GDP (equivalent to  45% reduction from 2005 to 2020). India is also at 6% p.a., Asia and Latin America at 5% p.a. but all with a 3% p.a. decline in energy CO2/GDP (equivalent to a 35% reduction from 2005 to 2020). Deforestation emissions drop by two thirds and other emissions are halved.

• Case 2: Growth the same as in Case 1, but the rate of decarbonisation vs. GDP for developing countries is increased by 1% in all cases, i.e. from 4% to 5% for China and 3% to 4% for the others. All other assumptions remain the same.

Whilst all of this looks like a positive story and I think it is, it doesn’t necessarily get us out of the woods. Recently I wrote about the “trillion tonne challenge“. In these two cases, we reach the trillion tonne total by about the mid 2040s and mid 2050s respectively. Although the curves look quite different, the area under them doesn’t vary by a great deal. In addition, with significant emissions still to come through to 2100 in these cases, the trillion tonnes is well and truly busted, which is an indicator of going above the 2 degree C goal of the Accord.

It isn’t until really aggressive numbers are used that the reductions start to bite and the 2 degrees target starts to come into range.

• Case 3: Growth is the same as Case 1, but for major developing economies the rate of decarbonisation per annum is equivalent to the long term growth rate of the economy. In addition, a much faster reduction of other emissions (i.e. non energy related) is achieved. The other assumptions remain the same.

Whilst we are unlikely to see very aggressive reduction targets tabled this week, Case 1 shows that we may at least be in the “plateau” ballpark as a start. Later on, if a CO2/GDP approach persists, the annual reduction must be similar to long term growth.  Another clear message from all this is that apart from energy, it isn’t just deforestation that is important. The broader management of all greenhouse gases from all sources will be critical.

Late last year I participated in a webcast with MIT Professor Henry Jacoby. The subject was the cost of action on climate change – or more specifically the cost of cap-and-trade. Professor Jacoby leads the The MIT Joint Program on the Science and Policy of Global Change. From the perspective of the program, the question is no longer whether global warming is upon us . . . but how we can rise to its challenge. They are a world leader in this effort. Their many activities cohere around one strategy: science and policy have to work together. Shell is a sponsor of the program. Given that Massachusetts is well and truly back in the news today, it seems timely to post this video.

David Hone at M.I.T.: But what will it all cost? from David Hone on Vimeo.

For most of the decade just passed I have been involved in the subject of climate change at Shell. This is unusual in one respect in that jobs in Shell normally have a tenure of 3-5 years, but this hasn’t exactly been a “normal job”. In fact, the job I have today bears little resemblance to the one I took on in June 2001. At that time domestic legislation wasn’t on the agenda or was in its infancy, the Kyoto Protocol was stuggling for ratification and many companies and industry associations were detached from the issue or at best focussing on “voluntary actions” as the way forward.

 The science agenda was also very different in 2001 - the conversation typically centred on 550 ppm, or double pre-industrial levels. This was probably more one of convenience than deep thought, but it also reflected a much lower perception of “climate sensitivity” than is currently proposed. As the science has become better understood over the last decade we have collectively shifted the goal posts. Now, it is easy to be heckled for even mentioning 550 ppm, although the recent Shell scenario work shows that such a target is already very challenging and is perhaps the best that we might actually achieve. 550 ppm is certainly better than a world heading towards 1000 ppm (the flip side of the more CO2 optimistic scenario), but nevertheless the discussion today is squarely focussed on 2 degrees Centigrade or something like 450 ppm. But just as we are becoming settled with that discussion, an even more ambitious 350 ppm objective, based on new thinking about impacts, is on the table for consideration – although with no clarity whatsoever as to how we might achieve it.

One activity I particularly look forward to every 8-10 months is attending the MIT Forum on the Science and Policy of Global Change. The forum is put on by the Joint Porgram of which Shell is one of the sponsors. Following the work done there over a number of years is a great way to get a perspective on the development of climate models and an appreciation of the increasing sophistication of the calculations behind them. The Joint Program is the source of one of my favourite climate science graphics , the wheel of fortune “Greenhouse Gamble“. It shows the uncertainty the world faces in terms of temperature rise – but even this has changed. In 2003 the “no policy” wheel still had a sizable wedge in the 1-3 degrees C range. This is now gone  (reduced to a sliver) as the understanding of climate sensitivity has changed.

Externally, the biggest change has been the rise of carbon markets. I had barely settled into my new office in 2001 when a colleague dropped a copy of the European Emissions Trading System Draft Directive onto my desk and asked me for comments! So here we are today, nearly nine years later, with a global market of some 8 billion tonnes in 2009 (PointCarbon) at a value of nearly €100 billion. This is largely EU-ETS based, either directly or through the CDM. The nine years that have passed also illustrates, like the technologies I discussed in my last post, that big changes takes decades to find root, grow, mature and become mainstream. Although several new carbon markets will probably appear during the current decade, it may not be until the 2020’s that we truly see the real start of the big changes in the energy system that they can deliver. That will mean a 20-25 year journey from concept to something approaching mainstream.

 This has also been a journey in Shell as well. In 2001 we were experimenting with our own internal emissions trading system, primarily to build understanding and gain acceptance of the idea across the company. At the same time we were in the process of hiring just one person to launch our Environmental Products trading unit, which in turn has gone from strength to strength as carbon markets have grown and our own exposure to carbon pricing has materialised. As early as 2002 we were advocates of an EU-ETS based on absolute targets and mandatory participation. This was in stark contrast to an EU industry position that was largely built around voluntary participation and relative (i.e. output based) targets. Compare that with the recent Copenhagen Communique which had some 900 companies globally signing on and organisations such as USCAP advocating an economy wide cap-and-trade approach in the USA.

 In 2001 I was “climate change in Shell”. The job itself was just three years old and I was the second incumbent. Although there was some exploratory thinking on carbon capture and storage (CCS) and coal bed methane technologies taking place in our EP division, most of what the Group was doing emanated from the Corporate Centre where I was based. That is far from the story today. Activities relating to CO2 management permeate across all our businesses and at every level of the organisation. Hundreds of people are involved in CO2 based programmes ranging from CCS projects in Australia and Norway to CER origination in China. Rather than being a lone representative in the Corporate HSE team, I work in a dynamic Group CO2 team based in our Downstream Business, but with a second line of reporting to the CEO.

 Such is the nature of this issue to a large oil and gas company today

In his celebrated, recent book, Sustainable Energy — without the hot air , David MacKay shows what a zero-carbon energy system for the UK looks like.  Whilst theoretically possible, it is daunting: the plan needs just about every option on the table, and in large quantities. A quick calculation for the rest of the world leads to the same conclusion.  So how quickly can we build this new energy system?

In 2008, Shell presented two scenarios of how the world’s energy system could develop to 2050 .   Blueprints was the more environmentally-conscious scenario.  Yet one of the most frequent criticisms has been that “Blueprints isn’t good enough” because the rate at which the emissions profile turns round “is too slow”.*

Two colleagues of mine in the scenario team, Martin Haigh and Gert Jan Kramer, have written an opinion piece for Nature, looking at this question.  It was published in early December (Click for the Nature Article).

In the paper, they have looked at humankind’s historical best efforts for deploying new energy technologies.  There are some sobering conclusions.  When things have gone well, it has taken around 30 years to move from the first pilot plants outside the laboratory, to reach a ‘material’ scale, which we define as delivering about 1% of the world’s energy supply.  This still follows an exponential curve running at an average of 26% growth per year for those 30 years.  It is simply that it has to climb three orders of magnitude in scale.

After that, growth slows down and runs on a linear course until the energy reaches its ultimate market share in the total energy mix.

They also explain why this historical evidence is something policymakers need to take seriously before aiming for overly ambitious targets.  Their view is that these ‘laws’ are going to be a challenge to beat.  Blueprints does look at conditions where we might be able to exceed them, but a good number of inputs in their modelling are stretching.  Going even beyond these is going to be a herculean challenge.

Finally, what does this mean for policy?  They argue it will need to be tailored for technologies at each stage of the deployment curve.  Much discussion assumes that after a few pilot projects, the world will be ready to build the new energy technologies, competitively, at the large-scale, linear rate.  However, CCS will not move beyond demonstrations if its cost must be recovered through a generic trading price.  PV development will stall if it is treated on a par with wind.  So whilst early-stage R&D and late-stage CO₂ pricing will have critical roles to play, many technologies are going to need project and then later product support for some considerable time if they are not to lose their way on the path.

 * Using IPCC’s yardsticks for emissions and atmospheric concentrations, Blueprints would have emerged as being around 500 ppm CO₂-only and 550 ppm CO₂e (all GHGs).  MIT’s climate science team analysed the Shell scenarios, and incorporated the latest research since that considered by IPCC.  Blueprints is assessed as a stabilisation pathway of 540 ppm CO₂-only and 650 ppm CO₂e (all GHGs).

As an Australian living in London and subject to the market forces that an emissions trading system brings to the economy, I watch with great interest as Australia wrestles with the Carbon Pollution Reduction Scheme (CPRS), or “cap-and-trade” by another name (or emissions trading by another).

Since Kevin Rudd became Prime Minister just days before the Bali UN Climate Change Conference in 2007, he has ratified the Kyoto Protocol and tabled legislation to introduce an economy wide cap-and-trade system. The legislation has passed through the House of Representatives but is now stuck in the Senate where the Rudd government does not have a working majority. Over recent weeks the government has been negotiating with the leading opposition party to try and find a workable consensus and deliver the bill before Copenhagen.

This week that failed spectacularly. The nature of the legislation has also split the conservative opposition, with the result that the parliamentary leader of the party was deposed by a one vote majority and the new leader, Tony Abbott, has now made it clear that no immediate deal will be done and as expected, the legislation has now been rejected by the Senate. This potentially paves the way for a double dissolution of parliament and what could truly be the world’s first “climate change” election, although the government has indicated that it will reintroduce the legislation in February after Copenhagen and the summer recess of parliament. Abbott has also been labelled by some media outlets as a “climate sceptic” .

Australia has seen a number of weather extremes in recent years. A prolonged drought has brought despair to much of the rural sector, water restrictions are now common in places such Adelaide, temperatures in Melbourne hit a record 47 degrees C last February, the list goes on. Whilst all or none of these may be related to a changing climate (and Australia is a country of climate extremes), there is little doubt that they have raised the awareness of the issues we may all face in the decades to come. Both party leaders now claim the ear of the public on the issue, with the government arguing that the majority of Australians want to see the country act on climate change and the opposition leader claiming that the majority of Australians are opposed to the cap-and-trade legislation. Contrast all this with the reality that, according to the International Energy Agency, Australia has the highest per capita emissions in the world (apart from a handful of countries with small populations and a particular concentration of industry). It is also a country with huge solar resources, significant wind opportunity, ample uranium and over the last few years a very aggressive development programme for carbon capture and storage.

Whilst there will doubtless be short term political winners and losers in Australia, the real issue here is that there may be significant impairment to the long term policy solution set for managing emissions - with cap-and-trade at the heart of it. In turn, the environment itself suffers as widespread policy action is weakened. The development of a global carbon market, built by linking together various national trading schemes, is arguably where the world needs to go. Energy pricing is global, so injecting a carbon price into the mix will, over time, deliver change at a global level. Whilst there are many ways of creating a carbon price, cap-and-trade is designed to do it through a market based approach at lowest cost to the economy – things that should be attractive to legislators in market based economies.  It’s really that simple, although as Australia is showing, simple is not always as simple as it seems.

Following on from my previous post, I spoke at the opening lunch of Singapore Energy Week on the same subject  – a trillion tonne carbon budget. The core of the story went something like this.

The starting point is a trillion tonne “glass”, now just over half full with industrial revolution carbon (data from IEA and CDIAC), coming both from fossil fuels and deforestation (in reality it is probably worse than this as my simple analysis did not include the other greenhouse gases). The world is filling the “glass” at an increasingly rapid rate and it is now over half full.

If the world continues to fill the “glass” through to 2100, with emissions growing at 1% per annum (as an example – but energy related CO2 emissions have increased at 2% p.a. over the last 40 years – but have dropped by some 3% in the last 12-18 months) then we end up with some two trillion tonnes of carbon emitted since 1750, well above the trillion tonne level that equates to a 50% chance of hitting 2 degrees C – in other words, “two glasses completely full” and a world quite a bit warmer than 2 degrees C.

In reality, the current global hydrocarbon reserve picture does not fully support such a simple proposition. Using the oil, oil-sands, gas and coal reserves data in the BP Statistical Review of World Energy 2009 and assuming that all those reserves are consumed, together with assumptions on the growth in cement manufacture  and continued land use change, the carbon situation looks more like this – two “glasses”, each not quite full.

I then turned attention to solutions with a focus on the largest overall contributor, coal. Today there is some 1000 GW of coal fired power generation, producing about 8 billion tonnes of CO2 per annum. According to the International Energy Agency, emissions are growing at 6% p.a.  The chart below shows growth is accelerating rapidly in China, but also in the rest of the world outside North America.

If we assume that emissions from coal fired power stations double by 2050, then plateau for the remainder of the century, then this alone fills the trillion tonne “glass” from where the world is today. Coal reserves can more than support such a move although it will be a challenging level of production.

One approach is to look to carbon capture and storage  (CCS) for a solution.  CCS represents a safe and sustainable approach for dealing with CO2 emissions and is based on a family of technologies all in use today. Although large scale end-to-end demonstration needs to happen urgently, deployment need not be some distant dream.  As a thought experiment, what if we started building all new coal fired power stations with CCS and either retrofitted with CCS or replaced all existing coal fired power stations by 2050. The global carbon story through to 2100 would change radically and look something like this – a “glass and a bit”, so still not there, but a huge improvement.

This is a pretty heroic assumption, but nevertheless points toward a solution, or at least part of it. In reality we have to do much more, but the focus need only be in five areas. They are;

1.  More efficient use of the energy sources that are available;
2.  Increased use of renewable and nuclear sources for the provision of energy;
3.  Carbon dioxide capture and geological storage in tandem with the use of fossil fuel sources for the provision of energy [or with the chemical conversion of fossil derived materials for the provision of various manufactured products];
4.  Containment, destruction and reduced usage of greenhouse gases other than carbon dioxide;
5.  Reducing emissions through land use, land use change and forestry, including reducing emissions from deforestation and degradation.

I concluded with some discussion on the policy measures necessary to do all this, which I have discussed in many previous postings.

This week I managed to stay a bit closer to home and met up for lunch with Dr. Myles Allen of the Department of Physics (Atmospheric, Oceanic and Planetary Physics) at the University of Oxford.

Although we have probably all understood the bit about the “area under the curve” when it comes to CO2 emissions, Myles and his team have brought a whole new dimension to the issue with a recent article in Nature. The core of the arguement is that simply emitting carbon dioxide slower will not address the  issue of climate change unless it involves phasing out carbon dioxide emissions altogether, before we reach an upper limit of one trillion tonnes of carbon.

According to Myles the risk of exceeding the EU stated target of 2 degrees Celcius is primarily determined by the accumulation of carbon dioxide emissions over time, not by short-term emission rates. He has shown that total cumulative emissions of one trillion tonnes of carbon (1 Tt C, or 3,670 billion tonnes of carbon dioxide) over the entire ‘anthropocene’ period 1750-2500 causes a most likely peak warming of 2 degrees Celsius above pre-industrial temperatures. Of this budget, emissions to 2009 have already consumed approximately half (0.5 Tt C).

You can track the “progress” (hardly seems the right word for this) of global carbon emissions on his website. As of today 532 billion tonnes of the trillion tonne budget have been consumed. Extrapolating emission rates forward leads to the forecast that the trillionth tonne will be emitted sometime in the late first quarter of 2045 (although the website shows this moving forward all the time). All this means we have 468 billion tonnes left – which might sound alot, but carve that up amongst 200 countries with populations ranging form 1.4 billion down to a few thousand and it presents quite a problem.

The EU and the USA are already in the process of carving their bit out. Have a look in Waxman-Markey and add up the number of allowances to be issued into the US economy between 2012 and 2100 (from 2050 onwards one billion tonnes of CO2 per annum are allowed) and it comes to 50 billion tonnes of carbon (which doesn’t even account for the whole economy, but most of it). This represents nearly 11% of the total remaining carbon emissions for some 5% of the global population.

Whilst this is a huge reduction from current US emissions (which, according to the IEA, account for some 20% of global energy related CO2 emissions), it of course raises the difficult question of equity. Add to this the fact that US and EU economies will be able to emit more as they purchase offsets from other countries. This in turn raises the issue as to the nature of offsets. In order to keep this system whole all offsets should really only be sequestration based – i.e. a tonne stored away for every tonne emitted. That means forestry and carbon capture and storage and that’s all, although GHG destruction should probably also qualify. By 2050 of course we may also be talking about a tonne removed from the atmosphere, but that will still have to be sequestered somewhere as well. There is a certain irony here in that neither forestry nor CCS qualify as offsets under the EU-ETS today – in the case of forestry it is because the EU doesn’t want to allow it and in the case of CCS because the international community won’t allow it to qualify under the CDM.

Another aspect to all of this is that very long tails of low emissions can’t be allowed. Waxman-Markey does an excellent job of driving down US emissions to very low levels by 2050, but then has a billion tonnes of CO2 remaining indefinately, i.e. a very long tail. Over time that continues to accumulate which just adds to the problem. As I have noted in a previous posting, the last 20% is indeed problematic, but under a trillion tonne scenario it cannot be. As it will be extraordinarily difficult for an economy to get to zero emissions, the solution will doubtless be net zero emissions, which could mean sequestering a tonne of CO2 from the atmosphere for every tonne emitted, either by direct removal or by gasification of biomass to produce electricity with the resultant CO2 being stored.

This will indeed be a brave new world.

One of the most important moments at the recent Bangkok UNFCCC meeting was the release by the IEA of its Climate Change Excerpt to the World Energy Outlook 2009. The full World Energy Outlook will be released in November as usual, but the pre-release was done to coordinate with the talks in Bangkok.

The excerpt lays out a possible 450 ppm energy scenario, built in part on the fact that the recession has given us something of an emissions break, with the IEA estimating that global emissions have fallen some 3% as a result. Whilst emissions will start growing again (and probably already have), the drop is akin to at least a 3 year reprieve, which means that the window of opportunity for 450 ppm is slightly open. But this is no easy scenario and in fact doesn’t plateau at 450 ppm, but overshoots it and reaches some 510 ppm in 2035 before beginning a gradual decline from about 2045. Global energy emissions must peak just before 2020. By contrast, the reference scenario sees atmospheric levels of CO2 eventually rising to over 1000 ppm and 2030 emissions some 14 GT greater than the 450 ppm scenario.

Key mitigation approaches are shown in the chart, but energy efficiency is clearly a major part of the pathway forward. The assumptions are very challenging and will really test our capacity for change.

But the evidence we can do this is starting to appear. Whilst in Abu Dhabi this week I was taken on a short tour of the construction site that will become Masdar City. This will be the worlds first carbon neutral, zero-waste city. It will have a working population of 90,000 of whom 40,000 are residents and be powered entirely by renwable energy. The city is being built in traditional Arabic style, with narrow streets and natural shading and with a number of features to improve the circulation of air and therefore energy efficiency of the buildings.

Masdar City CO2 compared to a conventional city.

The transport infrastructure of Masdar City is also different to every other city in the world. There are no cars, just light rail and personal rail transport (PRT) – in effect small capsules on a rail system for individual and family use. The railway system is starting to appear on the construction site and a test PRT capsule has been delivered.

Masdar still faces challenges, particularly water supply. There is none, so pretty much all the water comes from desalination plants, which also means that the water has a high energy footprint. But tremendous efforts are being made to conserve and recycle, so net use will be low.

Masdar represents a truly large scale working demonstration of what is possible if we are prepared to invest in infrastructure and push technologies and design well beyond business as usual. Demonstration is also a vital step in the commercialisation of new technologies and approaches and Abu Dhabi Future Energy Company know this – I am sure they will build a flourishing business on the back of the techniques they develop in Masdar City. A truly remarkable transformation is taking place in this arid region.

A final interesting observation (at least to me) from the excerpt is that IEA have started showing total cumulative emissions since 1890 and national shares of the accumulation. This is important as the real measure should not be the particular level of emissions in any given year but the total cummulative emissions compared to the carrying capacity of the atmosphere, which is about 1 trillion tonnes of carbon (3.7 trillion tonnes of CO2). The figures shown are of course energy emissions and do not account for other gases, forestry and agriculture.
 
Photos and charts: Abu Dhabi Future Energy Company & International Energy Agency

Late last week a significant development came from an equally significant slice of the global shipping community – support for action to reduce CO2 emissions from international shipping in the form of a global cap-and-trade system. International marine and aviation bunkers were excluded from the Kyoto Protocol, but if there is one thing I can be sure of seeing from Copenhagen is that this exclusion will no longer be the case. Shipping emissions will almost certainly be included and the shipping community will either grasp the opportunity to shape its future in terms of policy or it will have its future shaped for it by national governments and the UNFCCC.

The announcement comes in the form of a discussion document released by the British, Australian, Belgian, Norwegian and Swedish ship owners associations. The document clearly outlines the issue and challenges, spells out the advantages of a trading approach and then outlines two different constructions for a possible system. At this stage the document doesn’t discuss the scale of reductions, but I don’t think that is important right at this moment. Rather, the industry is taking a major step into the policy arena with a view to charting its own course foward (pun intended, sorry).

What really differentiates the two models in the document is the flow of money. In the “sectoral” approach, the industry pretty much creates its own allowances (although they originally come from the UNFCCC in the form of AAUs), auctions them, manages the revenue from the auctions and establishes registries and compliance mechanisms. Revenue management is not discussed in great detail, but it is clear that some portion is directed towards technology development. By contrast, the “distibuted” approach sees national governments being issued additonal AAUs to cover international marine bunkers (but only those governments with national targets also underpinned by AAUs)  and the shipping market buying either CERs from developing country projects or AAUs from government auctions. The industry maintains its important role in the compliance process but has little control over the money flow. That rests largely with governments.

The flow of money is bound to be a divisive issue, with many shippers, as with big emitters in land based systems, arguing that they should be in control of the auction revenue raised. It is difficult not to be sympathetic with this, but the reality of our world is that governments control the money flow, not sectors or industry associations or even banks. This is almost certainly a subject for further postings.

I will certainly write more about shipping in the weeks ahead, but in the meantime I would recommend reading this document. The shipping community that put it together deserves a round of applause for taking on a difficult subject at a pivotal moment for the industry.