Archive for the ‘Natural gas’ Category

In my previous post I responded to an article by environmentalist Paul Gilding where he argued that the rate of solar PV deployment meant it was now time to call “Game over” for the coal, oil and gas industries. There is no doubt that solar PV uptake is faster than most commentators imagined (but not Shell in our Oceans scenario) and it is clear that this is starting to change the landscape for the utility sector, but talk of “death spirals” may, in the words of Mark Twain, be an exaggeration.

In that same article, Gilding also talks about local battery storage via electric cars and the drive to distributed systems rather than centralized ones. He clearly envisages a world of micro-grids, rooftop solar PV, domestic electricity storage and the disappearance of the current utility business model. But there is much more to the energy world than what we see in central London or Paris today, or for that matter in rural Tasmania where Paul Gilding lives. It all starts with unappealing, somewhat messy but nevertheless essential processes such as sulphuric acid, ammonia, caustic soda and chlorine manufacture (to name but a few). Added together, about half a billion tonnes of these four products are produced annually. These are energy intensive production processes operating on an industrial scale, but largely hidden away from daily life. They are in or play a role in the manufacture of almost everything we use, buy, wear, eat and do. These core base chemicals also rely on various feedstocks. Sulphuric acid, for example, is made from the sulphur found in oil and gas and removed during the various refining and treatment processes. Although there are other viable sources of sulphur they have long been abandoned for economic reasons.


The ubiquitous mobile phone (which everything now seems to get compared to when we talk about deployment) and the much talked about solar PV cell are just the tip of a vast energy consuming industrial system, built on base chemicals such as chlorine, but also making products with steel, aluminium, nickel, chromium, glass and plastics (to name but a few). The production of these materials alone exceeds 2 billion tonnes annually. All of this is of course made in facilities with concrete foundations, using some of the 3.4 billion tonnes of cement produced annually. The global industry for plastics is rooted in the oil and gas industry as well, with the big six plastics (see below) all starting their lives in refineries that do things like converting naphtha from crude oil to ethylene.

The big six plastics:

  • polyethylene – including low density (PE-LD), linear low density (PE-LLD) and high density (PE-HD)
  • polypropylene (PP)
  • polyvinyl chloride (PVC)
  • polystyrene solid (PS), expandable (PS-E)
  • polyethylene terephthalate (PET)
  • polyurethane (PUR)

All of these processes are also energy intensive, requiring utility scale generation, high temperature furnaces, large quantities of high pressure steam and so on. The raw materials for much of this comes from remote mines, another facet of modern life we no longer see. These in turn are powered by utility scale facilities, huge draglines for digging and vast trains for moving the extracted ores. An iron ore train in Australia might be made up of 336 cars, moving 44,500 tonnes of iron ore, is over 3 km long and utilizes six to eight locomotives including intermediate remote units. These locomotives often run on diesel fuel, although many in the world run on electric systems at high voltage, e.g. the 25 kV AC iron ore train from Russia to Finland.

The above is just the beginning of the industrial world we live in, built on a utility scale and powered by utilities burning gas and coal. These bring economies of scale to everything we do and use, whether we like it or not. Not even mentioned above is the agricultural world which feeds 7 billion people. The industrial heartland will doubtless change over the coming century, although the trend since the beginning of the industrial revolution has been for bigger more concentrated pockets of production, with little sign of a more distributed model. The advent of technologies such as 3D Printing may change the end use production step, but even the material that gets poured into the tanks feeding that 3D machine probably relied on sulphuric acid somewhere in its production chain.

Late last week saw the public release of the new Shell energy scenarios, under the heading “New Lens Scenarios”. This is always a much anticipated moment in Shell, a bit like the Olympics as it only happens every few years – the last ones were released in 2008. In the interim many people across the company get involved in the scenario process through workshops and meetings, but the core team manages to keep the final product under wraps until the big day. While we might get an early sniff of the story, the final product always contains new themes and ideas, designed not to recast the status quo paradigm, but to challenge and surprise where possible.


So it is with Mountains and Oceans, the two new scenarios that look out to the very end of this century, a first in terms of “viewing distance”. I won’t attempt to tell the whole scenario story here, better to direct you to the website, here. But the climate stories buried within them are of real interest and should act as a wake up call for governments around the world.

In my post last week I discussed the idea that the CO2 issue is best thought of as a stock problem, in other words fossil CO2 released from the “geosphere” is accumulating in the ocean/atmosphere system and adding to the background greenhouse warming that makes this planet habitable. Roughly, each additional trillion tonnes of carbon that is released makes the planet another 2°C hotter.Towards the trillionth tonne 

This has been shown by Allen et. al., Warming caused by cumulative carbon emissions towards the trillionth tonne, Nature Vol 458, 30 April 2009. The key chart is shown below. Peak warming vs cumulative carbon

This means that the focus of policymakers should be on the cumulative emissions of carbon over the long term, rather than on actual emissions on any given date. As such, climate policy needs to focus on limiting the accumulation, rather than simply slowing down the rate of emissions. For example, using energy more efficiently for the same level of production or GDP or supplementing the energy mix with renewable resources could well reduce annual emissions, but may do nothing to limit the accumulation over time. More renewable energy also gives policy makers a sense that they are addressing the problem of how to meet the surging demand for energy and also manage emissions, but over the long run it will just take a little longer to reach the same accumulation of carbon. Using up current proven reserves of oil gas and coal (about 900 billion tonnes of carbon), whether over 50 years, 60 years or 90 years, still delivers the same climate result.

Towards two trillion tonnes 

By contrast, deploying carbon capture and storage (CCS) and eventually linking it with any use of fossil resources resolves the accumulation issue. The New Lens Scenarios demonstrate this point very well.

In the Mountains scenario, which sees natural gas use grow to become the backbone of the world energy supply, the politics of the day allows CCS to start serious deployment in the 2030s and rapidly increase to peak deployment in the 2060s. As the energy mix shifts later in the century, CCS use declines somewhat. By 2100, emissions are effectively zero, with the prospect of some drawdown of atmospheric CO2 in the 22nd Century as CCS is combined with the use of biomass for energy. Importantly, cumulative emissions are capped and the amount of warming is limited, albeit not at 2°C.Mountains CCS

The Oceans scenario tells a different story. The underlying politics and social trends see more focus on renewable energy early on, with CCS not seriously deployed until 20-30 years later than Mountains and never growing to the same level. Although solar PV becomes very substantial in the energy mix, the time it takes to win the day allows cumulative carbon emissions to grow well past the Mountains scenario, adding to the potential warming by the end of the century. Oceans also caps the accumulation by 2100.

Oceans CCS 

Both scenarios make extensive use of CCS, but delaying deployment while lured by the attractiveness of a high renewable energy future has a real downside, more warming. 

We can see the evidence of government focus on renewable energy in the recent NER 300 funding in Europe. Despite the goal of establishing a CCS demonstration programme, no funds were delivered to CCS projects in Europe and the money was granted to renewable energy projects.   Green politics is fast becoming a distraction from the real climate priority of managing cumulative emissions, which requires CCS.

The scenarios are designed to tell stories and get us to think about the implications of the energy choices that we make. They are not forecasts or predictions, but they do represent viable alternative pathways which are economically, socially and technologically feasible. Enjoy the challenges posed.

A CCS project for Canada

I don’t normally use this blog to write about Shell, but last week saw an announcement that is very relevant and worthy of some further elaboration. Shell Canada, as operator of the Athabasca Oil Sands Project joint venture (with Chevron and Marathon), announced plans to proceed with a carbon capture and storage project (Quest) within the current oils sands project. This is a project that has been under discussion in one form or another since almost day one of production from the facilities, but the lack of a workable economic justification for the project has been the major impediment to progress.

In recent years the story has changed though. The Government of Alberta has developed a carbon pricing system which provides a level of underlying support for the project. The World Bank “State and Trend of the Carbon Market 2012” report describes the Alberta system (on page 89) as follows:

Alberta is Canada’s largest greenhouse gas (GHG) emitting province, accounting for 34% of the country’s total GHG emissions in 2010. This represents 235 MtCO2e, a 41% increase from 1990 levels, driven primarily by increased production activity in its oil and gas sector. On July 1, 2007, Alberta launched a mandatory GHG emission intensity-based mechanism, enacting the first GHG emissions legislation in Canada. Approximately 100 entities with annual emissions exceeding 100,000 tCO2e (ktCO2e), are required by the legislation to reduce their emission intensity by 12% from average 2003-2005 levels. Entities that do not meet reduction requirements on a given year may choose to meet these obligations by:

  • Trading “Emissions Performance Credits” (EPC) that are awarded to covered entities that reduce emissions below their set target;
  • Paying CN$15 (US$15.2) into a technology fund; and/or
  • Purchasing Alberta-based offsets issued by the Alberta Offsets Registry under an approved protocol.

N.B. The World Bank chart below shows the number of offsets retired annually through the system with an estimate for 2011 (not announced at the time the report was published). The price has remained very close to the technology fund alternative.

As such, this system provides an underlying base level of support of some CAN$15 per tonne of CO2 for the CCS project. In addition, in 2011 the Alberta Government announced a further support mechanism for CCS though the system, which now grants a second bonus credit for CCS projects meeting certain criteria. The Canadian based Pembina Institute published the diagram below, challenging the environmental integrity of the approach, but it also gives a simple explanation of how the mechanism works. In a completely closed system the environmental integrity  argument would be correct, but in the open ended Alberta system with payment into a technology fund as a compliance option, the argument is hardly valid. 

A further, but much less quantifiable, price signal is that coming from the California Low Carbon Fuel Standard (LCFS) and to a much lesser extent the EU Fuel Quality Directive (FQD). These mechanisms place a carbon footprint target on the fuel in the transport sector with a starting baseline about equal to the carbon footprint of oil products processed through a conventional production and refining route and then declining by about 1% per annum. When oil sands products arrive in these markets, their higher carbon footprint generates a penalty on the use of the component in the fuel pool which manifests itself as a price on carbon emissions associated with the production and use of the product. Of course the product may be targeted at other markets, but even a small location constraint on a product can lead to a trading discount in some market circumstances. This is also a carbon price of sorts. In any case, the prevalence of LCFS type approaches could well increase over the years ahead, which could penalize oil sands relative to some other production routes.

The combination of Provincial and Federal grants, a Province based carbon pricing system and its bonus credits and consideration of the role played by fuel standards in export markets in the future has allowed the project to get the green light. This should be seen as good news. CCS is the critical technology for real long term reductions in emissions – I have argued in the past that it may well be the only technology, so supporting it now and getting at least some early projects up and running should be an essential policy goal. Support remains a dilemma for policy makers, particularly in challenging economic times. However, there is a valid role to play here in that almost every carbon roadmap to 2030 and beyond shows CCS being required, yet there is currently no carbon price signal strong enough in any jurisdiction to actually build one now and therefore begin the process of demonstration and commercialization.

The project itself is medium in scale, storing about one million tonnes per annum of CO2 coming from the Hydrogen Manufacturing Unit (HMU) linked to the oil sands bitumen upgrader. The HMU produces hydrogen by steam reforming of natural gas, with a nearly pure CO2 stream as a byproduct. At high temperatures (700–1100 °C), steam (H2O) reacts with methane (CH4) to yield syngas.

 CH4 + H2O → CO + 3 H2

 In a second stage, additional hydrogen is generated through the lower-temperature water gas shift reaction, performed at about 130 °C:

 CO + H2O → CO2 + H2

 Heat required to drive the process is supplied by burning some portion of the natural gas. A very simple overview of the process is shown below.


The capture plant is located in Fort Saskatchewan, approx 50 km N.E. of Edmonton, Alberta. The CO2 will be transported by 12 inch pipeline to storage, approximately 65 km north of the upgrader site. The CO2 will be stored in a saline aquifer formation called Basal Cambrian Sands (BCS). At 2,300 metres below the surface it is some of the deepest sandstone in the region, with multiple caprock and salt seal layers and no significant faulting visible from wells or seismic activity. The BCS is well below hydrocarbon bearing formations and potable water zones in the region. Relatively few wells have been drilled into the BCS and none within 10 km of the proposed storage site.

It’s been a long road from initial discussion, to early concept and finally the investment decision last week. But the end result is a real CCS project!!

US emissions continue to fall

If you dig down a few layers through the US State Department website, you will come across a Press Release from February 2010 where the USA pledged to reduce its greenhouse gas emissions.

Press Statement

Todd Stern,  Special Envoy for Climate Change Washington, DC

February 4, 2010

Special Envoy Stern: We are pleased to be among 55 countries – including all of the world’s major economies — that have submitted pledges to limit or reduce their greenhouse gas emissions under the Copenhagen Accord. These countries represent nearly 80% of global emissions. In supporting the Accord, we are taking an important step in the global effort to combat climate change.

In addition to the countries that have submitted targets or actions, a number of others have conveyed their support for the Accord. We urge all countries to join this broad coalition by promptly conveying their support for the Accord to the UNFCCC Secretariat.

The Copenhagen Accord includes important advances on funding, technology, forestry, adaptation and transparency. The United States is committed to working with our partners around the world to make the Accord operational and to continue the effort to build a strong, science-based, global regime to combat the profound threat of climate change.

I have commented on the commitment in previous postings, but just to be reminded of what was said, here is a copy of the letter sent by the US to the UNFCCC. 

Last week the US EIA released the latest greenhouse gas emission figures and they show that the country is well on track to meet this pledge, even though there is no formal program in place to ensure delivery. 

Following the sharp recession led drop, two continuing drivers for the change are the drop in coal emissions as older coal fired power plants close and the fall in automotive emissions due to tougher vehicle efficiency standards and the continuing higher oil price. As expected, natural gas emissions have risen as this fuel replaces coal in power generation, but with less than half the carbon footprint of the coal.

This trend could well continue over the coming years as further coal capacity is closed in response to the combination of EPA air quality regulation, expected greenhouse gas regulation and the growing supply of natural gas. In addition, CAFE standards should ensure further improvements in vehicle efficiency.

My original analysis of this trend produced the following chart. Two years on and we still seem to be at least in the same ballpark.

This week in Australia the carbon pricing mechanism (no, it isn’t a tax, despite some similarities) is back in the news as the government releases it’s budget for the coming fiscal period. The fixed price period of $23 per tonne (and rising) represents a significant new source of income for the government, although when the mechanism was announced so too were a number of cost offset measures for the consumer and trade exposed industries. As such, the system is largely revenue neutral, but this has done little to quell the noisy opposition to the policy package. On Wednesday, the day after the Budget was released, many newspapers again raised the issue of increasing prices related to the carbon pricing scheme and therefore falling living standards, despite statements by the government over recent months that the system recycles its revenue back through the economy. Unfortunately, public perception appears to be on the side of those who argue that this is a new and unnecessary cost burden.

This isn’t the only negative view that the public have of climate change policy. The other is that energy austerity is the mechanism we must adopt to reduce emissions. The source of this is many and various, including the government itself, some NGOs and even a few business organisations. “Turn out the lights to save the planet” has become a common rallying cry and is amplified by campaigns such as Earth Hour which calls for cities to be blacked out for one hour a year to highlight the issue of energy use and climate change.

So the public are left with the view that energy austerity and extra cost are the two routes to follow if climate change is to be robustly addressed. Little wonder it is an uphill battle gaining political traction on this issue. Perhaps some new and more accurate messaging should be formulated to help sell the need for policy action.

The energy austerity issue is one that can and should be tackled. Reducing energy use and improving energy efficiency are both good things to do, but should be advocated for on the basis of managing energy costs, not attempting to address climate change. For reasons discussed in an earlier posting, local energy austerity may not even be an effective emissions reduction strategy at all. At issue with energy is the emissions from our current sources, not necessarily how much we use. After all, energy availability is almost unlimited, it’s just harnessing it economically that is the challenge.

The austerity message has its roots in various social agendas, but has kept into the environmental agenda as well. It is easy to see why this has happened, given the clear link between ecosystem welfare and overuse (e.g. logging in tropical rain forests), but for the climate change debate this particular approach may not be helping the issue at all.

The climate change issue needs to return to its roots, which is managing, reducing and ultimately eliminating anthropogenic CO2 emissions. This is done by changing the primary energy mix, implementing upstream CCS and shifting final energy use in homes and transport (where emissions are very to capture) to carriers such as electricity, hydrogen and bio.

Such a change won’t come at no cost, but elements of it can be conveyed to the public more easily. For example, running a home entirely on electricity is very doable today, both in hot and cold climates. The option of electric, hydrogen fuel cell or bio mobility is also becoming a reality – and potentially an attractive one as oil prices remain in the realms of $100 per barrel. These are very different value propositions to the austerity message.

The emphasis then shifts to the upstream and the use of renewable energy in the electricity sector together with technologies such as CCS in combination with natural gas. Here costs can be managed and change implemented over time as the grid is renewed and expanded. This can be achieved through carbon pricing, either directly in a cap and trade system or indirectly through emission performance standards. Although the scale of change is less, over the last thirty years many countries have managed to almost eliminate sulphur emissions from both the electricity and transport sectors and have done so without great public rancour. Costs have dropped and the job has just been done.

Getting the message right is essential if we want to make progress on this issue. Pedalling austerity and high cost is neither helpful or even correct.

The Energy Mix

The World Business Council for Sustainable Development (WBCSD) held its annual company delegate conference in Switzerland this week. For the WBCSD Energy and Climate team the event marked the launch of the latest WBCSD publication “The Energy Mix”. This is a document that started life back in the middle of last year, originally as a response to the reaction from a number of governments to the events in Fukushima. The initial aim was to inform policy makers on the implication of sudden changes in energy policy, such as the decision by the German government to rapidly phase out the use of nuclear power. But as the work got going, the document took on a number of additional dimensions. Many have been covered in previous postings on this blog, but the document does a nice job of bringing a lot of information together in a crisp fold-out brochure format (at the moment the PDF is in regular page format, so the fold-out aspect is rather lost through this medium).

Sitting behind this effort is the WBCSD Vision 2050 work which charts the necessary pathway to a world in 2050 which sees “Nine billion people living well within the means of one planet”. A number of key themes are explored in “The Energy Mix” brochure:

  1. The risk of carbon lock-in, in other words current and “on the drawing board” infrastructure and related emissions being sufficient to consume the remaining global carbon budget (related to a 2°C temperature goal) within the normal remaining lifespan of those assets.
  2. The need for clear energy policy framework to guide the necessary changes over the coming decades.
  3. The importance of carbon pricing within that framework.

The document uses some fifteen vignettes to illustrate a variety of points. For example, to illustrate a) that policy can make a difference and b) it takes a long time, but c) its still very hard to reduce emissions by a big amount, take the case of France. Back in the 1970s the government intervened in the energy system and have progressively forced the construction of substantial nuclear capacity and a national high speed rail network, operating in combination with (like the rest of the EU) high transport fuel taxes. While these measures were not originally intended to reduce CO2 emissions, they are nevertheless compatible with such a goal and could just as easily be the route forward for a country. France now gets about 80% of its electricity from nuclear and has one of the best rail systems in the world, yet emissions have only fallen by 28% in 40 years. Economic growth and population growth continue to eat into the gains made, which might argue for yet further measures in the longer term. However, French emissions on a CO2/GDP basis are about 60% less than in the USA. With a very low CO2 per kWh for power generation, France would be in an excellent position to further decarbonize if electric cars entered the vehicle population in significant numbers. Interestingly, the car company with perhaps the worlds most progressive electric vehicle production programme also happens to be French. 

 The key message on the required policy framework is a pretty simple one – cover the key sectors and focus on the elements of the technology development pathway (Discover, Develop, Demonstrate, Deploy). The resulting grid looks like this:

 Filling in the boxes results in something that looks like this:

The framework shouldn’t be a big surprise, many of the elements are alive in the EU (but not so well in all cases- such as the carbon price).

The new WBCSD Energy Mix document can be downloaded here.

Five short stories from WEO

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

1.  A new trend in energy efficiency

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

2.  Oil security concerns shift

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

3.  The winner was coal

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

4.   Modern energy for all

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

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

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

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

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


The dash isn’t over yet

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

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

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

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

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

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

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

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

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

I can’t subscribe to this view.

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

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

A surprising call from the investment community

  • Comments Off

A recent Reuters article reported from a UN session on climate risk and energy solutions:

 UNITED NATIONS, Jan 12 (Reuters) – Institutional investors with a collective $26 trillion under management opened a new front on Thursday in the fight against climate change, urging the private sector to mobilize, follow the money and find new technologies to cut greenhouse gas emissions. Putting a price on climate-warming carbon emissions, which has been instituted in parts of Europe and elsewhere with limited success, would be “nice to have” but not essential, said Kevin Parker, global head of Deutsche Asset Management.       

“It’s not going to be long before an investor looking to roll out a new energy plant has to take solar and wind and other forms of renewables very seriously,” Parker said in an interview outside a session at U.N. headquarters on climate risk and energy solutions.  ”It’s coming down to following the bouncing ball of money, because it’s money that talks.”       

Inside the session, which drew more than 400 participants from banking, insurance, government, labor and institutional investing, the United Nations’ Roland Rich warned the group against “putting all our eggs in the government basket.”

“The carbon-burning economy is tomorrow’s Rust Belt,” Rich said. “Your job, it seems to me, is to invest in the Microsofts and Googles of the green economy.”           

The article continued with reports of other speakers making similar calls. It may be the case that this reflects a significant level of frustration in the investment community, driven by weak carbon prices, inaction in several major economies and uncertainty with policy implementation where action is underway. Nevertheless, to argue that an issue such as climate change can be addressed without government action is a worrying development.

It has taken a good 15+ years to build the case for a carbon price in the energy system and while there is concern as to the current state of carbon markets, particularly in the EU, it is not the time to now argue that we can do without them.  The most effective emerging technology for dealing with CO2 emissions is carbon capture and storage (CCS) and arguably (at least by me) we will not see a reduction in global emissions until it starts deploying on a large scale. We won’t even see a reduction in the rate of growth of emissions until coal use reaches a plateau and begins to decline. Recent statistics hardly give confidence that such a point in time is even remotely close. 

Neither of these will happen without the presence of a carbon price, given the current demand for energy. Coal remains abundant, reliable and cheap for large scale power generation and while solar energy certainly falls on the planet in abundance, converting it to 24/7 electricity on a large scale (either directly or via wind) is neither reliable (from a 24/7 perspective) or cheap. Even as natural gas production increases globally, without a carbon price it will struggle to back out coal to the extent that it stays in the ground (rather it will tend to displace it to other markets). CCS of course is completely dependent on carbon pricing and early CCS demonstration in the EU is already suffering because of the low carbon price in the EU ETS.

There is no question that money talks and it is also true that a step change down in the cost of wind and solar has taken place in recent years, but the rate of investment in conventional energy infrastructure still far exceeds that of renewable energy and nuclear. In its recent World Energy Outlook, the International Energy Agency (IEA) warned that emissions lock-in at a level above that which is equivalent to a 2°C temperature rise this century is imminent.

Despite the repeated warnings, emissions continue to rise rapidly with no sign of a turndown. We really do need a carbon price in the energy system! It almost feels trite to have to say this is 2012, but apparently it is still necessary to do so.

Success slipping away?

  • Comments Off

Earlier this year I looked at the prospects for the USA meeting its 2020 declaration to reduce greenhouse gas emissions by 17% by 2020, relative to a 2005 baseline. Success at least looked feasible, driven by three significant factors:

  1. The reduction in emissions as a result of the financial crisis;
  2. The surge in natural gas production which at least has the potential to back out coal in the power sector, thereby delivering a reduction in power generation emissions;
  3. The new and much more stringent CAFE standards which are now in place.

As illustrated in the chart below, a key element of the appraisal is the degree to which emissions bounce back after the recession, i.e. as production ramps up in response to new factory orders and so on. This is because of the scale of the fall in emissions as a result of the recession itself – some 500+ million tpa. 

Very recently the US Carbon Dioxide Information Analysis Center (CDIAC) released new estimates for global and national emissions for the years 2008, 2009 and 2010 – i.e. the key years in terms of the drop in emissions and first signs of recovery. The global trend is a concern given the significant jump of over 2 billion tonnes in CO2 emissions from 2009 to 2010 which more than offsets the 2008 to 2009 fall and puts global emissions at a record level.

The US figure is a real good news / bad news story. The rise from 2009 to 2010 was over 200 million tpa, which on the one hand indicates some recovery in the economy, but on the other puts significant pressure on a successful outcome  in 2020. The same projection but with the Industrial Recovery bar revised to 218 mtpa shows the target being missed by some margin.


A second critical element of this pathway is the rate at which natural gas backs out coal in the power generation sector – or coal generation is reduced as environmetal standards become tougher to meet, with natural gas filling the gap. The data for 2008-2010 isn’t conclusive, but it is showing some signs of a smaller recovery for coal than the national energy total and a loss of share in power generation to natural gas. 

Assuming about constant output from fossil generation through to 2020 (i.e. incremental power is picked up by new renewable capacity), then the necessary reduction scenario is only achieved if coal output drops by some 500,000 GWHrs and natural gas rises by a similar amount. More data is needed, but there is at least some indication that this trend may be underway, particularly now that petroleum based power generation has been driven to very low levels.