Archive for the ‘Policy’ Category


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.

Why carbon pricing matters

An underpinning theme of my blog postings over the years has been discussion around government policy frameworks that seek to attach a cost to CO2 emissions – or so called carbon pricing. I have argued for them, commented on their inner workings and highlighted successes and failures along the way. At the start of each year I have published an overview of global progress, which of course has always featured the EU ETS, but now incorporates systems and approaches from countries such Kazakhstan and South Africa.

The importance of placing a cost on anthropogenic emissions of carbon dioxide cannot be understated, yet it took a fairly heroic effort from the World Bank this time last year to even get the subject of carbon pricing onto the agenda of the UN Climate Summit in New York. Despite the efforts in many countries, this important policy instrument still doesn’t get the recognition or attention it deserves. Yet, as I have argued on many occasions, including my e-book published to coincide with the Summit last year, the climate issue probably doesn’t get resolved without it.

So on the anniversary of that Summit, with Climate Week in New York coming around again, I have a second book being launched, devoted entirely to the all-important subject of carbon pricing as a national and global policy instrument.

Why Carbon Pricing MattersWhy Carbon Pricing Matters” looks at how various national pricing mechanisms work, why some of them may not work at all, what is wrong with others and of course seeks to answer the very question it poses in its title; why this policy instrument matters so much. With COP21 in Paris approaching, I have also argued the case for recognition of this instrument at the global level as well; this isn’t just about national policy implementation.

Not surprisingly the EU ETS gets a chapter to itself; there is a great deal of history here and many lessons learned, but some still to be recognized. As an Australian I have also ventured into the murky waters of carbon pricing policy in that country, which changes constantly and always throws up surprises. With a new Prime Minister, another round of debate may well be on the cards; we shall see.

Finally, I have again challenged the business community to think long and hard about this policy instrument – there are so many reasons why it is the best course to follow. Policy to manage carbon dioxide emissions is inevitable, so the choices we make now may impact the economy and environment for generations to come.

The book is available exclusively on Amazon, either for Kindle or iPads, iPhones and other devices with the Kindle App. This year, the book is also available in hard copy, given the number of requests I had for such treatment over the last twelve months. For those that haven’t caught up with my first attempt, it is now also available in hardcopy.

Will the Clean Power Plan deliver effective emission reductions?

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August 3rd saw the Obama Administration release its long awaited Clean Power Plan. The plan partly underpins the current US COP21 INDC (Intended Nationally Determined Contribution) to reduce emissions by 26-28% by 2025 compared to 2005. It also indicates that by 2030 the power sector emissions in the USA will be 32% lower than 2005 levels, which presumably is the beginning of the next phase of their national contribution. However, this plan if for electricity only, consumption of which represents a bit less than a quarter of final energy use in the USA.

Much of the media attention was on the proposal for existing power plants, but the rule comes in two parts; one for existing sources and a second one for new sources. For existing facilities the emphasis is on the near term (i.e. through to 2030), with the rule focussed more on portfolio transition than radical adjustment. As has been seen in recent years, the US is already on a journey of portfolio change, with significant retirement of older coal fired power stations underway and much greater utilization of surplus natural gas power generation capacity. This has been largely driven by the development of shale gas, which came at an opportune time given the age of the coal fired fleet. Back in 2010 I posted the two charts below, which contrast the ageing coal fleet (median build year around 1970-1975) with the relatively new natural gas infrastructure (median build year around 2000). The whole process has quickly and efficiently reduced emissions across the United States – a phenomena also seen in the UK in the 1990s as North Sea natural gas overwhelmed the older coal based infrastructure.

US Coal Fleet

US coal generation capacity

US Natural Gas Fleet

US natural gas generation capacity

The US journey of substitution continues today, but augmented by considerable solar and wind capacity. The new rule for existing plants encourages that transition to continue, focussing on energy efficiency in coal fired power plants (Building Block 1), continued substitution of coal by natural gas (Building Block 2) and a further push on renewables (Building Block 3). But the rule puts significant near term emphasis on renewable energy development rather than further encouraging the further uptake of natural gas. In fact, through the use of a crediting mechanism (Emission Rate Credits) within the EPA rule, the efficient displacement of coal by natural gas is curtailed, possibly even leading to a similar outcome as experienced over recent years in the EU, a higher overall energy cost and some coal growth. This happened in the EU because of near term renewable energy policies bringing more distant and costly projects forward, which in turn supressed the carbon price and the otherwise successful switching away from coal to natural gas that the carbon price was driving at the time.

In any plan to manage power sector emissions, carbon capture and storage (CCS) is almost certainly a long term requirement, so it should be encouraged from the outset. In the case of the existing source rule, there is no particular steer towards CCS. Although CCS is mentioned about sixty times in the 1,500 page document, there is a significant caveat; cost. While the rule makes several references to the cost of CCS, this is much more in the context of retrofit of facilities that have limited remaining shelf life. Although CCS is critically important over the longer term, it doesn’t make much economic sense to retrofit old facilities with the technology and as can be seen above, the new build coal fleet is relatively small.

But CCS does come into the picture when looking at the construction of new coal fired power plants. These will operate for up to fifty years, well into the period when the USA may want to reduce national emissions to very low levels, yet still make use of the vast fossil fuel resources that is has at its disposal. The EPA rule finds that the best system for emission reduction (BSER) for new steam units is highly efficient supercritical pulverized coal (SCPC) technology with partial carbon capture and storage (CCS). In such cases, the final standard is an emission limit of 1,400 lb CO2/MWh‐gross, which is the performance achievable by an SCPC unit capturing about 20 percent of its carbon pollution. This offers some opportunity for CCS to develop in the near term, depending of course on the rate at which older coal fired power stations are displaced and new ones are proposed. That in turn may be hampered by the Emission Rate Credit mechanism. A flaw in the thinking on ERCs (and also for much of the push towards renewable energy as a means of dealing with atmospheric CO2) is the assumption that a tonne of CO2 not emitted now by generating electricity from renewable energy or improving efficiency equates to a lower eventual concentration of CO2 in the atmosphere.  This may not be the case, a point I discuss at some length in my e-book, Putting the Genie Back. Given that both geographical (used elsewhere) and temporal (used later) displacement of fossil fuel is a reality, the actual offset of CO2 by using renewable energy is dependent on the future energy scenario. By contrast, a tonne of CO2 stored is over and done with. Renewable energy should certainly be encouraged, but not at the cost of pushing CCS out of the picture.

The USA is now heading towards an electricity mix that consists of efficient natural gas generation, some legacy coal, renewables, some nuclear and possibly coal with CCS. It has taken a long time to get to this position and doubtless there will be challenges ahead, but the direction appears to be set. However, I will always argue that a well implemented emissions trading system could have achieved all this more efficiently, at lower cost and therefore with less pain, but at least for now that is not to be (or is it – there are a legion of trading provisions within the rule).

The recent letter on carbon pricing from six oil and gas industry CEOs to Christiana Figueres, Executive Secretary of the UNFCCC and Laurent Fabius, Foreign Minister of France and President of COP 21 sent something of a tremor through the media world, to the extent that the New York Times picked up on it with an editorial on carbon taxation. The editorial transposed the CEO call for a carbon price into a call for a carbon tax (as is currently applied in British Columbia) and then set about building the case for a tax based approach and dismantling the case for mechanisms other than taxation; but their focus was on cap-and-trade (such as in California, Quebec and the EU ETS). The New York Times suggested that cap-and-trade doesn’t work, but apparently didn’t look at the evidence.

In January 2015 the EU ETS was ten years old. There were those who said it wouldn’t last and any number of people over the years who have claimed that it doesn’t work, is broken and hasn’t delivered; including the New York Times. Yet it continues to operate as the bedrock of the EU policy framework to manage carbon dioxide emissions. The simple concept of a finite and declining pool of allowances being allocated, traded and then surrendered as carbon dioxide is emitted has remained. Despite various other issues in its ten year history the ETS has done this consistently and almost faultlessly year in and year out; the mechanics of the system have never been a problem.

Effective carbon price
Comparing approaches and policies is difficult, but in general the various mechanisms can be rated as shown above. The most effective approach to mitigation is a widely applied carbon price across as much of the (global) economy as possible. Lost opportunities and inefficiencies creep in as the scope of approach is limited, such as in a project mechanism or with a baseline and credit approach; neither of which tackle fossil fuel use in its entirety.

The chart clearly shows carbon taxation and cap-and-trade competing for the top spot as the most effective mechanism for delivering a carbon price into the economy and driving lasting emission reductions. Both approaches work, so differentiating them almost comes down to personal preference, which can even be seen in the extensive academic literature on the subject where different camps lean one way or the other. My preference, perhaps influenced by my oil trading background, is to back the cap-and-trade approach. My reasons are as follows;

  • The cap-and-trade approach delivers a specific environmental outcome through the application of the cap across the economy.
  • Both instruments are subject to uncertainty, however the cap-and-trade is less subject to political change; conversely, taxation policy is regularly changed by governments. The New York Times made note of this with its reference to Australia, which has removed a fixed price carbon price that was effectively operating as a tax.
  • The carbon price delivered through a cap-and-trade system can adjust quickly to national circumstances. In the EU it fell in response to the recession and perversely has stayed down in response to other policies (renewable energy goals) currently doing the heavy lifting on mitigation. Why is this perverse; because the other policies shouldn’t be doing this job when a cap-and-trade is in place to do it more efficiently.
  • Acceptance is hard to win for any new cost to business, but particularly when not every competitor will be subject to that cost. The cap-and-trade system has a very simple mechanism, in the form of free allowance allocation, for addressing this problem for energy intensive (and therefore carbon intensive) trade exposed industries. Importantly, this mechanism doesn’t change the environmental outcome or reduce the incentive to manage emissions as the allowances held by a facility still have opportunity value associated with them.
  • Most carbon policies are being formulated at country or regional levels, rather than being driven by global approaches. Cap-and-trade systems are well-suited to international linking, leading to a more harmonized global price, while tax coordination is complex and politically difficult. Linking leads to a level playing field for industry around the world which fosters acceptance.

The economic effectiveness of both a carbon tax and a cap-and-trade system for carbon pricing means that countries and regions of all shapes and sizes have an implementation choice. For large, multi-faceted economies, the cap-and-trade system is ideally suited for teasing out the necessary changes across the economy and delivering a lowest cost outcome. At the same time it offers the many emitters considerable flexibility in implementation. Equally, for some economies or sectors where options for change are limited, the offset provisions that often feature in the design of an emissions trading system can offer a useful lifeline for compliance. Still, in some economies, a direct tax may be the most appropriate approach. Perhaps this is for governance reasons related to trading, or a lack of sufficient market participants to create a liquid market or simply to encourage the uptake of a fuel such as natural gas rather than coal.

The choice between these instruments isn’t as important as the choice of an instrument in the first place, which is why the letter from the CEOs is so important at this time.

Accounting isn’t enough

As the World Bank and others ramp up the discussion on carbon pricing, heads are turning towards Paris with thoughts on how the issue will be incorporated into the expected COP21 global climate deal. I have said many times in the past that unless a carbon price makes its way into the whole global energy system, then its success in bringing down emissions is far from assured. While local carbon pricing wins will appear, the global effort could be undermined by a lack of global coverage.   This is true of other policy approaches as well, but in the case of carbon pricing there is the significant benefit of economic efficiency.  For me, the signs so far aren’t great, with the text that came out of the Geneva ADP meeting showing few signs of tackling this important issue.

In recent weeks I have heard some commentators and national climate negotiators argue that the Framework Convention itself is sufficient to underpin cooperative carbon market development and that all the COP21 deal needs is a framework to ensure that accounting of carbon based trades is robust and avoids issues such as double counting (two parties each counting a particular reduction under their own emissions inventory). The underpinning language within the Convention can be found in several places (examples below), but the references are oblique and without direct recognition of carbon pricing or carbon markets;

  • Efforts to address climate change may be carried out cooperatively by interested Parties;
  • These Parties may implement such policies and measures jointly with other Parties and may assist other Parties in contributing to the achievement of the objective of the Convention;
  • Coordinate as appropriate with other such Parties, relevant economic and administrative instruments developed to achieve the objective of the Convention;

While this language could be interpreted as a mandate to develop a global carbon market and the ensuing exchange of carbon pricing instruments between Parties, or companies within the jurisdiction of those Parties, it hardly encourages this process to take place, let alone become a key activity in implementing a global deal. Similarly, if a Paris deal just addresses accounting issues, I don’t believe that this will act as the necessary catalyst for carbon market development either. It’s a bit like agreeing how to calculate the GDP and then not opening the national mint to print and issue the currency!!

Looking back at the Kyoto Protocol, the Clean Development Mechanism provides some valuable learning. While it isn’t a comprehensive carbon pricing instrument the Protocol nevertheless catalysed its development with a few paragraphs of text, to the extent that it eventually pushed some $100 billion (some have estimated much higher levels) in project investment into various developing country economies. This far eclipses the $10 billion that has so far been pledged to the Green Climate Fund, clearly demonstrating that market based approaches will almost always outstrip direct public financing or funding.    To meet the developed countries’ commitment to mobilize $100bn per annum by 2020, it is clear that carbon market approaches including linking will be required.  It is difficult to see how it will be met without incentivizing the private sector in this way.

This is the sort of step that I think the negotiators in Paris need to take. Rather than just elaborating on core accounting principles, I believe that they need to incorporate a means of actively encouraging carbon market expansion. Given the nationally determined contribution based architecture that is emerging, such a development will probably be a bottom up process, perhaps with heterogeneous linking between various market based systems. The Harvard Kennedy School are offering valuable insight into how this might transpire.

One organisation, IETA, has put forward a proposal for Paris along these lines. It is a light touch approach, given the opposition that a real carbon market proposal seems to foster, but hopefully it will be enough to get things started. The IETA proposal calls for the development of a “unified international transfer system”, in effect a “plug-and-play” linkage approach for national trading systems. With wording along these lines in the Paris agreement, later COP decisions could establish the modalities for such a system, thus opening up and accelerating the process that the likes of California and Quebec went through to link their respective trading systems. Such modalities would include the common accounting framework that is needed irrespective of the approach taken to encourage the development of a global market. In all cases, accounting still remains central to progress.

I won’t claim that this is the quickest and most effective way forward, but it is where we are and probably the best that can be achieved, assuming the push from above is there to encourage it. Without such a push, we are all left to hope that something may transpire on carbon markets, but wishful thinking isn’t a solution to 2°C.

Two views on mitigation economics

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The annual Forum held by the MIT Joint Program on the Science and Policy of Global Change is always an interesting event, with excellent presentations and lively debate ensuing. The recent Forum held in Boston in early October was no exception thanks to a discussion on two very different approaches to triggering the necessary mitigation of carbon dioxide emissions.

The debate started with a presentation on cumulative emissions and the clear link to atmospheric warming. This comes back to the “stock” vs. “flow” nature of carbon dioxide into the atmosphere which I have written about here and is the foundation of my recent book. The key to the issue is that as CO2 is a stock addition to the atmosphere, it doesn’t matter when or where the CO2 is emitted for the same net accumulation. As a result, the eventual accumulation will tend towards the full release of known fossil fuel reserves simply because the infrastructure exists to extract them and as such they will get used somewhere or at some time.  This also implies only one remaining path forward (given that non-use is unlikely) for stabilizing atmospheric concentrations of CO2; capturing and storing the CO2 when the fuels are used (i.e. Carbon Capture and Storage or CCS)

The above line of reasoning led one participant to propose that the simplest solution to the climate issue was to mandate sequestration, starting with a small amount for each tonne of CO2 emitted, say 1-2%, but progressively increasing this throughout the century until 100% is reached. Tradable CCS certificates (where one certificate represents one tonne of CO2 stored) could be used to distribute the benefits of individual large projects amongst many, particularly in the early years when the sequestration requirement from an individual emitter would still be small. Further, it was argued that this was economically more attractive than the widespread use of a carbon price, which would have to get to higher levels (probably more than $50/tonne) than current systems are offering to trigger even the first CCS project.

In the case of CCS certificate trading, which might trade in the range $50-$100 per tonne of stored CO2 early on, the cost for an individual emitter would nevertheless be initially small. If this was started in 2020 at 1% and reached 15% sequestration by 2030 (i.e. 100% by mid 2080s), the average cost over the period 2020-2030 to an emitter would be $8.50 per tonne of CO2, even with CCS certificates trading at $100 each. This is about the current level of the EU ETS which of course is unlikely to see any CCS projects at such prices.

For a carbon pricing approach, the CO2 price would have to be somewhat higher than the current level in the EU ETS to trigger CCS activity, which would likely delay its implementation and in any case probably cause grief within the system simply because of the higher price and its claimed impact on industry, competitiveness and consumers. It was argued in the MIT debate that this latter effect could well mean that it becomes politically unacceptable to ever let direct pricing mechanisms get to the level required for CCS.

The carbon pricing economists in the room responded to this, arguing that the direct pricing approach was more efficient in that it would allow a range of other mitigation options to play out in the interim before CCS was actually needed. This brought the response that only under the circumstances of uniform carbon pricing with full global reach might this be true; although with the caveat that in the context of an accumulation problem, there were no other mitigation options other than CCS and not using the fuels in the first instance. Partial reach (e.g. the EU ETS and China ETS) of carbon pricing, while significant, might simply introduce a trade distortion, rerouting fossil fuels to other parts of the world and eventually resulting in the same accumulation in the atmosphere. The claim was that carbon pricing tended to address the problem on a flow basis rather than stock basis and measured success as reduced emssions in the location where it operated, rather than reduced accumulation in the atmosphere over the long term. By contrast, it was argued that any application of CCS, even on a local basis, dealt directly with accumulation.

There wasn’t a resolution to the issues discussed above, but the discussion was a great example of the early development of policy thinking. Carbon pricing has dominated the debate for many years and rightly so, but as the science shifts in its emphasis and focuses more specifically on the root causes, policy will eventually have to adjust as well.

The Australian Prime Minister, Tony Abbott, turned up in Queensland very recently to open a coal mine (the $US3.4 billion Caval Ridge Mine in Central Queensland, a joint venture between BHP and Mitsubishi which will produce 5.5 million tonnes annually of metallurgical coal and employ about 500 people). In a TV interview he managed to inflame a number of commentators around the world with his quote that “Coal is good for humanity, coal is good for prosperity, coal is an essential part of our economic future, here in Australia, and right around the world . . . . . “.

In this world in which it is difficult for politicians to say anything without getting criticised, he was perhaps in a losing situation before he spoke, simply because of the critical role that coal happens to play in the global economy cast against the reality that its cumulative carbon footprint is the single largest contributor over time to the build-up of CO2 in the atmosphere. More recently, increased coal use has also contributed most to the rapid rise in global emissions.

In one sense Abbott is correct in that over and over again coal has been the starting point for industrial development. I explored this in more depth a few months ago. Coal is an inexpensive fuel, but perhaps most importantly it requires only minimal technology to utilize. There is no need for pipelines, leakage monitoring or sophisticated storage facilities. One could argue that the most important piece of technology is a shovel. This was true in Victorian England, it is still true in parts of China today and it may well be the case as Africa begins to industrialize on a large scale. Of course, the development of Africa on the back of the vast coal resource that sits in that continent (200 billion tonnes in Botswana alone) will send emissions to levels that are hard to contemplate and even more difficult to reduce. That is highly unlikely to be good for humanity.

Contrast this with the latest offering from activist and author Naomi Klein, who has recently published a book on the climate issue; This Changes Everything. I am about a quarter of the way into this and try as I may to be objective, I am already wondering if I will ever finish it. I feel that I have already been vilified a hundred times over, not just as part of the fossil fuel industry that she likens to an evil empire, but also as a shareholder daring to expect a return on my investments (“. . . . pour their profits into shareholder pockets . . .” ). Ms. Klein seems to believe that nothing short of a return to collective ownership, community living, local production and simple lifestyles will be sufficient to reduce carbon dioxide emissions. She blames anybody and everybody for the problem of rising emissions and lands the issue squarely at the feet of the economic system that has served us pretty well for centuries. Apart from her argument for the need to change everything, it looks as if I will have to plough through another 300 pages to find out how she imagines this might actually happen. My guess is that it could be more wishful thinking than practical policy advice. Should I ever get to page 533 (!!) I will let you know, but I don’t know if I have a thick enough skin for that.

One reviewer did manage to make it to the end and his views can be found here.

In the midst of this cacophony of criticism, the rational middle continues on without much of a voice. But some of us are at least trying. My new book, Putting the Genie Back: 2°C will be harder than we think, hasn’t attracted the talk shows or celebrity endorsements yet, but I have at least had some good feedback from readers and that is very gratifying. I wrote it to try and present a more balanced view of the climate issue and it does seem to be succeeding in that regard.

As governments struggle to find practical routes forward with positive outcomes for CO2 mitigation, attention is turning to dealing with other greenhouse gases, particularly methane. A number of methane emission initiatives are now underway or being planned, for example those within the Climate and Clean Air Coalition.

Methane seems like an obvious place to start. Anthropogenic emissions are about 250 million tonnes per annum. A tonne of methane emitted now has a short term (20 years) impact on atmospheric warming which is some 80 times greater than a tonne of CO2. This means that over the period of twenty years, the methane will add 80 times the amount of heat to the atmosphere as the carbon dioxide. But methane breaks down in the atmosphere quite quickly with a ‘half life’ of about seven years, so on a 100 year basis (with the methane effectively gone) the impact of a tonne of methane emitted now compared to a tonne of CO2 is much less. The factor falls to about 28, but even with a lower multiplier reducing methane still seems to be a worthwhile endeavour. While agricultural methane may require real lifestyle changes to bring down, e.g. less meat consumption, industrial methane emission management looks like something that can be done. Often mitigation may be a case of good housekeeping, such as monitoring and maintaining pipelines to minimize fugitive emissions.

While most articles about methane simply use the GWP (Global Warming Potential over 100 years) of 28 and present data and economics on that basis, a few dig deeper. Of note is the work of the Oxford-Martin School who present a number of policy papers on methane. In the more popular press, Burning Question author Duncan Clark has written about methane.

Both follow a similar line of reasoning. They note that methane and CO2, while both greenhouse gases, behave very differently with regards their impact on the actual goal of the UNFCCC, to limit eventual peak warming to 2°C or less. As noted, methane is a relatively short lived gas in the atmosphere, whereas CO2 is a long lived gas that accumulates in the atmosphere. This means there is another dimension to the issue, time. The point in time at which they are emitted relative to each other and the shape of any reduction pathway relative to the other is important. Duncan Clark describes this in the following way:

The difference between carbon dioxide and methane is a bit like the difference between burning coal and paper on a fire. Both generate plenty of heat but whereas the coal burns steadily for a long time and accumulates if you keep adding more, the paper gives an intense burst of warmth but one that quickly disappears once you stop adding it.

Their conclusions are similar. Peak warming is largely dictated by the cumulative amount of CO2 emitted over time. If a certain amount of methane is also emitted, the timing of that emission is what matters. Methane that is emitted today will immediately impact the rate of warming, but long before we reach peak warming (assuming CO2 emissions are eventually brought under control and warming actually peaks) the methane will have left the atmosphere and been converted to carbon dioxide, in which case it’s impact on peak warming is based only on the CO2 that remains from the methane. We may have accelerated warming in the short term but peak warming will remain largely unchanged. In this case, the warming potential of methane expressed in terms of its impact on peak temperature falls sharply and comes close to the stoichiometric conversion of methane to carbon dioxide, which is about 3, i.e. a tonne of methane when combusted or oxidised in the atmosphere gives rise to about three tonnes of carbon dioxide. Conversely, methane that is emitted much later, say when we are close to peak warming, will directly add to whatever level of temperature we happen to reach.

Does this mean that we shouldn’t bother about methane today? Unfortunately the answer is an ambiguous one. If we are confident that the world will quickly and decisively reduce CO2 emissions then of course we must also be reducing methane and other greenhouse gases as well. If we don’t, then we will still have a methane problem at the time peak CO2 induced warming occurs, in which case we will almost certainly overshoot our peak warming goal, i.e. 2°C, with the additional warming from the other greenhouse gases. But if we don’t address the CO2 issue, then addressing the methane issue now doesn’t offer a lot of benefit for later on. Instead, the benefit that we do get is less short term warming as we will have removed the intense burst of warming that the methane is providing.

Of course, since we don’t know how well or otherwise the task of CO2 mitigation will proceed (despite the fact that the track record is pretty poor), we feel obliged to act on methane now in case the CO2 mitigation picks up.  At least we know that we will slow down the near term rate of warming by doing so.

Not surprisingly, it turns out that dealing with methane and atmospheric warming is just as complex as dealing with CO2. In the case of CO2, many are convinced that steps such as efficiency measures can curtail warming, when all they are probably doing is geographically or temporally shifting the same CO2 emissions such that the eventual accumulation in the atmosphere is unchanged. In the case of methane, treating it as if it were interchangeable with CO2 but with a convenient and high multiplier may make us feel that modest effort is delivering great benefit, when it may be the case that little benefit is being delivered at all.

In both cases it is the science that we have to look at to decide on the appropriate strategy, not expediency and certainly not sentiment.

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

2 C Puzzle - 3 pieces

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

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

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

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

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

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

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

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