David Hone

The Easter break provided a good opportunity to catch up on some recent climate stories, but the current messages delivered by the various media and other outlets vary enormously with a bewildering array of assertions and counter claims.

The continued arguments about the “pause” or otherwise in global warming continue, most notably in the Mail Online / Mail on Sunday, where columnist David Rose argues that there is “hard proof” that incorrect global warming forecasts are “costing us billions”. But his arguments have a number of problems.

The Mail chose to quote a number of climate scientists, one of whom almost immediately refuted the way in which the article had used his quote. Myles Allen, Professor of Geosystem Science in the School of Geography and the Environment, University of Oxford and Head of the Climate Dynamics Group in the University’s Department of Physics is reported to have said;

“. . . . that until recently he believed the world might be on course for a catastrophic temperature rise of more than five degrees this century. But he now says: ‘The odds have come down,’ – adding that warming is likely to be significantly lower. Prof Allen says higher estimates are now ‘looking iffy’.”

But in an article in The Guardian, Allen made it clear that his point was very different to that expressed;

But I also explained that doubling pre-industrial carbon dioxide concentrations, which we are almost certain to do now, was just the beginning. Increasing use of fossil carbon at the current rate would drive atmospheric concentrations towards four times pre-industrial figures by 2100. So even if the “climate sensitivity” is as low as 2C, as some lines of evidence now suggest, we would still be looking at 4C plus by the early 22nd century.

The Mail article uses a simple surface temperature chart to argue that warming estimates have been a “spectacular miscalculation”, even though the heavy black line shown in the chart (see below) has not actually breached the 95% confidence limits, rather there is just the assertion that it “is about to crash out”.

Further to this, the Mail has not done any real analysis of this trend, such as presented in December 2011 by Foster and Rahmstorf (Global temperature evolution 1979–2010, Grant Foster and Stefan Rahmstorf, Environmental Research Letters 6 (2011) 044022 (8pp)). In their paper they correct for the effect of volcanoes, solar variability and ENSO (El Nino Southern Oscillation) in all the main global temperature data sets and present the chart below – which shows a steady and continuing issue with the global heat balance and a consequent rising temperature trend.

Other studies show similar findings, such as the Berkley Earth Surface Temperature Project. The Economist also weighed in and discussed the differences between climate modeling approaches and ventured some thoughts on why these models are giving quite different results at the moment.

One of the issues that the Mail article addressed was the money being spent in the UK on renewable energy and its flow through to electricity and fuel bills. There is no doubt that this is an issue at the moment in the UK, but the reasons for it are multiple and complex. Attempting to create a simple link between the need for offshore wind subsidies and recent temperature trends trivializes both the climate issue and the various discussions around energy security, competitiveness and energy costs.

The renewable energy issue leads onto another story published just before Easter – a posting by Paul Gilding in Australia which made the case that the fossil fuel industry is on the verge of massive disruption, leading to its inevitable extinction in just a few decades.

There are signs the climate movement could be on the verge of a remarkable and surprising victory. If we read the current context correctly, and if the movement can adjust its strategy to capture the opportunity presented, it could usher in the fastest and most dramatic economic transformation in history. This would include the removal of the oil, coal and gas industries from the economy in just a few decades and their replacement with new industries and, for the most part, entirely new companies. It would be the greatest transfer of wealth and power between industries and countries the world has ever seen.

Of course it’s difficult for me to pass credible comment on this, given my affiliation to that industry, but the facts simply don’t stack up. While there is no doubt that renewable energy use is accelerating rapidly, so too is the use of fossil fuels and of course our overall use of energy. Both renewable energy and fossil energy will need to grow, simply to make energy ends meet. In the recently released Shell New Lens Scenarios, the Oceans scenario sees an extraordinary increase in solar energy uptake, which by 2030 is seriously outpacing the recent and current (1990-2020) surge in coal use. But even with this growth rate, it is not until about 2030 that fossil use drops below 80% of primary energy use and not until 2060 that overall fossil use actually starts to decline in absolute terms.

Finally, Bjorn Lomborg resurfaces in The Times with his article “The joy of global warming” (subscription required to read this). He argues again as he has for many years that the issue is something for later rather than for now (“ . . . global warming is a problem for the future but a benefit now . . . .”), but does make the cogent point that the emissions issue will not resolve itself until “green” energy comprehensively outcompetes fossil energy. However, he seems to miss the point that climate is a “stock problem” due to the accumulation of CO2 in the atmosphere, so simply waiting until later may not be the right course of action at all (again, another lesson from the recent Shell scenarios).

So, as already noted, a bewildering array of messages. It is little wonder that policy makers, the public, academia and NGOs are collectively at a loss as to how to take the climate issue forward. Most readers are probably well versed on my view of what needs to be done, but if not, it’s here.

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. 

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. 

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.

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 22^nd 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.

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.

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.

For regular readers, this may seem like a repeat of recent themes, but there is a point which will become clearer as the new Shell scenarios are released later this week.

Over recent years, the focus for managing rising CO2 emissions has been a combination of targets, energy mix mandates, efficiency drives and various attempts at carbon pricing. The climate lexicon is full of phrases such as;

• “We need to reduce global emissions by 50% by 2050 (relative to 1990 / 2000 / 2005 . . .)”
• “We will reduce the CO2 intensity of the economy by 30%.
• “By 2020, renewable energy will make up 20% of the energy supply”
• “We must first improve energy efficiency, that can have a significant impact on emissions”
• The “Green Economy”
• “We must stimulate clean energy investment”
• “We need more clean energy for development”

The question is, are these the right types of policies for solving the CO2 problem? There is no doubt that such approaches have gained traction and wide support from policy makers, but in many instances they are the result of a desire to solve a broad range of topical issues, ranging from energy security and energy access to jobs and economic growth. There is apparently then an underlying assumption that because each of these has a link with reducing emissions or low emissions that this must also be a solution to the real elephant in the room, the rising levels of CO2 in the atmosphere. This may not be the case.

All of the above approaches appear to rest on the assumption that responding to climate change depends on managing the rate of emissions from the global economy, sometimes on an absolute basis but often on a relative basis, e.g. relative to GDP. But this doesn’t correspond with how the atmosphere sees our emissions of CO2. Rather, the rising level of CO2 in the atmosphere is ultimately a stock problem, meaning that what really matters is the total cumulative amount of CO2 that is released over time from fossil sources and land use change. Additional CO2 is accumulating in the ocean / atmosphere system at a much faster rate than it is being removed. The difference is several orders of magnitude when compared with its return to geological storage through processes such as weathering and ocean sedimentation, which is why in the context of managing the problem we can treat it as a stock issue or liken it to the rising level of water in a bathtub (where even a dripping tap will eventually result in overflow). By contrast, many other emissions to atmosphere don’t accumulate, they disperse, break down or drop out very rapidly.

Over the last 250 years since the beginning of the industrial era, some 570 billion tonnes of fossil and land-fixed carbon (over 2 trillion tonnes of CO2) has been released, which in turn has led to a shift in the global heat balance and a likely 1°C of warming before the ocean / earth / atmosphere system reaches a new equilibrium state. An accumulation of a trillion tonnes of carbon equates to the 2°C temperature goal, but as a median within a broad distribution of outcomes, both higher and lower (Allen et. al., Warming caused by cumulative carbon emissions towards the trillionth tonne, Nature Vol 458, 30 April 2009). As long as the total fossil / fixed carbon released remains less than this amount over, say, a 500 year period, the climate problem is contained, at least to some extent.  

Thinking about climate change as a stock problem then changes the nature of the solution and the approach. Although emissions in 2020 or 2050 may be useful markers of progress, they do not necessarily guarantee success as they are measures of flow, not stock. For example, meeting a 2050 global goal of reducing emissions by 50% relative to 1990 would be a remarkable achievement, but of only modest value if emissions then stayed at this level and the stock accumulated well beyond the trillion tonne level, albeit at a later date than might have otherwise been the case.

Current global proven reserves of hydrocarbons (BP Statistical Review of World Energy) will release some 0.9 trillion tonnes of carbon when used, irrespective of how efficiently we might use them, how many wind turbines are built in the interim or even how many green jobs are created in the process. In combination with cement production and continued land use change, this will then take the cumulative carbon towards two trillion tonnes, with the likelihood of a temperature increase of well over 2°C.

Not using these reserves and leaving them in the ground permanently (i.e. forever) so as not to contribute to the ocean / atmosphere stock will only happen if we develop alternative energy sources that out compete them, without subsidy or support, 24/7 365 days a year. Another way forward  is to recognize that many economies around the world will choose to continue using the resources that they have, and therefore the focus should be on the development and deployment of carbon capture and storage (CCS), which returns the carbon back to the “geosphere” instead of allowing it to accumulate in the biosphere.

CCS has the potential to address CO2 emissions on a scale equal to its production and at a cost that appears more than manageable by society. Most importantly, it fits the “stock model” thinking, which means that this particular solution matches the nature of the problem itself, rather than being a derivative of it. But as I have noted in previous posts, CCS is struggling politically to gain the necessary funding and momentum. There are no large scale CCS power generation plants operating in the world today, but only a tiny handful of industrial emission CCS facilities, with most under construction. New thinking and impetus will need to emerge to ensure that CCS becomes central to climate policy development, rather than it having to compete with the long list of other objectives that seem to prevail.

The issue of accumulating CO2 in the atmosphere is a relatively simple one, which can’t be addressed by energy efficiency standards, renewable directives or similar such measures. They may impact on the short term consumption of fossil fuels in one region for a limited period of time, but they offer no guarantee of permanent reductions nor do they deliver a guarantee of a lower cumulative stock of CO2 over time – in other words, the fossil fuel that they displace locally simply gets shifted geographically and / or temporally (used later) such that the same accumulation of CO2 results. The CO2 issue is only addressed by two approaches – either leaving the fossil fuel in the ground forever or using the fossil fuel and returning the CO2 to the ground via CCS.

This week the organisation known as GLOBE (The Global Legislators’ Organisation supports national parliamentarians to develop and agree common legislative responses to the major challenges posed by sustainable development) met in London and launched its biannual review of national climate legislation. The GLOBE Climate Legislation Study is up to its third edition and covers the ongoing efforts in 33 countries. Of these, GLOBE claims that 18 countries have made substantial progress, 14 have made limited progress and one country has been singled out for taking a backwards step, Canada, but more on that later.

In their press release, GLOBE state that:

“The tide is beginning to turn decisively on tackling climate change, the defining material challenge of this century. In the past year alone, as described in this latest study by GLOBE International and the Grantham Research Institute, 32 out of 33 surveyed countries have introduced or are progressing significant climate-related legislation. In 2012 alone, 18 of the 33 countries made significant progress. This is a game-changing development, driven by emerging economies, but taking place across each and every continent. Most importantly it challenges how governments look at the international negotiations up to 2015 requiring much greater focus by governments to support national legislation.”

The report is a substantial piece of work and it steps through the programmes in each country in considerable detail, although the pages of tables raise the question as to what exactly is “climate legislation”. Legislation is categorised under the headings “Pricing carbon”, “Energy Demand”, “Energy Supply”, “Forests/Land Use”, “Adaptation” and so on. Of these, “Energy Demand” is largely energy efficiency measures and “Energy Supply” focuses principally on renewables (and nuclear in some countries). These two categories alone cover all but one of the countries (Nepal) surveyed, yet for the most part none of this is “climate legislation”. Rather, this is legislation that impacts the energy mix, but this does not necessarily translate into a reduction in emissions on a global basis and in many instances does not even lower national emissions. It simply augments the energy mix or lowers the energy and CO2 intensity of certain processes, which in turn can lead to greater overall use of energy and therefore increased emissions over the longer term. I have explored both these issues in previous postings, here and here.

This is not the case for the carbon pricing category, which GLOBE link to 11 of the 33 countries covered. But 4 of these are part of the EU and of the remaining countries only Australia has actually implemented the carbon price (arguably so has Japan, but the level is close to insignificant at about $1.50 per tonne). GLOBE also claim India has carbon pricing, but there is no such mechanism within the economy (there is a heavy focus on efficiency and a certificate trading system to drive it). Others include Mexico, South Africa, South Korea and China, all of which are in various stages of developing carbon pricing but none actually have.

Finally, there is the story around Canada. They are singled out as the only country to take a step backwards because of their decision to abandon the Kyoto Protocol (the same treatment is not given to Japan and Russia though) and the absence of a nationally implemented policy framework. Perversely, Canada is one country that made real and tangible advances last year, although emissions continue to rise in this resource rich economy. Quebec implemented its cap-and-trade system, carbon pricing continued in British Columbia and Alberta and the Federal Government did introduce its carbon standards for power stations, which will mean no new coal plants (without CCS) –  even the EU cannot claim such an achievement. Most importantly, Canada managed to get a large scale CCS project approved and construction started – similar attempts in the EU failed disastrously in 2012. This point is worthy of note, although GLOBE don’t mention it, given the critical role that CCS needs to play in mitigating emissions throughout this century.

The steps being taken in many countries to better manage energy supply, demand and mix are welcome, but to argue that this marks a “decisive turn” on tackling climate change and is “game changing” seems to be overly optimistic. BP released their latest Energy Outlook 2030 this week as well, which sees CO2 emissions rising sharply to 42 billion tonnes per annum by 2030, this despite non-hydro renewable energy nearly quadrupling over that time period. In total, nuclear/hydro/renewables/bio moves from 16% to 23% of the energy mix.

Finally, a P.S. to my previous post on the observation by many that “global warming has stopped”. James Hansen has just published a good analysis of this  and finds that a number of factors are contributing to the lack of change in overall global average temperature. This includes the behaviour of the El Nino/La Nina system (ENSO) and aerosol loading in the atmosphere. But he also concludes that natural variability must be playing a role. Worth a read.

This week I attended the quarterly review meeting of the European Technology Platform for Zero Emission Fossil Fuel Power Plants (ZEP), a coalition of stakeholders united in their support for CO2 Capture and Storage (CCS) as a key technology for combating climate change. ZEP serves as advisor to the European Commission on the research, demonstration and deployment of CCS. Many topics related to CCS and the underpinning technology set are discussed at the quarterly meetings, as well as various overview presentations to look at the current status of deployment. It is this latter aspect that is in trouble.

Over the last five years the EU has put great effort into promoting CCS. The Commission has led this, creating a legislative framework for the technology to exist in the field, agreeing on the need for a 10-12 project demonstration programme, supporting that programme with funding mechanisms and of course institutionalizing a carbon price within the industrial economy to act as the principal driver for implementation and longer term deployment.

With such an effort and so much political capital spent, one would expect to see a burgeoning CCS industry, or at least the beginnings of it, appearing across the EU. Unfortunately this is not the case. With the possible exception of the UK, it could be that by 2020 there will not be a single large scale CCS project operating across the 27 member states. This was certainly not the plan.

Looking forward, CCS is clearly going to be required in the EU. The region continues to burn it’s considerable coal and gas resources for power generation and more recently, with the exception of France and the UK, there has been some trepidation with regards further deployment of nuclear for power generation. Renewable energy use may be growing and there have been some remarkable, albeit brief, instances of near 100% power generation from renewables in some parts of the EU, but overall renewable energy growth remains modest (see below).

The first barrier to CCS implementation is a simple political one. Progress on member state transposition of the EU CCS Directive remains stubbornly slow with some member states seemingly less enthusiastic than they first appeared. In particular and despite a wealth of R&D activity and small pilot projects, German interest with regards CCS implementation now appears very low, despite its significant coal capacity. Rather, the focus is on renewable energy. Of the 27 countries required to transpose the directive, only 9 countries are acting. However, these do at least make up the key locations for potential demonstration projects.

The next barrier is a tough one. Public acceptance of on-shore storage has weakened considerably. This has always been a concern, but more recently this concern has resulted in the termination of projects. A Shell project in the Netherlands is one example. The alternative is off-shore storage such as the Sleipner project in Norway, but the cost of this for on-shore produced CO2 is higher.

But the real problem rests with the economics of CCS. In the middle of 2008 the picture looked relatively robust.

• The ETS CO2 price was in the high €20’s and even broke through the €30 barrier.
• The Energy and Climate package making its way through the EU Parliament included a provision to set aside allowances as a funding mechanism for the demonstration programme (now called NER300 – short for 300 million allowances from the ETS New Entrant Reserve). The Directive describes the support mechanism as follows and the Commission has established a website to allow bidders and other interested parties to follow the process:

Up to 300 million allowances in the new entrants’ reserve shall be available until 31 December 2015 to help stimulate the construction and operation of up to 12 commercial demonstration projects that aim at the environmentally safe capture and geological storage (CCS) of CO2 as well as demonstration projects of innovative renewable energy technologies, in the territory of the Union.
The allowances shall be made available for support for demonstration projects that provide for the development, in geographically balanced locations, of a wide range of CCS and innovative renewable energy technologies that are not yet commercially viable. Their award shall be dependent upon the verified avoidance of CO2 emissions.
Projects shall be selected on the basis of objective and transparent criteria that include requirements for knowledge-sharing. Those criteria and the measures shall be adopted in accordance with the regulatory procedure with scrutiny referred to in Article 23(3), and shall be made available to the public.
Allowances shall be set aside for the projects that meet the criteria referred to in the third subparagraph. Support for these projects shall be given via Member States and shall be complementary to substantial co-financing by the operator of the installation. They could also be co-financed by the Member State concerned, as well as by other instruments. No project shall receive support via the mechanism under this paragraph that exceeds 15 % of the total number of allowances available for this purpose. These allowances shall be taken into account under paragraph 7.

The mechanism, in combination with a robust underlying carbon price, meant that a viable demonstration programme could emerge. The 300 million allowances could conceivably generate €9 billion in funds, which meant up to €1.35 billion for some projects (i.e. the 15% limit). With potential Member State co-funding adding additional support, a 500 MW end-to-end CCS power station was even feasible and some of the projects originally submitted to the Commission for consideration were on this scale.

But the collapse of the CO2 price in the EU throws a huge question mark over the viability of the programme. So far the European Investment Bank (charged with monetizing the 300 million allowances) have sold over a 100 million allowances at a price of around €8.10 each. That’s a good effort in the current market, but it substantially changes the economics of a project. Now the maximum grant that any given project can collect is €360 million and it will be operating in a €6 CO2 market. Even with matching funds from the relevant member state, now much more challenging due to EU financial circumstances, a large scale project looks very unlikely. Large scale early CCS projects require a CO2 price in the range €60-100, not €20-25 (assuming €6 ETS price, maximum NER 300 financing and some member state co-financing).

The selection process for projects will proceed over the balance of this year with an announcement expected in December, but at least for the CCS part of the NER300 (innovative renewable energy projects are also supported) one wonders how this will pan out.

An exception to all this is the UK, which has taken matters into its own hands and which I have written quite a bit about in the past. A new UK CCS competition has been announced with £1 billion in funding and the UK is implementing a CO2 floor price for facilities operating under the EU ETS. In addition a clean energy CfD (Contract for Differences) construction will provide further support. A single viable CCS project (at least) should emerge from this approach.

Back in the rest of the EU, organizations like ZEP are stepping up their advocacy for a revised package of EU measures to ensure that at least some part of the demonstration programme is delivered. Without it, there will be real problems commercializing and gaining experience with CCS in the limited time available before much wider deployment is actually needed. The ZEP proposals should be available for a posting in the next week or so.

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.

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 above was the title of a panel debate hosted by the UK newspaper, The Daily Telegraph, late last week. There is a short write up in the Saturday edition of the newspaper. I was fortunate to participate in this, alongside Oliver Letwin MP, Minister of State (providing policy advice to the Prime Minister in the Cabinet Office) and Cabinet attendee. Other panel members were UCL Professor Paul Ekins, Jeremy Nicholson from the Energy Intensive Users Group and renewable energy venture capitalist Ben Goldsmith.

Photo Courtesy of The Daily Telegraph

Although Mr Letwin chose not to offer any opening remarks, his subsequent comments revealed some interesting thinking in the UK Government on energy and climate change. Three particular lines of discussion emerged during the debate;

1. With the “Green Economy” often associated with wind-turbines and solar PV, there was much discussion on how the UK determines its future energy mix. Mr Letwin put forward the view that an entirely market determined outcome was not in the interests of Britain. There was the risk that such a direction could result in over dependency on a particular energy source, bringing with it issues such as reliability, future price exposure, capital cost and technology lock-in. He argued that although the market should play a major role in driving change, there was also 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. This in turn meant that there was a role for government to promote technologies in the early stages of development and that this would remain a feature of their energy policy. The government would also ensure that sufficient incentive was in place for the first stages of deployment of such technologies.
2. Following on from (1) there was some discussion on the potential role for CCS in the UK energy system. Mr Letwin reaffirmed the need for the government to support a large scale demonstration of the technology and that the proposed government injection of £1 billion was both justified and modest given the scale of the low carbon energy option that it had the potential to deliver, particularly given the remaining fossil fuel production potential of the UK. He expressed the view that the key issue with CCS was not the need to determine its technical feasibility but rather to determine its cost feasibility. Mr Letwin’s enthusiasm for CCS extended into his closing remarks where he concluded that the UK would have one of the first large scale CCS facilities in the world and that the demonstration therein that natural gas was a viable zero-carbon fuel would be of huge benefit to the UK.
3. Not surprisingly the subject of the UK carbon floor price emerged during the discussion. Mr Letwin linked the need for it to the points made in (1) above and defended its introduction given the current state of the EU-ETS and the very weak price signal it was now delivering. But he also made it clear that it would be better for all concerned if the ETS delivered the necessary price signal: his “fingers crossed” hand gesture when the proposed EU allowance set aside was mentioned was pretty clear body language. 

Overall, it was an interesting evening and well attended. I am not sure that we ever really answered the question, but we did at least get some useful insight into the thinking that supports the current energy policy direction of the UK.

As I noted last week, there are intense negotiations underway in Brussels and Strasbourg as the EU Parliament heads towards a key committee vote on the Energy Efficiency Directive at the end of this month. All this has come about because of concerns that Europe will not meet the third leg of its well known 20-20-20 by 2020 target, i.e.;

• A reduction in EU greenhouse gas emissions of at least 20% below 1990 levels
• 20% of EU energy consumption to come from renewable resources
• A 20% reduction in primary energy use compared with projected levels, to be achieved by improving energy efficiency.

 Understanding what the energy efficiency target actually is and what it means turned out to be much harder than I imagined. The third bullet above, after some Google searching, led me to COM(2006)545 final, COMMUNICATION FROM THE COMMISSION, Action Plan for Energy Efficiency: Realizing the Potential, within which was to be found:

This Action Plan outlines a framework of policies and measures with a view to intensify the process of realizing the over 20% estimated savings potential in EU annual primary energy consumption by 2020 (compared to baseline – see COM(2005)265 final of 22.06 2005). 

The last part of the above which pointed to a further communication was a footnote within the text. This next document (Green Paper) proved to be relatively easy to find (although the EU Commission link to it no longer functioned, but it was in EUR-Lex), but the baseline information was in an Annex, with the key assumption on GDP in a footnote within the Annex. In any case, the Annex provided the following information:

From the early 1970s until 2002, energy consumption in EU-25 rose by almost 40% – or 1% per year – while GDP doubled, growing at an average rate of 2.4% per year. Energy intensity, the ratio of GDP to energy consumption, therefore decreased by a third. However, since 2000, the improvement in energy intensity has been less substantial, reaching only 1% over two years. This Community average does not reflect the considerable differences between Member States caused by the differing economic structures (e.g. more or less energy intensive industry), the national currency exchange rate compared to the Euro and the level of energy efficiency that, by and large, is obviously much better in the EU-15.

If the current trend continues, gross energy demand could increase by 10% by 2020. Growth in electricity demand could also reach 1.5% per year. Today’s consumption in the EU could reach 1900 Mtoe within 15 years (2020), compared with 1725 Mtoe in 2005 (These predictions are made under the assumption of an average growth of GDP as foreseen to be 2.4% per year). . . . . .

. . . . . This Green Paper on energy efficiency envisages to launch the debate on how the EU could achieve a reduction of the energy consumption of the EU by 20 % compared to the projections for 2020 on a cost effective basis. With today’s most advanced technology, it is certainly possible to save around 20% of the energy consumption of the Member States of the EU Total consumption is currently around 1 725 Mtoe. Estimations indicate that, if current trends continue, consumption will reach 1 900 Mtoe in 2020. The objective is thus to arrive, thanks to energy savings of 20% at the consumption level of 1990, i.e.1520 Mtoe.

The 2020 goal is to limit energy consumption in Europe to 1520 Mtoe, but this is based entirely on projecting the early 2000s energy/GDP relationship out to 2020, assuming a continuous economic growth of 2.4% p.a. and then subtracting 20% from the final energy number. Measuring progress to date and comparing it with the original projection and the desired outcome reveals a very mixed picture.

Actual energy use in 2009 (latest IEA data) is well below the Green Paper projection and even just below the proposed pathway to 2020, but energy intensity (kgoe/$ GDP) is falling well short of the 2020 goal pathway. The issue of course is that the original growth projection of 2.4% p.a. bears little resemblance to reality. The EU has gone through a major recession, some parts of the EU remain in recession or worse and even the better performing economies are showing only minimal growth. There is also the possibility that this situation continues for some time.

This means that the EU really had four 2020 targets set in 2008, not three; 20% reduction in GHGs, 20% renewable energy use, 33% economic growth (2008-2020) and energy intensity of 0.09 kgoe/$ GDP. All this has been thrown off track by the lack of growth. The structural improvement in efficiency normally achieved as an economy grows and invests in new or replacement infrastructure has gone, the carbon price has collapsed due to a growing surplus of allowances (linked to both the lack of growth and the mandated investment in renewable energy) and while the EU is apparently on target for its renewable goal, there is pressure in these tight fiscal times to cut subsidies (with a drop in investment presumably following). Arguably, the target structure was only feasible under this one growth scenario.

But the Commission is trying to reboot the system through the proposed Energy Efficiency Directive. This calls for an even lower energy use by 2020 of some 1474 Mtoe p.a., which is presumably in line with a revised growth projection (assuming 0.09 ktoe/$ remains the goal then this appears to be <1% p.a. over the period 2009-2020). The draft Directive now also includes a proposed amendment to set aside allowances in the ETS, restoring confidence in that system as well.

The 2008 Energy & Climate Package would appear to be an over-constrained target framework, lacking in the flexibility needed as the economy twists and turns in unexpected ways over the duration of the time window (15 years). It argues for a more back to basics approach for deployment which simply imposes a carbon price on the economy through the cap-and-trade system. This then guides the way forward, providing the driver for renewable energy investment, greenhouse gas reductions and energy efficiency improvement (due to the cost penalty imposed on fossil fuel derived energy).

The Commission will almost certainly persist with the current framework through to 2020 and may yet have to administer other fixes, but post 2020 should be a new story. With the design of the next phase of the European energy journey looming, a back-to-basics carbon market approach is all that is really needed for the main deployment effort rquired in the economy.

With delegates, energy / environment  Ministers, business representatives and NGO leaders arriving in Durban for COP 17, attention again turns to the pressing issue of actually reducing global emissions. The latest UNFCCC conference comes against the backdrop of two grim statistics of recent weeks – the record year on year (2009 to 2010) jump in global emissions just announced by the US Carbon Dioxide Information Analysis Center (CDIAC) and the prospect of an early “lock-in” of a minimum 2°C temperature rise this century, as indicated by the International Energy Agency in mid November.

As society grapples with these issues, the merit of various technologies and emission reduction approaches arises. Some advocate for a rapid switch to renewable energy, others favour nuclear and most argue that unless the efficiency of energy use is robustly tackled then there cannot be a solution. But a closer look at the current state of the global energy system reveals a very different reality.

As developing economy growth has accelerated in recent years energy prices have risen, albeit with rapid increases in both renewable energy deployment and fossil fuel production. Since 2000 the world has added 0.3 billion tonnes oil equivalent (btoe) per annum of non-fossil (zero carbon) energy, but nearly eight times this amount of fossil energy production (BP Statistical Review of World Energy). Even the global financial crisis has caused but a ripple in this trend. Demand is huge and growing. 

Arguably, we are in a time  where underlying global energy demand exceeds supply. This isn’t to say they are out of balance as that is not possible, but it says that if there were more energy then global economic growth would be even faster. This condition could well persist for a long time given population growth and the rapid expansion of several major economies – with more to follow.

A direct implication of this thinking is that the production of all fossil fuel energy is infra-marginal, i.e. there is nothing at the margin and that even the most expensive to produce barrel or tonne on the planet is profitable at current price levels. Rather, energy prices are increasingly being set by marginal and currently expensive local alternatives such as bio, wind and solar.  The further implication of this is that as developed countries install non-fossil energy supply or reduce their energy use through efficiency measures, the fossil energy that is backed out is simply moved elsewhere and there is no drop in global demand and no drop in global emissions – at all. This condition may also persist for a long time. In addition, in the case of rapidly developing economies such as China, renewable energy deployment is not backing out other fuels, rather it is supplementing a constrained fuel pool and allowing faster economic growth.

This then poses an enormous challenge for global efforts to reduce emissions. The current approach, which increasingly focuses on a “clean / renewable energy” solution, will not deliver a global reduction – at least not for a long time. Nationally there may be significant wins (e.g. the last 20 years has seen the UK reduce emissions through rapid uptake of natural gas), but on a global basis we are simply shuffling the fossil energy supply from one place to another (“Rearranging the deckchairs on the Titanic” comes to mind here). 

This then points to one solution in particular, the application of carbon capture and storage (CCS). With no reduction in fossil fuel use, carbon dioxide levels in the atmosphere will continue to rise  unless emissions are returned to their source. This argues for policy development to be tilted towards CCS technology with the goal of full  demonstration and commercialization in the short to medium term.

CCS is efficiently incentivized through a carbon price, although this is only emerging on a fragmented basis. But even national implementation which results in local rather than global CCS deployment can still be considered of global benefit as at least some emissions are captured and stored. As a carbon price becomes more global it does eventually force fossil fuels to the margin. This will then drive a  reduction in consumption as alternative energy sources come into the mix at lower and lower prices, but CCS remains a critical technology for this century at least.

For the UNFCCC process, this means an eventual complete about-face on CCS. Today it represents a glaring gap in the Clean Development Mechanism with CCS projects not even sanctioned for consideration. This at least is up for change in Durban. But longer term, following the thoughts outlined above, CCS should become the only viable offset mechanism for trade between nations given that it represents a tonne of CO2 sequestered. Permanent sequestration through forestry might also be considered. Anything else, no matter how laudable the project, may not actually represent a real reduction in global emissions.

On to Durban!!