Archive for the ‘Renewables’ Category

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.

Some energy system home truths

One point of note on the annual calendar of energy events is the release by BP of their Statistical Review of World Energy. The data, all available to download in Excel format, covers the period up to the end of the previous year (i.e. the current data is to the end of 2013) and as such is about 18 months ahead of the equivalent data from the IEA (which is currently up to 2011 but will be updated later this year). Just about anything you might want to know on energy supply, energy consumption, CO2 emissions, fossil fuel reserves etc, is there for the interested user. In recent years BP have updated the tables to include a more comprehensive look at renewable energy as well.

The most recent release by BP was just a couple of weeks ago, so here are a few key energy/climate home truths within it;

Global CO2 emissions just keep on rising: This is hardly a surprise, but given the recent burst of capacity from the renewable energy sector there might be some sign of some levelling off at least. OECD emissions are at least flat now, but non-OECD emissions continue to rise sharply as coal use increases in particular (chart below in millions tonnes CO2 per annum).

Global emissions

 

The global CO2 intensity of energy isn’t budging: This is a bit more surprising given the influx of natural gas into the global economy and the build rate of renewables. But coal continues to surge and quite some nuclear has been shut down in Japan. The chart below shows the OECD intensity falling as renewables take off in Europe and natural gas increases in the USA, but non-OECD intensity offsets this to give a flat picture overall (chart below is in tonnes of CO2 per barrel of oil equivalent).

Global CO2 intensity of energy

 

The annual increase in fossil fuel use far exceeds the increase in renewable energy production: While many will readily quote the annual increase in renewable energy investment or annual increase in renewable energy capacity as evidence of turning the corner, the reality in terms of renewable energy produced is somewhat different. The chart below compares the annual coal increase with global solar and wind increases. For reference, the total fossil fuel increase from 2012-2013 was 183 Mtoe (million tonnes oil equivalent). The whole picture is rather distorted by the global financial crisis, but coal alone is increasing by something like 100-150 Mtoe per annum. At least for the last couple of years solar has been flat at about 7 Mtoe annual increase.

Increase in coal use

Solar and wind are growing rapidly, but the fossil fuel share of global primary energy is high and steady: Both solar and wind are in their early rapid growth phase where double digit annual increases are expected, but as they become material in the energy system at around 1% of global energy production, don’t be surprised to see this start to level off. The chart below has a log scale (otherwise solar and wind are barely discernible) and shows fossil fuel up in the mid 80′s as a percent of the global energy mix.

Energy mix fraction

Even in Germany it is taking a while for solar to make a showing: While solar PV in Germany is having a profound impact on electricity generation on long sunny days in June, the annual story when looking at total energy use is different. Solar has reached about 2% of the mix (i.e. reached materiality) and might even be showing some signs of slowing up and growing at a more linear rate (but a few more years data are needed to see the real trend). Again, this is a log chart.

German solar

 

Thanks to BP for the time and effort they put into this work every year.

With the USA (at a Federal level) going down the regulatory route instead, the Australian Prime Minister touring the world arguing against it and the UNFCCC struggling to talk about it, perhaps it is time to revisit the case for carbon pricing. Economists have argued the case for carbon pricing for over two decades and in a recent post I put forward my own reasons why the climate issue doesn’t get solved without one. Remember this;

Climate formula with carbon price (words)

Yet the policy world seems to be struggling to implement carbon pricing and more importantly, getting it to stick and remain effective. Part of the reason for this is a concern by business that it will somehow penalize them, prejudice them competitively or distort their markets. Of course there will be an impact, that’s the whole point, but nevertheless the business community should still embrace this approach to dealing with emissions. Here are the top ten reasons why;

Top Ten

  1. Action on climate in some form or other is an inconvenient but unavoidable inevitability. Business and  industry doesn’t really want direct, standards based regulation. These can be difficult to deal with, offer limited flexibility for compliance and may be very costly to implement for some legacy facilities.
  2. Carbon pricing, either through taxation or cap and trade offers broad compliance flexibility and provides the option for particular facilities to avoid the need for immediate capital investment (but still comply with the requirement).
  3. Carbon pricing offers technology neutrality. Business and industry is free to choose its path forward rather than being forced down a particular route or having market share removed by decree.
  4. Pricing systems offer the government flexibility to address issues such as cross border competition and carbon leakage (e.g. tax rebates or free allocation of allowances). There is a good history around this issue in the EU, with trade exposed industries receiving a large proportion of their allocation for free.
  5. Carbon pricing is transparent and can be passed through the supply chain, either up to the resource holder or down to the end user.
  6. A well implemented carbon pricing system ensures even (economic) distribution of the mitigation burden across the economy. This is important and often forgotten. Regulatory approaches are typically opaque when it comes to the cost of implementation, such that the burden on a particular sector may be far greater than initially recognized. A carbon trading system avoids such distortions by allowing a particular sector to buy allowances instead of taking expensive (for them) mitigation actions.
  7. Carbon pricing offers the lowest cost pathway for compliance across the economy, which also minimizes the burden on industry.
  8. Carbon pricing allows the fossil fuel industry to develop carbon capture and storage, a societal “must have” over the longer term if the climate issue is going to be fully resolved. Further, as the carbon pricing system is bringing in new revenue to government (e.g. through the sale of allowances), the opportunity exists to utilize this to support the early stage development of technologies such as CCS.
  9. Carbon pricing encourages fuel switching in the power sector in particular, initially from coal to natural gas, but then to zero carbon alternatives such as wind, solar and nuclear.
  10. And the most important reason;

It’s the smart business based approach to a really tough problem and actually delivers on the environmental objective.

Two sides to every coin

As we near the middle of the year and therefore have, at least in the Northern Hemisphere (i.e. Germany), long days with lots of sunshine, renewable energy statistics start to appear in the media and the renewables distortion field enveloping much of Europe expands just that little bit more. The first of these I have come across was posted by a number of on-line media platforms and highlighted the fact that on Sunday May 11th Germany generated nearly three quarters of its electricity from renewable sources. Given the extraordinary level of solar and wind deployment in recent years, it shouldn’t be a surprise that this can happen. But it’s rather a one sided view of the story.

The flip side is of course December and January when the solar picture looks very different. The Fraunhofer Institute for Solar Energy Systems ISE use data from the EEX Platform to produce an excellent set of charts showing the variability of renewable energy, particularly solar and wind. The monthly data for solar shows what one might expect in the northern latitudes, with very high solar in summer and a significant tailing off in winter. The ratio between January and July is a factor of 15 on a monthly average basis.

Annual solar production in Germany 2013j

But wind comes to the rescue to some extent, firstly with less overall monthly variability and secondly with higher levels of generation in the winter which offsets quite a bit of the loss from solar.

Annual wind production in Germany 2013

The combination of the two provides a more stable renewable electricity supply on a monthly basis, with the overall high to low production ratio falling to about 2. One could argue from this that in order to get some gauge of the real cost of renewable energy in Germany, monthly production of 6 TWh of electricity requires about 70 GW of solar and wind (average installed capacity in 2013, roughly 50% each). By comparison, 70 GW of natural gas CCGT online for a whole month at its rated capacity would deliver 51 TWh of electricity, nearly a factor of 9 more than for the same amount of installed solar plus wind. But to be fair, some of that 70 GW of natural gas will have downtime for maintenance etc., but even with a 20% capacity loss to 40 TWh, the delivery factor is still about 7. For solar on its own it will be closer to 10 in Germany.

Annual solar + wind production in Germany 2013

But this isn’t the end of the story. Weekly and daily data shows much greater intermittency. On a weekly basis the high to low production ratio rises to about 4, but on a daily basis it shoots up to 26.

Annual solar + wind production in Germany 2013 by week

 

Annual solar + wind production in Germany 2013 by day

Fortunately, Germany has an already existing and fully functioning fossil fuel + nuclear baseload generation system installed, which can easily take up the slack as intermittency brings renewable generation to a standstill. But the cost of this is almost never included in an assessment of the cost of renewable power generation. In Germany’s case this is a legacy system and therefore it is taken for granted, but for countries now building new capacity and extending the grid to regions that previously had nothing, this is a real cost that must be considered.

This is perhaps an anti-leapfrog argument (being that regions with no grid or existing capacity can leapfrog to renewables).  The German experience shows that you can shift to renewables more easily when you already have a fully depreciated fossil & nuclear stock, and your demand is flat.  Otherwise, this is looking like a potentially costly story that relies on storage technologies we still don’t have in mainstream commercial use.

____________________________

As a complete aside, but certainly the “flip side” of another issue, I came across this chart which highlights the flip side of rising CO2 levels in the ocean and atmosphere due to the combustion of fossil fuels – falling levels of oxygen. This is a very small effect (given the amount of oxygen in the atmosphere) and certainly not an issue, but it’s entirely measurable which is the interesting bit. The chart is produced by Ralph Keeling, son of the originator of the CO2 Keeling Curve.

Falling oxygen levels

 

Revisiting Kaya

Today we see a huge focus on renewable energy and energy efficiency as solutions for reducing CO2 emissions and therefore addressing the climate issue. Yet, as I have discussed in other posts, such a strategy may not deliver the outcome people expect and might even add to the problem, particularly in the case of efficiency. I am not the only one who has said this and clearly the aforementioned strategy has been operating for some 20 years now with emissions only going one way, up.

Kaya Yoichi

A question that perhaps should be asked is “why have many arrived at this solution set?”. Focusing on efficiency and renewable energy as a solution to climate change possibly stems from the wide dissemination of the Kaya Identity, developed in 1993 by Japanese energy economist Yoichi Kaya (pictured above). He noted that:

 Kaya formula

 Or in other words:

Kaya formula (words)

Therefore, by extension over many years (where k = climate sensitivity): 

Climate Kaya formula (words)

In most analysis using the Kaya approach, the first two terms are bypassed. Population management is not a useful way to open a climate discussion, nor is any proposal to limit individual wealth or development (GDP per person). The discussion therefore rests on the back of the argument that because rising emissions are directly linked to the carbon intensity of energy (CO2/Energy) and the energy use per unit of GDP (Energy/GDP or efficiency) within the global economy, lowering these by improving energy efficiency and deploying renewable energy must be the solutions to opt for.

But the Kaya Identity is just describing the distribution of emissions throughout the economy, rather than the real economics of fossil fuel extraction and its consequent emissions. Starting with a simple mineral such as coal, it can be picked up off the ground and exchanged for money based on its energy content. The coal miner will continue to do this until the accessible resource is depleted or the amount of money offered for the coal is less than it costs to pick it up and deliver it for payment. In the case of the latter, the miner could just wait until the price rises again and continue deliveries. Alternatively, the miner could aim to become more efficient, lowering the cost of pickup and delivery and therefore continuing to operate. The fossil fuel industry has been doing this very successfully since its beginnings.

The impact on the climate is a function (f) of the total amount delivered from the resource, not how efficiently it is used, when it is used, how many wind turbines are also in use or how many people use it. This implies the following;

Climate formula (words)

This may also mean that the energy price has to get very low for the miner to stop producing the coal. Of course that is where renewable energy can play an important role, but the trend to date has been for energy system costs to rise as renewable energy is installed. A further complication arises in that once the mine is operating and all the equipment for extraction is in place, the energy price has to fall below the marginal operating cost to stop the operation. The miner may go bankrupt in the process as capital debt is not being serviced, but that still doesn’t necessarily stop the mine operating. It may just get sold off to someone who can run it and the lost capital written off.

This doesn’t have to be the end of the story though. A price on the resultant carbon emissions can tilt the balance by changing the equation;

Climate formula with carbon price (words)

When the carbon price is high enough to offset the profit from the resource extraction, then the process will stop, but not before. The miner would then need to invest in carbon capture and storage to negate the carbon costs and restart the extraction operation.

What this shows is that the carbon price is critical to the problem. Just building a climate strategy on the back of efficiency and renewable energy use may never deliver a reduction in emissions. Efficiency in particular may offer the unexpected incentive of making resource extraction cheaper, which in turn makes it all the more competitive.

 

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

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

dow-chemical-plant-promo

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

The big six plastics:

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

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

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

One of the best books I have read in recent years is the Steve Jobs biography by Walter Isaacson. It’s also a great management book, although I don’t think that it was really intended for that purpose. In discussing Jobs’ approach to life and business management, Isaacson goes to some length to describe the concept of a Reality Distortion Field (RDF), a tool used on many occasions by Jobs to inspire progress and even bet the company on a given outcome. The RDF was said to be Steve Jobs’ ability to convince himself and others to believe almost anything with a mix of charm, charisma, bravado, hyperbole, marketing, appeasement and persistence. RDF was said to distort an audience’s sense of proportion and scales of difficulties and made them believe that the task at hand was possible. This also seems to be the case with a number of renewable energy, but most notably the Solar PV, advocates.

The Talosians from Star Trek were the first aficionados of the RFD

It is always with interest that I open the periodic e-mail from fellow Australian Paul Gilding and read the latest post from him in The Cockatoo Chronicles. But this time, the full force of the Renewables Distortion Field hit me. Gilding claims that;

 I think it’s time to call it. Renewables and associated storage, transport and digital technologies are so rapidly disrupting whole industries’ business models they are pushing the fossil fuel industry towards inevitable collapse. Some of you will struggle with that statement. Most people accept the idea that fossil fuels are all powerful – that the industry controls governments and it will take many decades to force them out of our economy. Fortunately, the fossil fuel industry suffers the same delusion. In fact, probably the main benefit of the US shale gas and oil “revolution” is that it’s keeping the fossil fuel industry and it’s cheer squad distracted while renewables, electric cars and associated technologies build the momentum needed to make their takeover unstoppable – even by the most powerful industry in the world.

My immediate approach to dealing with a statement like this plays into the next paragraph by Gilding, where he says;

How could they miss something so profound? One thing I’ve learnt from decades inside boardrooms, is that, by and large, oil, coal and gas companies live in an analytical bubble, deluded about their immortality and firm in their beliefs that “renewables are decades away from competing” and “we are so cheap and dominant the economy depends on us” and “change will come, but not on my watch”. Dream on boys.

But the energy system is about numbers and analysis, like it or not. Perhaps Gilding needs to at least look in his own back yard before reaching out for global distortion. In a number of posts over the last year or two he was waxed lyrical about the disruption in Australia and consequent shift in its energy mix. Yet the latest International Energy Agency data on Australia shows that fossil fuel use is continuing to rise even as residential solar PV is becoming a domestic “must have”. There is no escaping these numbers!

Australia primary energy to 2012

It is true that solar PV is starting to have an impact on the global energy mix and that at least in some countries the electricity utilities are playing catch-up. But the global shift will likely take decades, even at extraordinary rates of deployment by historical standards. The Shell Oceans scenario portrays such a shift, with solar deployment over the next 20 years bringing it to the level of the global coal industry in 1990 and then in the 30 years from 2030 to 2060 the rate of expansion far exceeds the rate of coal growth we have seen from 1990-2020 (see chart).

Solar growth in Oceans

I would argue that this is a disruptive change, but it still takes all of this century to profoundly impact the energy mix. Even then, there remains a sizable oil, gas and coal industry, although not on the scale of today. Of course this is but one scenario for the course of the global energy system, but it at least aligns in concept with the aspirations of Paul Gilding. I don’t imagine he would be particularly impressed by our Mountains scenario!!

 Solar in Oceans

Many will of course argue that the proof of the RDF is in the Apple share price and its phenomenal success. But this didn’t come immediately. Apple and Jobs had more ups and downs than even the most ardent follower would wish for, with the company teetering on the brink more than once (read the Isaacson account). But it persisted and nearly forty years on it is a global behemoth. However, forty years isn’t exactly overnight and IT change seems to take place at about twice the rate of energy system change. Does that mean new energy companies won’t become global super-majors until much later this century?

 

Is the UNFCCC ADP on track?

This week (March 10th-14th) in Bonn, parties to the UNFCCC are meeting under the direction of the Fourth Part of the Second Session of the Ad Hoc Working Group on the Durban Platform for Enhanced Action (ADP 2.4). In short, this is the process that is trying to deliver a global deal on climate change over the next 20 months when the world comes together at COP 21 in Paris. The last attempt at such a monumental feat ended in tears in Copenhagen in December 2009.

One might imagine that a process with only a few months to reach a solution on a major global commons issue would be deeply imbedded in the economics of Pigouvian pricing, or at least attempting to see how the global economy could be adjusted to account for this particular externality. However, as we know from the Warsaw COP and previous such meetings that this isn’t the case, rather it is an effort just to get nation states to recognize that a common approach is actually needed.

The pathway being plied in Warsaw resulted in the text on “contributions”, which at least attempts to create a common definition and set of validation rules for whatever it is that nation states offer as climate action from within their own economies. More recently the USA set out its views on the nature of “contributions”. This process is at least trying to get everyone in a common club of some description, rather than having several clubs as has been the case since 1992 when the UNFCCC was created. The diplomatic challenge for Paris will be to find the most constraining club which everyone is still willing to be a member of and then close the doors. Once inside, the club rules can be continually renegotiated until some sort of outcome is realized which actually deals with emissions. This ongoing renegotiation will be for the years after Paris, it won’t happen beforehand or even during COP 21.

But ADP 2.4 in Bonn seems to have gone off-piste. Looking through the Overview Schedule, what can be seen is a series of meetings on renewable energy and energy efficiency. While this may be an attempt to highlight particular national actions as a template for others to follow, it is nevertheless symptomatic of a process that isn’t really dealing with the problem it is mandated to solve; limiting the rise in the level of CO2 in the atmosphere.

At best, the ADP has become a derivative process, or perhaps even a second derivative process. Rather than confronting the issue, it is instead dealing with tangents. Holding sessions on renewable energy is a good example of this behaviour. The climate issue is about the release to atmosphere of fossil carbon and bio-fixed carbon on a cumulative basis over time, with the total amount released being the determining factor in terms of peak warming (i.e. the 2°C goal). The first derivative of this is the rate of release, which is determined by total global energy demand and the carbon intensity of the energy mix. The second derivative is probably best described as the rate of change of the carbon intensity of the global energy mix, although this can be something of a red herring in that the global energy mix can appear to decarbonize even as emissions continue to rise, simply because demand change outpaces intensity change.

Energy efficiency is perhaps yet another derivative away from the problem. It deals with the rate of change of energy use, but this has further underlying components, one being the rate of change of energy use in things such as appliances and the other the rate of change of the appliances themselves. Efficiency isn’t good at dealing with the immediate rate of energy use in that this tends to be dictated by the existing stock of devices and infrastructure, whereas efficiency tackles the change over time for new stock. That new stock then has to both permeate the market and also displace the older stock.

Focussing on renewable energy deployment and efficiency is a useful and cost effective energy strategy for many countries, but as a global strategy for tacking cumulative carbon emissions it falls far short of what is necessary. Yet this is where the UNFCCC ADP 2.4 has landed. It also seems to be difficult to challenge this, as illustrated by one Tweet that emanated from a Bonn meeting room!!

 Twitter: 10/03/2014 16:47

shameful: US sells concept of “clean energy” (including gas, CCS) at renewable workshop. what hypocrisy / hijacking of process. #ADP2014

 

A flawed prediction?

One of the comments I quite often get at external events is that “The oil and gas industry has only got 20 years”. This doesn’t just come from enthusiastic climate campaigners, but from thoughtful, very well educated people in a number of disciplines related to the climate issue. A report by WWF a few years back took a similar but slightly less aggressive line, through the publication of an energy model forecast which showed that the world could be effectively fossil energy free as early as 2050.

It’s hard for anyone who has worked in this industry to imagine scenarios which see it vanish in a couple of decades, not because of the vested interest that we certainly have, but because of the vast scale, complexity and financial base of the industry itself. It has been built up over a period of 120+ years at a cost in the trillions (in today’s dollars), provides over 80% of primary energy globally, with that demand nearly doubling since 1980 and market share hardly budging. Demand may well double again by the second half of the century.

So why do people think that all this can be replaced in a relatively short space of time? A recent media story provides some insight.

As if often the case with the turn of the year, media outlets like to publish predictions. Once such set that appeared on CNN were by futurist Ray Kurzweil. He is described by CNN as:

. . . . one of the world’s leading inventors, thinkers, and futurists, with a 30-year track record of accurate predictions. Called “the restless genius” by The Wall Street Journal and “the ultimate thinking machine” by Forbes magazine, Kurzweil was selected as one of the top entrepreneurs by Inc. magazine, which described him as the “rightful heir to Thomas Edison.” Ray has written five national best-selling books. He is Director of Engineering at Google.

Kurzweil claims that:

By 2030 solar energy will have the capacity to meet all of our energy needs. If we could capture one part in ten thousand of the sunlight that falls on the Earth we could meet 100% of our energy needs, using this renewable and environmentally friendly source. As we apply new molecular scale technologies to solar panels, the cost per watt is coming down rapidly. Already Deutsche Bank, in a recent report, wrote “The cost of unsubsidized solar power is about the same as the cost of electricity from the grid in India and Italy. By 2014 even more countries will achieve solar ‘grid parity.’” The total number of watts of electricity produced by solar energy is growing exponentially, doubling every two years. It is now less than seven doublings from 100%.

That gives us just 14 years! But maybe not.

Kurzweil has compared the growth of the energy system to the way in which biological systems can grow. With huge amounts of food available, a biological system can continue to double in size on a regular time interval, but the end result is that it will either exhaust the food supply or completely consume its host (also exhausting the food supply), with both outcomes leading to collapse. Economic systems sometimes do this as well, but collapse is almost certain and there have been some spectacular examples over the last few centuries.

The more controlled pathway is one that may well see a burst of growth to establish a presence, followed by a much more regulated expansion limited by resources, finance, intervention, competition and a variety of other real world pressures. This is how energy systems tend to behave – they don’t continue to grow exponentially. Historically there are many examples of rapid early expansion, at least to the point of materiality (typically ~1% of global primary energy), followed by a long period of growth to some level which represents the economic potential of the energy source. Even the first rapid phase takes a generation, with the longer growth phase stretching out over decades.

Energy Deployment Laws

The chart above was developed by energy modelers in the Shell Scenario team, with their findings published in Nature back in 2009. The application of this type of rule gives a more realistic picture of how solar energy might grow, still very quickly, but not to meet 100% of global energy demand in just 14 years. The “Oceans” scenario, published last year as part of the Shell New Lens Scenarios, shows solar potentially dominating the global energy system by 2100, but at ~40% of primary energy (see below), not 100%. A second reality is that a single homogeneous system with everybody using the same technology for everything is unlikely – at least within this century. The existing legacy is just too big, with many parts of it having a good 50+ years of life ahead and more being built every day.

Solar in Oceans-2

The EU ETS isn’t out of trouble just yet

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On January 22nd the EU Commission launched its White Paper which lays out the major components of its energy and climate policy through to 2030. This is the first major step in what could well be a lengthy debate and parliamentary process before a new package of measures is finally agreed. The Commission has proposed a 40% EU wide greenhouse gas reduction target for the year 2030, an EU wide target of 27% renewable energy by the same year and a supply side mechanism to adjust the overall number of allowances in circulation within the EU ETS.

The latter component is clear recognition by the Commission that the ETS has been awash in allowances for some time now and with a price of just a few Euros is doing nothing to drive emissions management across the EU. There are multiple reasons for the situation the ETS currently finds itself in, but one major contributor has been overall energy policy design in the EU. This has imposed renewable energy targets to the extent that further emission reductions under the ETS are not required once the former have been met. Hence the near zero CO2 price. There are two parts to this particular story – the first is the overall level of the renewable energy target and the second is the reality that transport (oil) and commercial / residential (natural gas) sectors hardly contribute to this, so it forces a much higher renewable energy penetration in the power sector, which is under the ETS.

But with a 2030 reduction target of 40% and a new renewable energy goal of 27%, is the problem now remedied?

This of course depends on how the renewable energy target is met. Importantly, it will not be imposed on Member States as it was in the period to 2020, but is only binding at EU level. This could mean that the Commission expects to be at 27% renewables based on the impact of policies such as the ETS, rather than requiring that Member States guarantee a certain level of renewable energy use and therefore effectively forcing them to enact policies to deliver such goals. But many Member States are likely to continue their support of renewable energy and may force it into the overall energy mix right through to 2030.

The worst case outcome for the ETS would be one that sees the whole 27% renewable energy goal met with explicit policies at Member State level. The chart below shows this – note that this is a simple model of the EU for illustrative purposes. Assume that at the end of 2012 EU power generation and industry sector emissions are at 2000 million tonnes CO2. By 2020, with a 1.74% annual reduction under the ETS, they need to be at ~1730 million tonnes. But with renewable energy being forced into the power generation system (although not quite reaching the 20% across the EU) and the EU easily meeting its overall 20% CO2 goal, sector emissions are below the ETS cap, which implies nothing else need be done, hence the low CO2 price. Projecting this out to 2030 with the proposed 2.2% annual reduction and meeting the 27% renewable energy goal across the EU energy system, shows that sector emissions are only slightly above the cap (about 50 million tonnes), which again implies a low to modest CO2 price. Assume further that a CCS programme is actually running and delivering 50 mtpa storage (through direct incentives) and no further action is required – so a zero CO2 price once again! The model also assumes about 30% growth in electricity generation from 2012 to 2030.

 EU ETS RET impact to 2030

This very simple model doesn’t account for the large allowance surplus that exists in 2012 (> 1 billion allowances), which would therefore be unlikely to vanish through normal growth in electricity demand, industrial production and so on. This makes it imperative that the EU also implements the supply side mechanism within the ETS, which would then remove much of the surplus through the early 2020s. Ideally, implementation of this should be immediate and also with immediate effect, rather than waiting until post 2020.

Should Member States not implement specific renewable energy policies and the supply side mechanism is active and functioning, we might just have an ETS that actually drives change in the large emitters sector, but there are two big “ifs” here. Otherwise, expect continued price weakness and probably a higher overall cost of energy as a result.