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

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

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

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

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

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

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

The past few weeks, highlighted by the Business & Climate Summit in Paris and Carbon Expo in Barcelona, has seen many CEOs, senior political figures and institutional leaders call for increased use of carbon pricing. This is certainly the right thing to be saying, but it begs the question, “What next?”. Many countries are already considering or in the process of implementing a carbon pricing system, but still the call rings out. While uptake of carbon pricing at national level certainly needs to accelerate, one critical piece that is missing is some form of global commonality of approach, at least to the extent that prices begin to converge along national lines.

On Monday June 1st six oil and gas companies come together and effectively called for such a step in a letter from their CEOs to Christiana Figueres, Executive Secretary of the UNFCCC and Laurent Fabius, Foreign Minister of France and President of COP 21. Rather than simply echo the call for carbon pricing, the CEOs went a step further and specifically asked;

Therefore, we call on governments, including at the UNFCCC negotiations in Paris and beyond – to:

  • introduce carbon pricing systems where they do not yet exist at the national or regional levels
  • create an international framework that could eventually connect national systems.

To support progress towards these outcomes, our companies would like to open direct dialogue with the UN and willing governments.

The request is very clear – this isn’t just a call for more, but a call to sit down and work on implementation. The CEOs noted that their companies were already members of, amongst other bodies, the International Emissions Trading Association (IETA). IETA has been working on connection of (linking) national systems for well over a year (although the history of this effort dates back to the days of the UNFCCC Long Term Cooperative Action – LCA – workstream under the Bali Roadmap) and I am co-chair, along with Jonathan Grant of PWC, of the team that is leading this effort.

Late last year IETA published a strawman proposal for the Paris COP, suggesting some text to set in place a longer term initiative to develop an international linking arrangement. I spoke about this at length to RTCC at Carbon Expo in Barcelona.

DCH Interview

The strawman is what it implies, an idea. It could be built on to develop a placemarker in the Paris agreement to ensure that the framework mentioned by the six CEOs actually gets implemented in the follow-up from Paris – as the CDM was implemented in the follow-up from Kyoto.

From my perspective, this week wasn’t just about carbon pricing, but also about climate science. On the same day that the FT published its story on the letter from the oil and gas industry CEOs, The Guardian chose to run a front page story implying that I had tried to detrimentally influence (apparently being a former oil trader!!) the content of the London Science Museum’s Atmosphere Gallery, a display on climate science that Shell agreed to sponsor some years ago. The reporter had based his story on exchanges between Shell and the Science Museum staff when the gallery was looking to do a recent refresh.

I did engage in such a discussion and I did make some suggestions as to content which I thought was new and interesting since the Atmosphere Gallery was first established. Unfortunately The Guardian wasn’t able to publish my proposals as they were put forward during a meeting between me and two staff members from The Science Museum, so to complete the story I will publish them here. Although this particular piece of science dates back to a 2009 Nature article by Oxford University’s Professor Myles Allen and his team, it didn’t feature in the Gallery when it was first put together (the Advisory Panel met during 2009 as part of the design phase of the Gallery). But today, it is the foundation work behind the concept of a global carbon budget which has become a mainstream topic of discussion. My angle on this was to illustrate the importance of carbon capture and storage in the context of this science, but with an emphasis on the science itself. My discussion with The Science Museum staff members took place on 23rd June 2014 and I asked them to consider the following for the refresh of the gallery:

1. As background, three papers that have come from Oxford University:

  • Warming caused by cumulative carbon emissions towards the trillionth tonne

Myles R. Allen, David J. Frame, Chris Huntingford, Chris D. Jones, Jason A. Lowe, Malte Meinshausen & Nicolai Meinshausen

  • Greenhouse-gas emission targets for limiting global warming to 2°C

Malte Meinshausen, Nicolai Meinshausen, William Hare, Sarah C. B. Raper, Katja Frieler, Reto Knutti, David J. Frame & Myles R. Allen

  • The case for mandatory sequestration

Myles R. Allen, David J. Frame and Charles F. Mason

2. Consider using (or adapting) a trillion tonne video made by Shell where Myles Allen talks about CCS in the context of the cumulative emissions issue:

3. Consider putting the Oxford University fossil carbon emissions counter in the Atmosphere Gallery as this would help people understand the vast scale of the current energy system and the rate at which we are collectively approaching the 2°C threshold;

Trillionth Tonne

4. Reference the Trillion Tonne Communique from Cambridge:

5. Offer the use of the Shell “CCS Lift” (an audio-visual CCS experience) to help explain this technology to the gallery visitors.

My pitch to The Science Museum was that this approach offered a real opportunity to feature the Science Museum and the Atmosphere Gallery in the very public discussion on carbon budgets, get some good media attention in the run-up to Paris 2015 (e.g. through the very visible counter), tell the CCS story in context (the Myles Allen video and the CCS audio-visual display) and raise awareness of the cumulative nature of the problem (i.e. the science). In the end they decided not to use this material, but I stand by the proposal.

The last days of March have seen the start of submissions of Intended Nationally Determined Contributions (INDCs) to the UNFCCC. The United States, Switzerland, European Union, Mexico and Russia have all met the requested deadline of the end of Q1 2015. As is expected and entirely in line with the UNFCC request, the INDCs focus on national emissions. After all, this is the way emissions management has always been handled and reported and there is no sign of anything changing in the future.

As was to be expected, the United States submitted an INDC that indicated a 26-28% reduction in national emissions by 2025 relative to a baseline of 2005. This is an ambitious pledge, and highlights the changes underway in the US economy as it shifts towards more gas, backs out domestic use of coal, improves efficiency and installs renewable generation capacity. So far the USA national inventory indicates that the 2020 target is being progressively delivered, although it will be interesting to see whether this trend changes as a result of the sharp reduction in oil prices and a couple of summer driving seasons on the back of that.

US 2020 and 2030 Reduction Target

My own analysis in 2011 (see below) was that the USA would come close to its 2020 goal, but may struggle to meet it. The different overall level of emissions in the charts is the result of including various sources (e.g. agriculture) and gases, or not.

US 2020 Goal with 2010 data

Direct emissions represent just one view of US emissions. Some would argue that the national inventory should also include embedded emissions within imported products, but this introduces considerable complexity into the estimation.

Another representation of US emissions which is perhaps more relevant to the climate issue is the actual extraction of fossil carbon from US territory. As the climate issue follows a stock model, the development of global fossil resources and subsequent use over the ensuing years is a measure that is closer to the reality of the problem. The larger the resource base that is developed globally, the higher the eventual concentration of carbon dioxide that the atmosphere is likely to reach. This is because the long-term accumulation will tend towards the full release of developed fossil fuel reserves simply because the infrastructure exists to extract them and as such they will more than likely get used somewhere or at some time. This isn’t universally true, as the closure of some uneconomic coal mines in the USA is showing; or are they simply being mothballed?

A look at US carbon commitment to the atmosphere from a production standpoint reveals a different emissions picture. Rather than seeing a drop in US emissions since 2005, the upward trend that has persisted for decades (albeit it a slower rate since the late 1960s) is continuing.

US emissions based on extraction

In the case of measured direct emissions, reduced coal use is driving down emissions. But for the extraction case, additional coal is now being exported and the modest drop in coal production is being more than countered by increasing oil and gas production. Total carbon extraction is rising.

While there is no likelihood that national emission inventories will start being assessed on such a basis, it does nevertheless throw a different light onto the picture. In a recent visit to Norway it was interesting to hear about national plans to head rapidly towards net-zero emissions, but for the country to maintain its status as an oil and gas exporter. This would be something of a contradiction if Norway was not such a strong advocate for the development of carbon capture and storage, a strategy which will hopefully encourage others to use this technology in the future.

The first fridge in town

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The recent visit by President Obama to India and the resulting discussions on climate change between the President and Indian Prime Minister Narendra Modi have once again thrown the spotlight on India’s development pathway and its energy needs.

There were countless articles about the climate change discussions they had, but one story published by the BBC was particularly relevant and poignant. It was about Santosh Chowdhury, a gentleman who lives in the village of Rameshwarpur, on the eastern side of the country. He had just bought a fridge, which may seem uninteresting, but it was the first fridge in his village. There is one thing about refrigeration that is different to almost any other domestic energy consuming device, it requires fairly reliable 24/7 electricity. That means Mr Chowdhury, like many in his town who may now follow him, needs a grid connection and that grid has to be sending electrons his way all the time.

First fridge

This is the start of a long industrial chain that needs a modern energy system to support it. The fridge needs electricity on a 24/7 basis, which excludes the immediate application of renewable energy as the primary provider. Some sort of back-up or energy storage mechanism will be required. In India, given cost considerations, the baseload electricity will likely be generated with coal although it is clear that India are also looking towards nuclear. Solar energy will augment this and at certain times may provide for all Mr Chowdhury’s needs, but unless the town spends considerably more money and installs a more complex grid system with battery capacity, the dependency on coal will continue, at least in the medium term.

But the story doesn’t end there, given that electricity provides only about 20% of final energy needs globally and in India this falls to 15%. The lack of fridges in Rameshwarpur reflects the situation across the whole of India. The BBC article notes that only one in four of the country’s homes has one. That compares to an average of 99% of households in developed countries. In 2004, 24% of households in China owned a fridge. Ten years later this had shot up to 88%. India has about 250 million households, which approximates to 60 million fridges. By 2030 as population rises, people per household decline and fridge ownership approaches Chinese levels, India might have 400 million fridges.

So Mr Chowdhury’s purchase and others following, will mean that India needs to produce more fridges – lots more. In 2000 China was producing 13 million refrigerators per annum, but by 2010 this had jumped to 73 million. This means India needs more refrigerator factories and chemical plants to make the refrigerant. The refrigerators might be made of steel and aluminium which means mining or the import of ores, refining, smelting, casting, stamping and transport. All of these need coal, gas and oil. Coal in particular is needed for smelting iron ore as it acts as the reducing agent, producing carbon dioxide in the process. The intense heat required in the processes is most easily and economically provided by coal or gas, although given time electricity will doubtless make its way into these processes.

Oil will be needed as a transport fuel to ship all these materials from mines to refineries to manufacturing plants to distribution depots, then wholesalers, shops and finally Mr Chowdhury’s home. Although electricity is starting to appear in the transport sector for lighter vehicles, with the exception of railways it isn’t the energy provider yet for heavy transport. In India, rail transport is extensive and electrification is making good progress, but there is still much to be done.

With a refrigerator in the house, the BBC reports that family life for Mr Chowdhury will change. It will be easier, so his productivity in other areas may well rise. This could translate to more income, further purchases and perhaps the first opportunity for air travel in the years to come. That will certainly be powered by Jet A1.

There is no doubt that India is industrialising rapidly and Prime Minister Modi should be commended for his ambitious goal of 100 GW of solar capacity by 2020 and speeding up the nuclear programme, but this won’t stop carbon dioxide emissions from rising sharply in the near term; it is more a question of how high they rise and the more immediate actions that can be taken. I am reminded again of a tender call for 8GW of coal fired capacity in India that appeared in the Economist a while back. This is just one project of many.

India coal

Coming back to the discussions between Mr Obama and Mr Modi, it is clear to me that India faces a huge challenge, which should also be recognised as a global challenge to help them and others make a different set of energy choices. The start with solar is important but it may not be enough to keep coal emissions down in the medium term. So here are three suggestions from me to take India forward;

  1. Develop low cost village scale energy storage to support solar. This could also position India as a key supplier to Africa in the decades to come.
  2. In the short term,  favour natural gas over coal for electricity generation. This would make a real difference to power sector emissions and would help India bypass the severe air quality issues now being faced in China. It would also avoid the cost of retro fits later on.
  3. For the longer term, particularly for industry but also power generation, the real game changer could be carbon capture and storage. This is where more international focus is needed, especially in the development of funding mechanisms to support its deployment in developing countries.

The global energy system works on timescales of decades rather years. When considering the changes required in managing the climate issue, the short to medium term takes us to 2050 and the long term is 2100! As such, drawing long term conclusions based on a 2050 outlook raises validity issues.

A new Letter published in Nature (and reported on here) discusses the long term use of fossil fuels, further exploring the notion that certain reserves of oil, gas and coal should not be extracted and used due to concerns about rising levels of CO2 in the atmosphere. But the analysis only looks to 2050 in its attempt to quantify which reserves might be more penalised than others, assuming we are in a world that is actually delivering on the goal of limiting warming to 2°C. The authors drew on available data to establish global reserves at 1,294 billion barrels of oil, 192 trillion cubic metres of gas, 728 Gt of hard coal and 276 Gt of lignite. These reserves would result in ~2,900 Gt of CO2 if combusted unabated, with approximately two thirds of this coming from the hard coal alone.

The Letter draws on the original work of Malte Meinshausen, Myles R. Allen et. al. which determined that peak CO2 induced warming was largely linked to the cumulative release of fossil carbon to the atmosphere over time, rather than emission levels at any particular point in time. They determined that surpassing the 2°C global goal could be quantified as equivalent to the release of more than 1 trillion tonnes of carbon (3.7 trillion tonnes CO2), with their timeframe being 1750 (i.e. the start of the modern use of coal) to some distant point in the future, in their case 2500. Precisely when CO2 is released within this timeframe is largely irrelevant to the outcome, but very relevant to the problem in that the continued release of carbon over time, even at much lower levels than today, eventually leads to an accumulation with the same 2°C or higher outcome (the slow running tap into the bathtub problem). Hence, the original work gives rise to the sobering conclusion that net-zero emissions must be a long term societal goal, irrespective of whether the whole issue can be limited to 2°C. “Net-zero” language has now appeared as an optional paragraph in early drafting text for the anticipated global climate deal currently under negotiation.

As a point of reference, the associated Trillionth Tonne website shows the cumulative release to date (January 2015) as 587 billion tonnes of carbon, which leaves 413 billion tonnes (~1.5 trillion tonnes CO2) if the 2°C is not to be breached (on the basis of their midrange climate sensitivity). The chart below is extracted from the original Meinshausen / Allen paper and illustrates the relationship, together with the inherent uncertainty from various climate models.

Peak warming vs cumulative carbon
Further work was done on this by Meinshausen et. al. They attempted to quantify what the results mean in terms of shorter term greenhouse gas emission targets, which after all is what the UNFCCC negotiators might be interested in. While the overarching trillion tonne relationship remains, it was found;

. . . .that a range of 2,050–2,100 Gt CO2 emissions from year 2000 onwards cause a most likely CO2-induced warming of 2°C: in the idealized scenarios they consider that meet this criterion, between 1,550 and 1,950 Gt CO2 are emitted over the years 2000 to 2049.

This focus on a cumulative emissions limit for the period from 2000 to 2049 (which is arguably a period of interest for negotiators) has been picked up by the most recent Letter and it is the starting point for the analysis they present, although slightly refined to 2011 to 2050. The Letter has concluded that;

It has been estimated that to have at least a 50 per cent chance of keeping warming below 2°C throughout the twenty-first century, the cumulative carbon emissions between 2011 and 2050 need to be limited to around 1,100 gigatonnes of carbon dioxide (Gt CO2). However, the greenhouse gas emissions contained in present estimates of global fossil fuel reserves are around three times higher than this and so the unabated use of all current fossil fuel reserves is incompatible with a warming limit of 2°C. . . . . Our results suggest that, globally, a third of oil reserves, half of gas reserves and over 80 per cent of current coal reserves should remain unused from 2010 to 2050 in order to meet the target of 2°C.

Further to this, the Letter also deals with the application of carbon capture and storage (CCS) for mitigation and finds that;

Because of the expense of CCS, its relatively late date of introduction (2025), and the assumed maximum rate at which it can be built, CCS has a relatively modest effect on the overall levels of fossil fuel that can be produced before 2050 in a 2°C scenario.

The choice of 2050 is somewhat arbitrary, in that while it may be important for the negotiating process, it is largely irrelevant for the atmosphere. But running a line through the middle of the century and drawing long term conclusions on that basis does change the nature of the issue and potentially leads to high level findings that are linked to the selection of the line, rather than the science itself. Most notable of these is the finding regarding the use of oil, coal, and gas reserves up to 2050 rather than their use over the century as a whole.

The study notes that current global reserves of coal, oil and gas equate to the release of nearly 3 trillion tonnes of CO2 when used and based on this draws the conclusion that two thirds of this cannot be consumed if a global budget were in place that limits emissions to 1.1 trillion tonnes of CO2 for the period 2011 to 2050. The problem here is that the current reserves are unlikely to be consumed before 2050 anyway. The Shell New lens Scenarios contrast a high natural gas future with a high renewable energy future, but in both cases the unabated CO2 (i.e. before the application of CCS) released from energy use over the period 2011-2050 is about 1.6 trillion tonnes. Using this as a baseline reference point for the period to 2050 rather than total global reserves, would then lead to a different conclusion and a much lower fraction that cannot be used. In the case of the Shell Mountains scenario which has both lower unabated CO2 (high natural gas use) and high CCS deployment, the net release of CO2 from energy use over the period 2011-2050 is about 1.5 trillion tonnes. Of course we should add the other sources of CO2 (i.e. cement and land use change) to this for a complete analysis and also recognise that neither of the New Lens scenarios can resolve the climate issue within the 2°C goal (discussed in an earlier post here), but both are close to net-zero emissions by the end of the century.

Looking out to the end of the century also changes the findings with regards the application of CCS. Any energy technology, be it solar PV or CCS, will take several decades to reach a scale where it substantively impacts the energy system. During that build up period, its impact will therefore be modest and this is the observation made in the Nature Letter. But by 2050 CCS deployment could be substantial and in the Mountains scenario CCS reaches its peak by the end of the 2050s decade. Therefore, it is the use of CCS after 2050 that really impacts the total use of fossil fuels this century. From 2050 to 2100 net fossil fuel emissions in Mountains are ~560 billion tonnes CO2, far less than the period 2011-2050 and similar in scale to a post 2050 “budget” that would be remaining in a world that limited itself to 1 trillion tonnes CO2 over the period 2011-2050 (i.e. for a total of 1.5 trillion tonnes as noted above).

With such CCS infrastructure in place and given the size of the remaining ultimately recoverable resources (which the Letter puts at ~4,000 Gt for coal alone), fossil fuel use could continue into the 22nd Century hardly impacting the level of CO2 in the atmosphere, assuming it remains competitive with the alternatives available at that time. CCS in combination with biomass use, also offers the future possibility of drawdown on atmospheric CO2.

The big challenge is the near term, when fossil fuel use is meeting the majority of energy demand, alternatives are not in place to fill the gap and CCS is not sufficiently at scale to make a truly material difference. Of course if CCS scale up doesn’t start soon, then the long term becomes the near term and the problem just gets worse.

A sense of scale for 2015

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The year 2014 saw this blog grow to become an e-book, which looked at the huge challenge of limiting warming to a global 2 °C temperature rise. The book is available on Amazon, here (or in the USA, here).

As we head into 2015, the opening chapter of the book perhaps provides a useful backdrop to the UNFCCC deliberations to come in the lead up to Paris. In this excerpt, I discussed the enormous scale of the global energy system;

. . . . not everyone has the opportunity to witness large-scale energy production first hand, so perhaps a few examples will help. In the hour or two that you might spend with this book, a lot will happen in the world. It’s become a very busy place powered by a lot of energy. Just to keep up with current energy demand, the next two hours will see;

  • Four VLCCs (Very Large Crude Carrier) of oil loaded somewhere in the world. That’s more than enough oil to fill the Empire State Building.
  • About two million tonnes of coal extracted. Much of this moves by rail, but if it were a single train it would be about 200 miles long.
  • 800 million cubic metres of natural gas produced, which under normal atmospheric conditions would cover the area enclosed by London’s M25 to a depth of about a foot; i.e. after half a day everyone in London would be breathing natural gas.
  • 8-10 cubic kilometres of water passing through hydroelectricity stations, or enough water to more than fill Loch Ness.

Our immediate contact with this is the fuel for our cars, the electricity that lights our homes and powers our stuff and the oil or natural gas we use in our boilers. But there is more, much more. This includes the unappealing, somewhat messy but nevertheless essential chemical plants where products such as sulphuric acid, ammonia, caustic soda and chlorine are made (to name but a few). Combined, about half a billion tonnes of these four products are produced annually. Produced by energy intensive processes operating on an industrial scale, but concealed from daily life, these four products play a part in the manufacture of almost everything we use, buy, wear, eat and do. These core base chemicals rely on various feed stocks. Sulphuric acid, for example, is made from the sulphur found in oil and gas and removed during refining and treatment processes. Although there are other viable sources of sulphur, they have long been abandoned for economic reasons.

Then there is the stuff we make and buy. The ubiquitous mobile phone and the much talked about solar PV cell are just the tip of a vast energy consuming industrial system that relies on base chemicals such as chlorine, but also  materials such as steel, aluminium, nickel, chromium, glass and plastics from which the products are made. The production of these materials alone exceeds 2 billion tonnes annually. All of this is made in facilities with concrete foundations, using some of the 3 to 4 billion tonnes of cement that is produced annually.

The global industry for plastics is also rooted in the oil and gas industry. The big six plastics* all start their lives in refineries as base chemicals extracted from crude oil.

All of these processes are energy intensive, requiring gigawatt scale electricity generation, high temperature furnaces and large quantities of high pressure steam to drive big conversion reactors. The raw materials for much of this come from remote mines, another hidden key to modern life. These, in turn, are powered by utility scale facilities, huge draglines for digging and 3 kilometre long trains for moving the extracted ores. An iron ore train in Australia might be made up of 300 to 400 rail cars, moving up to 50,000 tonnes of iron ore, utilising six to eight locomotives. These locomotives 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.

This is just the beginning of the energy and industrial world we live in and largely powered by utility companies 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 that feeds 7 billion people, uses huge amounts of energy and requires its own set of petrochemical derived fertilizers and pesticides.  The advent of technologies such as 3D Printing may shift some manufacturing to small local facilities, but even the material poured into the tanks feeding that 3D machine will probably rely on sulphuric acid somewhere in the production chain.

On that note, happy New Year and enjoy the complete book. Hopefully more will follow in 2015.

* These are, polyethylene (PE), polypropylene (PP), polyvinyl chloride (PVC), polystyrene solid (PS), polyethylene terephthalate (PET) and polyurethane (PUR)

Putting the Genie Back

Comparing apples with oranges

The Climate Group has posted an interesting story on its website and has been tweeting a key graph from the piece of work (below) with the attached text saying “From 2000 to 2012, wind and solar energy increased respectively 16-fold and 49-fold”.

Climate Group Image

The story is headed “Wind and Solar Power is Catching up with Nuclear” and argues correctly that the global installed capacity of these two new sources of electricity are catching up with nuclear. Although the article concludes with the sobering reality that actual generation from wind and solar are still just a fraction of that from nuclear, the headline and certainly the tweets are somewhat misleading.

Both wind and solar have very low on-stream factors, something like 30% and 20% respectively in the USA, whereas nuclear is close to 90%. This means that although 1 GW of solar can deliver up to 1 GW of output, this is highly intermittent, needs considerable backup and results in an average output of only 200 MW (with a low of zero half the time). By contrast a 1 GW nuclear power station is on stream most of the time and delivers about 1 GW 24/7 throughout the year. Therefore, comparing solar or wind capacity with nuclear capacity gives little insight into the actual energy being generated, which is really the point of any comparison in the first instance. The global generating picture actually looks like this (Source: BP Statistical Review of World Energy 2014);

Generation by source

Wind, but particularly solar generation are still only a fraction of nuclear generation, even with the global nuclear turndown following Fukushima. Interestingly, both wind and solar are only rising at about the same rate that nuclear did in the 1960s and 1970s, so we might expect another 30+ years before they reach the level that nuclear is at today, at least in terms of actual generation.

The comparison of capacity rather than generation has become a staple of the renewable energy industry. Both coal and nuclear provide base load electricity and have very high on-stream factors. Depending on the national circumstances, natural gas may be base load and therefore also have a high on-stream factor, but in the USA it has been closer to 50% as it is quite often used intermittently to match the variability of renewables and the peaks in demand from customers (e.g. early evenings when people come home from work and cook dinner). This is because of the ease with which natural gas generation can be dispatched into or removed from the grid. However, natural gas is also becoming baseload in some parts of the USA given the price of gas and the closure of older coal plants.

Capacity comparisons look great in that they can make it appear that vast amounts of renewable energy is entering the energy mix when in fact that is not the case, at least not to the extent implied. Renewable energy will undoubtedly have its day, but like nuclear and even fossil fuels before it, a generation or two will likely have to pass before we can note its significant impact and possibly even its eventual dominance in the power sector.

Double talk or straight talk

With the UN Climate Summit on Tuesday September 23rd, there has been a push to have new thinking and material ready for the event. One high profile release on September 16th was the report from The Global Commission on the Economy and Climate, or Better Growth, Better Climate, The New Climate Economy Report. This was the culmination of months of work by a select group of academics, business people and economists aimed at showing how both economic growth and the need to address rising levels of carbon dioxide in the atmosphere were compatible, if not synergistic. Oddly though, the Commission doesn’t feature any leaders or well-known figures from the energy world.

New Climate Economy Report Cover

The report is solid in its findings, to a point. Although the clear need for a strong, predictable carbon price is mentioned a number of times, there is little follow-up on this in the synthesis report and no usable recommendations or even direction on the development of mechanisms, trading systems or tax policy. Rather the report devotes most of its space to urban development, land use, renewable energy trends and financing of low carbon energy. Even cloud computing and modular building techniques get a mention as examples of step changes in efficiency. There is no doubting that these are important innovations, but the ability to put up a building in China in just 15 days using modular construction is more like putting development on steroids, than addressing greenhouse gas emissions. Faster construction, even with recycled materials (as was the example given), means more urbanization, more electricity use, more roads, cars, transport networks and the like, all to support the new city residents being housed at an accelerated rate.

Development and growth are clearly the themes of this report, but is there enough in there to also tackle the issue of carbon dioxide emissions? Coal is chastised any number of times, but it remains the fuel of choice for newly emerging economies to take their first steps towards industrialization. While carbon pricing gets a nod, but not much else, carbon capture and storage barely rates a mention. Yet this is arguably the game changer for fossil fuels, particularly coal. Oddly the report refers to CCS as a game changer, but doesn’t elaborate. Nevertheless, the report has been eagerly anticipated and as such qualifies as another important piece of the puzzle on the way to COP21 in Paris.

New Climate Economy Report Jigsaw

So now for the straight talk, which rather implies I think that the New Climate Economy Report has its fair share of double-talk!!

I have been writing these blog articles for nearly six years and not surprisingly this has accumulated to a great deal of content. A start-up company in the publishing industry, Whitefox, noticed this and approached me about turning the content into something more substantial. So started a rather lengthy discussion between me, the various communications teams in Shell and Whitefox, but the end result is a good one; an e-book on the climate issue which is now available.

Putting the Genie Back

Hopefully it will be the first of a few, all under the title “Putting the Genie Back”, but with various subtitles. This effort covers the climate issue more broadly, but lands on the essential role that carbon pricing has to play in dealing with it, rather than the hope that simply pushing renewable energy and introducing further efficiency measures will somehow solve the problem by proxy. The current plan is that a second book will cover the subject of the carbon pricing controversy more deeply and the third will look at the international process as we head towards Paris.

For those wondering about the title, it’s meant to encapsulate many themes in just a few words. Genies typically grant great wealth when released, but often come with their own set of problems. They are also very hard to recapture, but in the case of carbon dioxide emissions from fossil fuels, that may not be as difficult as some think. However, scaling this up to meaningful size will be a challenge.

The book will be available for Kindle and can be found here, so if you are interested in the climate issue but can’t find the time to piece six years of somewhat random posts into a coherent story, then do yourself a favour and download a copy. You will also be doing two great NGOs a favour as well, as they will get the benefit of the small charge made by Amazon. They are C2ES, the Washington based climate and energy think-tank and 2041, a small UK outfit dedicated to the preservation of our last truly untouched ecosystem, Antarctica.

Thanks and enjoy.

Energy reality meets Climate Reality

In its enthusiasm to spread the word about the rapid uptake of renewable sources of energy, the Climate Reality Project recently circulated the picture below. It references the amount of wind energy, in particular, that is now being generated in the German State of Schleswig-Holstein.

Climate Reality Renewable Energy

This is Germany’s northernmost state and borders both the North Sea and the Baltic, so benefits from the windy climate that this geography offers. It is well known as Germany’s windiest area


In recent years and as part of the overall push to generate more renewable energy in Germany, considerable wind energy capacity has been installed in this region. While the current level of generation from wind is laudable, this is far from 100% renewable energy. The actual milestone that the state has reached was more accurately described as follows;

The Northern German coastal State of Schleswig-Holstein will be able to mathematically meet its electricity demand fully with renewable energy sources this year if wind yields reach at least average levels, Robert Habeck, Minister of Energy said when presenting a new study last week (May 2014).

This means that the amount of wind (and solar) electricity generated in Schleswig-Holstein will be equal to total demand, but these may not match in terms of timing. At certain times the state will export surplus wind generated electricity into the grid and at other times it will need to draw from the grid to meet its needs, particularly during periods of little wind. Nevertheless, it is quite an achievement, even though it highlights the need for a substantial backup system for renewable electricity generation.

But there is a second major reality associated with “100% renewable energy” statements. We live in a global economy that is only partly powered by electricity, to the extent that even if this electricity is generated entirely from renewable sources, the percentage of renewable energy in the final energy mix will still be less than 20% (see below). Even in OECD countries where electricity is more widely used, this only rises by a few percentage points.

Global final energy 2011

The largest slice of final energy (i.e. energy that is used by the final consumer for the delivery of an energy service, e.g. mobility) is oil, used mainly for mobility in road vehicles, planes, trains and ships. Natural gas and coal are also very large, used primarily for industrial processes such as steel making, chemical plants and similar. Natural gas is also used extensively throughout the world as a residential fuel for boilers and direct home heating.

Coming back to Schleswig-Holstein, the actual percentage of renewable energy in the final mix is probably higher than most areas, not just because of its renewable electricity production but also because of the availability of biomass from the agricultural sector. In Germany as a whole, even if all the electricity was sourced from renewable energy (but it isn’t) and adding to this the biofuel and waste energy sources, a level of ~27% renewable energy would be reached. For Schleswig-Holstein with its current level of renewable generation, that probably translates to ~30% today.

That’s an impressive feat, but it isn’t 100%.

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.