David Hone

On a shopping trip in London’s West End on Saturday I came across the first real signs of the dawn of the electric car – charging poles. These have been installed by EDF, look a bit like parking meters and are available, with a free dedicated parking spot, for electric car owners needing a recharge. Then on Sunday at a BBQ I met someone who is about to take UK delivery (the 7th in the country) of a Tesla Roadster from Tesla Motors. Tesla now market two electric cars, the aforementioned Roadster which is available today and a small Sedan, the Model S which is targeted for 2012. Both seem to have excellent performance and reasonable range (some 400 km). Tesla is a US company.

So has the electric car now arrived?

Certainly there are now some real models startring to appear in the showrooms and judging by the announcements by many manufacturers, quite a few more models could appear in the near future. In London today there are also a number of very small electric cars which people use for local commuting and avoiding the £8 per day congestion charge. The most popular of these is the G-Wiz car, now available with a Lithium Ion Battery. These cars are manufactured by the REVA Electric Car Company in Bangalore (India), currently the world’s leading electric car manufacturing company.

We might therefore imagine that electric cars will be everywhere in just a few years and that the days of the internal combustion engine are over. I remember getting my first digital camera in 1995, a model from Apple (who don’t even make them now). At that time I was incredibly impressed by the 1 million pixel images and imagined that within 10 years film cameras would be well and truly on the way out. Today it is hard to even find one in a camera store. But electric cars will be different. Hybrid technology has been around for over 10 years now and whilst Toyota and Honda have been incredibly successful with them, less than 2 million have been sold globally. In the same 10 years global auto production was some 700 million units.

Back in 2005 I did some work for WBCSD for an upcoming publication. We looked at how rapidly new vehicle technology might deploy throughout the world. We assumed a zero emission (at the vehicle itself) vehicle would be available in 2010 and that production would commence at some 200,000 units globally. We then assumed this would grow at 20% per annum until all produciton globally was this type of vehicle. Meanwhile, global vehicle numbers were also growing at 2% per annum. The end result is shown below – it is not until about 2040 that the number of internal combustion vehicles peaks and then begins a sharp decline. Certainly by 2050 they are well on their way out.

Despite very ambitious assumptions on deployment, the size of the industry today and the reality of turnover of both the vehicles themselves and the production facilities means that the lag in the system is huge. The simple study strongly underlined the need for action to start early if there is any chance of meeting the very ambitious 2050 emission targets now being tabled. It also highlighted that we are not about to see the end of the internal combustion engine, despite our love/hate relationship with it.

But on a national level some markets may move faster.  A recent study by The Center for Entrepreneurship & Technology at UCal/Berkeley has a baseline forecast showing 64% of US LV sales to be electric by 2030, at which time the e-car will have a share of 24% in the US LV fleet. Decoupling of battery ownership (to keep upfront cost for the customer low) is seen as crucial. We certainly live in interesting times!!

The MIT Joint Program on the Science & Policy of Global Change have long been advocates of cap-and-trade as an appropriate policy instrument to drive a reduction in national emissions. They also provide valuable insight into the economic impacts of such an instrument through the economic modelling tools they have at their disposal.

As Waxman-Markey races through Congress and might even become legislation this year, both sides of the debate are arming themselves with data to defend or attack the proposal. In recent weeks MIT have found themselves in the middle of this foray as their findings have been somewhat misquoted by those not in favour of a cap-and-trade approach in the USA.

In Rome this week the Joint Program is holding its 29th Forum and I am here for Shell as one of the program sponsors.  I have had the chance to interview the originator of the MIT study, Dr. John Reilly, Associate Director for Research.

The actual reason I went to Bonn last week was to participate in a side event run by The Oxford Institute for Energy Studies. They put forward the view that the real issue at hand is not the emissions in 2020 or 2050 or any other year, but the total additional GHG carrying capacity of the atmosphere in relation to a temperature objective. The full story on this appears in the 30th April edition of Nature.

To limit temperature rise to 2 deg.C, the number is about one trillion tonnes of Carbon, or 3.67 trilllion tonnes of CO2 (equivalent). That number is even smaller for a low risk (of exceeding 2 deg.C) scenario. The problem is, we have already used up about half this space, so we have 1.8 trillion tonnes of space left. Given our current usage patterns, 1.8 trillion tonnes doesn’t go far. I did some quick calculations and came up with the following;

• Even without accounting for extra bio-CO2 being released into the atmosphere through landuse change or the impact of the non-CO2 gases, we have to be done with fossil fuels globally by about 2060. One interesting contributer to this which I assume for my calculation continues unabated through the whole century, is cement. The manufacturing process releases fossil carbon into the atmosphere as the calcium carbonate is processed. The cement industry is growing rapidly as developing country cities rise from the forests and plains. The result is that over the next hundred years that one industry uses up a few hundred million tonnes of the available space.
• By contrast, if we can apply carbon capture and storage (CCS) to all our coal use by 2050, oil and gas can continue to support our energy needs until the end of century (albeit declining from 2020), which approximates to the complete use of current proven reserves (as per the BP Statistical Review of World Energy) – and of course there is still the cement.

The point here is that looking at the total space available is very instructive. It will help guide the policy process and clarify thinking on energy use and the application of technologies such as CCS. It also makes us aware of the cummulative impact of all the other things we do.

But again, there is no reference to anything like this in the negotiating text. The Oxford team have set themselves the task of making this happen, although given all the competing interests in the negotiating process, it represents a formidable challenge. I hope they succeed.

At the end of last week I was in Bonn, where another round of UNFCCC negotiations was taking place in the lead-up to Copenhagen. I happened to catch the Greenpeace show, which involved the sounding of an incredibly loud air-raid type siren from within a locked steel cage on the back of a truck. The German police didn’t take kindly to this and proceeded to cut them out.

But the point made by Greenpeace isn’t without merit. My own “alarm moment” comes from looking at the text which the negotiators are deliberating over. Although much was apparently added during the Bonn talks, the starting point (the AWG-LCA text) says little about how to actually address this problem, but rather presents fifty three pages of arcane language about process. It talks of “appropriate action”, but doesen’t define what this might actually entail, other than in the loosest terms. Take a technology such as carbon capture and geological storage – it doesn’t even get a mention. The word “renewable” appears once, “nuclear” doesn’t appear at all and “energy efficiency” twice. Even the notion of a carbon market to drive large scale deployment is barely touched upon.

Short of a document which clearly spells out a forward emissons profile for every country, perhaps it is time to replace abstraction with clarity and focus. There are five, and only five things we can do to address the mitigation side of climate change. We have to do all of them, we have to do them at huge scale and we have to do them very quickly. They are;

• Using energy much more efficiently;
• Increasing the use of renewable and nuclear sources of energy;
• Rapidly commercialising and deploying carbon dioxide capture and geological storage in tandem with the use of fossil fuels [or with the chemical conversion of fossil derived materials for the provision of various manufactured products];
• Containment, destruction and reduced usage of greenhouse gases other than carbon dioxide;
• Reducing emissions through land use, land use change and forestry, including reducing emissions from deforestation and degradation.

At the very least, the text should be driving these specific solutions forward, for example through properly funded large scale demonstration programmes and targeted mechanisms to hasten deployment. Carbon capture and storage provides a good example. Three policy initiatives are required to support this technology;

• An underlying price for CO2 must be in place;
• A clear recognition of the demonstration nature of the technology, which means funding, objectives, timelines and focus on delivery of projects;
• A robust approach to CO2 storage certification (and MRV) based on 2006 IPCC GHG Inventory Guidelines.

The EU has nearly reached this point, but it has taken eight years to do so. Whilst this represents a landmark in policy creation, the rate at which it has happened is hardly commensurate with the gravity of the issue that we are trying to address. We need to focus our efforts on bringing this technology to developing countries, particulalry those with large coal reserves. A policy framework similar to that in place now in the EU is needed, but on an international scale. First and foremost, this means recognising CCS within the an international project mechanism. We will also need to underpin this with an internationally recognised CO2 storage certification, again based on the 2006 IPCC GHG Inventory Guidelines. Finally, we need a mechanism within which large clusters of projects can be identified, funded and implemented against defined deadlines. Most importantly, we need all this now, in Copehagen, with a view to starting implementation in 2010.

The EU Spring Council 2007 set out its stall for a new international agreement, committing the EU to a 20% reduction by 2020 compared to 1990, but also to a further 10%, i.e. to 30%, if comparable efforts were put in place by other nations.

This is then supported by Article 28 of the revised EU Emissions Trading Directive (as of December 2008) and paves the way for deeper reductions than the 20% by 2020 already catered for. In addition, the Directive also says:

“In its resolution of 31 January 2008 on the outcome of the Bali Conference on Climate Change (COP 13 and COP/MOP 3), the European Parliament recalled its position that industrialised countries should commit to reducing their greenhouse gas emissions by at least 30% by 2020 and by 60-80% by 2050, compared to 1990 figures. Given that it anticipates a positive outcome to the COP 15 negotiations to be held in Copenhagen in 2009, the European Union should begin to prepare tougher emission reduction targets for 2020.“

All of the above has been broadly interpreted to mean that a successful outcome in Copenagen will result in a shift of the EU target from 20% to 30%. But this throws up some difficult issues and even leaves the EU in something of a Catch 22 bind.

For starters, the Obama administration has clearly said that the US will move decisively to reduce emissions, but to a 2020 level equivalent to 1990. Given that US emissions have risen by 20% since 1990, this then reads as a 20% reduction in US emissions from current levels. By contrast, EU-27 emissions have remained flat since 1990 (actually a very slight decline), so the EU pledge of a 20% reduction since 1990 could also read as a 20% reduction in emissions from current levels.

The plateau in EU emissions comes largely from big reductions in eastern Europe, including the eastern part of Germany, following the collapse of the old Eastern Bloc. The rest of the EU has seen emission rises not dissimilar to the USA; 20+% from Austria, 10% from Denmark, 50% from Ireland, 12% from Italy and so on, with the UK being one of a very few to register a decline.

The EU situation is such that if it agrees to something in Copenhagen but then doesn’t trigger the 20% to 30% shift, it will effectively be saying that it doesn’t agree to what it has already agreed to. But equally, there is almost no possibility for the US to agree to a 20% reduction compared to 1990, let alone a 30% reduction. Even the former would represent a 40% reduction in emissions in just 10 years, hardly a plausible scenario.

The issue is “compared to 1990″. But even if it comes off the table and everybody starts to talk more sensibly about what to do from where we are now (or say 2005), Article 28 of the Directive hard wires the “compared to 1990″ into the EU position. It specifically links the shift in the EU target to an EU international commitment to reduce emissions by an amount exceeding 20% compared to 1990.

This means that the EU can’t put its 20% to 30% target shift on the table as a carrot for developing countries (i.e. space in the ETS for large scale project mechanism credits), since it will not be able to trigger it because nobody will be deemed to be taking comparable action. This in turn could undermine the very process the EU is trying to encourage. Hence the catch.

Is this all legal semantics, or a real stumbling block to a solid outcome in Copenhagen. We shall see in the months to come.

From Whitehall to the Whitehouse (http://www.whitehouse.gov/agenda/energy_and_environment) energy is on the agenda. With the recent high cost of energy still on policy makers minds, difficulties with Russian gas, the constant flow of environmental signals reminding us of a changing climate and economies desperately looking for ways to stimulate activity and create jobs, the idea of an “energy revolution” seems appealing.

The Whitehouse web site calls for the implementation of an economy wide “cap-and-trade” programme to reduce greenhouse gases by 80% by 2050. But is this really sufficient to do the job? An 80% reduction in emissions requires nothing less than an energy revolution, but can such a revolution really be delivered by an emissions trading system?

There is no question that emissions trading will be an important part of the necessary policy approach, but on its own it is far from the comprehensive framework that is needed. Such a framework comes from a look at not just what is wanted, but also a consideration of how it might be done.

The World Business Council for Sustainable Development publication Pathways to 2050 (www.wbcsd.org/web/publications/pathways.pdf) showed that “mega-trend” scale changes will be required in four key sectors of the energy economy – power generation, industry & manufacturing, transport and buildings & commerce. Each of these will need specific and different policy approaches to enable the necessary changes.

Technology will also be key to the changes required. Certain existing technologies must be rapidly deployed and a range of new technologies will need to be brought to market. A typical technology pathway model consists of three phases, Discover & Develop, Demonstrate and Deploy and each are needed to allow the technology to progress down the cost curve. Policy development often fails to consider the “demonstrate” phase, which sees the first commercial scale implementation of a particular technology and may require the construction of supporting infrastructure. Early infrastructure construction facilitates the shift to full deployment.

To fully enable the necessary changes to take place, policy must focus across all the sectors and along the full technology path. Within this framework, “cap-and-trade” is the instrument of choice for the deployment of technology (leading to emissions reduction) in the power generation and industry & manufacturing sectors. But that is just a small portion of the full framework. Deployment mechanisms must still be implemented in the transport and buildings sectors, demonstration support for a variety of technologies will be needed in all sectors and a comprehensive research and development programme is required across the whole economy.

In the European Union, progress has been made in completing the framework. The recent passage through the EU Parliament of the Energy and Climate policy package included a significant support measure for the EU carbon capture and storage demonstration programme. At a CO2 price of EUR 30, nearly EUR 10 billion will be available for commercial scale demonstration of this important technology.

In the US, the journey towards a new energy policy package is only just beginning. Whilst “cap-and-trade” will rightly feature as a cornerstone of the overall approach and will likely be the most visible and talked about aspect of what is to come, policy makers will also need to look beyond this single instrument to deliver the desired revolution.

The US Climate Action Partnership (USCAP) has now released its Blueprint for Legislative Action,  a weighty weighty 24 page document which gives a complete overview of the steps needed in the USA to deliver an 80% reduction in emissions against 2005 levels. This represents a unique consensus between thirty very different organisations, mostly business, but importantly including a number of environmental organisations such as the World Resources Institute and the Pew Center for Climate Change.

The consensus is unique in that the organisations represented cover the whole value chain within the economy. For example, at one end are power generators, who may well have to raise electricity prices as a result of the CO2 costs they face, and at the other end is an aluminium company, operating facilities that are very sensitive to electricity price as they compete in world markets. Similarly, there are oil companies and vehicle manufacturers, mining companies and consumer facing companies, service companies and technology companies.

The backbone of the Blueprint is an economy-wide “cap-and-trade” system, supported where necessary with additional measures to accelerate change. In addition, there is solid recognition of the need for fiscal support for early commercial demonstration of key technologies for the future, such as carbon capture and storage.

Somewhat surprisingly, or maybe not, criticisms are already being made. Too much support for business, too many allowances allocated for free and from one commentator – “U.S. Climate Action Partnership Proposal Deeply Flawed”. But the Blueprint is a solid piece of work, the result of many hundreds of hours of work and analysis. I have kept only a tiny fraction of the USCAP e-mails that arrived in my InBox since Shell joined and I have over 300 of them – many of those with long and detailed attachments expressing positions and challenging others. This was not a hasty piece of work, so criticizing it in even less time than it takes to read and digest the full document seems trite.

As I have mentioned before, the challenge in front of us over the coming decades is huge. We don’t even really know if we can run an industrial society with near zero emissions, yet that is what we are seeking. Like it or not, we are going to have to take this step-by-step and the Blueprint represents a pretty big first one.

Tomorrow (January 15th) will see the United States Climate Action Partnership (USCAP – a group of businesses and leading environmental organizations  that have come together to call on the federal government to quickly enact strong national legislation to require significant reductions of greenhouse gas emissions – www.us-cap.org) unveil details of the regulatory approach that should be taken in the USA to address climate change. But more about that tomorrow, after the formal announcement.

In advance of their annoucement it is worth thinking about why business even wants such regulation thrust upon it. After all, isn’t the traditional role of business to oppose government regulation? Whilst that has certainly been true in the past and may well continue to be true for certain types of regulation in the future, increasingly it is not the case when it comes to constraining CO2 emissions. This is game changing stuff and business has realised that in completely redesigning the rules of the game, it is better to be part of the design team than just the player at the end.

This is not to say that this makes it easy for the players, far from it. Rather, with business at the table, government can at least design a game (or in this case a regulatory environment) that can be played. Business has realised that the risk behind such pervasive legislation as will be required to reduce CO2 and other greenhouse gas emissions is that the business environment itself may become unworkable. It has also realised that if far reaching effective legislation is enacted now that puts us on a 40 year journey towards near zero emissions (an 80% reduction is effectively near zero and in any case by 2060+ it really will have to be zero), that is much better than the chaos that will ensue when government tries to grapple with really rapid reductions in say 2020 or 2030, having done little about it now.

Nobody really wants all this and there is no doubt that this is, to steal a phrase, a really incovenient issue. But it is the reality of the world we live in and what we are doing to it. There is a strong case for business to be involved in redesigning the environment in which it operates, principally so it can continue to deliver benefit to its shareholders and provide the goods and services that society depends on. Today, there is still the opportunity to do this in a thought through and constructive manner with government, business and civil society all at the table.

You may have read Guardian (UK) writer George Monbiot’s blog yesterday, It will take more than goodwill and greenwash to save the biosphere, which is based on an interview with Shell CEO Jeroen van der Veer. In fact some of the interview is included as a video clip.

What is presented is an interesting discussion on the role of companies, the environmental integrity of investments and the direction that companies should invest in for the good of the planet. But the stark reality of the world in which we live and the system that we have collectively chosen to support our lives is that it is opportunity based. Where an opportunity exists, it will be seized and value extracted – that is the nature of our society. But we have also learned over many centuries that rules and laws are good things. They modify behaviour and ensure that commercialization of opportunity doesn’t in itself destroy value elsewhere. The same rules should apply everybody, for reasons of fairness. Good rules and laws may even open up new opportunities within which others can prosper. But it seems that we are still learning – clearly the rules within our financial system are still not quite robust enough.

The application of rules and laws applies to the environment as well. Lord Nicholas Stern clearly showed in The Stern Team Review that the development and use of abundant energy today is destroying future value, because todays CO2 emissions will have an impact down the line through climate change. So, the rules of the game need to change.

Over the past year in particular, and there will be even more in 2009, I have been busy with a number of colleagues in Shell seeking the necessary rule changes in the energy system, such that business will seize the opportunity presented by the demand for energy in a different way. We strongly believe that a market based rule system, with an emissions trading system at its core, is the way forward to address the issue of CO2 emissions. We also believe that standards should be set for vehicle efficiency, that vehicle fuels should be targeted with a declining CO2 footprint and that a high level target for the use of renewable energy is needed. The people in Shell believe that our company can prosper under a new set of rules. Most of this rule set is now in place in the EU. That is good – but global will be better.

In the Monbiot article, the Shell investment in Canadian oil sands is challenged. But this is an opportunity that many Canadians want to develop. So how do we square this off with environmental concerns – the answer is simple, change the rules. We think that Canada should introduce an EU style emissions trading system, ideally as part of a broader North American approach. With a declining cap (to deliver, for example, the Obama pledge of an 80% reduction by 2050), oil sands will have to find a new way forward. Carbon dioxide capture and storage may be one solution, allowing continued growth. Or maybe the solution doesn’t present itself, in which case oil sands development will plateau and decline.

Either way, changing the rules is the way forward. George Monbiot said as much in the last line of his blog as well.