Archive for the ‘UNFCCC’ Category

Four demands for Paris

The call was very clear, here were “four demands” for Paris COP21 being presented to a group in London. But the surprise was the presenter; not a climate focussed NGO or an activist campaigning for change, but Fatih Birol, Chief Economist for the International Energy Agency. He was in an optimistic mood, despite the previous two weeks of ADP negotiations in Bonn that saw almost nothing happen. He opened the presentation by saying “This time it will work” (i.e. Paris, vs. Copenhagen and all the other false starts).

On June 15th Mr Birol launched the World Energy Outlook Special Report: Energy and Climate Change. The IEA usually launch a special supplement to their annual World Energy Outlook (WEO) and this one was the second to focus on the climate challenge and the policy changes required for the world to be on a 2°C emissions pathway. It was also something of a shot over the bow for the Paris COP21 process which had just completed another two weeks of negotiations in Bonn, but with little to show for the effort. Mr Birol is a master of such presentations and this one was memorable. He focussed almost entirely on the short term, although the publication itself looks forward to 2030 for the most part. With regards to the energy system, short term usually means 5 years or so, but in this case short term really meant December but with the resulting actions being very relevant for the period 2016-2020.

Mr Birol outlined four key pillars (as they are referred to in the publication) for COP21, but restated them as “demands”. They are;

  1. Emissions must peak by 2020. The IEA believes that this can be achieved with a near term focus on five measures;
    1. Energy Efficiency.
    2. High efficiency coal, both in new building and removing some existing facilities. IEA proposed a ban on building sub-critical coal.
    3. An even bigger push on renewable energy, with an increase in investment from $270 billion in 2014 to $400 billion in 2030.
    4. Oil and gas industry to reduce upstream methane emissions.
    5. Phasing out fossil-fuel subsidies to end-users by 2030.
  2. Implement a five year review process for NDCs (Nationally Determined Contributions) so that they can be rapidly adjusted to changing circumstances. I discussed the risk of a slow review process when MIT released a report on the possible COP21 outcome.
  3. Turn the global 2°C goal into clear emission reduction targets, both longer term and consistent shorter term goals.
  4. Track the transition – i.e. track the delivery of NDCs and transparently show how the global emissions pathway is developing as a result.

Interestingly Mr. Birol didn’t mention carbon pricing once, at least not until a question came up asking why he hadn’t mentioned carbon pricing – “Is carbon pricing no longer an important goal, you didn’t mention it?” asked a curious member of those assembled at the Foreign Office. He said yes it was, but given his focus was on Paris and that he saw little chance of a global approach on carbon pricing being agreed in that time-span, he didn’t mention it! I think this represents a major oversight on the part of the IEA although there is at least some discussion on carbon pricing in the publication. While it is true that a globally harmonised approach to carbon pricing won’t be in place in the near term, I would argue that an essential 5th pillar (or 5th demand) for Paris is recognition of the importance of carbon pricing and creation of the necessary space for linking of heterogeneous systems to take place. This looks like the fastest route towards a globally relevant price.

Mr. Birol didn’t mention CCS either, which is perhaps more understandable given the 5 year focus of much of the publication. However, Chapter 4 within the publication deals extensively with CCS and the IEA highlights the importance of CCS in their 450 ppm scenario through the chart below.

IEA CCS

Finally, there was some discussion around the climate statement made by the G7 the week before and their commitment out to 2100. Looking at the statement released by the G7, they said;

“. . . . .we emphasize that deep cuts in global greenhouse gas emissions are required with a decarbonisation of the global economy over the course of this century. Accordingly, as a common vision for a global goal of greenhouse gas emissions reductions we support sharing with all parties to the UNFCCC the upper end of the latest IPCC recommendation of 40 to 70 % reductions by 2050 compared to 2010 recognizing that this challenge can only be met by a global response.”

My reading of this is that the G7 are recognizing the need to be at or nearing global net zero emissions by 2100. However, this isn’t how the statement has been reported, with several commentators, media outlets and even one of the presenters alongside Fatih Birol interpreting this as an agreement to be fossil fuel free by 2100. These are two very different outcomes for the energy system; the first one potentially feasible and the second being rather unlikely. Both the Shell Oceans and Mountains New Lens Scenarios illustrate how a net zero emissions world can potentially evolve, with extensive use of CCS making room for continued use of fossil fuels in various applications. The core driver here will be the economics of the energy system and the competitiveness of fossil fuels and alternatives across the full spectrum of needs. It is already clear that alternative energy sources such as solar PV will be very competitive and could well account for a significant proportion of global electricity provision. Equally, there are areas where fossil fuels will be very difficult to displace; I gave one such example in a case study I posted recently on aviation. Energy demand in certain sectors may well be met by fossil fuels for all of this century, either with direct use of CCS to deal with the emissions or, as illustrated in the IPCC 5th Assessment Report, offset by bio-energy and CCS (BECCS) elsewhere. Unfortunately the nuances of this issue didn’t make it into the IEA presentation.

That’s it from me for a couple of weeks or so. I am heading north on the National Geographic Explorer to see the Arctic wilderness of Svalbard and Greenland.

A new report from the IMF

Last week many representatives of the global business community gathered at UNESCO Headquarters in Paris for the Business and Climate Summit, a prequel of sorts to the main COP21 event in December, but with only the business community involved. The goal was to demonstrate the involvement of the business community in the climate change issue and to set the stage for the business response to whatever is agreed by the Parties to the UNFCCC in December.

The event had significant political backing, with President Hollande speaking at the opening session. His speech went straight to the heart of the issue, with very matter of fact references to the important role of carbon pricing and the need for carbon capture and storage. Even UNFCCC Executive Secretary, Christiana Figures, endorsed CCS, not something she is known to do very often. The remarks by the President were backed up by many speakers, but Angel Gurria, Secretary General, OECD was perhaps the most memorable with his call for “a price, a price, a big fat price on carbon.”

The opening on May 20th set the scene for a major session on carbon pricing the next morning, with the World Bank and various business leaders taking the podium. While these speakers were all in agreement on the importance of carbon pricing, the harmony of the day before wasn’t quite as strong, with something of an argument between Tony Hayward, Chairman of Glencore and Kerry Adler, CEO of Skypower (solar) over the respective role of solar and coal in the coming decades. Mr Hayward saw little possibility of solar filling the breadth of industrial needs currently fulfilled by coal (and other fossil fuels).

The economic purpose of a cost on carbon dioxide emissions (carbon price) is as a response to the externality presented by our collective use of fossil fuels. This externality (the impact related to rising levels of carbon dioxide in the atmosphere) was discussed on several occasions during the Summit with regular reference to a new IMF report which argues that fossil fuel subsidies now stand at $5.3 trillion per annum. The vast majority of this arises from unaccounted externalities, such as the emissions of carbon dioxide and the impact of black carbon. Given that global fossil fuel production is some 10+ billion tonnes of oil equivalent per annum, then $5 trillion of externality equates to a charge for each tonne of production of some $500. The IMF report says that about a quarter of this relates to carbon dioxide emissions.

The publication of this number caused some excitement at the Summit and of course it got picked up in the media very quickly, in many cases with very little explanation as to its meaning. The IMF paper dwells at length on the need to cost in the externality and argues that despite a huge rise in energy costs that would result from such a charge, there would be a net welfare benefit to society at large. The report discusses the work of 19th Century Economist Arthur Pigou, who introduced the concept of externalities and proposed that negative externalities could be corrected by the imposition of a tax, now known as Pigouvian taxation. In the case of the climate issue, a carbon tax or the need to purchase emission allowances from the government are examples of Pigouvian taxes. The IMF report notes;

When the consumption of a good by a firm or household generates an external cost to society, then efficient pricing requires that consumers face a price that reflects this cost. In the absence of a well-functioning market for internalizing this cost in the consumer price, efficiency requires the imposition of a Pigouvian tax equal to the external cost generated by additional consumption.

. . . . . . 

. . . . . .

Eliminating post-tax subsidies in 2015 could raise government revenue by $2.9 trillion (3.6 percent of global GDP), cut global CO2 emissions by more than 20 percent, and cut pre-mature air pollution deaths by more than half. After allowing for the higher energy costs faced by consumers, this action would raise global economic welfare by $1.8 trillion (2.2 percent of global GDP).

But it is also important to consider the current value that is delivered by the availability of energy, a point also made by Tony Hayward on the carbon pricing panel. From an economic standpoint, it is worth taking this a step further. After all, why would the world be producing and using a fuel that brings such apparent economic hardship to society (i.e $5 trillion per annum worth of hardship)? The answer to this question implies that a positive externality must be outweighing this factor.

Although the IMF report doesn’t mention it, Pigou didn’t just talk about externalities in the negative sense, but also in the positive sense. Someone creating a positive externality—say, by educating himself and making himself more interesting or useful to other people—might not invest enough in education because he would not perceive the value to himself as being as great as the value to society. Pigou even advocated for subsidies for activities that created such positive externalities.

Despite the issues associated with using them, fossil fuels have brought tremendous value to society and continue to do so. Almost everything we take for granted in modern society from the food we eat to the iPhone we constantly use are here because of fossil fuels. This wealth creation that is tied to their use but not reflected in the price is a positive externality. Such a positive externality should be apparent in the price of fossil fuels, but because of their relative abundance around the world and the dislocation that often exists between extraction and use, this may not be the case. The positive externality is potentially so large that it is likely the root cause of some governments offering real incentives and (Pigouvian) subsidies to promote additional fossil fuel production. The IMF report calls these Producer Subsidies, but notes that they are relatively small.

None of the above is meant as an argument for not dealing with the environmental externalities associated with fossil fuels use. As noted many times during the Summit and as I have discussed often in the past, a carbon price is essential. But as other forms of energy scale up to the level at which we use fossil fuels, new externalities will present themselves. There will of course be the ongoing positive externality associated with energy provision, but negative externalities will almost certainly make themselves known as new industries emerge and new materials are introduced into society for everyday use (e.g. very large scale use of lithium). Perhaps the lesson from the IMF report is to start dealing with externalities much earlier in the cycle of production, before they reach a level which challenges our economic system to correct.

More steps towards Paris

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At the end of last week (May 15th) Canada submitted its Intended Nationally Determined Contribution (INDC) to the UNFCCC, becoming the 37th state to do so (including 28 countries within the EU). The three key points of the Canadian INDC submission are:

  • An emissions reduction pledge of 30% below 2005 levels by 2030 (the US has pledged a target of 26-28% below 2005 levels by 2025);
  • The reduction will be economy-wide and will cover all GHGs recognized under the UNFCCC;
  • Canada “may also use international mechanisms to achieve its target, subject to robust systems that deliver real and verified emissions reductions.”

This means that substantial progress is being made towards a good coverage of INDC submissions by the time of the Paris COP, although many eyes will now be turning to the emerging economies (e.g. China, India, Brazil, South Africa, Chile, Saudi Arabia etc.) for the real signal with regards tackling global emissions. Mexico has made a good start in that regard.

In just two weeks the national negotiators will meet again, this time in Bonn, to continue their deliberations in the lead up to COP21. But is the process in good shape?

Compared to this time in 2009 with the Copenhagen COP looming, I think it is in better shape. Although there are many details to be agreed, the negotiators at least know what it is they are trying to agree on; a relatively lean framework within which can sit the collection of INDCs from all countries for scrutiny and review. It has taken many years to get to this point and the process is far from complete, but the task at hand is now clear even though many will argue that it won’t be sufficient to deliver the goal to limit warming of the climate system to less than 2°C. At least there is thematic consensus which I don’t think existed in May 2009; was it to be top down or bottom up, what would happen to the Kyoto Protocol, should there be a global goal on temperature rise? These and many other questions were still in play.

Looking back on some of my first year of blog posts which were written in 2009, it was all very different.

  • Many eyes were on the deliberations of the US House of Representatives and the Waxman-Markey cap-and-trade Bill, with every expectation that the USA would take the lead on establishing a carbon price. Today, those eyes are on the world’s largest emitter, China, as it proceeds with its carbon pricing provincial trials and expansion to a nationwide system.
  • It wasn’t until the June 2009 UNFCCC meeting that the team from the Oxford University Department of Physics first presented their new thinking on a global carbon emissions limit of 1 trillion tonnes over the industrial era; now negotiators are actually considering the concept of net-zero emissions and therefore an end date to the ongoing accumulation of carbon dioxide in the atmosphere.
  • The British government produced a first of its kind report on the idea of global carbon trading. In some respects not much has changed, but the discussion has matured and the likes of the World Bank are now taking this concept forward. A linked market even exists between California and Quebec.
  • In July 2009 I came across the first electric vehicle charging stations in London and met a person who was taking delivery of the seventh Tesla in the UK. In 2014 there were 15,000 EV and PHEV newly registered and right now on AutoTrader there are 10 used Tesla cars for sale!!
  • The UNFCCC negotiations were operating on two tracks, the Kyoto Protocol (KP) and Long term Cooperative Action (LCA), with no real sign of them coming together.
  • There was little consensus on climate finance; today the Green Climate Fund has been established and there is an active process underway to start disseminating the initial developed country funding.
  • There was little sign of targets and goal setting from the major developing countries; today China has indicated a plateau in emissions by around 2030 and other countries are following their lead.

In hindsight it isn’t surprising that all of these issues were not resolved by the following December. The goals for Paris may not be as lofty as those for Copenhagen, but at least from the perspective of a mid-year review they appear more achievable. It’s been a few months since I have added a piece to my “Paris Puzzle”, but it is perhaps timely to do this now.

Jigsaw May 2015

Accounting isn’t enough

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

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

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

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

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

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

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

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

Baselines, metrics and business as usual

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The submission of Intended Nationally Determined Contributions (INDCs) to the UNFCCC started in earnest to meet the March 31st agreed date, although many more are still to come. Mexico was the only non-Annex I country (under the Convention) to submit by this date, although the Gabon submission appeared the following day.

A feature of the Mexico submission is the reference to Business as Usual (BAU) as a metric against which to measure progress. Although Mexico is clear on its commendable absolute long term objective, i.e. “. . . . consistent with Mexico´s pathway to reduce 50% of emissions by the year 2050, with respect to the year 2000”, its shorter term progress will be guided by reference to a “Business As Usual scenario of emission projections based on economic growth in the absence of climate change policies, starting from 2013”. The reference to Business As Usual is a factor that we will likely see in many of the upcoming INDC submissions. BAU was also a feature of many Copenhagen pledges, but in several instances the BAU pathway was hard to discern, which made the pledge difficult to understand and rather opaque in terms of actual numbers and therefore effort. This time around numbers will have to be very clear and part of the scrutiny and review process that negotiators are working towards will need to address the credibility and transparency of the BAU reference. In the case of Mexico, the BAU is well documented.

But even when the numbers are published, a BAU reference can make pledges and actions taken appear far more ambitious than may be the case. This is particularly so when energy efficiency is claimed as a major contributor to supposed reductions in emissions. Based on an existing relationship between energy and GDP and assuming a given near-term growth in economic output, it is easy to project what BAU emissions might be in 2020 or 2030 and then argue that a focus on energy efficiency can reduce this, effectively claiming an emissions reduction. This reasoning would appear to show that the country in question is making a large contribution to the global effort and that energy efficiency is an important contributing factor to change, yet in reality the original projection represents a situation that may never have occurred. Business-as-usual also requires improvements in energy efficiency to drive growth, which means that the assumed growth may not have occurred, had the efficiency improvements not helped deliver it. If energy efficiency really is a route to lower emissions, then it needs to pass one clear test, i.e. which known fossil fuel resource will be left in the ground (or a proposed extraction project shelved) because of this? Only then are cumulative emissions potentially impacted.

The Mexico INDC also highlighted a propensity to mix together actions on long lived greenhouse gases such as CO2 and short lived pollutants such as black carbon (very short lived) and methane (short to medium life). Mexico is reasonably transparent here as well, although its highest level number aggregates the two, i.e. “Mexico is committed to reduce unconditionally 25% of its Greenhouse Gases and Short Lived Climate Pollutants emissions (below BAU) for the year 2030”. The problem is that although carbon dioxide and black carbon (which is the major focus in Mexico) both contribute to warming of the climate system, they behave very differently in the atmosphere and mitigation leads to different outcomes which are not interchangeable.

Black carbon remains in the atmosphere for only days or weeks, which means it strongly impacts the rate of warming today but has little impact on the global goal to limit overall warming of the climate system to 2°C, unless of course there is still an unacceptable level of black carbon in the atmosphere at a time in the future when warming is approaching its peak. By contrast, carbon dioxide remains for hundreds to thousands of years and largely sets the thermostat of the future climate. Solving the black carbon problem today would deliver tangible near term benefits on a number of fronts, but unless carbon dioxide mitigation also takes place the long term outcome will hardly shift.

Mexico has set the bar quite high with its clear and well-structured contribution, but the metrics and baseline used highlight issues that the UNFCCC may need to deal with over the coming months as it begins to assess the merit of all the national contributions.

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.

Getting to net-zero emissions

It is looking increasingly likely, but not a given, that a reference to global net-zero emissions or even a specific goal to achieve net-zero emissions by a certain date (e.g. end of the century) will appear in the climate deal that is expected to emerge from the Paris COP at the end of this year. But like many such goals, it is both open to interpretation and raises questions as to how it might actually be achieved.

The background to this is that the issue itself implies that this outcome is necessary. The IPCC says in its 5th Assessment Report;

Cumulative emissions of CO2 largely determine global mean surface warming by the late 21st century and beyond. Limiting risks across RFCs (Reasons for Concern) would imply a limit for cumulative emissions of CO2. Such a limit would require that global net emissions of CO2 eventually decrease to zero and would constrain annual emissions over the next few decades (Figure SPM.10) (high confidence).

However, the term net-zero needs some sort of definition, although this is currently missing from the UNFCCC text. One online source offers the following;

Net phase out of GHG emissions means that anthropogenic emissions of greenhouse gases to the atmosphere decrease to a level equal to or smaller than anthropogenic removals of greenhouse gases from the atmosphere.

The above effectively means stabilization of the atmospheric concentration of CO2, which also aligns with the ultimate aim of the UNFCCC Convention (stabilization of greenhouse gas concentrations in the atmosphere at a level that would prevent dangerous anthropogenic interference with the climate system). This could still leave room for some level of emissions in that climate models show atmospheric concentration of carbon dioxide will decline if anthropogenic emissions abruptly stopped. In a 450 – 500 ppm stabilization scenario emissions could remain in the range 7-10 billion tonnes CO2 per annum without driving the atmospheric concentration higher. This is far below current levels (35 billion tonnes per annum from the energy system alone), but it isn’t zero. It can be classified as net-zero though, in that the atmospheric concentration isn’t rising.

However, such an outcome, while stabilizing the atmospheric concentration may not be sufficient to prevent dangerous interference with the climate system. In that case an even lower level of emissions may be required, such that atmospheric concentrations do begin to fall and stabilize at a lower concentration.

Another definition of net-zero may simply apply to anthropogenic emissions directly, irrespective of what the concentration in the atmosphere might be doing. In this case, any remaining emissions from anthropogenic sources (and there will be some) would have to be offset with sequestration of carbon dioxide, either via CCS or a permanent forestry solution. In the CCS case, the carbon dioxide would need to come from a bio-source, such as the combustion of biomass in a power station. This is what the IPCC have termed BECCS.

A final step which goes beyond net-zero, is to have an anthropogenic net-negative emissions situation, which is drawing down on the level of carbon dioxide in the atmosphere through some anthropogenic process. This would be necessary to rapidly lower the concentration of carbon dioxide in the case of a significantly elevated level that comes about in the intervening years between now and the point at which the concentration stabilizes. Very large scale deployment of BECCS or an atmospheric capture solution with CCS would be required to achieve this.

Finally, there is the consideration that needs to be given to greenhouse gases other than carbon dioxide. Methane for example, while a potent greenhouse gas, is relatively short lived (a decade) in the atmosphere so will require some thought. Even in a zero energy emissions system, methane from agriculture and cattle will doubtless remain a problem.

Both of the Shell New Lens scenarios end in a  net zero emissions outcome by the end of the century, but this is within the energy system itself and does not encompass the full range of other sources of CO2 emissions and other long lived greenhouse gases. Nevertheless, with extensive deployment of CCS the Mountains scenario heads into negative emissions territory by 2100 and the Oceans scenario soon after that (which means there is potential to offset remaining emissions from very difficult to manage sources). Oceans relies on this approach in a major way to even approach zero in the first instance

Many look to renewable energy as a quick solution to the emissions issue, but the reality is far more complex. While we can imagine a power generation system that is at near zero emissions, made up of nuclear, renewables and fossil fuels with CCS, this is far from a complete solution. Electricity currently represents only 20% of the global final energy mix (see below, click for a larger image: Source IEA).

Global final energy 2012

Solutions will need to be found for a broad range of goods and services that give rise to greenhouse gas emissions, including non-energy sources such as limestone calcination for cement and cattle rearing for dairy and direct consumption. While we can also imagine a significant amount of global light transport migrating to electricity, shipping, heavy transport and aviation will not be so simple. Aviation in particular has no immediate solution other than through a biofuel route although there is some experimentation underway using high intensity solar to provide the energy for synthesis gas manufacture (from carbon dioxide and water), which is then converted to jet fuel via the well-established Fischer–Tropsch process. There are also dozens of industrial processes that rely on furnaces and high temperatures, typically powered by fuels such as natural gas. Metal smelting currently uses coal as the reducing agent, so a carbon based fuel is intrinsic to the process. Solutions will be required for all of these.

Whether we aim for a very low level of emissions, true net-zero anthropogenic emissions or negative emissions is somewhat academic today, given the current level of emissions. All the aforementioned outcomes are going to require a radical re-engineering of the energy system in a relatively short amount of time (< 80 years).

Fifty shades of grey?

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The tension was building throughout the week, but finally just before Valentine’s Day weekend the negotiators in Geneva completed the first draft of a Paris negotiating text and released it at the end of the eighth part of the second session of the Ad Hoc Working Group on the Durban Platform for Enhanced Action (ADP). Contained within this 86 page document, replete with perhaps 400 or so carefully worded options to select from and 1,234 square brackets, is supposedly the necessary political recipe for addressing the climate issue over the coming decades. Or were we presented with the greyness of diplomacy and compromise, which may be the best that can be managed for now, but doesn’t incorporate the necessary toolkit to drive down emissions in the decades to come?

The text certainly contains sufficient versions of one important overarching requirement; that being the need to reach net zero emissions at some point in the future. In the context of the level of greenhouse gas emissions, the word zero appears in the text seven times, from a non-specific reference of “net zero greenhouse gas emissions in line with the ultimate objective of the Convention“, to the highly ambitious proposal for “zero emissions of CO2 and other long-lived greenhouse gases in the period 2060–2080“. I discussed this at some length in my previous post, with the conclusion that an end of the century net zero emissions objective is perhaps achievable, but much earlier than this looks unlikely. Even a timeframe of 85 years will require enormous effort, including extensive use of carbon pricing and the widespread deployment of carbon capture and storage (CCS). This view received quite a number of comments on The Energy Collective. My post wasn’t to argue that nothing would happen or that no progress could be made, but to point out the difficulty of rapidly slowing down and turning a system that has such enormous momentum. All of the suggested technologies that filled the comments section will almost certainly play a role, but the challenge is the time it takes to do all this. My own experience in the energy industry tells me the timeframe is decades, not years. In my view, the text now taking us forward to Paris doesn’t present the necessary conditions for a strong response, but it is only part of the story and much more will be revealed over the coming weeks and months as the INDCs (Intended Nationally Determined Contributions) are also published. This text seems to be more about achieving some diplomatic harmony around the climate issue and at least trying to get everyone marching to the same tune.

But returning to the text itself, the other area that needs considerable support and diplomatic effort is seeing a carbon price emerge within the global energy system. The phrase “carbon pricing” gets two mentions in the 86 pages of text, but there are many options presented on the “use of markets”. To some extent, “markets” is UNFCCC code for a carbon price, but not in all cases. It can also mean the further development of market mechanisms (such as the CDM) and the ability for developing countries to sell credits from these mechanisms to developed countries as a means of securing clean energy investment. While many variations around this theme are presented, there is no proposed language in the current text that really sets out to establish a full global carbon pricing regime – although Option 4 on page 17 perhaps comes closest by trying to resurrect something that operates along the lines of the Kyoto Protocol. A global carbon market seems to be a step too far for most countries at the moment, even though it is an essential part of the solution set. Rather, a proxy based approach is being proposed through multilateral institutions such as the World Bank, which hopes to see a global market develop over time through the linkage of various national and sub-national emissions management approaches and the interchange of the domestic units, quotas and allowances on which they are based. In the World Bank model, this would be governed by an exchange rate mechanism. This week also saw the UK House of Commons Energy & Climate Change Committee launch a report on the linking of emissions trading systems. The report concluded that;

Any agreement reached at the UNFCCC COP 21 in Paris at the end of 2015 should promote the use of carbon markets and facilitate the future linking of emissions trading systems.

One final reality check on the paris text is that nowhere in the 86 pages is CCS mentioned. While the UNFCCC is always very careful about featuring a specific technology and understandably so, the clear advice from the IPCC 5th Assessment Report was that 2°C cannot be reached without it, at least not within reasonable cost bounds. The IPCC does get mentioned 23 times.

In contrast with the events in Geneva, BP published their Energy Outlook 2035 which showed both overall energy demand and demand for fossil fuels rising in the outlook period (see chart; source: BP). The corresponding rise in energy system emissions is also given, reaching some 40 billion tonnes per annum by 2035. This is in contrast to the IEA 450 Scenario which argues for a fall in emissions to nearly 20 billion tonnes by 2035. However, the outlook does include a rising carbon price through to 2035, when it reaches some $40 per tonne CO2. Judging from the data presented, the main impact of this seems to be to bring coal growth to a near halt, but that’s all. The BP analysis presents a very different outlook to the one we need to stay within the 2°C threshold agreed by governments at the Cancun COP back in 2010. It also argues for a clear and robust outcome from Paris, although the current text doesn’t point in that direction.

BP Demand to 2035

BP Emissions to 2035

What can really be done by 2050?

The calls for action are becoming louder and bolder as the weeks continue to countdown towards COP21 in Paris. Perhaps none have been as bold as the recent call by The B Team for governments to commit to a global goal of net-zero greenhouse gas emissions by 2050, and to embed this in the agreement to be signed at COP21 in Paris.

The B Team is a high profile group of business and civil society leaders, counting amongst its number Richard Branson (Virgin Group of Companies), Paul Polman (CEO of Unilever) and Arianna Huffington (Huffington Post). The team is not just looking at climate change, but the even larger challenge of doing business in the 21st Century; shifting from Plan A which requires business to focus on profit alone, to Plan B which encompasses a more holistic set of objectives around financial performance, sustainability and business as a force for good to help solve challenging social and environmental goals. It is perhaps the next big step forward in what was originally termed “sustainable development”.

Without wanting to question the broader motives of The B Team, I do challenge their view that the climate issue can be resolved in just 35 years. For some this may sound like a long time, but it is the span of just one career. In fact it is the span of my career in the oil and gas industry from when I started work in Geelong Refinery in Australia in 1980. At least in one industry today, IT, everything has changed in that time, but that is not true elsewhere. In 1980 there were no personal computers in Geelong Refinery; today it probably can’t run without them, although the distillers, crackers and oil movement facilities being run by them have hardly changed and in many instances are precisely the same pieces of equipment that were running in 1980. In almost every other industry, the shift has been gradual, perhaps because of the installed base which of course wasn’t an issue for personal computing and mobile telephony. I suspect that this is true in Mr Polman’s own industry (household products) and it is certainly true in Mr Branson’s. In 1980 I flew on my first trip to London on a 747 and today I am in San Francisco, having arrived here on a 747, albeit a slightly longer, more sophisticated, efficient and larger capacity one than the 1980 model, but still a 747 burning many tons of jet fuel to get here. During his time in office which started with the election in 1980, Ronald Reagan replaced the existing Air Force One 707 with a 747 which still flies today but which Mr Obama has just announced will be replaced with a 747-8. Those planes will likely fly for some 30 years, as will all the other planes being built today, with many just entering the beginning of their production runs (787, A350, A380), rather than heading towards the end as we might be with the 747 series. There are also no serious plans for the jet engine to run on anything other than hydrocarbons for the foreseeable future (i.e. 50+ years) and even the attempts to manufacture bio-hydrocarbon jet fuels are still in their commercial infancy.

So why would we think that everything can be different in just 35 years? There is no doubt that to quickly and decisively solve the climate issue and have a better than even chance of keeping the surface temperature rise below 2°C that we need to do this, but that doesn’t mean we can. To start with, there has to be tremendous political will to do so and to be fair, this is clearly what The B Team is trying to foster by making the call. But political will isn’t enough to turn over the installed industrial capacity that we rely on today, let alone replace it with a set of technologies that in some instances don’t exist. The development and deployment of radical new technologies takes decades, with the energy industry able to make that change at about half the rate of the IT industry. Even the latter has needed nearly 50 years to invent (ARPANET in 1969) and extensively deploy the internet.

We are now seeing real progress in the sale of electric cars, but even there the numbers don’t stack up. To completely outpace conventional vehicle manufacture and replace the entire legacy stock of on-road vehicles will take about 50 years, assuming a ramp up of global electric car production of at least 20% p.a. every year until all internal combustion engine manufacturing is phased out. While this might be conceivable for personal transport, the progress on finding an alternative for heavy transport, including ships, is slow.

For medium to heavy industry that relies almost completely on hydrocarbon fuels for high temperature operations in particular, there are no easy alternatives. Electricity could be an option in some instances, but almost all operations today choose coal or natural gas. For smelting, coal is essential as it provides the carbon to act as a reducing agent for the chemical conversion of the ore into a pure metal.

Perhaps the area in which rapid progress will be seen is electricity generation, where a whole range of zero emission technologies exist. These include wind, solar, geothermal, tidal, nuclear and carbon capture and storage. But even with complete success in this one area, we shouldn’t forget that electricity is less than 20% of the current global final energy mix. This will surely rise, but it is unlikely to reach 100% in 35 years given that it has only moved from 11% to 18% the last 35 years.

Shell’s own New Lens Scenarios show that significant progress can be made between now and 2050, but not in terms of a massive reduction in emissions, although that process is clearly underway in the Mountains Scenario by then (see below). Rather, the time to 2050 is largely filled with the early deployment of a range of new energy technologies, which sets the scene for rapid reductions to net-zero emissions over the period 2050-2100. Another critical development for the near-term is a complete global policy framework for carbon pricing. Even assuming big steps are made between now and Paris in even getting this into the agreement, the time for implementation is a factor that must be recognised. With a fast start in Paris, the earliest possible date is 2020 in that this is when the global agreement kicks in, but even the EU ETS took 8 years between initial design and full operation, similarly the CDM alone took over 10 years to fully institutionalize. Expanding full carbon pricing globally in the same period is challenging to say the least.

NLS Emissions to 2100

The aspiration of the B Team is laudable, but not really practical. The Paris agreement should certainly be geared around an end-goal of net-zero emissions but the realistic, albeit still aggressive, time span for this is 80+ years, not 35 years.

 

Carbon pricing in 2014

While there was a great deal of focus throughout 2014 on the road to Paris and the UNFCCC process that is taking us all there, the real developments of the year were around carbon pricing. But it wasn’t all smooth sailing.

From my own perspective, going through the discipline of producing an e-book on the climate issue helped me think through the real rationale for a carbon price. I had always looked at it through the “Pigouvian Tax” lens (a pricing correction for a negative externality), which is certainly a good one, but it doesn’t really frame the issue in terms of resource extraction economics and the stock nature of CO2 accumulation in the atmosphere. My slightly different take on all this is explained in my book and is based on a simple relationship between resource availability and eventual warming of the climate system. I concluded that;

Extraction economics and warming

In short, the eventual temperature rise is directly linked to the size of the global fossil fuel resource base (in GtC) multiplied by some extraction fraction which in turn is a function (f) of the difference between the price of energy and the extraction cost. In a world of sunk infrastructure costs, the marginal extraction cost might be very low, which either means that the energy price has to fall very low to limit temperature rise or another factor has to be introduced to shift the extraction economics, i.e. a cost for emitting carbon dioxide from energy use, or what is now simply called “a carbon price”.

Extraction economics and warming with carbon price

Not surprisingly then, putting a price on carbon is arguably the most important step that can be taken to limit warming. Trying to drive the price of energy down with alternatives is another option, but success is less than assured.

While the carbon pricing story has long been recognised, it is nevertheless proving difficult to implement. In the UNFCCC process it has been getting almost no airtime at all, at least until 2014. This was the year that the World Bank picked up the story in big way and by the time of the September UN Climate Summit in New York managed to have it solidly on the agenda. This was supported by their Statement on Carbon Pricing, signed by some 70+ governments and 1000+ companies. The World Bank effort picked up where the UK Corporate Leaders Group on Climate Change had taken the issue two years earlier with its Carbon price Communique.

Nevertheless, while the fact that a good portion of the UN Climate Summit and its multitude of side events was about carbon pricing and therefore deserves applause, the difficulty of translating well-meaning macro level support into granular policy implementation remains both very challenging and time consuming.

The unfortunate event of the year was the repeal of an active carbon pricing framework by the Australian government, particularly after the decade of effort and political capital that had gone into establishing it. Although Australia isn’t large in terms of global emissions, as a leading resource producer and developed economy it tends to punch above its weight in terms of external influence. Fortunately this event was eclipsed by a much bigger development that came a bit later in the year and may well be the one that sets the scene for real action on emissions in the 2020s. China announced that a single national carbon pricing system would be implemented from 2016, presumably replacing the multiple trials now underway. This system would mature over the following years such that it will be fully operational from 2020, which is when the expected Paris agreement will also become operational.

Mexico also established a modest carbon price in its economy and the Chilean government approved a pricing system from 2018 within the power generation sector. Korea proceeded with its plans for an emissions trading system, agreeing to a formal start this January. Discussions hotted up in North America, with Oregon and Washington considering pricing and Ontario in Canada also starting to think about possible options. The Quebec-California link, formalised in 2013, went into operation.

Another noteworthy event of the year was the shift in stance by the European Institutions and Member States on the role that government needs to play once carbon pricing markets and mechanisms are established. As the price in the EU ETS has fallen over recent years, many have argued that the market should be left to correct over time. But with a structural surplus showing no sign of disappearing, that view is changing. With the support of the Commission the EU Parliament approved the backloading of allowance auctioning to later in the current ETS Phase (i.e. from 2014 to 2018-2020) and is now in the process of developing and gaining approval for a permanent mechanism, the Market Stability reserve, to do a similar job. Timing is of the essence and the EU Institutions and Member States need to implement such reforms as soon as possible, and no later than 2017, to incentivise real investment in lower carbon technologies over the next decade.

Bringing all this together and catalysing the development of a global carbon market remains on the the “to-do” list, with the UNFCCC in a prime position to take the lead as part of the Paris process – but more on that another day.

Slowly but surely the map is changing colour, although much remains to be done. Carbon pricing remains contentious, both in its implementation and ongoing management.

Carbon pricing 2015

Carbon pricing 2014

Carbon pricing 2013

Carbon pricing 2012