Archive for the ‘UNFCCC’ Category

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.

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

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

With the choice of a high road and a low road from Lima to Paris, the Parties seem to have selected the dirt track off to the side, replete with rocks, obstacles, difficult terrain and an uncertain destination. However, the map they have crafted in Lima, while full of options and dead ends, does at least have some clear pointers to the outcome that is actually needed. The question is whether or not these are followed.

The Lima call for climate action turned out to be a hard won outcome, with the talks extending into Sunday morning as negotiators struggled to reach agreement over one issue in particular that has dogged the process since its very beginnings in 1992 – the respective roles of developed and developing countries. Many commentators believed that the negotiations in Durban in 2011 had, at least to some extent, relegated this issue to the history books.

In particular, Professor Robert Stavins of the Harvard Kennedy School in Boston, said in his 2011 report on Durban;

It focuses instead on the (admittedly non-binding) pledge to create a system of greenhouse gas reductions including all Parties (that is, all key countries) by 2015 that will come into force (after ratification) by 2020. Nowhere in the text of the decision will one find phrases such as “Annex I,” “common but differentiated responsibilities,” or “distributional equity,” which have – in recent years – become code words for targets for the richest countries and a blank check for all others.

In the aftermath of Lima, the flavour of differentiation has reappeared and even some of the words. The call for climate action now incorporates a clear reference to “common but differentiated responsibilities“, albeit with the addition taglines of “respective capabilities” and “in light of different national circumstances“. Professor Stavins was quick off the mark with an assessment of Lima, but still maintained that the intent of Durban remained;

. . . . the fact remains that a new way forward has been established in which all countries participate and which therefore holds promise of meaningful global action to address the threat of climate change.

It is difficult to agree with this given the recent negotiations. By contrast, Jonathan Grant of PWC referred to the final day of Lima as “trench warfare mentality”. While it is certainly the case that all countries are still required to submit INDCs of some description, the allowable range of options and structure to pick from has broadened considerably. Notably, Parties “may include” details such as quantifiable information and time frames, rather than the previous wording of “shall include”.

Adaptation planning is strengthened considerably, with this subject now highlighted in the opening lines of the Lima text and also referenced clearly in the context of INDCs. For developed countries this probably has little meaning in terms of their own actions, but for a number of developing countries this could be interpreted as a call for additional financial assistance from developed countries simply to build national infrastructure. The Loss and Damage issue also resurfaced with specific mention in the Lima text. These two apparent concessions may turn out to be a high price to pay for retaining some semblance of the Durban mitigation philosophy.

The intensity with which the developed / developing country issue erupted in the last hours of the Lima COP raises valid questions about the negotiations over the coming year. Leaving this particular issue still looking for a solution in Paris itself may be a burden too great for those final days, but it could also be that no matter how much effort is put into solving it in the interim, it will nevertheless emerge again in the last hours in 12 months time simply because negotiations tend to do things like this.

Looking more positively at the Lima call for climate action, the 40 page annex, “Elements for a draft negotiating text“, throws up some interesting tidbits but also a host of negotiating options which will need to be resolved. Two tidbits of note are;

  1. The mention of carbon pricing in the text; “Acknowledging that carbon pricing is a key approach for cost-effectiveness of the cuts in global greenhouse gas emissions.
  2. The reference on several occasions of an end-goal of net-zero anthropogenic emissions; “Also recognizing that scenarios consistent with a likely chance of holding the global average temperature increase to below 2 °C relative to pre-industrial levels include substantial cuts in anthropogenic greenhouse gas emissions by mid-century and net emission levels near zero gigatonnes of carbon dioxide equivalent or below in 2100.

The carbon pricing mention is almost certainly the result of the recent tireless work of the World Bank in getting this critical subject back on the global agenda, but the reference is rather empty in that no strong follow-up text supports it. Rather, there are several vague references to the use of markets and mechanisms.

The “net zero” reference though is quite bold, in that even if this century sees a sharp reduction is emissions, a net zero goal is much more challenging. Residual emissions from agriculture, industrial processes, land use changes and some level of direct fossil fuel use will likely remain well into the 22nd century if not beyond that, which means at a minimum some large scale application of carbon capture and storage at some point in the future.

There was much more to Lima than just the last hours of tense standoff politics, but that is what the world will likely focus on in the coming days. The draft negotiating text sets out some clear options for the future, although if the weakest of these is picked in every instance the end result will have hardly been worth the effort. However, there is also text there that doesn’t have options, so that may well see the light of day in Paris. This is the case for some of the “net zero emissions” wording and also the need for Parties to “develop low emission strategies” and “maintain commitments / contributions / actions at all times“.

As such, there remain a few reasons to be hopeful.

Reality and distortions in Lima

Wandering the COP20 campus, listening to side events and hearing senior political, business and NGO representatives talk about the climate issue results in a mild reality distortion field impairing your judgement; you start to feel sure that we must already be on a new energy pathway, that global carbon pricing is just around the corner and that the Paris deal will deliver something approaching 2°C.

Then something happens to shatter that field and realisation sets in that there is still a long way to go before a truly robust approach to the climate issue emerges. On Tuesday evening the field was disturbed by tweets from a colleague at PWC @JG_climate reporting on negotiators squabbling over INDCs, with Brazil’s concentric differentiation approach causing some angst amongst a number of developed countries and the proposed text describing the nature of an INDC expanding by some thirty pages. This negotiation is far from over and the road ahead to Paris will likely be very bumpy. There will be a few dead-ends to watch out for as well.

Another reality hit home on Monday afternoon with the recognition that many people in the civil society groups here in Lima just don’t want to hear about the reality of carbon capture and storage (CCS). The Global Carbon Capture and Storage Institute (GCCSI) held an excellent and well attended side event on Monday afternoon which was initially mobbed by some 100+ demonstrators and their press entourage. The demonstrators crowded into the modest sized room and the hallway outside, waited for the start of the event and then promptly left as Lord Stern opened the side event with his remarks on the need for a massive scale-up of CCS. Arriving and then departing en masse allowed them to tweet that civil society had walked out on Lord Stern. The demonstrators were equally upset that Shell was represented at the event with my presentation on yet another sobering reality; 2°C is most likely out of reach without the application of CCS; also a finding of the IPCC in their 5th Assessment Report. They also took exception to flyers for my book which carries the same message.

CCS Event (small)

What was really concerning about this walk-out was that the younger people who made up the group would rather protest than listen and learn. Had they stayed they would have heard a remarkable story by Mike Monea of SaskPower who talked about the very successful start-up of the world’s first commercial scale coal fired power plant operating with carbon capture, use (for EOR) and storage. This technology needs some form of carbon pricing structure for delivery and in the case of this project the bulk of it came from the sale of CO2 for EOR. There was also a capital grant from the government. Importantly, SaskPower noted that a future plant would be both cheaper to build (by some 30%) and less costly to operate. This potentially points the way to a technology that can deliver very low emission base load electricity at considerably lower CO2 prices than the ~$100+ per tonne of CO2 that current desktop studies point to. That may also mean CCS appearing without government support sooner rather than later. Of course, the actual construction and delivery of second generation projects will still be required to confirm this.

A minor reality distortion arose from a question directed at me during the GCCSI side event. One audience member asked me about Shell’s membership of ALEC, a US organisation that operates a nonpartisan public-private partnership of America’s state legislators, members of the private sector and the general public.  ALEC doesn’t seem to think that a carbon price should be implemented in the USA, hence the question to me given Shell support for carbon pricing.  Responding to the Climate correctly reported on my response, which was along the lines of “. . that despite their position  on climate issues we still placed a value on their ability to convene state legislators”, but DeSmogBlog had their own interpretation of this. They reported on this under a headline which stated “Company ‘Values’ Relationship with Climate-Denying ALEC”.

It’s also proving a challenge to gain acceptance for the reality of markets and the role they are likely to have in disseminating a carbon price throughout the energy system. This means that carbon market thinking is still struggling to gain a foothold in text proposals for Paris, with one negotiator commenting at an event I attended that “we don’t see much call for markets at this time“. Silence on markets is the preferred strategy for some Parties, with others taking the view that specific mention and some direction is a must. More on this at another time as the Paris text develops further.

The evenings in Lima have been filled with some excellent events. With so many people in town, dinner discussions are convened by the major organisations represented here, which results in great conversations, useful contacts and plenty of new ideas to think about. The Government of Peru have organised and run a very good COP, despite early concerns that there were initially no buildings on the site they chose for the event.