The ambition embodied within the Paris Agreement argues for the need to reach a state of net zero anthropogenic emissions around the middle of the century, although the text of the Agreement is less stringent and points to the second half of the century for a balance between sinks and sources. Either way, this presents a formidable challenge.

Looking at a modern developed economy today, it is possible to imagine a state of much lower emissions, or even net-zero. The technologies to have a zero emission power sector are readily available and have been for some time; look at the level that nuclear power reached in France as early as the 1980s. Today we also have carbon capture and storage and scalable renewable energy. Vehicle electrification is now coming of age and it is not difficult to imagine a future where this dominates, with heavy transport potentially using hydrogen. Homes can also be electrified and the service sector / secondary industry economy that drives the developed world today is primarily electricity based.

But the manufacture of goods still represents a large part of the global economy. Material goods represent one facet of our economy and certainly one that is critically important in the early stages of development of most economies. For example, between 2004 and 2014 some 350 million refrigerators were produced and went into use in China with a further 250 million exported. Production in 2000 was just 12 million units. China is now the world’s 6th largest exporter (2014 by value) of refrigerators, but this is just one sixth of US refrigerator exports.

The same is true when it comes to the refining and fabrication of the raw materials that developed and developing country secondary industry requires. These products all demand considerable use of fossil fuels for combustion based processes such as smelting, refining, base chemical manufacture and similar. Nevertheless, we could perhaps imagine a world based on 3D printing using various exotic materials (graphene, certain polymers etc.) as the raw material for manufacture. But even in this world considerable chemical plant capacity and therefore process heat would be required to manufacture the printer feedstock, but carbon capture and storage could handle emissions from these sources.

China grew rapidly on the back of large scale manufacturing and at the same time it built vast swathes of infrastructure; from cities such as Shanghai and Chongqing to the high speed rail networks that now connect them. Between 1995 and 2015 cumulative emissions from China amounted to some 130 billion tonnes of carbon dioxide, or 100 tonnes per person. For the most part, this wasn’t for personal domestic use (i.e. home electricity and heating), but to make products for consumers in China and for export which in turn finances domestic infrastructure for the future. The process is far from complete, but China is already starting to look to other economies to make its raw materials and supply finished products as it attempts to develop its service sector.

The situation for the least developed economies is not dissimilar to China 30 years ago. Some 3 billion or more people live in circumstances where little or only modest levels of infrastructure exists. While they may now have basic renewable energy for lighting and some other services, their standard of living remains far below other parts of the world. The development pathway in front of them may well be similar to the one that China embarked on in the 1980s. That pathway might even be funded by products made for the Chinese economy as its service sector grows and energy use reaches a plateau or even falls slightly.

The 100 tonnes per person of development emissions is perhaps the hardest to decarbonise. It is from steel mills, cement plants, chemical plants, manufacturing industry and heavy goods transport. These are the backbone industries and services for development, many of which have long gone from developed economies. They may also be quite expensive to decarbonise, which is problematic for economies in the earlier stages of rapid development. This development also leads to a degree of lock-in as once industries are created and jobs are in place there is a strong desire to keep them; the recent concern as the last major UK steel plant shed more jobs is an example. The same industries are also needed to continue making a wide range of products, from cars to iPhones, for consumers in the rest of the world.

One particular challenge for post-Paris implementation of the Agreement is this 100 tonnes per person of development emissions and the lock-in that follows. While the net-zero goal looks feasible and can be imagined as a longer term outcome, the interim emissions bulge as development continues and the supporting industries required for infrastructure are put in place may take us well beyond 2°C rather than the goal of well below. Further to this, the energy demand that will be created just to fuel the energy transition itself could be significant as hundreds of lithium mines open, solar PV factories expand and new vehicle technologies are offered to the public.

Article 6 within the Paris Agreement makes mention of a Sustainable Development Mechanism that results in emissions reductions. Such a mechanism could be an important part of the solution set for this problem. More on that to follow.

The highlight of the Paris Agreement is without question the ambition embodied within it. This had its foundation with the Alliance of Small Island States (AOSIS) and their deep concern regarding future sea level rise. But the issue snowballed as the conference progressed, supported by a strong dose of techno-optimism that was prevalent throughout the halls of the Le Bourget Conference Centre. The text that was agreed upon is important, with the goal embodied in to distinct sections;

Holding the increase in the global average temperature to well below 2 °C above pre-industrial levels and to pursue efforts to limit the temperature increase to 1.5 °C above pre-industrial levels, recognizing that this would significantly reduce the risks and impacts of climate change;

Parties aim to reach global peaking of greenhouse gas emissions as soon as possible, recognizing that peaking will take longer for developing country Parties, and to undertake rapid reductions thereafter in accordance with best available science, so as to achieve a balance between anthropogenic emissions by sources and removals by sinks of greenhouse gases in the second half of this century . . .

In a post written before the conclusion of COP21, I assessed that a 1.5°C goal would require a rapid forty year transition to net-zero anthropogenic emissions and a period until at least the end of the century with negative emissions via BECCS (bioenergy and CCS) and DACCS (direct air capture and CCS). But the pathway proposed by the Agreement itself isn’t quite as ambitious, even while it aspires to a 1.5+°C outcome. Rather, it proposes achieving a balance between anthropogenic emissions and removals by sinks in the second half of the century. This may not be sufficient to achieve the 1.5+°C goal, with a key deciding element being the role of natural sinks.

The 1.5+°C pathway issue is highlighted in a paper published by the MIT Joint Program in July 2013. MIT deliberately avoided the use of negative emissions technologies, partly due to concerns about their scalability but also preferring to test the impact of natural sinks on the outcome. Of these, the ocean is the major short term sink because of the imbalance between levels of CO2 in the ocean and the atmosphere.

MIT analyzed four pathways that result in net zero anthropogenic emissions. These are shown in the chart below (fossil energy CO2 emissions only) against a business as usual trajectory based on the 2010 post-Copenhagen national pledges.

  1. An immediate drop to net zero by 2015, starting in 2010 (Natural only after 2015).
  2. A very rapid drop to net zero by 2035, but with growth from 2010 to 2030 (Natural only after 2035).
  3. A more extended drop to net zero by 2060, with the decline commencing in 2010 (Alternative).
  4. The IEA 450 scenario, with emissions peaking around 2020 and reaching net zero by 2070 (IEA 450).

MIT Scenarios - CO2 emissions

Pathway 3 is of particular interest. In this case anthropogenic emissions are at net zero by 2060, although starting to decline from 2010 when energy emissions are at 30 Gt CO2 per annum (it is now 2016 and they are at ~33 Gt). This scenario sees temperatures rise above 2°C by mid-century, but then decline as the ocean takes up significant quantities of CO2 from the atmosphere but with nothing being added from anthropogenic sources.  After some 20-30 years, as the ocean’s upper layer comes into balance with the atmosphere, uptake of CO2 slows. Mixing into the deep ocean is much slower but will continue for hundreds to thousands of years.

Back in 2010 the cumulative emissions from 1750 (to 2010) stood at some 532 billion tonnes carbon, which means that Pathway 3 approximates a 1.5°C outlook as the area under the curve from 2010 to 2060 (energy, cement and land use) represents an additional 250 billion tonnes of carbon emissions, giving a total of some 780 billion tonnes. The relationship between carbon emissions and temperature is about 2°C per trillion tonnes. The chart below shows the modelled pathway which results in an end-of-century temperature rise of 1.5°C.

MIT Scenarios - Temperature

The natural sink is therefore very important, offering some 0.5°C (see the light blue line in the chart above) of temperature reduction following an overshoot. This is possibly the only way in which 1.5°C can be met,  although significant anthropogenic sinks may also be developed (including reforestation) later which could offer the same drawdown. As such, with the Paris Agreement potentially not making use of this and instead only providing for emissions to fall to a level which matches the ability of sinks to take up carbon emissions, the task of meeting 1.5°C becomes considerably more difficult.

The same is true of the IEA 450 Scenario. With 2010 now behind us, the future equivalent of the Alternative pathway which saw reductions from 2010 onwards is probably the red 450 line (reductions from 2020), which overshoots to 2.7°C before achieving something of a plateau at 2°C. But to bring this down further by the end of the century and therefore comply with the Paris Agreement would also require the major application of anthropogenic sinks, such as via CCS and rapid reforestation.

This discussion may be something of a moot point today because the job of rapidly reducing emissions hasn’t even started and arguably we have at least 40+ years to think about where the endpoint should be. Nevertheless, as nations begin to reflect on the Paris outcome in the coming months and relook at their respective reduction pathways, the long term end point does become relevant because energy infrastructure planning requires a multi-decadal outlook. In its initial formulation of a long term carbon budget, the UK did need to look forward to 2050 but that was from a 2008 starting point. With a new starting point of 2020 or thereabouts, a 2060 or even 2070 end-point may well be considered.

There is of course a disturbing flip side to this story – continued rapid uptake of CO2 by the ocean also gives rise to increasing levels of ocean acidification.

Carbon pricing in 2015

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Perhaps more than any other aspect of the climate agenda, carbon pricing took a major step forward in 2015. This was supported by many initiatives, but most notably by the creation of the Carbon Pricing Leadership Coalition under the auspices of the World Bank. This in turn encouraged a variety of private sector interventions, such as the mid-year letter on carbon pricing from six oil and gas industry CEOs to the UNFCCC. All these actions urged governments to implement carbon pricing policies within their economies as the principle mechanism for advancing climate change action.

In terms of real policy developments, the January 2016 map (below) doesn’t look radically different to the January 2015 map, but a number of important changes took place;

  1. China confirmed the implementation of a nationwide ETS, with a proposal that would see such a system up and running over the coming 2-3 years.
  2. The fledging California-Quebec linked market is likely to see both Ontario and Manitoba join on the Canadian side.
  3. Alberta announced its intention to implement a comprehensive carbon tax from 2017.
  4. The US Clean Power Plan has elements within it that could (but not a given) lead to widespread adoption of a trading model, which in turn implies a carbon price developing in the US power sector.
  5. India again doubled its coal tax in the middle of the year, now at 200 Rupees per tonne of coal. While not a strict carbon price, it will have a similar impact. However, the level is very modest (<$2 per tonne CO2), even compared to the current low price of coal (~$40 per tonne).
  6. The aviation industry is moving closer to a voluntary carbon pricing system.
  7. South Africa moved forward with its carbon pricing legislation.
  8. The EU introduced the Market Stability Reserve as a mechanism to begin to manage the allowance surplus in the EU ETS.

The year ended with what may become the most important element of all, Article 6 of the Paris Agreement. While this doesn’t mention carbon pricing at all, it nevertheless provides fertile ground for its development through international trade of allowances and various other carbon related instruments. It also seeks to create a new global mechanism to underpin emissions reductions and promote sustainable development.

2016 will need to build rapidly on these developments if a government implemented carbon price based approach is to become the global model for reducing emissions. The ambitious goal of the Paris Agreement will need much wider and faster uptake of carbon pricing policy than is apparent from the charts below.

Carbon pricing 2016

Carbon pricing 2015Carbon pricing 2014

Carbon pricing 2013

From the moment Laurent Fabius nervously banged his gavel on Saturday 12th December, the newswires, bloggers and analysts have been writing about the success of COP21 and the ambitious nature of the Paris Agreement. Without doubt, more will be written in the weeks and months ahead. But the deal was done and many parts made it possible.

Deal done

In the end it is the detail and implementation that will count. One critical aspect of implementation received a major boost from a short but very specific piece of text within the Paris Agreement; Article 6 might just be the additional catalyst that is needed for the eventual emergence of a global carbon emissions market and therefore the all-important price on carbon.

The Paris Agreement was never going to be the policy instrument that would directly usher in a global price on carbon; carbon pricing is a national or regional policy concern. But the Agreement could offer the platform on which various national carbon pricing policies could interact through linkage, bringing some homogeneity and price alignment between otherwise disparate and independently designed systems. The case for this was initially put forward through collaboration between the International Emissions Trading Association (IETA) and the Harvard Kennedy School in Massachusetts. A number of papers coming from the school underpinned a Straw-Man Proposal for the Paris Agreement, authored by IETA in mid-2014 and eventually published at the end of that year. The straw-man didn’t mention carbon pricing or emissions trading, it simply proposed a provision for transfer of obligation between respective INDCs, in combination with rigorous accounting to support said transfer.

. . . . . may transfer portions of its defined national contribution to one or more other Parties . . . . .

In addition, the straw-man proposed a broader mechanism for project activity and REDD+. The IETA team worked hard during 2015 building the case for such inclusions in the Paris Agreement. A number of governments, business groups and environmental NGOs came to similar conclusions; Paris needed to underpin carbon market development. After all, fossil fuel use and carbon emissions are so integrated into the global economy that only the power of the global market could possibly address the problem that has been created.

Roll on twelve months and the Paris Agreement now includes Article 6, which provides the opportunity for INDC transfer between Parties and a sustainable development mechanism to operate more widely and hopefully at greater scale than the Clean Development Mechanism (CDM) of the Kyoto Protocol. In the case of the transfer, Article 6 says;

. . . . . approaches that involve the use of internationally transferred mitigation outcomes towards nationally determined contributions . . . . .

While not exactly the same as the original IETA idea, it does the same job. Of course, like every other part of the Paris Agreement, this is just the beginning of the task ahead. The CDM within the Kyoto Protocol was similarly defined back in 1997, but it was not until COP7 in Marrakech in 2001 that a fully operational system came into being. Even then, the CDM still required further revisions over the ensuing years.

Exactly how the transfer between INDCs materializes in a UNFCCC context is not clear today, although such a transfer is a prerequisite for cross border linking, such as between California and Quebec or what might eventually become multiple US States and multiple Canadian Provinces. The good news for now is that the provision is there and its use can be explored and developed over the coming year before the COP convenes again in Marrakech in 2016. The eventual goal remains the globally linked market.

Global market

The case for limiting the rise in global temperatures to 2°C was made many years ago and finally agreed at COP16 in Cancun in 2010. But the text noted the importance of an even more aggressive target, notably 1.5°C, proposed by the small island states who were deeply concerned about future sea level rise. While 1.5°C doesn’t guarantee to limit sea level rise such that certain island nations remain safe, it does further shift the global risk profile in terms of possible major changes in the ice shelves.

The idea of a 1.5°C goal has remained largely in the background since 2010, but COP21 has brought the issue to the forefront of negotiators minds, with a reported group of some 100 countries now willing to support such an objective. At a reception early in the second week, the UK Climate Minister was very upbeat about the 1.5°C goal and the government’s role in working with AOSIS (Alliance of Small Island States). At the COP Plenary on Wednesday night (9th December), many groups and nations spoke about the need for a 1.5°C goal.  But while there is increasing enthusiasm for and talk about such a goal, there seems to be limited substantive discussion on the feasibility of achieving it.

As often discussed in my postings, the expected global temperature rise is closely linked with cumulative emissions over time, not the level of emissions in a certain year. This means that what might have seemed achievable in 2010, is all the more difficult in 2015 with higher emissions and continued upward pressure. In fact, between 2010 and 2015 another 60 billion tonnes of carbon has been released into the atmosphere. Total emissions since 1750 now stand at just under 600 billion tonnes carbon, with 1.5°C equivalent to some 750 billion tonnes carbon based on a climate sensitivity of 2°C per trillion tonnes. Even if emissions were to continue to plateau as we have seen over 2014-2015, the 1.5°C threshold would be reached as early as 2028.

There are always a variety of trajectories possible for any temperature goal, but 1.5°C offers little room for flexibility, given its stringency. One such pathway which adds up to ~750 billion tonnes carbon by 2100 is shown below (global CO2 emissions on the vertical scale). In this pathway, global net zero emissions must be reached in just 40 years (860 billion tonnes accumulation), followed by another half century of atmospheric carbon removal and storage (~100 billion tonnes removal). Some 10 billion tonnes of CO2 must be removed and stored each year by late in the century, either through bio-energy with carbon capture and storage (BECCS) or direct air capture of CO2 and subsequent storage (DACCS). Significant reforestation would also play a major role. With infrastructure in place, the 22nd century might even offer the possibility of drawing down on CO2 below a level that corresponds with 1.5°C.

OnepointfiveC

Apart from massive reliance on CCS both on the way to net zero emissions and afterwards to correct the over accumulation, such a plan would require a complete rebuild of the energy system in just 40 years. This would include the entire industrial system, all transport and power generation. Alternatives would have to be found for many petroleum based products and a new large scale synthetic hydrocarbon industry would be needed for sectors such as aviation and shipping. While agriculture is largely a bio based emissions system, a solution to agricultural methane emissions would also nevertheless be needed.

A pathway that doesn’t involve future use of CCS would require net zero emissions in just 23 years – an option that isn’t even remotely feasible. Returning to the 40 year pathway, even this presents an immensely challenging task. While it might be feasible to have a zero emissions power sector in under 40 years, particularly given that all the necessary technologies to do so exist in one form or another, electricity still represents only 20% of final energy use. Solutions would have to be found for all other sectors, which in many instances involves electrification and therefore places a significant additional load on the redevelopment of the power generation system. Aviation would be particularly tricky.

Finally, there is CCS itself. The pathway above (and almost any other 1.5°C pathway) is completely dependent on it, yet the technology is hardly deployed today. It is certainly commercially ready, but the barriers to deployment are many, ranging from the lack of an economic case for project development to public concern about deep storage of carbon dioxide. The later that net zero emissions is reached, the greater the post net zero dependence on CCS becomes.

While the case for 1.5°C has certainly been made from a climate perspective, it has yet to be demonstrated from an implementation perspective.

COP21: Targets, goals and objectives

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As the negotiators struggle on in Paris at COP21, the question of the long term goal has emerged. What should it be, how should it be structured and will it send the necessary signal to drive future national contributions.

The idea of a goal goes back to the creation of the UNFCCC. There is the original text agreed when the Convention was first written in 1992, i.e. “. . . stabilization of greenhouse gas concentrations in the atmosphere at a level that would prevent dangerous anthropogenic interference with the climate system . . . “. At COP16 in Cancun, the Parties to the UNFCCC reformulated this as a numerical goal; the need to limit warming of the climate system to no more than 2°C above the pre-industrial level with consideration for reducing this to 1.5°C as the science might dictate. This seems very clear, but in fact offers little immediate guidance to those attempting to establish a national or even global emissions pathway.

The climate system is a slow lumbering beast and the global temperature could take years or even decades to settle down once there is stabilization of carbon dioxide (and other greenhouse gases) in the atmosphere. It could be decades after that before we are collectively sure that no further temperature rises will take place. But the science has shown that the eventual rise in temperature is strongly related to the cumulative emissions of carbon dioxide over time, starting when emissions were negligible (say 1750) and running through several centuries (e.g. to 2500). Myles Allen et. al. from Oxford University equated 2°C to the cumulative release of one trillion tonnes of carbon, which offers a far more mechanistic approach to calculating the point at which 2°C is reached. So far, cumulative emissions amount to some 600 billion tonnes of carbon. However, even this approach has uncertainty associated with it in that the actual relationship between cumulative emissions and temperature is not precisely known. If emissions stopped today, it is very unlikely (but not a zero chance) that warming would continue to above 2°C, but if emissions were to stop when the trillion tonne threshold is reached then there is only a 50% chance that the temperature would stay below 2°C. The agreement in Cancun doesn’t cover uncertainty.

The Oxford University team have developed a website that counts carbon emissions in a bid to familiarize people with the concept. As of writing this post, it was counting through 596 billion tonnes and provided an estimate that 1 trillion tonnes will be reached in October 2038. The INDCs already reach out to 2030 and as they stand, will not put the necessary dent into the global emissions profile that is needed to avoid passing one trillion tonnes. In terms of energy system development, 2038 is in the medium term. Most forecasts out to this period, including the IEA New Policies Scenario which factor in the INDCs, show energy demand and emissions rising over that period, not falling.

In line with the Cancun Agreement, a number of Parties have maintained the need to lower the goal to 1.5°C, but particularly those from low lying island states who are justifiably concerned about long term sea level rise. This goal is being voiced more loudly here in Paris. Using the relationship developed by Allen et. al., this implies that 1.5°C would be exceeded if cumulative carbon emissions passed 750 billion tonnes, which could happen as early as 2027. This would imply a massive need for atmospheric CO2 capture and storage over the balance of the century for the simple reason that cumulative emissions could not be contained to such a level by energy system reductions alone.

More recently the concept of net zero emissions (NZE) has emerged. This is the point in time at which there is no net flow of anthropogenic carbon dioxide into the atmosphere; either because there are no emissions at all or if emissions remain because they are completely offset with a similar uptake through carbon capture and storage or reforestation and soil management. Emissions are likely to remain for a very long time in sectors such as heavy transport, industry and agriculture. NZE has been closely linked to 2°C, but in fact any temperature plateau, be it 1.5°C or even 4°C requires NZE. If not, warming just continues as atmospheric CO2 levels rise. There is now a discussion as to when NZE should be reached – as early as 2050 (but practicality must be a consideration), or perhaps by the end of the century. However, what is actually important is the area under the emissions curve before NZE is achieved, less the area under the curve after it is reached, assuming emissions trend into negative territory with technologies such as direct air capture or bioenergy with carbon capture and storage (DACCS or BECCS). The date at which NZE is reached is important, but not necessarily an indicator of the eventual rise in temperature. Just to complicate matters further, although the world needs to achieve NZE eventually, it may be the case that net anthropogenic emissions do not have to be zero by 2050 or 2100 to meet the 2°C  goal because of carbon removal arising from natural sinks in the oceans and terrestrial ecosystems.

Other proposals put forward by Parties and some observers simply call for an urgent peaking of emissions. This is important as well, but again it doesn’t tell the full story. What happens after the emissions peak is critical. A long slow decline to some plateau would be positive, but unless that plateau is close to NZE, then cumulative emissions continue to build, along with the associated warming. Other proposals argue for emissions to be at some reduced level by 2050, which presumes a certain follow-on trajectory equating to 2°C or thereabouts.

Where the Parties land in this discussion remains to be seen, but with only days left and the complexity of goal setting becoming apparent, this may end up being an issue for the years ahead rather than one that can be fully resolved in Paris in a week. 2°C may have to do for now.

Emission pathway

 

COP21: How are carbon markets doing?

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The opening of COP21 has come and gone with some 150 statements from the pulpit by the largest collection of global leaders ever to assemble in one place. It wasn’t possible to listen to all of them as the group was split and parallel programmes ran in separate rooms. But with the benefit of the excellent webcast facilities provided by the UNFCCC it was possible to jump back and forth between the two groups and listen to a few key addresses. I was hoping for some solid mention of carbon pricing, but references were few and far between, despite the push by the World Bank to raise the profile and importance of government policy measures to introduce a price on carbon. However, the French Preident did make a particular reference.

Two other references that I heard are particularly important;

  1. The President of China, Xi Jinping, reiterated the plan to introduce an economy wide cap-and-trade system in that country.
  2. The new Australian Prime Minister, Malcolm Turnbull, announced that Australia would ratify the 2nd Phase of the Kyoto Protocol, covering the period from 2013-2020.

In one sense the Australian announcement might be seen as a symbolic gesture, in that the Kyoto Protocol is clearly winding down with the expected arrival of the Paris Agreement. However, the move could also  represent an important stake in the ground for the future. Australia has a growing resource sector, even during the current period of lower commodity prices. As such, reducing emissions almost certainly means attaching the economy to an international carbon market, such that even if domestic emissions do not immediately fall, the country can nevertheless pay its way in terms of reductions elsewhere. Australia will need a market architecture to do this and at least for the period up to 2020, the Kyoto Protocol is the only game in town. It will also allow Australia to hold on to offshore reductions made in the pre-2020 timeframe and carry them forward into the Paris Agreement period; assuming that period sees the development of some sort of carbon market framework and accounting.

Therein lays a problem. At least early on in the Paris deliberations, negotiators were already stuck, trying to find agreement between very basic accounting provisions and a more overarching carbon market framework for the Paris Agreement. Simple accounting is perhaps closer to the entirely bottom up nature of the Paris process, but a real market needs some form of framework to build on, particularly when the traded commodity within that market requires precise definition from government.

This is not to say that nobody is talking about carbon pricing in Paris. It was gratifying to see the new Prime Minister of Canada appear on the podium at the launch of the World Bank Carbon Pricing Leadership Coalition, which Shell has joined. Mr Trudeau had come from his leadership statement in the Plenary where he proudly announced, “Canada is back”. At the CPLC launch he spoke of the efforts of the Canadian Provinces in developing carbon taxes and cap-and-trade systems.

But my early take is that the governments now represented in Paris have a way to go before fully recognising one important truth about climate policy. Implementing public policy to deliver a cost for emitting carbon dioxide as part of the energy economy is arguably the single most important step that can be taken to achieve the global goal of limiting warming of the climate system to as close to 2°C as possible.

On Wednesday evening (December 2nd) the business community made it very clear what they think on this issue. At an event in the IETA/WBCSD pavilion, a dozen or more major business association read out their statements on the importance of a carbon price and the inclusion of carbon market provisions within the expected Paris Agreement.

Global market

As COP21 starts and the negotiators face the task of reaching an agreement, one of the most important points of discussion will be the review and recalibration of INDCs. Many organisations, including some business based ones (i.e. We Mean Business), are arguing for a five yearly review of the national contributions. If strictly adopted, this might mean that the first round of INDCs are already under review before they formally commence (i.e. 2020), such that the global emissions outcome by 2025 is already lower than current INDC projections would project. An alternative is a 10 year review, such that the first deviation from current INDC projections becomes apparent in the early 2030s.

There are practical considerations associated with this. Many who view the energy industry from the outside have consistently had expectations for rapid change. For example, the UNFCCC itself has continued with its pre-2020 workstream even as the time for meaningful change has diminished. This isn’t to argue that nothing can happen between now and 2020, but it is unlikely that much extra can now happen in that time frame. The energy industry is built on long lead times, project cycles that can stretch out to a decade and capital cycles that are often laid out years in advance of actual spending. Sometimes this can be disrupted, particularly when there is a sudden shift in market price structure, but that is not the normal pattern of change.

There is also the reality of policy development timelines needed to trigger change. For example, the EU is in the midst of a three year (at least) examination of the climate and energy needs for the period 2020 to 2030, which requires green papers, white papers, various stakeholder consultations, draft legislation, parliamentary committee discussion, a parliamentary vote, Member State agreement and transfer to national legislation. It is unlikely that this would be revised as soon as 2018-2021 having just reached agreement on the entire package in 2016 and finalised EU wide adoption in 2017. The institutional capacity may not exist for constant revision.

But there is an overriding thought which should take priority – the emissions and therefore eventual temperature impact of moving to a more aggressive review timetable. It is very clear that the current round of INDCs do not deliver a 2°C pathway – many analysts and the UNFCCC have concluded that. The INDCs also say little to nothing about the past 2030 period, so future INDCs or review of current INDCs will be needed.

A relatively basic analysis can give some insight as to the climate value of review and the benefit of conducting that on a five year basis or a ten year timetable. I put this together as outlined below;

  • There isn’t really a clear emissions trajectory for the current round of INDCs, at least not after 2030. For the purposes of this analysis I have assumed that they result in peaking of global emissions in the 2030s, followed by the beginnings of a decline to 2040 and beyond. Some would argue that even this is optimistic.
  • The 2°C pathway reaches net-zero emissions in about 2080, then enters a period of negative emissions through the use of a technology such as BECCS (biomass energy with carbon capture and storage).
  • In the case of a five year correction process, I assumed that every five years the UNFCCC looks at progress against a 2°C pathway (which of course will change over time, but I haven’t got into that detail) and after each new round of submissions the INDC pathway, as it would be at that point in time, shifts a quarter of the way further towards the 2°C pathway. The result is an emissions trajectory that starts to deviate from the current INDC pathway by 2025.
  • In the case of the ten year correction process, the same happens but on a ten year cycle, with the intervening five year period declining at the same rate as the previous five year period. Because of the slower turnaround in the process, I also assumed that after a more protracted INDC discussion, the shift in the pathway is relative to the 2°C line as it was five years earlier, rather than at the time. As such, there is a bit more lag built into the process and emissions remain the same as the current INDC pathway until after 2030.

INDC Review Pathways

  • The chart above shows the four potential pathways; 2°C, the current INDCs extended out for several decades and the corrected pathways, based on five year and ten year correction cycles.

As shown, the uncorrected INDC pathway is a 3+°C scenario, whereas both the five year and ten year correction pathways are about 2.5°C and both arrive at a net zero emissions outcome around the turn of the century. As such, it is clear that a review cycle can change everything and has the potential to deliver a clear outcome rather than an open ended emissions tail stretching well into the 22nd century.

But the difference between them is 0.15°C, or a cumulative 280 million tonnes of CO2 over the balance of the century. While this is not insignificant, the more important goal for the negotiators should be to agree a clear review and recalibration process, rather than be too focussed on the precise timeliness of it.

Why carbon pricing matters – the video

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David+2

As we get closer to COP21 there will be plenty of articles and opinion pieces put forward describing the process, speculating on the outcome and generally trying to help readers understand what exactly is going on. One such piece appeared in the Financial Times recently, written by Pilita Clark. It’s a good summary and has some thoughtful insights but requires some clarification around what the six oil and gas industry CEOs actually argued for in their letter to the UNFCCC.

Pilita Clark rightly points out that a Paris accord, if reached, will be based on many widely differing national contributions, rather than a single agreed policy such as a global carbon price. But the article further qualifies this conclusion with reference back to the letter that the CEOs of Shell, BP, ENI, BG, Statoil and Total wrote to the Executive Secretary of the UNFCCC and the French Presidency, with the following remark;

“. . . the European oil and gas companies that have called for a global carbon pricing framework ahead of the Paris meeting have done so safe in the knowledge this would never emerge from the talks.”

In fact the letter didn’t call for a global carbon price or pricing framework for the very same reason that Pilita Clark gave; this isn’t on the agenda and would never be agreed by the negotiators assembled in Paris.

Rather, the main agenda item for Paris is the negotiation of a framework within which the Intended Nationally Determined Contributions (INDC) will sit. This will probably include provisions for measurement, reporting, verification, peer review and financial assistance for implementation.   An important tool for nations to meet their mitigation goals will be through  carbon pricing mechanisms, which are referenced in a few Parties’ INDCs but not often enough.   The framework agreed in Paris could also include another important provision; the notion of cooperative implementation through the transfer of the obligation under the INDC to another party. This would allow emission reductions to be made at lowest cost globally, which in turn could assist the process of review and agreement on greater ambition.

The International Emissions Trading Association (IETA) have been advocating for such a provision for over a year, with a proposal that would require such transfers to be reconciled in terms of carbon units of some description. The transfer of units would lead to price discovery and therefore the emergence of a carbon market at international level. IETA proposed the following short text insertion within the expected Paris agreement:

Cooperation between Parties in realizing their Contributions

Parties may voluntarily cooperate in achieving their mitigation contributions.

  • A unified international transfer system is hereby established.
  • A Party though private and/or public entities may transfer portions of its nationally determined contribution to one or more other Parties through carbon units of its choice.
  • Transfers and receipts of units shall be recorded in equivalent carbon reduction terms.

IETA have also proposed alternative formulations of the same idea as various Parties (national governments) have put forward their own versions of the concept. Like almost every piece of language proposed so far, this has been incorporated to some extent in the 55 pages of text about to be negotiated, along with its multitude of bracketed options and alternative language possibilities. What survives remains to be seen?

In their letter, the CEOs alluded to this idea, when they called for the following;

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

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

National carbon pricing systems make complete sense, such as the ETS in Europe and the proposed carbon tax in South Africa. The framework that could connect them would allow for the speedy and transparent transfer of a national obligation across a border through emissions trading, which is exactly what happens today between Norway and the EU, between countries within the EU and arguably even between the USA and Canada through the California – Quebec ETS linkage. But this needs to be a much more widespread activity in order to quickly leverage the full potential for emission reduction that exists at any point in time.

This isn’t an empty call for a global carbon price, but a reinforcement of the call that IETA has been making for some time and a plea to the UNFCCC, the French Presidency of the COP and the respective Parties to see such a measure included in the Paris agreement. It’s a simple practical step that is needed to catalyse the development of a global carbon market.