Back to Antarctica

Back in 2009 this blog was kicked off by a trip to Antarctica for the NGO 2041. Over the last two weeks I have had the privilege to return, again with 2041. This is an NGO that is dedicated to the preservation of the continent as a last untouched place on earth – the name derives from the 50th anniversary of the Antarctic Treaty which imposes a moratorium on mining and resource extraction form Antarctica, but with the possibility of review of that provision in the 2040s.

2041 run annual expeditions to the Antarctic Peninsula in a bid to help younger people understand the importance of the continent with the potential that some of them may be in a position to make a difference on the outcome of any review in 30 years time. This overarching story about Antarctica serves as a backdrop for a deeper dive into sustainability and environmental issues, including climate change.

I gave a series of presentations on climate change over the two weeks, drawing extensively from the material in this blog and from my recent book. When I spoke in the theatre on the ship, the world’s largest cache of fresh water was visible through the window beside me; as ice stored in the mighty glaciers of the Antarctic continent.  A chain of events is now unfolding leading to a gradual reduction in ice mass in Antarctica, thereby raising sea levels and slowly impacting coastlines the world over. The young people in the audience will have to deal with this legacy.

On the trip we saw a different legacy of sorts, with a stop at Whalers Bay in Deception Island; I use the word “in” here because you literally sail into the island to reveal its splendour. Whalers Bay is a sombre place where for a period of some thirty years early in the 20th Century killed whales were brought ashore for rendering and extraction of their valuable oil. Although US whale oil use had almost vanished by 1900, it continued on globally for some time after this, being used for lamp oil, soap and margarine. But by the 1930s when Whalers Bay was eventually abandoned, whale oil prices globally had collapsed as substitutes for almost all its uses had been found. Electricity, crude oil and vegetable oils brought this industry to an end. Whalers Bay is an interesting place to contemplate the market shifts we may see this century!

To close out, here are a few of my photographs from the expedition. The final photograph is of a rare sighting of a sperm whale near Cape Horn.

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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).

At the UN Climate Summit last September, the World Bank and others put the carbon pricing – or perhaps more correctly carbon valuation – discussion squarely back on the agenda, first with a Statement on Carbon Pricing signed by over 1000 companies and 70 governments and then with a series of side events and meetings which also carried through to COP20 in Lima. The World Bank is now building on their initiative throughout 2015 as we head towards COP21 in Paris.

One important aspect of the initiative is the role of business and the way in which companies handle the carbon pricing (carbon valuation) agenda internally. This stems from another part of the World Bank initiative which was initially launched by the UN Global Compact, the Business Leadership Criteria on Carbon Pricing. The criteria are designed to encourage companies to incorporate an internal carbon price (value) within the business, advocate for  carbon value generally and communicate on progress. The first of these has led to some interesting discussions in various forums, with a range of views emerging as to what an internal carbon price (value) does and how it is applied.

Some observers have concluded that an internal approach operates as a true proxy cost of carbon emissions within the business that is applying it, such that the business behaves as if it were subjected to an external carbon tax operating at the same price. This would be done in the absence of such an external price driver, therefore acting as a stand-in for the lack of government action. To some extent, wishful thinking is operating here, with some believing that internal carbon pricing can lead to widespread emission reductions as a major business led initiative. But this is not what is happening or what is meant by an internal carbon price.

Rather, the internal “carbon price”, also referred to as a “shadow carbon price”, “carbon price premise” or “carbon screening value” is normally a mechanism used to manage the future regulatory risk that parts of the company or a future project may be exposed to. For example, if a certain investment is to be made, that investment is then tested against a variety of future conditions, which could include an eventual cost incurred by the expected emissions of carbon dioxide. Although the project may not immediately be exposed to such a price, the development of climate legislation over the life of the project may create such an exposure, which in turn could threaten the future viability of the asset. The application of a screening value applied when the investment proposal is being assessed allows the investor to reconsider the project, change the scope, modify the design or simply accept the level of risk and proceed.

The practice of applying an internal carbon price (value) in this manner is one of many steps that a company may take as it prepares for a world in which a real cost on carbon emissions becomes an external reality. The World Bank has developed a series of case studies on these preparatory measures and these have been published very recently in a report titled “Preparing for Carbon Pricing, Case Studies from Company Experience: Royal Dutch Shell, Rio Tinto, and Pacific Gas and Electric Company”. The report was prepared by the Washington based Center for Climate and Energy Solutions (C2ES) under the auspices of the Partnership for Market Readiness, a World Bank initiative.

Preparing for carbon pricing

These case studies illustrate the benefits of incorporating climate change policies into corporate strategies; analyzing risks and opportunities in an environment of new public policies; and engaging effectively with relevant stakeholders—including governments. The case studies also show how carbon assets are traded and what systems are being constructed to monitor, report, and verify company level GHG emissions.

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

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.

 

The first fridge in town

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

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

First fridge

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

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

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

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

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

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

India coal

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

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

Talking about climate change

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From the rarefied atmosphere of the Swiss Alps to a small London theatre, there has been a lot said about climate change over the last couple of weeks.

The World Economic Forum held its annual retreat at Davos, with climate change high on the agenda. Much of the discussion was about building additional momentum towards a UNFCCC led agreement in Paris at the end of this year. Business leaders, politicians and other prominent people from civil society reiterated the need for a strong outcome. World Bank President Jim Yong Kim was more specific and called on leaders to “break out of the small steps of business as usual and provide that structure, first and foremost by putting a price on carbon”. The call for more emphasis on carbon pricing has been a strong World Bank theme for a year now.

While there was good talk emanating from Davos, in Brussels the scene was very different. The EU Parliament ITRE Committee (Industry, Research and Energy) was apparently not listening to the calls from Davos and instead ended up with “no opinion” on the important proposals required to support the carbon price delivered by the EU ETS, through the early implementation of the proposed Market Stability Reserve (MSR). The “no opinion” outcome was the result of not supporting the need to start the MSR early and use the 900 million backloaded allowances as a first fill, but then rejecting an alternative proposal on how the MSR should be taken forward. The only silver lining in this otherwise dim cloud is that the debate is about the proposed structure of the MSR, rather than whether an MSR should be present at all. Nevertheless, it is disappointing that some industry and business groups in Brussels did not seem aligned with the recognition that many of their member CEOs were giving to the carbon pricing discussion in Davos just a few hundred miles away.  The proposals for the MSR now have to go to the important ENVI (Environment) Committee in Parliament as well as to the Member States, where there is cause for optimism that they will adopt a position in favour of a stronger MSR reform.

One business group did give very strong support to the MSR proposals, the UK and EU based Corporate Leaders Group (CLG). This organisation started its life 10 years ago, which means it is also celebrating a landmark birthday along with the EU ETS. The CLG sits under the Cambridge University Institute for Sustainability Leadership, with the Prince of Wales as its patron. This is a group that has been talking about the need for a robust carbon price in the EU for many years and backing that talk up with strong advocacy in Brussels and various Member State capitals. Birthday celebrations were held in London to mark the occasion, with the Prince of Wales in attendance. The CLG was a step ahead of the World Bank with its own Carbon Price Communique back in 2012. While the World Bank effort has garnered greater support than the original CLG effort, it is worthy of recognition that the current push for this important instrument had its roots in the business community.

Despite the important talk in Brussels and Davos, the real talk on climate change came from a small theatre in Sloan Square, London. Climate change might seem like an odd subject for the London theatre scene, but nevertheless there it was. Chris Rapley, former head of the British Antarctic Survey, more recently the head of the Science Museum and now Professor of Climate Science at University College London, staged an engaging one man show to talk about the climate. This wasn’t the Inconvenient Truth with its high profile narrator and 200 odd PowerPoint slides, but more a fireside chat about paleo-history, the atmosphere, trace gases and the global heat balance. Here was a man who had spent the majority of his life studying this issue, from field measurements in Antarctica to computer analysis of satellite observations and his message was very clear; we are in trouble. There was no alarm, no hysteria and no predictions of an apocalypse, but just a softly spoken physicist explaining his job and describing with great clarity what he had learned over the course of some forty years of hard work. The audience was engrossed by the monologue and the gently changing backdrop of graphs and charts that seemed to envelop the speaker.

Chris Rapley 2071

This production is a unique approach to communicating the climate change issue to a new audience. It is small in scale, but it will get people thinking about the subject and hopefully discussing it in less partisan terms. The show, 2071, has now completed a second short run in London but may be destined for some other venues. I would highly recommend it.

This month the EU Emissions Trading System is ten years old – which in itself is quite an achievement as there were those at the start who said it wouldn’t last and any number of people over the years who have claimed that it doesn’t work, is broken and hasn’t delivered. Yet it stays with us, continues to be the bedrock of the EU policy framework to manage CO2 emissions and despite issues along the way, is now likely to receive a significant overhaul in time for 2020 when a new global deal on climate change should kick-in.

Check-under-the-hood

The ETS started life as a relatively short draft Directive (EU ETS Draft Directive 2001) back in 2001 and has expanded since then with appendages such as the linkage Directive and the 2008 Energy and Climate package (e.g. NER300) and will likely expand again with the proposed addition of the Market Stability Reserve. But the simple concept of a finite and declining pool of allowances being allocated, traded and then surrendered as CO2 is emitted has remained and despite various other issues over the years the ETS has done this consistently and almost faultlessly year in and year out. The mechanics of the system have never been a problem.

The one issue that has plagued the ETS has been the price – from some arguing it was too high at the start to many now concerned (including me) that the surplus of allowances and consequent low price has stopped all direct investment in emission reduction projects.

10 Years of the EU ETS

With investment as a goal, the heyday of the system was 2007-2008 when Phase II was underway and confidence was rising that a long term carbon price signal had emerged in Europe to guide decarbonisation efforts going forward. There was plenty of evidence that this was really the case. Fuel switching to gas was gathering pace, innovative projects were being considered in many industrial facilities and when the European Parliament agreed the NER300, some 20 CCS projects were initially tabled with the Commission for consideration. After all, at a CO2 price of ~€30 that meant ~€9 billion  of project funding and sufficient support for the operational cost of CCS. But as the price fell to a low of <€4 in April / May 2013, everything evaporated. The ETS became more of a compliance formality than an investment driver.

Last week I participated in a lunchtime seminar on the Future of the ETS held within the European Parliament in Strasbourg. Unlike some lunchtime events I have attended over the years, this one was packed, with standing room only. There is real and genuine interest amongst many MEPs to reform this instrument and return the CO2 price to its rightful position as the key market signal to drive change in the energy system. After all, there are plenty of good reasons to do this, starting with the most important reason of all – it’s the most economically effective way of doing the job.

The seminar focussed primarily on the proposed Market Stability Reserve (MSR), which is an intended pool of allowances that can be drawn on in the event of excessive tightness in the allowance supply / demand balance or added to when a surplus prevails. The conceptual design of this mechanism now seems to be largely agreed, but the operating parameters are still being negotiated between Member States. Most importantly is the question of a “first fill” of allowances and the intended start date of the process. Given the significant surplus that now exists, it makes sense to do the “first fill” with the 900 million allowances withheld from auctioning under the backloading initiative and to start the MSR much earlier than 2021 (i.e. 2017) so that it can continue to absorb the current overhang.

Recalibrating the EU ETS and having it fit for purpose as other countries implement their UNFCCC INDCs (Intended Nationally Determined Contributions) to also reduce emissions will offer the EU a true competitive advantage in a challenging global economy. It will allow the EU to achieve similar or even greater reductions than others, but at lower cost.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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