The first UNFCCC talks since the adoption of the Paris Agreement are now underway and the various delegations are getting down to the tough task of implementation. I was in Bonn on the opening day of the two week meeting, representing the International Emissions Trading Association (IETA) in a side event hosted by the Clean Development Mechanism (CDM) Executive Board (EB). The aim of the event was to draw on the learning from a decade of CDM operation and apply this experience to Article 6 of the Paris Agreement. This is the Article that provides a potential new foundation for carbon market development. I was there to present the IETA Article 6 Vision paper which I posted a story on recently.

The side event was packed out and many were standing in the corridor leading to the room; there is clearly considerable interest in this topic. Over the years the CDM has been a successful mechanism, resulting in nearly 8000 projects and some 1.7 billion Certified Emission Reduction (CER) units issued. Even at a €5-10 per CER (as it was in the earlier days of the EU ETS), this still represents a carbon price based financial injection of up to €10 billion into developing economies. The CDM spawned a small industry of project developers, assessors, MRV professionals and climate finance experts and clearly demonstrated that even a gentle application of the market can have a significant impact. Little wonder that there is such interest in the mitigation mechanism embedded in Article 6 and its potential to drive change.

However, the CDM (or a version of it) is unlikely to be repeated or replicated under Article 6, at least not under the terms that existed within the Kyoto Protocol. It was clear from the discussion during the side event that this new reality is going to take a while to hit home and settle in. The CDM became an important source of climate finance for developing countries, where the only real obligation on the part of the host country for a given project was to provide the necessary governance structure to ensure eventual issuance of the CERs. But that is no longer the case given the provisions of the Paris Agreement and Article 6 are now effectively the same for all countries.

Over time, Nationally Determined Contributions (NDC) will expand to cover all greenhouse gas in all economies. Every NDC, either specifically or notionally (for assessment and stocktake purposes) is linked to a quantitative carbon budget and there is an expectation from the Paris Agreement that these budgets will be delivered. While the Paris Agreement doesn’t say this in such stark terms, it is nevertheless implied. The whole approach that the UNFCCC used to assess the NDCs in their latest synthesis report, released on May 2nd, underpins this. Their aggregate analysis is summarized in carbon budget terms as follows;

The implementation of the communicated INDCs is estimated to result in aggregate global emission levels of 55.0 (51.4 to 57.3) Gt CO2 eq in 2025 and 56.2 (52.0 to 59.3) Gt CO2 eq in 2030. The global levels of emissions in 2025 and 2030 were calculated by adding the estimated aggregate emission levels resulting from the implementation of the communicated INDCs, that is 46.5 (44.3 to 48.9) Gt CO2 eq in 2025 and 48.0 (45.1 to 51.4) Gt CO2 eq in 2030, to the levels of emissions not covered by the INDCs. Global cumulative CO2 emissions after 2011 are expected to reach 533.1 (509.6 to 557.2) Gt CO2 in 2025 and 738.8 (703.6 to 770.9) Gt CO2 in 2030.

As I noted in my last post and drawing on Article 6.5 in the Paris Agreement, this means that the transfer of credits from a project across a national border (in the style of the CDM) will impact the national inventory reports of both parties. These transfers will then have to be executed in the style of Joint Implementation (JI) of the Kyoto Protocol, which effectively required an adjustment to the project host country’s national goal if the crediting unit was to be used by another Party to meet their goal.

I raised this issue as part of my presentation and the message was then amplified by a couple of people in the audience during the Q&A. But the response from some in the room was close to one of denial of this new reality, even though the Paris Agreement makes the need for such adjustment clear. The discussion almost drifted back into the old reality of developing countries not having goals and targets, but fortunately we didn’t land there. We didn’t resolve the issue either, which means that there are probably some tough discussions ahead as the negotiators get down to business.

A week later in Bonn and after many hours of discussions on Article 6 by the Parties, there has been some progress. At a side event on the second Monday also on Article 6 and also standing room only, I heard one central African delegate note that we had certainly left the world of the CDM and that perhaps we were somewhere between the constructions offered by CDM and JI of the Kyoto Protocol, albeit this would have to be interpreted to match the new bottom up global architecture of the Paris Agreement. I also heard another national delegate argue strongly that the new mechanism was not a sustainable development mechanism and should not be referenced as such, even if sustainable development was an important outcome of the implementation of the mechanism. Several panellists talked about quantification of NDCs as an important precursor to the avoidance of double counting.

The various concerns and issues that have been raised in these early discussion are very valid and the answers aren’t immediately obvious. Many developing countries have placed the need for finance as a condition on at least some portion of their mitigation contribution and in the past the CDM offered such finance. But if the reality of a new mechanism is a tighter national goal as a consequence of using it, there may be some push back. In the IETA paper one possible solution to this was proposed, namely the direct purchase of project units from the host country of the mitigation activity by multi-lateral funds. But this is unlikely to reach the necessary scale of mitigation envisaged by the NDCs, so other approaches will have to be developed. Interesting times ahead!

Update: The co-chairs in the UNFCCC discussions on Article 6 have released informal notes on ITMOs (here) and the proposed mechanism (here). These are a summary of points made in the initial discussions in Bonn.

Within the Paris Agreement sits Article 6, a carefully crafted set of provisions to foster, in the parlance of the UNFCCC and the Parties to the Agreement, cooperative approaches. This includes a provision for cross border transfer of mitigation outcomes and a mechanism to contribute to the mitigation of greenhouse gas emissions and support sustainable development. But for those outside the negotiating process (and hopefully those inside as well), this Article is seen as the foundation for carbon market development. There was a great deal of advocacy effort behind the Article, particularly from the International Emissions Trading Association (IETA) who argued strongly that such a construction within the Paris Agreement was essential to see accelerated adoption of government implemented carbon pricing; widely recognised as a critical policy instrument for managing carbon dioxide emissions.

The wording of Article 6 needs some deciphering and for those now assembling in Bonn to begin the process of implementation of the Paris Agreement, some steer from the private sector will hopefully be helpful. After all, if the provisions do enable the development and expansion of carbon markets then it will almost certainly be the private sector that is most deeply involved. To that end, IETA have now published a first thought piece on Article 6, setting out a vision for its implementation.

IETA Article 6 Brochure

The IETA vision for Article 6 is built on the need for governments to implement carbon pricing, ideally through market based approaches such as cap-and-trade or baseline-and-credit. This starts with the internationally transferred mitigation outcomes (ITMO), described in 6.2 and 6.3. These transfers are effectively carbon market trades between governments or private entities operating through emission trading systems. One example is the link between California and Quebec, which effectively ties parts of the Nationally Determined Contributions (NDCs) of Canada and the United States together. Similarly the link between Norway and the EU ETS is doing the same for their respective NDCs. IETA argues that for clean and simple accounting and the avoidance of double counting, that the concept of exchange of carbon units, either notional or real, should be an underpinning feature of any ITMO. That means the basis for cooperative approaches is, for the most part, a market based one. For governments to access the economic benefits and cost effectiveness of a cooperative approach, they will need to implement carbon unit based emissions management systems within their economies.

IETA also recognises that not all governments may be ready or able to implement trading based systems, so its vision draws on another aspect of Article 6 to enable this. Paragraphs 6.4 (a) – (d) describe an emissions mitigation mechanism (which IETA have given the designation EMM). While some commentators are already arguing that this is a future version of the Clean Development Mechanism of the Kyoto Protocol (i.e. CDM 2.0), IETA makes the case for a much broader interpretation and use of this mechanism. Such implementation could see the EMM offering both universal carbon allowance and crediting units for those countries that choose to use them, facilitating trade between NDCs (i.e. ITMO), providing registry accounting and offering the prospect of carbon pricing in many economies.

The EMM could also be designed to establish sector baselines and issue sovereign credits for performance in excess of those baselines, which might then be purchased by external climate funds to channel investment. In this way it would function more like the CDM. But as IETA notes in its thought piece, the world in which crediting from one country acting as a direct offset in another is coming to an end. Under the CDM this was possible because the project host country had no quantified emissions management goal. As such, national accounting effectively took place on one side only, although the project itself had to have a credible baseline against which it operated. But as NDCs progressively expand to cover all national emissions (if they don’t then the Paris Agreement can’t claim to manage global emissions), paragraph 6.5 prevents such one sided accounting;

Emission reductions resulting from the mechanism referred to in paragraph 4 of this Article shall not be used to demonstrate achievement of the host Party’s nationally determined contribution if used by another Party to demonstrate achievement of its nationally determined contribution.

This means that the transfer of credits from a project across a national border (in the style of the CDM) will impact the national inventory reports of both parties. IETA argues that these transfers will then have to be executed in the style of Joint Implementation (JI) of the Kyoto Protocol, which effectively required an adjustment to the project host country’s national goal if the crediting unit was to be used by another Party to meet their goal.

The Paris Agreement introduces a very different world of international emissions trading to the one that exists today and has operated in recent years. The IETA paper concludes with a visualisation of how this might end up.

Article 6 Evolution

We might think of climate change as a phenomenon only reported on by the 21st Century media and imagine that only the people of today are really aware of the risks posed by the rising level of carbon dioxide in the atmosphere. Although the science dates back to the mid to late 19th century, why would anybody of that period take an interest in or even know about the impact that this might have on future generations?

Much to my surprise I recently found that there was interest and from somewhere close to home (for me at least). The clip below comes from a small country newspaper, printed not far from Canberra in Australia in July 1912.

Braidwood

 

COAL CONSUMPTION AFFECTING CLIMATE.

 The furnaces of the world are now burning about 2,000,000,000 tons of coal a year. When this is burned, uniting with oxygen, it adds about 7,000,000,000 tons of carbon dioxide to the atmosphere yearly. This tends to make the air a more effective blanket for the earth and to raise its temperature. The effect may be considerable in a few centuries.

The newspaper in question was the Braidwood Dispatch and Mining Journal, which first appeared on 10 April 1859 and was published twice weekly from 1859 until January 1958. Braidwood was not a big town and was hardly a centre for global studies. A picture of the town centre some twelve years earlier at the turn of the century is shown below.

wallace-st-braidwood

What I find as interesting as the article itself is the fact that it was printed in such a newspaper. This was a small country town yet the newspaper had a science column (Science Notes and News), which is where the snippet comes from. A science column would be hard to find in any newspaper today. Other stories in the same edition talk of a seven thousand foot bore hole drilled in Germany and the revelation that core temperature rises by about 1°C per 100 feet, not to mention the arrival of a skipping machine on the market which turns the rope and records the number of skips.

But perhaps the most interesting question to ponder is where the story came from? Sixteen years earlier Svante Arrhenius had published his paper on the influence of carbonic acid (N.B. Arrhenius refers to carbon dioxide as “carbonic acid” in accordance with the convention at the time he was writing.) in the air upon the temperature of the ground and in it he made mention of the combustion of coal and its release of carbon dioxide into the atmosphere. He wrote more on this in later work. It is unlikely, but not improbable, that the editor of the local newspaper in Australia was busy reading scientific papers by Arrhenius, but the copywriter may have been reading a variety of magazines and publications from which he or she would extract bits and pieces for republication in the Braidwood Dispatch. That means the story probably came from a longer discussion in another journal, but I don’t know which one. It also means that the copywriter thought that the readers of the Dispatch would be interested in this article, which in itself is a revelation.

Arrhenius

 

Professor Sir David MacKay FRS

  • Comments Off on Professor Sir David MacKay FRS

I was sad to hear of the recent death of Professor Sir David MacKay. I had met him at a few events over the years, but his real impact on me was through his book Sustainable Energy: without the hot air.

14226

Hopefully everyone who reads this blog has also had the opportunity to read David’s book, if not I can highly recommend it. It is free to download here. The book is a wonderful tour of energy use, written in a language that everyone can understand. Most importantly, it seeks to challenge and correct the many assertions made about how quickly and easily we can change the energy system or how easy it would be to power everything from a particular source. Professor MacKay took exception to the loose talk and poor reporting around energy issues and sought to rectify it. In the opening lines of his book he notes;

Perhaps the worst offenders in the kingdom of codswallop are the people who really should know better – the media publishers who promote the codswallop – for example, New Scientist with their article about the “water-powered car.”

That single sentence sets the tone for a very entertaining and thoroughly informative deep dive into all things energy related, with the maths to back it up. He even delves into climate science and offers a wonderful analogy for why atmospheric carbon dioxide is rising when anthropogenic flows of the gas are so much smaller than natural flows (trees etc.). He compares the atmosphere to passport control at an airport!!

But the calculation that has stuck in my head over several years relates to hydroelectricity in the United Kingdom. I don’t know why I remember this story in particular, I am no more a hydroelectricity enthusiast than I am a nuclear enthusiast, but his explanation was just so elegant. Many people imagine that because it rains quite a bit in the UK that we ought to be able to power much of the country with hydro, particularly in Scotland where it is also quite hilly. Professor MacKay’s simple calculation involved the land area of the UK, the average rainfall, the average elevation and the wildly optimistic assumption (just to silence the optimists) that we would catch every drop of rain and then all the potential energy within that water as it drops from the point at which it initially hits the ground until it gets to sea level. The absolute upper limit for hydro comes out at less than 10 kWh/person/day, but the more realistic figure is <2 kWh/person/day. This is against energy demand of around 200 kWh/person/day. Actual hydro in the UK is just 0.2 kWh/person/day.

Sadly we have lost an inspiring energy enthusiast and an entertaining writer and speaker. RIP Professor.

Rapid progress for electric vehicles?

  • Comments Off on Rapid progress for electric vehicles?

The last few weeks have brought great excitement for electric vehicle (EV) enthusiasts with the announcement of the Tesla Model 3 and the subsequent filling of its order book with over 250,000 vehicles. With costs coming down and vehicle range improving, there appears to be real consumer interest in EVs, including battery electric, plug-in hybrid and hydrogen fuel cell types. The International Energy Agency has been following the development of EVs for some time now and an excellent info-graphic is available with a variety of useful deployment statistics for the period up to and including 2014.

IEA EV Infographic

But how quickly would EVs have to deploy to align with the ambition of the Paris Agreement, i.e. having the passenger vehicle sector reach nearly zero direct emissions early in the second half of this century? Such an outcome would be required to be on track to well below 2°C, with a shot at 1.5°C.

In the last 2-3 years EV growth rates have been in the range 50-100% per annum, but this is quite typical of a new technology with a very small base. As the base increases, year on year percentage growth slows down quickly, even as absolute production continues to increase.

The first goal for EV deployment is to reach an installed base of 20 million vehicles by 2020, or about 2% of the global fleet. This is the target set by the Electric Vehicle Initiative of the Clean Energy Ministerial, a global energy/environment Minister forum to promote policies and share best practices to accelerate the global transition to clean energy. The initiative seeks to facilitate the global deployment of EVs, including plug-in hybrid electric vehicles and fuel cell vehicles.

By the end of 2015 the global EV stock was heading towards 1.5 million , which gives just 5 years to produce another 18-19 million cars. That will require year on year growth rates of around 50% per annum into the 2020s, resulting in additional new production of some 1-2 million vehicles per annum, i.e. to reach total annual production of 6-7 million vehicles per annum in 2020 itself.  According to the IEA info-graphic, production in 2014 was around 300,000 per annum.

If growth at such rates could continue, with additional new production surpassing 4 million per annum throughout the balance of the 2020s and into the 2030s, then by 2035 the global EV stock could be at 500 million vehicles, or nearly a third of the total expected fleet. By this time absolute annual EV growth may be slowing, influenced by an outlook that sees EV production approaching that of global passenger vehicle production. This is assuming that there is no consumer resistance to EVs, even amongst those who love the roar of a finely tuned high powered internal combustion engine (ICE).

But even if production of EVs completely eclipses that of ICE vehicles, there remains the generational timespan to turn over the entire fleet. Even in Europe, the age distribution of vehicles is very broad, so we shouldn’t expect ICE vehicles to disappear overnight. The average age has also been rising, up from 8.4 to 9.7 years in Europe over the last decade. There is also a wide distribution, for example in the Netherlands in 2012, 41% of the passenger vehicle fleet was over 10 years old, but for the same year in Poland it was 71%.

Putting all the above together in a single chart, a very rapid and accelerated switch from ICE to EV could look something like the picture below. For the sake of the calculation, I have assumed the global fleet topping out around 1.7 billion vehicles in the 2060s, a number which is highly uncertain. For instance, just as EVs are beginning to make progress in the market, autonomous vehicles are possibly offering a completely different model for car ownership, which could see far fewer cars in the global fleet. The prospect of a much smaller market could start to send ripples through the entire investment chain, slowing the uptake of EVs considerably. Equally, if personal motoring progresses rapidly in developing countries, the fleet could be much larger in the second half of the century, which may also argue for an older fleet with ICE vehicles remaining on the road for much longer.

EV Stock

Simply because of fleet growth and existing production which currently totals 65-70 million vehicles per annum, maximum ICE stock isn’t reached until well into the 2020s, topping out at about 1.2 billion vehicles vs. 900 million today. ICE numbers return to current levels in the mid-2030s, but then decline to very low levels by the 2060s.

There are many other unknowns to factor in, such as the supply chain for the EV. Current battery technology calls for lithium, but prices over the last 18 months have risen. Some Chinese Lithium Hydroxide prices have risen over 100% in the last year but some market observers have noted the volatility and uncertainty surrounding this.

With the Tesla 3 appearing on the streets in 2017, but many other models from various manufacturers also being shown, the years ahead will only get more interesting for the passenger vehicle market.

Back in September 1971, an article appeared in Scientific American on energy use. It remains very current today. Earl Cook was attempting to look at the limits to energy use and how that energy might be provided in a modern society. The article starts with the chart below that shows potential demand from various stages of human development.

Earl Cook Diagram

Today, we see human society spread right across the chart with substantial parts of the world in one of the versions of Agricultural Man, whilst many of us are in Technological Man. Global energy use stands at some 600 EJ, or about 80 GJ per person per annum whereas in 1971 the number was around 60 GJ. There are significant regional, national and even sub-national differences, with the USA at around 300 GJ and India at 30 GJ as two examples. It is also important to recognise that the Earl Cook chart applies more to the individual archetypes, rather than to national averages. At any point in time, the national average may include people in several categories and the individual demand may not be fully reflected in the national average if imports exceed exports in quantity or carbon intensity or both.

Cook pondered about where this energy might come from and what the limits of supply might be. Although resource constraint was a popular topic at the time (and another article in the same edition of the journal was by peak oil enthusiast M. King Hubbert), Cook concluded that environmental constraints may be more limiting than the resource itself. Although his focus was on more local environmental issues, his overall thinking was close to the mark as society now faces real constraints on emissions of carbon dioxide.

Yet we are far from done in terms of progression from Primitive Man to Technological Man.

Further on, Connected Man, which perhaps didn’t feature in Cook’s 1971 thinking, offers a very different outlook. Such a concept poses a real challenge – will Connected Man use even more energy than Technological Man with the introduction of a new Information category in the bar chart and further expansion within the other categories? Or perhaps Connected Man can break the trend above and bring such efficiency to the other categories that overall energy use per person falls, even as development progresses? That would be unprecedented (N.B. The Connected Man energy numbers are notional and for illustration purposes only).

Earl Cook Diagram (Connected Man)

Connected Man is starting to appear today, with the prospect of 20 billion connected devices comprising the Internet of Things as early as 2020. A trillion connected devices by 2050 would be a reasonable extrapolation from that; it represents less than 15% growth in such devices per annum. It may be much more than this, but the energy demanded by these is unlikely to be trivial, even as efficiency improves.

The real question is what such connectivity offers to the energy system as a whole? Can it also lower the energy use of Industrial Man as well as offering the prospect of leapfrog to a much lower energy demand end state than might have been anticipated for Technological Man? That might have a profound impact on expected global demand later in the century even as we collectively progress to Connected Man. Nevertheless, while 21st century efficiency will very likely temper eventual energy use per capita, particularly against Cook’s 1970s estimates, the premise of rising energy demand at a global level still stands.

Earl Cook Diagram (Connected Man +)

Shell has over 40 years’ experience in developing energy scenarios*, but the expertise to assess the physical climate impacts of these doesn’t exist within the company. While it is relatively easy to calculate the cumulative carbon emissions over the course of the 21st century for a given scenario and then equate this to some level of climate warming, a more accurate and complete look at the physical impacts, including warming itself, of a certain energy pathway can only come from a comprehensive earth systems model.

For such an assessment, Shell has turned to the MIT Joint Program on the Science and Policy of Global Change. We first worked in this manner with MIT in 2008 when there was a mutual interest in looking more deeply at the previous set of Shell energy scenarios (Blueprints and Scramble) alongside a number of other scenario studies, releasing a paper on the work towards the end of that year. At the request of Shell, a new assessment has just been completed by MIT, this time looking at the New Lens Mountains and Oceans scenarios which were first published in 2013. The paper is now available on the Joint Program website. The analysis also included scenarios based on different pathways following COP21 and a reference MIT 2°C scenario which assumes the necessary globally uniform carbon tax to deliver such an outcome.

MIT used their Integrated Global Systems Model (framework shown below) to do the work in 2008, which has been repeated over 2015 for the current work. The model has evolved considerably since then, particularly in the areas of 3D analysis (e.g. 3D atmosphere), regional granularity, agriculture and land use.

MIT Global Systems Model

Energy system carbon dioxide emissions for the five scenarios in the analysis are shown below (NCP2020 represents a “no climate policy” pathway and Outlook reflects the COP21 INDCs but without the assumption that they are rigorously improved on over the years). Importantly, the Shell scenarios approach net-zero carbon dioxide emissions by the end of the century, effectively limiting the accumulation of this gas in the oceans-atmosphere system. The total cumulative anthropogenic emissions over time is strongly linked to the amount of climate system warming.

Scenario emission profiles

Both Shell scenarios see the progressive and widespread introduction of policies to manage emissions. In the Oceans scenario this appears as a market response triggered by government implemented carbon pricing that develops globally over time. Solar PV dominates in this scenario. In the Mountains scenario a more regulatory based approach is implemented, which sees the rapid emergence of carbon capture and storage (CCS) in particular. Both Shell scenarios result in a stabilization of CO2 in the atmosphere in the latter years of the century, although at levels higher than for the 2°C reference case. This means a 2100 temperature outlook +/- 2.4°C above pre-industrial levels for the Mountains scenario and +/- 2.7°C for the Oceans scenario.

MIT CO2 Concentration

MIT temperature outlook

The MIT report tackles a number of impact issues, including global precipitation, ocean acidity, sea level rise, water stress, air quality and agricultural yields. The sea level rise projections are based on thermal expansion of the oceans and melting of mountain glaciers, but not through major changes in the permanent ice shelves (Greenland and Antarctica) where there remains great uncertainty with regards the outlook.

The scenarios show that significant policy measures are needed to stabilize temperatures and climate impacts. MIT conclude that more stringent emission reduction scenarios (Oceans, Mountains, 2°C) are successful in mitigating a large portion of water stress impacts and air pollution damages. They also cap the ocean acidity increase, while agricultural yields are still strongly affected. The report notes that these projections show a significant value of policies that may not end up in 2°C stabilization but fall substantially close to that target by the end of the century.

* Shell Scenarios are part of an ongoing process used in Shell for 40 years to challenge executives on the future business environment. We base them on plausible assumptions and quantification, and they are designed to stretch management to consider even events that may be only remotely possible. Scenarios, therefore, are not intended to be predictions of likely future events or outcomes and investors should not rely on them when making an investment decision with regard to Royal Dutch Shell plc securities.

 

 

President Obama and Canadian Prime Minister Justin Trudeau met last week for their first formal bilateral meeting since the latter was elected. With the success of the Paris Agreement behind them, the two leaders made their first steps together towards implementation with the announcement of a number of actions. A greater focus on methane emissions figured high on the list of things to do, but perhaps even more important than this was the recognition that co-opoerative action is required to implement the provisions within the Paris Agreement that are aimed at carbon market development. The joint statement released during the meeting made a very specific reference to this work;

Recognizing the role that carbon markets can play in helping countries achieve their climate targets while also driving low-carbon innovation, both countries commit to work together to support robust implementation of the carbon markets-related provisions of the Paris Agreement. The federal governments, together and in close communication with states, provinces and territories, will explore options for ensuring the environmental integrity of transferred units, in particular to inform strong INDC accounting and efforts to avoid “double-counting” of emission reductions.

The reference here is to Article 6 of the Paris Agreement, which allows for “internationally transferable mitigation outcomes” (ITMO) between Nationally Determined Contributions. Article 6 also establishes an emissions mitigation mechanism (EMM) which could well support the ITMO by becoming, amongst other things, a standardised carbon unit for transfer purposes. These are the sorts of areas where considerable thought will be required over the coming months.

The statement represents a big step forward for the United States and for the further development of carbon markets. The USA was amongst the very first countries to release its INDC, within which can be found the statement;

Use of markets:
At this time, the United States does not intend to utilize international market mechanisms to implement its 2025 target.

This was not a big surprise at the time. It was still early days for the resurgent political interest in the importance of government implementation of carbon pricing and therefore the supporting role that international carbon markets can play in helping optimise its use. But a great deal has happened in a year (the USA released its INDC on March 25th 2015), topped off with Article 6 in the Paris Agreement. This time last year that looked like an almost impossible dream, although several of us in the carbon pricing community dared to talk about it.

But perhaps it is the developments in North America itself that have raised the profile of cross-border carbon unit trade with the respective national governments. Although the California-Québec linked cap-and-trade system got going in 2014, it wasn’t until 2015 that Ontario showed a sudden interest in joining the system. At the April 2015 Québec Summit on Climate Change, Ontario announced its intention to set up a cap-and-trade system and join the Québec-California carbon market. The following September, Quebec and Ontario signed a cooperation agreement aimed at facilitating Ontario’s upcoming membership in the Québec- California carbon market. To add to this, during COP21 Manitoba announced that it would implement, for its large emitters, a cap-and-trade system compatible with the Quebec-California carbon market. Québec and Ontario then committed in Paris to collaborate with Manitoba in the development of its system bysigning a memorandum of understanding tothat effect.

Others US states and Canadian provinces may join, with Mexico also looking on in interest. This could in turn lead to a significant North American club of carbon markets; perhaps one even starting to match the scale and breadth of the 30 member EU ETS. Clubs of carbon markets are seen by many observers as the quickest and most effective route to widespread adoption of carbon pricing. The Environmental Defence Fund based out of New York has written extensively on the subject with their most recent paper being released in August last year.

With parts of the USA members of a multi-national club of carbon markets, the Federeal government is then effectively bound to build their use into their NDC thinking. There may be a significant flow of units across national borders, which will make it necessary to account for them through Article 6 and the various transparency provisions of the Paris Agreement.

But most importantly there is the economic benefit of doing this; a larger more diverse market will almost certainly see a lower cost of carbon across the participating jurisdictions than would otherwise have been the case. This could translate into a lower societal cost for reaching a given decarbonization goal or open up the possibility of greater mitigation ambition.

Last week I was in Manila participating in the opening panel session of the Shell sponsored energy event, Powering Progress Together. The panel included IPCC WG1 Co-chair, Dr. Edvin Aldrian from Indonesia; Philippine Department of Energy Secretary, Hon. Zenaida Y. Monsada; and Tony La Vina, a former Undersecretary of the Department of Environment and Natural Resources, but currently Dean of the Ateneo School of Government. With the focus of our panel being the energy transition and climate challenge it didn’t take long to get to the situation faced by the Philippines and the Intended Nationally Determined Contribution (INDC) it submitted to the UNFCCC in the run-up to COP21.

The Philippines has seen energy sector emissions rise sharply in recent years (see chart) with coal use doubling between 2007 and 2014, while natural gas and oil demand remained almost static. Although oil use for transport increased, this was offset by a drop in oil based power generation.

Philippines Energy Emissions

Against this backdrop the Philippines submitted an INDC which calls for a 70% reduction in emissions for 2030 against a business as usual projection which sees increasing coal use in the power sector. The charts below were prepared by the Department of Energy. By 2030, full INDC implementation would see only a modest change in coal capacity from current levels, but a significant increase in natural gas and growth in wind and solar such that they become material in the overall power generation mix.

Philippines Electrcity Capacity

The government also has big plans for the transport sector, with major electrification of the popular Jeepney (small buses) and tricycle (motorcycle based carriers) fleet. These are everywhere in Manila.

But as the Secretary pointed out in the panel discussion, this shift is dependent on outside financial help. The reduction goal represents at least 1 billion tonnes of cumulative carbon dioxide over the period 2015 to 2030 and although an anticipated cost of implementation isn’t given, it may well run into tens of billions of dollars. However, the immediate benefits should be considerable, particularly for health and welfare in cities such as Manila itself as roadside air quality improves with an alternative bus fleet. The INDC specifically notes (one of several mentions);

The mitigation contribution is conditioned on the extent of financial resources, including technology development & transfer, and capacity building, that will be made available to the Philippines.

The Philippines have certainly felt the sharp end of the global climate in recent years, but particularly with Typhoon Haiyan, a Category 5 Super Typhoon, in November 2013. That event led to a member of the Philippine delegation pledging to fast for the duration of COP 19 in Warsaw. The INDC is an ambitious start on their mitigation journey, but also highlights the challenges faced by many countries at a similar stage in their development. As the Philippine economy develops it will need much more energy than currently supplied; the surge in coal use as a response is also seen in many other national energy plans. Limiting the early growth of coal in emerging economies is one of the big global issues that the Paris Agreement and related INDCs must address as they are implemented. The provisions within Article 6 of the Agreement can help; ideally by channelling a carbon price into those economies with the necessary climate finance to change the energy outlook.

Early in February the King of Morocco, HE Mohammed VI, opened the first phase of what will eventually become a major solar energy facility in the centre of the country. On the same day, the King also laid the foundations for Phase 2. The project is a remarkable piece of engineering, with tracking parabolic mirrors reflecting and concentrating sunlight into a heating loop, which then transfers the energy into steam and ultimately electricity from turbines. The system also includes a molten salt energy storage system which provides 3 hours of turbine operation once the sun has set.

Noor Solar

The Noor Ouarzazate Concentrated Solar Complex is being developed 10 kms north-east of the city of Ouarzazate at the edge of Sahara Desert about 190 kms from Marrakesh. Phase One of the project involves the construction of a 160MW concentrated solar power (CSP) plant named Noor I, while Phase Two involves the construction of the 200MW Noor II CSP plant and the 150MW Noor III CSP plant. Phase Three will involve the construction of the Noor IV CSP plant.

The original cost of Noor I was estimated at about $1.1 billion, but various reports show that upwards of $2 billion has been spent, although a proportion of this must be for overall site development, roads, infrastructure etc. which will benefit all of the phases. A description of Phase II can be found on the World Bank website, with an estimated cost of $2.4 billion for construction and $300 million as a cost mitigation mechanism (i.e. to lower the cost of the electricity produced during the initial years of operation).

The initial 160 MW project has a net capacity of 143 MW, producing some 370 GWh of electricity output. This equates to a capacity factor of nearly 30% which is high for solar, but reflects the nature of the location and the energy storage mechanism using molten salt. Nevertheless, in terms of total annual output, this is similar to building a 60 MW gas turbine, although the gas turbine would always be limited to 60 MW, whereas the solar facility can output at higher levels through much of the day when businesses are open and drawing on the grid.

By the end of Phase 2, total capacity of the facility will be over 500 MW, at a capital cost of some $5 billion (although The Guardian puts this at $9 billion). Annual generation will amount to some 1500 GWhrs per annum. The per capita consumption of electricity in Morocco is around 1 MWhr, so this represents electricity for 1.5 million people. In the case of the USA, it would offer power to only 130,000 people. Phases 1 and 2 will occupy a land area of some 1900 hectares (about 4.4 by 4.4 kms)

The justification for the project is interesting and can be found in one of the documents on the World Bank project site. Carbon pricing figures strongly although there are no immediate plans for a robust carbon pricing system to be implemented in Morocco. The report concludes that Concentrated Solar is not economic on the basis of conventional cost-benefit analysis (the economic rate of return is negative over the anticipated 25-year horizon of the project); the economic benefits are taken as the avoided costs of the next best thermal alternative, which is CCGT using imported LNG. To be economic at the (real) opportunity cost of capital to the Moroccan government, the valuation of CO2 would need to be US$92/ton of CO2 (calculated as switching value, i.e. NPV of zero), or US$57/ton of CO2 when calculated as the Marginal Abatement Cost (MAC). The justification for the project is largely on the basis of macro-economic benefits for Morocco (jobs, technology transfer etc.) and global learning curve benefits.

The project is situated near a reservoir and is quite water intensive. Phase 1 is water cooled, but this is not the case for the later phases. However, there is ongoing water use for cleaning of the solar reflectors. For Phase 1 alone, the water use during operation represents 0.41% of the average yearly contribution to the Mansour Ed Dahbi Reservoir in the wet years, and 2.57% of the lowest recorded yearly contribution to the reservoir. The estimated total wastewater flow to be discharged to the evaporation ponds (visible in the foreground of the picture) is 425,000 m3/year.

Finally, there is the important aspect of emissions reduction. The Noor I CSP plant is expected to displace 240,000 tonnes a year of CO2 emissions. Based on the generation of 370 GWhrs per annum, this assumes an alternative energy mix of natural gas, some oil generation and a proportion of coal. For natural gas alone with its lower carbon footprint, the displacement could fall well below 200,000 tonnes. But like all such projects, this is displacement of CO2 which may result in a lower eventual accumulation. It is not direct management of CO2 such as offered by carbon capture and storage.

The Moroccan CSP is a fascinating project, but even more so as the numbers are put down on paper. With COP22 taking place in that country in November we are bound to hear more about it.