David Hone

In my posting last week I looked at the potential that exists in the USA to reduce emissions in the medium term in line with the commitment the USA has made under the Copenhagen Accord, i.e. a 17% reduction by 2020 based on 2005. This is a first step in a journey to 2050 which could see reductions of some 80% by 2050.

One of the key balances in any approach to managing emissions across an economy are the respective roles of coal and natural gas. This will almost certainly be true in the USA as well. Today some 2 billion MWHrs per annum of electricity is generated from coal, with just under 1 billion from natural gas. Together they make up nearly three quarters of US electricity production. In the process of generating that electricity, the coal plants release about 1.6 billion tonnes of CO2 per annum and the natural gas plants some 380 million tonnes (Sources: EIA and IEA). Based on those figures, natural gas is about twice as CO2 efficient when compared to coal for electricity generation in the USA today.

Existing US coal plants also have a very distinct age profile, with nearly a third (100 GW) operating before 1970 and the bulk built between 1970 and 1985 (Source: EIA). This may mean considerable retirement over the coming 10-15 years coinciding with the period that the US is looking to begin reducing emissions. The age profile might also mean that there is little justification retro-fitting carbon capture and storage (CCS) to many existing facilities, with CCS new builds being the preferred route.

The above sets up a scenario where older coal fired power stations retire in the relatively near future and are likely replaced by natural gas, at least in the short term as “Coal + CCS” matures and can become a large scale generating option again in the 2020’s and beyond. The necessary natural gas capacity in fact already exists, given that USA nameplate capacity is over 400 GW (Source: EIA), but the actual average load requirement is about a third of this. Of course this capacity is important for peak load management, so it is not necessarily a given that it is simply “available”. However, much has been built in recent years.

 One question that remains is the availability of natural gas. Whilst coal is largely domestic, the marginal tonne of natural gas is imported.  But that is changing as well. More domestic natural gas production and continued positive results from “tight gas” exploration and production is shifting the supply-demand picture (see below for 2008, Source: BP Statistical Review of World Energy Use).

The remaining ingredient to get this all to come together is a carbon price, sufficient to justify the closure of some of the older coal fired power stations and underpin a switch to natural gas. In addition, a carbon price will drive further development of CCS which will be an important element in new coal capacity in the 2020’s. What is clear, is that maximizing gas usage in power generation now should make the largest and most cost-effective contribution to meeting the US 2020 target. Gas will continue to play a role as the 2050 goal looms, with CCS for gas increasingly playing a role.

Replacing 100 GW of current coal capacity with natural gas could result in an emissions drop in the USA of some 400 million tonnes per annum. As noted in my previous post, the reduction required from 2008 to 2020 is some 1.2 billion tonnes – this shift represents a third of the job required.

Over the coming months as the energy and climate discussion plays out in Congress there will doubtless be much discussion regarding the appropriate emission reduction target for the USA. Setting the scene for this, besides the bill itself, will be the US pledge under the Copenhagen Accord to reduce emissions by 17% from 2005 by 2020 – which in turn was the 2020 cap under Waxman-Markey.

 With this pledge as a basis for analysis, it is possible to do some simple “back of the envelope” calculations to gauge the scale of change that will be required over the coming ten years, assuming a rise in population to 340 million and that the USA does this on the basis of domestic action only. The land use / forestry emissions position (currently an annual drawdown) remains unchanged. The starting point is International Energy Agency (IEA) and US Energy Information Administration (EIA) data for the USA for 2007/2008. The US picture is shown below.

In 2008 the USA GHG emissions (excluding land use) were 7.1 Gt, down from 7.2 Gt in 2005. That means a reduction to 6.0 Gt by 2020, or 15.5% from 2008 levels. Total primary energy use was 97 EJ.

 To achieve a reduction in emissions to 6.0 Gt (CO2 equivalent) by 2020 there are many possible ways forward. There is a tradeoff between the degree of energy efficiency and decarbonization, between coal and gas, between renewable, nuclear and CCS and so on. My example is somewhat arbitrary in this regard, but at least serves as an example of the effort required.

 Between 1990 and 2008 the USA improved energy efficiency by 1.7% p.a. but achieved almost no decarbonization (remained static at 60 tonnes of CO2 per TJ). For the period 2008-2020 an efficiency improvement of about 3% per annum and decarbonization of 1% per annum are required. By 2020 the picture looks something like this.

Achieving the target requires improvements and changes throughout the economy. The list might look something like this:

• Increase the energy efficiency of the economy such that total primary energy use drops by some 4% in absolute terms. This is delivered by a 5+ mpg jump in on-the-road vehicle efficiency (i.e. all vehicles, not just the new ones), a 10% drop in total residential energy demand despite a >10% rise in population and a drop in commercial and industrial energy use. Power generation efficiency must also improve.
• Reinvigorate the nuclear industry and achieve a net increase in capacity of about 15 GW – i.e. no drop off in capacity as older stations are retired.
• Install ~10,000 5 MW wind turbines, that’s over 2 every day. Each of these turbines is over 100 metres high.
• Fit (or build new) nearly 20 big coal fired power stations with carbon dioxide capture and storage. Not one large scale commercial plant exists today. It means the first round of demonstration facilities (say 10 units) must be agreed on in 2010 so that construction can start.
• As older coal fired power stations are retired build 50+ GW of new efficient gas fired capacity.
• Install 6 GW of large scale solar, both photovoltaic and solar-thermal.
• Shift the vehicle fuel pool to 10% biofuels with a near-zero carbon footprint and get some 7 million alternative fuel (e.g. electricity, hydrogen) vehicles on the road.

Of course if much bigger energy reductions can be achieved then less decarbonization will be required. Either way, the economy will look different as a result.

Over the coming weeks I will build on this example and look at some of the practical aspects of implementation. Stay tuned.

It isn’t often that you actually see something that surprises you and makes you really think about what is happening to the climate. I am in Washington, D.C. at the moment and flew here yesterday. We passed over Newfoundland and the southern part of the Gulf of St Lawrence on the way into Washington. I had a right hand side window seat and the all the way from Newfoundland to the Canadian mainland there was blue sky and crystal clear visibility for miles.

As we passed over Newfoundland I was thinking that it didn’t   appear quite as white as normal, with very visible features showing. I have passed over this region many times in the winter and on the few cloudless days that there are I can only ever recall it being just a total whiteout. On the south western coast of Newfoundland (St George’s Bay) there are mountains at the shore and these had a very clear snowline at quite a high level, rather than my expectation that it would be white to the coast.

But the real surprise was passing over the Gulf of St Lawrence – there was no pack ice on the water at all as far into the distance as I could see. It was just blue to the horizon. I know that the St Lawrence Seaway ices up in winter and of course this winter, al least in the United States, will be remembered for its severity, but it certainly didn’t appear so severe in this part of North America.

Not being sure if my observation is unusual or not, I have looked on the web and found a NASA link which shows the same area in April 2008. This is later in the year and it seems to show quite a bit of ice. (http://earthobservatory.nasa.gov/IOTD/view.php?id=8661).

I won’t jump to any conclusions here, but I did want to share my own observation.

Meanwhile, it was snowing again in Houston!!!

In recent weeks as the IPCC has revealed a number of misquotes in their 4th Assessment Report and with the UEA e-mail issue rumbling on, climate science has come under intense scrutiny. A couple of weeks back I commented on the way in which we all seem to love technology, but at the same time society is becoming increasingly uneasy with science.

As has been the case over the many years of this issue, the media is also playing a role. In the past we have often seen reports of apocalypse and whilst many of these reports had a basis in science, they sometimes reported one extreme end of the spectrum of potential outcomes. Today, it is climate science that is undergoing a similar treatment. Late last year the Daily Express compiled its “100 Reasons Why Global Warming Is Natural” (http://www.dailyexpress.co.uk/posts/view/146138), first published during Copenhagen but now rolled out again in the context of the start of the government enquiry into the University of East Anglia e-mail break-in. Like the stories of apocalypse, it could make the reader think that the scientific basis for anthropogenic warming had utterly collapsed. But on closer scrutiny the 100 reasons don’t present a reasoned arguement to believe that everything has suddenly changed.

Let me illustrate: In the region of half of the statements, whether true or not, have no bearing on the relationship between increasing greenhouse gas levels in the atmosphere and recorded warming over the last 100 years (e.g. India plans to reduce the ratio of emissions to production by 20-25% compared to 2005, but all government officials insist that since India has to grow for its development and poverty alleviation, it has to emit, because the economy is driven by carbon). Then there are numerous statements which are just that, statements, with apparently no quoted evidence or substantiation. For example;

Statement 2 argues that man-made carbon dioxide emissions throughout human history constitute less than 0.00022 percent of the total naturally emitted from the mantle of the earth during geological history. This may well be the case, but has no bearing on the fact that we have added nearly 2 trillion tonnes of CO2 and other greenhouse gases to the atmosphere in just 200 years and that this has been sufficient to see a marked shift in the CO2 levels in the atmosphere today.

Statement 7 argues that the 0.7C increase in the average global temperature over the last hundred years is entirely consistent with well-established, long-term, natural climate trends. The problem here is that this has been shown not to be the case. Page 11 of the Summary for Policymakers (Fourth Assessment Report) of the report of Working Group 1 of the IPCC shows that both natural and anthropogenic forcings need to be applied to explain the changes in temperature over the 20th century. No other approach consistently matches the observed data.

Statement 15 argues that it is absurd to accuse a single trace gas of radically changing the climate. But the IPCC makes it abundantly clear that climate change is the result of many anthropogenic forcings, including CO2, other trace gases, aerosols and changes in cloud cover (e.g. contrails from aircraft). However, there is also clear evidence that CO2 is a very important forcing component in the atmosphere.

Whilst every media outlet and every person is more than entitled to express an opinion, and I welcome the debate, we urgently need to raise the level of the debate and understanding of climate science. There is little doubt that much is still to be learned about this great physics experiment we are undertaking in our atmosphere by changing its composition. Perhaps warming will proceed dramatically over the next few decades, but there is a chance other factors might just supress everything for a while and leave us in a state of complacency. Either way, we can’t actually be certain today, but we can go some way to quantify the risks that we are running. This is where much of today’s scientific study is focussed. Shell sponsors MIT’s Joint Program on the Science and Policy of Global Change which undertakes such risk analysis.

More to the point, the complication with this issue is that we have to act before we can be absolutely sure of the outcome. If we don’t act and it transpires that the outcome is not something the world likes, there is then no going back. This means that society needs to both understand the science and come to terms with the risks that it shows we are collectively running.

Not surprisingly, money is at the heart of the political debate now underway on climate policy, or at least its distribution within the economy. Whilst cap-and-trade is being portrayed as a taxation policy by some, other policy proposals are being presented as being without cost to families and households – both of course aim to reduce emissions. But there are no free lunches here and whichever way the issue is presented, there are costs and benefits involved.

For starters, underpinning any approach to emissions reduction is the emissions abatement curve, which plots the cost of emissions reduction against the scale of the reduction opportunity. A perfect approach to reducing emissions starts on the left hand side of the curve and progresses to the right, picking up all potential reductions before moving on. This results in the lowest overall cost to the economy for the required reduction. Cap-and-trade probably comes closest to this. At a given carbon price, the tradability of allowances means that, at least to the extent that market efficiency dictates, the next best emissions reduction project is executed somewhere in the economy. This drives a lowest cost outcome which also minimises the impact on the consumer.

But the way in which the consumer sees the impact may differ for different approaches.

Under cap-and-trade, with full auctioning of allowances, the immediate effect is that industry will attempt to pass on the cost of allowances and therefore the overall cost of goods and services rises throughout the economy. The extent of the rise for a particular product depends on the carbon footprint of its supply chain or the footprint of the marginal supplier. As a result, consumers also start to change their purchasing choices and the more carbon intense products lose market share or become less attractive to produce – either way they are forced out of the market. In return, the money collected by the government through the auctioning of the allowances is returned to the consumer through lower costs elsewhere, either directly (i.e. a legislated rebate), or indirectly as the economy adjusts to the overall change in money flow and the cost of some other service falls over time (e.g. state taxes).

Policies other than cap-and-trade also change the money flow, but their impact on the consumer may be different.

For example, government may choose to directly incentivise certain actions within the economy. Initially, money flows from government to the enterprise implementing the emission reduction and the consumer may not be impacted at all. But over time this money must be found through the fiscal process. This may result in additional taxation in some other part of the economy or a new charge on businesses or consumers. If the charge falls on business then this will ultimately be passed through to the consumer in the form of higher prices.

A second example could involve the imposition of some kind of standard or regulation. Although in some cases this is by the far the quickest and most direct method of achieveing a result, it nevertheless has a cost impact on the consumer. Eventually the affected businesses may raise prices to pay for the work required to meet the standard.

These types (i.e. not cap-and-trade)  of policy approaches also tend to pick arbitrary points on the abatement curve and require their implementation, irrespective of whether there are lower cost reduction opportunities available in the economy. This means that the overall cost to the economy for a given level of reduction is increased, which in the end may mean a greater burden on the consumer. Whilst this impact may be very indirect and slow to materialise, it will neverthless be there.

No matter what the construction looks like at the outset, any net costs to reduce emissions must be borne by the economy. Eventually this will fall on the consumers through mechanisms such as increased prices or changes in taxation. But benefits can also accrue. New jobs may be created as a result of the efforts and other costs reduced, such as for energy. But the overall cost or benefit will be largely dictated by the abatement curve and the efficiency with which the policy instrument tackles it.

With the arrival of the Apple iPad last week, it was clear that the world is in the middle of a technology boom and it was even clearer that we all love it. Whilst some couldn’t help comment on certain missing features (the web cam, the USB connector and so on), nobody was condemning the entire idea of portable communication devices to the dustbin – quite the contrary, I can almost guarantee that there will be a line around the block on the day Apple release this latest product for sale. We just love technology.

Technology such as the iPad is built on the back of fundamental scientific research in many fields, from theoretical physics to materials science – even particle mechanics and other esoteric sciences creep into the picture. Years of research in universities, private laboratories and government agencies, leading to literally thousands of scientific papers have led the way to the products that we speculate about, eagerly await announcements of and then buy in the million.

But somewhere along the line we seem to have lost our appetite for science, in fact some even look on it with disdain. In developed countries, far less students today engage in science or science based subjects in schools and universities than twenty or thirty years ago. Yet those same people crave the products that a science based education system can ultimately deliver.

On a newscast I was watching last week an excited correspondent was telling us about the iPad. Not two minutes later the same person was salivating at the prospect of “the whole global warming story collapsing like a house of cards because of the bogus science”. But the approach to this science is no different to that behind the iPad, the scientists no less diligent, the papers they produce no less reviewed, yet because we either don’t want to know about or can’t accept the findings we choose to attack the science and the scientists – not with any intellectual rigour or scientific discipline, but with slander and sometimes even abuse. I doubt the correspondent had even the remotest idea as to the years of research in atmospheric chemistry that have led to the concern about the rising levels of carbon dioxide or the detailed measurements done in laboratories for the past century on the behaviour of carbon dioxide and infra red radiation. But he loved the iPad!!

Even if we can get past the atmospheric chemistry that supports the thinking on climate change, we then run into difficulty with the solution set. Many people don’t like nuclear, yet have little or even no knowledge of the supporting science. Geological sequestration of carbon dioxide is struggling to gain public acceptance, despite the many studies done and even field tests that support its inherent safety. We simply choose not to believe that it can be right.

But we still love the iPad!

Whilst many will focus on President Obama delivering the State of the Union on Wednesday, the other big event of this week is the nominal deadline for those adhering the Copenhagen Accord to submit their national targets and actions for logging in the appendices of the document. Although the UNFCCC have indicated that January 31st is a “soft deadline”, we may nevertheless see some movement in this space.

The question is, “What will make a difference?”.

The Accord offers two tables as appendices, one for developed countries to offer up absolute reduction targets through to 2020 and a second for developing countries to propose their own nationally appropriate mitigation actions. Without getting into the very specific details of what each country might specifically propose, it is useful to look at the trends that are developing in terms of direction and then see what impact this has in terms of total global emissions if continued through to 2050.

For most OECD countries, the general direction is of the order of an 80% reduction from current levels by 2050, although there will be some use of offsets along the way and reductiosn will be quite limited through to 2020. For the rapidly developing economies, a reduction in CO2 per GDP seems to be one metric and prior to Copenhagen China suggested a 40-50% reduction from 2005 to 2020. So let’s imagine that other major economic blocks also take on a similar approach (for energy related emissions), say India, the rest of Asia (not Japan or Korea) and Latin America. Let us also assume that the Middle East and economies in transition (mainly the former USSR) pledge to plateau emissions at current levels and the aviation and shipping industries offer to manage overall emissions growth such that by 2050 it is back to current levels and falling. African countries continue to grow at about 3% p.a. For non-energy emissions assume that deforestation and all other emissions (methane, cement CO2, various industrial gases and so on) are reduced significantly over the next 40 years.

The above might be seen as quite an achievement, given the way in which Copenhagen ended. But what would it mean if stacked up as a global effort? To get some idea about all this it is necessary to make some further assumptions about overall economic growth, given that so many big economies would be targeting emissions per GDP. Not surprisingly it turns out that economic growth is a major differentiator, particularly when compared to the percentage level of emissions reduction as GDP growth shifts. In doing this I have assumed that GDP growth would be higher in the early years and lower in the future – so a 6% average annual growth for China between now and 2050 would mean 9% p.a. now, dropping to 3% by 2050. The results, using IEA 2009 CO2 data, look something like this:

• Case 1: China growth at 6% p.a. through to 2050, with a continuous 4% p.a. reduction in energy CO2/GDP (equivalent to  45% reduction from 2005 to 2020). India is also at 6% p.a., Asia and Latin America at 5% p.a. but all with a 3% p.a. decline in energy CO2/GDP (equivalent to a 35% reduction from 2005 to 2020). Deforestation emissions drop by two thirds and other emissions are halved.

• Case 2: Growth the same as in Case 1, but the rate of decarbonisation vs. GDP for developing countries is increased by 1% in all cases, i.e. from 4% to 5% for China and 3% to 4% for the others. All other assumptions remain the same.

Whilst all of this looks like a positive story and I think it is, it doesn’t necessarily get us out of the woods. Recently I wrote about the “trillion tonne challenge“. In these two cases, we reach the trillion tonne total by about the mid 2040s and mid 2050s respectively. Although the curves look quite different, the area under them doesn’t vary by a great deal. In addition, with significant emissions still to come through to 2100 in these cases, the trillion tonnes is well and truly busted, which is an indicator of going above the 2 degree C goal of the Accord.

It isn’t until really aggressive numbers are used that the reductions start to bite and the 2 degrees target starts to come into range.

• Case 3: Growth is the same as Case 1, but for major developing economies the rate of decarbonisation per annum is equivalent to the long term growth rate of the economy. In addition, a much faster reduction of other emissions (i.e. non energy related) is achieved. The other assumptions remain the same.

Whilst we are unlikely to see very aggressive reduction targets tabled this week, Case 1 shows that we may at least be in the “plateau” ballpark as a start. Later on, if a CO2/GDP approach persists, the annual reduction must be similar to long term growth.  Another clear message from all this is that apart from energy, it isn’t just deforestation that is important. The broader management of all greenhouse gases from all sources will be critical.

Late last year I participated in a webcast with MIT Professor Henry Jacoby. The subject was the cost of action on climate change – or more specifically the cost of cap-and-trade. Professor Jacoby leads the The MIT Joint Program on the Science and Policy of Global Change. From the perspective of the program, the question is no longer whether global warming is upon us . . . but how we can rise to its challenge. They are a world leader in this effort. Their many activities cohere around one strategy: science and policy have to work together. Shell is a sponsor of the program. Given that Massachusetts is well and truly back in the news today, it seems timely to post this video.

David Hone at M.I.T.: But what will it all cost? from David Hone on Vimeo.

For most of the decade just passed I have been involved in the subject of climate change at Shell. This is unusual in one respect in that jobs in Shell normally have a tenure of 3-5 years, but this hasn’t exactly been a “normal job”. In fact, the job I have today bears little resemblance to the one I took on in June 2001. At that time domestic legislation wasn’t on the agenda or was in its infancy, the Kyoto Protocol was stuggling for ratification and many companies and industry associations were detached from the issue or at best focussing on “voluntary actions” as the way forward.

 The science agenda was also very different in 2001 - the conversation typically centred on 550 ppm, or double pre-industrial levels. This was probably more one of convenience than deep thought, but it also reflected a much lower perception of “climate sensitivity” than is currently proposed. As the science has become better understood over the last decade we have collectively shifted the goal posts. Now, it is easy to be heckled for even mentioning 550 ppm, although the recent Shell scenario work shows that such a target is already very challenging and is perhaps the best that we might actually achieve. 550 ppm is certainly better than a world heading towards 1000 ppm (the flip side of the more CO2 optimistic scenario), but nevertheless the discussion today is squarely focussed on 2 degrees Centigrade or something like 450 ppm. But just as we are becoming settled with that discussion, an even more ambitious 350 ppm objective, based on new thinking about impacts, is on the table for consideration – although with no clarity whatsoever as to how we might achieve it.

One activity I particularly look forward to every 8-10 months is attending the MIT Forum on the Science and Policy of Global Change. The forum is put on by the Joint Porgram of which Shell is one of the sponsors. Following the work done there over a number of years is a great way to get a perspective on the development of climate models and an appreciation of the increasing sophistication of the calculations behind them. The Joint Program is the source of one of my favourite climate science graphics , the wheel of fortune “Greenhouse Gamble“. It shows the uncertainty the world faces in terms of temperature rise – but even this has changed. In 2003 the “no policy” wheel still had a sizable wedge in the 1-3 degrees C range. This is now gone  (reduced to a sliver) as the understanding of climate sensitivity has changed.

Externally, the biggest change has been the rise of carbon markets. I had barely settled into my new office in 2001 when a colleague dropped a copy of the European Emissions Trading System Draft Directive onto my desk and asked me for comments! So here we are today, nearly nine years later, with a global market of some 8 billion tonnes in 2009 (PointCarbon) at a value of nearly €100 billion. This is largely EU-ETS based, either directly or through the CDM. The nine years that have passed also illustrates, like the technologies I discussed in my last post, that big changes takes decades to find root, grow, mature and become mainstream. Although several new carbon markets will probably appear during the current decade, it may not be until the 2020’s that we truly see the real start of the big changes in the energy system that they can deliver. That will mean a 20-25 year journey from concept to something approaching mainstream.

 This has also been a journey in Shell as well. In 2001 we were experimenting with our own internal emissions trading system, primarily to build understanding and gain acceptance of the idea across the company. At the same time we were in the process of hiring just one person to launch our Environmental Products trading unit, which in turn has gone from strength to strength as carbon markets have grown and our own exposure to carbon pricing has materialised. As early as 2002 we were advocates of an EU-ETS based on absolute targets and mandatory participation. This was in stark contrast to an EU industry position that was largely built around voluntary participation and relative (i.e. output based) targets. Compare that with the recent Copenhagen Communique which had some 900 companies globally signing on and organisations such as USCAP advocating an economy wide cap-and-trade approach in the USA.

 In 2001 I was “climate change in Shell”. The job itself was just three years old and I was the second incumbent. Although there was some exploratory thinking on carbon capture and storage (CCS) and coal bed methane technologies taking place in our EP division, most of what the Group was doing emanated from the Corporate Centre where I was based. That is far from the story today. Activities relating to CO2 management permeate across all our businesses and at every level of the organisation. Hundreds of people are involved in CO2 based programmes ranging from CCS projects in Australia and Norway to CER origination in China. Rather than being a lone representative in the Corporate HSE team, I work in a dynamic Group CO2 team based in our Downstream Business, but with a second line of reporting to the CEO.

 Such is the nature of this issue to a large oil and gas company today