Author: dchone

I work for Shell International Ltd. and I am the Chief Climate Change Adviser for Shell, working in the Shell scenarios team. I joined Shell in 1980 after graduating as a Chemical Engineer from the University of Adelaide in Australia. I have worked in refinery technology, oil trading and shipping areas for Shell. I am a board member of the International Emissions Trading Association (IETA), was Chairman of IETA from 2011-2013 and I am also a board member of C2ES in Washington.

Article 6: The importance of the corresponding adjustment

dchone December 13, 2021

With COP26 behind us and the Article 6 rule book complete, attention should turn to operationalising Article 6 and particularly the transfer process that is detailed in 6.2 but applies to 6.4 units when they are created. There is real enthusiasm for getting 6.4 up and running, but there is also concern about the environmental integrity and inherent ambition associated with the units created. The ambition discussion emerged at the time of the Paris Agreement and is embodied in 6.4(d) which requires delivery of an overall mitigation in global emissions. That in turn has resulted in an automatic 2% retirement of all 6.4 units that are created.

With a focus on ambition, we therefore might expect greater scrutiny over the selection of projects, the baselines chosen and the verification process. Certainly these were important aspects of the process surrounding the Clean Development Mechanism of the Kyoto Protocol (CDM). But Article 6 functions differently to the CDM, with one critical extra requirement – the corresponding adjustment. I have described this in several earlier blogs, but in short it functions as shown in the chart below;

In the example country A attracts inward investment for an avoided emissions wind project and exports 100 units to country B, which needs to reach net-zero emissions but has no further local abatement opportunities to call on. Under the transfer provisions of 6.2 country A adjusts its nationally determined contribution (NDC) accounts by 100 units as a corresponding adjustment for the sale, but then must take enhanced domestic action to maintain its net zero emissions NDC goal. In the example this comes in the form of additional natural sinks for which it has abundant potential. The difference with the CDM is that the last step would not have taken place.

The important action here, other than the investment that delivers energy infrastructure to country A, is the corresponding adjustment and the subsequent domestic actions it triggers. It is perhaps more important than a focus on the project itself.

Project verification leading to the issuance of emission reduction units (ERU) focuses on numerous factors, but the stringency of the chosen baseline was always important in the CDM. A generous baseline, for example arguing that the national alternative to wind was coal when in fact natural gas was the more likely outcome, would mean more reduction units being issued and a potentially larger carbon trading income for the project. But it also meant more units being sold into the international market, possibly undermining global ambition.

In the Article 6 process, a generous project baseline may result in an ‘own goal’ of sorts. When a project is set up under Article 6.4 it creates an economic incentive for the project in the form of carbon unit income, but at the same time it creates an economic liability for the host country due to the additional domestic actions that must be taken to balance the NDC. How governments ultimately deal with this liability remains to be seen, but allowing excessive credit issuance will likely be a non-starter as this will simply deepen the national liability to balance the sale made.

For quantified NDCs the corresponding adjustment rule is as follows;

Each participating Party with an NDC measured in t CO₂ eq shall apply corresponding adjustments pursuant to paragraph 7 above, resulting in an emissions balance as referred to in decision 18/CMA.1, annex, paragraph 77(d)(ii) of the annex to decision 18/CMA.1, reported pursuant to paragraph 23 of this guidance, for each year, by applying corresponding adjustments in the following manner to the anthropogenic emissions by sources and removals by sinks from the sectors and GHGs covered by its NDC consistently with this chapter and relevant future decisions of the CMA:

Adding the quantity of ITMOs authorized and first transferred, for the calendar year in which the mitigation outcomes occurred pursuant to paragraph 7 above;
Subtracting the quantity of ITMOs used pursuant to paragraph 7 above for the calendar year in which the mitigation outcomes are used towards the implementation and achievement of the NDC, ensuring that the mitigation outcomes are used within the same NDC implementation period as when they occurred.

The above offers a very transparent approach to the adjustment, but of course not every country will have a quantified NDC. Where the basis of an NDC is policies and measures, then the rule shifts;

. . . to the anthropogenic emissions by sources and removals by sinks for those emission or sink categories affected by the implementation of the cooperative approach and its mitigation activities and by those policies and measures that include the implementation of the cooperative approach and its mitigation activities . . . .

Adding the quantity of ITMOs authorized and first transferred, for the calendar year in which the mitigation outcomes occurred, pursuant to paragraph 7 above;
Subtracting the quantity of ITMOs used pursuant to paragraph 7 above for the calendar year in which the mitigation outcomes are used towards the implementation and achievement of the NDC, ensuring that the mitigation outcomes are used within the same NDC implementation period as when they occurred.

Emissions accounting and corresponding adjustments on the above basis is more challenging than via explicit carbon budgets and may not be purely quantitative in nature in that a qualitive decision will need to be made in defining the scope of the categories and activities affected. Over time we may see Article 6 being a catalyst for change in NDC structure, with countries that wish to attract project investment and engage in ERU export shifting to quantified NDC and the transparency that they bring. This gives greater certainty to receiving countries that the transaction has not somehow increased global emissions. Ultimately that puts the world on course for more rigorous carbon budget management, which is where we need to be to meet the goals of the Paris Agreement.

Arguably the environmental integrity of Article 6 sits more with the corresponding adjustment than with the project itself and its verification. Provided the adjustment is transparent and the change is balanced by other actions by the host country, then the integrity of the project is less important than would otherwise be the case. It may transpire that receiving countries accept units more on the basis of how the corresponding adjustment is executed than on the precise baseline and emission reductions achieved by the project. It also means that verifiers may need to shift their approach from local analysis of a project to a broader look at the NDC, its reporting and the way in which the host country counts emissions.

The lesser told story of COP26

dchone November 18, 2021

The much anticipated but delayed COP26 has come and gone, with many articles and commentary focussing on whether 1.5°C is still alive. I commented on this at the start of COP26 and although some additional enhanced NDC pledges have been made since then and there is a new goal to end deforestation by 2030, the situation remains largely unchanged. Apart from one thing! COP26 delivered an agreement on Article 6 of the Paris Agreement.

Article 6 was the last piece of the Paris Agreement to be negotiated back in 2015 and true to form it has become the last piece of the rule book to be completed. So why has it proved so contentious and why does it help keep 1.5°C alive?

The Article outlines ways in which some Parties can choose to pursue voluntary cooperation in the implementation of their nationally determined contributions (NDC), but the sub-sections 6.2 and 6.4 have been negotiated primarily as carbon market instruments, designed to allow trading between Parties, through linking of emissions trading systems and cross border investment in mitigation and removals to create tradable carbon credits. Simply put, carbon markets and trading of carbon units unleashes a commercial engine that can operate on a scale far surpassing the limits of local domestic action. It helps align the energy transition with other global commercial activities, offering the potential for lower overall costs to society which in turn can enhance ambition. Trade is a powerful tool that is at the heart of the global economy and carbon trading can serve to unlock mitigation opportunities that would otherwise be neglected. As I discussed in a recent post, a potential future standstill in global emissions is brought to net-zero through Article 6 cooperative action between countries and the aviation sector developing carbon removal opportunities in various parts of the world. Trade requires price discovery, so indirectly Article 6 helps in the development of liquid carbon markets and carbon pricing, although these don’t emerge from Article 6 itself but from national systems which are open to Article 6 transfers.

The newly agreed rules behind 6.2 are simple but powerful and importantly bring clarity to the issue of environmental integrity. Article 6.2 allows transfers between counties in carbon designated units, thus impacting the NDCs of the buyer and the seller. The buyer is able to meet NDC goals more cost effectively and the seller receives an income stream for domestic mitigation activities. This may seem like a straightforward approach to mitigation, so why has it proved so difficult to negotiate?

The rule for a transfer between Parties requires an adjustment to the related NDCs which brings with it a need to account for each NDC in carbon budget terms. Over time, this drives the Paris Agreement to operate more like a rigorous cap-and-trade system rather than a collection of national mitigation activities presented as a list of actions. With national actions based on a carbon budget architecture, transparency is vastly improved and actions are increasingly focused on mitigation rather than simply supplying more clean energy. The two may align but are not necessarily the same. With so much at stake, negotiators have been careful to get the rules right. Further, carbon budgets are easy to add up and derive a global total, which then puts pressure on the Parties when that budget exceeds the available capacity of the atmosphere for a given temperature limit. Ultimately, it may also open up the highly contentious question of who can use the remaining budget. While the Paris Agreement isn’t operating like this today, widespread use of Article 6 could accelerate such a development.

Article 6 also brings with it a mechanism to assign common units to a mitigation project, carefully defining it in terms of tradable carbon credits. These would be issued by a Supervisory Body operating as part of the Paris Agreement implementation. While 6.2 is essentially a bilateral transfer approach, 6.4 is a multilateral mechanism, introducing a notional Paris carbon currency. However, transfer of these units between countries will still follow the rules of 6.2. Article 6.4 follows on from the similar Clean Development Mechanism of the Kyoto Protocol, but with a clearly quantified transfer approach.

Both 6.2 and 6.4 are voluntary in that attainment of NDCs can be realised without them, but when used they bring the power of trade to the job of mitigation. Analysis of the benefits of such an approach by the University of Maryland found that international cooperation under a well-functioning Article 6 of the Paris Agreement could save as much as $250 billion per year by 2030. Translating this back into the potential for greater mitigation becomes tangible and meaningful in the already very narrow window of opportunity for limiting warming to 1.5°C.

Glasgow doesn’t mean job done on Article 6, but it does set the stage for activities to commence. The onus is now on national governments to encourage the use of these mechanisms, by allowing their mitigation activities to be open to Article 6 transfers. This could start with well-developed systems such as the EU ETS recognizing 6.4 units, particularly if they are associated with carbon removal projects which the EU will need to meet its goal of net-zero emissions by 2050. Successful implementation could also allow the EU to consider an earlier NZE goal if required to keep 1.5°C in play. But given that the Article 6 rule book was finally agreed in the United Kingdom, perhaps the British government might be the ones to step up and allow Article 6 to flourish within the new UK ETS. After all, in the wake of Brexit trade has become the topic of the day in the UK.

Article 6 has been a hard won policy development, but it’s completion in Glasgow makes COP26 a success, even as some commentators have pronounced some disappointment with the precise wording of the Glasgow Climate Pact. We should thank the negotiators for their efforts over many years and reward their long nights at various COPs with rapid and successful implementation.

The last chance COP? Some more carbon budget maths!

dchone November 1, 2021

With world leaders and thousands of delegates and observers meeting in Glasgow for COP26, there is much talk of this being the last chance to save 1.5°C. It wouldn’t be the first time a COP has been described as the last chance we have, but in the case of COP26 and 1.5°C, it is a fair assessment of the situation. It all rests on the available carbon budget which I discussed in a recent post.

In the August 2021 6th Assessment Report from IPCC WGI, the carbon budget analysis for 1.5°C was published, as shown in the table below.

Estimates of historical CO₂ emissions and remaining carbon budgets (Source: IPCC)

In its recent NZE 2050 scenario, the IEA used the mid range figure of 500 Gt from 1.1.2020 as the carbon budget for the analysis, although we should recognise that for a greater degree of certainty of not exceeding 1.5°C a lower number is more desirable. But we are two years on from the baseline of 1.1.2020 with cumulative carbon dioxide emissions since that time of some 80 Gt, so from 1.1.2022 which is now just a few weeks away, the carbon budget for 1.5°C is closer to 400 Gt. This sits against global annual carbon dioxide emissions of over 40 Gt, comprising 33 Gt from fossil fuel use, 3 Gt from the calcination of limestone for cement manufacture and 6 Gt as a result of land use change practices, which includes ongoing deforestation.

So with at most 400 Gt of remaining budget and it diminishing by 1 Gt every 9 days (so 1.5 Gt while COP26 is on), the challenge facing the conference is huge. 2021 (originally 2020 in the Paris Agreement but delayed due to COVID-19) is the year in which countries are asked through the Paris Agreement to reassess their initial Nationally Determined Contributions and to increase ambition in light of the prevailing science. Indeed, that process is well underway and a quick look at the UNFCCC NDC Registry will show many new submissions, with more appearing each day.

A quick analysis of the NDCs reveals that in the 2020s global society is likely to consume much of the remaining carbon budget for 1.5°C, which implies that the temperature goal is breached soon after the decade is over (although it may be some years after that the IPCC and WMO confirm this). Just ten medium to large emitting countries account for some 200 Gt in the 2020s, based on the emissions pathways they have announced through their existing or revised NDCs and assuming that these are delivered. That list includes China, the USA, India, the EU, Australia, the UK, Canada, Korea, Japan and Russia. These ten make up about two thirds of current global energy system emissions. China is the largest, with emissions currently around 10 Gt per year. Their revised NDC was submitted last week and brings forward their peaking of emissions to ‘before 2030’. I have assumed that their emissions plateau now, then being falling in 2027 and drop to 9 Gt per year by 2030.

Most of the countries outside my ten, albeit not all, either have modest current emissions and are therefore likely to see short term increases as development continues, or at best will plateau at their current levels. This includes Brazil, Indonesia and all of the African (1.3 Gt energy emissions in 2019) and Middle East (2.1 Gt energy emissions in 2019) countries. The 10+ Gt per year for nine years that these countries represent is around 100+ Gt, so that takes the total to 300+ Gt. Add to this international aviation and marine bunkers over a decade and another 15-20 Gt of the budget is consumed. The total by 2030 is therefore becoming perilously close to 400 Gt and will certainly exceed the tighter 67% and 83% numbers in the table above. At best the NDCs might see carbon dioxide emissions at around 30 Gt per year by 2030, with a remaining budget of 60-80 Gt going into the 2030s and beyond.

While there is a very strong focus at COP26 on net-zero emissions in 2050, the real challenge for 1.5°C is within this decade. The next round of NDCs won’t be submitted until 2025 if the Paris schedule is maintained, by which time another 160-200 Gt of carbon dioxide could have been emitted based on a global plateau at current levels. This really will be too late to make changes for 1.5°C, so it has to be in 2021 with COP26 acting as the catalyst for change.

Article 6 at COP26

dchone October 11, 2021

My home country, Australia, seems to reside permanently in the international climate doghouse, but a closer look reveals that they have made steady progress on some of the less advertised fronts related to mitigation. This was highlighted again recently when the government’s Energy and Emissions Reduction Minister Angus Taylor announced that carbon capture and storage (CCS) projects would be eligible for emission reduction credits.

This might seem like a distraction to some, but Australia has been forging a clear path towards growing its carbon removal capacity for some years now. The Federal Emissions Reduction Fund (ERF) has long targeted opportunities in soil carbon, forest management and reforestation and now CCS is added to the list. Short of a miracle in energy technology development and deployment, the current mechanisms for energy supply do not hold within them a net-zero emissions solution available within 30 years, so it is only through the addition of direct carbon dioxide management in the form of removals that the goal of the Paris Agreement can be met. Unfortunately, this doesn’t seem to be widely appreciated, with the exception of the United States and their 45Q tax incentives for CCS, Canada with their early demonstration projects and Australia with its behemoth Gorgon CCS project, creation of the Global Carbon Capture and Storage Institute and domestic focus on removals. Other countries are now scrambling to establish similar initiatives, but are somewhat lagging.

The case for CCS and carbon removals is an easy one to make – it emerges from any credible analysis of the energy system that accounts for likely future energy demand, real world deployment rates and the expected fossil fuel legacy that will persist into the 22^nd century even as significant reductions in use are made. Depending on assumptions, removals can stretch to a trillion tonnes of carbon dioxide over the course of the century. It is only in a scenario with a very constrained future energy demand that removals become less important, but still don’t disappear. The chart below, which I have posted before, shows the four IPCC 1.5°C archetype scenarios (P1, a high sustainability consciousness develops across society, to P4, a technology driven society with high energy demand and technical solutions to environmental issues) and the Shell Sky 1.5 scenario – all require carbon removals. In the P1 scenario sink use is quite low, highlighted by an end to land based anthropogenic emissions and the subsequent development of the land as an enhanced sink from mid-century on, at about 5 Gt per year drawdown of carbon dioxide. P1 makes no use of geological storage. By contrast, the P4 scenario makes very extensive use of geological sinks with BECCS playing a substantial role even as land based emissions are eventually reigned in.

So how does all the above relate to COP26? Of course ambition is very much on the agenda and removals are required to deliver on that ambition, but so are many other steps. However, one of the features of carbon removals is that they will likely have to emerge through cooperative action between governments. Remaining emissions and the availability of removal sinks probably won’t exist in the same geographies, so a global trade in emission sinks will need to emerge. This would happen under Article 6 of the Paris Agreement, which still remains as unfinished business after the rulebook negotiations at COP24 in Katowice. Article 6 establishes a framework for cooperative action between countries in realizing their NDCs, which includes trading carbon units across borders.

The charts below illustrate how a standstill in global emissions (at 300 units in the illustration) is brought to net-zero through cooperative action between governments and the aviation sector. Large scale cross border investment results from the development and trading of carbon units, including removals, that would otherwise not take place. This is why Article 6 is so important – it helps all sectors and Parties to the Paris Agreement reach net-zero emissions.

While the UK Government has many ambitious plans for COP26, and Article 6 is certainly among them, I believe that agreement on the Article 6 rulebook is the most important outcome needed from Glasgow. Apart from its future value to society, an agreement on this difficult piece of rule-making would demonstrate that countries can work together to achieve an outcome that may not be in their immediate self-interest. Article 6 brings a rigour to emissions reporting and accounting that we must have for net-zero emissions. It introduces concepts such as carbon budgets and emissions inventory adjustments for trade to take place, which progressively caps the emissions of nationally determined contributions and forces them towards exact quantification, rather than narrative description. Of course nations aren’t required to use Article 6, it’s voluntary, but once they choose to they must also choose accounting rigour.

After the failure to agree on the Article 6 rule-book at Katowice, great progress was made at COP25 in Madrid, but final agreement still wasn’t possible. Nevertheless, a text emerged that would do the job, although it was entirely bracketed. But the text did capture the key elements that are required for Article 6 to function;

Removals specifically referenced.
A simple but robust approach for adjusting nationally determined contributions (NDC – the national plan for emissions reduction and adaptation put forward by a country) when an Article 6 transfer takes place.
A centralized accounting and reporting platform, with a clear focus on the avoidance of double counting of mitigation actions.
The creation of a supervisory body for the 6.4 mechanism.
Specifications for the design of a 6.4 activity and subsequent issuance of associated emission reduction units.
An approach to meet the requirements for adaptation funding required under 6.6 of the Paris Agreement.
A transition arrangement for ending the Clean Development Mechanism (CDM) of the Kyoto Protocol. The CDM has left several countries holding project carbon units that they are keen to monetize so as to support the underlying internal project investment.
A simple framework giving some structure to Article 6.8, the non-market approach cooperation.

Nevertheless, some disagreement between countries remains and these issue will need to be resolved in Glasgow.

There is a set of issues related to the scope of an NDC and whether some activities that are in addition to the NDC and involved in a transfer should be subjected to the same adjustments as the Madrid text outlines. This feels like a distraction for two reasons; the NDCs should rapidly expand to cover all activities within an economy and if there are activities still not covered by the NDC, they have no place under Article 6 anyway as this provision of the Paris Agreement is about cooperation to achieve NDCs.

Another tough issue has been the need to give meaning and substance to 6.4 (d) To deliver an overall mitigation in global emissions. The proposal in the Madrid text is to cancel a portion of the emission reduction units issued to the 6.4 activity, but this is unnecessarily punitive. It also risks pushing all activities into simple 6.2 transfers, which would undermine the whole purpose of having a project based mechanism which is more suited to many countries. The discussions in Glasgow simply need to recognize that, by definition, a 6.4 activity and related transfer with NDC adjustments always results in an overall reduction in global emissions. This is illustrated in the diagrams above and is the inherent purpose of an emissions trading structure.

Finally, there is the lingering problem of how best to wind up the CDM and what then becomes of the projects still delivering reductions and the legacy unused CERs sitting in registry accounts. For projects that continue to deliver reductions, the answer seems straightforward – they continue to operate, produce CERs and these are transferred under the provisions of 6.2, which ensures corresponding adjustments to NDCs. In the case of legacy units, I think the IPCC have answered the question, both in the 2018 SR15 and the 2021 AR6 reports. Both reports show that the temperature rise is now around 1.2°C and both offer a carbon budget requirement from 1.1.2018 and 1.1.2020 respectively to ensure that 1.5°C isn’t passed. By rebasing the climate issue in 2020 (in the case of AR6), anything that happened before that is now irrelevant in that it is part of the 1.2°C baseline. The carbon budget they developed has subsequently informed Parties on their NDC requirements and is already being used by the UNFCCC to assess the NDC gap . Adding pre-2020 units to current mitigation activities is simply undermining the carbon budget calculation.

With an agreement hopefully reached on Article 6 in Glasgow, the spotlight will then turn to national governments to open up the possibility of cooperative arrangements. This could come through linking of trading systems, opening up trading systems to external units and encouraging the private sector to develop mitigation projects through Article 6.4. Importantly, governments should also follow the lead of Australia and develop protocols for removals, as these are the units that will be in particular demand as net-zero emission goals and targets need to be met. Europe, in particular, will need to accelerate its removals thinking, an area where it is lagging in its mitigation efforts.

On to Glasgow!

Double counting or dual accounting?

dchone September 13, 2021

With growing demand from investors, customers and other stakeholders for companies to become net-zero and/or sell net-zero emission goods and services, there is increasing interest in the voluntary carbon market as a source of carbon offsets. This is because today, very few, if any, goods and services are provided without fossil fuels somewhere in their value chain. Simply storing goods in a warehouse puts fossil fuels into the value chain, because of the construction of the building. And even looking forwards, fossil fuels will remain embedded in global supply chains to some extent for several decades, if not a century.

The voluntary market has been slow to scale over the past two decades, but it is now growing rapidly. There have been ongoing concerns related to the quality of the carbon units that emerge from it. For example, do the carbon units represent real reductions? Would these reductions have happened anyway? Nevertheless, it is poised for more growth, driven by corporate commitments to achieve net-zero emission targets. This means that the voluntary market is poised to become a critical mechanism for helping deliver global emission reductions, to the extent that a special task force was created to address the concerns and put in place practices and approaches for rapid future scaling. The Taskforce was initiated by Mark Carney, UN Special Envoy for Climate Action and Finance; is chaired by Bill Winters, Group Chief Executive, Standard Chartered; and is sponsored by the Institute of International Finance (IIF). The final report was released recently and you can find it here.

One of the many discussion points within the report is how a carbon unit should be viewed with regards actions already underway or planned within the host country for the project. For example, the report discusses the need for a future voluntary market governance body to consider whether or when it may be necessary for projects to demonstrate additionality to the Host Country’s nationally determined contribution (NDC) under the Paris Agreement and the appropriate instruments to implement such a requirement (e.g. corresponding adjustments).

While the quality of carbon units is very important, some perspective on the role and shape of the voluntary market is also needed. The corresponding adjustment is a mechanism under the Paris Agreement to prevent double counting at country level and to maintain environmental integrity against the NDCs. The use of corresponding adjustments is set out clearly within Article 6 of the Paris Agreement. It is designed to work at country level where a defined NDC exists and I discussed this at some length in a 2020 post and in a 2019 post.

By contrast, the voluntary market operates at company level. The same emission activities (sinks and sources) can be viewed through two entirely different accounting approaches, one for countries and one for companies. So is the demand for Paris Agreement adjustments in the voluntary market mixing the voluntary and regulatory worlds in a way that is helpful or damaging to the voluntary market?

The voluntary market is a means of channelling capital into emission mitigation projects and it measures the results of that with the issuance of carbon credits that recipients can use as they see fit. Those carbon credits have no immediate value in a regulatory world as the recipient cannot use them to meet compliance obligations nor are they recognised by other jurisdictions. The recipient simply requires them to show that the sum total of their market and investment activities is net-zero emissions. This is a simple model, but one that has worked over time, albeit in a relatively limited way.

In the voluntary world, when a company sells a carbon neutral product in (say) the UK, there are emissions from the product in the UK and this is offset with a unit that might represent a sink from (say) forestry activity in (say) Kenya. These are combined to deliver the claim of carbon neutrality by the company in question. But that forestry activity will also lead to a larger sink in the Kenya official GHG inventory for their Paris Agreement commitments, thereby helping Kenya meet its NDC. Similarly, the emissions from the product use will likewise be counted in the UK inventory, setting back attainment of its NDC.

The two sets of accounts remain in good shape without a corresponding adjustment. Kenya measures its emissions and sinks and reports them under the Paris Agreement and the UK measures its emissions and sinks and similarly reports them. Even though the voluntary carbon neutral claim used a Kenya sink in the UK, the UK inventory doesn’t recognise it as it is counted in the Kenya inventory. Rather, the UK must report the product emissions in its NDC and take action to mitigate it such that their NDC goal is met.

Importantly, the company offering the carbon neutral product isn’t a country, it reports at a company level. The UK’s emission from the product the company is providing and Kenya’s sink from the company investment are added together by the company and reported as it’s footprint, which has nothing to do with the Paris accounting.

None of this is double counting, it’s dual accounting.

If however, the UK had used the Kenya sink and reported it under its inventory for the purposes of its NDC, then Kenya would need to do a corresponding adjustment. But this isn’t happening in the voluntary market.

Further, imagine what would be required if Kenya did need to commit to a corresponding adjustment for the use of its sink in the UK voluntary market. The company making use of the unit could ask the UK to accept the unit under Article 6 and have Kenya implement a corresponding adjustment, but the UK may not necessarily want it. So then the company would have to ask Kenya to do the corresponding adjustment anyway.

The sale in the voluntary market and the corresponding adjustment would require Kenya to find a further reduction somewhere in the economy to balance their NDC, which would create an economic cost beyond that which they had budgeted for the delivery of the NDC. While the project itself would benefit from the sale of the voluntary unit, the economy is penalised, which in turn would likely require the project developers to fund the difference. This then raises the cost of carbon units in the voluntary market and potentially diminishes investment into projects. It also means turning the voluntary market over to governments, because they will rightly seek scrutiny of local developments that result in changes to their Paris Agreement accounts.

The solution is to recognise that the voluntary market and the Paris Agreement are two distinct ways of looking at the same set of emitting activities and sinks. The voluntary market offers a mechanism for people and companies to invest in the attainment of NDCs through the purchase of carbon neutral goods and services. This is a positive development and it should be encouraged, particularly because some developing countries and most least developed economies, where many such voluntary market projects lie, are asking for help to finance their NDCs. Further, in the country where the carbon neutral goods and service are provided, the process raises emissions mitigation awareness. However, it will be essential to build understanding with voluntary market participants that the activity they are engaged in may be helping other countries attain their NDC and not necessarily the country they are living in. This can also help build wider appreciation for the role of carbon trading. But penalizing the voluntary market with requirements that stem from a completely different accounting structure may not be helpful and might have the perverse effect of slowing down emission reductions and choking off an expanding flow of climate finance into developing countries.

Eventually the voluntary market may merge into a framework regulated under Article 6, but for now these are two very different approaches to emissions management. Neither has matured yet, so an early melding of the two may not be in the best interests of overall carbon market development.

The simple climate maths the IPCC didn’t fully explain

dchone August 19, 2021

When I first started delving into the issue of climate change about 20 years ago, the clarion call of the day was to reduce emissions by 50% by 2050. Today, as we all know, the call is for net-zero emissions by 2050. Last week we also heard again from the Intergovernmental Panel on Climate Change (IPCC) with the release of the first part of the 6^th Assessment Report (AR6), which the United Nations Secretary General called a ‘code-red for humanity’. But both the call in 2001 and again in 2021 are entirely consistent. It’s not the climate science that has changed, just the carbon maths associated with it.

As the IPCC clearly state in Part D of the Summary for Policymakers of AR6-WG I;

This Report reaffirms with high confidence the AR5 finding that there is a near-linear relationship between cumulative anthropogenic CO₂ emissions and the global warming they cause. Each 1000 GtCO₂ of cumulative CO₂ emissions is assessed to likely cause a 0.27°C to 0.63°C increase in global surface temperature with a best estimate of 0.45°C. This is a narrower range compared to AR5 and SR1.5. This quantity is referred to as the transient climate response to cumulative CO₂ emissions (TCRE). This relationship implies that reaching net zero anthropogenic CO₂ emissions is a requirement to stabilize human-induced global temperature increase at any level, but that limiting global temperature increase to a specific level would imply limiting cumulative CO₂ emissions to within a carbon budget.

While the biggest difference between now and 2001 is the shift in the goal from below 2°C to 1.5°C which in turn has contributed to the change in required emissions trajectory, this is not enough to explain the shift in the required outcome by 2050. That change is more a function of the cumulative carbon math associated with any level of warming.

To limit the temperature rise to 1.5°C, the notional carbon budget based on the above best estimate of TCRE is 1.5/0.45*1000 = 3330 Gt CO₂ and for 2°C it is 4440 Gt. This is effectively targeting the central estimate in a range and is a calculation you might do before emissions start. However, we already know from IPCC AR6 that cumulative emissions of 2390 Gt correspond to a 1.07°C temperature rise in 2010-2019 vs. 1850-1900. They also indicate that the remaining carbon budget from 1.1.2020 for 1.5°C is 400 Gt and 2°C is 700 Gt for a 67% likelihood, which implies an overall carbon budget of 2790 Gt for 1.5°C and 3090 for 2°C with a good degree of certainty.

In the following calculations and accompanying charts I will work on the basis of a simple linear reduction in emissions to net-zero from a particular point in time to calculate the overall cumulative emissions. Returning to 2001, the annual CO₂ emissions (from energy, cement and land use) were approximately 30 Gt, the cumulative emissions from 1850 at that time were about 1700 Gt and a linear reduction pathway from 2001 for 2790 Gt final cumulative emissions (1.5°C) means net-zero emissions in about 2073. This is illustrated in the chart below.

As noted for 2001, cumulative carbon dioxide emissions since 1850 were at 1715 Gt (Source: Our World in Data), which means net-zero emissions in 2073 for 1.5°C and 2123 for 2°C. Back in 2001 the focus was more on 2°C, so targeting well below 2°C, to completely avoid the 2°C threshold, would mean net-zero emissions around 2100 and therefore a 50% reduction in emissions by 2050 assuming a linear decline.

But twenty years later the story is very different. At the time of the IPCC Special report on 1.5°C cumulative carbon dioxide emissions had reached 2300 Gt, so a linear reduction to net-zero had a target date of 2040. For 2°C it was 2077. In fact the IPCC opted for scenarios with a steeper early reduction pathway, and therefore targeted 2050 for net-zero emissions, but that means a very steep early reduction of over 50% by 2030 to balance the longer tail to 2050. With twenty further years of rising emissions, a considerable portion of the 2001 carbon budget had been consumed and therefore the date for net-zero emissions had moved forward in time dramatically.

In fact, for each year that emissions don’t reduce, the requirement for net-zero emissions comes towards us by a year, effectively narrowing the gap for action by two years. The IPCC Special Report on 1.5°C was baselined from 1.1.2018, so another four years has passed (or will soon pass). Even the recent IPCC AR6 is two years out of date now in terms of its carbon budget baseline. This rapidly shifting picture is shown below. In 2015 the target year for 1.5°C is shown to be 2042, a gap of 27 years, but by 2019 the target year is 2038, a gap of only 19 years.

Should carbon dioxide emissions remain at 40 Gt (below the pre-COVID high) for the coming few years, the available carbon budget for 1.5°C is rapidly consumed, as illustrated in the chart below. By 2025 net-zero emissions would be required by about 2033 and by 2029 net-zero emissions would be required before 2030, in other words the available carbon budget will have been consumed.

All the above presupposes that emissions cannot go below zero in the future, thereby drawing carbon dioxide out of the atmosphere and eventually correcting any overshoot of the carbon budget and its associated temperature goal. But negative emissions are a possibility, through the implementation of large scale air capture systems with geological storage (BECCS or DACCS) and enhancement of natural carbon uptake in the biosphere via programmes such as those that increase global forest cover and improve soil carbon management in agriculture.

Today, the carbon budget is still a rather arcane subject, well understood by a few but not widely appreciated in terms of relevance to managing surface temperature. That understanding will need to improve rapidly so policymakers can develop better mechanisms to manage it, also ensuring large scale deployment of atmospheric drawdown practices and technologies.

Battery trends

dchone August 2, 2021

Two key advantages of fossil fuels are the energy density of the fuel itself and the ease of storing energy that a molecule based fuel offers. Most homes have a huge energy store sitting in the car gasoline tank in the garage, or perhaps in an LPG / propane tank in another part of the house. The ease of storage makes transport relatively simple, with everything from passenger cars to A380 planes dependent on the need to carry fuel with them. But as the shift away from fossil fuels gathers pace and electricity grows in importance as the energy carrier of choice, one critical technology emerges that we all already use but will grow in size and scale – battery storage. We need batteries to store electricity for portable use and to store electricity at city level scale to manage the power grid, particularly as intermittent renewable sources become prevalent.

Battery technology dates back to around 1800, but domestic batteries were made popular over 100 years ago with the introduction of the AA battery in 1907 by the American Ever Ready Company, following on from their successful D cell flashlights. Today, we use batteries for a variety of household devices, but battery use across society is set to expand rapidly as the energy transition gathers pace. Further, as battery technology improves, these handy energy stores are making their way into more and more devices and applications.

In 2010, global battery production was less than 5 GWh, but with the arrival of the electric car and the growth in grid storage, production in 2020 was nearly 400 GWh (Source: Wood Mackenzie). There is also a significant and growing pipeline of Gigafactory projects, with manufacturing capacity around 1.3 TWh by 2030 based on known and expected projects. But what about the demand potential?

Numerous auto manufacturers have signalled their intent to bring internal combustion engine (ICE) passenger car manufacturing to an end, with dates between 2030 and 2040 often cited for the full switch to electric vehicles (EV). As a stretch, let’s assume that all passenger ICE production ends by 2035, which by then might mean 70 million EVs produced globally per year. If each car requires an 80 kWh battery, then that’s 5.6 TWh of new capacity required each year. Although recycling of batteries and battery components will eventually change the manufacturing landscape, that won’t be the case in the first half of the 2030s. At that time the availability of material for recycling will be the result of production today, which is a tiny fraction of our assumed production in 2035.

Grid storage requirements are a significant unknown. In a report published earlier this year by the research firm Frost & Sullivan, they predict additional global grid battery storage capacity additions will likely reach 135 GWh (0.14 TWh) in the next nine years from the 8.5GWh annual capacity additions that were recorded last year. But capacity additions are scaling rapidly, with the much talked about Tesla installed 100 MWh facility in South Australia in 2016 now easily eclipsed by multiple 300-400 MWh projects. In a 2020 study released by RethinkX, they estimated that for areas of the United States, a shift to 100% wind and solar would require some 40-90 average demand hours of battery storage. In 2020 US electricity demand was 4300 TWh, which would imply around 30 TWh of battery storage. However, it is possible that there is overlap between grid storage and EV storage, which by 2035 might have reached 12 TWh sitting in US garages and at charging points (assuming at least 50% EV penetration by then).

Assuming a rapid transition, the US alone might need 20-25 TWh of installed storage capacity by 2035, with global installed capacity perhaps reaching 100 TWh by that time. That would require a 35% year-on-year expansion of battery production capacity for the next 15 years as shown in the chart. That means in 2035 global battery production is close to 100 times current levels. It also requires manufacturing capacity in 2030 of 8 TWh, six times that of the current project pipeline for new facilities.

Batteries require particular minerals and chemistry, which today consist of lithium, nickel and cobalt in the current generation of Li-Ion batteries. The chemistry of batteries is the subject of extensive research, which points to much lower requirements for these minerals per kWh of storage. A recent analysis by the European Federation for Transport and Environment (Transport & Environment (2021), From dirty oil to clean batteries) states that over the period 2020 to 2030 the average amount of lithium required for a kWh of EV battery drops by half (from 0.10 kg/kWh to 0.05 kg/kWh), the amount of cobalt drops by more than three quarters, with battery chemistries moving towards a lower cobalt content (from 0.13 kg/kWh to 0.03 kg/kWh). For nickel the decrease is less pronounced – around a fifth – with new battery chemistry moving towards a higher nickel content as a fraction of the total, but still a decline per kWh (from 0.48 kg/kWh to 0.39 kg/kWh).

On the basis of the 2030 numbers above, production of 20 TWh (20,000 GWh in the chart above) battery storage per year in the early 2030s would need;

Metal	Early 2030s additional annual demand, million tonnes	Current global production, million tonnes	Required increase in global production
Lithium	1.0	0.09	10 times
Cobalt	0.6	0.15	4-5 times
Nickel	7.8	2.7	4 times

This is a significant step-up in metals production, with history pointing against achieving it.

Metals supply could well become a limiting factor in the energy transition given the potential demand for electricity storage. These levels of production increase are feasible over time, but in the space of 10-15 years they represent double to triple the historical trend, although that is true for almost everything in attempting to reduce emissions by 40+% in a decade. The above analysis also doesn’t account for other demands on batteries; from vans and trucks, small ships, barges, small planes, household and commercial devices and so on.

Equally, we shouldn’t discount innovation and different directions of travel. Apart from a slower energy transition, other factors that might influence the outcome are a more rapid evolution of battery chemistry towards more widely available minerals and/or a shift away from chemical batteries to other storage and balancing solutions in the electricity grid. However, don’t expect to see a truly novel solution scale sufficiently in just a decade. The first commercial Li-Ion battery was marketed in 1991 and has taken 30 years to scale to current levels. it was based on research and development over the previous 20 years.

In any case, the decade ahead could well be a period of rapid change and expansion for the global mining industry.

Are we now range bound on temperature?

dchone July 6, 2021

In my last post I discussed the recent IEA 1.5°C Scenario that sets out what is required to reach net-zero emissions by 2050 and manage the transition within a carbon budget of 500 Gt CO₂. The IEA have shown that while this is a relatively straightforward calculation to do (and last year I presented a similar one), the resulting energy transition pathway is extraordinarily difficult to imagine, let alone achieve. While such a pathway might be technically possible, is it actually plausible? Is society socially ready to embark on such a journey and inflict such large scale change upon itself?

A new report coordinated through the University of Hamburg’s Center for Earth System Research and Sustainability (CEN) in close collaboration with multiple partner institutions and funded by the Deutsche Forschungsgemeinschaft (DFG) attempts to answer the question of plausibility. In the annual Hamburg Climate Futures Outlook, researchers make the first systematic attempt to assess which climate futures are plausible, by combining multidisciplinary assessments of plausibility. The inaugural 2021 Hamburg Climate Futures Outlook addresses the question: Is it plausible that the world will reach deep decarbonization by 2050? The authors discuss the outcome in their own blog post, found here.

The methodology employed isn’t a direct technical analysis of the pathway steps, but rather an assessment of a number of social drivers that would be required to underpin such a transition. The authors conclude that deep decarbonisation by 2050 isn’t currently plausible, meaning that warming will exceed 1.5°C. None of the drivers show enough momentum to bring about deep decarbonisation by 2050 and they find that some drivers are currently inhibiting progress.

The authors combined their assessment of social plausibility with the latest set of socioeconomic future emissions scenarios (SSPs) and the latest physical science research on climate sensitivity to show that warming lower than 1.7°C and higher than 4.9°C by the end of the century as currently not plausible. The lower figure of 1.7°C relative to pre-industrial levels corresponds to the lower bound of the 90% uncertainty range in a low emissions IPCC scenario (SSP1-2.6) and the higher figure of 4.9°C corresponds to the upper bound of the 90% uncertainty range of a higher emissions IPCC scenario (SSP3).

Source: Hamburg Climate Futures Outlook 2021

Reframing this around central estimates for the scenarios gives a plausible range of 1.8°C to 3.8°C for warming by the end of the century. The original Shell Sky 2018 scenario also had a central estimate of about 1.8°C.

While the lower end of the range was analysed by the Hamburg team in terms of social plausibility, the upper end was not (see chart below); presumably that is a task still to be done.

Source: Hamburg Climate Futures Outlook 2021

However, the upper end of the range has been the subject of social plausibility analysis in a recent paper released by the MIT Joint Program on the Science and Policy of Global Change and discussed in this blog. That analysis was led by MIT, with me and my colleague Martin Haigh as contributing authors. A scenario called Growing Pressures was developed to illustrate how and why there is now an inevitable trend towards near zero emissions, catalysed by the physical reality of a rising average surface temperature. Near (net) zero emissions means that warming will stop and the temperature will plateau, but only a rapid shift to near (net) zero emissions will deliver the 1.5°C. The question the analysis sought to answer was what the highest plausible warming outcome might be given that an energy transition is clearly underway and there is real concern growing across society around the issue of climate change.

While political trends, such as populism or leaning to the left or right, tend to come and go over time and social norms shift around as the decades pass, the temperature trend is essentially a monotonic increasing function. As such, the influence it has on our consciousness will only grow over time. The cascade can be simplified as follows;

Climate changes;
- Global surface temperature continues to rise, and impacts become more apparent.
- Sea level keeps rising with visible consequences.
Concern rises;
- Voter pressure on cities, states and countries to develop ‘green’ policies.
- Shareholders pushing companies to take on net-zero emission goals and targets.
Local and national governments pursue (piecemeal) interventions;
- Ongoing actions under the UNFCC under the banner of the Paris Agreement and the emergence of net-zero emissions (NZE) as a framing concept.
- Incentives and mandates drive down the cost of new energy technologies and lead to further uptake.
- Large established NZE policy frameworks continue to operate (e.g. EU, California) and some new NZE policy frameworks emerge (e.g. China by 2060).
Technology marches on;
- Renewable energy access becomes cheaper.
- Developments in physics, chemistry and materials sciences (e.g. PV, storage).
- Rapid and broadening digitalization of society.
Markets rule;
- Financial markets distance themselves from fossil fuel investments, but particularly coal, and climate-related financial disclosures bring increasing transparency.
- Demands by businesses and consumers for lower carbon footprint products and some preparedness to pay for this.
- Development of markets to support low-carbon investment (e.g. nature-based solutions).
- Alternatives to coal, oil and gas becoming increasingly competitive.

While each of these will undoubtedly vary over time, their ongoing combined effect gives rise to a scenario of continuous change and transition. The central estimate temperature outcome for Growing Pressures is 2.7°C in 2100 leading to a 2.8°C plateau in 2150, well below the 3.8°C central estimate upper threshold discussed above.

Source: MIT Joint Program

Combining the findings of the these two separate analyses indicates that at the current stage of the energy transition, the warming outcome is now range bound between 1.8°C and 2.7°C in 2100, based on central estimates. That range is partly dictated by the development and availability of energy technologies, but is perhaps overwhelmingly driven by social plausibility, as discussed by the Hamburg team and in the MIT report.

The range may well narrow as time goes by. In the short term, if emissions don’t fall quickly, society will rapidly consume the available carbon budget for 1.5°C and then upwards. As was shown in the IPCC 2018 Special Report on 1.5°C (SR15) report and again by the IEA in their own NZE2050 scenario, that budget is less than 500 Gt CO₂ for 1.5°C of warming and is currently being consumed at the rate of over a gigaton every ten days (41 Gt per year). However, as the temperature rises and it becomes apparent to society critical thresholds are being passed, that in turn increases the drivers in the Growing Pressures scenario, as well as opening the social plausibility for nearer term reductions. Under such circumstances, repeating the two analyses in 2030 could well see a much narrower range, perhaps 2.0°C to 2.5°C.

None of the above is meant to argue that such a range is a good thing; the IPCC made it plain in their SR15 that we need to stay as close to 1.5°C as possible. However, the analyses are nevertheless important as they act as a signpost to help guide us forwards and they demonstrate that the energy transition is having an impact.

You can read the MIT report here.

Featured image courtesy of the UK Met Office.

Note: Scenarios don’t describe what will happen, or what should happen, rather they explore what could happen. Scenarios are not predictions, strategies or business plans. Please read the full Disclaimer here.

Pathways to 1.5°C

dchone June 11, 2021

In 2018 when the IPCC released their Special Report on 1.5°C, they presented four archetype scenarios to help readers understand that there were fundamentally different approaches to limit long term warming to 1.5°C or below. The scenario pathways are shown below and vary significantly in their approach, time horizon and use of sinks.

All four scenarios (P1, P2, P3, P4) are based around the same carbon budget, or total cumulative emissions of 420 Gt from 1.1.2018 consistent with providing a 66% chance of limiting warming to 1.5°C. Whether the carbon budget is aligned with 420 Gt (67^th percentile) or 580 Gt (50^th percentile), it represents a very limited amount given that annual CO₂ emissions are in excess of 40 Gt, so these represent 10-15 years of emissions at current levels. Since this IPCC publication, a further 160 Gt will have been emitted by society by the end of 2021, meaning that the budget is reduced to 260 – 420 Gt.

In attempting to align with a very limited carbon budget, the P1 scenario imagines a world of falling overall energy use and a very rapid shift away from fossil fuels. There is no use of geological storage of CO₂ and a modest reliance on natural sinks, although in doing so the world must shift away from net-deforestation by the 2040s. By contrast, the P4 scenario sees increasing demand for energy and as a consequence, a much more difficult decarbonisation journey that involves considerable use of sinks in the second half of the century. Notably, the P4 scenario exceeds the carbon budget by quite some amount with peak emissions to the atmosphere of 900 Gt, before reining in the amount to 200 Gt by 2100. This results in P4 being a so-called overshoot scenario, in that the world exceeds 1.5°C during the century before returning to 1.5°C and below by the end of the century.

All the above might seem a bit academic, but it became very real recently when the IEA released their 1.5°C scenario and some commentators began comparing it to one of the very few other 1.5°C scenarios, notably Sky 1.5 from Shell.

In fact, the two scenarios are at near opposite ends of the P1 to P4 spectrum.

The IEA 1.5°C scenario looks at the period from 2020 to 2050 and presents a proposal for the problem of containing emissions to a 500 Gt carbon budget (the 580 Gt IPCC number less 80 Gt for the years 2018 and 2019). Apart from recognising that the land based system is likely to reduce this budget by a further 40 Gt over the period (i.e. reducing it to 460 Gt), the analysis limits itself to the energy system and the changes that would be required to meet a 460 Gt cumulative emissions constraint within a 30 year time frame. As is the case in similar scenarios, including Sky 1.5, their analysis assumes rapid electrification of final energy (e.g. electric cars instead of gasoline) and makes use of renewables and nuclear power generation to produce the electricity. They introduce hydrogen as an energy carrier, make use of bioenergy and include carbon capture and storage (CCS) where fossil fuel remains in use. For the latter, the IEA deploy CCS directly on facilities that use fossil fuels and indirectly through direct air capture for fossil fuel use in applications such as aviation.

All the above steps are well understood, but even given rapid and stretching deployment rates of all technologies, these steps are unlikely to contain emissions to less than 500 Gt in under thirty years. This is because of the expected increase in overall energy use, a consequence of economic growth, the general rise in population and the shift of billions of people from very low energy use lifestyles to at least modest energy use, a simple outcome of development and the provision of basic services like lighting, clean water, food refrigeration and some mobility.

As such, energy modelers looking at a very constrained time frame of 30 years must make the assumption that energy growth can be contained or even fall, as in the IPCC P1 scenario. This is exactly what the IEA have done to meet the carbon constraint. In the 1.5°C Scenario primary energy demand falls from 612 EJ in 2019 to 543 EJ in 2050, a drop of over 10%. Efficiency will certainly help deliver such an outcome and the use of renewable electricity gives the story a big boost as the thermal losses in power stations vanish, although new losses emerge through the use of transmission and storage. But the big story is the widespread assumption of behavioural change across society to reduce energy demand. The chosen measures include steps such as;

Ride-sharing in all urban car trips
Reducing motorway / freeway speeds to below 100 kph / 60 mph.
Increasing temperatures in air conditioned vehicles and buildings.
Lowering temperatures in heated buildings.
Replacing short flights with high speed rail.
Limiting long haul air travel to 2019 levels.

With low energy demand and high deployment rates of new energy technologies it then becomes possible to resolve the carbon budget within a 30 year time frame.

At the other end of the spectrum is the Sky 1.5 scenario, which tackles the problem of a limited carbon budget in a very different way. Sky 1.5 looks at the period from 2020 to 2100, an 80 year time frame, and starts with an expectation of rising global energy demand, even assuming significant energy efficiency improvements across society. The growth in population and the demand for energy services, including significant new demand from developing countries for basic services, cannot be contained and energy demand rises. This immediately poses a challenge in that rising demand more quickly consumes the available carbon budget at the front end, when alternative energy technologies and sinks have not been deployed.

Sky 1.5 also recognises that for many energy technologies, the 2020s still remain a period of development and limited deployment and even for more mature technologies such as solar and wind, a period of early growth where change on a global scale will remain limited.

The solution to this approach is to accept that, at least in the short term, the carbon budget may be consumed and the temperature it is linked to (1.5°C in this case) potentially surpassed for a period of time. The subsequent rapid deployment of sink capacity, both manmade in the form of air capture with geological storage and natural as reforestation, then offers the possibility of a period of net-negative emissions later in the century, to redress the imbalance and reduce cumulative carbon dioxide emissions and therefore temperature. This is the approach that Sky 1.5 takes, as do the IPCC P3 and P4 scenarios. Sky 1.5 takes this approach out of necessity, in that the scenario reaches a limit on energy technology deployment and does not foresee a fall in energy demand.

The end carbon budget for both the IEA 1.5°C scenario and Sky 1.5 are similar, but the IEA restricts itself to a thirty year time-frame, whereas Sky 1.5 operates over an eighty year time-frame. Sky 1.5 is also remodeled by MIT within their integrated assessment model to give a temperature outcome, rather than simply using the IPCC central estimate for a carbon budget. The two scenarios are attempting to answer the same question, but take very different approaches to doing so. There is no right or wrong here, just different ways of solving a tough problem.

An ambitious step-up on transport

dchone May 21, 2021

Last week the German government announced a step-up in their ambition to reduce emissions, with a new target date for net-zero emissions of 2045. This will bring with it an even faster transition in the coming decade to 2030, which the government outlined by sector as follows;

Sector	2019 reductions from 1990	2030 reduction goal relative to 1990
Electricity generation	45.5%	62.5%
Buildings	41.9%	66.7%
Transport	0.6%	42.1%
Industry	33.8%	50.7%
Agriculture	24.4%	35.6%
Other	76.3%	86.6%
Overall ambition	35.7%	56.5%

While most sectors have made significant progress to date, transport stands out as having not changed since 1990. The reality here is that the same basic energy service technologies are still in place for planes, trucks, ships and automobiles and that efficiency improvements have been broadly offset by demand growth, meaning no change in thirty years. In 1990 personal transport demand in the Eastern part of Germany would have been quite low, albeit rather inefficient, so the demand increase over the years would have been a factor. This is illustrated in the figure below (Source: Car ownership and usage trends in Germany – Response to the Commission on Travel Demand’s Call for Evidence: Understanding Travel Demand, Tobias Kuhnimhof, Institute of Transport Research at the German Aerospace Center (DLR), May 2017).

Key car stock and vehicle kilometres traveled trends in Germany since the early 1990

The goal for 2030 represents a very sudden and fast paced deployment of battery electric vehicles (BEV) or hydrogen fuel cell vehicles (FCEV), although the auto industry in Germany is not approaching this from a standing start. Over the past few years the likes of VW, Audi, BMW, Daimler and Porsche have been developing a new range of electric vehicles and releasing them into the market. In a recent statement by the CEO of Volkswagen Passenger Cars, he noted that 2020 was a turning point for Volkswagen and marked a breakthrough in electric mobility. Last year, the brand delivered nearly 134,000 battery electric vehicles (+197 percent versus 2019). However, despite a challenging market environment, Volkswagen delivered around 5.328 million vehicles across all drive systems to customers around the world, so this represents 2.5% of their production.

In Germany, transport emissions are 95% road based, with internal aviation, barges, coastal ships and trains making up the rest. Within the road sector, this breaks down to about 65% passenger vehicles, 25% heavy freight and 10% light commercial (N.B. this breakdown is approximate based on a variety of articles and EU data sources). As noted, many models of passenger BEV are now available to purchase and this is also becoming a reality for light commercial vans and small trucks, although the range isn’t as extensive at the moment. However, it is not the case for heavy freight trucks, where some BEVs and FCEVs have been demonstrated, but commercial availability is very limited.

So if we assume little change in the 5% non-road transport emissions and large scale rollout of heavy freight BEVs and FCEVs from 2025, the heavy lifting for the transport goal will have to be done by rapid uptake of passenger EVs and light commercial EVs. The overall picture from 2020 (pre-COVID) to 2030 could look like the table below;

Mode of transport	2019 total emissions (scaled to 100)	2030 emissions relative to 2020 scale
Passenger vehicles	62	30
Light commercial	9	5
Heavy freight	24	18
Non-road transport	5	5
Total	100	58
		(or 42% reduction)

Based on the above, the deployment calculation is relatively straight forward. In 2019 the sale of passenger BEVs in Germany was 65,000 units in a total market of 3.6 million units. However, in 2020 this number tripled to 194,000 units, so we enter the decade with BEV sales at around 5%. There are some 47 million vehicles on the road in Germany with, at best, 1% being electric (470,000 vehicles) at the start of 2021. Although sales of cars at between 3 and 4 million and a 47 million car fleet points to an average age greater than 10 years, assume nevertheless that 10% of the fleet is turned over each year – perhaps the German government will introduce policies to accelerate the retirement of older less efficient vehicles. The calculation will also assume, as a starting point, that 10% of the sales in 2021 are battery electric, or double the 2020 number.

The chart below shows how the fleet emissions change as sales change. As indicated in the table above, passenger vehicle emissions need to halve by 2030 such that Germany reaches its transport sector goal. That doesn’t happen until the deployment annual growth rate of BEVs reaches nearly 50%, or a doubling of sales every two years until 2027 when all passenger vehicle sales are BEV from then on.

A deployment rate that requires doubling production every two years is a formidable task. Although EV sales tripled in 2020 vs. 2019, this was from a very small base. Such a rate won’t be maintained as numbers climb. For rapid BEV growth it isn’t just about retooling the existing auto plants but also building new battery plants, sourcing the necessary minerals for the batteries (e.g. lithium, nickel, cobalt), ensuring sufficient infrastructure is available for battery recharging and most importantly, building customer confidence in the product. Should Germany fall behind this rate of deployment, the only remaining option will be much higher turnover rates for vehicles later in the decade, but that will mean temporarily producing new cars at a rate that is unsustainable in later years.

By 2025 Germany will need to produce nearly two million electric cars per year for domestic use, which will also mean battery production capacity of some 160 GWh (assuming an 80 KWh battery for each car). At the moment the battery ‘gigafactory’ pipeline for Germany has several projects, with the total approaching this sort of scale and there are plans for future production increases. The Fraunhofer Institute for Systems and Innovation Research ISI, even suggests that EU production capacities of 300 to 400 GWh could be achieved by 2025. The website Battery-News.de anticipates that the German market alone will account for more than 170 GWh of production capacity. By way of comparison, Europe currently has around 30 GWh of production capacity.This ambitious German plan for e-mobility is getting underway!