Category: Canada

The role of CCS in hydrogen production

dchone February 9, 2022

A recent report by Global Witness has cast doubt on the value that carbon capture and storage (CCS) can bring to the mitigation of emissions associated with hydrogen manufacture from natural gas. This is based on an analysis of the Quest CCS project in Canada. However, the report fails to discuss the full context in which this project was developed and therefore draws an incorrect conclusion as to the benefits delivered by the project and the prospect for CCS linked to future hydrogen production.

Just over 20 years ago, I attended my first meeting of the Shell Canada Greenhouse Gas Advisory Panel. Shell Canada had established this panel to recommend and oversee measures to manage the carbon footprint of its operations at that time. Led by the then President/CEO, the panel included Shell Canada staff, representatives from Canadian and international NGOs and First Nations, and me representing the broader Shell group.

We met 2-3 times per year up until the mid-2000s and the Shell Canada team took forward a number of the panel’s recommendations to reduce emissions at Shell’s operations in Alberta. One of the earliest discussion points was around the need to develop CCS at Shell’s Scotford Complex in Alberta. These were the early discussions that led to the Quest CCS project.

Shell opened the Scotford Complex in 1984 with a refinery and chemicals plants, then expanded it in the early 2000s to process heavy oil into refined petroleum products. To do this, Scotford incorporated an ‘upgrader’, a unit that transforms bitumen into a light/sweet synthetic crude oil by fractionation and hydrogenation (improving the hydrogen to carbon ratio of the oil).

At the time, some of the hydrogen at the Scotford Complex originated from a nearby industrial facility where it was a by-product. But as Scotford grew with increasing production, Shell built a steam-methane reformer (SMR) to produce its own hydrogen. This is a process where natural gas is converted to hydrogen, with the remaining carbon being emitted as carbon dioxide from the process. A simplified representation of the process is;

CH₄ (natural gas) + 2H₂O (water as steam) –> CO₂ (carbon dioxide emitted) + 4H₂ (hydrogen produced)

In the case of a conventional SMR, which the original unit is, additional CO₂ is also emitted from the process when natural gas is burned to provide energy.

Fast forward to today, Quest CCS has been running since 2015 and captures just over one million tonnes of CO₂ each year – more reliably and at a lower cost than expected – with the CO₂ coming from the reaction outlined above in the steam reformer that produces hydrogen for the upgrader.

Quest was designed as a million-tonne unit to capture one third of the emissions from the Scotford upgrader. Its purpose was to demonstrate not only that CO2 could be captured, but also that it could be stored more than 2 km underground in a geological formation that lies under much of Western Canada called the Basal Cambrian Sands. Quest is part of a knowledge sharing effort with the governments of Alberta and Canada to encourage wider use of CCS technology and bring down future costs. As such, its designs, emissions data and certain intellectual property are publicly available on the Government of Alberta website.

Quest was not, however, designed to capture all of the CO₂ emissions associated with steam reforming of methane to make hydrogen. Nor has Shell claimed in its publicity that Quest is capable of capturing all CO2 emissions from the hydrogen plants or the upgrader. Annual performance reports on the Government of Alberta’s website have been audited and reviewed, and reflect an accurate characterization of what Quest has achieved to date: it has successfully captured and then permanently stored underground more than six million tonnes of CO₂.

And importantly, Quest was not designed to produce blue hydrogen, and as such, it should not be used as an example of blue hydrogen production. Rather, Quest was designed to demonstrate that capture and storage of CO₂ does work; and it has done just that.

Diagrammatic representation of Scotford CCS. Source: Shell Canada

Since Quest began operating, the energy transition has gathered pace and the role of hydrogen as an energy carrier has become a focus of attention. As a result, how hydrogen is produced has also become an important consideration. There are two approaches under consideration for a world that needs to head towards net-zero emissions.

Green hydrogen – this is produced by the electrolysis of water using electricity from renewable energy sources. The basic process dates back over 200 years, but it has remained a relatively small scale process, until very recently. Now electrolysers are growing rapidly in size with Shell amongst a handful of companies installing very large units. In July last year, Europe’s largest PEM hydrogen electrolyser began operations at Shell’s Energy and Chemicals Park Rheinland, producing green hydrogen.
Blue hydrogen – this is produced through the conversion of natural gas to hydrogen, with a very high percentage of the carbon dioxide which would otherwise be emitted by the facility, captured and geologically stored. Although the Quest CCS project captures and stores CO₂ from hydrogen production, this is not a blue hydrogen facility. That is because only a portion of the CO₂ is captured, as per the design criteria discussed above.

The Global Witness report has drawn on the Quest experience and used it to criticise the carbon footprint of blue hydrogen. The report concludes that future blue hydrogen projects should not be considered based on the observation that the existing hydrogen facility on which Quest is attached continues to emit a good portion of total CO₂ produced.

But the analysis fails to contextualize Quest and doesn’t consider that future blue hydrogen projects would be designed very differently to Quest and the associated hydrogen plant, even employing different process technology for the methane conversion itself which in turns makes CO₂ capture much more manageable and cost effective. For example, the proposed Polaris CCS project that Shell is planning for Scoford’s refinery and chemicals plants would include what’s called ‘post-combustion capture’ which has the more than 90% CO2 capture rates needed to produce blue hydrogen.

The route towards the current best process for blue hydrogen is described in a white paper produced by Shell Catalysts and Technologies, with its infographic shown below. The paper indicates the possibility of >99% CO₂ capture in the Shell gas partial oxidation process (SGP).

Hydrogen processes with CCS. Source: Shell Catalysts and Technologies

As the century unfolds and the energy transition takes hold, hydrogen may become an important part of the new energy system. So society needs to be able to produce it at scale and do this quickly. Hydrogen from renewable sources and from natural gas with CCS will be required to meet demand. Both routes are more than capable of delivering hydrogen with a very low carbon footprint and ultimately cost will decide the winner, including the carbon cost associated with managing any ongoing emissions attributable to either process.

The future is carbon trading

dchone September 5, 2018

From time to time it is worth revisiting the rationale behind various initiatives, in part to better understand them but also to bring clarity to the benefits of implementation. Carbon emissions trading is one such practice.

Trading in goods and services has been at the foundation of human development for thousands of years. It introduces opportunity, cost efficiency and flexibility into society that in turn fosters economic growth. These benefits are well understood and have been proven many times over, but the idea that trade can successfully solve an environmental issue is again being challenged, to the extent that implementation of new trading systems is not welcomed by all parts of society.

Carbon trading involves the transfer of some form of carbon emission instrument between two parties in exchange for financial consideration. It has its roots in the mid-1990s, but its economic underpinnings go back into the 1970s and a related large-scale implementation in the United States to tackle sulphur emissions started operating in 1990. Emissions trading is also built on the back of commodity futures trading, which emerged in agricultural areas such as the mid-West of the United States to help balance supply and demand peaks and troughs, which in turn helped farmers manage their income over time.

To best understand carbon emissions trading, it helps to look forward to where we are headed, rather than back to where we started.

The Paris Agreement establishes the need for society to effectively reach zero greenhouse gas emissions in the second half of the century, with the Shell Sky scenario indicating a timeline to 2070 to give a high level of certainty (≥ 85%) that the 2°C goal of the Agreement will not be breached. As surface temperature warming is a function of cumulative emissions over time, temperature will not stabilize until the net addition of carbon dioxide to the atmosphere is zero.

The Sky scenario follows the guidance of Article 4 of the Paris Agreement due to ongoing societal use of oil, coal and gas for the delivery of energy services where non-emitting alternatives remain nascent or in some cases, non-existent. In Sky, society achieves net-zero emissions by balancing remaining emissions with the removal of carbon dioxide from the atmosphere at another location or even at another time.

Sky also illustrates the potential time spread for countries reaching net-zero carbon dioxide emissions. Some achieve that goal as early as the 2040s, but there is a long tail of emitting countries extending to the end of the century. Given the need for a global outcome around 2070, but faced with the reality of countries, sectors and industries only able to reduce emissions at different rates and some potentially not able to reduce to zero, the mechanism that emerges to achieve a balance and fairly distribute the cost of emission reductions across society and over time is carbon trading.

In Sky, emitters in 2070 would purchase carbon removal units from industries able to capture and geologically store carbon dioxide, or even use carbon dioxide to make certain products. This trade in carbon units underpins the journey to net-zero emissions while allowing economies to grow and prosper, making use of the energy services that are needed. But this requires the development of a large-scale industry to generate carbon removal units.

Today, the reduction journey is beginning but carbon emissions trading is just as important. For some emitters, even initial reductions may not be possible, particularly if they are part of an expanding sector. But for others, reductions may come more easily, for example by closing a coal fired power station which has been replaced by large scale implementation of renewables. The power generator can effectively share the reductions made with the sector that is growing, thereby achieving an overall reduction between them but without impinging on the growth prospects for the expanding sector. Trade in carbon units between these entities is the critical facilitator. A vibrant carbon trading market now will also give confidence to developers looking towards the supply of removal units in the future.

As the global economy heads towards large scale carbon emission reductions, implementation will be challenging for some and progress may be limited as a result. But as has been the case in all aspects of economic growth over many centuries, trade should be fully utilised to solve these issues and move forward.

Carbon market developments in 2017

dchone January 15, 2018

Looking back at my 2017 post on developments in 2016, it becomes clear that the past twelve months have been more consolidation than progress in terms of carbon market development. It also means that the coloured map (below) hasn’t really changed, apart from a slight set-back and the very positive addition of Singapore.

A big story that emerged in 2016 was the prospect of a nationwide emissions trading system in China. Observers waited throughout 2017 for the formal commencement or at least an announcement, but news didn’t come until mid-December of an imminent launch. Rather than an economy wide cap-and-trade system, the government announced that an emissions rate based system would commence in the electricity sector. Harvard’s Rob Stavins has written extensively about it in a recent blog post.

The Chinese carbon market will double the share of global CO2 emissions covered by worldwide carbon-pricing systems to almost 25 percent.

China wasn’t the only country in the news. Also within the Asian economy, Singapore announced the start of a carbon tax based system from 2019, with a draft Bill appearing for consultation during 2017. The tax will be applied on power stations and other large direct emitters which produce more than 25,000 tonnes of carbon dioxide equivalent of greenhouse gases a year. There are currently 30 to 40 of such large emitters, mainly from the petroleum refining, chemicals and semiconductor sectors. The proposed tax will be around S$10-$20 per tonne CO2.

In North America, progress was mixed. The focus continued to be on Canada with the September announcement that Ontario had entered into an agreement to formally link its carbon market with markets in Quebec and California effective January 1, 2018. The Agreement will allow the governments of Ontario, Quebec and California (the Parties) to hold joint auction of greenhouse gas emission allowances and to harmonize regulations and reporting requirements. An important addition to this was the passage of a Bill in California to extend that State’s cap-and-trade system through to 2030. But with the announcement that the US would be leaving the Paris Agreement and that the Administration would be rolling back the Obama Clean Power Plan, progress in the rest of the country was muted.

In Central Asia, the Kazakhstan emissions trading system remained suspended (hence the change from green to orange), but following an announcement by the government, this should revert to operational status in 2018.

South Africa also moved forward slightly, with a further consultation announced on its draft carbon tax legislation.

Here in the EU, the ETS continued, but 2018 saw much needed reforms agreed. The main elements of the agreement are:

The linear reduction factor will be 2.2 % from 2021;
Each year from 2019 to 2023, 24 % of the cumulative surplus of allowances will go to the Market Stability Reserve; from 2023 the allowances held in the reserve above the total number of allowances auctioned during the previous year should be cancelled;
Conditional lowering of the auction share by 3 % of the total quantity if needed, to avoid application of the cross-sectoral correction factor;
Member States may voluntarily cancel allowances to offset national climate and energy policies that reduce the demand.

The EU ETS expanded slightly with the agreement of a link with the Swiss ETS, although it may be some time before this comes into practice. The ratification of the agreement will require the approval of the Council and Parliament, which is expected in early 2018. When parties are technically ready to connect the two systems, they will formally deposit their instruments of ratification. The agreement will enter into force at the start of the following year.

As the year concluded and nations met in Bonn for COP23, it was also clear that carbon pricing, both through taxation or a trading system was being widely considered. This offers considerable hope for the years to come.

Some post-Paris diplomacy

dchone March 16, 2016

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

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

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

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

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

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

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

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

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

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

Carbon pricing in 2015

dchone January 7, 2016

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

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

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

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

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

One million tonnes of CO2

dchone November 6, 2015

The first week of November sees Shell officially open its first major carbon capture and storage (CCS) facility, the Quest project. It is in Alberta, Canada and will capture and store about one million tonnes of carbon dioxide per annum. Construction commenced back in September 2012 when the Final Investment Decision (FID) was taken and the plant started up and began operating for the first time in September of this year, just three years later. It is one of only a handful of fully integrated carbon capture and storage facilities operating globally. There are now many facilities that capture CO2 but mainly linked to Enhanced Oil Recovery which provides an income source for these projects. Quest has dedicated CO2 storage, developed in an area some 65 kms from the capture site at a depth of about 2 kms.

The Quest income source is not based on EOR; it has been able to take advantage of the government implemented carbon price that prevails within Alberta. Although the current carbon pricing mechanism has an effective ceiling of $15 per tonne CO2 which isn’t sufficient for CCS, let alone a first of its kind, it nevertheless provides a valuable incentive income to operate the facility which has been built on the back of two substantial capital grants from the Provincial and Federal governments respectively. A supplementary mechanism also in place in Alberta provide credits related to the carbon price mechanism for the early years of a CCS project, providing additional operating revenue for any new facility.

Canada, as it turns out, has become a global leader in CCS. The Quest facility is the second major project to be started up in Canada is as many years, with the Saskpower Boundary Dam project commencing operations this time last year.

As noted, Quest will capture and store approximately one million tonnes of carbon dioxide per annum. It demonstrates how quickly and efficiently large scale CO2 management can be implemented once the fiscal conditions are in place. Quest, which is relatively small in scale for an industry that is used to managing gas processing and transport in the hundreds of millions to billions of tonnes globally, demonstrates both the need for continued expansion of the CCS industry and the importance of carbon pricing policy to drive it forward. This single facility far surpasses the largest solar PV facilities operating around the world in terms of CO2 management. Take for example the Desert Sunlight Solar Farm in California, currently the fourth largest solar PV power station in the world. According to First Solar, it displaces 300,000 tonnes of CO2 annually, less than a third of that captured and permanently stored by Quest.

A key difference though is the use of the word displace. Alternative energy projects don’t directly manage CO2, they generate energy without CO2 emissions. But, as I have noted in previous postings and in my first book, the release of fossil carbon to the atmosphere is more a function of energy prices and resource availability. This means that even when a project like Desert Sunlight operates, the CO2 it notionally displaces may still be released at some other location or at some other time, depending on long term energy prices and extraction economics. There is no doubt that the CO2 is not being emitted right now in California, but that doesn’t necessarily resolve the problem. Quest, by contrast, directly manages the CO2 from fossil fuel extraction.

The requirement to provide alternative energy (i.e. without CO2 emissions) needs to grow, but we shouldn’t imagine that such action, by itself, will fully resolve the climate issue. That will come through the application of carbon pricing mechanisms by governments, driving the further expansion of both the alternative energy and CCS industries as a result.

A video about the Quest project, made by the constructors, Fluor, is available here.

More steps towards Paris

dchone May 20, 2015

At the end of last week (May 15^th) Canada submitted its Intended Nationally Determined Contribution (INDC) to the UNFCCC, becoming the 37^th state to do so (including 28 countries within the EU). The three key points of the Canadian INDC submission are:

An emissions reduction pledge of 30% below 2005 levels by 2030 (the US has pledged a target of 26-28% below 2005 levels by 2025);
The reduction will be economy-wide and will cover all GHGs recognized under the UNFCCC;
Canada “may also use international mechanisms to achieve its target, subject to robust systems that deliver real and verified emissions reductions.”

This means that substantial progress is being made towards a good coverage of INDC submissions by the time of the Paris COP, although many eyes will now be turning to the emerging economies (e.g. China, India, Brazil, South Africa, Chile, Saudi Arabia etc.) for the real signal with regards tackling global emissions. Mexico has made a good start in that regard.

In just two weeks the national negotiators will meet again, this time in Bonn, to continue their deliberations in the lead up to COP21. But is the process in good shape?

Compared to this time in 2009 with the Copenhagen COP looming, I think it is in better shape. Although there are many details to be agreed, the negotiators at least know what it is they are trying to agree on; a relatively lean framework within which can sit the collection of INDCs from all countries for scrutiny and review. It has taken many years to get to this point and the process is far from complete, but the task at hand is now clear even though many will argue that it won’t be sufficient to deliver the goal to limit warming of the climate system to less than 2°C. At least there is thematic consensus which I don’t think existed in May 2009; was it to be top down or bottom up, what would happen to the Kyoto Protocol, should there be a global goal on temperature rise? These and many other questions were still in play.

Looking back on some of my first year of blog posts which were written in 2009, it was all very different.

Many eyes were on the deliberations of the US House of Representatives and the Waxman-Markey cap-and-trade Bill, with every expectation that the USA would take the lead on establishing a carbon price. Today, those eyes are on the world’s largest emitter, China, as it proceeds with its carbon pricing provincial trials and expansion to a nationwide system.
It wasn’t until the June 2009 UNFCCC meeting that the team from the Oxford University Department of Physics first presented their new thinking on a global carbon emissions limit of 1 trillion tonnes over the industrial era; now negotiators are actually considering the concept of net-zero emissions and therefore an end date to the ongoing accumulation of carbon dioxide in the atmosphere.
The British government produced a first of its kind report on the idea of global carbon trading. In some respects not much has changed, but the discussion has matured and the likes of the World Bank are now taking this concept forward. A linked market even exists between California and Quebec.
In July 2009 I came across the first electric vehicle charging stations in London and met a person who was taking delivery of the seventh Tesla in the UK. In 2014 there were 15,000 EV and PHEV newly registered and right now on AutoTrader there are 10 used Tesla cars for sale!!
The UNFCCC negotiations were operating on two tracks, the Kyoto Protocol (KP) and Long term Cooperative Action (LCA), with no real sign of them coming together.
There was little consensus on climate finance; today the Green Climate Fund has been established and there is an active process underway to start disseminating the initial developed country funding.
There was little sign of targets and goal setting from the major developing countries; today China has indicated a plateau in emissions by around 2030 and other countries are following their lead.

In hindsight it isn’t surprising that all of these issues were not resolved by the following December. The goals for Paris may not be as lofty as those for Copenhagen, but at least from the perspective of a mid-year review they appear more achievable. It’s been a few months since I have added a piece to my “Paris Puzzle”, but it is perhaps timely to do this now.

An update on climate legislation

dchone January 18, 2013

This week the organisation known as GLOBE (The Global Legislators’ Organisation supports national parliamentarians to develop and agree common legislative responses to the major challenges posed by sustainable development) met in London and launched its biannual review of national climate legislation. The GLOBE Climate Legislation Study is up to its third edition and covers the ongoing efforts in 33 countries. Of these, GLOBE claims that 18 countries have made substantial progress, 14 have made limited progress and one country has been singled out for taking a backwards step, Canada, but more on that later.

In their press release, GLOBE state that:

“The tide is beginning to turn decisively on tackling climate change, the defining material challenge of this century. In the past year alone, as described in this latest study by GLOBE International and the Grantham Research Institute, 32 out of 33 surveyed countries have introduced or are progressing significant climate-related legislation. In 2012 alone, 18 of the 33 countries made significant progress. This is a game-changing development, driven by emerging economies, but taking place across each and every continent. Most importantly it challenges how governments look at the international negotiations up to 2015 requiring much greater focus by governments to support national legislation.”

The report is a substantial piece of work and it steps through the programmes in each country in considerable detail, although the pages of tables raise the question as to what exactly is “climate legislation”. Legislation is categorised under the headings “Pricing carbon”, “Energy Demand”, “Energy Supply”, “Forests/Land Use”, “Adaptation” and so on. Of these, “Energy Demand” is largely energy efficiency measures and “Energy Supply” focuses principally on renewables (and nuclear in some countries). These two categories alone cover all but one of the countries (Nepal) surveyed, yet for the most part none of this is “climate legislation”. Rather, this is legislation that impacts the energy mix, but this does not necessarily translate into a reduction in emissions on a global basis and in many instances does not even lower national emissions. It simply augments the energy mix or lowers the energy and CO2 intensity of certain processes, which in turn can lead to greater overall use of energy and therefore increased emissions over the longer term. I have explored both these issues in previous postings, here and here.

This is not the case for the carbon pricing category, which GLOBE link to 11 of the 33 countries covered. But 4 of these are part of the EU and of the remaining countries only Australia has actually implemented the carbon price (arguably so has Japan, but the level is close to insignificant at about $1.50 per tonne). GLOBE also claim India has carbon pricing, but there is no such mechanism within the economy (there is a heavy focus on efficiency and a certificate trading system to drive it). Others include Mexico, South Africa, South Korea and China, all of which are in various stages of developing carbon pricing but none actually have.

Finally, there is the story around Canada. They are singled out as the only country to take a step backwards because of their decision to abandon the Kyoto Protocol (the same treatment is not given to Japan and Russia though) and the absence of a nationally implemented policy framework. Perversely, Canada is one country that made real and tangible advances last year, although emissions continue to rise in this resource rich economy. Quebec implemented its cap-and-trade system, carbon pricing continued in British Columbia and Alberta and the Federal Government did introduce its carbon standards for power stations, which will mean no new coal plants (without CCS) – even the EU cannot claim such an achievement. Most importantly, Canada managed to get a large scale CCS project approved and construction started – similar attempts in the EU failed disastrously in 2012. This point is worthy of note, although GLOBE don’t mention it, given the critical role that CCS needs to play in mitigating emissions throughout this century.

The steps being taken in many countries to better manage energy supply, demand and mix are welcome, but to argue that this marks a “decisive turn” on tackling climate change and is “game changing” seems to be overly optimistic. BP released their latest Energy Outlook 2030 this week as well, which sees CO2 emissions rising sharply to 42 billion tonnes per annum by 2030, this despite non-hydro renewable energy nearly quadrupling over that time period. In total, nuclear/hydro/renewables/bio moves from 16% to 23% of the energy mix.

Finally, a P.S. to my previous post on the observation by many that “global warming has stopped”. James Hansen has just published a good analysis of this and finds that a number of factors are contributing to the lack of change in overall global average temperature. This includes the behaviour of the El Nino/La Nina system (ENSO) and aerosol loading in the atmosphere. But he also concludes that natural variability must be playing a role. Worth a read.

Expectations for COP 18 in Doha

dchone November 26, 2012

This week sees the start of the 18th Conference of the Parties of the UNFCCC, or COP18 for short, in Doha, Qatar. This should be a busy transitional COP, with much on the agenda to resolve and important steps forward being taken toward a long term international agreement. But procedural issues, agenda disagreements and fundamental sticking points could still dominate, leading to a two week impasse. Let’s hope not.

At the core of the process lie three work streams which have evolved over many years.

The oldest of these is the discussion on the Kyoto Protocol (KP), which has now been running in one form or another for most of the twenty year history of the UNFCCC. Discussion on a second commitment period (KP2) over the past years have embodied the toughest issues in the climate negotiations, such as the role of developing countries in reducing emissions, engagement with North America (neither Canada or the United States will participate going forward) and the need to put a robust price on CO2 emissions. I am a big fan of KP, despite its shortcomings. It was designed with carbon pricing as its central theme, allowed countries to trade to find lowest cost abatement pathways and through its architecture encouraged signatories to implement cap-and-trade based policy frameworks within their respective economies. The simple but clever ideas within it have not been matched since in terms of effectiveness and efficiency despite years of negotiations. Given sufficient willingness, there are clearly routes forward by which KP could evolve to become the much sought after “21st Century global agreement”, but instead it is reaching the end of its shelf life. There seems to be no resolution with North America under this banner, developing countries appear reluctant to let it be the approach to govern their much needed actions and even the country of its namesake city is unwilling to sign again on the dotted line. Australia and the EU remain as the KP bedrock, if for no other reason than to rescue the CDM and consummate their carbon market linkage with a common approach to accounting, offsets and single market currency (AAUs and CERs). The parties do need to agree on KP2, despite the lack of critical mass, and then roll forward its inherent carbon market architecture into the new grand design.

Next comes the discussion on long term cooperative action, or LCA, a workstream which appeared in 2007 at the Bali COP and is home to a broad range of developments from the Green Climate Fund (GCF), the Nationally Appropriate Mitigation Action (NAMA), the much discussed New Market Mechanism (NMM) and more recently the Framework for Various Approaches (FVA). It was meant to deliver the grand deal at Copenhagen in 2009 but didn’t and now labours on with many loose ends and partially thought through ideas which have not been implemented or even fully negotiated. Nevertheless it has been a useful testing ground for new thinking, but has not yet delivered any real mitigation action. It needs to stop now, but difficult issues remain such as the funding of the Green Climate Fund and the modalities for actually spending any money that may arrive in its coffers. These spinoffs from the LCA will need to continue under one of the Subsidiary Bodies or within the ADP (see below) discussions, but the parent discussion should be put to rest in Doha.

Now comes “the new hope”, the Durban Platform for Enhanced Action. For some, the parties at COP17 simply kicked the can 9 years down the road knowing that little new progress would be made, but for many this represents a much needed and major reboot of the process after years of making almost no progress at all on the respective roles of developed, emerging and developing economies. As Harvard’s Rob Stavins noted in his blog of January 2012;

Now, the COP-17 decision for “Enhanced Action” completely eliminates the Annex I/non-Annex I (or industrialized/developing country) distinction. It focuses instead on the (admittedly non-binding) pledge to create a system of greenhouse gas reductions including all Parties (that is, all key countries) by 2015 that will come into force (after ratification) by 2020. Nowhere in the text of the decision will one find phrases such as “Annex I,” “common but differentiated responsibilities,” or “distributional equity,” which have – in recent years – become code words for targets for the richest countries and a blank check for all others.

We should not over-estimate the importance of a “non-binding agreement to reach a future agreement,” but this is a real departure from the past, and marks a significant advance along the treacherous, uphill path of climate negotiations.

Although there have been some opening salvos fired in the ADP (Ad-Hoc Working Group on the Durban Platform for Enhanced Action) in various inter-sessional meetings this year, the heavy lifting for this work stream needs to start at COP18. In recent months the IEA, the World Bank, PWC and others have all made it abundantly clear that unless some truly meaningful progress is made in the sort term, the 2 deg.C goal will pass us by (it may already have) and that before we know it we will be looking at a 4 deg.C outcome, along with all its consequences. Even the timetable for the ADP, which seeks to reach agreement by 2015 for implementation in 2020 is problematic in terms of the need for immediate action, but it is what it is.

The ADP needs to define a work programme that embraces the five primary strands of action coming out of the KP and LCA, namely;

National action defined through specific targets, goals and actions, but aligned with the overarching mitigation objective. This would also include REDD.
An underlying carbon market infrastructure as currently embodied by the KP but adapted to the applicable framework for mitigation action. Without an evolving price on carbon in the international energy markets, mitigation action will stall. This work stream should also pick up the NMM discussion.
A funding mechanism that can leverage private sector finance for kickstarting technologies and helping less developed economies invest in a low carbon pathway forward. This is the GCF.
A continuation of the work of the TEC and CTCN to share knowledge and best practice arising from technology implementation.
A robust approach to adaptation.

Recently the World Business Council for Sustainable Development resurfaced work that it undertook back at the start of the LCA, but which is highly relevant to the first of the two prospective work areas above. “Establishing a Global Carbon Market” looks at how the substance of the KP carbon market can be applied much more broadly to an evolving world of various approaches.

The above represents a tall order for two weeks work, but with some 10,000 people in tow there is certainly enough labour at hand to get this heavy lifting done. A refined single track approach will bring much needed focus back to the discussions which then paves the way for at least some hope that the 2015 goal for a new agreement can be met. In summary, the big asks for this COP are:

Agreeing a continuation of the Kyoto Protocol through to 2020 and then politely ushering this Grand Dame of the UNFCCC off the stage with some reverence and applause.
Bringing closure to the LCA work programme and shifting some key components (e.g. GCF, TEC) into the formulation of the ADP.
Establishing a clear work programme for the ADP, which incorporates as a priority, the foundations for a continuing and evolving global carbon market.

Good luck and success to all the delegates.

A CCS project for Canada

dchone September 11, 2012

I don’t normally use this blog to write about Shell, but last week saw an announcement that is very relevant and worthy of some further elaboration. Shell Canada, as operator of the Athabasca Oil Sands Project joint venture (with Chevron and Marathon), announced plans to proceed with a carbon capture and storage project (Quest) within the current oils sands project. This is a project that has been under discussion in one form or another since almost day one of production from the facilities, but the lack of a workable economic justification for the project has been the major impediment to progress.

In recent years the story has changed though. The Government of Alberta has developed a carbon pricing system which provides a level of underlying support for the project. The World Bank “State and Trend of the Carbon Market 2012” report describes the Alberta system (on page 89) as follows:

Alberta is Canada’s largest greenhouse gas (GHG) emitting province, accounting for 34% of the country’s total GHG emissions in 2010. This represents 235 MtCO2e, a 41% increase from 1990 levels, driven primarily by increased production activity in its oil and gas sector. On July 1, 2007, Alberta launched a mandatory GHG emission intensity-based mechanism, enacting the first GHG emissions legislation in Canada. Approximately 100 entities with annual emissions exceeding 100,000 tCO2e (ktCO2e), are required by the legislation to reduce their emission intensity by 12% from average 2003-2005 levels. Entities that do not meet reduction requirements on a given year may choose to meet these obligations by:

Trading “Emissions Performance Credits” (EPC) that are awarded to covered entities that reduce emissions below their set target;
Paying CN$15 (US$15.2) into a technology fund; and/or
Purchasing Alberta-based offsets issued by the Alberta Offsets Registry under an approved protocol.

N.B. The World Bank chart below shows the number of offsets retired annually through the system with an estimate for 2011 (not announced at the time the report was published). The price has remained very close to the technology fund alternative.

As such, this system provides an underlying base level of support of some CAN$15 per tonne of CO2 for the CCS project. In addition, in 2011 the Alberta Government announced a further support mechanism for CCS though the system, which now grants a second bonus credit for CCS projects meeting certain criteria. The Canadian based Pembina Institute published the diagram below, challenging the environmental integrity of the approach, but it also gives a simple explanation of how the mechanism works. In a completely closed system the environmental integrity argument would be correct, but in the open ended Alberta system with payment into a technology fund as a compliance option, the argument is hardly valid.

A further, but much less quantifiable, price signal is that coming from the California Low Carbon Fuel Standard (LCFS) and to a much lesser extent the EU Fuel Quality Directive (FQD). These mechanisms place a carbon footprint target on the fuel in the transport sector with a starting baseline about equal to the carbon footprint of oil products processed through a conventional production and refining route and then declining by about 1% per annum. When oil sands products arrive in these markets, their higher carbon footprint generates a penalty on the use of the component in the fuel pool which manifests itself as a price on carbon emissions associated with the production and use of the product. Of course the product may be targeted at other markets, but even a small location constraint on a product can lead to a trading discount in some market circumstances. This is also a carbon price of sorts. In any case, the prevalence of LCFS type approaches could well increase over the years ahead, which could penalize oil sands relative to some other production routes.

The combination of Provincial and Federal grants, a Province based carbon pricing system and its bonus credits and consideration of the role played by fuel standards in export markets in the future has allowed the project to get the green light. This should be seen as good news. CCS is the critical technology for real long term reductions in emissions – I have argued in the past that it may well be the only technology, so supporting it now and getting at least some early projects up and running should be an essential policy goal. Support remains a dilemma for policy makers, particularly in challenging economic times. However, there is a valid role to play here in that almost every carbon roadmap to 2030 and beyond shows CCS being required, yet there is currently no carbon price signal strong enough in any jurisdiction to actually build one now and therefore begin the process of demonstration and commercialization.

The project itself is medium in scale, storing about one million tonnes per annum of CO2 coming from the Hydrogen Manufacturing Unit (HMU) linked to the oil sands bitumen upgrader. The HMU produces hydrogen by steam reforming of natural gas, with a nearly pure CO2 stream as a byproduct. At high temperatures (700–1100 °C), steam (H2O) reacts with methane (CH4) to yield syngas.

CH4 + H2O → CO + 3 H2

In a second stage, additional hydrogen is generated through the lower-temperature water gas shift reaction, performed at about 130 °C:

CO + H2O → CO2 + H2

Heat required to drive the process is supplied by burning some portion of the natural gas. A very simple overview of the process is shown below.

The capture plant is located in Fort Saskatchewan, approx 50 km N.E. of Edmonton, Alberta. The CO2 will be transported by 12 inch pipeline to storage, approximately 65 km north of the upgrader site. The CO2 will be stored in a saline aquifer formation called Basal Cambrian Sands (BCS). At 2,300 metres below the surface it is some of the deepest sandstone in the region, with multiple caprock and salt seal layers and no significant faulting visible from wells or seismic activity. The BCS is well below hydrocarbon bearing formations and potable water zones in the region. Relatively few wells have been drilled into the BCS and none within 10 km of the proposed storage site.

It’s been a long road from initial discussion, to early concept and finally the investment decision last week. But the end result is a real CCS project!!