Category: Coal

A ten year reduction challenge for the USA

dchone May 4, 2021

In April, at the opening of the White House Climate Summit, President Biden announced the United States Nationally Determined Contribution (NDC) for the period up to 2030, encompassing a target of greenhouse gas reductions 50-52% below 2005 levels. The US Greenhouse Gas inventory is available on the US EPA website and is summarised in the table below.

Sector and gases(Mt CO₂e)	2005	Latest data for 2019

CO₂ Fossil Fuel Combustion	5753.5	4856.7
CO₂ Non-Energy & Industrial	381	399.1
CH₄ from all sources	686.1	659.7
N₂O from all sources	455.8	457.1
HFCs, PFCs, SF₆, NF₃ from various industries	146.5	185.6
Total Emissions (Sources)	7423	6558.3

LULUCF Emissions	16.8	23.5
LULUCF Carbon Stock Change	(804.8)	(812.7)

Net Emissions (Sources & Sinks)	6635.0	5769.1

Given a baseline of 6635 Mt CO₂e, a 50% reduction in 2030 would require US emissions to be 3318 Mt or lower in that year. The 2019 data represents a reduction of 13% over 2005, so the reduction in the next 10 years must be nearly triple that of the last 15 years. The reduction seen to date from fossil fuel combustion is running slightly ahead of the overall improvement, with a reduction from 2005 to 2019 of nearly 16%.

The goal that President Biden put forward is aligned with a strategy that is designed to achieve a goal of net-zero emissions for the US in 2050. Recently, the Shell Scenario team released a US Sketch outlining one possible pathway to such an outcome. The Sketch is illustrated below (N.B. 2020 figures are a pre-pandemic view of US emissions which the US is approaching again as the recovery gains momentum).

The Sketch provides the opportunity to look at the nature of the transition required in the 2020s for the NDC. The Sketch energy system emissions in 2030 are 3440 Mt against a 2005 baseline of 6030 Mt (small differences in baselines result from different categorizations of emissions), or a reduction of 43%. While this isn’t exactly aligned with the NDC, it could be in that the NDC makes specific reference to a major expansion of sink capacity through enhanced soil carbon uptake in the agricultural sector.

Key elements of the journey to 2030 outlined for the US in the Sketch are as follows;

In 2020 (pre-COVID calculation) the US generated 3970 TWh of electricity, with 80% from coal, gas and nuclear. Solar and wind made up less than 10% of the total. By 2030 in the Sketch, the generation mix has shifted to natural gas and solar each making up about 25% of the total, with wind, nuclear and coal combined at around 40%. Notably, total electricity generation has increased to 5720 TWh, or 43% over 2020. This is in a pathway that still sees electricity system emissions at 600 Mt in 2035, the year President Biden has targeted for a zero emission system. His goal is about 5 years ahead of the Sketch.
The increase in electricity consumption comes from an increasing proportion of electricity in final energy, displacing gasoline in cars, natural gas in homes and coal in industry. Electrification is a major lever for decarbonisation. The proportion of electricity as final energy rises in a decade from 22% to 35%, breaking a near century long trend which if continued, would otherwise see it rise to 25% at most.
Over the 2020s, solar generation of electricity grows fastest, increasing by a factor of nearly 12 in a decade. The U.S. installed 19.2 gigawatts (GWdc) of solar PV capacity in 2020 to reach 97.7 GWdc of total installed capacity. With a utilisation factor of 15-20%, this could be expected to generate around 150 TWh of electricity, although the Energy Information Agency reported a total of 130 TWh (perhaps because the capacity at the start of the year was 79 GWdc). In any case, capacity by 2030 will need to grow to at least 1 TWdc, assuming some efficiency improvement in new installations compared to existing facilities. With a year-on-year installation growth of 30%, the US could be installing some 260 GWdc per year by 2030, bringing the total installed capacity to 1.2 TW by the end of that year. Very large scale energy storage will also have to deploy to support solar.
The Sketch also shows a three-fold increase in wind generation throughout the 2020s and importantly, no decline in nuclear generation. The latter becomes increasingly important as other non-intermittent generation sources decline in use.
Electric vehicle (EV) deployment is an important part of the trend towards electrification and it emerges rapidly in the Sketch. By 2030 the US will need to see 20% of all passenger vehicle use as electric, with hydrogen fuel cell vehicles rapidly appearing in the large SUV sector. At the moment, there are about 1.5 million EVs on the road, out of a total US passenger vehicle fleet of some 280 million. To reach a level of 20% EVs in terms of use, sales will need to climb rapidly from some 400,000 vehicles per year now, to over 13 million in 2030, or nearly 80% of all sales. This represents a year-on-year growth rate in EV sales of 42% through the decade.
Road freight makes less use of electricity, although it does impact the lighter end of the freight market. For larger, longer haul freight trucks, hydrogen emerges during the 2020s, with some 200,000 trucks on the road by end of the decade. This is still relatively small, but the sector is non-existent today. In the second half of the century in the Sketch, hydrogen becomes the dominant fuel for heavy road freight.
Natural gas, propane and oil are used widely in the US for cooking and/or heating in homes. Although the majority use electricity for cooking, heating is provided mostly by gaseous hydrocarbon fuels. In the US Sketch, heating and cooking in residences shifts from 13% electricity to 42% electricity in just a decade. Of all the transition tasks ahead, this may be the most challenging in that it involves convincing millions of households, individual consumers and landlords to change their behaviour, refit existing properties, invest money for the change and in some instances make use of a less preferred energy option.
While electricity already plays a significant role in light industry, this is not the case for heavy industry where very high temperatures and high thermal loads are often required for conversion processes. Heavy industry energy use in the US is currently three-quarters gas, coal and biomass and one quarter electricity. This begins to shift rapidly and by 2030 in the Sketch, 40% of energy demand for heavy industry is supplied by electricity. In addition, hydrogen is emerging, with the first industrial installations making commercial use of this fuel. While the amount is small in 2030 it could mean significant development, design and engineering of new processes in a limited amount of time. Alternatively, the amount could point to natural gas being topped up with hydrogen as a mixed fuel for industrial furnaces, prior to converting whole processes over to hydrogen based fuels.
The many changes across the energy landscape result in steep decline in the use of fossil fuels in the Sketch, with coal falling fastest. By 2030 there is a 40% reduction in coal use, a 14% reduction in natural gas and a 25% reduction in oil within the economy, compared to 2020 (pre-COVID) use.
But even by 2050 in the Sketch, natural gas and oil still play an important but significantly diminished role in the US economy. That points to the need for carbon capture and storage (CCS), both directly linked to facilities and indirectly as an atmosphere removal mechanism (e.g. BECCS). The US already has the most mature CCS industry in the world, underpinned by years of enhanced oil recovery using carbon dioxide. But an order of magnitude change is required here as well during the 2020s, with a shift from some 30 mtpa carbon dioxide stored to some 300 mtpa.

While the Sketch does not require nature based solutions (NBS) for the US energy system to reach net-zero emissions by 2050, natural carbon sinks do provide an additional lever to support the transition and the NDC also discusses this aspect of emissions mitigation. In the US, national forests cover 193 million acres, an area larger than Texas. Apart from their significant bioenergy potential, forests act as natural carbon sinks. The US could reduce CO₂ emissions by up to 300 million tons a year by 2050 through afforestation – the planting of new trees where there were none before. While new forests represent significant additional sinks, there is also potential to expand areas such as wetlands and mangrove swamps, and perhaps most importantly to encourage farmers to adopt practices that enhance soil carbon. The US NDC references this opportunity.

The rates of change outlined above are substantial, with year-on-year growth rates for several new energy technologies of 20-50%, depending on the sector. While growth at this level can be sustained when a sector is very small and this has been observed for renewable energy deployment, it becomes increasingly difficult as the sector grows and absolute levels of deployment become very large. Many of the sectors mentioned will face this issue during the 2020s. Nevertheless, the Sketch was designed to show what is possible given the right policy levers for innovation and deployment, sufficient and targeted financing and overall transition design.

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.

What next for coal?

dchone December 5, 2018

With COP24 now underway deep in the heart of coal country in Poland, we can’t help but be reminded of the important role that coal still plays in the energy system today.

There is hardly an economy in the world today that hasn’t relied on coal for its industrial development. A few have done so, notably Japan (although even in that country coal mining rose to some 55 million tonnes per annum during the Second World War), but most economies have developed on the back of coal, or oil and gas where these were in abundance domestically. It was the use of coal that supported the rise of industry in Germany, Great Britain, the US and Australia and more recently in China, South Africa and now India.

Coal is a relatively easy resource to tap into and make use of. It requires little technology to get going but offers a great deal, such as electricity, railways (in the early days), heating, industry and very importantly, smelting (e.g., steel making). For both Great Britain and the US, coal provided the impetus for the Industrial Revolution. In the case of the latter, very easy-to-access oil soon followed, and mobility flourished, which added enormously to the development of the continent.

Over a century ago, coal was used widely to produce gas for lighting and heating and in two instances, coal has also been used to supply liquid fuels. In Germany during the Second World War, coal was steam reformed and then catalytically converted to diesel fuels for the military. The same process was developed in South Africa during the apartheid years when oil was partly embargoed and remains today with the legacy of the two largest single point sources of carbon dioxide emissions on the planet. Coal is also used in China to make hydrogen for ammonia plants, a critical part of the fertilizer industry.

But the legacy that this leaves, apart from a wealthier society, is a lock-in of the resource on which the society was built. So much infrastructure is constructed on the back of the resource that it becomes almost impossible to replace or do without, particularly if the resource is still providing value.

As developing economies emerge, they too look at resources such as coal. Although natural gas is cleaner and offers many environmental benefits over coal (including lower carbon dioxide emissions), it also requires a higher level of infrastructure and technology to access and use, so it may not be a natural starting point. It often comes later, but in many instances it has been used as well as the coal rather than instead of it. Even in the US, the recent natural gas boom has not completely displaced its energy equivalent in coal extraction; rather, some of the coal has shifted to the export market.

A stark reality of the 21^st century is that despite great technical prowess, society still cannot offer a developing country a route towards a full industrial economy that does not involve coal. Little wonder then, as the UN published new data on rising carbon dioxide emissions, that the New York Times prominently featured a story titled “The World Needs to Quit Coal. Why Is It So Hard?”. In fact, the article only discussed the easiest of the current uses for coal to dislodge, as a source for electricity. Solar, wind and nuclear all offer zero emission alternatives and natural gas can offer a much lower emissions pathway. But coal is used abundantly in industry, particularly for iron ore smelting where it is fundamental to the conversion process itself.

Yet as the New York Times clearly point out, coal use must start to decline and do so quickly. In the Sky Scenario, released earlier this year by Shell, even an expansion of natural gas use and very aggressive deployment of renewables only sees coal plateau globally, with the real decline not emerging until the 2030s. This may be the best that can be achieved, given the number of new coal fired power stations being built in Asia, many part of China’s Belt and Road initiative.

The future of coal will depend on a variety of developments. Renewable energy deployment will certainly play a role, but it’s effectiveness in displacing coal will depend on how well it can be integrated into the electricity grid. Will we still need base load? South Australia has shown that not to be the case, with a mix of wind, solar, natural gas and interconnectors, glued together with a 100 MW Tesla battery, but has experienced something of a difficult journey to reach that point; the state was an early adopter, so presumably others will fare better.

But coal also needs to be dislodged from industry or married with carbon capture and storage where alternatives don’t present themselves. This means rapid development on several fronts;

Industrial processes need to find alternative sources for heat or even electrify their processes where possible.
A new smelting process needs to emerge for iron ore. Two look promising.
1. In Abu Dhabi, Emirates Steel use natural gas for smelting and have added carbon capture to the process.
2. In Sweden, there are plans for a first demonstration plant using hydrogen for iron ore reduction.
Carbon capture and storage needs to be deployed much more rapidly than is the case today, but there is a dependency on government policy emerging to incentivise its application or ultimately require it.

A recently released report by the Energies Transition Commission looks in depth at a number of sectors where abatement has yet to start, but concludes that there are technologies available to begin the journey to net-zero emissions and to deliver such an outcome.

All the above does happen in the Sky scenario and at an accelerated pace. The likely real world outcome is that coal will be with us for some time yet before we bid it farewell. Even late in this century, coal may well remain the feedstock of choice in some countries for petrochemicals. It could well be a very long goodbye.

Note: Scenarios are not intended to be predictions of likely future events or outcomes and investors should not rely on them when making an investment decision with regard to Royal Dutch Shell plc securities. Please read the full cautionary note in www.shell.com/skyscenario.

The Role of the EU Emissions Trading System

dchone August 22, 2018

Over recent weeks, a number of media outlets have noted the launch of a new commission in Germany, officially known as the “Commission on Growth, Structural Change and Employment”. The initiative is a welcome development and is born out of two concerns;

That German emissions are not falling fast enough, with an apparent reason that there is continued reliance on coal in the power sector. Demand has not fallen significantly in recent years despite the emphasis on renewable energy through the Energiewende. However, it should also be noted that German nuclear output has nearly halved in ten years as that industry has been forcibly wound down.
That when emissions do fall, the impact on the personal welfare of those in the coal sector could have wider ramifications for the economy.

According to the Financial Times, the objective of the task force is to lay out a plan for the elimination of coal from the country’s energy mix and to report by the end of the year. In doing so, the task force must look at the employment and regional development issues associated with such a move, so as not to repeat the problems that manifested in other countries when coal use went into rapid decline. The FT concludes with the observation that chances are the outcome will be radical rather than minimal, with the commission perhaps even setting a date for the complete elimination of coal that is much earlier than many observers expect.

In the Shell Sky scenario released earlier this year where the goals of the Paris Agreement are met, coal use in the EU roughly halves from current levels by 2035. Over the same period, natural gas use rises, peaks and begins to fall, while wind and solar grow several fold. This would certainly involve significant change for Germany and the coal sector in particular, hence the need for the Commission to look at employment and structural impacts for such a shift.

But should the Commission also develop a plan for the elimination of coal itself, or should it focus on the societal impacts of such a change?

German power generation is covered by the EU Emissions Trading System (EU ETS) and has been since 2005. That system embodies an emissions trajectory that is now declining at 2.2 percentage points per annum (against a 2005 baseline), which implies an overall reduction of EU ETS emissions by 43% in 2030 relative to 2005. Extending that rate of change out further, the system will have no further issuance of allowances from 2056, or in other words emissions must be zero by then (or at least net-zero if the system allows for storage units via carbon capture and storage (CCS)). That system alone ought to be sufficient to guide the transition in terms of the energy mix.

But the EU ETS has been the subject of much criticism, in large part because of the low prices seen from 2008 through to 2017 (~€5 for much of that time). This isn’t to say that the EU ETS wasn’t working in that allowance allocation and surrender against emissions proceeded without a hitch. That is still the case today. The problem was a growing surplus of allowances and a market view that such a surplus would persist, leading to very low prices. That surplus initially grew for a number of reasons (i.e. the 2008+ recession, inflow of units from the Clean Development Mechanism of the Kyoto Protocol) but persisted for another reason; overlapping policies. These are actions taken by government which force emissions down at a rate faster than the EU ETS, thus throwing up allowances and adding to the surplus. Perhaps the most prominent of these policies was the EU wide push for renewable energy, which includes the German Energiewende.

Policies that overlap a cap-and-trade system will tend to do two things;

Lower the prevailing carbon price;
Raise the cost of emissions reduction across society.

These effects are illustrated in the charts above and this is exactly the impact that the Energiewende and other similar policies had on the EU ETS. This was eventually recognised and a correcting mechanism has now been built into the ETS, the Market Stability Reserve (MSR). The MSR removes and banks surplus allowances according to a formula built into its design.

With the MSR now starting to impact market perception, allowance prices are on the rise from a low of just €3 in 2015. Recently IETA noted in a tweet;

The EU ETS always was and remains the single most effective tool to push coal out of the power generation mix. For a period that will favour natural gas, but over time renewable energy, nuclear and possibly coal or gas with CCS will grow to dominate power generation. Coal would depart first. That is exactly what has happened in the UK, with that country bolstering the weak EU ETS with a floor price of £18 per tonne of CO2 (~€21). But it didn’t happen in Germany because of interventions on two fronts; the Energiewende favouring renewable energy and the national nuclear policy phasing out that technology.

Moving forward, the EU ETS is fully capable of shifting the EU power system (and industry) to an effective state of zero emissions in the 2050s. That date could even be brought forward by implementing more aggressive linear reduction rates from 2030 onward. A shift to 3% per annum from 2031 onward would deliver a zero emissions outcome by 2050. Notably, the system would deliver that outcome at lowest cost to society, an inherent design feature of the mechanism.

As the EU ETS bites, decisions will have to be made about the closure of individual generating stations and this is where the Commission could add value, ensuring that the transition is just and fair for various parts of the country. But if the Commission also proposes state intervention to force coal down an even faster exit route for Germany alone, there may be downwards pressure on allowance prices and the effectiveness of the EU ETS could be undermined, not just in Germany but right across the EU. While some of the surplus allowances will be absorbed by the MSR, others will flow out of Germany and underpin the longevity of coal in other EU member states. This means that the environmental benefits of early coal closure could be undermined as well.

But should the Commission land on a recommendation for accelerated phase out of coal, it could then advise on the use of newly introduced measures to cancel ETS allowances where governments take actions in addition to the EU ETS. This means that allowances can be cancelled in the case of deliberate coal phase out.

Directive (EU) 2018/410 of the European Parliament and of the Council of 14 March 2018, states;

In the event of closure of electricity generation capacity in their territory due to additional national measures, Member States may cancel allowances from the total quantity of allowances to be auctioned by them referred to in Article 10(2) up to an amount corresponding to the average verified emissions of the installation concerned over a period of five years preceding the closure. The Member State concerned shall inform the Commission of such intended cancellation in accordance with the delegated acts adopted pursuant to Article 10(4).

While the cancellation of allowances represents a further intervention in the ETS, it would at least address the issue of environmental leakage to other Member States. But the simple alternative is to leave the EU ETS to perform its job and phase coal out as part of a lowest cost driven transition. This might be the most prudent approach. The EU ETS is a robust, well designed system that will deliver on the required emission reduction goals.

Where can the world get the energy it needs?

dchone November 30, 2017

A new tool from the Shell Scenarios Team provides new and unique insights

Those who follow my blog postings will have noted that I regularly use energy data, typically extracted from sources such as the IEA, the US Government EIA and even other energy industry company databases. The data I use is often resource based, such as in my piece, Infinite Solar, a bit over a year ago. Now, that data is available in the new Global Energy Resources (GER) database from the Shell Scenarios team.

This database provides an overview of resource potential across gas, oil, coal and renewable energy types, fossil and non-fossil, including oil, gas, coal, hydro-electricity, biomass and biofuels, geothermal, wind and solar.

A user-friendly interface allows for quick comparisons of data across countries and regions, as well as aggregation regionally and globally. You can access it on computers, tablets and smartphones, and the full database is also downloadable as an Excel spreadsheet.

The underlying data has been compiled using a rigorous research process combining raw data with expert assessment. The oil and gas database was constructed from analysis of external source data. It is supplemented by Shell’s extensive knowledge and technical assessment of sub-surface resource potential.

The renewables database was developed through a collaboration between the Shell Scenarios team and Ecofys, a Navigant company and leading international energy and climate consultancy. It seeks to reflect a realistic assessment of resource potential rather than the perspective of technical potential that commonly characterizes academic literature. The dominant renewables, wind and solar, were evaluated on a grid-cell basis, providing a detailed analysis spanning the globe.

The GER database underpins energy transition outlooks developed by the Shell Scenarios team. These include our “New Lens Scenarios” (2013) and our recent work, “A Better Life with a Health Planet – Pathways to Net-zero Emissions” (2016).

Our analysis suggests that there is no lack of potential energy resources to support a decent quality of life for the 10 billion people expected to live on the planet towards the end of the century. However, differences in resource distribution will result in local and regional constraints, creating a myriad of energy consumption, production, and international trade patterns. These patterns trigger complex policy and socio-economic choices around the energy transition which will ultimately govern successful (or failed) transitions towards a net zero emissions world.

We hope that you find the GER database valuable, whether for quick investigations or for more systematic analyses of this most fundamental pillar of the global energy system, namely the distribution of energy resources across our world.

www.shell.com/scenariosenergymodels

www.shell.com/scenarios

Note:

The Scenarios are a part of an ongoing process used in Shell for 40 years to challenge executives’ perspectives on the future business environment. We base them on plausible assumptions and quantifications, and they are designed to stretch management to consider even events that may only be remotely possible. Scenarios, therefore, are not intended to be predictions of likely future events or outcomes and investors should not rely on them when making an investment decision with regard to Royal Dutch Shell plc securities. It is important to note that Shell’s existing portfolio has been decades in development. While we believe our portfolio is resilient under a wide range of outlooks, including the IEA’s 450 scenario, it includes assets across a spectrum of energy intensities including some with above-average intensity. While we seek to enhance our operations’ average energy intensity through both the development of new projects and divestments, we have no immediate plans to move to a net-zero emissions portfolio over our investment horizon of 10-20 years.

Disclaimer: Scenarios are not intended to be predictions of likely future events or outcomes and investors should not rely on them when making an investment decision with regard to Royal Dutch Shell plc securities. Please read the full cautionary note in www.shell.com/scenarios

Chasing electrification

dchone August 31, 2017

One of the important changes that needs to take place in the global energy system as it heads towards much lower emissions is electrification. This is the increasing use of electricity as final energy (i.e. the energy we all use to deliver services) rather than fossil fuels, such as natural gas for cooking and gasoline for mobility. According to the IEA, electricity made up nearly 19% of final energy use in 2015, with the bulk of the 81% that isn’t electricity being oil products, natural gas, coal and biomass. The Shell scenario work on a net zero emissions world indicates that electricity should exceed 50% of final energy use.

Over the course of the last few decades, electrification of final energy has moved relatively slowly, at around 2 percentage points per decade (i.e. it was about 16.5% in 2005 and 14.4% in 1995). This rate of change is far below what is necessary to reach 50+% during the second half of the century – in fact, at the current rate it would take over one and half centuries to get above 50%. Therefore, the rate of electrification of the final energy system has to approximately triple over the coming few years for the Paris goals to be approached. At the same time, overall expansion of the energy system also has to be catered for, which might see a near doubling in final energy demand, even as electrification brings considerable efficiency gains.

Today, global electricity production stands at some 25,000 TWh per annum, representing ~19% of final energy demand. The trends described above indicate electricity production rising to at least 100,000 TWh per annum during the second half of the century, or the addition of ~1,400 TWh of generation per annum from now on. The 3.3 GW Hinkley Point nuclear power station being constructed in the UK operating at full capacity for the entire year would add about 29 TWh. The likely progression probably won’t be linear, so good progress would still require some 800-1100 TWh added each year in the near term. That’s still at least 30 Hinckley Point projects brought on line each year.

This new electricity production shouldn’t contribute additional emissions to the atmosphere, so many will look for it to come from wind and solar. Total global generation from wind and solar was around 1,300 TWh in 2016, but the added generation from 2015 to 2016 was 208 TWh (Source: BP Statistical Review of World Energy) against total added electricity generation of 600 TWh. Total added generation in recent years has average around 500 TWh, well short of the 800-1100 TWh mentioned above.

Additional solar and wind are not yet close to meeting additional generation needs, although both are rising quickly with additional generation more than doubling over the last six years. That would point to somewhere around 2030 when all new generation needs are being met by additional solar and wind being added to the grid in sufficient quantity for both demand and increasing electrification needs. It also means that emissions from electricity generation globally will only fall in the medium term to the extent that natural gas and nuclear can displace coal. Although coal use is now falling in some economies, it is also increasing rapidly in others as new generation capacity is required for development. Vietnam is one such economy, with several new facilities close to approval.

Electrification of the energy system is a critical driver for change, yet progress today is more mixed than many recognize. Although renewable penetration has been significant in recent years, it must make even more rapid progress in the next decade to bring about material change in the time frames that are being contemplated for net-zero emissions (with some expecting such an outcome by 2050 ). The first electricity grid appeared in New York in September 1882, 135 years ago. Although the technology has spread globally and appears ubiquitous, it still requires significant development and expansion. That will certainly happen, but the time-frame in the context of the Paris Agreement appears uncertain.

Scenarios are part of and ongoing process used in Shell for more than 40 years to challenge executives’ perspectives on the future business environment. They are based on plausible assumptions and quantification and are designed to stretch management thinking and even to consider events that may only be remotely possible.

Applying Pigouvian charges

dchone August 17, 2017

A recent article in the Guardian argues that fossil fuels receive about $5 trillion per year globally of unseen benefits, representing some 6.5% of global GDP. The journalist concludes that this must point to a dim future for this energy source. The discussion stems from a paper that has been recently published in the journal, World Development, but is originally a piece of work by two analysts who work for the IMF that surfaced prior to COP21 in 2015. The same authors are involved with the current article.

The new version of the paper classifies these benefits into two types,

‘‘pre-tax subsidies”— these arise when consumer prices paid by fuel users are below the opportunity costs of fuel supply (e.g., many oil producers in the Middle East and North Africa traditionally set domestic prices below international prices). This is the definition that leaders had in mind at the 2009 G20 Pittsburg meeting when they called for a phase out of energy subsidies (IEA, OPEC, OECD, & World Bank, 2010).
‘‘post-tax subsidies”— these arise when consumer prices are below the cost of supply when a ‘‘Pigouvian” charge ⁽¹⁾ is included to reflect environmental damages. Economic efficiency requires that the prices of goods and services reflect not only supply costs but also (i) (most importantly) environmental costs like global warming and deaths from air pollution and (ii) taxes applied to consumer goods in general.

A visit to the IEA website on energy subsidies shows that the value of pre-tax consumer price subsidy worldwide totaled $493 billion in 2013, falling to $322 billion by 2015 as oil prices fell globally. This is equivalent to ~$25 per tonne of oil equivalent, or $3.50 per barrel. By comparison, these amounted to $390 billion in 2009 (in 2014 dollars), the year the G20 and APEC commitments were made. The value of these estimates has fluctuated from year-to-year in line with reform efforts, the consumption level of the fuels in question, international prices for fossil fuels, exchange rates and general price inflation. IEA decomposition analysis reveals that, while movements in world prices typically have the greatest impact from year-to-year, policy interventions have played an important role as well. These subsidized prices are primarily focused on oil and electricity and in many cases, are a mechanism for distribution of benefits to very low income segments of the national population. For example, India subsidized oil, electricity and natural gas in 2015 for its consumers for an amount of nearly $20 billion, but is not a recognized oil producer.

However, the focus of the Guardian article is the lack of charges for externalities in relation to fossil fuel use. By applying a series of Pigouvian charges to fossil fuels, covering issues such as carbon dioxide emissions and air pollution, they argue that fuels are under-priced by some $5 trillion per annum. The additions made also cover issues related to fossil fuel use, but not directly caused by them. An example is road traffic congestion and safety which the article specifically mentions. These would also be externalities in a transport system powered by electricity. In total, these missing post-tax charges for coal amount to $2.5 trillion, oil is $1.5 trillion and natural gas about $400 billion. Pre-tax price subsidies for coal hardly exist, amounting to just over $1 billion per annum globally per the IEA.

Applying this methodology to fossil fuels also opens the debate for other goods and services. For example, many governments offer direct help to farmers and subsidise food prices. The production of rice and beef contributes some 6 billion tonnes of carbon dioxide equivalent to the atmosphere in the form of methane, which alone amounts to an externailty of $250 billion per annum or roughly $1.30 per kilo in the case of beef (vs. a US average ground beef price of $7 per kilo).

A robust and comprehensive application of Pigouvian pricing across the economy incorporating all externalities would likely touch every single product or service in use today, excluding any energy penalty related to fossil fuels. Environmental damage and health issues remain widespread in the world, despite great efforts to address them at every level of society. Many are simply a function of the vast scale on which manufacturing operates, which in turn results in some environmental degradation. In March 2014, the Guardian reported on the social and environmental costs associated with the production of rare earth metals, which have become critical in the manufacture of a multitude of electronic products today, including renewable energy systems. The article raised questions on cancer rates, which in turn links human mortality costs with these products.

In the case of fossil fuels, the simplest and most effective way of confronting this issue is to introduce a carbon price, ideally at a level that reflects the social costs of use. The World Development article uses a figure of around $40 per tonne of carbon dioxide. While this wouldn’t address every aspect of fossil fuel use, it would nevertheless go a long way towards addressing the concerns of the authors.

(1) This refers to the work of Arthur Cecil Pigou, a University of Cambridge economist who published The Economics of Welfare in 1920. In this book, Pigou introduced the concept of externality and the idea that external problems could be corrected by the imposition of a charge. By ‘externality,’ Pigou meant an indirect economic impact of an activity that happened outside the immediate system where the activity was underway. The externality concept remains central to modern welfare economics and is at the heart of environmental economics. In the case of climate change, the externality is the release of carbon dioxide into the atmosphere and the future social and economic impact caused by the consequent increase in the surface temperature of the planet. Externalities can be both positive and negative, but in the case of carbon dioxide emissions, it is considered negative. Pigou argued that the activities associated with a negative externality should be penalized to the extent of the impact, such that their real economic value can be assessed. This penalty is widely known as a Pigouvian Tax. Alcohol taxes are Pigouvian; so are taxes on cigarettes.

Drivers behind flattening CO2 emissions

dchone March 29, 2017

The International Energy Agency (IEA) recently reported that carbon dioxide emissions from energy use remained flat in 2016, the third year in a row. This is a noticeable departure from the 21^st century trend which has seen global carbon dioxide emissions rise by some 40% in just 14 years. The Guardian reported this story and added the by-line “International Energy Agency report puts halt in emissions from energy down to growth in renewable power”. But the story within the energy system has more facets than this (Data sourced from the BP Statistical Review of World Energy).

Although global growth hasn’t been outstanding in recent years, it has nevertheless chugged along at around 2.5-3%. Energy use has also increased, albeit at a lower rate of some 1% per annum. This is at the lower end of the expected range of energy vs. GDP, but it is probably too early to say that this represents a longer term shift in this relationship. However, this could be the case if efficiency improvements can outpace economic development or at least come close.

Renewable energy is growing rapidly, although this is mainly in the area of electricity generation. From 2014 to 2015 solar and wind generation increased globally by about 200 TWh, which was nearly equal to the overall growth in electricity generation for that year. As an aside, BP reported that the overall electricity growth rate in 2015 was down on 2014 (2.4%) and remained well below the 10-year trend (2.8%). This is slightly concerning as electrification of the energy system is a key requirement for long term emissions reduction. Electricity generation needs to be accelerating compared to overall energy demand growth.

Although the 2016 data isn’t available yet, BP reported that coal use declined globally in 2015 vs. 2014 by 1.8% and natural gas use increased. While most of this could be attributed to the USA and Canada, China also saw a notable coal decline along with growth in natural gas use. The global coal use reduction is equivalent to nearly 300 million tonnes CO2, or about 0.8% of global emissions. Any replacement with natural gas would result in about half the emissions. This is very noticeable in the USA where coal use fell in 2015 by 13%, natural gas use grew by 3% (but against a larger absolute use), oil demand increased by 3%, but emissions declined by 2.6%.

Coal use is declining for a number of reasons;

The surge in natural gas production in the USA in particular, triggering the closure of older coal fired power stations that cannot meet new environmental regulations.
Air quality concerns in China, leading to a shutdown of coal fired industry and power generation around the major cities.
Some mothballing or closure of overcapacity in metallurgical industries in China.
The impact of a modest carbon price in a number of jurisdictions and some government imposed moratoriums on new coal generation construction (e.g. Canada).

However, coal use continues to increase sharply in a number of developing countries such as Vietnam, the Philippines, Malaysia, India, Colombia and Indonesia. Current expectations are that this will continue.

Oil use continues to increase, with BP reporting a global rise from 2014 to 2015 of 2%.

The final story is therefore one of several parts and it would appear that this trend has continued into 2016 although further data will be required for verification;

Global growth is modest, but energy use increases are trending at the lower part of the expected rise for this level of economic growth.
Coal use is declining, with natural gas filling much of the gap but at lower emissions.
Renewables are growing quickly, covering most of the increase in electricity generation, but not quite all.
Oil demand continues to increase, with its growing emissions being offset by the reduction in coal use.

The end result is that flattening in global emissions that has been seen for three years now.

When history becomes reality

dchone January 5, 2017

In this era of post-truth media and politics, it is often difficult to hold on to long held beliefs and understandings. The very reality that seemingly existed yesterday slips away and is replaced by something quite different, perhaps based on cherry picked data or assertions that have little or no factual basis. This is happening all around us and the subject of climate change has had its fair share of post-truth assertions thrown at it.

Therefore, the opportunity to reach back in time and bring reality to the fore should be encouraged and valued. I was fortunate to have such an experience over Christmas, with the gift from my wife of the original 1896 publication that presented the detailed calculations behind the change in global temperature that would be observed should the level of carbon dioxide in the atmosphere change. The work in question is the well-known article by Swedish chemist Svante Arrhenius, On the Influence of Carbonic Acid in the Air upon the Temperature of the Ground published in The London, Edinburgh, and Dublin Philosophical Magazine and Journal of Science. I am now the very proud owner of Vol. XLI – Fifth Series, January-June 1896, which also contains dozens of articles on subjects ranging from glacial geology of Arctic Europe to temperature correction of barometers.

Arrhenius was actually looking for an explanation for the occurrence of Ice Ages, which were known about from the geological record but could not be explained in terms of expected cooling due to orbital fluctuations of the Earth around the Sun. It was clear that another factor was at work, accelerating and amplifying the impact of the small changes in solar radiation. He established that carbon dioxide in the atmosphere could do this. During each of the periodic ice ages over the last million years, the amount of solar energy reaching the planet dips due to the orbital variations and, consequently, the ocean / atmosphere system cools slightly. This allows the amount of carbon dioxide dissolved in the ocean to increase and therefore the atmospheric carbon dioxide level drops. That drop results in further cooling, causing the much bigger shift in temperature than would be expected from a straight radiation balance calculation.

In his paper Arrhenius established a methodology for linking the change in surface temperature with the change in the level of carbon dioxide (carbonic acid as he referred to it as) in the atmosphere. Table VII of the paper showed the results of his calculation for different levels of carbon dioxide ranging from K=0.67 (where K=1 for the level in the atmosphere at the time or ~280 ppm) to K=3.0 (which would equate to 840 ppm) . At the equator he derived the following results;

The Arrhenius paper also discusses the work of a Professor Högblom, another Swedish scientist of the day, who had even calculated how much the burning of coal at that time (500 million tonnes per annum) might change the surface temperature of the planet. The number was very small, but today annual fossil carbon extraction is some twenty to thirty times greater than this and more importantly the cumulative extraction (which we now know is what actually matters) since the late 19^th century is hundreds of times this level. It may well have been this calculation that led to a 1912 story in Popular Mechanics on the impact coal use would have on the climate.

This article was repeated in local newspapers later in 1912 as far away as New Zealand and Australia.

In this post-truth world, let us not forget that there is reality to hold on to. Happy New Year.

A blast from the past

dchone May 4, 2016

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

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

COAL CONSUMPTION AFFECTING CLIMATE.

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

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

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

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

A focus on the Philippines

dchone March 8, 2016

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

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

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

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

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

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

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