Category: Copenhagen

In search of missing text

June 17, 2009

At the end of last week I was in Bonn, where another round of UNFCCC negotiations was taking place in the lead-up to Copenhagen. I happened to catch the Greenpeace show, which involved the sounding of an incredibly loud air-raid type siren from within a locked steel cage on the back of a truck. The German police didn’t take kindly to this and proceeded to cut them out.

   

But the point made by Greenpeace isn’t without merit. My own “alarm moment” comes from looking at the text which the negotiators are deliberating over. Although much was apparently added during the Bonn talks, the starting point (the AWG-LCA text) says little about how to actually address this problem, but rather presents fifty three pages of arcane language about process. It talks of “appropriate action”, but doesen’t define what this might actually entail, other than in the loosest terms. Take a technology such as carbon capture and geological storage – it doesn’t even get a mention. The word “renewable” appears once, “nuclear” doesn’t appear at all and “energy efficiency” twice. Even the notion of a carbon market to drive large scale deployment is barely touched upon.

Short of a document which clearly spells out a forward emissons profile for every country, perhaps it is time to replace abstraction with clarity and focus. There are five, and only five things we can do to address the mitigation side of climate change. We have to do all of them, we have to do them at huge scale and we have to do them very quickly. They are;

  • Using energy much more efficiently;
  • Increasing the use of renewable and nuclear sources of energy;
  • Rapidly commercialising and deploying carbon dioxide capture and geological storage in tandem with the use of fossil fuels [or with the chemical conversion of fossil derived materials for the provision of various manufactured products];
  • Containment, destruction and reduced usage of greenhouse gases other than carbon dioxide;
  • Reducing emissions through land use, land use change and forestry, including reducing emissions from deforestation and degradation.

At the very least, the text should be driving these specific solutions forward, for example through properly funded large scale demonstration programmes and targeted mechanisms to hasten deployment. Carbon capture and storage provides a good example. Three policy initiatives are required to support this technology;

  • An underlying price for CO2 must be in place;
  • A clear recognition of the demonstration nature of the technology, which means funding, objectives, timelines and focus on delivery of projects;
  • A robust approach to CO2 storage certification (and MRV) based on 2006 IPCC GHG Inventory Guidelines.

The EU has nearly reached this point, but it has taken eight years to do so. Whilst this represents a landmark in policy creation, the rate at which it has happened is hardly commensurate with the gravity of the issue that we are trying to address. We need to focus our efforts on bringing this technology to developing countries, particulalry those with large coal reserves. A policy framework similar to that in place now in the EU is needed, but on an international scale. First and foremost, this means recognising CCS within the an international project mechanism. We will also need to underpin this with an internationally recognised CO2 storage certification, again based on the 2006 IPCC GHG Inventory Guidelines. Finally, we need a mechanism within which large clusters of projects can be identified, funded and implemented against defined deadlines. Most importantly, we need all this now, in Copehagen, with a view to starting implementation in 2010.

What next for Canada??

June 4, 2009

This week I have been in Canada, talking with people in both Provincial and Federal government about Canada’s policy plans to reduce greenhouse gas emissions. There is a feeling of deja vu doing this, because it seems that Canada has been talking about such policy for years now – but almost nothing substantive has been implemented.

But now very substantive action is going to be needed – and needed fast. Its largest tading partner is on the move and will implement either an emissions trading system or succumb to the rigours of the Clean Air Act. As a developed country in a leadership position with G8 status, Canada will almost certainly have to sign up to something like a 20% reduction in emissions (or more) from 2005 to 2020 when it faces other nations across the negotiating table in Copenhagen.

But Canada has been here before, signing up to the Kyoto Protocol and agreeing to reduce emissions by 6% from their 1990 level of about 600 million tones. In 2006 GHG emissions were at 721 million tonnes, nearly 30% above the Kyoto target. However, emissions have fallen from a high of 743 million tonnes in 2004, perhaps driven by a variety of policy efforts at provincial level and some from the Feds.

Putting to one side the issue of how Canada will finesse complance with its Kyoto obligations (and these are real obligations irrespective of what happens to the Protocol), a formidable task remains to reduce emissions between now and 2020 (remember, that’s 4000 days). This is all the more challenging for Canada because the resources boom in Alberta is also putting upward pressure on emissions.

Getting back to my mission this week, it is clear that the political appetite for action has changed and that a cap-and-trade system is now the preferred way forward. But there are many hurdles to cross. Whatever is put in place has to be compatible with the expected US system. Waxman-Markey allows unrestricted flow of allowances from “equivalent systems”, but therein lies the first issue – what will be deemed equivalent. Whilst the idea of a trading approach is alive and well in Canada, so too is the idea of a buy-out option by putting money in the collection tin (the “Technology Fund”). Unfortunately this means it isn’t a cap-and-trade system any longer and it is hard to imagine any such construction being deemed equivalent.

Two other obstacles confront Canada in the design of a national trading system.

The first involves the concerns that wealth transfer may result between provinces arising from the flow of allowances between those needing to buy allowances due to substantial growth from those with a flatter emissions profile. This is a real issue, but it has been addressed in the EU and the approach adopted there may be applicable in Canada. In the EU a large New Entrant Reserve has been set aside from within the cap. Member states can draw on this as necessary, using the allowances for auction or grant to the new facilities in question. This helps countries like Poland experiencing rapid growth in that it limits the flow of funds leaving the country for compliance pruposes.

The second issue is also a wealth transfer one, but between Canada and the rest of the world. It is almost certain that Canada will have to buy international offsets or US / EU allowances to meet a potential 20% by 2020 reduction target. With the resources boom in Alberta, the best that Canada can probably achieve domestically is a 10% reduction by 2020. This means Canada / Canadian industry could need to purchase some 250 million tonnes of external compliance units between 2013 and 2020, perhaps costing as much as $10 billion. There really is no getting around this – it is the nature of an emissions trading approach built on environmental targets and strict compliance. It is also because there is no getting around the issue of climate change other than reducing emissions – the atmosphere doesn’t really have much use for our money, only our ability to manage what we emit to it.

So there is much to do to push Canada across the line and get cap-and-trade implemented. But there is also a great deal of willingness and drive to finally make something happen – hopefully enough to overcome some tricky obstacles along the way.

A focus on CCS in Norway

May 29, 2009

Norway has long been the Carbon Capture & Storage (CCS) capital of the world, with its Sleipner offshore storage project and strong support for this nascent technology. This week the Norwegian Government put on a High-level Conference in Bergen, “Fighting Climate Change with Carbon Capture and Storage”. It was attended at Ministerial level and featured the likes of Dr. Rajendra Pachauri, head of the Intergovernmental Panel on Climate Change.

Frederic Hauge, President of The Bellona Foundation on the podium

Frederic Hauge, President of The Bellona Foundation on the podium

 

 

Most of the plenary content was on Thursday, focussing on the potential of CCS, experience with the technology, balancing energy needs with CO2 management globally and the necessary incentives for CCS. I was on the “Incentives” panel and gave a short presentation on that subject (see below).

In his opening remarks, the Norwegian Minister for Petroleum and Energy noted that CCS faced three particular questions, those being:

  1. How do we know the CO2 stays there?
  2. Who will be liable for the storage site in the long term?
  3. How can we be sure that spending money on CCS doesn’t crowd out technologies such as renewables?

I wasn’t quite sure why he asked these as it’s not as if CCS doesn’t face enough challenges. But I think the answers are clear – although he didn’t give them;

  1. At 3 kms below the surface in formations that have long held oil or gas, it just does [stay there]. There isn’t anywhere for the CO2 to go. Norway’s own Sleipner project has been storing one million tonnes of CO2 annually for ten years and there is no sign of it coming back.
  2. At least under the EU CCS Directive, government holds the long term liability, having been handed a closed storage site by the operator which has met a series of checks for permanence.
  3. It won’t – just to meet global energy needs and contain CO2 we are going to need to put lots of effort into all potential energy technologies.

We then heard from John Ashton, the UK Special Representative on Climate Change from the Foreign and Commonwealth Office. John made one point abundantly clear – “A lot of coal is going to burned between now and the end of this century, which means there is no credible climate strategy that does not include CCS in the coal fired power sector.”

He went on to point out that CCS isn’t some distant dream and that the issue today was not a technological one, but a cost discovery problem. Nobody really wants to be the first to do this at scale. He noted that we have had years to do this, but have now left it to the last minute to act – which means the mobilisation effort required is now huge.

He also challenged the audience with the view that if the Copenhagen deal doesn’t include a sizable CCS focus, then it isn’t a deal worth having and negotiators should be sent back to the table. In his view, the current status of CCS in the UNFCCC deliberations, particularly the brick wall it has hit with regards inclusion in the CDM, is “a scandal”.

A lot more was said during the day about progress, the status of funding and potential deployment strategies. What was abundantly clear is that despite the robust call for action from the IPCC, the UK and The Bellona Foundation [a Norwegian NGO heavily behind CCS] things are just not moving fast enough. The showcase of global action (Sleipner, Weyburn in Canada and In-Salah in Algeria) looks no different to the showcase a few years ago. Another “scandal”, given the gravity of the situation.

But maybe things are looking up for CCS. There are some real support packages appearing in the EU, Canada, Australia and the USA and both China and South Africa have promising development programmes – although neither see the rapid roll-out that is actually necessary.

My own presentation focussed on the incentive structures that are needed. In my view we need to find ways of replicating what has happened in the EU where all the necessary pieces of the puzzle are now on the table, i.e.;

  • An underlying price for CO2 must be in place
  • Recognition of the demonstration nature of the technology
    • Clear demonstration objectives in place
    • A timeline for action
    • Funding commensurate with the task at hand
    • A focus on delivery of fewer complete projects, rather than limited funding for many.
  • A robust approach to CO2 storage certification (and MRV) based on 2006 IPCC GHG Inventory Guidelines.

 

Bergen CCS Conference Presentationhttp://static.slidesharecdn.com/swf/ssplayer2.swf?doc=bergenccsconference-hone-090528175154-phpapp01&stripped_title=bergen-ccs-conference-presentation

 

The USA steps in

May 10, 2009

 

This week has seen the United States table draft negotiating text to the United Nations in the lead up to Copenhagen, or more formally “United States Input to the Negotiating Text for Consideration at the 6th Session of the AWG-LCA“. I should say that this text appears very preliminary at the moment, but it does recognise the key elements that most parties are now discussing.

 

Importantly, the text highlights the need for assistance to developing countries, with the paragraph;

The development of low-carbon strategies and the implementation of mitigation actions of developing country Parties will, as appropriate, be supported by financing, technology, and capacity-building, as set forth in Section 4 and Appendix 3.

At this early stage though, Section 4 and Appendix 3 don’t really contain much. The US negotiating team are also seeking input, particularly from business, given the expectation that private finance and project investment will play a significant role.

This then brings me to some ideas in this area. There are some useful lessons in the EU that can be applied more broadly. Rather than simply relying on the CO2 market to deliver reductions, the EU has also focussed on certain classes of technology and structured programmes and targets to promote and develop them. This is most apparent for carbon capture and storage where the EU has set a strong agenda;

  • Established a 10-12 project demonstration programme, with an incentive structure that stretches through to 2015.
  • Ensured that the CO2 market recognises CCS as a viable mitigation technology.
  • Implemented an incentive structure to augment the financing provided by the carbon market (the use of 300 million allowances from the ETS New Entrant Reserve). This additional funding is in recognition of the higher cost demonstration stage that now faces CCS as a new technology.

Whether it is CCS or some other technology area, the idea of establishing specific programmes of activity, setting timelines and ensuring adequate funding needs to make its way into the international agreement.

One idea which has been put forward by the World Business Council for Sustainable Development, repackages the original notion of sectoral agreements. They have proposed a large-scale sector-based approach introduced into the framework. The approach would give rise to agreements, each negotiated for a specific sector by a limited number of parties (i.e. governments), as “satellites” to the main agreement, but utilising the infrastructure (crediting mechanisms, clean technology funds, MRV etc.) offered by the overall framework. Each agreement would have a specific purpose and would operate by encouraging wide spread business-led project development in the target countries, incentivised by the mechanisms and the availability of targeted funding and financing. The projects would typically result in the introduction of infrastructure and new technologies into developing countries together with the capacity for ongoing operation and future expansion.

This then puts developing countries on a pathway towards substantial future action. Ideally, each agreement would lead to the sector within the developing country involved to then adopt a long term binding mitigation target. Importantly, the adoption of a target in a developing country is then specifically linked with the necessary funding and capacity building such that those countries can then realistically manage CO2 emissions going forward.

Such agreements would be structured as follows:

  • Each represents a quantifiable and manageable mitigation or adaptation action plan. Unlike developed economies that have the capacity for structures such as economy-wide “cap-and-trade” systems, a more clearly definable project based programme could be initially used to tackle developing country emissions.
  • Each would be negotiated separately, typically by a limited number of parties (e.g. parties to an agreement on emissions from coal fired power stations might include China, India and South Africa as those nations taking specific action and the USA, Japan, the EU and Australia as those gearing their emissions trading systems to accept credits as a funding mechanism) as a “satellite” to the main agreement.
  • Each agreement would have a clear purpose and end point. The scope would be clearly defined and the objectives would be agreed upfront.
  • Each agreement would be able to draw on the supporting “cocoon” for funding, such as the creation of credits (offsets) through a project mechanism, MRV capacity and so on.
  • Each agreement should include the eventual implementation of a long term binding target for the sector or sectors in question.
 

 

The approach has broad application and could be extended into areas such as avoided deforestation and afforestation (i.e. as envisaged under REDD).

 

 

 

 

 

Offsets and Copenhagen . . .

April 26, 2009

As this year unfolds, most industry groups are turning their mind towards Copenhagen and the position they should take and they are running seminars for their members to help them understand what is happening. In addition, as the US starts to draw up the final (!!??) design of its cap-and-trade system, it cannot be oblivious to the shape of a future international agreement.

I was involved directly and indirectly in all such aspects this week. On Thursday I presented the Shell view of the key elements of the design required from Copenhagen to VNO-NCW (The Confederation of Netherlands Industry and Employers), on Friday I was at a meeting of the European Round Table of Industrialists in which the position that organisation should adopt for Copenhagen was discussed. Again on Friday a colleague in Shell Trading presented our position on cap-and-trade offsets at a Pew Center organised seminar on Capitol Hill.

The common link here that warrants further discussion (in this and future postings) is the role of international offsets in domestic cap-and-trade systems. This might seem somewhat arcane, but the implementation of this is pivotal to a successful international agreement. So first of all, a paragraph of background (some may wish to skip this bit in italics).

An offset in a cap-and-trade system is carbon instrument that can be obtained outside the capped sectors and used for compliance under the cap. These are typically generated by executing, outside the cap, a project that reduces emissions and having that reduction certified as valid. The best example of this practice is the Clean Development Mechanism (CDM) of the Kyoto Protocol. The CDM allows emission-reduction (or emission removal) projects in developing countries to earn certified emission reduction (CER) credits, each equivalent to one tonne of CO2. These CERs can be traded and sold, and used by industrialized countries to meet a part of their emission reduction targets under the protocol.

There are two reasons that I can see for having offsets;

  1. As a mechanism to contain costs within the cap-and-trade system by offering an additional supply of compliance instruments (“credits“) over and above those issued by the government.
  2. As a mechanism to project the cost of carbon that exists within the cap-and-trade system to sectors outside the cap, such that they see it as an opportunity on which to act. The offset is effectively a proxy for the price of carbon that would exist had that sector also been covered –  possibly as a pre-cursor to real cap-and-trade being implemented.

Whilst I find that most people agree on this, divergence of opinion then occurs. Some see offsets as a route to low-cost reductions that aren’t available within the cap-and-trade system. At the same time, others complain about the ease with which reductions can be generated through CDM projects and then imported to Europe (into the EU-ETS) at higher prevailing prices, effectively arbitraging the system. So why should we have international offsets and how should the international offset system be designed?

First of all, let’s not forget that cap-and-trade is designed to put a market price on CO2 emissions and to therefore incentivise projects that reduce emissions. If we look at this from the perspecive of an abatement curve, the cap-and-trade system is designed to operate on the left hand side where a price for CO2 is actually needed – such as for carbon capture and storage, which would never be implemented without a price for CO2. Looking at the image below, cap-and-trade is designed for Zone B. 

 

Whilst energy needs (and hence emissions) can be reduced through Zone A type projects, they shouldn’t need a cap-and-trade system to encourage them to happen. Other policies might be needed to tease them out, but not cap-and-trade. Yet many projects being considered as potential for future offsets exist in this region of the abatement curve. It isn’t in the interests of a solid international agreement on climate change to simply encourage projects in non-capped sectors / countries to generate credits in Zone A for compliance in Zone B.

Rather, the international agreement should encourage all countries to act on Zone A of their own accord, since this is in the national interest anyway as it typically means energy savings. In addition, those countries without absolute reduction targets are also incentivised to operate in Zone B through an offset or project mechanism. This then generates an additional supply of compliance units for countries with absolute targets and begins the process of introducing specific low emission technologies into economies without targets in preparation for a future with targets.

Although this is generally the idea behind the CDM, it hasn’t quite functioned like this in practice, but I would argue that just having it has generated much experience and useful learning about offsets. The next generation of CDM will have to operate on a much larger scale, but also sit squarely in Zone B of the abatement curve.

Health check in Bonn

April 9, 2009

The first of a series of United Nations Framework Convention on Climate Change (UNFCCC) meetings in the lead-up to Copenhagen took place in Bonn over the last ten days. The next meeting will also be in Bonn in June. In total there will now be five meetings prior to Copenhagen itself.

There are some observers who spend every waking moment over the whole period of a meeting attending every workshop (but many run in parallel), furiously taking notes and becoming completely absorbed within the process. I am not one of them, but if that is the sort of report you are looking for then I can highly recommend the Earth Negotiations Bulletin. I spent just a day in Bonn this time although one colleague was there for quite a bit longer. Nevertheless, with some targeted meetings and attendance at one or two of the formal gatherings it is possible to get a feeling for what is going on. Reading some of the excellent summaries on ENB helps as well.

Taking the pulse of the UNFCCC negotiations isn’t easy. To start with, it’s difficult to know exactly where to find it but when you do, the diagnosis is weak but racing. The first question to ask is “Where are the actual negotiations taking place?“. Whilst country after country will stand and make declarations of some sort or other in the formal meetings, outside of this some important bilateral meetings are underway. These discussions are perhaps paving the way for the difficult deals that have to be done, such as between the USA, the EU and China. But equally, these deals will probably not be consumated by the people attending this UNFCCC meeting – more powerful hands are going to have shake on these. These are the deals that will set the stage for the next 10-20 years;

  • What reductions will developed countries make and by when? See my previous posting for some thoughts on this.
  • How long before big developing countries start adopting real targets?
  • How much help (i.e. money) will developed countries have to put on the table to encourage the rapid global take-up of big play technologies such as carbon capture and storage?
  • What is fair and equitable when it comes to responsibility for emissions?
  • . . . . and a big one – how to combine the dual track discussions going on – Track 1 looking at the next round of commitments under the Kyoto Protcol, which the USA cannot participate in (as they are not a signatory) and Track 2 looking at the nature of the long term action that needs to take place, which the USA is now very much re-engaged in. Having the USA sign the Kyoto Protocol is almost certainly a non-starter (simply not deliverable domestically), but chucking the whole thing in the bin would undo years of work that needs to move forward – not in emissions reduction per se, but in the global institutions needed to support large scale reductions.

All this isn’t to say that meetings such as the one that has just finished in Bonn are a waste. They are not. Slowly but surely the infrastructure around which the big deal must operate is being agreed upon. The delegates are working hard on this, putting in long hours, hence the racing pulse.

So where to from here? The meeting in June will see the first real negotiating text put on the table, so the pace will quicken and the stakes will be raised even higher.

By year end we will have had a G8 meeting and possibly a second G20 meeting (mentioned by President Obama in his closing address at the G20 last week). Gordon Brown made a clear reference to a comprehensive deal in Copenhagen in his G20 statement. The Major Economies Meeting, initially a Bush side-show on climate change will almost certainly have new life breathed into it under Obama. This much smaller group of countries represent about 80% of global emissions, so the right people will be in the room. The next meeting is scheduled for April 27-28 in Washington.

So it remains a wait and see game. But if the G20 outcome is any guide, we might just have a set of leaders at the table at this particular moment in time who can pull this off.

Let’s hope so!