Category: Industry

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.

Is it time to open up the EU ETS again?

dchone January 20, 2022

As the new year gets going, the EU is facing much higher energy prices than it has had to contend with in the recent past, topped off with an escalating carbon price driven both by the energy price and the ambitious decarbonisation plans of the EU Commission. Starting in late 2020 at a price of around €20, the purchase of an EU allowance (EUA) in the EU Emissions Trading System (ETS) now costs between €80 and €90 per tonne of CO₂.

The current allowance price in the EU ETS provides a significant incentive to reduce emissions, including investment in substantial mitigation technologies such as carbon capture and storage (CCS). As such, this is a welcome and critically important change from over a decade of prices below €20 and a low of €3 where the system did little to encourage the energy transition. For much of the 2010s the ETS was awash in allowances, with the surplus brought about by the financial crisis and subsequent EU recession, the influx of units from the Clean Development Mechanism (CDM) of the Kyoto Protocol and the overlaying of other policies in the ETS sector, a practice that erodes the need for a specific carbon price and will undermine its impact.

We are now in a world where the EU ETS is driving substantial mitigation action, which is exactly what it is supposed to do. The question that arises is what comes next? One way of answering that question is to look at a scenario analysis of the EU net-zero emissions goal, such as in the Shell EU Sketch released by the Shell Scenario team a bit over a year ago.

A deeper look at the Shell EU Sketch highlights the ambition of the Fit for 55 (FF55) goal. Even in the scenario, the reduction planned under FF55 for the EU ETS sector isn’t fully met in 2030, but instead requires another five years of effort. In addition the energy transformation in the EU is not yet fully matching that of the Sketch. Take for example the build rate of CCS facilities in the Sketch versus the real world. At the rate of change in the Sketch, some 40 major (~ 1 mtpa each) CCS facilities need to be operating by 2030 and over 100 by 2035. The EU has finally started developing CCS clusters, but not yet fast enough to meet these goals. This implies that during the 2020s the EU ETS could see further price escalation if project activity does not fully match the reduction goals of the system.

The Fit for 55 package of measures and targets is extraordinary ambitious, contributing to the global reductions required to avoid passing 1.5°C of warming and setting up the EU for a landing at net-zero emissions in 2050. It does need a meaningful carbon price to usher in the transition, but in the Shell EU Sketch it rises to around €60 by 2030 and €200 by 2050 (but on a much smaller level of emissions than today). The current price of an EU allowance should usher in real change for industry and industrial processes, which is needed, but a continuing steep up-trend may also be a sign of a system that is becoming overly constrained by the rate of reduction required compared to the rate at which projects can be implemented.

When the EU ETS first started the Kyoto Protocol was coming into force and we all imagined a world of interconnected cap-and-trade systems, ambitious clean energy projects in developing countries and a resultant liquid global carbon market. With substantial demand coming from the Kyoto signatory countries with targets and good supply from clean energy projects, the resultant carbon market would be of sufficient size to deliver cost savings to all participants. Importantly, major price spikes could be managed. Almost none of this happened.

In the process, the EU ETS was designed with external hooks to make use of the mechanisms of the Kyoto Protocol (CDM and Joint Implementation or JI) and to connect with other systems. With the prospect of an Australian ETS about a decade ago the EU began early negotiations with the Australian Government to link the systems, but a change of government in Australia put an end to the Australian efforts. With the US leaving Kyoto and other countries making little use of the mechanisms, the EU ETS was left as the only real buyer of emission reduction units (CER) from the CDM. So it was flooded with them, contributing to the 2008 price collapse. The EU rightly closed the doors and it wasn’t until 2020 when they were partly reopened with a link to the Switzerland ETS.

Industry will be feeling the competitive pressure and rising fuel bills for citizens opens the door to voter anger when it comes to elections if the EU ETS price continues to rise without adequate relief valve mechanisms. The Market Stability Reserve (MSR) would offer some reprieve as it starts releasing banked allowances, but a longer term solution could also be found through Article 6 of the Paris Agreement. The EU ETS could open itself to projects executed under the 6.4 mechanism and transferred into the EU ETS via 6.2, along with the necessary corresponding adjustments to the counterparty country nationally determined contribution (NDC). I discussed the corresponding adjustment mechanism in my last post of 2021. The transfer provision under 6.2 also provides an opportunity to link with other trading systems, such as the recently created UK ETS.

Making use of Article 6 will be a very different experience to that with the CDM. This is a mechanism that operates between two nationally determined contributions (NDC), each with its own plan to reduce emissions, but each plan must be converted to a carbon budget for the period of the NDC in order to use Article 6. The rules for doing this were thrashed out in Glasgow and can be found in III.B of the decision. When the transfer between NDCs is executed, a corresponding adjustment must be made to the respective carbon budgets. This means that the selling country must make up the amount of the sale through additional actions within their NDC, which ensures that the overall reduction goals of the respective NDCs are maintained. Under the CDM, no such provision existed.

With robust Article 6 accounting standards, the EU can have confidence that environmental integrity is preserved and that real reductions are delivered through the ETS. This was always a concern with the CDM. However, there is a fine balance to be achieved when creating a relief valve in that a sharp fall in the carbon price is not helpful for investment. As such, the EU might initially look to trade with a very limited number of countries, such as those with similar ETS structures. The UK, New Zealand and South Korea could all fall into this category.

By opening up the ETS the EU will promote confidence in international carbon trading, which will become an increasingly important part of the mitigation toolkit as the world gets closer to net-zero emissions. This is because remaining emissions and the availability of sinks to balance won’t always be in the same jurisdiction. But most importantly, a larger trading system will lower overall costs for the same reduction goals or alternatively may promote greater ambition, which is certainly needed and was called for in the Glasgow Climate Pact. This will benefit everyone.

A Climate-Neutral EU by 2050

dchone May 5, 2020

As the EU works to reset its emission reduction goals to align more closely with the 1.5°C goal of the Paris Agreement, a question arises around the scale and scope of the energy transition required. What will it look like? How fast should it proceed? Which technologies need to be accelerated to achieve the desired outcome? To help answer these and provide a perspective on the transition, my colleagues in the Shell Scenario team have produced a scenario sketch of the journey forward, arriving in 2050 with a net-zero emissions energy system (NB: The pathway was formulated in late 2019 prior to the COVID-19 pandemic and therefore does not include the energy system disruption being seen in 2020).

From a policy perspective, the EU has been addressing the climate issue for at least 15 years, with the EU Emissions Trading System in place since 2005. The 2020 energy situation arises from the 2007 climate and energy package, which included three key targets:

20% cut in greenhouse gas emissions (from 1990 levels)
20% of EU energy from renewables
20% improvement in energy efficiency

The targets were set by EU leaders in 2007 and enacted in legislation in 2009. They are also headline targets of the Europe 2020 strategy for smart, sustainable and inclusive growth. Within this, the EU Emissions Trading System is the EU’s key tool for cutting greenhouse gas emissions from large-scale facilities in the power and industry sectors, as well as the aviation sector. The ETS covers around 45% of the EU’s greenhouse gas emissions. In 2020, the target is for the emissions from these sectors to be 21% lower than in 2005.

The year 2020 represents a halfway point from 1990 to 2050, during which 20% of the hard deployment work has been done, but with a number of key technologies available at scale that hardly existed or didn’t exist around the turn of the century. Solar PV and Electric Vehicles are two examples (although solar PV did exist in 2000, it was expensive and small scale). That leaves just 30 years for the remaining 80% reduction, which must also include bringing to scale several other technologies which are yet to be deployed in the EU. This is a tall order and the scenario sketch illustrates how extraordinarily stretching it will be.

The additional key technologies that must move quickly to scaled deployment are as follows;

Clean hydrogen production via electrolysis of water or removing and storing the carbon from natural gas;
Hydrogen fuel cell road transport for heavy goods (see chart below).
Carbon capture and storage in various industrial settings – e.g. steel, cement, petrochemicals.
Biomass power plants fitted with carbon capture and storage (as a negative emissions technology).
Air transport that utilizes hydrogen as a fuel – in the sketch first flights are imagined in the mid-2030s.
Advanced biofuels for planes, ships and heavy road transport (see chart below).
Grid scale electricity storage.
Electrification of light and heavy industry processes.
Use of hydrogen in homes for heating and cooking.
Some technologies that appear late in the sketch will need intensive development over the medium term. Hydrogen as a fuel for industrial facilities, but particularly iron ore smelting, is a good example.

On the assumption that development and demonstration of all the above proceeds rapidly, deployment kicks in for most during the 2030s. But in the 2020s the energy technologies that have been nurtured over the last twenty years must be accelerated. For example, by 2030 solar must be quadruple current deployment, wind nearly triple current deployment and nuclear must be growing again, not declining.

In the 2030s the really hard work starts, with carbon capture and storage moving from first demonstration in the EU by 2025 to 40 medium sized facilities (one million tonnes CO2 stored per annum) by 2030 and over 100 by 2035. New technologies such as hydrogen fuel cell trucks must become ubiquitous during the 2030s, with at least 600,000 vehicles on the road by the end of that decade.

All of the above will require both technology development incentives and deployment policies. The analysis assumes a rising carbon pricing mechanism – whether explicit or implicit – to more than €200 per tonne of CO2 equivalent by 2050 to deliver and sustain the emission cuts and CO2 management necessary for the EU to reach climate neutrality. But even the EU ETS will need to change, as I discussed in a recent post.

While carbon pricing is an efficient lever for reallocating resources and driving behavioural change, it will not be enough on its own. A sectoral approach to policy which brings clean technologies, fuels and products to market, as well as their deployment and diffusion at scale, must urgently be developed. It is essential that policy should help provide consumers and businesses with low-carbon alternatives to adopt.

In the sketch, 2050 marks a point of climate neutrality for Europe, helped by the development of large scale carbon sinks through reforestation. But this isn’t the end of the transition, merely a point of significance. The hydrogen economy will continue to grow, electrification of industry will expand and efficiency gains will continue to be made. As was illustrated in the Sky Scenario, Europe will likely shift to become a net-negative emission economy during the second half of the century, a necessary requirement to ensure global net zero emissions and a 1.5°C limit on warming.

Download the EU Sketch here.

Getting to net-zero emissions with the EU ETS

dchone February 3, 2020

Perhaps the biggest policy development of 2020 (possibly lasting through to 2023 or so as all the legislative requirements are agreed and put in place) will be the EU laying the foundations for its declared goal of net-zero emissions by 2050. Although the goal of net-zero was always there as an intention, the date of 2050 brings it close enough to require policy makers to give thought and then substance to the mechanisms that will deliver it. One such mechanism is the EU Emissions Trading system, which has now been operating for 15 years (but effectively 20 years from a design perspective) and covers the large emitters across the EU as well as encompassing intra-EU aviation.

The EU ETS functions by progressively reducing the number of allowances available to emitters on a linear trajectory, which means that under current plans the number of allowances issued each year will fall by about 48 million units, with 2020 allocation limited to around 1.8 billion allowances. Subsequent phases of the EU ETS, potentially including the current Phase IV, will need to see an increase in the annual reduction of allowances such that the system reaches zero in 2050. Based on a continuation of the EU ETS under the current trajectory it won’t reach zero until the late 2050s. A revision in the system could operate from the start of Phase IV, i.e. in January 2021, which means that the current 2030 goal would change. If the revision comes in from the start of Phase V, then that implies an even steeper decline for the period 2031 to 2050.

While the mechanics of the cap-and-trade architecture is very simple, the reality of 2050 is not. Under a revised EU ETS, from January 1st 2050 (or perhaps 2051) there will be no further allocation of allowances, either by auction or freely given. Yet this may not be a time in which there are no emissions – thirty years is possibly insufficient time for the complete turnover of everything in the large emitters system. Some industrial facilities, much of the aviation sector and even some power stations in parts of Europe may still be using fossil fuels as their energy source or will be emitting carbon dioxide from a conversion process (e.g. cement manufacture). Any remaining banked allowances and allowances in the Market Stability Reserve (MSR) will be quickly consumed against these ongoing remaining emissions.

The potential for remaining EU emissions can be seen in the Shell Sky Scenario, released in 2018. Even though the scenario represents a period of very rapid energy system and industrial transition, the time from now to 2050 isn’t sufficient to bring heavy industry, aviation and power generation to zero. Even in 2070 significant aviation emissions remain and require balancing with the net negative situation reached in the power sector through the deployment of bioenergy with CCS.

N.B. Sky aviation emissions include international aviation whereas the EU ETS does not.

So how will the EU ETS work once it runs out of allowances?

The key to the future operation of the EU ETS lies within the objective it is trying to deliver, net-zero emissions. Net-zero means that there is a balance between remaining emissions and the removal of the equivalent amount of carbon dioxide form the atmosphere, i.e. a sink. This stems from Article 4 of the Paris Agreement;

Article 4

. . . . . . so as to achieve a balance between anthropogenic emissions by sources and removals by sinks of greenhouse gases in the second half of this century . . . . . .

However, the EU ETS is currently an allowance issuance and surrender system, which points to a change in its structure at some point in the period leading up to 2050. This would require the introduction of a unit into the EU ETS that represented a ton of carbon dioxide removed from the atmosphere and permanently sequestered. From 2050, the EU ETS would then become a system without allowances that managed the balance between remaining emissions and sinks, at least until emissions actually reached zero. Policy makers would need to define the parameters of the unit such that it could be relied upon to provide sufficient volume for the required balance. Two considerations would be key;

Whether the units came from within the EU or also from outside the EU under the accounting framework of Article 6 of the Paris Agreement (i.e. the use of corresponding adjustments between NDCs to avoid double counting);
The type of sequestration opportunities permitted, which could include geological (e.g. direct air capture with geological storage), natural (e.g. reforestation projects) or product based (e.g. manufacture of products used in society such as plastics).

These units wouldn’t be issued directly by the EU governments in the way allowances are today, but would be made available for sale to emitters from projects that sequestered carbon dioxide. Governments would of course be involved in issuance of units to the sequestration projects against verified permanent storage of carbon dioxide.

A further consideration would be when such a unit is introduced into the EU ETS and how sufficient removal capacity is developed prior to 2050 to ensure there is enough available when net-zero emissions is required. This will be a judgment call arrived at through transition scenario analysis. However, the point in time when the unit will first be needed is not 2050, but when the allowance decline pathway first crosses the actual decline in emissions pathway. The illustration below shows how this might happen as reductions become more challenging over time.

To date, the actual reduction in emissions has typically been faster than the decline in allowance availability, hence the allowance surplus that developed in the 2010s and the creation of the MSR which has acted as an allowance removal mechanism (but it can also return allowances). These lines could potentially cross at some point in the 2030s, so the point of introduction could be at the start of Phase V of the ETS, i.e. 2031.

The EU Commission has developed a similar chart for their own communications, although this is for the transport sector as a whole, much of which is not currently covered by the EU ETS. However, expanding coverage is another option on the table. If such an expansion introduces more activities that may have remaining emissions in 2050, then the need for a sink unit becomes more important.

A provision such as described above might be seen by some as a backstop in EU ETS, but nevertheless an essential one for continuing smooth operation of the system. Without it, the EU ETS could become unstable in the years approaching 2050 as immediate mitigation opportunities for remaining emissions become unavailable and there are insufficient allowances available to cover these emissions.

Getting to net-zero emissions in the UK

dchone May 9, 2019

Last week the Climate Change Committee (CCC) in the UK released its much anticipated report which is recommending that the government revise its emissions goal to net-zero in 2050. The Committee notes that this is an appropriate UK contribution towards the global need of meeting the goals of the Paris Agreement. The recommendation also follows in the wake of the IPCC Special Report on 1.5°C, which identified 2050 as the year in which the global economy should attempt to reach net-zero emissions in order to limit warming to 1.5°C with a 66% probability.

The recommendation is a shift from the current UK target which would see the country reach an 80% reduction by 2050, in support of which the country is broadly on track to deliver the first 3 interim carbon budgets to 2022. However, as it looks past 2022 the CCC notes there is insufficient early development of some technologies for the heavy lifting ahead. Examples of this include carbon capture and storage (CCS) and hydrogen for a variety of uses.

Nevertheless, the state of technology development, deployment and availability has shifted since the time of the first UK target back in 2008. The cost of wind and solar has dropped significantly, offshore wind is now a viable proposition, many electric car models are available and while not in the UK, some 20 CCS facilities are now running in various parts of the world. All of the technologies required to do the job set out by the CCC are in plain sight, although a number still require significant UK development for deployment in this country. The CCC report is also very clear on this issue.

2050 is just over thirty years away and that same time period reflecting backwards marks the time that I first arrived in the UK with Shell. In the next 30 years the whole energy system will need to shift to achieve net-zero emissions, but how does that compare with the changes seen over the last 30 years. While two thirds of that period has not been covered by the Climate Change Act and its carbon budgets, all but three years have been covered by the UK ratification of the UN Framework Convention on Climate Change.

The Sankey diagrams below reflect the change over the period, although the most recent from the IEA are 2016, so they won’t show the last two years of renewable energy development.

Overall primary energy consumption has fallen, with the most visible change being the shift away from coal and towards natural gas in power generation. Both bioenergy and renewables have also added to the generation mix. Nuclear plays an important and steady base load function. Natural gas is now the dominant contributor to the current power generation sector and in the past year there have been periods where coal has not played a role at all. Back in 1989 coal made up most of the generating capacity. Oil demand within the UK has hardly changed over thirty years (slightly up) although production has halved.

As noted above, one feature that has surged since 2016 is the proportion of renewable energy in the generation mix. Recent figures from BEIS show that wind and solar have now exceeded nuclear on a quarterly basis.

In the final energy system, the changes are more nuanced. The overall share of electricity has moved from 16.7% of final energy to 20.4%, or a shift of 3.7% points in 27 years. The global rate of change is tracking at 2% points per decade, so the UK is well short of that pace of transition. A net zero emissions economy would likely need electricity to be the major component of final energy, say around 60%, so the UK rate of change will need to shift from 1.37% points per decade to around 11% points in each of the coming decades.

Transport hasn’t shifted at all in the past 30 years, with oil use in transport slightly increasing. Electricity is just starting to creep into this mix, but pure electric vehicles have reached only 0.7% (2018) of new car sales. Worryingly, the total number of petrol and diesel cars registered in the UK in 2018 was unchanged from 2013, a period which has seen the first major push to get consumers to go electric. Reaching net-zero emissions by 2050 will not just mean seeing all new purchases as electric, but seeing all new purchases from about 2035 onwards as electric. It can take up to 15 years to completely turn over the entire on-the-road fleet, although a future government could presumably accelerate this process with a buy-back-and-scrap scheme.

In the industrial sector, energy consumption has dropped by nearly a third, presumably through efficiency improvements as industrial output has hardly changed (see chart below). Importantly, electricity use has stayed largely the same. This means that the sector is gradually electrifying, although again the pace of change is below that required.
UK Industrial Production (1970-2019).

Then there are the tricky bits, where the UK has made only limited progress. The CCC notes that radical change is needed in home heating, including a shift to hydrogen and heat pumps, with support from much better home insulation. But residential natural gas use has marginally increased in 30 years, despite significant improvements in boiler efficiency and the use of electricity instead of gas for new apartment buildings. One highlight in this area is the recent milestone of one million homes now being supplied with biomethane.

The overall change in 30 years has been one of continually falling greenhouse gas emissions, with much of the gain coming from natural gas replacing coal and a fall in industrial energy use. While the impetus for change over the last 30 years was perhaps not as great as it is now, the overall shift is symptomatic of typical energy system dynamics; rapid adjustment has never been a feature, primarily due to the large capital stock involved. Outside the energy sector change over the same period has been dramatic. In 1989 there was no internet, no social media, hardly a mobile phone to be seen and televisions were defined more by their depth than their width. So can the UK reach these sorts of transition rates and achieve the goal of net-zero emissions by 2050?

In the power generation sector, zero emissions should be entirely achievable in that time frame. Renewables are surging and new nuclear capacity is now under construction (although even getting that started took a decade). Similarly, with the models on offer or on their way, passenger vehicles could be entirely electric and various cities across the UK have demonstrated that electric buses are now a viable option. But there is no real sign of change for heavy goods vehicles, shipping or aviation. Perhaps the biggest challenge sits with the use of natural gas in homes and industry. It is easy to use, clean, provides a very high heat load and is backed by extensive infrastructure. Hydrogen and electrification are potential pathways forward, but as noted the electrification rate of change has to shift by nearly an order of magnitude. For hydrogen there are promising signs of change with the government now funding a major programme on supply and conversion of existing facilities away from natural gas.

Finally, there is carbon capture and storage (CCS), which may be a simpler solution in many applications than attempting to dislodge natural gas. CCS in combination with direct air capture (still a nascent technology) may also be needed to balance out emissions in sectors such as aviation. Even the production of hydrogen may be easiest at scale from natural gas, which would then also require CCS. The UK has tried and tried again with CCS, but there is still no operational facility to show for all the efforts made. Yet the UK is both pipeline dense and geologically gifted in terms of storage potential, so deployment could proceed given the right incentives to begin.

The Climate Change Committee have put forward a bold recommendation, but it is not without immense challenge. It ought to be possible to achieve the 2050 goal of net-zero emissions, but it won’t happen without some significant nudging by the government in a number of key areas. Policy decisions over the coming five years may well set the scene for the next twenty, so there is everything to play for.

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.

After San Francisco . . . .

dchone September 27, 2018

In mid-September the climate change focused world turned its attention to San Francisco to attend, watch, listen and participate in the myriad of events surrounding the Global Climate Action Summit. The Summit was designed to show the extent of action taking place around the world to respond to climate change, but it was also a political statement of intent that the United States remained committed to the goals of the Paris Agreement through the actions of States, cities and the business sector.

There is no doubt that a wide range of actions are underway and that a major energy transition is in its early days of ushering in significant change. But does all this add up to a pathway that meets the goals of the Paris Agreement? Earlier this year Shell published its Sky scenario, which illustrates the depth and breadth of change required in the coming decades. One of the key drivers of the required change in Sky is the widespread use of policy mechanisms, both market based and mandated requirements. Within the mix, carbon pricing looms large, as shown in the chart below.

The exact nature of the carbon pricing mechanism is not specified in Sky, but it would include all the various forms seen around the world today, ranging from taxes, cap-and-trade, baseline-and-credit and so on. What is clear though in Sky, is that even by 2020 some form of carbon pricing is at least getting going in most jurisdictions and that by 2030 it is very well established, both in terms of coverage and impact.

Yet in the days after the San Francisco summit, the OECD released a report which showed just how large the gap is between where the world ought to be with this policy approach and where it actually is. The report looks at the use of carbon taxes, carbon allowance-based systems and specific fossil fuel taxes. The report notes that the latter have distorted the overall picture owing to the prevalence of gasoline taxes in various parts of the world. These taxes have led to greater efficiency in markets where they are imposed, but have not ushered in a transport transition.

Overall the report finds that the aggregate carbon pricing gap is declining at a snail’s pace. Using EUR 30 per tonne of CO2 as a benchmark, the gap for the 42 countries (OECD+G20 cover 80% of global emissions) as a whole dropped from 83% in 2012 to 79.5% in 2015, and is estimated to reach 76.5% in 2018. The authors note that new carbon pricing initiatives have the potential to significantly reduce the carbon pricing gap, with emphasis on the China ETS starting up soon. However, the report doesn’t include recent back-tracking such as in Ontario where the cap-and-trade system was halted. Even more recently, political disagreement has led to another setback in Australian climate policy.

Even as carbon pricing slowly grows in coverage, more companies adopt science-based targets and more cities pledge to use renewable energy and force certain vehicle types out of use, global emissions continue to rise. The sum of the parts is not yet close to adding up to a change of direction for the whole. This may be related to one salient aspect of the OECD report; the lack of carbon pricing coverage of industrial emissions. In the chart below extracted from the OECD report, industrial emissions are hardly touched by carbon pricing, yet as global development proceeds rapidly and GDP rises, it is industrial emissions that rise as cities are constructed, cars built and domestic appliances manufactured in the hundreds of millions of units.

For the most part industrial emissions are not covered by city pledges and looking at the list of companies with science-based targets, large industrial entities are a small subset of the ~500 companies that have adopted this approach. Even at national level, industrial emissions have been difficult to account for. Many OECD countries have moved industrial operations offshore, therefore seeing an apparent fall in domestic emissions even as they import embedded emissions in various goods and services.

San Francisco was a landmark event and a timely celebration of progress to date, but so much more remains to be done. At the heart of the effort must be a more comprehensive and joined up approach across national borders to carbon pricing. Voluntary and locally mandated distributed action is a worthy stopgap measure, but it is unlikely to put the world on a ‘well below 2°C’ pathway.

What does the carbon dioxide shortage tell us about the energy transition?

dchone June 28, 2018

Much has been made in the UK media over the last week or so regarding the shortage of carbon dioxide as an industrial gas. The supply issues are now so acute that some retailers are restricting sales of beer and soft drinks, abattoirs are closing, frozen food shipments that rely on dry ice are being disrupted and food manufacturers are struggling with storage of short shelf-life goods. The shortage is not restricted to the UK, but has also appeared in some parts of Europe.

The problem has arisen from the coincidental shutdown of several sites that produce carbon dioxide as a by-product. These are typically hydrogen manufacturing units, where the hydrogen is then used to produce ammonia for industrial and agricultural use. Ammonia is an important material in the food chain due to its use as a fertilizer in the form of urea. The latter is made by reacting ammonia with carbon dioxide (yet another use). The reason for the shutdowns is that summer is the low period for fertilizer demand, but this year there has been some unfortunate timing as the shutdowns have coincided with technical difficulties at facilities that have remained running.

The hydrogen required for the ammonia plants is made by steam reforming of natural gas (or coal) to produce synthesis gas, a combination of carbon monoxide and hydrogen. A further step, known as the water-gas shift reaction, increases the yield of hydrogen at the expense of carbon monoxide, with carbon dioxide also being produced.

The link from natural gas (or coal) through to beer and even pig slaughter (where carbon dioxide is used to stun the animals first), illustrates the complexity of the energy system and the way in which fossil fuels end up in the supply chain of all goods and services. A transition away from fossil fuels must also find alternatives for all of these uses. In my book, ‘Putting the Genie Back: Solving the Climate and Energy Dilemma’, I discussed the pervasive nature of fossil fuels in the global economy, not from the perspective of products we know well, such as gasoline, but rather products like ammonia.

While our immediate contact with fossil fuels is the gasoline we put in our cars or the natural gas we burn in our homes, there is more, much more. This includes the unappealing, somewhat messy but nevertheless essential chemical plants where products such as sulphuric acid, ammonia, caustic soda and chlorine are made (to name but a few). Combined, about half a billion tonnes of these four products are produced annually. Manufactured by energy-intensive processes operating on an industrial scale, but concealed from daily life, these four products play a part in the manufacture of almost everything. Even the ubiquitous can of soft drink relies on sulphuric acid; the chemical is used to give the aluminium can the shiny look that is expected before opening it and consuming the contents. These core base chemicals rely in turn on various feedstocks, many of which come from the fossil fuel industry. Sulphuric acid, for example, is made from the sulphur found in oil and gas and removed during refining and treatment processes. Although there are other viable sources of sulphur, they have long been abandoned for economic reasons. And of course there is ammonia!

In thinking through the energy transition required to fully address the climate issue, the end game is zero emissions, which means that there is no further accumulation of carbon dioxide in the atmosphere. The Paris Agreement achieves this by calling for a balance between sources of emissions and sinks during the second half of the century, or what is referred to for the energy system as net-zero emissions. In the Shell Sky scenario, which meets the goals of the Paris Agreement, this is achieved in 2070. In Sky, there isn’t an alternative pathway developed, commercialized and scaled for every use of fossil fuels in just 50 years, far from it. Rather, carbon capture and storage (CCS) is deployed as the mechanism to allow the multitude of uses to continue until alternatives are fully in place. When Sky reaches net-zero in 2070, emissions from the continuing use of fossil fuels are countered by direct application of CCS or indirect removal of carbon dioxide from the atmosphere. But the story doesn’t end in 2070, for example by 2100 in Sky industrial CCS has declined compared to 2070 as hydrogen has grown as an alternative.

The process of commercialising and scaling alternatives for all the uses of fossil fuels will likely take us well into the 22^nd century. Some alternatives are emerging today, such as the use of solar PV to generate electricity, but as clearly demonstrated in recent days, the dependency on fossil fuels remains pervasive and entrenched in our society.

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 http://www.shell.com/skyscenario.

Decarbonising Heavy Industry

dchone May 31, 2018

I was fortunate to attend part of the 9th Clean Energy Ministerial (CEM) meeting in Copenhagen and participate in a panel focussed on the steps required to decarbonise the industrial sector. It is good to see that the CEM is bringing much needed focus to this area, given that industrial emissions make up about a fifth of global energy system emissions, without including process CO2, such as from the cement industry.

Shell recently released the Sky scenario, which tackles the challenge of meeting the goals of the Paris Agreement. In Sky, as power sector emissions decline with natural gas replacing coal and rapid deployment of renewables, industrial emissions become increasingly important. By 2040 in Sky, when global emissions have declined by nearly 20%, heavy industry emissions have actually increased. This is the result of continued development and urbanization which increases the demand for materials such as cement, ferrous and non-ferrous metals and a broad range of chemicals.

The solution for industry in Sky, which aligns with the discussions held in Copenhagen, includes a number of different directions, all of which require significant action. In Sky, the shift in industry required for net-zero emissions follows an incremental path, largely driven by the progressive implementation of government carbon-pricing systems and the ratcheting up of the resultant price that occurs as governments respond to the Paris Agreement. The transformation is profound and follows three distinct routes:

Efficiency improves continuously, with most industrial processes approaching thermodynamic and mechanical efficiency limits by the 2050s.
Some processes shift towards electricity, particularly for light industry, where electricity use doubles from 2020 to 2040. Hydrogen also emerges as an important fuel for light industry by 2050 as natural gas use declines. But a similar change for heavy industry doesn’t emerge until after 2050, with hydrogen, biomass, and electricity substituting for natural gas and some coal use.
Coal remains important in the metallurgical sector and some other processes right through the century, but with government-implemented carbon prices rising, carbon capture and storage (CCS) emerges as the solution.

Industry also benefits from an increased focus on the circular economy, which sees large-scale recycling expand throughout the century, to the extent that some resource extraction declines as a result.

For heavy industry, which was the focus of discussions in Copenhagen, the Sky decarbonisation pathway is illustrated below.

Although electricity and biomass use grow in Sky, the first major change is the application of CCS from the late 2020s, just a decade away. In the 2030s some 500 major heavy industry CCS projects emerge (1 million tonnes stored CO2 per annum per project), with that rate of uptake more than doubling into the 2040s. By the time net-zero emissions is achieved globally for the energy system, over 2.5 Gt of CO2 is being captured and stored from energy use in heavy industry. In addition, there will be further use of CCS capturing CO2 from limestone calcining in the cement industry.

After 2050, hydrogen emerges as an alternative energy source for heavy industry and its growth eventually begins to reduce the need for CCS, which declines from the mid-2070s. Today the use of hydrogen in heavy industry is in the earliest stages of development, with a pilot plant proposed for hydrogen based iron ore smelting in Sweden. Given progress to date, it is unlikely that this technology will emerge at scale prior to mid-century. Large facilities may exist by then, but probably not numerous enough to make a material difference to emissions.

With electrification of some sectors, along with hydrogen use in others, fossil fuel use in heavy industry falls rapidly in Sky from the early 2050s. By 2100, heavy industry emissions have fallen from a peak of 4.6 Gt per year in 2040, to less than a tenth of that. Remaining emissions are offset by atmospheric drawdown via BECCS.

As was highlighted in the Copenhagen meeting, for such a pathway to succeed, much needs to be put in place throughout the 2020s. CCS in industry must be catalysed, process technologies using electricity and hydrogen require research, development and commercialisation and a more aggressive focus on efficiency needs to be encouraged and incentivised.

And to kick-start that process in earnest, the Clean Energy Ministerial offered an opportunity to announce a fresh initiative aimed at boosting the progress on CCS. The Carbon Capture, Utilization, and Storage (CCUS) Initiative will focus on strengthening the framework for building collaborative partnerships on CCUS between the public and private sectors. It will also bolster and complement existing CCUS efforts led by the Carbon Sequestration Leadership Forum, the International Energy Agency (IEA), the IEA’s Greenhouse Gas R&D Programme, Mission Innovation, and the Global CCS Institute. Led by the United States, Norway, and Saudi Arabia, other international partners that have joined this initiative include Canada, China, Japan, Mexico, Netherlands, United Arab Emirates, and the United Kingdom; as well as the European Commission.

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.