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Using scenarios to visualize possible EU emission pathways

dchone April 17, 2023

The Shell Scenario Team released The Energy Security Scenarios about a month ago and I’ve been out talking with stakeholders about them in the meantime.

The two new scenarios (see Note below), Sky 2050 and Archipelagos, describe the tension that is playing out between the promises made by world leaders found themselves in at COP26 in November 2021 when there was a collective agreement to limit global warming to 1.5°C above pre-industrial levels and the energy security situation they were confronted with three months later when Russia invaded Ukraine.

In Archipelagos, the security mindset that is dominant today becomes entrenched worldwide. Global sentiment shifts away from managing emissions and towards energy security. Despite this shift, the drive for energy security still includes the greater use of low-carbon technologies but not emission management technologies such as carbon capture and storage. These dynamics translate into global emissions peaking in the 2020s and falling from the mid-2030s but net-zero emissions remains a long way off.

In Sky 2050, long-term climate security is the primary anchor, with specific targets to reach net zero by 2050 and ultimately bring the global average surface temperature rise to 1.5°C by 2100. The war in Ukraine translates into gradual progress in the early 2020s, but that progress gains momentum towards the 2030s. This happens as the need to deliver low-carbon energy infrastructure takes on an urgency of its own, driven largely by security and price concerns. While progress is initially difficult to see, emissions start to fall from 2025 and, by 2040, the goal of net-zero emissions is clearly in sight. The energy system rapidly transforms.

Underpinning both scenarios is a framework of archetype behaviours by countries in response to energy concerns. The EU falls largely into an archetype called Green Dream, where the focus is on shifting rapidly away from fossil fuels and even reducing energy demand. Government takes a strong role in crafting the direction of travel. By contrast, North America sits with other major resource holders in a group known as Innovation Wins, where long term incentive structures unlock a stream of innovation to allow the energy system to find a different way forward. Technologies such as carbon capture and storage flourish.

Both the EU and North America head towards net-zero emissions, but it is the Americans who get there first in Sky 2050. Perhaps more importantly, of the two it is the Innovation Wins countries which deliver a much bigger share of the global need for negative emissions after 2050, because they develop and embrace geological storage and technologies such as direct air capture (in Sky 2050). Negative emissions are the key to managing overall warming by 2100 and open up the possibility for climate restoration in the 22nd century.

By 2050 in the Sky 2050 scenario, for a similar population, North America has deployed twice the CCS capacity of the EU and has seven times as much direct air capture in operation. By 2100 the EU only has as much direct air capture as North America does in 2050, whereas North America is heading towards 1 Gt of capture capacity.

Within the EU, the pathway is more problematic in the Archipelagos scenario. Nuclear starts to decline quickly in the 2030s and 2040s and isn’t replaced and solar doesn’t multiply to the extent that it does in Sky 2050, although it still becomes very big within the energy mix. Fossil fuels decline, but the net-zero emissions goal for 2050 isn’t met, although emissions are more than 60% below 2019 levels by mid-century. However, the EU does modestly outpace North America in terms of energy efficiency in both scenarios.

In Sky 2050 both the Green Dream and Innovation Wins archetypes get to net-zero emissions around 2050, despite very different approaches to the energy transition. But in the Innovation Wins countries there is a broader range of energy possibilities and greater ability to manage atmospheric carbon dioxide simply because they fully embrace the opportunities available through carbon capture and geological storage.

Within the context of the global stories it is possible to do a deep dive into a particular region at a particular point on the scenario timeline and the team has provided a wealth of data in spreadsheet form for those who wish to embark on such a journey.

Note: Shell Scenarios are not predictions or expectations of what will happen, or what will probably happen. They are not expressions of Shell’s strategy, and they are not Shell’s business plan; they are one of the many inputs used by Shell to stretch thinking whilst making decisions. Read more in the Definitions and Cautionary note. Scenarios are informed by data, constructed using models and contain insights from leading experts in the relevant fields. Ultimately, for all readers, scenarios are intended as an aid to making better decisions. They stretch minds, broaden horizons and explore assumptions.

Carbon budgets, CCS and the energy transition

dchone November 4, 2019

One of the key talking points of the recent Climate Summit in New York was the carbon budget available for a transition that could limit surface temperature warming to 1.5°C. In her speech to the UN, Greta Thunberg made note of the numbers;

“To have a 67% chance of staying below a 1.5 degrees global temperature rise – the best odds given by the [Intergovernmental Panel on Climate Change] – the world had 420 gigatons of CO2 left to emit back on Jan. 1st, 2018. Today that figure is already down to less than 350 gigatons . . . . . . . . . . With today’s emissions levels, that remaining CO2 budget will be entirely gone within less than 8 1/2 years.”

The physics and chemistry of the atmosphere tell us that the currently observed surface temperature warming can only be brought to a halt when society stops adding carbon dioxide to the atmosphere from long sequestered sources (fossil fuels, limestone for cement, global forests). Further, we also know that there are only two pathways forward for doing this – one is to stop the current practice of deforestation and using oil, coal, gas and limestone and the other is to at least remove an equivalent amount of carbon dioxide from the atmosphere for as long as these practices continue.

With this in mind, society has set out on a journey of energy transition, which involves reducing its use of fossil fuels as quickly as possible and reversing forest loss. The goals of the journey are based on our understanding of how much more warming will take place for a given amount of cumulative ongoing emissions; the data was published in the IPCC Special Report on 1.5°C released just over a year ago. It is also clear that the so-called ‘carbon budget’ for 1.5°C of warming (about 0.4°C above current levels) is very small and vanishing rapidly as emissions continue.

For a 2°C goal at 50%, the notional carbon budget of 1500 Gt CO2 looks achievable. While it represents only 35 years of emissions at current levels, on a 0.54 Gt per year linear declining emissions basis to net-zero it could extend to the 2090s, but that means emissions need to start falling from 2020. If there would be a ten year period of flat emissions prior to a fall, then the rate shifts to about 0.75 Gt per year. A fall of 0.54 Gt in the coming year would be about 1.4%, below the rises of the last two years.

Most published strategies that address the carbon budget problem make use of a set of technologies that are well understood and available at scale today, namely various applications of carbon dioxide capture and geological storage. Carbon capture and storage (CCS) can be used today to prevent emissions of carbon dioxide in the first instance when fossil fuels are used, but also offers the potential for removal of carbon dioxide from the atmosphere. But progress in actual scaling and deployment of CCS is essentially moribund, while other energy related technologies are moving ahead. In a world of growing climate anxiety, why is this?

In some cases, there is the belief that CCS is experimental and untested, yet this couldn’t be further from the truth. For starters, the technologies involved have been used in the oil and gas industry for decades, just not in the precise configuration that CCS requires. For example, separating carbon dioxide from other gases is a common practice in the natural gas sector where the gas coming from the well typically contains a low concentration of carbon dioxide, but it must be removed before the product is sent through pipelines and sold to customers. Furthermore, nineteen large scale CCS facilities are in operation around the world, including a Shell operated facility in Canada capturing and storing one million tonnes of carbon dioxide per annum. CCS technology may well improve, but it certainly isn’t experimental or untested, nor does it require pilot plant testing or demonstration – that phase is well and truly over. New CCS technologies will undoubtedly emerge and they will be subject to demonstration, but that is true for any technology pathway.

For others there is a belief that alternative technologies will emerge, be deployed very rapidly and effectively do away with the need for CCS. This is based on a view that the world can quickly move on from using fossil fuels, but is very unlikely to be the case. While there are clearly a set of technologies now available to generate electricity without fossil fuels, we are still very distant from a society based entirely on electricity using solar PV, wind turbines and nuclear reactors. Electricity makes up just 20% of the energy we use to provide services and historically that has shifted at a rate of two percentage points per decade. But even doubling or quadrupling the rate of change would still mean a century or more of transition and likely exceeding the desired carbon budget along the way. Further to this, there are many applications for combustion based energy provision where an electricity pathway doesn’t exist (e.g. cement manufacture, aviation). Some ideas are out there, but moving from concept to full scale commercial deployment is a multi-decade programme in itself.

We shouldn’t underestimate the time it takes to move from one system to another or build whole new systems. Even the internet has taken 25 years to deploy at scale, but that was on the back of an existing telephony system and was based on technologies that were first tested 25 years prior, in the late 1960s. In the field of energy transition, even longer time-frames are likely. The first Liquefied Natural Gas (LNG) carrier commenced operation 60 years ago, with the current market now reaching around 350 million tons per year; that’s about 17 EJ, or less than 5% of global energy demand. In the Shell Sky scenario we imagine a global hydrogen industry in 2100 that is four times this size and yet still only provides about 10% of final energy. Building a significant hydrogen and electricity based energy system (or any other system) to replace the current fossil fuel system is quite possible, but the time-span to do so will be measured in decades.

Finally, there are those who just claim that CCS costs too much, but usually without a reference to compare it with. Mitigating carbon dioxide won’t come at no cost, so the costs we do incur are all relative. Depending on the application, CCS projects can cover a range from as little as $30 per ton of carbon dioxide (e.g. in ethanol plants in the USA) to over $100 per ton in power stations. But as infrastructure develops costs will come down, as has been the case for many other technologies. Building a new electricity system based on renewable energy or deploying electric vehicles (EV) will also come at a cost, in some cases in excess of the cost of utilizing CCS, but the option to use CCS instead may not be available due to policy choices. This happens in instances where governments have given preference to certain energy technologies, rather than looking more broadly at the full range of opportunities for managing emissions. A challenge often faced by CCS is that its cost in CO2 terms is very transparent, against other technologies where costs on a CO2 basis are often not published or even used.

So we are left with the dilemma of a vanishing carbon budget and the eventual deployment of an alternative fossil fuel free energy system that will likely mean breaching that budget. Technologies and approaches that seek to remove carbon dioxide from the atmosphere or prevent emissions in the first instance can bridge this gap. This includes the full range of application of CCS technologies, but also the use of nature based solutions such as large scale afforestation. In the Shell Sky scenario the use of CCS in industry ramps up rapidly from the 2030s as this is an immediately available technology. It peaks in the 2070s and then starts to decline, as new technologies begin to deploy at scale, for example hydrogen based smelting of iron ore. This forty year gap is successfully bridged with CCS. We could imagine that by the middle of the 22^nd century there is no further need for CCS in industry as a complete transition away from fossil fuels has taken place. But for 50 to 100 years, CCS has offered the possibility of no net addition of carbon dioxide to the atmosphere, even as fossil fuel use continues in legacy industrial processes.

Uncategorized

Can solar fuels ever be viable?

dchone September 9, 2019

The idea of producing fuels from air, water and the sun has great appeal and the chemistry and technology to do so exists. Electrolysis (using renewable electricity) of water to make hydrogen and air capture of CO2 are both done today, albeit on a relatively small scale (compared to other ways of making hydrogen) in the case of hydrogen and very small scale in the case of air capture. Hydrogen and carbon dioxide can then be combined in different ways to produce fuels.

The Sabatier reaction takes place at elevated temperatures (optimally 300–400 °C) and pressures in the presence of a nickel catalyst to produce methane and water. Synthetic methane can substitute for natural gas.
Using a palladium and copper catalyst the production of methanol is possible, which can be used as a liquid fuel or can be a building block for other fuels or petrochemicals.
Activation of the carbon dioxide to carbon monoxide (e.g. using hydrogen, but CO2 electrolysis is also a possibility), then combining this with more hydrogen (as synthesis gas) to synthesize hydrocarbon liquids for use as fuels using the Fischer-Tropsch process (this process exists at large scale in Qatar and South Africa).

As an end to end process the above doesn’t exist, other than at pilot plant scale. All the technologies have been proven, but building a facility that at least matches the scale of the Shell Gas-to-Liquids synthesis plant in Qatar is likely many years away. For example, the largest air capture facility in the world announced so far is a 500,000 tons per year facility due to start up in 2023. This is the equivalent of 136,000 tons of carbon or some 160,000 tons of Jet A-1, but the facility in Qatar produces ~8 million tonnes per year.

The reason for wanting to synthesize hydrocarbons from air and water is threefold;

To mitigate the need for fossil sourced hydrocarbon fuels, but continuing to offer the convenient energy dense carrier they represent;
To meet the needs of activities that depend on hydrocarbon fuels, but cannot find alternative options. For example, aviation depends on Jet A-1 and while there is talk of some electrification of short haul flights and the long term possibility of fuels like hydrogen, there is no line-of-sight to a viable alternative. We should expect at least some planes to still be using Jet-A1 at the end of this century even if a comprehensive viable alternative does eventually emerge.
To avoid using synthetic fuels derived from biomass, which is technically easier and more cost effective but may face social issues relating to the use of biomass (e.g. the food vs. fuel debate).

We might also imagine building a very large scale synthetic hydrocarbon industry to meet all sorts of requirements, thereby taking the pressure away from the need to find solutions for all the current uses of fossil fuels, so effectively lowering the bar of difficulty from just aviation to many other sectors and uses. But to do this, the manufacture of synthetic hydrocarbons needs to be competitive with alternatives, even allowing for policy instruments such as robust carbon pricing.

A recent paper on synthetic fuels tackles the cost issue head on and looks at what we need to believe for so-called ‘solar fuels’ to become a reality. The paper focuses on the five principal elements required to manufacture solar fuels; solar PV, electrolysis to produce hydrogen, direct air capture of CO2, hydrogen activation of CO2 to CO and Fischer-Tropsch synthesis. Based on current costs of this array of technologies, the end-to-end cost of product from this process approaches $900 per barrel, or around $5 per litre. Much of this cost sits with the newer technologies, namely solar PV, hydrogen electrolysis and direct air capture. But these are also the areas where sharp cost reductions are either being seen or are anticipated.

There is certainly abundant evidence that solar PV costs are falling, so a shift from $50 /MWh to $15/MWh is plausible. This alone equates to $60 per barrel.
There have been several recent articles outlining potential pathways for big cost reductions for direct air capture.
In its recent report on the future of hydrogen, the IEA examined the rapidly falling cost of electrolysis.

In addition, significant relative cost reductions (i.e. 50-70% cost improvement) are also required in already mature technologies, such as Fischer-Tropsch synthesis.

The five technologies required are also at very different stages in their respective development. For example, although electrolysis remains quite expensive, it is far ahead in terms of commercial deployment when compared to Direct Air Capture. The latter is still in the early pilot phases of development, but is nevertheless making progress.

With all these factors aligning and imagining a policy regime which injected a carbon price into the mix (to bridge the final gap), it is just feasible to see synthetic fuels becoming an option. However, commercial considerations will doubtless prevail. For example, if direct air capture costs fall dramatically, it could well make more sense to continue using legacy infrastructure (refining crude oil) to make Jet A-1 and then capturing and storing carbon dioxide to balance the emissions. Such a route forward would also be one that supplied numerous other products where alternatives remain elusive.

Visiting Arctic Svalbard

dchone June 27, 2019

Over the past 10 days I have had the opportunity to visit the archipelago of Svalbard in the Arctic Ocean, travelling as far as 79.55 North before sea ice forced the National Geographic Explorer to return to Spitsbergen, the largest of the islands. I was with a group from the 2041 Foundation and ClimateForce, led by Robert and Barney Swan respectively. Robert is a true explorer and in the 1980s and 1990s was the first person in history to walk to both the North and South geographic Poles, with Shell sponsoring the South Pole expedition. More recently the Swans returned to Antarctica, again with Shell sponsorship, this time to mount the first expedition to the South Pole drawing its energy needs exclusively from renewable sources.

The trip to the Arctic was a first for the 2041 Foundation after many years of Antarctic Expeditions and brought a group of some 80 people face to face with the climate issue, while hearing about energy system solutions from the likes of me and others. The Arctic region presents nature in perfect balance, with the sea ice extent being just sufficient to allow polar bears to hunt for their prey but not so expansive that it prevents various whales from feeding in the cold waters over the summer months. But as is now widely recognised, the Arctic ecosystem is changing due to surface temperature warming, with diminished ice cover and shifting permafrost conditions. In a paper from the Max Planck institute, permanent Arctic sea ice loss was put at 3 m2 per ton of carbon dioxide emitted.

The expedition provided a unique opportunity to view this unique environment and learn about the issues facing it and therefore us. Below are a selection of my photographs from Svalbard up to 80N.

For other images, please visit Flickr.

Timing for new technologies

dchone November 1, 2018

Over the past fortnight I have been fortunate to present the Sky Scenario to a number of different audiences in Doha, Delhi, Singapore and Canberra. Irrespective of the audience and location, questions always emerged around rates of transition in Sky and more often than not the question referred to the emergence of a hydrogen economy. In all cases, there was surprise that the emergence in the scenario is not as fast as expected.

Sky Scenario Hydrogen Economy

Hydrogen is an important energy carrier in Sky and its presence solves many issues associated with hard to abate sectors. This includes aviation, heavy industry and road freight. For example and as noted in a recent post, hydrogen can be used instead of coal for reducing ores to metals in the metallurgical industry. But within Sky, these solutions take some decades to emerge and don’t really grow to meaningful scale until well into the second half of the century.

This then raises the question of the rate of deployment of a new energy technology. Historically, new energy technologies can take 30 years to move from first application to meaningful deployment, which in turn may be as little as one percent of the system. It is only when such a level is reached that the true future potential of the technology starts to become apparent. The analysis behind this finding was conducted by members of the Shell Scenario team back in 2008-2009 and subsequently published in Nature magazine (No Quick Switch to Low-Carbon Energy – Nature 462 – 3 Dec 2009 – Kramer and Haigh).

As an example, solar PV (photovoltaic cells) started its long journey back in the late 1970s and is only now building towards 1% of global energy demand, although within the electricity sector its contribution is approaching 4%. That is a 30+ year journey to scale. Wind has followed a similar path. Electric vehicles have had many false starts, including a large scale false start around the turn of the last century which was soon eclipsed by the Ford Model T. The pathway for nuclear was exceptional; it emerged from projects in the Second World War and developed quite rapidly from the early 1960s, but has remained largely static during this century at 5% of the global energy mix. The time from the first nuclear reactor in 1942 to 1% of global electricity generation was only 20 years.

But why so long? Take for example the potential application of hydrogen in iron ore smelting instead of the traditional use of coal. The chemistry of the process is well understood, but not a single demonstration of the process exists. However, a consortium of northern European companies have announced the planned construction of a pilot plant, with a view to have an operational process by 2035. Should this be successful, the first commercial scale plant may then be considered, which in turn will take some time for design, funding, decision and then construction. Future deployment by other companies may rest on a ‘wait-and-see’ decision following the start-up of such a first facility.

While the number of large blast furnaces in the world is in the dozens, it would still take many years to replace them all. In Sky, the heavy industry sector that utilises hydrogen begins to emerge after 2045, which aligns with the above consideration of suitable process designs being ready by the late 2030s and construction proceeding from that point in time. Between 2055 and 2080 the sector grows by a factor of six, which represents a rapid transition to the new technology.

The same may be true of a sector such as aviation, but possibly with an even later start. Aviation is completely dependent on energy dense hydrocarbon fuels, although there is some discussion of electric planes for very short haul routes. Hydrogen might emerge as a fuel for long-haul aviation and in Sky, we imagined that this would be the case. There has been some research over the years, but apparently very little at the moment. A Google search in the UK throws up a 2010 BBC report that notes hydrogen propulsion had been shelved completely by plane makers in favour of biofuels and continued efficiency improvements, although the same search also reveals a company in Singapore attempting development of a small test plane. While synthetic hydrocarbon fuels of some description may win the day in aviation, there is always the possibility of another contender emerging, but probably not yet. In Sky a first intercontinental hydrogen prototype flies in the 2040s, but scaled investment and use of hydrogen in aviation doesn’t commence in earnest until the 2050s. This is perhaps the earliest such deployment could be envisaged given the current state of development.

The thinking around transition timing discussed above is built into the Sky scenario, but it has also been pushed where possible to obtain the fastest possible transition. Big systems take time to change and major investments in emerging energy technologies come with caution and a lower appetite for risk. One aspect favouring this transition is the potential fragmentation of the energy system into smaller systems, including microgrids, local processing of waste and biomass (where local collection favours a smaller scale business model) and perhaps even technologies such as small modular nuclear reactors. Each of these can be built with smaller individual investments, negating the more cautious big investment approach.

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.

Has climate change run its course??

dchone June 14, 2018

A curious article appeared in the Wall Street Journal recently, written by Steven Hayward from the University of California, Berkeley, arguing that the climate change issue had run out of political steam.

The author notes early on;

A good indicator of why climate change as an issue is over can be found early in the text of the Paris Agreement. The “nonbinding” pact declares that climate action must include concern for “gender equality, empowerment of women, and intergenerational equity” as well as “the importance for some of the concept of ‘climate justice.’

Hayward claims that the descent into the abyss of social-justice identity politics represents the last gasp of a cause that has lost its vitality. But it’s hard to agree with this as a piece of evidence in favour of the argument. Climate change is a problem related to the global commons, so confronting it and finding a way forwards will always require the broadest range of actors and at least some consideration of all views. Further, the Paris Agreement itself doesn’t actually seek gender equality, it simply lays out what the Parties to the Agreement must do to manage emissions and adapt to change. The above references to gender equality come from the accompanying Decision text, in effect the preamble to the Agreement which sets out the context and provides instructions for implementation. Given the range of governments and interest groups involved in the Paris Agreement, it is hardly a surprise that inclusive language appears in the Decision text, but the Agreement text remains almost completely untouched by such wording.

The author also argues that ‘most national governments are backing away from forced-marched decarbonization’, a claim that is difficult to align with what can be observed in the world. Certainly, the intended actions set out by national governments fall short of the actions required to see global emissions immediately fall, but as each day passes small steps forward are being made, quite the opposite of backing away. Various carbon taxes, vehicle mandates, coal levies and assorted carbon related policies continue to emerge, albeit at levels not yet sufficient for major change, but nevertheless still being implemented. In the United States, a new tax credit has been legislated which will offer direct support for carbon capture and storage and may well result in substantial developments over the coming decade.

The author then states that the high cost of action will ultimately lead to the undoing of the issue, yet here again the evidence does not support the proposition. The cost of many of the energy technologies required over the coming decades has fallen dramatically, or is in the process of falling. Solar PV, offshore wind, batteries and even carbon capture and storage have all seen cost reductions, with some renewable power generation technologies now out-competing fossil energy systems. As recently as the publication of the Wall Street Journal article itself, a group involved in the development of air capture of carbon dioxide announced a steep fall in cost to as little $100 per tonne of CO2. While air capture remains a nascent technology, such articles and findings are becoming increasingly common across a broad range of mitigation technologies. Even for CO2 capture and storage technologies which will always be seen as an immediate cost to society, that cost over time will remain small when compared to the total cost of providing energy for the global economy.

Nevertheless, there may be one aspect of climate change that is over, although the author didn’t mention it in the article. Such is the change in energy technology costs over the past decade in combination with an underlying growth in low carbon and air quality related energy policies, that the potential extent of change in the climate itself could now be limited. In other words, the prospect of runaway change might have passed.

While the policy landscape is far from complete in terms of meeting the goals of the Paris Agreement, the IEA New Policies Scenario indicates that global emissions have little remaining upside before reaching a plateau. In the Shell Oceans scenario, which sees widespread adoption of solar as costs fall, a plateau in global emissions in the 2030s is followed by a gradual fall from 2040 to 2060, with an acceleration thereafter towards net-zero emissions shortly after 2100. While these scenarios do not encompass sufficient change to meet the goals of the Paris Agreement, they nevertheless indicate that energy system emissions could fall to very low levels simply through the combination of technology development and some policy implementation.

This has important implications for the climate system. Early scenarios published in the IPCC 3rd Assessment Report included cases such as the A1F1 and A2 scenarios, which saw CO2 emissions rise towards 100 Gt per annum late in the century, but with the more optimistic scenario (A1T) seeing a plateau and then slow fall in emissions that is similar to, albeit even a little above, what now looks very plausible. A1T sees a temperature rise of just over 2.5°C in 2100, with a range from several models of 1.8-3.3°C.

High fossil fuel use scenarios such as A1F1 and A2 led to the very real concern of not just 3-4+°C temperature rise by 2100, but conceivably 5-6+°C of temperature rise or possibly more, which in turn could result in changes in the climate that would be very difficult or even impossible to manage and adapt to. This in turn led to climate alarmism, which the author of the Wall Street Journal article compares to a continually blaring car alarm which people then ignore.

In 2009 the MIT Joint Program on the Science and Policy of Global Change published an analysis of climate policy targets under uncertainty. The analysis demonstrated that even a modest attempt to mitigate emissions could profoundly affect the risk profile for equilibrium surface temperature. They looked at five mitigation scenarios, from a ‘no mitigation action’ approach to a very stringent climate regime (Level 1, akin to a 2°C case). In the ‘no mitigation action’ approach, mid-range warming by the end of the century is some 5°C compared to the late 20th century, but with a wide distribution, which means that there is a small probability of warming up to 8°C or more – an unacceptably high outcome even when accounting for the small probability that it might occur. But even modest mitigation efforts, while not shifting the mid-range sufficiently for an outcome close to 2°C, nevertheless radically change the shape of the distribution curve such that the spread narrows considerably, with the highest impact outcome dropping by some 3-4°C. As mitigation effort increases and the mid-range approaches 2°C, the distribution narrows further such that the highest possible outcome is limited to 3°C.

Quite possibly, through the current actions of governments, the advance of technology and the first steps along the path laid out by the Paris Agreement, the ‘no mitigation action’ outcome is now off the table and the future risk profile is quite different to the one faced in 2001 when the IPCC 3rd Assessment report was published. While this is good news, it isn’t yet cause to stop and celebrate, given that there is now greater clarity on long term impacts such as sea level rise, which could be several metres even at 2+°C. But it could usher in a more matter-of-fact debate about climate change and mitigation, without the background cacophony.

Arguably, the space between 1.5 and 3°C may be where the real story now lies.

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.

Carbon market developments in 2017

dchone January 15, 2018

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

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

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

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

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

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

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

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

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

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

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

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

A new era for aviation?

dchone October 9, 2017

The pressure to reduce carbon dioxide emissions and the prospect of a world running largely on renewable electricity has sent research and development teams in every sector back to their respective drawing boards to look at options that might exist for electrification. Perhaps the most challenging sector is aviation, where liquid hydrocarbon fuels are the only form of energy carrier available (mainly of fossil origin, but with some bio-origin fuels now appearing). The dependency on hydrocarbons is due to their high energy density and the challenge with fuel to weight ratio that planes have. However, fuel costs can represent up to 70% of total costs for an airline, so the business model tends to focus on efficiency as a primary consideration. Efficiency isn’t just about the plane itself, but about maximising passenger load, minimising extraneous weight, limiting taxiing and air traffic delays, using electricity for power at departure gates and optimising routes.

In the light of all the above, the idea of electrification in aviation is tantalizing, but there is little sight of this happening. At one end of the spectrum there is the prospect of single person electric drone taxis for short hops in cities, but after that there is nothing, until last week. EasyJet, in conjunction with the startup, Wright Electric, announced that they hoped to be flying a short-haul battery electric passenger plane within a decade.

The concept illustration looks impressive, but is this really feasible? Battery energy density is a key determinant and it is moving rapidly in the right direction. The energy density difference between the traditional Lead-Acid battery, still the standard for starting most cars and the best lithium based batteries is nearing a factor of 10, but lithium based batteries are still a long way from Jet A1 fuel as shown in the table below. The difference in energy density on a weight basis is around twenty times, in favour of Jet A1.

	Jet A1	Current Li-Ion Battery	Emerging Li-Metal batteries
Energy MJ/kilogram	42.8	~0.7	1.8
Energy MJ/litre	37.4	~2.0	4.3

Like an electric car, the efficiency of a battery electric aeroplane would be significantly higher than the combustion engine equivalent, although the starting point for a modern jet engine already exceeds that of vehicles. The chart below (IPCC Report on Aviation 1999, chart from 1991) shows that overall efficiency of jet aircraft falls in the range 20-40%, but significant improvements have been made since then. A modern Boeing 787 would show an overall efficiency approaching 50% on the same chart.

Even with near 100% efficiency for the battery electric aeroplane, the energy density of Jet A1 still gives that fuel a factor of ten advantage. As such, it will be distance that suffers, given there is a weight restriction for aeroplanes.

I am a regular traveler out of London City Airport and often see the Embraer 190 plane, which is similar in size to the easyJet concept photograph distributed with their announcement. But the Embraer 190 has a range of over 4,500 km, so one tenth of this gets near to the 335 mile range goal mentioned by easyJet, ideal for the flight I often take from London City to Rotterdam. So on paper, this would appear to work, but a plane with a range limit of a few hundred miles might significantly restrict the operational flexibility that airlines enjoy; for example, it couldn’t be swapped at short notice for a London City to Rome flight, should that be necessary.

Battery electric planes also bring with them a particular design change – apart from the obvious. Currently, planes land some 20% lighter than they take off, as they burn the fuel. With battery electric planes, they will land heavier than they take off, because the discharge of the battery means oxidation, meaning it gains mass. This will require very different landing gear.

Another facet of the EasyJet announcement is the desire to see these planes carrying passengers within 10 years. Given that the plane is concept only and doesn’t come from an existing family of similar planes, this may be ambitious. The 787 Dreamliner was announced in concept by Boeing in early 2003, finally receiving certification in late 2011. That’s nearly nine years for what is essentially a new version of an existing product, albeit with some significant changes such as the use of carbon fibre in the fuselage. But the 787 then had problems with its battery system for on-board electronics, leading to a temporary grounding and eventual regular flights from April 2013.

The 787 was not Boeing’s first attempt at a new aircraft following the 777 series. In the late 1990s it started development of the Sonic Cruiser, releasing a concept proposal in March 2001. With aviation business models changing rapidly at that time, Boeing abandoned this concept and instead moved to the 787, but this evolutionary process still consumed valuable design years. At least from one perspective, it could be argued that the 787 took over 13 years to go from concept to regular use.

The Wright Electric concept represents a revolutionary change in aircraft design and propulsion, so there is every chance that this may take longer than anticipated to get going. It will require extensive certification and testing by airlines, airports and the aviation authorities and may go through more than one design iteration, depending in part on the evolution of battery technology and the resultant changes in energy to weight and volume ratios. The story of the Mitsubishi Regional Jet is outlined here, and is a saga of changes and delays spanning 17 years. It is a conventional jet aircraft, but represents a first for Mitsubishi for a very long time.

A further ambitious aspect of this project is the notion that a start-up can take on the likes of Boeing and Airbus and find the necessary investors to back what is typically a multi-billion dollar investment in design, engineering, prototype development, manufacturing, testing and certification of a new aeroplane.

Behind all this is the pressing need for electrification across society, so this type of thinking and risk taking is essential. The question that remains though, is whether I will be able to ride in such a plane from London City Airport before 2030.