Shell Climate Change

A tectonic shift in Japan

dchone September 9, 2009

A tectonic shift may be underway in Japan, but not of the sort normally associated with this country and its frequent earth tremors. Rather, a new era in climate politics may dawn as a result of the recent win by the DPJ in the national elections. This is because within the manifesto pledges of the DPJ sit two key policy choices, now (Monday September 7^th) formally announced by incoming Prime Minister Yukio Hatoyama;

A commitment to reduce national emissions by 25% by 2020, relative to 1990 – this compares with the proposal by the LDP of an 8% reduction, one which was heavily criticised internationally as being insufficient support for the developed country contribution to an agreement in Copenhagen.
A commitment to implement a cap-and-trade system within the Japanese economy. Although the previous government had talked about this policy instrument, little progress was made in implementing it given the negative position that some business groups took towards it.

Whilst much domestic “nemawashi” is still to take place, this shift could be critical for the success of an agreement in Copenhagen.

But Japan already finds itself an international leader in energy management, given the energy legacy inherited from the previous administration. However, the CO₂ story in Japan, whilst positive, has not delivered an overall drop in emissions. Whilst energy diversity and efficiency have been key policy objectives for many years now, absolute CO₂ emissions have risen by nearly 15% from 1990 (to 2006, IEA). At the same time emissions in the EU-27 have fallen, but only slightly. Over the same time period CO₂ emissions in the USA have risen by just over 19%.

A focus on Japan

A big difference lies in the power sector, with Japanese power emissions staying at around 430 gms CO₂ per kWh over a 20 year period, but EU power emissions falling from over 430 gms per kWh to some 350 gms per kWh in the same period. This is due to the continuing rise of nuclear power in the EU, the influx of natural gas and the more recent aggressive build of renewables in countries such as Germany and Denmark. By contrast, Japan has seen emissions from coal grow by 45% over the same period, much of that in the power sector.

With a transport sector already one of the most CO₂ efficient in the world and an efficient manufacturing base, the power sector will become a particular area of focus. But efficiency alone is not going to deliver the necessary change, so fuel switching (i.e. more natural gas), renewables and international offsets will all play important roles.

The last item above will be critical to the strategy. But to be truly effective, the tougher target must be backed by an emissions trading system, which is also a preferred policy position of the DPJ. A Japanese emissions trading system, with very open access to international markets will allow the domestic target to be met but importantly will direct significant funding to developing countries.

Some quick numbers – let’s assume domestic emissions in 2013 are down to 1100 MT (with the Kyoto target met through CER and AAU purchases) and that the country can reduce this to 1000 MT by 2020 (i.e. a ~20% reduction from 2006 to 2020). Therefore, meeting a 2020 target of 810 MT CO₂ (i.e. 25% lower than 1990) could mean the purchase of over 800 million tonnes of international credits from projects between 2013 and 2020.

Between Japan, the USA, the EU, Canada, Australia and New Zealand, six cap-and-trade systems could be buyers of some 10 billion tonnes of international reductions in the period 2013-2020, giving rise to not only a very large and liquid global carbon market but also an ability to fund very significant step changes in developing country emissions. In tandem, new avenues of supply would have to be rapidly developed, including a mechanism that supports some kind of sectoral crediting, although this will likely be more successful as an outgrowth of the CDM through the creative use of methodologies rather than an entirely new approach.

The announcements by the new government in Japan, if put into practice over the next three years, could have very far-reaching effects. Rather than facing the prospect of a lone EU-ETS struggling to hold the fort for this powerful market instrument, we instead head rapidly into the brave new world of a global carbon market.

A bit of concrete thinking

dchone August 31, 2009

During my second year at University I worked for two months in a cement plant as part of the “practical experience” element of my chemical engineering studies. This was about 30 years ago and in those days nobody talked about CO2 – I don’t recall any mention of the CO2 footprint of cement or the overall impact of the industry on the environment (nor, for that matter, when I worked for the local electricity generator – mainly coal – a year later).

Today, CO2 emissions have a very high profile in the cement industry. The CO2 intensity of cement manufacture is one of the main issues being addressed by the Cement Sustainability Initiative (CSI) formed under the auspices of the WBCSD. Of course there are good reasons why this is necessary – the manufacture of a tonne of cement can deliver up to three quarters of a tonne of CO2 released into the atmosphere. This comes from two sources;

The chemical reaction that converts limestone into cement, which results in ~0.42 tonnes of CO2 per tonne of cement produced;
The energy required in the cement plant to drive the conversion, which varies significantly depending on efficiency and fuel types, but for a modern cement plant 0.3 tonnes of CO2 per tonne of cement is probably a fair number. Some are better but equally some are worse, although the CSI is doing much in this area.

I think that the issue with cement is not so much the impact it is having today (although with global production of some 2.7 billion tonnes total emissions are about 4%) but the impact this industry will have over the rest of this century. A simple analysis shows that the industry must also deliver on some very substantial reductions in the relatively near future.

Cement (and the concrete it is used to make) is quite literally the backbone of our civilization. It is hard to imagine the cities we have built existing without cement. But with production growing rapidly as new cities spring up across the developing world, a very substantial emissions impact is in store for us.

Current estimates show cement production reaching over 5 billion tonnes per annum by 2030. Let’s also assume that after that it continues to grow, but plateaus between 7 and 8 billion tonnes per annum in the second half of the century. That will mean a total cumulative cement production between now and the end of the century of more than half a trillion tonnes.

In a previous posting I discussed the issue of cumulative CO2 emissions as the better measure of what must be managed, rather than emissions in any given year. The researchers who presented this concept made the point that to stay under 2⁰ C we should limit total carbon emissions to 1 trillion tonnes, or 3.7 trillion tonnes of CO2 – of which we have now used half. So we have 1.8 trillion tonnes of CO2 emissions left at the very maximum (there were various confidence level reasons why they thought we should actually aim for less than this, but I will work with the upper limit).

Society has now recognised that the oil, gas and coal industries must develop technologies such as carbon dioxide capture and storage (CCS) in response to this. But the fossil fuel industry won’t be on its own. Industries like cement are going to have to respond as well, and energy efficiency is not going to get them there.

The half trillion tonnes of cement could lead to total CO2 emissions this century of some 400 billion tonnes, or about 22% of the available emissions space. Even the chemical process emissions on their own would use up some 13% of the total (assuming a zero emission alternative fuel is used – e.g. bio derived).

So it seems to me that the cement industry and probably some other industries as well are also going to have to develop CCS solutions. One of the issues faced by this industry could be cost. Whilst sequestering all the CO2 emissions associated with a barrel of oil might amount to a third or less of the cost of that barrel (assuming $60 per tonne for CCS in the long term and 0.3 tonnes of CO2 per barrel and oil at current prices), in the case of cement which costs something like $60 per tonne, the implication is an 80% price rise.

This presents the industry with quite a challenge.

This “Energy Citizen” also wants a word

dchone August 24, 2009

Last week saw the launch of a new initiative in the United States, “Energy Citizens”, which aims to create a significant lobby against the passage of climate change legislation in the USA and most specifically the recent House bill, the American Clean Energy and Security Act of 2009, or “Waxman-Markey” as it is more widely known. “Energy Citizens” kicked off with a well attended rally in Houston last Tuesday, has its own website and is strongly supported by an organisation that Shell US belongs to, the American Petroleum Institute. More rallies, events and advocacy initiatives are planned.

Whilst I am not an American, nor do I have any issue with the democratic process in the USA, what is at stake in this debate goes far beyond American shores and will have a profound impact on the global response to climate change for at least a decade and possibly a great deal longer. So, as an employee of the energy sector for nearly 30 years this “world Energy Citizen” also wants a word.

The clutch of EU Directives that were passed last year (ETS Phase III, CCS, Renewables) or are in the pipeline (Buildings) pretty much resemble the totality of what is proposed under Waxman-Markey. The two sides of the Atlantic are learning from each other as they move forward with ambitious plans to address energy use and begin the tough task of managing greenhouse gas (GHG) emissions. A key element in both programmes is a GHG cap-and-trade system (a mechanism originally developed and successfully deployed in the USA to reduce sulphur emissions).

Cap-and-trade legislation is now under development or in place in many parts of the developed world (including of course the USA on both counts) and if implemented could cover nearly a third of global fossil fuel CO2 emissions by 2013. In the EU it has been in place since 2005 and although it took a while to establish itself has given rise to a robust and growing carbon market with stakes in many countries through linked projects. It is working, it is beginning to drive change, it is creating new businesses and business models and there is no sign that the EU economy is suffering as a result. New wind projects are appearing across the continent, nuclear power is being given a new life, biofuel investment is rising and there is a major push to bring new technologies such as carbon dioxide capture and storage into the energy mix. A wide range of new financial and service organisations are also being created, including verifiers, (offset) project developers, CO2 consultancies and market participants.

It is also true that electricity prices across much of the EU have risen as a result of the EU-ETS – in the UK this is about 1 pence per kWh (or one and a half US cents) – but equally this is helping drive the new investment that is now taking place. This and the overall hike in electricity cost as a result of generally higher energy prices are also making families more conscious of the need for energy efficiency measures which in turn has led to a wide range of consumer initiatives in response, some developed by government but many created by business to meet that new demand.

I agree that Waxman-Markey is still some way from the right solution, but equally it is not headed in the wrong direction either. For example, it still needs to find a better balance between free allocation and auctioning in the face of international competition, but so too did the EU-ETS as Phase III was thrashed out by the European Parliament last year. There were times last year when stakeholders looked at what was on the table and thought “You must be joking!!”, but reason prevailed in the end and the necessary deals were struck – industry accepted the provisions for trade exposure, the power generators are facing up to the reality of auctioning and individual member states walked away from Brussels happy with the deal they had secured in terms of national burden and state aid provisions. Importantly, the cap-and-trade approach has been shown to be flexible enough to accomodate all of this without underminig the overall environmental goal being sought.

But is the “Energy Citizens” oganisation helping the rally attendees and signatories learn about this or recognise the importance of developed countries taking the lead on emissions mitigation?? Probably not – which of course is the unfortunate side of all this.

There have been similar concerns about jobs and energy prices in the EU, but this is a two way street – and that is now being recognised. Whilst there will be some shift in energy prices, the resultant investment in efficiency and new energy infrastructure will have a positive benefit for consumers and in the longer term the new industries that are created should offset any job changes that may occur in existing sectors.

What is really required now is positive and proactive bipartisan engagement by industry and others in the development of this relatively new instrument.

To cap or not to cap?

dchone August 18, 2009

In the early days of the development of the EU Emissions Trading System (EU-ETS) a number of industry groups, particularly in the energy intensive sector (e.g. cement, metals) put forward an alternative design known as “baseline-and-credit”. This was widely discussed and strongly advocated by some, but never gained traction with the EU Commission and was ultimately rejected as a viable way forward.

Baseline-and-credit is fundamentally different to cap-and-trade, in that no cap exists within the system. Rather, individual facilities are assigned a benchmark CO2 per unit of production (or it could be against some other specific production related metric) and must either buy credits in the market if the facility is short for the compliance period or are awarded credits by the government if the facility exceeds the benchmark. Offset project credits may also form part of the mix as they often do in traditional cap-and-trade approaches.

Since then, baseline-and-credit has been applied in a limited way in Alberta, Canada and did actually run for a few years in the United Kingdom in some sectors. Otherwise, the focus has been on cap-and-trade. But baseline-and-credit keeps rearing its head and has done so again in Australia very recently as the debate over the CPRS (Carbon Pollution Reduction Scheme) continues.

This then raises the question, yet again, as to whether such an approach can be the basis of a workable emissions trading system. Whilst baseline-and-credit seems to have all the components necessary for a viable market, (i.e. a tradable unit, supply, demand), the reality of trying to build such a system is very different. A number of obstacles present themselves:

Of primary importance is that there is no overall cap on emissions. This is what really drives demand and creates the necessary scarcity to see a price develop. Whilst individual facilities may have a benchmark target, actual emissions from the system remain unknown until the level of production is known. If production is high, total emissions from the covered sector may even rise, even though the intention of the government is to drive emissions down. This means that delivering a specific environmental outcome cannot be guaranteed.
A linked issue to the lack of a cap is that the government probably has one, perhaps in the form of a pledged reduction target for the nation as a whole. If production is high and emissions rise, the government will be forced to rachet down the benchmark, creating uncertainty for the scheme participants. Alternatively, the performance risk for the nation as a whole could rest with the government, which might then have to step in and buy international allowances to meet a cap such as that pledged under the Kyoto Protocol.
The approach is built on the assumption that benchmarks are available and easy to establish. Whilst this may be true for some sectors, it is far from true for others. Chemicals is a good example, where one site may be comprised of many different processes and as such unlike any other single chemicals site. A related issue comes from attempting to find equality between sectors – i.e. how do I know that my benchmark for the cement sector is equivalent in difficulty to achieve as my benchmark for the steel sector?
The world is progressing towards absolute numbers and developed countries are taking the lead in this respect. This means that national obligations must all eventually be in the form of absolute numbers and developed countries today are now targeting between 15 and 20% reductions in absolute emissions by 2020 from 2005. As discussed above, governments would rather not have to manage compliance, so they will cascade the obligation down into the economy as much as possible. This means that many nations will use cap-and-trade and will seek to link these with other cap-and-trade systems to increase flexibility and lower overall compliance costs. But a baseline-and-credit system cannot fully link with a cap-and-trade system given that one has an overall cap and the other doesn’t. The UK tried to link two such systems some years back and had to implement a complex gateway. Whilst the baseline-and-credit system can always buy from the cap-and-trade system, the reverse is not the case. A supply of credits from a baseline-and-credit system that has overall emissions rising due to increased production may undermine the environmental objective of the cap-and-trade system it is linked to (hence the UK gateway).
A cap-and-trade system works its way progressively along the abatement curve, always implementing the next best reduction opportunity. This may be an efficiency measure, a CCS project or possibly a reduction in demand for a given product as a cheaper alternative (lower carbon footprint) is found. By contrast, the baseline-and-credit system may distort this progression along the abatement curve, driving up the overall cost of compliance for the economy as a whole. Whilst the system favours production and encourages efficiency measures, the hard truth may be that the most effective way to reduce emissions is through demand destruction and replacement of certain products and not through improved efficiency of existing production capacity.
Lastly and perhaps most importantly, a trading system must deliver a liquid market. The ensures efficient price discovery, sufficient depth to execute large trades and the development of a forward curve – all important criteria to support investment. But the development of a liquid carbon market is hampered by the very design of baseline-and-credit. This has been seen in practice in systems that have come and gone, where trade was negligible and the price feeble at best. Up front allocation of allowances delivers a tradable commodity into the market early on, allowing future prices to develop – a critical component of overall trade in the energy sector. By contrast, baseline-and-credit delays crediting until after the event, which limits future trade. Many companies will simply not even entertain the notion of trading something they don’t yet have.

Cap-and-trade is the proven performer. It has delivered successfully in the US Acid Rain Program and has created a robust and growing carbon market in the EU. We need to create more systems of this design if we want to reduce emissions at lowest overall cost to the economy and have any chance of a global market in the years to come.

Tough measures deliver in Scandinavia

dchone August 17, 2009

It may be vacation time, but I find I am not far away from the world of climate policy – in fact a trip with my son up to Norway by ship gives an excellent perspective on policy measures that are delivering real results.

We started out in Copenhagen, with the main convention centre near the airport already sporting a Vestas wind turbine out the front, presumably in readiness for COP 15 in just a few months time. This turned out to be the first of many that can be seen around Copenhagen and in the near vicinity. Although Denmark still relies on both coal and natural gas for electricity generation, it now also generates more than 6000 GWhrs per annum from 5212 wind turbines (2007), making up nearly 20 % of domestic electricity supply.

Wind, coal and gas are all used in Denmark

A spectacular array of turbines can be seen in Copenhagen harbour and the main shipping channel serving the city. Oddly, the actual number of wind turbines in Denmark is expected to decline in the near term as older small units (< 500 MW) are decommissioned and new large units are built (now up to 4+ GW).

Copenhagen harbour

This transformation in the energy mix comes through the application of a focussed policy agenda which supports wind energy through a fixed tariff approach. In the process Denmark has built a significant wind industry, employing nearly 30,000 people and delivering export earnings of €5.7 billion per annum.

On to Norway and our ship pretty much sailed along the edge of the Utsira formation, a 400 km long saline aquifer which stretches along the western coast past Bergen. A recent study has estimated that this one formation could be used to store about 40 Gt of CO2, or nearly all the global fossil CO2 emissions for nearly 18 months. Other formations with similar capacity exist in the British sector of the North Sea.

Norway has led the way in carbon dioxide capture and storage (CCS) and some 8 million tonnes of CO2 has been successfully sequestered within the Utsira formation by Statoil Hydro. The CO2 comes from the Sleipner natural gas field where it is removed from the natural gas by amine treatment. Importantly, 12 years of storage experience now exists in this location and there has been no trace of any leakage despite extensive monitoring. The CO2 sits in the formation about 1000 metres below the sea bed, protected by some 800 metres of cap rock. Today, the north-south extension of the Utsira / Sleipner carbon dioxide plume is about three kilometres long. Over time the CO2 will dissolve in the formation water and sink to the reservoir bottom.

Oil, gas (and now CO2) rigs can be seen in the Norwegian North Sea

Getting back to the policy aspect of this, this pioneering CCS project has been underpinned by a long standing CO2 price in the Norwegian offshore sector, delivered by a ~$50 per tonne CO2 tax. Similarly, the EU-ETS and other nascent trading systems are beginning to deliver a CO2 price into the broader developed country markets.

The experience in Scandinavia supports a number of points:

That big changes can be made in the energy system over a number of years, provided policy is focussed, long term and that the government stays with it.
That CCS is a viable technology that can be delivered on commercial terms provided a suitable CO2 price exists in the market.
That CCS is a safe technology, backup up by experience and monitoring for over 10 years.

Both Norway and Britain have their eyes on a large-scale CO2 storage industry. One of the Norwegian maritime schools has even proposed a design for a multi-purpose vessel which could be used for backhaul transport of CO2 to suitable storage locations. In such a service, CO2 transport costs from other Northern European ports to the North Sea could be less than €10 per tonne.

Replicating the achievements of Denmark and Norway is now a priority for many countries. But results will take time and successive governments will need to persist with and build on the foundations put down by their predecessors. On this issue at least, bipartisan politics will need to be the name of the game in the years to come.

Our ship in Geiranger Fjiord at the norther end of the Utsira formation

Mixed signals in Brazil

dchone August 9, 2009

I have been in Sao Paulo this week at Sustentavel 2009, perhaps the premiere Sustainable Development event in Brazil, if not all of South America. At the opening I represented the World Business Council for Sustainable Development and then on the first day of presentations I participated in the main climate change panel session.

What is clear is that there is a passion in Brazil for sustainability – from the huge issues they face in the Amazon region to the road congestion in Sao Paulo. Talking with delegates at Sustentavel, it is also clear that the country faces an interesting future in terms of greenhouse gas emissions.

According to the IEA, in 2006 fossil energy CO2 emissions in Brazil were 332 million tonnes. Reportedly (from delegates at the conference), this represents some 25% of overall CO2 emissions in Brazil, which puts emissions from deforestation at about 1 billion tonnes per annum and total emissions at some 1.3 billion tonnes. Such a figure, if correct, would put total Brazilian emissions at about the level of Japan and India.

Brazil blog post bubble chart

From an energy perspective (i.e. putting to one side for the moment emissions from deforestation) Brazil is one of a handful of countries globally that is managing a development pathway that is compatible with a 450 ppm trajectory – i.e. keeping emissions below 2 tonnes per capita even as it continues to develop. Although emissions per capita have risen since 1970, there has been a plateau of sorts more recently. Brazil has achieved this through its large-scale use of renewables, namely hydroelectricity and biomass, the latter both as a source for transport fuel (ethanol) and electricity. Although CO2/KWhr jumped from 50 gms to 88 gms between 1990 and 2000, it fell back to 81 gms in 2006.

Brazil blog post line chart

Looking forward, continued expansion of hydroelectricity is under pressure. Although only 30% of theoretical capacity has been utilised, new projects are taking some 10 years to complete owing to increasingly stringent permitting requirements. Meeting future electricity demand may mean that the country needs to draw increasingly on alternative sources, particularly natural gas which is being discovered offshore. CO2 emissions from natural gas use more than doubled between 2000 and 2006.

In the transport sector, ethanol and now bio-diesel use is continuing to grow. Between 2000 and 2006 oil demand was flat despite a nearly 20% increase in both GDP and overall energy demand. Brazil still has a formidable potential for increasing ethanol and bio-diesel production, even as it grapples with the issue of deforestation. Brazilian ethanol also has a very low CO2 footprint owing to the use of bagasse as a fuel in the ethanol plants, many of which also produce electricity for the local community. But Brazil is also on the verge of becoming a new petro-economy. Offshore discoveries now amount to some 70 billion barrels of oil equivalent. If consumed this will result in emissions of 25 billion tonnes of CO2 or the equivalent of an additional 1-1.5 ppm in atmospheric CO2. In addition, there may be further CO2 emissions after removal from contaminated offshore natural gas.

What solutions lie in Brazil’s future? The first priority is of course to address deforestation, but one option that doesn’t immediately jump out of the page but could be pivotal for Brazil is the application of carbon dioxide capture and storage. Whilst Brazil is a low CO2 economy, CCS could help it remain so whilst letting the country make best use of the resources it has. For example, CCS applied offshore is a potential solution to the CO2 that will be removed from any contaminated natural gas.

Longer term, CCS could be tied in with the nations huge biomass potential (even after deforestation is addressed) to possibly deliver a negative CO2 economy by 2050. Gasification of biomass is a technology gaining ground today. As in the gasification of coal it produces syngas, which can then be used for electricity generation, with a high purity CO2 stream remaining. When sequestered, with biomass as the original feedstock, the process is effectively removing CO2 from the atmosphere. Most biofuel processes (e.g. manufacture of ethanol) also produce bio-CO2 that could be captured and stored. These approaches may be pivotal in the quest for atmospheric stabilisation at safe levels.

So although Brazil has real sustainability challenges ahead, particularly in the area of deforestation and the further expansion of hydroelectricity, it also offers tremendous opportunity for managing emissions on a very large scale. Certainly the willingness is there, you could feel it at the conference. Now that needs to be turned into political action to drive the solutions forward.

A Short History of the Future of Transport

dchone August 3, 2009

Probably without really thinking much about it, we have pretty much engineered our entire society around the distillation curve of a barrel of crude oil – or at least the barrel that was easy to find in the 1950s or there abouts.

Most of our cars run on gasoline, largely because of the invention of the spark ignition internal combustion engine, where the fuel is a compromise between one that is volatile enough to vaporize but not too volatile to result in pre-ignition.

Rudolf Diesel originally designed his engine to run on peanut oil in the 1890’s, so it then found a home with the heavier distillates from crude oil. Since then it has become the backbone of heavier forms of transport such as trucks, ships and industrial vehicles. It is also making significant inroads into the passenger vehicle segment given its high efficiency (50% in the EU but much less in the USA).

A jet engine can run on a wide variety of fuels, but owing to the shortage of gasoline during the second world war, illuminating oil (kerosene) was the chosen product. Since then we have optimised this engine for this type of fuel and built a wealth of infrastructure at airports to support its use. Even its flashpoint specification was in part due to the need for safe handling on an aircarft carrier.

We have also optimised at the bottom of the barrel, using heavy fuels in ships and putting bitumen on our roads.

So as we seek lower carbon emission fuels for transport, do we try to replicate the exisiting approach or develop alternatives? Picking and choosing may not be an option here. For example, if we were to move away from deisel and gasoline for personal road tranport but decide to retain kerosene for aviation it unbalances the product slate that is produced by refineries. But the aviation sector is pretty much locked into kerosene, with no immediate developments on the horizon for alternative fuels. That then points to a solution which replicates kerosene from bio-sources, thereby utilising all the existing infrastructure. Alternatively, we continue to extract kerosene from crude oil and use the remaining products in gasifiers, combined with CCS, to make hydrogen and electricity. Interestingly, the very early use of crude oil also focussed on this cut of the barrel. The illuminating oil was extracted as an alternative to whale oil and the remaining distillates were “disposed” of.

Just looking at road transport alone, the future could well become quite complex. As other forms of transport are included it is not difficult to see that the relatively simple energy supply route we enjoy for transport today is going to change.

The electric car on the move??

dchone July 27, 2009

On a shopping trip in London’s West End on Saturday I came across the first real signs of the dawn of the electric car – charging poles. These have been installed by EDF, look a bit like parking meters and are available, with a free dedicated parking spot, for electric car owners needing a recharge. Then on Sunday at a BBQ I met someone who is about to take UK delivery (the 7th in the country) of a Tesla Roadster from Tesla Motors. Tesla now market two electric cars, the aforementioned Roadster which is available today and a small Sedan, the Model S which is targeted for 2012. Both seem to have excellent performance and reasonable range (some 400 km). Tesla is a US company. edf-charging-station

So has the electric car now arrived?

Certainly there are now some real models startring to appear in the showrooms and judging by the announcements by many manufacturers, quite a few more models could appear in the near future. In London today there are also a number of very small electric cars which people use for local commuting and avoiding the £8 per day congestion charge. The most popular of these is the G-Wiz car, now available with a Lithium Ion Battery. These cars are manufactured by the REVA Electric Car Company in Bangalore (India), currently the world’s leading electric car manufacturing company.

We might therefore imagine that electric cars will be everywhere in just a few years and that the days of the internal combustion engine are over. I remember getting my first digital camera in 1995, a model from Apple (who don’t even make them now). At that time I was incredibly impressed by the 1 million pixel images and imagined that within 10 years film cameras would be well and truly on the way out. Today it is hard to even find one in a camera store. But electric cars will be different. Hybrid technology has been around for over 10 years now and whilst Toyota and Honda have been incredibly successful with them, less than 2 million have been sold globally. In the same 10 years global auto production was some 700 million units.

Back in 2005 I did some work for WBCSD for an upcoming publication. We looked at how rapidly new vehicle technology might deploy throughout the world. We assumed a zero emission (at the vehicle itself) vehicle would be available in 2010 and that production would commence at some 200,000 units globally. We then assumed this would grow at 20% per annum until all produciton globally was this type of vehicle. Meanwhile, global vehicle numbers were also growing at 2% per annum. The end result is shown below – it is not until about 2040 that the number of internal combustion vehicles peaks and then begins a sharp decline. Certainly by 2050 they are well on their way out. Electric car penetration

Despite very ambitious assumptions on deployment, the size of the industry today and the reality of turnover of both the vehicles themselves and the production facilities means that the lag in the system is huge. The simple study strongly underlined the need for action to start early if there is any chance of meeting the very ambitious 2050 emission targets now being tabled. It also highlighted that we are not about to see the end of the internal combustion engine, despite our love/hate relationship with it.

But on a national level some markets may move faster. A recent study by The Center for Entrepreneurship & Technology at UCal/Berkeley has a baseline forecast showing 64% of US LV sales to be electric by 2030, at which time the e-car will have a share of 24% in the US LV fleet. Decoupling of battery ownership (to keep upfront cost for the customer low) is seen as crucial. We certainly live in interesting times!!

Towards a global carbon market

dchone July 21, 2009

This week has seen a report produced for the British Government which details pathways towards a global carbon market and the benefits of doing so. A series of policy recommendations are put foprward in the report along with supporting analysis. The report makes excellent reading.

A fully functioning global market for carbon is essential for many reasons. First and foremost, it will drive the reduction of emissions globally in an organised and equitable manner, always picking off the next best project along the abatament curve and therefore giving us a lowest cost solution to meeting reduction targets. The resulting carbon price will also act as an incentive to spur the development of a range of new technologies, such as carbon carbon and storage. The overall global cost of meeting, say, a 2050 target can be reduced significantly with a fully fungible global market, compared to the alternative of many separate stand alone systems.

But such a market will not be something that policy makers will ever be able to create in one swoop, rather it will evolve as individual systems are linked together, as sectoral approaches mature and begin to deliver credited reductions and as new policy mechanisms are introduced in areas such as land use and forestry. Today, we have just the beginnings of such a system, with the EU-ETS buying certified reductions via the CDM, thereby projecting the EU carbon price into many developing countries.

We can already see the dawn of other approaches, such as in the USA, Australia and New Zealand. But whilst both the Australian and New Zealand systems are underpinned with Kyoto AAUs, as is the EU, this is clearly not the case in the US Waxman-Markey case. The USA system, whilst architecturally very similar to the other systems, does not immediately recognise the same project mechanism nor present the possibility of fungible (AAU based) allowances, so discontinuities are already appearing. What is missing is the notion of a common currency for carbon.

This then brings into focus one of the key deliverables from Copenhagen – somehow merging the Kyoto negotiating track and the Long Term Cooperative Action track. Unless this can be achieved we may end up with emission trading systems that simply can’t link together because they are built on different platforms. Although Waxman-Markey does offer an open door for recognition, it won’t be possible to use it as it will present an unrecognised source or sink for allowances within the other systems.

Such a discontinuity will drive up the overall cost of compliance for everyone. Alternatively, we can ensure that the various systems are built on a common platform, recognising the same underlying units, thereby ensuring the shift towards a global market.

Towards a global carbon market

Supporting standards

dchone July 16, 2009

One of the features of cap-and-trade legislation is that it typically includes a variety of supporting standards – for example, a renewable portfolio standard in the power sector or a vehicle efficiency standard in the transport sector.

But shouldn’t we just trust the cap-and-trade system to deliver the lowest cost outcome for the economy?

With its tradable allowances, cap-and-trade is designed to move progressively along the abatement curve, driving the implementation of the next best project – which then delivers the lowest cost solution overall. Introducing standards into this mix does two things;

It lowers the overall carbon cost within the cap-and-trade;
It raises the overall cost of the system to society.

This is because the standard is interfering with the progression along the abatement curve and may be forcing the implementation of projects that are not the next best in terms of cost. Because these projects are then executed, the need to move up the abatement curve to meet the CO2 target is reduced, therefore lowering the overall carbon cost in the cap-and-trade system.

Despite knowing this, we persist in setting such standards. Why do this?

In the case of the transport sector, we (Shell) advocate for the use of standards and I have had input into that thinking. In fact we started from the perspective that cap-and-trade isn’t really the ideal tool in the personal road transport sector at all, but given that inclusion is a reality of US, Australian and New Zealand cap-and-trade policy, we came to the view that supporting standards were still necessary.

With the point of regulation shifted from the emitter to the supplier in the road transport sector, the only signal the emitter (i.e. the driver) sees is a change in price of gasoline. There is plenty of evidence that shows this sector isn’t very price responsive and certainly not at the level of a $50 CO2 price – i.e. about 50 cents a gallon on gasoline. But cost effective “projects” do exist at this price, for example switching to diesel fuel or even choosing a different vehicle when a purchase is made. So if the sector doesn’t respond very well, additional pressure is put on the other sectors, raising the overall CO2 price and of course delaying action in the transport sector itself. Of course the overall reduction is still achieved, but has the cap and trade system delivered the lowest cost outcome – possibly not?

Supplementing the action of cap-and-trade in the road transport sector with a set of standards can redress this balance – at least that is the view we came to. For example, a vehicle efficiency standard can start delivering reductions in the sector at very low cost, at least initially, as vehicle manufacturers may initially try to meet it simply by promoting different types of cars. These are things that should happen anyway under a cap-and-trade and probably would if the vehicle purchase decision was made entirely on financial grounds.

There is a similar arguement in the buildings and commerce sector – standards to drive more efficient appliances and force insulation into homes may be more effective than cap-and-trade at doing this job.

But what about the power sector? Arguably the cap-and-trade system should deliver an outcome balanced between efficiency, renewables, CCS, nuclear and fuel switching, so why have a Renewable Portfolio Standard or, as some have advocated, a CCS standard. This is where other policy objectives come in and the soluiton starts to get messy. Governments are keen to see a shift to renewables for security reasons so they add in a Renewable Power Standard – but it is important to realise that this is potentially undermining the cap-and-trade system and reducing its effectiveness in driving technologies such as CCS.

It may be costing us all more money as well!!