So far, the discussion on a NMM has tended to focus on the crediting of mitigation activities in developing countries, such as the role performed by the CDM. The talk is often about up-scaling rather than having an initial discussion about the market conditions necessary for crediting to be effective or alternatively to ask what a market mechanism actually is. For some, the CDM can be represented as shown below. 

This is a very supply biased conversation, when in fact the full description of the mechanism must include both the creation of supply and the likely demand. The mechanism is much broader than the CDM and involves the core design of the Kyoto Protocol and the various elements within it. 

There are many definitions of “market mechanism”, but all talk about the process of the whole market rather than just a sub-part within it. Here are three;

1. Means by which the forces of demand and supply determine prices and quantities of goods and services offered for sale in a free market.
2. The use of money exchanged by buyers and sellers with an open and understood system of value and time tradeoffs to produce the best distribution of goods and services.
3. The process by which a market solves a problem of allocating resources, especially that of deciding how much of a good or service should be produced, but other such problems as well. The market mechanism is an alternative, for example, to having such decisions made by government.

As the NMM discussion matures and eventually becomes part of the ADP, a much broader discussion on the need for a viable carbon market will be necessary. This cannot be limited to a discussion on crediting mechanisms because these, if standing alone, are not market mechanisms. A working mechanism requires some means of establishing price and particularly demand, a feature not inherent to the CDM.

The assumption that demand for credits will somehow be created is arguably a flawed one. The Kyoto Protocol addressed this by assigning AAUs to certain countries and making the CER (from the CDM) a fungible instrument, thereby allowing interchange for compliance. The AAU approach created demand in countries that had compliance obligations which in turn completed the market mechanism. Nations that held AAUs tended to cascade the instrument directly into their economies or if not, a proxy (e.g. the EUA under the EU ETS). Either way, the compliance obligation remained and allowed private investors to participate in the market.

There was a certain elegance in the market mechanism design of the Kyoto Protocol, one that shouldn’t be lost in the transition to a new international agreement. While it may not be smart politics in some quarters to highlight the benefits within the KP, the NMM discussion will do well to learn from what was developed in years gone by and not throw the baby out with the bathwater.

In the most recent piece, Hansen links the production of synthetic crude from oil sands bitumen in Alberta as a game changer for the climate. He states;

That is why I was so troubled to read a recent interview with President Obama in Rolling Stone in which he said that Canada would exploit the oil in its vast tar sands reserves “regardless of what we do.” If Canada proceeds, and we do nothing, it will be game over for the climate. . . . . . . The concentration of carbon dioxide in the atmosphere has risen from 280 parts per million to 393 p.p.m. over the last 150 years. The tar sands contain enough carbon — 240 gigatons — to add 120 p.p.m.

There is no doubt that the oil sands bitumen reserves in Canada are very significant. In a recent report the Alberta Energy Resources Conservation Board (ERCB) estimates that provable reserves stand at some 170 billion bbls, with a potential total reserve of some 1.7 trillion bbls. The first figure represents the current estimate of recoverable oil on the basis of existing technology, whereas the latter is indicative of the total amount of oil in the region, recoverable or not. The second figure is the one that equates to 240 gigatons of carbon quoted by James Hansen.

But actual production of oil from the region gives rise to a completely different set of figures. Production of oil sands bitumen started in the late 1960s and by 2010 had reached some 1.6 million bbls per day (ERCB figures). ERCB estimates production at about 3.6 mbbl/day by 2020. Assuming an increasing trajectory which sees production doubling again by 2050 (to 7 million bbbls/day), total cumulative production over 80 years would be 74 billion bbls, which equates to some 35 billion tonnes of CO2 emitted through the production and use of the oil. This equates to an increase in atmospheric CO2 of about 2 ppm (by contrast, Saudi production over the same period could contribute about 6 ppm). If production continued through to 2100 and reached 10 million bbls/day, cumulative production would exceed current proven reserves (so assuming technology improvements) and would equate to an increase in atmospheric CO2 of about 7 ppm over 130 years of production. The resource may be vast, but production is limited by the rate at which new projects come on stream. Given a scenario of complete inaction on climate change over the very long term, it may well be that oil sands might eventually contribute some 100 ppm to atmospheric CO2 levels, but that could take 1000 years. Current trends would likely have us hitting a climate induced “brick wall” long before that.

The point here is not to argue that this is all OK or that James Hansen is wrong, but to illustrate that the issue of CO2 emissions and the resulting climate impact cannot be linked to any individual fossil fuel extraction. Each and every major reserve on the planet can clearly only contribute a few ppm at most over the coming 50 to 100 years, but so goes the tragedy of the commons. This of course highlights the critical need for collective action.

The point that Hansen is really making is that oil sands is illustrative of an ongoing global trend to extract or mine increasingly challenging reserves of oil, gas and coal and bring them to market. Global energy markets are driving this behaviour and will probably continue to do so as population increases and economies develop. Put simply, energy is in demand and the market will respond.

Given the recent change in estimates for global natural gas supply, there is now evidence that the availability of fossil fuels may not be self limiting, at least for a century or so (and possibly much longer as extraction technology improves). This argues strongly for the introduction of carbon pricing, which Hansen also calls for in his opinion piece.

Carbon pricing is the essential precursor to technologies such as carbon capture and storage (CCS), which may be the only available route forward to allow both energy demand to be met and CO2 emissions reduced. Alberta has at least started down this route, with a C$15 price driving behaviour in oil sands operations. That price, in combination with a technology incentive package, should see CCS activity emerge as part of future oil sands development.

This isn’t the only negative view that the public have of climate change policy. The other is that energy austerity is the mechanism we must adopt to reduce emissions. The source of this is many and various, including the government itself, some NGOs and even a few business organisations. “Turn out the lights to save the planet” has become a common rallying cry and is amplified by campaigns such as Earth Hour which calls for cities to be blacked out for one hour a year to highlight the issue of energy use and climate change.

So the public are left with the view that energy austerity and extra cost are the two routes to follow if climate change is to be robustly addressed. Little wonder it is an uphill battle gaining political traction on this issue. Perhaps some new and more accurate messaging should be formulated to help sell the need for policy action.

The energy austerity issue is one that can and should be tackled. Reducing energy use and improving energy efficiency are both good things to do, but should be advocated for on the basis of managing energy costs, not attempting to address climate change. For reasons discussed in an earlier posting, local energy austerity may not even be an effective emissions reduction strategy at all. At issue with energy is the emissions from our current sources, not necessarily how much we use. After all, energy availability is almost unlimited, it’s just harnessing it economically that is the challenge.

The austerity message has its roots in various social agendas, but has kept into the environmental agenda as well. It is easy to see why this has happened, given the clear link between ecosystem welfare and overuse (e.g. logging in tropical rain forests), but for the climate change debate this particular approach may not be helping the issue at all.

The climate change issue needs to return to its roots, which is managing, reducing and ultimately eliminating anthropogenic CO2 emissions. This is done by changing the primary energy mix, implementing upstream CCS and shifting final energy use in homes and transport (where emissions are very to capture) to carriers such as electricity, hydrogen and bio.

Such a change won’t come at no cost, but elements of it can be conveyed to the public more easily. For example, running a home entirely on electricity is very doable today, both in hot and cold climates. The option of electric, hydrogen fuel cell or bio mobility is also becoming a reality – and potentially an attractive one as oil prices remain in the realms of $100 per barrel. These are very different value propositions to the austerity message.

The emphasis then shifts to the upstream and the use of renewable energy in the electricity sector together with technologies such as CCS in combination with natural gas. Here costs can be managed and change implemented over time as the grid is renewed and expanded. This can be achieved through carbon pricing, either directly in a cap and trade system or indirectly through emission performance standards. Although the scale of change is less, over the last thirty years many countries have managed to almost eliminate sulphur emissions from both the electricity and transport sectors and have done so without great public rancour. Costs have dropped and the job has just been done.

Getting the message right is essential if we want to make progress on this issue. Pedalling austerity and high cost is neither helpful or even correct.

There is no doubt that pressure for action is building, with a number of senior EU business figures making representation at a recent meeting of EU Environment Ministers in Denmark. Short statements were delivered by video, including one by the Shell CEO, Peter Voser. These can be viewed on the Danish Presidency website, with the Shell piece at the end (starts at 13:40).

But it isn’t just business in the EU getting into the debate. The academic community on both sides of the Atlantic are also weighing in. Rob Stavins, Albert Pratt Professor of Business and Government and Director of the Harvard Environmental Economics Program has offered some useful insights into the issues facing the ETS. He cuts to the heart of the issue, that being the proliferation of “complimentary” policies at both EU and member state level. Quoting from his blog:

 But, in any event, the European Commission’s Energy division, Environment division, and Climate division should sort out the real effects of the “complimentary policies” that have contaminated the EU ETS, and which fail to bring about additional emissions reductions but drive up costs.  Whether any of this is feasible politically is a question that my European colleagues and friends can best address.

I have written quite a bit about complimentary measures in the past. For me, the clearest example of the issue is the impact of the UK Carbon Floor Price, shown in the illustration below.

I won’t repeat the explanation for this, but you can find it here.

 The complimentary policy issue is also addressed by Climate Strategies in their recent analysis of the ETS, which can be found here. They argue that;

 . . . . the combined impacts of recession, response to the carbon price in 2008-11, and complementary measures, have led to a surplus of emission allowances that will last out to 2020. As a result, EU ETS allowance prices have collapsed. This undermines the EU ETS’s value as a driver of either emission reductions or investment. At a time of economic uncertainty and fiscal crisis, EU energy-related industries have lost orientation for investment, and governments have lost an expected €100bn of auction revenue.

 Climate Strategies conclude the following:

 A triad of measures are required to meet three distinct needs:

• Set-aside to restore the ETS price (and auction revenues) to meaningful levels, and restore confidence that EU policy will provide market signals that are consistent with science, international and strategic processes.
• Rising Reserve Price Auctions or other measures to cap downside risks for investors and to stabilize minimum auction revenue expectations in the face of deep uncertainties; these would also reduce tensions between the ETS and complementary measures, and preclude the prospect of ongoing interventions through further set-aside.
• Negotiations towards 2030 goals, initially based around sector specific needs and building up to a comprehensive agreement on 2030 commitments, set in the realities of both domestic possibilities and international developments.

The three measures address different needs and are mutually reinforcing.

For those interested in what Peter Voser, CEO of Shell said, here is the transcript:

Over ten years ago Europe set itself the challenge of reducing emissions while maintaining economic growth. The EU ETS was developed to do this by establishing a carbon market, guiding investment along a path of lowest cost CO2 mitigation. A robust carbon price was envisaged to encourage rapid turnover of legacy infrastructure and therefore deliver new investment. By 2008, this journey was well underway. But today the ETS is in danger. There is a risk it will fail to deliver on its promise to drive new energy investment and reduce emissions.

There is a surplus of allowances and the CO2 price is currently too weak.  The drop in energy use as a result of the financial crisis is one factor. If this was the only cause, there might be an argument to let the system correct itself over time.

But, there is also a policy design cause, arising from the superimposition of multiple layers of policy, such as renewable targets, nuclear build rates, efficiency mandates and more. As the ETS has weakened, this process has accelerated.

• The impact is that the cost to society of decarbonisation is rising because the ETS is not working as a competitive mechanism. 
• Secondly, a depressed carbon price signal within the EU is failing to stimulate investment or create certainty for investment decisions.
• Consequently, the central role of the ETS is undermined and prospects for an EU ETS in a global carbon market are diminished.

The low carbon price, far from bringing relief to industry during a period of financial austerity, is a result of the high cost and uncompetitive energy pathway we are on. We should not forget that the ETS was designed to deliver the lowest cost route to CO2 targets in 2020 and beyond.

Against this backdrop, I would like to contribute to your deliberations with the following proposals:

• Firstly, I would encourage the Commission to implement an immediate recalibration of the system by setting aside some 1 billion or more allowances – in effect recasting the baseline upon which the system rests. This will restore some of the economic relevance to the system and would make the ETS politically significant again. We should reset the level of ambition agreed in the 2009 Energy and Climate package, while maintaining the safeguards for industries exposed to carbon leakage.
• Secondly, we must consider climate policy after 2020. The ETS must drive long term change. Overlapping policies should be avoided or tested for alignment to prevent conflicting objectives. Simply put, we need a single EU CO2 target for 2030 as the key policy driver guaranteeing technology neutrality. We would also recommend a reserve price in post 2020 auctions to guard against unexpected macroeconomic changes, provide a level of investment risk support and restore market confidence.

A signal from Ministers assembled here today would be a significant step towards restoring confidence on the EU’s flagship climate policy.

Sitting behind this effort is the WBCSD Vision 2050 work which charts the necessary pathway to a world in 2050 which sees “Nine billion people living well within the means of one planet”. A number of key themes are explored in “The Energy Mix” brochure:

1. The risk of carbon lock-in, in other words current and “on the drawing board” infrastructure and related emissions being sufficient to consume the remaining global carbon budget (related to a 2°C temperature goal) within the normal remaining lifespan of those assets.
2. The need for clear energy policy framework to guide the necessary changes over the coming decades.
3. The importance of carbon pricing within that framework.

The document uses some fifteen vignettes to illustrate a variety of points. For example, to illustrate a) that policy can make a difference and b) it takes a long time, but c) its still very hard to reduce emissions by a big amount, take the case of France. Back in the 1970s the government intervened in the energy system and have progressively forced the construction of substantial nuclear capacity and a national high speed rail network, operating in combination with (like the rest of the EU) high transport fuel taxes. While these measures were not originally intended to reduce CO2 emissions, they are nevertheless compatible with such a goal and could just as easily be the route forward for a country. France now gets about 80% of its electricity from nuclear and has one of the best rail systems in the world, yet emissions have only fallen by 28% in 40 years. Economic growth and population growth continue to eat into the gains made, which might argue for yet further measures in the longer term. However, French emissions on a CO2/GDP basis are about 60% less than in the USA. With a very low CO2 per kWh for power generation, France would be in an excellent position to further decarbonize if electric cars entered the vehicle population in significant numbers. Interestingly, the car company with perhaps the worlds most progressive electric vehicle production programme also happens to be French. 

 The key message on the required policy framework is a pretty simple one – cover the key sectors and focus on the elements of the technology development pathway (Discover, Develop, Demonstrate, Deploy). The resulting grid looks like this:

 Filling in the boxes results in something that looks like this:

The framework shouldn’t be a big surprise, many of the elements are alive in the EU (but not so well in all cases- such as the carbon price).

The new WBCSD Energy Mix document can be downloaded here.

Recent developments in Australia present a useful case study. When the CPRS (Carbon Pollution Reduction Scheme – a national cap-and-trade system) was proposed in 2008, an unintended coalition of certain business interests, the Federal Opposition and Green Party opponents eventually managed to see the bill fail. Many businesses actually supported the bill at the time, but seemingly the planets were not suitably aligned for passage. Had things been different, Australia would now have been in the late implementation phase of a relatively benign approach to managing emissions with a carbon price very likely around AU$10 per tonne, trading on the back of the global price for a Certified Emission Reduction (the UNFCCC offset mechanism) and its link to the EU ETS. Instead, events have resulted in a very different outcome. A fixed carbon price of $23 per tonne will be implemented from July, albeit transitioning to a market related price in a few years time. Recent media reports tell of a heated national debate now underway, with many arguing that the price is out of line with the “prevailing global price” and therefore leaving Australia competitively exposed. Not surprisingly, those that first opposed the CPRS and those concerned about the current price are in many cases, one in the same. The first offer in the form of the CPRS was arguably the better deal, yet it was turned down.

At least two offers have been made in the USA. In 2001 the Bush Administration offered a science and technology based approach which has delivered some results, but given a general lack of enthusiasm for implementation by the NGO community in particular with some business groups as unintended allies, the initiative failed in key areas such as the development of carbon capture and storage. Had real progress been made, rollout of the technology might have been underway today. Eight years later the second offer came from the Obama Administration in the form of a national cap-and-trade approach in combination with technology incentives, but this was also declined. Both of these were also relatively benign, the first because it represented an early start and would had been largely government funded and the second because the overall structure of the deal offered significant competitive protection for key industries and included both a long lead time for implementation and a soft start. The Clean Air Act offer now on the table appears to be the least palatable of all these and could well prove to be less effective in terms of actually reducing emissions. Given that it will require specific actions of large emitters, the implied carbon price for some facilities may be very high. In addition, the approach will address individual sources but may not result in a real reduction of national emissions because no overall cap will be in place.

Canada has also followed a fairly tortuous path in recent years. No substantive national programme to manage emissions has emerged, yet various forms of market based policy have been tested and rejected. Although carbon pricing mechanisms now exist in some provinces, a national standards based regulatory approach may well emerge, keeping pace with the Clean Air Act developments now underway in the USA. This is bound to be more complex and almost certainly more costly for business than the cap-and-trade approach that was first proposed back in about 2003. In 2005 a North American cap-and-trade approach was even studied by a combined EPA / Environment Canada Task Force.

 The increasing number of standards based or fixed price approaches that are now “on offer”, bring into question the wisdom of defeating “cap-and-trade”. The latter offers compliance flexibility through offset mechanisms, banking and limited borrowing, competition protection through free allocation in the early phases of implementation and even technology incentives through constructions such as the NER300 in the EU-ETS. By contrast, a standard has limited flexibility, no price transparency and potentially onerous penalties. This would appear to represent something of an “own goal”.

The EU faces a related issue today. Despite some initial grumbling, businesses in Europe actually accepted the first offer of the EU ETS (cap and trade). But its effectiveness has slowly eroded over time. This is partly due to the recession but there is also a policy design cause arising from the superimposition of multiple layers of policy, such as specific renewable energy targets, nuclear build rates, efficiency mandates and more. These policies are well meaning but often misaligned. As the ETS has weakened, this process has accelerated therefore compounding the problem. The business community is split over what to do about this with various proposals involving the set aside of allowances favoured by some, but others arguing that the system is naturally responding to events and should be left to find its own way. The problem with the latter position is that it could result in an ETS that becomes politically and economically irrelevant, leaving a standards based approach as the way forward in Europe as well. Another “own goal” in the making!

Work along such lines is starting to develop. Some early work was done by Professor Myles Allen of Oxford University following the extraordinary European heat-wave of 2003. His analysis showed that the event lay so far out of the normal 2-standard deviation band around the historical average, that it could be argued that the event would never have occurred without a certain level of background warming. The figure below illustrates this phenomenon.

A recent paper by NASA climatologist James Hansen explores the phenomena in considerable depth and shows with some conviction that extreme heat events should be a cause for concern. As illustrated in the figure above, Hansen has shown that the distribution of seasonal temperature has indeed shifted, leading to an increase in anomalous events. An important change is the emergence of a category of summertime extremely hot outliers, more than three standard deviations (σ) warmer than the 1951-1980 baseline.  This hot extreme, which covered much less than 1% of Earth’s surface in the base period, now typically covers about 10% of the land area.  He concludes that extreme heat waves, such as that in Texas and Oklahoma in 2011 and Moscow in 2010, were “caused” by global warming, because their likelihood was negligible prior to the recent rapid global warming.

The variability in global temperatures (weather) can be approximated as a normal (Gaussian) distribution, the so-called ‘bell curve’.  A normal distribution has 68 percent of the anomalies falling within one standard deviation of the mean value.  The tails of the normal distribution decrease quite rapidly so there is only a 2.3% chance of the temperature exceeding +2σ, where σ is the standard deviation, and a 2.3% chance of being colder than -2σ.  The chance of exceeding +3σ is only 0.13% for a normal distribution, with the same chance of a negative anomaly exceeding -3σ.

Hansen’s analysis of temperature data over the period 1951-2011 (see figure below) showed that the expected shift in the distribution is actually occurring, with the consequent emergence of a new category of “extremely hot” summers, more than 3σ warmer than the base period. +3σ anomalies practically did not exist in the base period, but in the past several years these extreme anomalies have covered of the order of 10% of the land area. The increase, by more than a factor 10, of area covered by extreme hot anomalies (> +3σ ) in summer reflects the shift of the anomaly distribution in the past 30 years of global warming. One implication of this shift is that the extreme summer climate anomalies in Texas in 2011, in Moscow in 2010, and in France in 2003 almost certainly would not have occurred in the absence of global warming with its resulting shift of the anomaly distribution.  In other words, we can say with a high degree of confidence that these extreme anomalies were a consequence of global warming.

Hansen has concluded that the extreme hot tail of the distribution of temperature anomalies shifted to the right by more than +1σ in response to the global warming of about 0.5°C over the past three decades.  He goes on to say that additional global warming in the next 50 years, if business-as-usual emissions continue, is expected to be at least 1°C and that in that case, the further shifting of the anomaly distribution will make +3σ anomalies the norm and +5σ anomalies will be common.

The chance of summer falling in the “hot” category of 1951-1980 is now about 80%.  This change is sufficiently large that the perceptive person (old enough to remember the climate of 1951-1980) should recognize the existence of climate change.

While the perceptive person may be starting to recognize that things are not what they were (even the NBC News anchorman recently commented after reading a weather story, “It sure wasn’t like that when I was a kid”), it remains unclear how long it will take the general public to recognize that change is underway. An increased incidence of +5σ events may well trigger such a reaction, although such a change may not be apparent until the 2020s or 2030s (assuming a shift of one standard deviation every 15+ years).

1.  A new trend in energy efficiency

Much emphasis is placed on the need for energy efficiency from policy makers and business leaders. We hear about how well certain enterprises are doing and how we need to replace our domestic boiler, insulate our homes and use public transport. Some leaders have even argued that energy efficiency is close to a single solution to energy prices, emissions and access in developing countries. But the stark reality of energy efficiency trends at the global level is the opposite to that which is desired. There is doubtless an impact here related to the financial crisis, but even before that the trend had started shifting.

2.  Oil security concerns shift

Perhaps since the gasoline lines of the 1970’s but certainly since 9/11 in 2001, a focus of US foreign policy has been security in the Middle East and by implication oil supply security. Although Europe has long been a significant importer of oil its attention has been more focused on Russian gas supplies. But all that is due to change. In the timeframe of the WEO (to 2035) China will become the world’s largest oil importer and the US dependence on oil from outside North America will decline. With increased domestic (NA) production from oil sands and light tight oil (using a similar extraction technology to shale gas), in combination with much tougher energy efficiency standards for cars, light trucks and trucks, US import demand will fall. This could have an eventual impact on global governance as China starts to look at Middle East supply and worries about its security. 

3.  The winner was coal

In the first decade of this century, coal accounted for nearly half of the increase in global energy use, with the bulk of the growth coming from the power sector in emerging economies. Next was natural gas, then oil and after that renewable energy. Nuclear was a distant fourth. That’s an order which is almost the opposite of where we should be going with emissions reduction as a high priority.

4.   Modern energy for all

Basic energy services are an essential part of life today, yet 1.3 billion people in the world live without electricity and 2.7 billion live without clean cooking facilities. The need to correct this has become a global imperative and remarkably this could be done with almost no impact on global energy demand and global emissions.

The flip side to this story is the point that I raised back in December when the UNFCCC declared that alleviation of poverty and energy access would become a key priority with mitigation and adaptation. Although “energy for all” is a critical issue, arguably it shouldn’t be on the agenda of the UNFCCC. Their focus needs to be squarely on the other 99.3% of emissions. “Energy for all”, as the IEA have clearly demonstrated, is not a climate change issue.

5.  The weight of a world issue shifts to Chinese shoulders

One of the longstanding arguments in the global debate on climate change has been that the burden rested with developed countries in that they had created the problem during their long industrial development era. But that situation is rapidly changing. By 2035 cumulative emissions from China will have exceeded the EU and will be rapidly approaching the US. China’s per capita emissions will also match the OECD average by then. This by no means puts the USA and EU in the clear, but it does shift the burden solidly to a tripartite response. 

Thanks to Dr Birol and the IEA for a stimulating presentation.

“Gas will continue to play a vital role in a low-carbon economy. Modern gas-fired power stations are relatively quick to build and twice as clean as many of the coal plant they’re replacing. Carbon capture and storage promises to give gas an even longer term future in the mix.”

The announcement from the Department of Energy and Climate Change (DECC) introduced further policy additions to the Electricity Market Reform as follows;

The Energy and Climate Change Secretary set out measures to be included in the intended Electricity Market Reform legislation to provide certainty to gas investors:

• The level of the Emissions Performance Standard (EPS), designed to limit the emissions from individual plant, will be enshrined in primary legislation. Power stations consented under the 450g/kWh-based level would then be subject to that level until 2045, a process called ‘grandfathering’ which provides long-term certainty to gas investors.
• The Capacity Market will be designed to bring forward sufficient investment in new reliable capacity, including gas, in order to ensure security of electricity supply. This will help to ensure that there is sufficient capacity in place to cope with peaks and troughs in demand.

The Government intends to bring forward this legislation, subject to the Queen’s Speech, in the next Session of Parliament.

He also announced plans to publish a new gas generation strategy in the Autumn.

So continues the rollout of a comprehensive policy framework designed to decarbonise the UK power sector, ensure security of supply / cost and provide sufficient certainty for the necessary investments to take place. The announcement fits well with the statements made by Oliver Letwin MP, Minister of State (providing policy advice to the Prime Minister in the Cabinet Office) and Cabinet attendee, at a recent panel debate held by the Daily Telegraph. At that event Mr Letwin argued that there was a need for the government to ensure that the resulting energy mix was built on a variety of energy sources and technologies. These included renewables, nuclear and fossil fuels, the latter also supported by CCS. 

Regular readers will note that I have grumbled about some of the EMR provisions in the past, particularly the role of the carbon floor price in the context of an EU wide ETS (Emissions Trading System). However my concerns pale in comparison with those of a number of correspondents and NGOs who argued in the media this week that the level (450 g/kWh) and longevity (until 2045 for those receiving consent) of the EPS would threaten the core UK target of near complete power sector decarbonisation by 2030.

I can’t subscribe to this view.

They seem to have missed the fact that the UK power sector, like the power sector in the rest of the EU, is covered by the EU ETS. Ultimately this is what will determine the level of decarbonisation on any given date, not for the UK in isolation but for the EU as a whole. The targets set at EU level may well embed a certain desired trajectory for the UK, but once allowances are auctioned and trade is underway, actual decarbonisation in the UK may take a variety of courses. This will be influenced by the overall EU cap and the prevailing price of carbon, the economics of various UK power generation options and any local supplementary measures unique to the UK, such as the carbon floor price and the EPS. Gas will almost certainly find a home within the mix, particularly given the favourable capital cost for new facilities and the relatively low emissions from modern high efficiency gas fired CHP.

What the UK government has done is provide a level of investment certainty for the generators. This has been done for renewable energy, nuclear and now fossil energy. But the eventual mix will be determined by the overall carbon constraint in combination with other factors discussed above. The UK will find its own way forward within this, with each generator surrendering allowances against CO2 emitted. Actual UK power sector emissions in 2030 and beyond will not be determined by the EPS details announced on the weekend, but by a complex mix of factors, including the value of EU allowances.

A recent paper from Carnegie Institution, Stanford, CA looks at the differential climate impacts for the transition away from coal to various lower greenhouse gas energy systems, ranging from natural gas to hydro electricity. The authors modeled the temperature impact by 2100, based on a shift of 1 TW of coal generation capacity over the balance of this century. 1 TW was about the global coal capacity in 2000. Coal was picked as the base case because it is the most widespread method of generating electricity and is the most CO2 intense way of doing so. In the base case, warming from the continued use of 1 TW coal generation through to 2100 gives a temperature rise of 0.3°C.

The paper clearly illustrates the transition challenge inherent within the energy system, both from the perspective of the time it takes to replace the existing infrastructure stock and the latency of CO2 in the atmosphere. As a result of this, even the complete switch off of 1 TW of coal through conservation in the medium term does not deliver a 100% benefit. It would take some time to achieve such conservation during which the coal plants continue to emit and that CO₂ then remains in the atmosphere. By 2100, the benefit is about 0.25°C out of a possible 0.3. Various other alternatives are also considered.

This is an interesting analysis, but it only looks at the 1 TW case, whereas current coal capacity is 1.7 TW and forecast by IEA (Current Policies Scenario) to reach 3.0 TW by 2035. The conclusions from this analysis vary depending on the reporter. The actual conclusion of the paper was given in the final paragraph and is as follows;

Despite the lengthy time lags involved, delaying rollouts of low-carbon-emission energy technologies risks even greater harm in the second half of this century and beyond. This underscores the urgency in developing realistic plans for the rapid deployment of the lowest-GHG-emission electricity generation technologies.

But  one coal blogger came to a very different conclusion when reporting on this paper.

. . . . . studies such as this one, which recently appeared in Environmental Research Letters, which show the limited impact eliminating all coal-fired power generation would have, according to the study eliminating coal from the mix would only reduce global temperatures by 0.2 degrees over the next 100 years. Such a change would come at a massive economic and no doubt social cost, with no real change in climate outcomes.

That post implies there is questionable benefit in tackling coal because of the claimed limited climate impact that results from doing so (0.2°C) and the potential high (but not quantified) cost of the transition, but it does not appear to account for the expected growth of coal use to three times the level used in the analysis (presumably a 0.9°C impact if we do nothing). The Carnegie analysis also assumed that the starting point was a new coal fleet, whereas the reality today is that nearly half the global coal fleet is quite old (particularly USA, EU, Australia) and therefore ready for replacement in the near term.

Conclusions aside, the paper notes that “No previous study has predicted the climate effects of energy system transitions”. I don’t think that this is the case in that the 2008 Shell Scenarios which incorporate a major energy transition were modeled by MIT  to show the climate impacts. I have shown the charts below several times in the past (including last week), but they clearly show that a substantive transition (Blueprints) can make a difference by the end of the century. What it also shows is that the transition will be very long and that we won’t really see the climate benefit until the second half of the century. Even then, the 2°C goal is missed in 2100, although the climate system is beginning to stabilize.