The forum was excellent and covered a variety of topics, with a particular focus on water and climate, but the opening talk was of particular interest. In the pre-work for the forum the organizers canvass the invitees and ask if there are any particular subjects that should be included (in an otherwise very full agenda). Several responders (including me) had apparently asked for a better explanation than had given at previous forums of the current hiatus in the global temperature trend. Previous explanations largely relied on the fact that the decadal increase in temperatures remains clear (i.e. each decade was higher than the previous). While this remains true, comparing 1980-1989, 1990-1999 and 2000-2009 rather obscures the fact that not a whole lot has happened in the period 1998-2012.

So MIT took up this challenge and organized an opening lecture on this subject. The talk brought together a number of recent peer-reviewed papers that are starting to show what may well be going on. As I discussed in a previous posting on this topic, the likely culprit is the oceans with a particular focus on the role of ENSO (El Nino Southern Oscillation).

The presenter explained that in addition to the background anthropogenic warming, we would expect to see an enhanced warming signal during El Nino periods (suppressed tropical oceanic heat uptake) and a weakened signal during La Nina periods (enhanced tropical oceanic heat uptake) but the latter also during sulphur rich volcanic eruptions (which produces reflecting aerosols). The series of charts below show monthly variations in the global temperature anomaly (relative to 1951-1980) of the Earth’s surface, from the Climatic Research Unit (CRU, black) and an empirical model (orange, following Kean and Rind 2009) that combines four primary influences and three minor cycles shown in the lower panels.

After removing the four primary effects, namely ENSO at three different lags, volcanic aerosols at two different lags, solar irradiance and anthropogenic effects, only minor cycles remain. The resulting chart (shown at the Forum but not one I have been able to locate to reproduce) was essentially a flat line with a minor underlying series of annual, semi-annual and 17 year cycles.

This work sets the scene and similar models have been produced by others, but the presenter also showed further work from a new paper by Balmaseda, Trenberth & Kallen, 2013, which corroborates the ocean uptake story. The presenter noted that since 1998, which is one of the warmest years ever recorded, there has not been a similarly strong El Nino event.

Therefore, the vertical mixing in the tropics has not been suppressed much in the last decade and we should therefore see strong ocean warming since 1998. The Balmaseda et. al. paper includes a chart to this effect which shows ocean heat content trends in three ocean layers based on both ship and Argo (ocean temperature sensing drones, started in 2000-2004) temperatures. Linear slopes for various global heating rates (W/m2) are also shown for reference. It should also be noted that a high degree of uncertainty exists with the earlier data. 

This was the core of the argument, although subsequent charts noted that there are now multiple indicators of a warming global climate, including humidity, sea level rise, Greenland ice mass decline, snow cover and arctic sea ice extent. One of the members of the audience did note that there had been a recent string of smaller (compared to what is considered big I assume, e.g. Pinatubo) but significant volcanic eruptions over the last decade and that researchers may be underestimating their combined impact.

This conversation will likely run and run, particularly if the current global temperature trend continues to show little sign of warming. It doesn’t take much internet searching to find people who already disagree with the Balmaseda et. al. paper, but that is hardly surprising given the history of this subject.

In any case, this is the story that I heard at a premier even on climate change science and policy organized by the MIT Joint Program.

International Energy Agency, June 2013

The International Energy Agency (IEA) is well known for its annual World Energy Outlook, released towards the end of each year. In concert with the WEO come one or more special publications and this year is no exception. Just released is a new report which brings the IEA attention back squarely on the climate issue, Redrawing the Energy-Climate Map. The IEA have traditionally focused on the climate issue through their 450 ppm scenario. While they continue to do that this time, they are also going further with a more pragmatic model for thinking about emissions, that being the “trillion tonne” approach. I have discussed this at some length in previous posts.

The report looks deeply into the current state of climate affairs and as a result fires a warning shot across the bows of current national and UNFCCC efforts to chart a pathway in keeping with the global goal of limiting warming to 2 °C above pre-industrial levels. The IEA argue that we are on the edge of the 2 °C precipice and recommends a series of immediate steps to take to at least stop us falling in. With the catchy soundbite of “ 4 for 2° “, the IEA recommend four immediate steps in the period from now to 2020;

1. Rapid improvements in energy efficiency, particularly for appliances, lighting, manufacturing machinery, road transport and within the built environment.
2. Phasing out of older inefficient coal fired power stations and restricting less efficient new builds.
3. Reductions in fugitive methane emissions in the oil and gas industry.
4. Reductions in fossil fuel subsidies.

These will supposedly keep some hope of a 2°C outcome alive, although IEA makes it clear that much more has to be done in the 2020s and beyond. However, it didn’t go so far as to say that the 2° patient is dead, rather it is on life support.

I had some role in all this and you will find my name in the list of reviewers on page 4 of the report. I also attended a major workshop on the issue in March where I presented the findings of the Shell New Lens Scenarios and as a result advocated for the critical role that carbon capture and storage (CCS) must play in the solution set.

As a contributor, I have to say that I am a bit disappointed with the outcome of the report, although it is understandable how the IEA has arrived where it has. There just isn’t the political leadership available today to progress the things that really need to be done, so we fall back on things that sound about right and at least are broadly aligned with what is happening anyway. As a result, we end up with something of a lost opportunity and more worryingly support an existing political paradigm which doesn’t fully recognize the difficulty of the issue. By arguing that we can keep the door open to 2°C with no impact on GDP and by only doing things that are of immediate economic benefit, the report may even be setting up more problems for the future.

My concern starts with the focus on energy efficiency as the principal interim strategy for managing global emissions. Yes, improving energy efficiency is a good thing to do and cars and appliances should be built to minimize energy use, although always with a particular energy price trajectory in mind. But will this really reduce global emissions and more importantly will it make any difference by 2020?

My personal view on these questions is no. I don’t think actions to improve local energy efficiency can reduce global emissions, at least until global energy demand is saturated. Currently, there isn’t the faintest sign that we are even close to saturation point. There are still 1-2 billion people without any modern energy services and some 4 billion people looking to increase their energy use through the purchase of goods and services (e.g. mobility) to raise their standard of living. Maybe 1-1.5 billion people have reached demand saturation, but even they keep surprising us with new needs (e.g. Flickr now offers 1 TB of free storage for photographs). Improvements in efficiency in one location either results in a particular service becoming cheaper and typically more abundant or it just makes that same energy available to any of the 5 billion people mentioned above at a slightly lower price. Look at it the other way around, which oil wells, coal mines or gas production facilities are going to reduce output over the next seven years because the energy efficiency of air conditioners is further improved. The fossil fuel industry is very supply focused and with the exception of substantial short term blips (2008 financial crisis), just keeps producing. Over a longer timespan lower energy prices will change the investment portfolio and therefore eventual levels of production, but in the short term there is little chance of this happening. This is a central premise of the book I recently reviewed, The Burning Question.

Even exciting new technologies such as LED lighting may not actually reduce energy use, let alone emissions. Today, thanks to LEDs, it’s not just the inside of buildings where we see lights at night, but outside as well. Whole buildings now glow blue and red, lit with millions of LEDs that each use a fraction of the energy of their incandescent counterparts – or it would be a fraction if incandescent lights had even been used to illuminate cityscapes on the vast scale we see today. The sobering reality is that lighting efficiency has only ever resulted in more global use of lighting and more energy and more emissions, never less.

An analysis from Sandia National Laboratories in the USA looks at this phenomena and concludes;

The result of increases in luminous efficacy has been an increase in demand for energy used for lighting that nearly exactly offsets the efficiency gains—essentially a 100% rebound in energy use.

 I don’t think this is limited to just lighting. Similar effects have been observed in the transport sector. Even in the built environment, there is evidence that as efficiency measures improve home heating, average indoor temperatures rise rather than energy use simply falling.

The second recommendation focuses on older and less efficient coal fired power stations. In principle this is a good thing to do and at least starts to contribute to the emissions issue. This is actually happening in the USA and China today, but is it leading to lower emissions globally? In the USA national emissions are certainly falling as natural gas has helped push older coal fired power stations to close, but much of the coal that was being burnt is now being exported, to the extent that global emissions may not be falling. Similarly in China, older inefficient power stations are closing, but the same coal is going to newer plants where higher efficiency just means more electricity – not less emissions. I discussed the efficiency effect in power stations in an old posting, showing how under some scenarios increasing efficiency may lead to even higher emissions over the long term. For this recommendation to be truly effective, it needs to operate in tandem with a carbon price.

The third and fourth recommendations make good sense, although in both instances a number of efforts are already underway. In any case their contribution to the whole is much less than the first two. In the case of methane emissions, reductions now are really only of benefit if over the longer term CO2 emissions are also managed. If aggressive CO2 mitigation begins early, and is maintained until emissions are close to zero, comprehensive methane (and other Short Lived Climate Pollutants – SLCP) mitigation substantially reduces the long-term risk of exceeding 2˚C (even more for 1.5˚C). By contrast, if CO2 emissions continue to rise past 2050, the climate warming avoided by SLCP mitigation is quickly overshadowed by CO2-induced warming. Hence SLCP mitigation can complement aggressive CO2 mitigation, but it is neither equivalent to, nor a substitute for, near-term CO2 emission reductions (see Oxford Martin Policy Brief – The Science and Policy of Short Lived Climate Pollutants)

After many lengthy passages on the current bleak state of affairs with regards global emissions, the weak political response and the “4 for 2°C “ scenario, the report gets to a key finding for the post 2020 effort, that being the need for carbon capture and storage. Seventy seven pages into the document and it finally says;

In relative terms, the largest scale-up, post-2020, is needed for CCS, at seven times the level achieved in the 4-for-2 °C Scenario, or around 3 100 TWh in 2035, with installation in industrial facilities capturing close to 1.0 Gt CO2 in 2035.

Not surprisingly, I think this should have been much closer to page one (and I have heard from the London launch, which I wasn’t able to attend, that the IEA do a better job of promoting CCS in the presentation). As noted in the recently released Shell New lens Scenarios, CCS deployment is the key to resolving the climate issue over this century. We may use it on a very large scale as in Mountains or a more modest scale as in Oceans, but either way it has to come early and fast. For me this means that it needs to figure in the pre-2020 thinking, not with a view to massive deployment as it is just too late for that, but at least with a very focused drive on delivery of several large scale demonstration projects in the power sector. The IEA correctly note that there are none today (Page 77 – “there is no single commercial CCS application to date in the power sector or in energy-intensive industries”).

Of course large scale deployment of CCS from 2020 onwards will need a very robust policy framework (as noted in Box 2.4) and that will also take time to develop. Another key finding that didn’t make it to page one is instead at the bottom of page 79, where the IEA state that;

Framework development must begin as soon as possible to ensure that a lack of appropriate regulation does not slow deployment.

For those that just read the Executive Summary, the CCS story is rather lost. It does get a mention, but is vaguely linked to increased costs and protection of the corporate bottom line, particularly for coal companies. The real insight of its pivotal role in securing an outcome as close as possible to 2°C doesn’t appear.

So my own “ 2 for 2°C before 2020“ would be as follows;

1. Demonstration of large-scale CCS in the power sector in key locations such as the EU, USA, China, Australia, South Africa and the Gulf States. Not all of these will be operational by 2020, but all should be well underway. At least one “very large scale” demonstration of CCS should also be underway (possibly at the large coal to liquids plants in South Africa).
2. Development and adoption of a CCS deployment policy framework, with clear links coming from the international deal to be agreed in 2015 for implementation from 2020.

But that might take some political courage!

The conference also offered an opportunity for the World Bank to release a new review of carbon market activity, which showed that there is at least quite a lot, even if price development is far from the levels required to ever make any discernible difference to global emissions.

Carbon Expo consists of many events, plenary panels and side meetings and through these one of the subjects that attracted plenty of attention is the ongoing desire to see a global carbon market take shape. This seems like a rather odd desire since we have had something along these lines for the past decade under the Kyoto Protocol, but nobody really wanted to discuss that, even though it is clearly the approach that makes the most sense, is most robust in terms of compliance and has all the necessary bits and pieces actually up and running. Equally, it is withering on the vine. 

The desired alternative to a Kyoto style global market has yet to be specified, but it builds on the reality of the World Bank report which shows that there are lots of carbon market systems in various stages of development, implementation or operation and that if they could somehow be linked together a global market would coalesce. This follows from the excitement around the proposed link between the EU and Australian Emission Trading Systems.

Both the EU and Australia have called their proposed linkup a bilateral arrangement. That may well be the case, but it would have been an order of magnitude more difficult were it not for the fact that both systems were designed under the Kyoto Protocol framework, recognized the same types of offsets, counted carbon the same way etc. I discussed this back in September last year after the linkup was first announced.

So here we are in a world that has started once down the pathway towards a global carbon market, built all the required institutions and instruments necessary to run it, balked at using them but perversely still wants the market to develop. As such, discussions continue on how a global market might catalyze, with four models now in the picture. They are:

1. The creation of an international compliance unit and a standard set of offset mechanisms. This is effectively a spinoff of the Kyoto Protocol, using the CDM, but creating a new international unit to replace the AAU (the KP “glue”). Such a unit would underpin national ETSs that voluntarily opt-in to the global market. An international registry would exist to keep track of the market and manage national compliance.
2. A set of “exchange rates” evolve between national compliance units and project mechanisms, akin to currency exchange rates. This then supposedly solves the problem of different levels of national ambition, quality of offset projects and so on. The problem here is that CO2 is more like a fixed commodity type instrument, whereas currency (where exchange rates exist) is not a commodity but effectively a security (like a company share). The value of a security is set by the value of the whole that it represents (e.g. a company, a country). By contrast, a tonne of CO2 will always be a tonne of CO2.
3. Bilateral arrangements continue and linkages simply evolve over time. The challenge comes when A links with B then B talks to C but A doesn’t want to link with C. Also, some very different designs may never be suitable for linking.
4. International Measurement / Reporting / and Verification rules are expanded to cover the necessary requirements for linking. This is effectively like (1) above, but without the international unit or internationally regulated compliance.

The most robust approach exists in (1), but this is currently looking like the least likely outcome – many nations seem to be opposed to such an approach, at least for now. The opposition appears to extend from the idea of the UN managing national sovereignty in any form, such as evaluating national programmes and allocating international units against them, even though this is positioned as a voluntary opt-in process.

The exchange rate approach has instant appeal, simply because it allows the market to decide. But so far, I have not seen an explanation as to how it might actually work.

Evolution through bilateral agreement appears to be the most likely path forward, so the question remains if there is any role for the UNFCCC in such an approach. Perhaps it’s role is limited to maintaining offset mechanisms such as the CDM.

This remains a nascent discussion, with much thinking to be done.

Rather than speculate on the potential severity of climate events or try to convince readers that simple changes in consumer behaviour and green, job creating investment will solve everything, the book takes a thought provoking but dispassionate look at the global energy system. The authors discuss the role of fossil fuels and the carbon emission limits that we know we should meet and set out to explain the rock and the hard place that we find ourselves between. The rock in this case is the trillion tonne of carbon limit for cumulative emissions over time and the hard place is the abundance of fossil fuels, the rate at which we use them and the relative ease with which more becomes available as demand rises.

Berners-Lee and Clark present a compelling set of stories which show how fossil fuels dominate the global energy market, why it is proving almost impossible to displace them (on a global basis) and why strategies such as improving energy efficiency and deploying renewables  are not effective approaches to try and limit global emissions. In fact they make the point that in some instances the reverse happens – emissions just rise faster.

The tag line on the cover includes the teaser  “So how do we quit?” (using fossil fuels). Do they really know? As the book unfolds and the problem they describe mounts in both complexity and difficulty, there is almost the feeling of a thrilling ending around the corner. SPOILER ALERT. Sadly this is not quite the case, but they do give some useful advice for policy makers trying to get to grips with the issue and the book itself gives the reader a very different perspective on the energy-climate conundrum (although hopefully one that the readers of this blog have picked up over time, but here it is all in one book).

I assume that for similar reasons to my own line of thinking (but after beating around the bush about it for 181 pages) they do finally land on a key thought:

In the course of writing this book we have come to think that the most undervalued technology in terms of unlocking international progress on climate change is carbon capture – both traditional CCS for point sources such as power plants and more futuristic ambient air capture technologies for taking carbon directly out of the atmosphere.

It would appear that The Inconvenient Truth and CCS are indeed inextricably linked. Clark and Berners-Lee don’t go so far as to argue that CCS is the convenient answer, but the message on CCS is a strong one. Nevertheless, geoengineering makes a surprise entrance at the end!!

Overall, this is an excellent discussion which is both easy to ready and hugely informative. It is well worth putting it on the summer reading list.

In one sense this is hardly surprising given the world is a long way from anything that looks like a 2°C pathway, but it feels like it is becoming a distraction in itself, taking the emphasis away from the much more difficult job of putting in place the various tools and practices that might actually give us some chance of getting on a pathway that leads to some real reductions. The EU focus, like the international one, is divided into two parts, increasing global ambition to 2020 and post 2020 goals and targets.

The discussion reminded me of one I had about a decade ago with a senior policy maker in a Kyoto Annex 1 government. At that time the country had just ratified a pretty ambitious target under the Kyoto Protocol, considerably more than economically comparable countries. The government was trying to come to terms with the task of meeting the target, but the perceived difficulty of meeting the target was becoming a major distraction in itself. The conversation went something like this:

GM (government policy maker): The target is very difficult to meet.

Me: Agreed, but perhaps that shouldn’t be your primary consideration.

GM: It has to be, we have a target.

Me: Yes, but perhaps you should focus on getting a carbon price embedded in the economy first, then use that to start to drive change.

GM: But will we meet the target?

Me: You may not, but you would leave a legacy of an economy with emissions management up and running, the required capacity building done and emissions at least moving in the right direction. At the end of the day if you don’t meet the target, at least you will have made a good attempt.

GM: Yes, I understand. But what about the target?

Although this country has seen considerable regional activity (bound only by their own targets, developed as part of their policy making), the national government has struggled to this day with a target it felt somewhat helpless about. Early paralysis was almost certainly a contributing factor.

The current international discussion over a 2°C pathway is now at a similar stage and the EU appears to have fallen victim to this sort of thinking. Building a position on the need for more national ambition to meet the target, may well be a self defeating strategy. Rather, what is needed is a clear focus on two primary objectives;

1. Getting a carbon price into the global energy economy.
2. Getting CCS up and running and ready for rapid commercial deployment.

These are very specific climate objectives so play in to what the UNFCCC should be able to deliver, although they will also need to be supported by strong growth in other energy technologies, such as solar, nuclear, geothermal and the like (which shouldn’t necessarily be the objective of the UNFCCC at all). This also carves out a different role for UNFCCC, one which is related to pragmatic implementation of the tools and practices related to mitigation, rather than trying to create a frenzy of activity around targets and enhanced ambition.

Ambition will always be important, but without some clear ideas as to the pathways available, it becomes a rather empty and pointless discussion.

Despite an early clear warning to the Johnson Administration at 321 ppm, it wasn’t long before there was a brief worry about global cooling. Then, with atmospheric chemistry growing as a discipline (probably on the back of concerns about a cold war nuclear winter), we were distracted at 332 ppm by the first major anthropogenic global concern, the hole in the ozone layer. But with a treaty negotiated and ratification underway by 349 ppm (only 17 ppm to sort that one out), it didn’t take long for the science community to remember that another big issue was lurking in the shadows.

At 352 ppm and nearly 40 ppm on from the start of the Keeling Curve, James Hansen stated to a US Congressional Committee that;

• The earth is warmer in 1988 than at any time in the history of instrumental measurements.
• Global warming is now large enough that we can scribe with a high degree of confidence a cause and effect relationship to the greenhouse affect.
• Computer simulations indicate that the greenhouse effect is already large enough to begin to effect the probability of extreme events such as summer heat waves.

But it was another 13 ppm before the Kyoto Protocol was adopted by parties to the UNFCCC and 14 ppm more before it was finally ratified. 21 ppm later and it is a shadow of its former self, but at least with the legacy of some beginnings of a global carbon market. However, it is trading close to zero!! In the interim there was a valiant attempt at a new global deal, but even that was 12 ppm ago.

Our goal to be avoided, 450 ppm, is now feeling a bit close for comfort, given we are already at 400 ppm and 300 ppm was only passed under the previous British monarch.

Not to worry, it should only be another 15 ppm before a new global deal comes into force, although after more than 3ppm of discussion, the negotiations don’t really seem to have started. So we wait again, hopeful that someone has got a plan.

The issue that the collection of revenue raises is what to do with it. Government already has a long established process for this. Money flows into the national treasury, with spending set through the Budget process that occurs on an annual basis. The principal link between revenue collection and spending is the political agreement on the size of the deficit or surplus, otherwise the two are largely independent. But carbon revenue challenges this model. For example, although the EU ETS Phase III Directive doesn’t (nor can it) dictate how auction revenue should be spent by Member States, it does suggest that it is used as follows:

Member States shall determine the use of revenues generated from the auctioning of allowances. At least 50 % of the revenues generated from the auctioning of allowances referred to in paragraph 2, including all revenues from the auctioning referred to in paragraph 2, points (b) and (c), or the equivalent in financial value of these revenues, should be used for one or more of the following:

1.  to reduce greenhouse gas emissions, including by contributing to the Global Energy Efficiency and Renewable Energy Fund and to the Adaptation Fund as made operational by the Poznan Conference on Climate Change (COP 14 and COP/MOP 4), to adapt to the impacts of climate change and to fund research and development as well as demonstration projects for reducing emissions and for adaptation to climate change, including participation in initiatives within the framework of the European Strategic Energy Technology Plan and the European Technology Platforms;
2. to develop renewable energies to meet the commitment of the Community to using 20 % renewable energies by 2020, as well as to develop other technologies contributing to the transition to a safe and sustainable low-carbon economy and to help meet the commitment of the Community to increase energy efficiency by 20 % by 2020;
3. measures to avoid deforestation and increase afforestation and reforestation in developing countries that have ratified the international agreement on climate change, to transfer technologies and to facilitate adaptation to the adverse effects of climate change in these countries;
4. forestry sequestration in the Community;
5. the environmentally safe capture and geological storage of CO2, in particular from solid fossil fuel power stations and a range of industrial sectors and subsectors, including in third countries;
6.  to encourage a shift to low-emission and public forms of transport;
7. to finance research and development in energy efficiency and clean technologies in the sectors covered by this Directive;
8. measures intended to increase energy efficiency and insulation or to provide financial support in order to address social aspects in lower and middle income households;
9. to cover administrative expenses of the management of the Community scheme.

A new report out recently from the International Council on Mining and Metals (ICMM) provides a detailed look at the current revenue recycling practices around the world. These include areas such as the following;

1. Compensating trade exposed industries
2. Support for lower income people to offset the carbon price.
3. Support for Research and Development on low carbon technologies.
4. Investing in low carbon / low emission projects and energy efficiency schemes.
5. Adaptation to climate change.

ICMM have built the report around a core principle which they extol, namely “apply climate change related revenues to manage a transition to a low carbon future”. The report is excellent and well worth reading, but it does raise a very fundamental issue around the direct hypothecation of carbon revenue. This is isn’t just a governance issue though.

Australia serves as an interesting recent example. The decision to link the Australian ETS with the EU ETS followed by the precipitous drop in EU carbon prices has caused Australian government carbon revenue projections to be adjusted (down) accordingly. Recent headlines in Australia suggest that those relying on government support for various energy initiatives are now concerned about the certainty of that support and the overall level of it going forward. This concern stems from the fact that carbon revenue has been earmarked against certain objectives, such as in the categories listed above.

The alternative approach is to largely delink the collection of revenue and its use, which is the standard practice for most government expenditure. After all, why should we imagine that the collection of carbon revenue and the needs of the economy to make the transition to a much lower emission state should follow the same path. In the very early years, expenditure on R&D and demonstration projects (e.g. CCS, solar thermal etc.) may require funding far in excess of the available carbon revenue, which is often low at this stage as governments introduce a new tax at a modest level or give the bulk of the ETS allowances away for free. Further, at this time the need for guaranteed support for those first tentative investments is critical for long term deployment pathways.

Some years down the road carbon revenue may be very large and probably in excess of the transitional needs, which then argues for the bulk of the money to flow to general revenue. This will lead indirectly to reductions in other taxes, but the linkage would be unspecified. In this case, forcing the use of a large revenue stream on specific objectives may become a market distortion in itself. It is the job of the underlying mechanism (e.g. carbon tax, cap-and-trade, energy pricing) to drive deployment of a new set of energy technologies, not government against the need to spend earmarked revenue.

This is an issue that will likely run and run, assuming carbon prices ever recover to some meaningful level. The ICMM report is a useful contribution to the discussion and certainly gives an excellent overview of current practices. However, it does enter the discussion with the somewhat myopic view of ongoing hypothecation.

The idea of the “carbon bubble” is based on a concept that I have discussed many times in this blog: that there is a finite limit to the “atmospheric space” for CO2 while still ensuring that warming does not rise above 2 °C. That limit is about one trillion tonnes of carbon.

The issue of the bubble arises because the combined proven oil, gas and coal reserves currently on the books of fossil fuel companies (and governments in the case of NOCs) will produce far more than this amount of CO2 when consumed. This implies that in a world where the 2 °C limit is imposed and achieved, most of the future value generation of the companies involved will never be realized and therefore investors in them today are looking at a financial bubble that may well burst in front them. According to my analysis and the global reserves data in the BP Statistical Review of World Energy, we get to about 1.6 trillion tonnes of carbon as shown below. This equates to the use of total current fossil energy reserves of about 900 billion tonnes of carbon equivalent (the balance comes from the use of cement and land use change).

 The report clearly sets out the global carbon budget, the reserves outlook, the current capital flow being consumed to expand those reserves and comes to the additional conclusion that this part of the global energy system will also waste trillions in capex over the coming decade as it develops more reserves that could also become unburnable. The report authors argue that even the massive application of carbon capture and storage will do little to help the situation.

There is really nothing to argue about in terms of the CO2 math itself. It is certainly the case that current proven reserves will take us well past 2 °C if completely consumed and the CO2 emitted. But now comes the reality check!

What is missing in the report is any discussion about the dynamics of the global energy system, the need to meet energy demand and of course the rapid growth we are seeing in that demand. To bring all this math into the equation it is probably best to turn to the new Shell Energy Scenarios, released about two months ago. I discussed these at some length a few weeks back.

In the context of this discussion, the initial focus should probably be on the Oceans scenario in that it sees the very rapid introduction of solar energy, with eventual large scale displacement of fossil fuels in the second half of the century. Global energy demand rises from 535 EJ in 2010 to 777 EJ in 2030 and 1056 EJ in 2060. Although solar (mainly PV) is the largest single energy source by that time, total carbon consumed through fossil fuel use amounts to 800 billion tonnes carbon by the end of the century, just a bit less than current proven reserves (900 billion tonnes as indicated above). The large consumption of fossil fuel is required simply to meet energy needs as renewable energy attempts to catch up with overall demand (which it won’t do until sometime in the 22^nd century). This change is purely through the market and social dynamics present in the Oceans scenario, which sees strong growth, improved energy efficiency driven by higher prices and solar eventually dominating. CCS comes in later in the century, removing about 100 billion tonnes of carbon.

By contrast, Mountains is a fossil fuel scenario, but with heavy reliance on CCS from about 2030. Total fossil fuel use is over a trillion tonnes of carbon equivalent, which exceeds current proven reserves. However, CCS removes some 300 billion tonnes of carbon, giving an overall accumulation of 1.25 trillion tonnes by 2100 (current accumulation plus fossil use to 2100 plus land use change and cement). This is still above the trillion tonne limit, but is the overall lower emissions outlook.

The key lesson from the scenarios in this regard is that both a rapid growth in renewable energy and the early use of CCS are required to manage emissions throughout this century. The paradox is that these exist in different scenarios with entirely different underlying economic and social drivers. It’s quite hard to have both – a world that likes fossil fuel readily gives permission to CCS going forward, but doesn’t really see huge segments of the nergy market taken by renewable energy. Nuclear is strong though. Conversely, the distributed energy solar world of Oceans doesn’t want to hear about CCS and therefore leaves it until physical climate pressures (e.g. extreme weather events) force action.

The reality check for the “carbon bubble” proponents is that global energy demands still need to be met and that there are limits to the growth rate of fossil energy substitutes, even as climate goals come under pressure.

The situation the EU finds itself in is spelled out in more generic form in the new Shell New Lens Scenarios. The scenarios tell stories about the future, but these are built around a series of paradoxes and pathways, with the latter illustrated below.

When the financial, social, political or technological capital encourage early action, it can result in effective change and reform. Room to manoeuvre exists and a new pathway forward is forged. But when such capital proves inadequate to withstand the stresses applied, behavioural responses delay change, causing conditions to worsen until ultimately a reset is forced or a collapse occurs. This is a trapped transition. 

The EU seems to be getting quite good at the latter, with the New Lens booklet giving the example of the EU handling of the financial crisis as a Trapped Transition Pathway;

The “can” keeps being “kicked down the road” while leaders struggle to create some political and social breathing space. So there is continuing drift, punctuated by a series of mini-crises, which will eventually culminate in either a reset involving the writing off of significant financial and political capital (through pooling sovereignty, for example) or the Euro unraveling.

Similarly for the EU ETS. While backloading was never the complete solution to the problems faced by the ETS, it could have given it enough momentum to see through a series of much needed reform measures, paving the way to a more robust and economically efficient climate policy framework. Instead, the Parliament has “kicked the can down the road”, setting up the conditions for further crisis later on. This in turn could do real damage to the ETS, leading to a very negative outcome, i.e. Write-off & Reset or Decay/Collapse. Many of those who opposed the backloading amendment argued that it was better to wait for the full structural reform discussion, but that discussion has no formal schedule and is unlikely to commence before the full debate on the 2030 roadmap. Even then, opposition will rear its head again and the structural reforms required could well be watered down.

The vote attracted quite a bit of media attention, with many articles and significant commentary.  Perhaps strongest of all was The Economist, which spoke of “profound consequences” that will “reverberate round the world”. The Financial Times took a different view in its editorial, effectively arguing that the backloading itself was akin to “kicking the can down the road” and instead called for the structural reform to start in earnest and “end the system’s absurdities”. This included border carbon adjustments, long term targets (of the 2050 variety) and dealing with the surplus of allowances.

I have and continue to be an advocate of emissions trading and carbon pricing, but it is looking increasingly unlikely that these systems will ever effectively trigger the one essential response to rising CO2 emissions, which is carbon capture and storage (CCS). There are too many other vested interests which continue to suck the life out of an ETS, including competitiveness concerns from participants, renewable energy targets, energy efficiency mandates, developing country needs and environmental justice to name but a few. These are all important policy desires, but they need to find their home elsewhere and not in the space occupied by an emissions trading system.

In the end if the ETS approach doesn’t deliver CCS in particular, then some form of mandated requirement could be imposed instead.

But in the frantic days left before the vote, clarity and reason are struggling to be heard over the clamour of opposition, so here are the top ten reasons why an MEP should vote to support the “backloading” amendment next week:

1. Market Confidence

The current CO2 price in the ETS is just a few euros. Even the assumption that there will be a robust price by 2030 (enough for deploying CCS in 2030s for example), but discounted back to now, should result in a higher price than the one we have. That means the market is discounting the ETS itself, in other words questioning its very existence in 2030. Nobody will invest given such an outlook. A positive vote for backloading will signal that the Parliament is prepared to act on the ETS and begin to restore confidence for energy investment decisions.

2. Low carbon Investment

Apart from its annual compliance function, which the ETS is delivering, its purpose is to provide an investment price signal. This in turn steers long term investment in the covered sector, providing support and justification for lower emission investment opportunities. The near zero price signal being seen today means the EU has returned to “business as usual” energy investment, which is even resulting in a resurgence of coal based power generation projects. This will just put upward pressure on EU emissions in the 2020s. 

3. Jobs

Rewind to 2008 and the €25-30 CO2 price, which in combination with the NER300 saw some 20+ CCS projects being considered. The construction of the world’s first CCS network was a real possibility. Today, with the exception of the UK where the necessary investment signal has been created in a national level ”carbon policy bubble“, these projects have been shelved. So too have the jobs that would have been created had they gone ahead.

4. Credibility

Investment depends as much on long term credibility of the policy structure as the policy itself. Business investment will not proceed unless there is a belief that the supporting policy framework is robust and long lasting and therefore able to deliver the necessary return on that investment.

5. Leadership

While there is an issue with the EU over leading on actual emissions reduction, this isn’t the case with leadership on policy development to reduce emissions. Today, many states, provinces and countries have implemented or are in the process of implementing an ETS on the back of the initial success in the EU. They are now watching developments here closely as the EU debates the future of the system. A decision to reject the backloading proposal will potentially undermine the implementation of emissions trading globally (see 10 below).

6. Support

There is a noisy opposition to this proposal, as there was opposition in 2003 to even having an ETS and again in 2008 to building a full policy framework for managing emissions over the longer term. But many companies, institutions, business associations and individuals see the clear merit of a functioning market based approach for reducing emissions and strongly support the proposal. The voice of some European business associations on this issue is not necessarily the consolidated view of business in Europe. 

7. Europe

The ETS was designed to build on the strength of a single EU market and deliver through the synergy that it offers. A weak ETS is leading to fragmentation of this goal as national policies are developed to fill the gaps. Just look at what the UK government is having to do to shore up investment cases which would otherwise be supported by the ETS. This only means a less effective and ultimately more expensive route to the same goal. 

8. Growth

This is all about investment in the EU energy system. Without investment guided by credible policy and clear market price signals, growth stalls.

9. Environment

The carbon price delivered by the ETS is the only mechanism in place to drive the development and deployment of carbon capture and storage. Without this one critical technology, the climate issue simply doesn’t get resolved. The demand for, abundance of and low cost of extraction of fossil fuels may well be unassailable this century, so atmospheric CO2 will continue to rise. 

. . . and most importantly at #10 (well it’s actually #1)

10. Economy and competitiveness

An emissions trading system can deliver the lowest cost emission reduction pathway for the economy, but to do this it needs to be left to do the heavy lifting. The very low price of CO2 in the EU today is not a sign of low cost abatement, but quite the opposite. Abatement is being driven by other policies, with the cost to the economy probably much higher than necessary. The ETS needs to be restored as the principle driver of change in the EU energy system. This will lower energy costs in the EU, which in turns helps competitiveness.

Supporting backloading now won’t deliver all this in one go, but it will get the wheels of change in motion and importantly, signal an intent on the part of the Parliament to correct the energy and climate policy framework and make the EU ETS central to the overall delivery of current and future emission reduction goals.