Emissions trading schemes were in the news last week, and China was at the center of the news.
China’s long awaited ETS went live on Friday, after operating seven pilot programs since 2011. It covers 2,225 power plants, responsible for over 40% of China’s national emissions, and is being called the world’s biggest carbon market. Certainly in terms of sheer coverage it is. The 4,000 megatonnes of carbon encompassed in the scheme represents about 12.4% of the global total of 32,300 reported by BP in last week’s Statistical Review of World Energy.
The maximum penalty under the scheme is around $4,600. It’s not a meaningful deterrent.
The scheme is unlike other “cap and trade” systems which use a declining cap to drive down emissions annually. Instead, permits are allocated on the basis of plant size and carbon intensity, and given out freely. If a plant exceeds its emissions cap then it needs to go to the market to buy additional permits. However, in practice the quantity of permits issued means that any plant operating at below 85% capacity will have excess allowances.
The maximum number of allowances that any non-compliant plant will be required to buy is up to 20% of their allocation. Even if operating at 50% above the allocation, they are only required to buy 20% more. It’s a free pass for the dirtiest of plants.
Gas plants are effectively exempt from the scheme. Analysts expect that they will always be net sellers of allowances. Some are even calling the scheme a subsidy for gas power.
The market price per ton is set at about $7, far below global averages.
Carbon Brief has a detailed Q&A, with many more data points. Bottom line is that “The ETS in its current form will likely have no impact” (Transition Zero, “Turning the Supertanker”, page 4). China says it’s in a preliminary benchmarking phase. Much will depend on how China enlarges it, and how carbon is priced in the future.
Separately, last week the EU released more details on it’s proposed “Carbon Border Adjustment Mechanism” (CBAM) as part of it’s “Fit for 55” initiative. The Europeans are careful to call this an adjustment mechanism, and not a border tariff. They claim that it’s neutral and will comply with current WTO rules. Essentially, CBAM requires that products imported into the EU have to meet the same emissions criteria as products produced in the EU. Imports will have to be accompanied by emissions certificates, and if they don’t comply they will have to purchase emissions credits on the open market in order to bring them into compliance. The goals are to both prevent European companies from relocating manufacturing to less stringent countries, and to encourage manufacturers in foreign countries to produce clean products for export to Europe.
And that brings us back to China. The world has legitimate complaints about China. It is the world’s largest emitter. China also exports more CO2e than any other economy in the world. As the dominant manufacturing country in the world, China’s dirty power makes its way to the shores of every other nation in the world not just as air pollution, but also as scope 3 emissions in the form of the products we buy and use.
Bottom line: CBAM, and schemes like it, are the medicine needed to clean up global supply chains, and to force emitters to mend their ways.
Why produce all that electricity, only to convert it into hydrogen or ammonia? And why ammonia?
Hydrogen is an efficient means to store energy, but with many drawbacks. Transporting liquid hydrogen directly, for example, requires storing the gas at -233C. It turns out that ammonia is also a very efficient means to store energy. Ammonia’s energy density by volume is 1.7x that of liquid hydrogen, and it’s more easily stored and transported as well. Japan intends to use hydrogen and ammonia fired systems for power generation. Mitsubishi is also developing 100% ammonia fired turbines intended for deployment in 2025.
The big drawback to ammonia is the Haber-Bosch process used to produce it at industrial scale today. We use vast amounts of ammonia globally, mostly for fertilizer. Indeed, we could not feed the planet without the Haber-Bosch process. However, the Haber-Bosch process consumes large amounts of energy (1-2% of world energy), takes natural gas as an input to generate hydrogen (3-5% of global production), and emits CO2 directly as a byproduct. “Green ammonia” production uses water electrolysis to generate hydrogen instead of natural gas, which eliminates the emission of CO2, and powers the Haber-Bosch process by renewable electricity. It still consumes large amounts of electricity, but generated from renewable sources instead. Hence the need for a power generation plant capable of powering the entire continent of Australia!
Lastly, there are still many possible efficiencies around the production of ammonia. For example, promising work is underway to produce ammonia using reverse fuel-cell processes directly from water and nitrogen gas. No electrolysis, no Haber-Bosch process, very low energy requirements.
Perhaps one day ammonia will help us to both power and feed the planet, without the emissions downside it creates today.
In 1969 I went to kindergarten at Central Public School in Ontario. It was built in 1882 at a cost of $12,000. Today it’s the oldest remaining building in the city with its original design.
Central was heated with coal. I remember the coal chute at the back of the building, and the dust that seemed to always be present, but especially when a delivery came. My parents homes were all heated with oil, and I can still conjure up the smell of the fumes on the days when the oil truck would arrive with a delivery. The first home I purchased was also heated with oil, but since then my homes have been gas or electric. My experience is common, as energy source shifts have occurred throughout the 20th century.
Cleantechnica published a reference last week to a June RMI brief on how state politicians are moving to block local governments from adopting clean energy requirements for new home builds. Cities in many parts of the United States are simply stepping up and mandating clean air requirements. Berkley CA has banned natural gas in new construction, as have Seattle WA, Norman OK, Brookline MA and at least 45 other cities. Recently, 19 states have passed laws prohibiting these bans. The states use “consumer choice” as the justification, but RMI claims that these efforts are thinly disguised lobbying efforts by the fossil fuel industry.
RMI makes the point that “consumer choice” is a disingenuous argument, since gas companies won’t run a pipeline for just one home. Energy choice is a decision that is made collectively by a group of homeowners at a neighborhood, or even potentially at a municipal level. More importantly, though, the decision to hamstring regulatory efforts is a set-back for net-zero commitments nationwide. Just as cities are now able to require EV charge capacity in all new builds, they should also be able to prohibit gas in new builds.
There will no doubt be legal challenges as cities have the right to enact all kinds of regulation that state level governments shouldn’t be meddling with. It’s also worth noting precedents dating back centuries that cities can enact these bans. The City of London, for example, banned the burning of coal over air quality concerns in the year 1306.
BP’s 70th annual Statistical Review of World Energy came out this past week. This data-rich documents is 70 pages of detailed, country by country, statistics about world energy capacity, production, and consumption with commentary. Here are some of the highlights.
Due to COVID-19, last year saw the largest decline in energy consumption since World War 2. Consumption fell by 4.5%, primarily due to the shutdown of the transportation industry. Oil consumption fell by 9.2%, while natural gas fell only 2.3%. But renewables — solar and wind — had their best year ever as capacity increased by 50%. BP themselves were surprised by this, saying “we materially underestimated the growth of wind and solar power over the last five years”. But before we break out the bubbly, let’s put that in context. Even with that super result, renewables are still a small fraction of the global energy mix. Non-emitting energy (Nuclear, Hydroelectric, Solar and Wind) are still just 16.8% of the overall energy mix.
The world is finally weaning itself off coal. Coal generation declined by 405 TWh, which was almost directly correlated to the 358 TWh increase in solar and wind generation. We are truly seeing coal-fired generation being phased out in favor of renewables.
On a country by country basis, the biggest global consumers of energy were the United States (87.79 EJ) and China (145.46 EJ), or 15.8% and 26.1% of global energy consumption. Nobody else comes close, except if you start to combine regions. All of Europe, for example, consumed 77.15 EJ, a little less than the USA. It’s also worth noting that the United States consumed 15.8% of the global energy supply, but has just 4.25% of the population. China consumed 26.1% of the worlds energy, but has 18.5% of the population.
Globally, each human on the planet averages annual consumption of 71.4 Gigajoules (GJ) of electricity. However, Canadians (361GJ), Qataris (594 GJ), Saudi Arabians (303 GJ), Emeratis (423 GJ), and Australians (218 GJ) all are good examples. Or maybe it’s just the weather. Singapore has no natural resources, and Singaporeans use an astonishing 583.9 GJ per person of energy annually, second only to Qataris.
Global carbon emissions from energy use also fell, and even more dramatically than energy use itself. Carbon emissions fell by 6.3%, while energy consumption declined by just 4.5%.
Among the big economies, the US generates 18.3% of its energy from non-emitting sources, China 15.7%, and Europe 28.8%. China is still heavily dependent on coal, and Europe has been helped out by a favorable shift to renewable plus the fact that a whopping 36% of France’s energy comes from nuclear. Canada, often in the news because of it’s foot-dragging on emissions targets, does surprisingly well with 35.4% of it’s energy coming from non-emitting sources. This is due to the outsize impact of the country’s hydro-electric industry. Canada, with fewer than 40 million people, is the second largest producer of hydro-electric power globally, only surpassed by China.
The biggest absolute GHG emitters are (in order) China with 9,899.3 megatonnes, the United States (4,457.2), Indonesia (2,302.3), and Russia (1,482.2). Nearly a third of all emissions are from China. This is no surprise, given China’s massive energy appetite, but it’s still sobering nonetheless. Let’s put these into context, though. The US, with 330M people, is a much bigger emitter, per capita, than China. If the Chinese were to pollute the way America does, then their emissions would be close to 19,000 megatonnes. And all of Europe, which is a population of roughly half of China, emits just 3,596.8 megatonnes.
The geopolitical world of energy stands out clearly in this report.
The United States is well established economically, and has small reserves of oil (68.8M barrels), about 6.7% of the worlds gas reserves (12.6 trillion cubic metres), and almost a quarter of the worlds coal reserves (248,941 million tonnes). At current rates of consumption, the US will exhaust its oil in about 10 years, and gas in 15 years. The US is the “Saudi Arabia of coal”, but most of that resource will stay in the ground.
China, by contrast, sits on a paltry 26M barrels of oil, 8.4 trillion cubic meters of gas, and 143,197 million tonnes of coal. China uses less oil annually than the US, but has only about 4 years reserves remaining. The country uses less than half the gas of the United States today, and thus has 25 years of reserves remaining. And they burn a lot of coal to generate power.
Consequentially, the US is a net exporter of oil and gas. In contrast China imports nearly all the oil and gas it needs to meet its energy needs, and China’s energy needs are growing at a blistering 3.8% annually.
The Chinese have been reluctant to give up coal electric generation, as the one energy source they have in abundance is coal. It is the one tool they have which gives them a measure of energy independence. It should therefore be unsurprising that China now leads the world in renewable power generation (#1 in hydroelectric, solar and wind), and new renewable capacity additions (in 2020 China accounted for 36% of new global solar capacity, and 38% of new global wind capacity). China has no choice. They cannot continue to generate electricity with coal. The global trend toward net-zero emissions means that Chinese companies risk being cut off from global export markets unless they can show that the carbon footprint of the products they sell is acceptable to their customers. Moreover, China cannot continue using coal to generate electricity at home without polluting its already fouled air even more.
It should also come as no surprise that 44% of the electric vehicles manufactured and sold in the world were sold in China. China is completely dependent on foreign oil. They cannot satisfy the growing appetite for vehicles domestically without an alternative to gasoline. They also cannot build the economy they want without the logistics in place to move goods from one location to another. They need electrified transportation more than any other economy globally.
Nuclear was a surprise. The top producer of nuclear energy in the world today is the United States, despite the unpopularity of nuclear domestically. 31% of the nuclear in use today is in the USA (7.39 EJ), although it is declining. The next largest producers of nuclear energy were China (3.25 EJ) and France (3.14 EJ). Few countries globally are adding nuclear capacity, the most notable exception being China, where nuclear (pre-COVID) was growing at a rate of 16.7% annually. Again, unsurprising that China would be building this capacity.
There are three inescapable conclusions in BP’s numbers.
The first is that there is little economic incentive in the west (Europe and North America) to replace fossil fuel generation. The energy demands of the west’s stable economies are growing slowly, having shifted most manufacturing overseas. The western economies’ focus on emissions are largely domestic politics, centered around climate change risk management. To make the transition from fossil fuel to renewable energy will require deft political skills, regulatory frameworks, and a continuation of the economic incentives we have seen.
The second is that Asia-Pacific, having become the center of global manufacturing, must navigate growing their energy use carefully. Global supply chains originate in Asia-Pacific, today. Consequently the region has a ravenous appetite for energy, but must find ways to meet that appetite and grow consumption while managing and reducing GHG emissions. Expect to see this region lead renewable energy deployment globally for some time, as they deal with the double incentive of managing climate change risk, while rapidly growing economies to satisfy western consumers needs.
And finally, the two remaining superpowers of the world, China and the United States, are quite different in their approaches.
America is divided. America has a substantial fossil fuel export business, many politicians support that business, and American free speech rights permit climate deniers to manipulate the public by spreading disinformation about the severity of the climate crisis, and the value of solutions being proposed. The fossil fuel lobby is strong! However, America has the luxury of being able to dither simply by virtue of the fact that it has secure domestic energy resources, and business seems to be stepping into the leadership vacuum in a way that Washington is apparently not able to.
China, in contrast, has a more immediate crisis and as a result seems to have a more unified approach. The Chinese don’t have the energy independence that America has. As a result, they are simply “getting on with it”, rapidly deploying renewables, building electrified products and industry, and making plans to decarbonize generation by taking their coal plants off line. The pace at which China is weaning itself off coal is slower than some in the west want, yes, but it is happening.
The inescapable conclusion is that China is playing a “long game”, building expertise that will serve it well for generations. The rest of the world already buys much of its wind and solar generation capability from China. It’s not hard to see how cars and batteries will be next.
Can a container ship filled with liquified natural gas be “carbon neutral”? Shell Oil and Cheniere Energy want you to believe that. In May, the two companies delivered a shipment of gas to Europe in which emissions associated with the upstream costs of processing and liquifying the gas were offset by carbon credits purchased from Shell’s portfolio of nature-based projects. Emissions were offset to the “FOB delivery point”. This means that Shell and Cheniere have offset the emissions all the way to the point of delivery, as indicated by this statement in their joint press release.
The companies worked together to offset the full lifecycle greenhouse gas emissions associated with the LNG cargo by retiring nature-based offsets to account for the estimated carbon dioxide equivalent (CO2e) emissions produced through the entire value chain, from production through use by the final consumer (all scopes).
What they’re claiming is that independent of how the customer uses the product they’ve delivered, the product itself has been produced in a carbon-neutral fashion. And, of course, their shipping partners are eager to tout their new green credentials too. Astomos Energy, for example, put out a press release stating that they are now purchasing “carbon-neutral LPG”. The appetite for Cheniere’s new products was strong enough that they posted a 40% increase in revenues from a year ago, and bumped guidance, rewarding investors with a 74% increase in the stock price from this time last year.
What this illustrates, quite neatly in fact, is the complexity of decarbonizing supply chains. At Davos this year, the WEF unveiled a report titled “Net-Zero Challenge: the supply chain opportunity“. The central thesis was that 8 supply chains accounted for over 50% of the world’s emissions, and that decarbonizing those supply chains would have impact. The energy industry wasn’t one of the eight supply chains named directly. Why not? Energy is an input into every supply chain. You literally cannot decarbonize supply chains without decarbonizing energy itself.
Let that sink in.
It’s good that Shell and Cheniere have taken the small step of offsetting the emissions associated with creating and shipping their polluting products, even if the marketing of those products as net-zero LPG is deceitful. The next step is to decarbonize energy generation itself — Shell and Cheniere’s customers.
Policy is part of the answer
So how do you decarbonize energy itself? Aside from technology solutions, policy is an incredibly important tool. Yesterday the UNEP Net-Zero Alliance, a group of investment managers representing $6.6 trillion of assets under management, released a position paper calling on governments to adopt common approaches on emissions pricing, to apply emissions pricing to every sector of economies (not just the heavy emitters), to swiftly phase out fossil fuel subsidies, and to fund research and create incentives to decarbonize hard-to-abate sectors. This approach — carrot and stick — works. You can see it visually by checking out the current price of European Usage Allocations futures (as at July 7). Emissions in Europe are now nearly $60/ton, up from $20 in April.
We’re still a long way from where we need to be. Analysts say that the price today needs to be closer to $85, rising to $145 by 2030, in order to reach a 1.5C global warming target. Emissions pricing schemes still only apply to 17% of the world’s carbon emissions. So long as emissions prices stay low, and customers exist that aren’t covered by pricing schemes, there will be a market for green-washed inputs like (unfortunately) fossil fuels.
As individuals, there are are two actions we can take.
When emissions trading becomes a political issue in your country, vote in favor of emissions markets, or cap-and-trade solutions. There will always be those who claim that “the market” is the solution. The market is clearly not infallible, as the Shell / Cheniere announcement shows. Vote for emissions trading schemes with teeth, not un-regulated markets.
When you have the option, buy green energy from your local supplier. Do your homework first, though. Make sure that you aren’t being sold green-washed fossil fuel energy, but rather energy from non-emitting sources like wind, solar, or nuclear.
And Shell, Cheniere… we know you have to serve your shareholders, but shame on you for such cynical marketing tactics. We deserve better.
You often hear questions about the “true” carbon footprint of one renewable industry versus another. Life cycle analysis provides the answer. This short post from Yale Climate Connections answers the question “What’s the carbon footprint of a wind turbine“?
Italian-Swiss shipping company MSC is now the 6th largest emitter in Europe. Look at all those aging eastern-bloc power plants… and then a transport company right in the center.
Wondered about the carbon impact of software development? The Green Software Foundation was established by Microsoft, Accenture, Github, and Thoughtworks to build an ecosystem of people, standards, tooling, and best practices for sustainable software development.
Both Dave and I were struggling for breath as we hiked across Abra Huacahuasijasa, a 15,200 ft mountain pass overlooking the Sacred Valley of the Incas. We were an unlikely pair — a farmer from western Illinois and a techie from Washington state. The two of us met a few days earlier when we both joined a hiking adventure in Peru. And here we were, experiencing Peru, and sharing details of our lives as we hiked through this magnificent landscape.
Over dinner I learned that his parents had bought their family farm in the 1960’s. The farm they purchased had been 100 acres of mixed use farm land, with both crops and livestock. In the intervening decades Dave and his brother had taken their parents little farm and expanded it to 10,000 acres. Both Dave and his brother were college educated, one with a degree in agricultural science and the other in finance. They had used their educations to expand the family farm into a substantial business.
Today, that farm produces mostly corn and most of the corn they produce is converted into ethanol. The two brothers had doubled down on corn during the ethanol boom of the early 2000’s. They bought up neighboring farms as they became available, invested in equipment to modernize the operation, and used sophisticated trading strategies on futures markets to ensure a steady stream of income, even during poor producing seasons.
The post WW1 agricultural boom had encouraged farmers to expand to feed foreign markets as Europe rebuilt after the war. However, the bottom fell out of that market in the 1920s just as the rise of the automobile crushed local feed markets. American farmers were wiped out by the perfect storm of the transition to the automobile, the retirement of the horse, and the drought of the 1930s that became known as the Great Depression.
Over the next two decades, the demand for corn is likely to see a steep decline. Extreme weather due to global warming may also impact agriculture, just as it did during the 1930s.
We may not experience anything like the Great Depression. However, as we move to electrify everything, which we must, let’s also plan for the inevitable impacts it will bring.
2.3 million seems like a lot of chargers, doesn’t it? For comparison purposes, as of 2019 the UK had just over 8,300 filling stations. Even if you suppose that each filling station has 8 pumps, and that recharging an electric vehicle will take 4x longer than refilling a gasoline vehicle, you still only end up with about 256,000 public charge points needed.
The truth is that we have no idea how many chargers are actually needed. In this (now dated) EV charging behavior study 8,300 EV drivers were tracked over three years, and 6 million charge events. The data showed that over 80% of charging was performed at home, even when public chargers were made widely available. This is a completely different behavior to filling a car with gasoline. After all, with gasoline there is no option to fill at home!
Similar circumstances, 1900
In the year 1900 New York City had a population of 100,000 horses on the streets which produced 2.5 million pounds of manure per day that had to be constantly removed. The tonnes of dried and pulverized manure attracted a steady population of disease carrying pests, not to mention the ever present layer of manure stuck to shoes.
Over 40 horses also died each day, and these had to be removed as well. And finally, feeding and stabling 100,000 horses was, in itself, a massive logistics problem.
By 1912, automobiles outnumbered horses on the streets of New York, and by 1917 the last horse car was retired. And with that retirement, the industry that housed, fed, used, and cleaned-up after the horses also faded into history. Disease rates fell, air and water quality improved, carriage houses became first garages, and then later prime Manhattan real estate.
We don’t yet understand the consequences of electrifying everything. But we do know that broadly adopted technologies, like the horse and buggy and then the automobile, inevitably create infrastructure to support them. History has also taught us that the infrastructure to support one wave of innovation may not be required in the next.
Widespread adoption of electric automobiles will impact fueling stations, the businesses attached to those stations like restaurants, corner stores, and repair shops, and many others. It will likely drive the cost of electricity higher, at least temporarily, as generation capacity catches up. The adoption of electric vehicles will also drive urban planning / zoning as homes will need to be upgraded to have suitable service to accommodate the extra power draw, and will also need to have suitable high voltage service installed in garages. Electrifying everything will create opportunities, but also eliminate other business types.
One tends to think of energy poverty as a developing nation problem. It’s true, after all, that the vast majority of those without access to energy (759M people) are in developing countries like Nigeria, Pakistan, the DRC, Ethiopia and India. For context, the entire generating capacity for sub-saharan Africa is approximately 58GW, spread across a population over a billion people. Annual electricity consumption is about 488 kWh per person, or about 5% of the United States. 600M people have no access whatsoever.
But is it just a developing country problem?
Dr. Nock challenged listeners to think about energy poverty in a different way. Are you energy poor if you live in a developed country? What if you spend a significant portion of your pay check on the power bill? Put on extra sweaters instead of turning the heat up in the winter? Or, as we have seen recently, suffer the extreme effects of a heat wave due to the high cost of electricity for cooling? Maybe even end up hospitalized, or dead.
Renewable energy, especially solar, is frequently put forward as an answer to energy poverty in the developing world. Off grid solutions promise to decentralize generation, and bring power to places that utilities can’t or won’t serve. Renewable energy also offers a route to weaning the developing world away from fossil fuels, coal especially.
In the developed world, rooftop solar is often seen as a way to reduce the power bill. However, some in California say that rooftop solar households are disproportionately wealthy and white, and have put the burden of the cost of the energy transition onto the shoulders of the poor. “Utilities are cynically playing the equity card”, they claim. The numbers seem to back them up, as wealthy households reap the double benefits of subsidies, and reduced utility costs.
Transitioning to a clean, renewable and global energy economy holds out huge promise. Let’s make sure we get the equity part of that promise right, and lift the neediest up at the same time. After all, if 1.1 billion poor Africans live in countries that are burning coal and oil to generate power, it won’t matter what we here in the west do. The planet will still get hotter.