Monthly Archives: May 2013

New energy technologies – time to reinforce success

An s-curve model for the deployment of new energy technologies was published four years ago implies that it will be necessary to increase the rate of deployment of technologies already at scale alongside improvements in energy efficiency. 

An s-curve model for deployment of new energy technologies, which based its parameters on analysis of past rates of technology deployment, was published over five years ago [i].  It showed that new technologies typically start with a period of exponential growth, increasing by about an order of magnitude per decade.  When technologies reach around 1% of world energy supply their growth becomes more slower in percentage terms (though not necessarily linear).  The post exponential rate of growth and the saturation point for each technology on its s-curve are less clearly defined.

A wide variety of energy technologies conform well to this model (see chart), because it takes a few decades to build the scale of industry necessary to provide 1% of the world’s energy, then long replacement cycles in the energy sector (typically 20-40 years) and competition with incumbent infrastructure limit the rate of further growth.

The projections have held up well for solar and wind, with the triangles on the chart showing the actual likely to be produced in 2015.  CCS has been much slower to develop, and is likely to fall further behind projections for 2025 given the current rate of project development.

Update with current generation marked

Source:  Kramer,GJ and Haigh,M.  No quick switch to low-carbon energy, Nature Vol462, 2009

The model implies that groups of technologies still in the early phases of deployment, including CCS, concentrated solar thermal power, geothermal, and large scale electricity storage technologies will take several decades to reach very large scale.  They will thus probably only be in a position to make a really large contribution to emissions abatement towards the middle of this century (if at all).  For example the rate of CCS growth shown the deployment chart above already seems highly optimistic.  (For some reason CCS seems to have been plotted as energy in rather than electricity out, so if the line for CCS reached the same annual energy as solar or wind it would still be generating only about a third as much electricity.)

This emphasises the importance of deployment of those technologies that are already at scale (wind, solar and nuclear).  Continuing improvements in energy efficiency (despite rebound effects) and the use of natural gas in power generation also have an important role to play in emissions reductions pathways.  And of course the sooner the scale-up of early-stage technologies such CCS begins the earlier they will be able to make a very large contribution, so starting now remains very valuable.

There are couple of important caveats to this analysis.  While the authors refer to the patterns as “laws” they are observed regularities rather than absolute constraints.  Some technologies have particular factors associated with their deployment not captured by the model.  For example, the reduced rate of growth of nuclear from the mid-1980s was driven by a particular confluence of political and economic factors, and its future growth is similarly subject to political and economic constraints in many places, although it is favoured in others.

Solar PV has been growing much more rapidly than the model suggests, with quite different supply side characteristics to other energy technologies, being much more scalable.  Energy efficiency technologies also have different characteristics, as the authors of the modelling work acknowledge.  Other demand side technologies such as electric vehicles seem also seem likely to be able to scale up somewhat more rapidly than these projections suggest.  And while some storage technologies might take time to reach scale lithium ion batteries seem likely to be able to grow very rapidly as there production is also scalable, although there may be some supply chain constraints that may partially limit this.  These imply potentially different prospects for deployment in these cases.

In view of the time required to build scale in new technologies, few energy policies seem more important than those that encourage continuing reductions in costs and increases in the rate of deployment of technologies already at scale, including wind and solar PV, along with continuing improvements in energy efficiency.

Updated 8th December 2015

[i] Kramer,GJ and Haigh,M.  No quick switch to low-carbon energy, Nature Vol462, December 2009

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[i] Kramer,GJ and Haigh,M.  No quick switch to low-carbon energy, Nature Vol462, December 2009

There is more carbon in the ground than the atmosphere can take – whatever temperature limit you want to see

There is vastly more carbon in the ground than can safely be put into the atmosphere, whatever temperature limit you think there should be.  Policy should be seeking to ensure that the available carbon budget is used as wisely as possible.

The Carbon Tracker project recently published another study[i] confirming that there is already more carbon in the fossil fuel reserves of energy companies than can be put into the atmosphere if warming is to be limited to two degrees.  The reaction from some quarters has been to simply point out that the two degree target is unlikely to be met, even if technically feasible.  But, whatever the temperature target, the essential point raised by the comparison of fossil fuel reserves and atmospheric concentrations remains valid.  There is far more carbon in the ground than can safely be put into the atmosphere.

This is shown on the chart below.  The horizontal axis shows trillion tonnes of carbon dioxide.  The lower bar shows estimates of how much carbon dioxide would be released by burning all of the world’s oil, gas and coal reserves still in the ground, assuming no CCS when they are burnt.  The reserves include proved, probable and an estimate of those still to be discovered (so is an estimate of total carbon, not just currently proved reserves as are sometimes quoted).  The upper bar shows the concentrations of CO2 (i.e. excluding other GHGs) in the atmosphere in 2100 associated with particular levels of cumulative of emissions.  The expected temperature rise above pre-industrial levels for each concentration is also shown, both for 2100 and (in brackets) at equilibrium if that concentration were to persist indefinitely.

The results are so clear cut that the broad conclusions are robust to any realistic uncertainties either around the amount of carbon in the ground (many of which would allow for greater fossil fuel reserves) or around the sensitivity of the climate to forcings (including those that have recently been widely discussed).


Sources: IPCC SRES and RCP scenarios and ensemble model results; BP Statistical Review of World Energy 2012; EIA (2012); Rogner (1997)[ii].  Proved reserves are less, totalling a little less than 3 trillion tonnes of CO2, although this is a conservative estimate.

There are two overarching implications from this.  First, the scarcity of fossil fuel reserves is not going to constrain their use without policy intervention unless a very large proportion of these reserves is prohibitively expensive to extract, which is almost certainly not the case.  Such is the scale of the excess that it seems extremely unlikely that prices will rise by enough to constrain cumulative emissions to anywhere near safe levels without policy intervention.  Deploying CCS, thus allowing the reserves to be burnt without getting into the atmosphere is among the possible policy interventions, but it is unlikely to be deployed at anything like the scale that meets the challenge on its own. 

Second, because such a small proportion of the available reserves can be used, there will be a need to focus on using fossil fuels only to provide those services that have a particularly high value and that are especially difficult to provide by other means.  And even these services will need to be provided as with the minimum intensity of emissions per unit of service.  Considering what these applications may be raises a whole host of issues, and  best use may not be signalled by a carbon price alone.  It will also, of course, remain important to limit emissions from other sources, including industrial processes and land use, and emissions of other GHGs. 

Whatever policy routes are followed, it is clear that we cannot safely put into the atmosphere over a few tens of years more than a small fraction of the useful carbon that has been trapped in the ground over tens or hundreds of millions of years.  All policy formulation must take place in this fundamental context.

Adam Whitmore    –   14th May 2013

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Notes on the chart.  The horizontal axis is trillion tonnes of CO2 emissions.  The lower bar shows estimates of the CO2 of emissions from burning fossil fuel reserves this century, based on standard conversion factors, and assuming no CCS.  The total of CO2 emissions from burning all coal reserves (including lignite) goes off the scale by a large distance.  Data sources for reserve estimates are shown on the chart and notes at the end. The upper bar shows atmospheric concentrations resulting from cumulative emissions this century totalling the number of tonnes of CO2 marked by the x-axis.  Due to the long residence of CO2 in the atmosphere broadly the same arguments apply even if a longer time is allowed for burning the reserves.  The temperatures are taken from the mid-range of the IPCC’s cases (SRES and RCP) taking the corresponding assumptions for other GHGs and forcings.  As such they ignore major non-linear feedbacks at threshold concentrations (tipping points).  The temperature rises are at 50% probability.  For higher probabilities of staying below a given temperature – for example the Carbon Tracker report quotes 80% – the cumulative emissions would need to be lower.

The estimates appear close to estimates published in Nature by Allen et al.[iii], who indicate that avoid a rise of 2 degrees centigrade it will be necessary to restrict emissions to 3670 GtCO2 between 1750-2500.  Roughly half has already been emitted.  That leaves 1800 GtCO2 still available, which is broadly in line with the number shown on the chart. Meinhausen et al. in the same edition of Nature gave a figure of 1440Gt by 2050 for a 50% probability of not exceeding two degrees in the 21st century, a somewhat higher estimate[iv].  The results are similar to the Carbon Tracker analysis for emissions to 2100, which shows budgets of 1.55 trillion tonnes for two degrees, and 3.30 trillion tonnes for three degrees (with 50% probabilities of limiting temperatures to threshold values)[v].  Some studies including the Carbon Tracker analysis, have presented a similar comparison, but looked  at emissions to the period 2050, and quoted a correspondingly lower figure.

[ii] Rogner, H.H. (1997) “An assessment of world hydrocarbon resources”, Annu. Rev. Energy Environ, 22:217–62.

[iii] Warming caused by cumulative carbon emissions towards the trillionth tonne.  Allen et. al. Nature vol 458 (2009)

[iv] Greenhouse-gas emission targets for limiting global warming to 2°C. Meinshausen, et al. Nature, vol 458, 1158 (2009)

[v] See section 1.2, p.10 of reference 1

Flawless floor prices?

The recent failure of the backloading proposal in the European parliament focusses attention on longer term structural changes to the EUETS.  The EU may be able to learn something about effective carbon pricing from the USA, where floor prices are already in place in state-level schemes.  If agreement cannot be reached at EU level, then national floor prices, such as that recently introduced in the UK, may become increasingly attractive to governments.

Although there has been much recent debate about its future, in many ways the EUETS is working well.  Emissions reduction targets have been reached, and as emissions are now below the capped levels allowance prices are low.  However, it is clear with hindsight that much more ambitious emissions reduction targets could have been achieved at moderate cost, making a much greater contribution to sustaining EU leadership on mitigating climate change.  Since the European Parliament rejected the proposal to postpone the sale of some EUAs (“backloading”), which anyway was never intended as more than a temporary adjustment, attention has focussed again on changes that will have a longer lasting effect on the supply of allowances and thus prices.

The European Commission published a review of the EUETS in November last year[i] that included longer term options for reform.  Several of the options reviewed involved making one-off adjustments to the supply of allowances.  Such measures would have benefits, but they would do little to prevent similar situations of oversupply arising again.  And they could increase perceived political risk by creating precedent for similar arbitrary interventions in future, which may deter those looking to invest in reducing emissions.  But the review also mentioned the possibility of continuing adjustments to the quantities of EUAs made available to the market, either by creating a managed reserve of allowances, or by introducing a floor price (and possibly a ceiling price), which would create a more systematic change to the EUETS.

An effective floor price could easily be introduced by setting a reserve price in EUA auctions.  This would automatically lead to a reduced quantity of allowances being made available in the market, and thus a greater reduction in emissions compared with the original cap in the event of excess supply.  (A further design choice would then need to be made as to whether any unsold allowances would be permanently removed, for example at the end of each phase of the scheme.)  A reserve price could create greater certainty for investors in low carbon technology, and greater stability for the scheme itself.  Indeed there is a tradition in the policy literature going back to the mid-1970s advocating the economic advantages of such hybrid approaches, combining elements of both price and quantity setting, when damage and abatement costs are uncertain, as they inevitably are.  Reserve prices could also make for more stable government revenue, and for this reason alone they are likely to attract continuing attention from governments.

Reserve prices are already in place in auctions in North American trading schemes.  In the Regional Greenhouse Gas Initiative (RGGI) the auction reserve price, which is currently around $2/tCO2 indexed to inflation, has been effective in maintaining the price at the floor, despite a chronic surplus of allowances.  More recently the California scheme has been introduced with a reserve price at the much higher level of $10/tCO2 escalated at inflation plus 5%, and the Quebec scheme has similar arrangements.  Although California allowances are now trading at prices significantly above the floor it does seem to have influenced the price in the first auction, which cleared at only a little above the floor price.  The Australian scheme also had a planned floor price, due to apply from the start of the floating price phase of the scheme in mid-2015, but this was abolished following the link to the EUETS.  However it has retained a fixed price for the first three years, at an initial level of $23/tCO2, escalated at 5% p.a. nominal for the first three years of the scheme.

Such provisions could easily be extended to create a stepped floor by setting different reserve prices for different tranches of allowances.  This would in effect offer a supply schedule into the market, representing different prices and quantities of abatement.  Indeed something like this already exists in the California scheme where successive additional tranches of allowances are available at prices of $40/tCO2, $45/tCO2 and $50/tCO2, which like the floor price are indexed to increase over time.

Some object that floor prices are “interfering with the market”.  However this concern does not seem well founded.  They are a feature of market design rather than an interference with it, and one which has a very long history.  Reserve prices feature in many types of auctions, whether they are there to prevent your favourite Rembrandt selling for a few pounds, or your latest e-bay offering selling for a few pence.  Such measures aid the functioning of a market, rather than interfering with it.    Stronger arguments apply to limiting the effect of price ceilings, where there may be good reasons on environmental grounds for a hard cap on emissions at some level, even in the event of high prices.

If agreement cannot be achieved across the EU, national governments may seek to impose a floor price in their own jurisdictions.  Putting in place a national auction price floor would not be effective as it would not do enough to restrict total EU supply.  However there is another possibility in the form of a tax that in effect tops up the EUA price, and such a mechanism has recently been introduced for the power sector in the UK.  A similar scheme was proposed in Australia for putting a floor on the price of international allowances by charging a surrender fee, but this will not now be introduced as the floor price was removed with the establishment of the EUETS linkage.

At present the UK tax is set around two years in advance (the 2015/16 value has recently been announced, with indicative values for the subsequent two years[ii]), targeting a total price comprising the tax plus the EUA price.  There is no guarantee that it will set a true floor price, as EUA prices can change a good deal in the interim.  Indeed, for this year the price is set at £4.94/tCO2, reflecting previous expectations of higher EUA prices, and unless there is a recovery in EUA prices the total carbon price for this year looks likely to be around £8/tCO2, well below the original target for the year of £16/tCO2 in 2009 prices (around £17.70 in 2013 prices). In this respect the original proposal for a rebateable tax seems a much superior design.  The tax would have been charged at the level of the floor price but the out-turn EUA price for the year could have been used to set a rebate on the tax, thus creating a floor at the level of the tax irrespective of where the EUA price ended up.  This would have made it much closer to a true hybrid of a tax and trading than the measure that has been introduced, which to some extent is simply two separate carbon prices added together, albeit with expectation of one influencing the other[iii].

The standard objection to a floor in one country is that it does not change of the overall cap at an EU level so does not decrease emissions.  However, the tax does make a contribution to reducing the UK’s emissions themselves, thus enhancing UK leadership.  The UK can also meet its own legally binding emissions reductions objectives with less use of trading and offsets (although these are allowed for under the targets).  Furthermore, it signals low carbon investment that would make a more ambitious Phase 4 EU cap achievable, and thus make such a cap easier to negotiate.  It should help position the UK to meet a future cap more easily.  As things have turned out, the EU cap is not binding in Phase 3, so the UK floor price will indeed reduce total EU emissions, simply creating a larger surplus than there would be in its absence.  It thus does not seem likely to lead to higher emissions elsewhere in the scheme, which are currently not constrained by the cap, and it may even strengthen the case for reform.  So such a national floor price has a sound rationale, although it remains very much a second best option compared with an EU wide price floor.

There are thus well established ways of setting a minimum level (or minimum levels) of carbon price either at the EU level or nationally.  And the USA has much to teach the EU about carbon pricing in this respect.  Floor prices may become increasingly attractive to national governments faced with volatile revenue from auctions, and seeking to provide consistent signals for emissions reduction.  If the EU does not introduce something to limit price ranges it seems quite possible that other national governments will follow the UK’s lead and introduce their own national mechanisms, whether these are floor prices or something else.

Adam Whitmore      2nd May 2013

[i] The State of the European Carbon Market in 2012 Com (2012) 652 final, Brussels 14.11.2012

[ii] Carbon price floor: rates from 2015-16,exemption for Northern Ireland and technical changes.  HMRC

[iii] I should declare an interest here in that I proposed this mechanism during work for DTI in the mid-2000s, and subsequently published an outline of the proposal (see e.g. Carbon Finance September 2007).  I believe that when I proposed it the idea of using this sort of approach to impose a price floor that was not co-extensive with an emissions trading scheme was entirely novel.  It made its way into the Conservative Party’s policy document published before the last election following discussions I had with the then shadow Secretary of State for DECC.  It is perhaps not surprising that I think it was a far better design than that which was finally introduced.