The reforms introduced to the EUETS for Phase 4 improve its functioning, but without further reform a chronic surplus looks likely and the risk of low prices remains.
The changes to the EUETS that were agreed in late 2017 make significant improvements to its design. The temporary doubling of the intake rate for the MSR will reduce the surplus in the market more quickly. And the provision to cancel allowances from the MSR when it exceeds a defined size will avoid the number of allowances in the MSR growing indefinitely. The price of EUA’s has risen, although they remain below the levels needed to stimulate many efficient emissions reductions. These changes have led some to conclude that the problems with the EUETS have been resolved.
However, major risks remain. The cap for Phase 4 (which runs through the 2020s) was set on the basis of an overall reduction in emissions from 1990 levels of 40% by 2030[i]. In practice, emissions now look likely to reach around 50% below 1990 levels by 2030, and possibly to go lower than this if additional policies are put in place. This looks likely to result in emissions remaining well below the cap throughout Phase 4.
This is illustrated in Chart 1 below, which shows three scenarios included in a recent report by climate NGO Sandbag[ii] (to which I contributed). The correspond to overall reductions from 1990 levels of 50%-58% by 2030, rather than the 40% reduction on which the cap was set.
Many of the additional emissions reductions are from the sectors covered by the EUETS. In particular increased renewables and decreased coal and lignite burn in power generation are the largest contributors to reduced emissions. Consequently, in each scenario emissions remain well below the cap throughout the 2020s.
Even the European Commission’s own modelling suggests a 46% reduction in emissions from 1990 levels now looks likely. This, while a somewhat smaller decrease than shown in these scenarios, would nevertheless likely result in emissions below the cap throughout the 2020s.
Chart 1: Projected EUETS emissions under three scenarios compared with the cap
With emissions so persistently below the cap the surplus, after decreasing to 2020, begins to grow again, and continues growing to 2030 (see Chart 2). It does so despite the operation of the MSR.
Chart 2: Projected cumulative surplus under three scenarios
With such a large and persistent surplus there is a clear risk of prices weakening. This is especially the case later in the decade, where reductions in coal use in power generation seem likely to reduce the need for generators to buy emissions as a hedge to cover forward contracts, which may in turn further reduce demand for allowances.
The problem of the chronic surplus arises because the cap is both undemanding and rigid. There are at present no mechanisms for automatically resetting it, and no measures such as price containment which might limit how low prices could go.
The best way to deal with this problem is simply to reduce the cap in around the middle of Phase 4. This would be in line with the principles of the Paris Agreement, which envisages signatories to the Agreement adjusting their commitments over time to bring them more into line with the agreed temperature targets.
Chart 3 shows the effect of resetting the cap in 2026 to match actual emissions. Under the Base Case the surplus begins to reduce rapidly as a result of the cap being reset. Such an approach could readily be made consistent with other reforms, such as introducing a price floor in the EUETS.
Chart 3: Effect on the surplus of reducing the cap in 2026 (Base Case)
While the 2017 reforms to the EUETS were a major step forward they are unlikely to prove sufficient. Further measures will be needed to make sure the EUETS is robust as emissions continue to fall.
Adam Whitmore – 9th April 2019
[i] With a 43% reduction from 2005 levels in the sectors covered by the EUETS.
Straightforward, practical measures can make carbon taxes more acceptable to voters.
Carbon pricing often faces political obstacles due to public opposition …
Carbon pricing has spread widely in recent years, with around 40 systems now in place[i]. However, most emissions are not yet priced, and, even where they are, most prices remain too low.
Both expanding coverage and increasing price levels face political obstacles. Overcoming these is essential for carbon pricing to play the role that it should in reducing emissions. Fortunately, evidence is now emerging on what can be done to reduce opposition from voters – overcoming opposition from powerful lobbies such as industry warrants separate approaches.
A study by researchers at the LSE’s Grantham Research Institute, based on reviewing 39 existing empirical analyses, describes people’s objections to carbon pricing and other kinds of environmental taxes, and suggests specific actions to overcome them. (The study focusses on carbon taxes, and most evidence is from North West Europe and North America, so the conclusions may not extend fully to emissions trading systems or to other cultural contexts.)
The study identifies several reasons people oppose carbon taxes:
The personal and wider economic costs of a tax are seen as too high.
Carbon taxes are seen as regressive, having a disproportionately negative effect on low-income households.
Carbon taxes are not believed to be an effective way to reduce emissions.
Governments are seen as having a ‘hidden’ motive to increase fiscal revenue rather than curb emissions.
However the study noted that people’s aversion to carbon taxes decreases over time after they have been introduced, particularly if the effects of the tax are measured and communicated.
There are various design options for reducing public opposition …
The study then identifies a range of measures for addressing the objections
Phasing in carbon taxes over time, introducing the tax at a low rate but having commitment devices to subsequently increase the rate to more efficient levels.
Redistributing revenues to ameliorate the regressive effects of taxes.
Earmarking revenues for emission reduction projects, which is popular with voters and improves the perceived effectiveness of carbon taxes.
Ensuring revenue neutrality of carbon taxes.
In all cases, policymakers need to gather and communicate the objectives and design of the carbon price to improve trust and credibility, before and after the introduction of a carbon tax. This includes communicating emissions reductions achieved and co-benefits of reductions in other pollutants[ii].
Drawbacks to these options seem limited …
The study notes that these recommendations may diverge from “first best” tax designs recommended in the economics literature. However, while the study does not assess the implications of this, it is not clear to me that, even where they exist, these divergences are very significant. They seem to me likely to be easily outweighed by the increased acceptability (a “sub-optimal” carbon tax that can be implemented is usually better than an “optimal” one that can’t). And there are likely to be benefits often omitted in modelling of “first best” designs. This is especially the case as once a tax is in place it can be modified to over time as experience is gained and acceptance increases.
For example, phasing in a carbon tax is likely to produce economic benefits by reducing economic dislocation due to a price shock from sudden introduction at its full level, which may at least partly counterbalance the inefficiencies from prices being below optimal levels for an initial period. Similarly, redistribution of revenue to poorer households may provide an economic stimulus benefits as poorer households are more likely to spend the revenue than richer households. It may also increase social solidarity in ways which are conducive to economic welfare and growth.
Other emissions reductions, for example improving building insulation and deploying new technologies, may be funded at more nearly optimal levels where there are currently restrictions. However, caution is needed here, and there may often be a stronger case for dispersing funds to citizens.
Revenue neutrality can take different forms. One approach is to use revenues to reduce other taxes. This is the approach adopted for the introduction of the carbon tax in British Columbia. Economists tend to favour this type of approach because existing taxes are seen as distortionary. However this approach often lacks transparency and credibility even if accompanying tax cuts are publicised – for example if other taxes are reduced they may be increased again in future. This appears to be one reason why voters tend not to prefer this option.
And the current Canadian experiment with “tax and dividend” approaches appears promising …
A stronger guarantee is provided when revenue is explicitly returned to citizens. This approach is usually referred to as “tax and dividend” (or “fee and dividend”, or “cap and dividend” in the case of any emissions trading system). I’ve previously noted the advantages of this approach (see here). It has been implemented for the Swiss carbon tax in the form of rebates on health insurance costs. Four provinces in Canada are now working on implementing dividends in the form of direct financial payments to citizens. This will make most citizens better off as the result of the tax, because they will also benefit from revenue raised from businesses.
There is an argument made in the environmental economics literature that a lump-sum dispersal to citizens is economically suboptimal, because it is better to use funds to reduce other taxes and so reduce distortions. There is little if any empirical support for this argument as far as I am aware. But in any case taking a view that citizens have more of a natural claim on property rights to the atmosphere than governments makes the limitation of the argument clear. From this perspective, not providing citizens with any of the proceeds from pricing emissions is in effect a 100% tax on those proceeds imposed on everyone. This is indeed non-distortionary – it applies the same tax to everyone irrespective of circumstances – but a fixed per-capita tax is not regarded by governments or their citizens as a good idea anywhere, for sound reasons.
A larger objection to returning all revenue directly to citizens, or using it to reduce current taxes, is that emissions run down natural capital for the benefit of current generations at the expense of future generations. Intergenerational justice would, as I’ve previously argued (see here and here), be better served by some combination of preserving natural capital and investing revenue from carbon pricing in a “carbon wealth fund” analogous to a sovereign wealth fund. However this would be unlikely to increase the political acceptability of carbon pricing compared with immediate dispersal of revenues to citizens.
Overall, the study makes a range of recommendation that are well justified on a range of grounds, and seem likely to help establish carbon pricing more widely and effectively. It is to be hoped that governments everywhere take note of the findings.
Adam Whitmore – 5th March 2019
Thanks to Maria Carvalho for useful discussions about the background to the study covered by this post.
[i] See the World Bank’s State and Trends of Carbon Pricing report here. The definition of carbon pricing adopted in that report is quite broad, but even excluding some of the systems included in the report there remain over 40.
[ii] Please see World Bank’s Guide to Communicating Carbon Pricinghere for more information on developing an effective communications strategy.
A simple s-curve model of solar deployment shows continued strong growth.
In my previous post I looked at the IEA’s projections for solar PV. These always project no growth (or even a reduction) in the rate of installation, whereas in practice the rate of installation keeps growing rapidly. I commented in the post that the growth of solar deployment did not seem likely to stop any time soon. So how fast might solar PV continue to grow?
To estimate how fast solar PV deployment will grow, I’ve adopted a simple logistic function (s-curve) model for the deployment of solar. This type of function is widely used to model the growth of new technologies[i]. The results for two scenarios are shown in the chart below together with actual annual deployment to date. Both scenarios fit the historical data well, and are similar for the next few years, but then diverge significantly.
Scenarios for deployment of solar PV
Source for historical data: BP statistical review of world Energy to 2017, estimate for 2018 based on data in previous post.
The low case is based on an electricity system continuing to grow at current rates, with solar taking an increasing share, and deployment eventually reaching 300GW p.a. (see notes below for more on this). The base case assumes a larger role for the power sector in the energy mix, as decarbonisation drives the electrification of end use, and solar deployment eventually reaches 50% more than in the low case, at 450 GW p.a..
These projections show deployment in another 4 to 6 years reaching more than double its 2018 rate of just over 100GW. This compares with the 3 years it took to double from 50GW to its present size. By 2030 solar is generating 3600 to 4500TWh p.a., around 12-15% of electricity consumption[ii].
Of course this highly stylised analysis only gives an indication of scale, and even greater growth is possible. However I have not included a higher scenario, as these scenarios already represent continued very rapid growth. This will require continuing attention to how solar can best be integrated into wider energy systems, including through the greater use of battery storage.
Adam Whitmore – 6th February 2019
Notes: Developing indicative markers for eventual industry size
A low case is estimated by looking at the size of the power sector. This requires (in very approximate numbers) about 1000TWh of new and replacement generation each year over the next couple of decades. If a third of this were to be solar it would eventually grow to about 330TWh p.a. of this, or about 300GW p.a.. It seems unlikely that solar’s share of new capacity would in the long run be less than this given its cost competitiveness and scalability.
This scenario appears roughly in line with Shell’s Sky scenario. Both suggest that by 2035 Solar PV generation will be a factor of a little over 20 higher than in 2015.
However, this eventual rate of deployment may be an underestimate. Decarbonising the energy system will require widespread electrification of end use, and so much more of the world’s energy will come from low carbon electricity. For this analysis I’ve chosen a figure for eventual installation rate 50% greater than in the low case, reaching of 450GW p.a.. This represents one possibility within the range of scenarios for more ambitious decarbonisation, and higher estimates are possible.
[i] A logistic function is often used to model deployment of new technologies based on a range of examples, and I’ve previously used this type of model to look at electric vehicle growth – see here including examples of previous technology transitions. The analysis presented here updates my previous analysis of solar in both data and approach, given the additional data available since that was completed.
[ii] World electricity consumption was 21,000TWh in 2015, https://www.statista.com/statistics/280704/world-power-consumption/ growing at 2.6% p.a. over 2010 to 2015. Assuming this growth rate is maintained electricity consumption will reach around 31,000TWh by 2030. BP’s review of energy suggests a lower growth rate, with around 2000TWh less demand in 2030 than in the case used here, presumably reflecting greater efficiency.
The IEA is still grossly underestimating solar PV in its modelling
This post is a quick update of previous analysis.
Back in 2013 I pointed out how far from reality the IEA’s projections of renewables deployment were. They persistently showed the rates of installation of renewables staying roughly constant over the following 20 years at whatever level they had reached at the time of the projection being made. In reality, rates of installation were growing strongly, and have continued to do so (see chart). Rates of installation are now a factor of nearly four times greater than the IEA was projecting back in 2013 – they were projecting installation rates of about 28GW for 2018, where in fact around 100 GW were installed in 2017 and an estimated 110GW in 2018.
I have returned to the topic since 2013 (see links at the bottom of this post), as have many others, each time pointing out how divorced from reality the IEA’s projections are.
Unfortunately, the IEA is continuing with its approach, and continuing to grossly understate the prospects for renewables. Auke Hoestra has recently updated his analysis of the IEA’s solar PV projections to take account of the latest (2018) World Energy Outlook New Policies Scenario (see link below chart – in addition to chart data his post also contains a valuable commentary on the issue). The analysis continues to show the same pattern of obviously misleading projections, with the IEA showing the rate of solar PV installation declining from today’s rate until 2040. Of course eventually the market will mature, and rates of installation will stabilise, but this seems a long way off yet.
IEA projections for solar PV in successive World Energy Outlooks compared with outturn
In 2013 I was inclined to give the IEA the benefit of the doubt, suggesting organisational conservatism led to the IEA missing a trend. This no longer seems tenable – the disconnect between projections and reality has been too stark for too long. Instead, continuing to present such projections is clearly a deliberate choice.
As Hoekstra notes, explanations for the disconnect have been advanced by the IEA, but they are unsatisfactory. And as renewables become an ever-larger part of the energy mix the distortions introduced by this persistence in misleading analysis become ever greater.
There is no excuse for the IEA persisting with such projections, and none for policy makers taking them seriously. This is disappointing when meaningful analysis of the energy transition is ever more necessary.
Comparing cumulative per capita emissions since the UNFCCC was adopted in 1992 shows that China has an opportunity for leadership. Such leadership is notably lacking from the USA at the national level and Australia.
Under the Paris Agreement each country sets out actions to reduce emissions as Nationally Determined Contributions (NDCs). However, the Agreement says little about how contributions should be balanced across different countries to meet its goals.
In this post I’ll focus on one indicator: per capita emissions, both now and cumulatively. Countries with higher per capita emissions should, other things being equal, have a greater obligation to reduce emissions. Clearly other criteria, such as income and abatement opportunities, also affect an appropriate distribution of obligations under NDCs, but I’ll ignore these for now.
Comparing per capita emissions
Per capita emissions vary enormously between countries – not just between developed and developing countries, but also within these groups. Chart 1 shows per capita CO2 emissions for major economies since 1990. There are some striking differences. The worst performers are the USA and Australia, which now have around three times the per capita emissions of France and the UK. Germany and Japan’s emissions are lower than those in the USA or Australia, but well above French and UK levels, with no downward trend since 1990 for Japan. In contrast, France has had relatively low per capita emissions for many years, in large part due to a low carbon power sector, while the UK’s per capita emissions have fallen by some 40% since 1990. Both the UK and France are now quite close to the global average of 4.8 tonnes per capita.
Meanwhile the distinction between developed and developing countries has become less clear-cut. Emissions from China have risen rapidly along with its economic development. Per capita emissions in China rose above those in France in 2009 and the UK in 2012. By 2016 they were 33% and 45% respectively above the UK and France. However they remain below those of Germany and Japan, and are still less than half the levels of the USA and Australia.
Chart 1: Per capita emissions of CO2 from energy and industry (1990-2016)
Cumulative emissions per capita
Climate change depends on cumulative emissions rather than emissions in any one year. Equalising cumulative emissions per capita (that is cumulative emissions divided by cumulative population) in effect shares a fixed carbon budget equally across countries over time[i]. The calculation here looks at emissions and population since 1992[ii], the date at which the UNFCCC was adopted[iii]. At this point all countries committed to the objective of limiting dangerous anthropogenic interference with the climate[iv] (more on this choice of period below).
On this basis even the best performing large developed economies, France and the UK, have higher cumulative emissions than China. However the difference is now reducing as China’s per capita emissions have risen. This trend may continue. The UK has a legally binding commitment under its Climate Change Act to reducing emissions by 80% from 1990 levels by 2050. France faces similar targets as part of the EU’s commitment to reduce emissions by 80-95% from 1990 levels. They will all then, under the Paris Agreement, need to reduce emissions to zero in the second half of the century.
China matching the UK in cumulative emissions after 1992
This raises the question of what emissions track would lead to China having the same cumulative emissions as major developed economies by 2050, or after. The scenario shown for China in Chart 2a is based on eventually equalling the UK’s cumulative emissions, assuming the UK meets its own targets. This convergence is shown in Chart 2b. The UK is chosen as a representative developed economy which is performing well in emissions reductions. Lower emissions than this would be required to match cumulative emissions from France. Higher emissions would be possible to equal Japan’s or Germany’s (not shown on chart 2a).
Under this scenario China decreases its emissions to about half current levels by 2050.
With China on the track shown the world would, provided other countries matched it, have a good change of limiting global temperature rises to below 2 degrees, though not 1.5 degrees.
Chart 2a: Scenarios for per capita emissions to 2050
Note: emissions track for France is indicative and depends on EU burden sharing.
Chart 2b. Cumulative emissions in China equal those in the UK under these scenarios
Note: Cumulative per capita emissions for China remain slightly below those for the UK in 2050 to allow for additional emissions after 2050 – China’s annual per capita emissions are still higher than the UK’s by 2050.
What about going further back for cumulative emissions?
These results are strongly dependent on taking into account emissions over the last 25 years, since the UNFCCC was adopted. The longer the time period, the greater China’s future emissions (and other countries) can be while still retaining cumulative emissions below those of developed countries.
Indeed, some favour counting all emissions over time, going back centuries, or at least to the beginning of industrialisation. They argue that countries are responsible for all their historic emissions, in part because developed countries are now benefiting from past emissions, which allowed them to build their economies. However, going this far back this seems to me inappropriate on a number of grounds.
Many of these emissions will have been from actions of people living long ago, with no knowledge of the harm they were causing. It does not, for example, seem appropriate to put obligations on current US citizens due to actions of US citizens in the 1920s driving model T Fords.
Not all past emissions have benefitted current citizens, and not all were under their control. For example, emissions from Eastern Europe in the Communist era (from 1945 to around 1989) were notably inefficient and unproductive.
Benefits of past emissions have gone beyond the emitting countries, to include citizens of developing countries. China’s extraordinary growth in the past three decades would not have been possible without learning from developed countries, so it has benefitted from the same historic emissions that enabled developed countries to reach their present state.
Countries developing now have opportunities to follow low emissions pathways not available to those that developed earlier, whereas those developing earlier may have infrastructure which gives a certain amount of emissions lock-in.
These arguments suggest, among other things, that cumulative emissions should not be used as a proxy for wealth, capability or opportunity, which should be considered separately.
In any case, allowing all countries to reach cumulative emissions to equal those of developed countries over all time would be incompatible with the commitments of the Paris Agreement. It is therefore not a suitable basis for action.
China, as the largest emitter in absolute terms, has a unique role in determining the success of efforts to avoid dangerous climate change. Emissions need to head rapidly downwards to at most half current levels by mid-century to match cumulative emissions since 1992 of the better performing developed countries, and to achieve the goals of the Paris Agreement. It will be of tremendous benefit to the world if China can achieve this.
This implies there is an opportunity for China to show strong leadership. But this window is closing rapidly. Meanwhile, leadership from the USA (at the national level) and from Australia, and to a lesser extent from Germany and Japan, remains disgracefully lacking.
[iii] The UNFCCC was adopted on 9 May 1992 and opened for signature at the Earth Summit in Rio de Janeiro from 3 to 14 June 1992. It entered into force on 21 March 1994, after enough countries had ratified it.
[iv] Article 2 sets out the objective of stabilization of greenhouse gas concentrations in the atmosphere at a level that would prevent dangerous anthropogenic interference with the climate system.
Some simple indicators based on stylised emissions tracks help show clearly the consequences of different rates of emissions reductions.
A simple relationship allows the overall objectives – limiting temperature rises and reducing emissions – to be linked in a straightforward way[i]. Over relevant ranges and timescales temperature rise varies approximately linearly with cumulative emissions of CO2, after adjusting for the effect of other greenhouse gases. Specifically, for every 3700 GtCO2 emitted (1000GtC) the temperature will rise by about 2.0 degrees[ii] (with estimates in the range 0.8 to 2.5 degrees)[iii]. This is the transient climate response to cumulative emissions (TCRE).
There has been around a 1.0 degree rise in temperatures to date[iv]. This means the remaining total of cumulative emissions (“carbon budget”) needs to be small enough to keep further temperature rises to around 0.5 to 1.0 degrees if it is to meet targets of limiting temperature rises to 1.5 to 2.0 degrees.
The remaining carbon budget for meeting a 1.5 degreetarget(with 50% probability) is around 770 GtCO2. The remaining carbon budget for meeting a 2 degree target (again with 50% probability) is 1690 GtCO2[v]. This is illustrated in Chart 1, which shows temperature rise (median estimates) against additional emissions from 2018.
There are many uncertainties in the estimates of the remaining carbon budget. These include different estimates of the climate sensitivity, variations in warming due non-CO2 pollutants, and the effect of additional earth system feedbacks, including melting of permafrost. These can each change the remaining carbon budget by around 200GtCO2 or more.
Chart 1: Temperature rise from additional emissions
To look at the implications of this simple relationship we can make the following assumptions about future levels of emissions. These are simplistic, but like all useful simplifications, allow the essence of the issue to be seen more clearly.
Net emissions continue approximately flat at present levels (of around 42 GtCO2a.[vi]) until they start to decrease.
Once net emissions start decreasing they continue decreasing linearly to reach zero – when any continuing emissions are balanced by removals of CO2 from the atmosphere. They then continue at zero. There are of course many other emissions tracks leading to the same cumulative emissions. For example, many scenarios include negative total emissions, that is net removal of carbon dioxide from the atmosphere, in the second half of the century.
Relatively short-lived climate forcings, such as methane, are also greatly reduced, so that they eventually add about 0.15 degrees to warming[vii].
Chart 2 shows various temperature outcomes matched to stylised emissions tracks. Cumulative emissions are the areas under the curves. To limit temperatures rises to 1.5 degrees, emissions need to fall to zero by around 2050 starting in 2020, consistent with the estimates in the recent IPCC report[viii].
For limiting temperature rises to 2 degrees with 50% probability, zero emissions must be reached around 2095. To reach the 2 degree target with 66% probabilityemissions need to be reduced to net zero about 20 years earlier – by around 2075 from a 2020 start. |To reach a target of “well below” 2 degrees is specified in the Paris Agreement emissions must be reduced to zero sooner.
Chart 2: Stylised emissions reduction pathways for defined temperature outcomes (temperatures with 50% and 75% probability)
This simplified approach yields some useful rules of thumb.
Each decade the starting point for emissions reductions is delayed (for example from 2020 to 2030) adds 0.23 degrees to the temperature rise if the subsequent time taken to reach zero emissions is the same (same rate of decrease – i.e. same slope of the line) – see Chart 3 below. This increase is even greater if emissions increase over the decade of delay. This is a huge effect for a relatively small difference in timing.
Delaying the time taken to get to zero emissions by a decade from the same starting date (for example reaching zero in 2070 instead of 2060) increases eventual warming by 0.11 degrees.
Correspondingly, delaying the start of emissions reductions increases the required rate of emissions reduction to meet a given temperature target. For each decade of delay in starting emissions reductions the time available to reduce emissions to zero decreases by two decades. For example, tarting in 2020 gives about 75 years to reduce emissions to zero for a 2 degrees target. Starting in 2030 gives only 55 years to reduce emissions from current levels to zero once reductions have begun, a much harder task.
Chart 3: Effect of delaying emissions reductions (temperatures with 50% probability)
These results are, within the limits of the simplifications I’ve adopted, consistent with other analysis (see notes at the end for further details)[ix].
How realistic are these goals? Energy infrastructure often has a lifetime of decades, so the system is slow to change. Consistent with this, among major European economies the best that is being achieved on a sustained basis is emissions reductions of 10-20% per decade. While some emissions reductions may now be easier than they were, for example because the costs of renewables have fallen, deeper emissions cuts are likely to be more challenging. This implies many decades will be required to get down to zero emissions.
All of this emphasises the need to start soon, and keep going. The recent IPCC report emphasised the challenges of meeting a 1.5 degree target. But even the target of keeping temperature rises below 2 degrees remains immensely difficult. There is no time to lose.
Adam Whitmore – 23rd October 2018
[i] This analysis draws on previous work by Stocker and Allen, which I covered a while back here: https://onclimatechangepolicydotorg.wordpress.com/2013/12/06/early-reductions-in-carbon-dioxide-emissions-remain-imperative/
[ix] See for example work by Climate Action Tracker https://climateactiontracker.org/global/temperatures/, and and the Stocker and Allan analysis cited as reference (i) above. The recent IPCC report Chapter 2 Section C1, concludes: In model pathways with no or limited overshoot of 1.5°C, global net anthropogenic CO2 emissions decline by about 45% from 2010 levels by 2030 (40–60% interquartile range), reaching net zero around 2050 (2045–2055 interquartile range). For limiting global warming to below 2°C CO2 emissions are projected to decline by about 20% by 2030 in most pathways (10–30% interquartile range) and reach net zero around 2075 (2065–2080 interquartile range). Non-CO2 emissions in pathways that limit global warming to 1.5°C show deep reductions that are similar to those in pathways limiting warming to 2°C.” References in this paragraph to pathways limiting global warming to 2C are based on a 66% probability of staying below 2C.
Advancing satellite technology can improve monitoring of emissions. This will in turn help make policies more robust.
There are now around 2000 satellites in earth orbit carrying out a wide range of tasks. This is about twice as many as only a decade ago[i]. Costs continue to come down, technologies are advancing and more organisations are making use of data, applying new techniques as they do so. As progress continues, satellite technologies are positioned to make a much larger contribution to monitoring greenhouse gas emissions.
Tracking what’s happening on the ground
Satellites are critical to tracking land use changes that contribute to climate change, notably deforestation. While satellites have played an important role here for years, the increasing availability of data is enabling organisations to increase the effectiveness of their work. For example, in recent years Global Forest Watch[ii] has greatly increased the range, timeliness and accessibility of its data on deforestation. This in turn has enabled more rapid responses.
This is now extending to other monitoring. For example, progress on construction projects can be tracked over time. This enabled, for example, monitoring the construction of coal plant in China, which showed that construction of new plants was continuing[iii].
Monitoring operation and emissions
As the frequency with which satellite pictures are taken increases, it becomes possible to monitor not only construction and land use changes, but also operation of individual facilities. For example, it is now becoming possible to track operation of coal plant, because the steam from cooling towers is visible[iv]. This can in turn allow emissions to be estimated.
More direct monitoring of emissions continues to develop. Publicly available data at high geographic resolution on NOx, SOx, particulates and in the near future methane[v] are becoming increasingly available[vi]. For example, measuring shipping emissions has traditionally been extremely difficult, but is now becoming tractable, at least for NOx.
Measuring methane is especially important. Methane is a powerful greenhouse gas with significant emissions from leakage in natural gas systems. Many of these emissions can easily be avoided at relatively low cost, leading to highly cost-effective emissions reduction.
CO2 is more difficult to measure than other pollutants, in part because it disperses and mixes in the atmosphere so rapidly. However, some of the latest satellites have sophisticated technology able to measure CO2 concentrations very accurately[vii]. These cover only quite small areas at the moment but are expected to scale up and allow more widespread direct monitoring. The picture below shows a narrow strip of the emissions from a coal plant in Kansas, based on data from the Orbiting Carbon Observatory 2 (OCO‐2) satellite. These estimates conform well with reported emissions from the plant.
Figure 1: Satellite data showing CO2 emissions for a power plant in Kansas
Note: the red arrow shows prevailing wind direction.
Space agencies around the world are now exploring how such monitoring can be taken further. For example, the EU has now asked the European Space Agency to design a satellite dedicated to monitoring CO2. It is expected to be operational in the 2020s.[viii]
Work is also underway to improve data analysis, so that quantities of emissions can be attributed to individual plants. Machine learning holds a good deal of promise here as a way of finding and labelling patterns in the very large amounts of data available. It is likely soon to be possible to monitor emissions from an individual source as small as a medium size coal plant, taking account of wind speed and direction and so forth.
These developments will make actions much more transparent and subject to inspection internationally. Governments, scientists, energy companies, investors, academics and NGOs can monitor what is going on. Increasingly polluters will not be able to hide their actions – they will be open for all to see. This is turn will make it easier to bring pressure on polluters to clean up their act, potentially including, for example, holding countries to account for their Nationally Determined Contributions (NDCs) under the Paris Climate Agreement.
Improved transparency and robust data are not in themselves solutions for reducing climate change. Instead, they play an important role in an effective policy architecture. And the do so with ever increasing availability and quality. This gives cause for optimism that policies and their implementation can be made increasingly robust.
Adam Whitmore – 12th September 2018
Thanks to Dave Jones for sharing his knowledge on the topic .
Fixed price allowances can be a useful way of establishing emissions trading gradually.
I have previously looked at the relative advantages of carbon taxes and emissions trading systems (ETSs), including in the videos on this site.
Among the drawbacks of emissions trading systems is that they tend to be more complex to administer than carbon taxes. An emissions trading system requires surrender of allowances, which need to be issued, often by both auction and free allocation, and tracked as they are traded. There is a range of administration needing for this, including maintaining a registry of allowances and ownership. In contrast, a tax simply requires a payment to be made per tonne emitted.
The administrative cost of emissions trading is unlikely to be a significant proportion of the costs of a system for a large jurisdiction with high administrative capacity, for example the EU. However it can be daunting for smaller jurisdictions with more limited administrative capacity. Even a large jurisdiction may be concerned about the time needed to establish an emissions trading system.
There may also be concern about the economic the risks. For example, there will always be uncertainty about price when the cap is first set.
These difficulties can be reduced by including an initial phase of fixed price allowances. Under this approach emitters pay a fixed price per tonne. However rather than simply paying a tax they are required to surrender allowances. An unlimited number of allowances is available from the regulatory authorities at a fixed price.
This approach has the advantage that it puts in place much of the administrative infrastructure necessary for emissions trading. Allowances are issued and a registry is established. From there it is a more straightforward path to limiting the number of allowances to impose a cap, and allowing them to be traded.
It has the further advantage that it can introduce a carbon price, perhaps gradually through and escalating price, and the effect of this can be assessed when setting a subsequent the cap. The additional information can further reduce risks.
The Australian example
This approach of issuing fixed price allowances was implemented in Australia, starting in 2012. An initial 3 year phase was originally planned with emitters required to surrender allowances. An unlimited number of allowances was available each year at a fixed price. This was AU$23/tonne in the first year, escalating at 2.5% plus the rate of inflation each year. This was intended to be followed by a transition to an emissions trading system with a cap and a price floor.
The chronology in practice was as follows. Legislation to introduce carbon pricing was passed in 2011. The fixed price came into effect ion 1st July 2012, with unlimited allowances available at AU$23/tonne. Full trading was originally scheduled to being in 2015. In 2013 it was announced this would be brought forward a year to 2014. However this did not happen, as the incoming Abbott government, which took office in September 2013, repealed the carbon pricing scheme with effect from July 2014.
In the Australian political context that prevailed at the time the similarity to a tax was seen as a drawback politically. It allowed the opposition to label it a tax, which the previous government had committed not to introduce. A very sensible approach was therefore abandoned. However this was a feature peculiar to Australian politics at the time, and not a more general problem.
The EU and the Western Climate Initiative have both shown that it is possible to establish emissions trading systems directly, without the need to go through an initial fixed price phase (the WCI systems were delayed by a year from their originally intended start date, but have generally worked well since). And some jurisdictions will choose a tax in any case.
Nevertheless, if there is a desire to put an ETS in place in a way which lowers the initial administrative burden and some of the risks of establishing an ETS, then transitioning to an ETS through issuing fixed price allowances can be a valuable approach.
Assessing the potential contribution of carbon capture and storage (CCS) to limiting climate change must take into account the huge physical scale of the materials being captured and transported.
In my previous post I looked at the slow growth of carbon capture and storage (CCS) and carbon capture and use (CCU). In this post I look at the scale of CO2 that needs to be captured to make a material difference to the climate, and some of the implications of this.
As reference points, the chart below shows annual production of major commodities. The mass of fossil fuels produced and consumed each year is huge – about 12 billion tonnes every year, over one and a half tonnes for each person in the world. That is much more than other major commodities. Wheat is less than a billion tonnes per annum, the iron ore for the world’s iron and steel industry is a little over two billion tonnes, and cement is something over four billion tonnes.
However the CO2 produced from energy and industry (so excluding land use), is much greater still – about 36 billion tonnes. The vast majority of this comes ultimately from the world’s fossil fuels. Very simply, the mass of the fossil fuels is mainly carbon, and burning this carbon adds two atoms of oxygen to each atom of carbon, more than tripling the mass, hence the scale of the mass of CO2 produced relative to fossil fuels.
Even capturing and transporting around a third of current emissions would involve dealing with masses as large as the current fossil fuel system, which has required, cumulatively, tens of trillions of dollars of investment over many decades. Many low carbon technologies have faced similar challenge of scale. For example, it has taken decades to get wind power to the scale where it is making a material difference to emissions.
The problem gets even worse for any process of CO2 capture from the air that involves use of a solid to bind the CO2. This is because binding CO2 as a solid inevitably involves adding mass. For example, if theCO2 were eventually to end up as limestone (CaCO3) the limestone would have more than double the mass of the captured carbon dioxide.
This is especially important for some of the proposals for removing carbon dioxide from the atmosphere by direct air capture into solid form. To make any worthwhile reduction in atmospheric concentration hundreds of billions of tonnes of solid material will be eventually be generated. For this reason it is often considered that air capture is best located the source of the scrubbing mineral and where it can be easily disposed of, but the masses involved are nevertheless huge and handling remains a huge problem.
The challenges raised by the mass of CO2 produced by energy use extends to the development of more localised technologies. Suppose, for example a new technology were invented for carbon capture, capable of cheaply absorbing and binding in solid form CO2 produced by a standard domestic heating boiler. A typical UK household burns about 16,500 kWh of gas per annum[ii], which generates about 3.3 tonnes of CO2. Any attempt to capture this would produce many tonnes of material a year to be disposed of. This compares with current total waste per household at present of around 1 tonne per household. Alternatively, if household CO2 capture were based around solvents to regenerated while the CO2 is piped away, this would require huge amounts of new pipeline infrastructure. This is unlikely to be practical. Instead any CCS is likely to be deployed centrally, for example as part of low carbon hydrogen production, with the hydrogen burnt to produce heat, or for production of low carbon electricity.
The vast scale of CO2 emissions has several implications. First, it will usually be much better to avoid creating the CO2 in the first place than to try to deal with it as a waste problem. The waste problem is already too big to handle, so adding more in the hope of being able to deal with it is not likely to be the best option.
Second, any system that does make a material contribution to reducing climate change will take vast investment and many years to build – which is a good reason for starting now.
Third, making CCS and CCU more economically viable would help, and this is one of many reasons that higher carbon prices are desirable.
There are however two important caveats to this. One is that land use does have an important contribution to make. The scale of release of CO2 from land use and, correspondingly, the potential benefits from reducing deforestation and improving management of biological sinks are large. However, as I’ve previously noted, there are limits on the availability of biofuels.
The other caveat is that all contributions to reducing emissions are welcome, and there may be cases, especially in industry, where there are few if any alternatives to capture. Reducing emissions will require a very large range of technologies to be deployed. Nothing I’ve said in this post should be taken as a reason for not proceeding with CCS or CCU.
As I noted in my previous post CCS continues to look necessary in a range of applications. And building an industry at the scale required will take decades, and there is an urgent need for progress. It is imperative to recognise just how large the physical scale of the challenge is, even relative to other economic activities such as iron and steel production often (rightly) thought to be very large scale.
Adam Whitmore – 21st May 2018
[i] Based on data in the BP statistical review of world energy, UN Food and Agriculture organisation, EDGAR database, USGS, http://www.worldcement.com. The ratio of fuels to carbon dioxide is not exactly the same as the ratio of the masses of carbon to CO2, which is 3.7, because of the other components in fossil fuels. The CO2 total includes emissions from industrial processes in addition to combustion. However many non-combustion emissions, such as the use of carbon in anodes from aluminium smelting, and (depending on your definition of combustion) the use of coke in blast furnaces also use fossil fuels as their source of carbon.
CCS has not yet been implemented on a scale needed to make a substantial difference to climate change. However it continues to look necessary for the longer term, with more projects necessary to get costs down.
A decade or so ago many people expected rapid development of Carbon Capture and Storage (CCS) as a major contributor to reducing global emissions. I was one of them – at the time I was working on developing CCS projects. However, the hoped-for growth has not yet happened on the scale needed to make a material difference to global emissions.
The chart below shows total quantities captured from large CCS projects, including 17 that are already operational and a further 5 under construction. The quantity of emissions avoided are somewhat lower than the captured volumes shown here due to the CO2 created by the process itself.[i]
Between 2005 and 2020 capture will have grown by only around 25 million tonnes p.a.. This is only 0.07% of annual global CO2 emissions from energy and industry. In contrast the increase in wind generation in 2017 alone reduced emissions by around 60 million tonnes[ii], so wind power reduce annual emission more from about 5 months’ growth than CCS will from 15 years’ growth – though it took wind power several decades to get to this scale.
Chart 1: Growth of large CCS projects over time
Source: Analysis based on Global Carbon Capture and Storage Institute database[iii]
The picture gets even less promising looking at the types of projects that have been built. The chart below shows the proportion of projects, measured by capture volume, in various categories. The largest component by some distance is natural gas processing – removing the CO2 from natural gas before combustion – which accounts for over 60% of volumes. This makes sense, as it is often a relatively low cost form of capture, and is often necessary to make natural gas suitable for use. However, it will clearly not be a major component of a low carbon energy system. Much of the rest is chemicals production, including ethanol and fertiliser production. These are helpful but inevitably small. There are just two moderate size power generation projects and two projects for hydrogen production, which is often considered important for decarbonising heat.
Furthermore, most of the projects separate out CO2 at relatively high concentrations or pressures. This tends to be easier and cheaper than separating more dilute, lower pressure streams of CO2. However it will not be typical of most applications if CCS is to become more widespread.
Chart 2: Large CCS projects by type (including those under construction)
Source: Analysis based on Global Carbon Capture and Storage Institute database
This slow growth of CCS has been accompanied by at least one spectacular failure, the Kemper County power generation project, which was abandoned after expenditure of several billion dollars. Neither the circumstances of the development or the technology used on that particular plant were typical. For example, the Saskpower’s project at Boundary Dam and Petra Nova’s Texas project have both successfully installed post combustion capture at power plants, rather than the gasification technologies used at Kemper County. Nevertheless, the Kemper project’s failure is likely to act as a further deterrent to wider deployment of CCS in power generation.
There have been several reasons for the slow deployment of CCS. Costs per tonne abated have remained high for most projects compared with prevailing carbon prices. These high unit costs have combined with the large scale of projects to make the total costs of projects correspondingly large, with a single project typically having a cost in the billions of dollars. This has in turn made it difficult to secure from governments the amount of financial support necessary to get more early projects to happen. Meanwhile the costs of other low carbon technologies, notably renewables, have fallen, making CCS appear relatively less attractive, especially in the power sector.
The difficulties of establishing CCS have led many to propose carbon capture and utilisation (CCU) as a way forward. The idea is that if captured CO2 can be a useful product, this will give it a value and so improve project economics. Already 80% by volume of CCS is CCU as it includes use of the CO2 for Enhanced Oil Recovery (EOR), with project economics supported by increased oil production.
Various other uses for CO2 have been suggested. Construction materials are a leading candidate with a number of research projects and start-up ventures in this area. These are potentially substantial markets. However the markets for CO2 in construction materials, while large in absolute terms, are small relative to global CO2 emissions, and there will be tough competition from other low carbon materials. For example, one study identified a market potential for CCU of less than two billion tonnes p.a. (excluding synthetic fuels) even on a highly optimistic scenario[iv], or around 5% of total CO2 emissions. It is therefore difficult to be confident that CCU can make a substantial contribution to reducing global emissions, although it may play some role in getting more early carbon capture projects going, as it has done to date through EOR.
Despite their slow growth, CCS and CCU continue to look likely to have a necessary role in reducing some industrial emissions which are otherwise difficult to eliminate. The development of CCS and CCU should be encouraged, including through higher carbon prices and dedicated support for early stage technological development. As part of this it remains important that more projects CCS and CCU projects are built to achieve learning and cost reduction, and so support the beginnings of more rapid growth. However in view of the lead times involved the scale of CCS looks likely to continue to be modest over the next couple of decades at least.
Adam Whitmore – 25th April 2018
[i] CO2 will generally be produced in making the energy necessary to run the capture process, compression of the CO2 for transport, and the rest of the transport and storage process. This CO2 will be either emitted, which reduces the net gain from capture, or captured, in which case it is part of the total. In either case the net savings compared with what would have been emitted to the atmosphere with no CCS are lower than the total captured.
[ii] Wind generation increased by a little over 100 TWh between 2016 and 2017 (Source: Enerdata). Assuming this displaced fossil capacity with an average emissions intensity of 0.6 t/MWh (roughly half each coal and gas) total avoided emissions would be 60 million tonnes.