Hydrogen and heat pumps may both play a role in UK building heating

Low carbon hydrogen and electricity via heat pumps may both play a large role in decarbonising building heating in the UK.  Ways forward are needed that maintain optionality around solutions while more is learnt about the right mix.

Decarbonising building heating in the UK poses a range of challenges.  First, the required transition is very large scale.  There are around 27 million households in the UK, with many more commercial buildings, small and large.  This implies around a million or more premises a year on average need to be converted to low carbon heat between now and 2050.

Along with scale, there is cost.  Replacing the UK’s heating system is expensive both in total and by household, even if the existing natural gas network can be used for hydrogen.   This challenge is made more difficult by the high seasonality of heating demand (Chart 1).  Building natural gas supply chains, reformers to produce hydrogen from natural gas, CCS, low carbon electricity and heat pumps all involve major capital investment.  Running this for only part of the year – the colder months – increases unit costs substantially. The chart below shows daily gas and electricity demand from non-daily metered (i.e. small) customers.  Demand for energy from gas, the major source of building heating at present, is about two or three times electricity demand during winter, and is much more seasonal.

Chart 1: Heating demand is highly seasonal …

Source: BEIS (2018) ‘Clean Growth – Transforming Heating’ https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/766109/decarbonising-heating.pdf

Furthermore, the transition to low carbon heat needs to be made largely with the UK’s existing building stock, which is mainly old and often badly insulated.  Improved insulation is a priority in any programme, but there are practical and cost constraints on what can be done with existing buildings.  (Buildings also need to be able to cope with the increased prevalence of heat waves as the climate warms, but that is a separate topic.)

Finally, building heating directly affects people’s day to day lives, so consumers’ acceptance is critical.  On the whole the present system, based mainly on natural gas boilers, works quite well except for its emissions.  Any new system should preferably work as well or better.

The leading candidates for low carbon heating in buildings are electricity, almost certainly using heat pumps to increase efficiency, and low carbon hydrogen.  Biomass seems unlikely to be available either at the scale or cost that would be needed for it to be a major contributor to low carbon heating, though it may find a niche.  District heating networks require low carbon heat and this must draw on the same ultimate set of sources of heat.  Waste heat from nuclear, once discussed as a possibility, no longer seems likely to be either practical or cost effective.

Recently the Committee on Climate Change (CCC) analysed the costs of decarbonising heat in 2050 using different approaches.  They looked at electricity, hydrogen, and combinations of the two.  The analysis concluded that a 50% increase over current costs was likely (Chart 2).  The remarkable thing about the analysis is that this cost was similar for all of the options considered.  Any differences were well within the uncertainty of the estimates.

Chart 2: Costs of different modes for decarbonising building heating …

Source:  Committee on Climate Change

With no large cost difference leading to one or the other option being preferred there is a need to test each option out to see which works better in practice.  Mixed solutions may be appropriate in many cases.  For example, hydrogen may be useful in providing top-up heat even if heat pumps are providing the baseload, or may be the only solution for some poorly insulated properties for which heat pumps don’t run at high enough temperatures.

The CCC’s analysis includes expected cost savings.  The transition to low carbon heat will clearly be more acceptable if this cost can be reduced further.  In particular there seem likely to be both technical advances and large economies of scale in heat pump manufacture and installation, and the costs of low carbon power may fall by more than assumed by the CCC.  As the analysis stands, a 50% increase is clearly politically difficult, especially when there do not seem to be advantages for the customer, and potentially some drawbacks.  However, this is less than a 2% p.a. compound increase in real terms over a 30 year period, which might be politically feasible if introduced gradually and spread across all consumers.

With such large changes in demand between summer and winter, seasonal storage is a major issue for reasons of both cost and practicality.  This is an under-researched area, and needs further work.  There are various possibilities – storage of hydrogen itself in salt caverns, storage of hydrogen as ammonia or storage of heat in ground sinks, but each has its problems and the scale involved is very large.

A final uncertainty is the form which hydrogen production will take.  At the moment methane in reformers predominates and, with the addition of CCS, may continue to do so.  However both the costs of low carbon electricity and of the electrolysis are decreasing rapidly.  Over the long term this may become a more significant pathway for hydrogen production.

These uncertainties imply that building heating poses a particularly difficult set of choices for policy.  It is not clear what route, or mix of routes, is the right one.  The transition needs to be quite rapid relative to the lifetimes and scale of existing infrastructure, and it involves the need for consumer acceptance.  There are also potentially strong network and lock in issues.

The best approach is likely to be to develop several types of solution in parallel, maintaining optionality while learning, and being prepared for some approaches to be dead ends.  The implications of this include the need for roll out of low carbon heat sources in some districts now to get an idea of how they will work at scale.

Some of this is happening, much more is needed.

Adam Whitmore -29^th October 2019.

 

Comparison of cost estimates with previous analysis by this blog.

Around four and a half years ago I looked at the costs of decarbonising domestic heating in the UK in winter using low carbon electricity.  I concluded that switching to low carbon heat would add 75% or more to domestic heating bills, with some drawbacks for consumers (I also looked at higher cost case, but this case no longer seems likely due to the fall in the costs of low carbon electricity, especially offshore wind, since the analysis was done.)  I suggested that this meant that the transition would be difficult and that reductions in capital costs were necessary.

This analysis is broadly consistent with the CCC analysis quoted here, which suggests a 50% increase on current costs.  The estimates are roughly similar given the large uncertainties involved , the inevitable differences is assumptions, and different basis of the estimates.  In particular the CCC analysis factors in reductions in costs of low carbon heating likely by 2050, whereas my previous analysis was based on current costs to make the point that cost reductions are necessary,  Consequently it would be expected that the CCC analysis would show a smaller cost increase relative to current costs.  Also, the CCC’s analysis may exclude some costs – estimates such as these have a tendency to go up when you look at them more closely.  Equally it may understate the cost reductions possible over decades.

 

 

Europe’s phase out of coal

Europe is progressing with phasing out hard coal and lignite in power generation, but needs to move further faster, especially in Germany and Poland

Reducing coal use in power generation and replacing it with renewables (and in the short run with natural gas) remains one of the best ways of reducing emissions simply, cheaply and quickly at large scale.  Indeed, it is essential to meet the targets of the Paris Agreement that the world’s limited remaining cumulative emissions budget is not squandered on burning coal and lignite in power generation.

Europe is now making progress in phasing out coal.  The UK experience has already illustrated what can be done with incentives from carbon pricing to reduce coal generation.  Emissions from coal have reduced by more than 80% in the last few years, even though coal plant remains on the system[i].  However, many countries, including the UK, are now going further and committing to end coal use in power generation completely in the next few years.  The map below shows these commitments as they now stand.  Most countries in western Europe now have commitments in place. (Spain is an exception.  The government is expecting coal plant to be phased out by 2030, but currently does not mandate this.)

Map: Current coal phase-out commitments in Europe[ii]

Source: Adapted from material by Sandbag (see endnotes).

In some countries there is little or no coal generation anyway.  In other countries plants are old and coming to the end of their life on commercial grounds, or are unable to comply with limits on other pollutants.  In each case phase-out is expected to go smoothly.

However, the largest emitters are mainly in Germany and Poland and here progress is more limited.  Germany has now committed to coal phase-out.  But full phase-out might be as late as 2038.  Taking another 20 years or so to phase out such a major source of emissions is simply too long.  And Poland currently looks unlikely to make any commitment to complete phase out.

This means the Europe is still doing less than it could and should be doing to reduce emissions from coal and lignite.  As a result, EU emissions are too high, and the EU loses moral authority when urging other nations, especially in Asia and the USA, to reduce their emissions further, including by cutting coal use.

Several things are needed to improve this situation, including the following.

• Further strengthening the carbon price under the EUETS by reducing the cap. I looked at the problem of continuing surpluses of allowances in another recent post, and accelerated coal closure would make the surplus even greater.  Although the rise in the EUA price in the last 18 months or so is welcome, further strengthening of the EUETS is necessary to reduce the risk of future price falls, and preferably to keep prices on a rising track so they more effectively signal the need for decarbonisation.
• Continuing tightening of regulations on other pollutants, which can improve public health, while increasing polluters’ costs and therefore adding to commercial pressure to close plant.
• Strengthening existing phase out commitments, including be specifying an earlier completion date in Germany.
• Further enabling renewables, for example by continuing to improve grid integration, so that it is clear that continuing coal generation is unnecessary.

As I noted in my last post, making deep emissions cuts to avoid overshooting the world’s limited remaining carbon budget will require many difficulties to be overcome.  There is no excuse for failing to make the relatively cheap and easy reductions now.   Reducing hard coal and lignite use in power generation in Europe (and elsewhere) continues to require further attention.

Adam Whitmore – 18^th June 2019

[i] See https://onclimatechangepolicydotorg.wordpress.com/2018/01/17/emissions-reductions-due-to-carbon-pricing-can-be-big-quick-and-cheap/

With and updated chart at:

https://onclimatechangepolicydotorg.wordpress.com/carbon-pricing/price-floors-and-ceilings/

[ii] Map adapted from Sandbag:

https://sandbag.org.uk/wp-content/uploads/2018/11/Last-Gasp-2018-slim-version.pdf

and data in:

https://beyond-coal.eu/wp-content/uploads/2018/11/Overview-of-national-coal-phase-out-announcements-Europe-Beyond-Coal-November-2018.pdf

and https://www.eia.gov/todayinenergy/detail.php?id=39652

How well is the UK on track for zero emissions by 2050?

By 2020 the UK will have very nearly halved its emissions over 30 years.  Reducing emissions by the same amount over the next 30 years will get the UK very close to zero.  However this will be very much more difficult.

A robust net zero target has been recommended for the UK …

A recent report by the UK’s Committee on Climate Change (CCC), the Government’s official advisory body, recommends that the UK adopts a legally binding target of net zero emissions of greenhouse gases by 2050[i], that is remaining emissions must be balanced by removal from the atmosphere.  If the Government agrees, this will be implemented by amending the reduction mandated by the Climate Change Act, from an 80% reduction from 1990 to a 100% reduction.

The target has several features that make it particularly ambitious.  It:

• sets a target of net zero emissions covering all greenhouse gases;
• includes international aviation and shipping;
• allows no use of international offsets; and
• is legally binding.

This is intended to end the UK’s contribution global warming.  It has no precedents elsewhere, although in France a bill with comparable provisions is under consideration[ii].

Progress to date has been good …

The UK has made good progress so far in reducing emissions since 1990.  Emissions in 2018 were around 45% below 1990 levels, having reduced at an average rate of about 12.5 million tonnes p.a. over the period.  On current trends, over the thirty years from 1990 to 2020 emissions will be reduced to about 420 million tonnes p.a., 47% below their 1990 levels.  Emissions will thus have nearly halved over the 30 years 1990 to 2020, half the period from 1990 to the target date of 2050.

Chart 1 shows how the UK’s progress compares with a linear track to the current target of an 80% reduction, to a 95% reduction and to a 100% reduction.  (For simplicity I’m ignoring international aviation and shipping).  The UK is currently on a linear track towards a 95% reduction by 2050.

Chart 1: Actual UK emissions compared with straight line progress towards different 2050 targets

 

Source: My analysis based on data from the Committee on Climate Change and UK Government.  Data for 2018 is provisional[iii]

The largest contributor to the total reduction so far has been the power sector.  Analysis by Carbon Brief[iv] showed that the fall in power sector emissions has been due to a combination deploying renewables, which made up about of third of generation in 2018, reducing coal use by switching to natural gas, and limiting electricity demand growth.

Industrial emissions have also fallen significantly.  However some of this likely represents heavy industry now being concentrated elsewhere in the world, so likely does not represent a fall in global emissions.  Emissions from waste have also fallen, due to better management.

Reducing emissions will be relatively easy in some sectors …

There are also reasons for optimism about continuing emissions reductions.  Many technologies are now there at scale and at competitive prices, which they were not in previous decades.  For example, falling renewables costs and better grid management, including cheaper storage, will help further decarbonisation of the power sector.  Electrification of surface transport now appears not only feasible, but likely to be strongly driven (at least for cars and vans) by economic factors alone as the cost of batteries continues to fall.

But huge challenges remain …

Nevertheless important difficulties remain for complete decarbonisation.

CCS is identified by the report as an essential technology.  However, as I have noted previously, it has made very little progress in recent years in the UK or elsewhere[v].  CCS is especially important for decarbonising industry.  This includes a major role for low carbon hydrogen, which is assumed to be produced from natural gas using CCS – although another possibility is that it comes from electrolysis using very cheap renewables power, e.g. at times of surplus.  CCS also looks to be necessary because of its use with bioenergy (BECCS), to give some negative emissions, though the lifecycle emissions from this will require careful attention

Decarbonising building heating, especially in the residential sector, continues to be a challenge.  The report envisages a mix of heat pumps and hydrogen, perhaps in the form of hybrid designs, with heat pumps providing the baseload being topped-up up by burning of hydrogen in winter.  I have previously written about the difficulties of widespread use of heat pumps[vi], and low carbon hydrogen from natural gas with CCS is also capital intensive to produce and therefore expensive to run for the winter only.  The scale of any programme and consumer acceptance remain major challenges, and the difficulties encountered by the UK’s smart meter installation programme – by comparison a very simple change – are not an encouraging precedent.

Emissions from agriculture are difficult to eliminate completely, and no technologies are likely to be available by 2050 that enable aviation emissions to be completely eliminated.  This will require some negative emissions to balance remaining emissions from these sectors.

Policy needs to be greatly strengthened …

Crucially several of the necessary transformations are very large scale, and need long lead times, and investment over decades.  There is an urgent need to make progress on these, and policy needs to recognise this.  This includes plans for significant absorption from reforestation, as trees need to be planted early enough that they can grow to be absorbing substantial amounts by 2050.

The UK’s progress on emissions reduction so far has been good, having made greater reductions than any other major economy[vii].  And technological advances in some areas are likely to enable substantial further progress.  However much more is needed.  In particular policy needs to look now at some of the difficult areas where substantial long-term investment will be needed

Adam Whitmore – 22^nd May 2019

 

 

[i] https://www.theccc.org.uk/2019/05/02/phase-out-greenhouse-gas-emissions-by-2050-to-end-uk-contribution-to-global-warming/

 

[ii] The CCC report notes that Norway, Sweden and Denmark have net zero targets, but they allow use of international offsets (up to 15% in the case of Sweden).  France has published a target similar to the UK’s in a bill.  The European Commission has proposed something similar for the EU as a whole, but this is a long way from being adopted. California has non-legally binding targets to achieve net zero by 2045.  Two smaller jurisdictions (Costa Rica, Bhutan) have established net zero targets but these are expected to be achieved mainly by land use changes.  New Zealand has a draft bill to establish a target, but eliminating all GHGs will be difficult because of the role of agriculture in the New Zealand economy.

 

[iii] https://www.gov.uk/government/statistics/provisional-uk-greenhouse-gas-emissions-national-statistics-2018  The change from 2017 to 2018 is applied to the data series from 1990 produced by the CCC (the two data series differ very slightly in their absolute levels).

 

[iv] https://www.carbonbrief.org/analysis-uk-electricity-generation-2018-falls-to-lowest-since-1994

 

[v] https://onclimatechangepolicydotorg.wordpress.com/2018/04/25/a-limited-but-important-medium-term-future-for-ccs/

 

[vi] https://onclimatechangepolicydotorg.wordpress.com/2015/05/18/reducing-the-costs-of-decarbonising-winter-heating-needs-to-be-a-priority/

 

[vii] https://onclimatechangepolicydotorg.wordpress.com/2017/05/09/uk-emissions-reductions-offer-lessons-for-others/

 

The EUETS has not been fully fixed

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

Source: Sandbag

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

Source: Sandbag

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)

Source: Sandbag

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 – 9^th April 2019

 

 

 

[i] With a 43% reduction from 2005 levels in the sectors covered by the EUETS.

[ii] https://sandbag.org.uk/wp-content/uploads/2019/03/Halfway-There-March-2019-Sandbag-3.pdf

 

The IEA’s solar PV projections are more misleading than ever

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[1] 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

http://zenmo.com/photovoltaic-growth-reality-versus-projections-of-the-international-energy-agency-with-2018-update/

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.

Adam Whitmore -21^st January 2019

https://onclimatechangepolicydotorg.wordpress.com/2013/10/08/why-have-the-ieas-projections-of-renewables-growth-been-so-much-lower-than-the-out-turn/

https://onclimatechangepolicydotorg.wordpress.com/2015/02/27/the-ieas-central-projections-for-renewables-continue-to-look-way-too-low/

https://onclimatechangepolicydotorg.wordpress.com/2015/06/27/the-ieas-bridge-scenario-to-a-low-carbon-world-again-underestimates-the-role-of-renewables/

https://onclimatechangepolicydotorg.wordpress.com/2017/09/26/underestimating-the-contribution-of-solar-pv-risks-damaging-policy-making/

[1] The BP Statistical Review of World Energy shows a total of 87GW installed in 2017 https://www.bp.com/content/dam/bp/business-sites/en/global/corporate/pdfs/energy-economics/statistical-review/bp-stats-review-2018-renewable-energy.pdf

Satellite data can help strengthen policy

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.

Monitoring CO₂

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.

Implications

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 – 12^th September 2018

Thanks to Dave Jones for sharing his knowledge on the topic .

[i] https://www.ucsusa.org/nuclear-weapons/space-weapons/satellite-database#.W5Y-7ZNKhcA, https://allthingsnuclear.org/lgrego/new-update-of-ucs-satellite-database,

[ii] https://www.globalforestwatch.org/about

[iii] See here http://www.climatechangenews.com/2018/08/07/china-restarts-coal-plant-construction-two-year-freeze/ for examples

[iv] https://twitter.com/matthewcgray/status/1032251925515968512

[v] http://www.tropomi.eu/data-products/methane

[vi] https://www.scientificamerican.com/article/meet-the-satellites-that-can-pinpoint-methane-and-carbon-dioxide-leaks/

[vii] https://agupubs.onlinelibrary.wiley.com/doi/10.1002/2017GL074702

[viii] https://www.bbc.co.uk/news/science-environment-43926232

 

Five years on

The past five years have given many reasons for optimism about climate change

I have now been writing this blog for just over five years, and it seems timely to step back and look at how the climate change problem appears now compared with five years ago.

In some ways it is easy to feel discouraged.  In the last five years the world has managed to get through about a tenth of its remaining carbon budget, a budget that needs to last effectively forever.

However, in many ways there seem to be reasons for much greater optimism now than five years ago.  Several trends are converging that together make it appear that the worst of the risks of climate change can be avoided.

There is increasing action at the national level to reduce emissions, reinforced by the Paris Agreement …

Legislation is now in place in 164 countries, including the world’s 50 largest emitters.  There are over 1200 climate change and related laws now in place compared with 60 twenty years ago[i].  And this is not restricted to developed countries – many lower income countries are taking action.  Action at national level is being supported around the world by action in numerous cities, regions and companies.

This trend has now been reinforced by the Paris Agreement, which entered into force in November 2016, and commits the world to limiting temperature rises and reducing emissions.

There is increasing evidence of success in reducing emissions …

Many developed countries, especially in Europe, have shown since 1990 that it is possible to reduce emissions while continuing to grow their economies.  Globally, emissions of carbon dioxide from energy and industry have at least been growing more slowly over the past four years and may even have reached a plateau[ii].

Carbon pricing is spreading around the world  …

Among the many policies put in place, the growth of carbon pricing has been especially remarkable.  It has grown from a few small northern European economies 15 years ago to over 40 jurisdictions[iii].  Prices are often too low to be fully effective.  However, carbon pricing has also been shown to work spectacularly well in the right circumstances, as it has in the UK power sector.  And the presence of emissions caps in many jurisdictions gives a strong strategic signal to investors.

Investors are moving out of high carbon sources and in to lower carbon opportunities …

Companies are under increasing pressure to say how their businesses will be affected by climate change and to do something about reducing emissions.  And initiatives such as the Climate Action 100+, which includes over two hundred global investors controlling over $20 trillion of assets, are putting pressure on companies to step up their action.  This will further the trend towards increasing investment in a low carbon economy.  Meanwhile, many funds are divesting from fossil fuels, and vast amounts of capital are already going into low carbon investments.

Falling costs and increasing deployment of renewables and other low carbon technologies …

Solar and wind power and now at scale and continuing to grow very rapidly.  They are increasingly cost-competitive with fossil fuels.  The decarbonisation of the power sector thus looks likely to proceed rapidly, which will in turn enable electrification to decarbonise other sectors.  Electric vehicle sales are now growing rapidly, and expected to account for the majority of light vehicle sales within a couple of decades.  Other technologies, such as LED lighting are also progressing quickly.

This is not only making emissions reductions look achievable, it is making it clear that low carbon technologies can become cheaper than the high carbon technologies they replace, and can build whole new industries as they do.  As a reminder of just how fast things have moved, in the last five years alone, the charts here show global generation from wind and solar since 2000.

Falling costs of low carbon technologies, more than anything else, gives cause for optimism about reducing emissions.  As lower carbon alternatives become cheaper the case for high carbon technologies will simply disappear.

Charts: Global Generation from Wind and Solar 2000 – 2017

Sources:  BP Statistical Review of World Energy, Enerdata, GWEC, IEA

Climate sensitivity looks less likely to be at the high end of the range of estimates …

The climate has already warmed by about a degree Celsius, and some impacts from climate change have been greater than expected.  However, the increase in temperature in response to increasing concentrations of greenhouse gases has so far shown few signs of being towards the top end of the possible range, although we can never rule out the risk of bad surprises.

Taking these trends together there is reason to be cautiously optimistic …

There will still be serious damage from climate change – indeed some is already happening.  And it is by no means clear that the world will act as quickly as it could or should.  And there could still be some nasty surprises in the earth’s reaction to continuing emissions.  Consequently, much effort and not a little luck is still needed to avoid the worst effects of climate change.

But compared with how things were looking five years ago there seem many reasons to believe that things are beginning to move in the right direction.  The job now is to keep things moving that way, and to speed up progress.

Adam Whitmore – 10^th April March 2018 

[i] http://www.lse.ac.uk/GranthamInstitute/publication/global-trends-in-climate-change-legislation-and-litigation-2017-update/

[ii] http://www.pbl.nl/sites/default/files/cms/publicaties/pbl-2017-trends-in-global-co2-and-total-greenhouse-gas-emissons-2017-report_2674.pdf

[iii] https://openknowledge.worldbank.org/handle/10986/28510

Economic growth and emissions cuts can go together

There is often said to be a trade-off between growth and decarbonisation, but the evidence shows that advanced economies can combine large emissions cuts with continuing economic growth.

Policy on greenhouse gas emissions reductions is often framed as a trade-off between greater emissions reductions and greater economic growth.  However, while emissions clearly can’t be reduced to zero immediately, faster emissions reductions can be accompanied by robust economic performance.  The clearest example of this is the UK.  Since 1990 the UK has cut its total greenhouse gas emissions much more rapidly than other G7 countries, while growing its economic output per capita more than the average.  This is illustrated in Chart 1.

Chart 1: UK per capita GDP growth and greenhouse gas emissions compared with the G7 average[i]

The extent by which the UK has cut its per capita emissions relative to other countries is emphasised in the following charts, which show that the UK has achieved by far the largest reductions in per capita CO2 emissions.

Chart 2: CO₂ emissions per capita in 2016 and 1990 for G7 countries[ii]

Note: Japanese emissions rose by 0.4 tonnes per capita over the period (not shown)

Chart 3: Change in per capita and total CO₂ emissions 1990 to 2016 for G7 countries

Note: Data in these charts is for CO₂ only, excluding other greenhouse gases.

Of course, some of the relative changes reflect circumstances.  The UK started with relatively high emissions, including extensive use of coal in power generation.  In contrast, France already had a low carbon power sector in 1990, and in 2016 France’s per capita emissions remained about 8% below those of the UK, even though UK emissions had fallen much more from their 1990 levels.

Germany has also achieved significant reductions, having benefitted from reductions in emissions in the former East Germany and installing large amounts of renewables.  However it has been hampered by continuing extensive use of coal and lignite for power generation.  The USA has accommodated significant population growth with only a small rise in emissions, but this is clearly nowhere near enough if it is to make an appropriate contribution to global reductions.  Emissions remain at almost three times UK levels.  Canadian emissions are also high and have increased in absolute terms.  Japan’s emissions have grown slightly over the period.

Some falls in emissions in G7 economies may reflect a shift in the global pattern of emissions, with reduced emissions from industry in the G7 economies balanced by increases in China and elsewhere.  However this can’t account for all of the reductions that have been achieved, or the vast differences in reductions between countries.

Policy has certainly also played its part.  UK policy has successfully targeted relatively low cost emissions reduction, notably reducing coal use in the power sector.  Above all the Climate Change Act (2008) has provided a consistent and rigorous policy framework.

And whatever the reason, one thing is clear.  Cutting emissions more can accompany growing the economy more.

Adam Whitmore – 8^th March 2018

 

 

[i]https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/651916/BEIS_The_Clean_Growth_online_12.10.17.pdf

[ii] http://www.pbl.nl/en/publications/trends-in-global-co2-and-total-greenhouse-gas-emissions-2017-report

There should be few reservations about auction reserve prices

The auction reserve price in California has proved successful in maintaining a minimum carbon price.  However it shows the importance for an emissions trading system of political commitment and stability. 

This is the second of two posts looking at experience of carbon price floors.  My previous post looked at UK carbon price support, which guarantees a minimum price by means of a tax.   This post looks at an alternative approach, which is used in California  and the other Western Climate Imitative systems, Quebec and Ontario.  Here, instead of imposing a tax, the floor is set by specifying a reserve price in auctions of allowances.  If bids in auctions stay below the reserve price the allowances are not sold.  Reserve prices such as this are common in practice in many commercial auctions, including those held by major auction houses and online.

Reserve prices give what is often called a “soft” floor.  The market price can go below the auction reserve, but eventually the need to buy allowances at auction is likely to ensure that the price recovers.

The chart below shows the auction reserve price in the California system (green line), which started at $10/tonne in 2012 and is increased each year by 5% plus the rate of inflation.  The California market price (blue line) has generally stayed above this level.  However it did dip below the reserve price for a while in 2016, illustrating that the floor is soft.  This price dip reflected a combination of legal challenges to the system, and political uncertainty about the continuation of the system after 2020, which together reduced the demand for allowances.  Once those uncertainties were resolved the market price recovered.

Chart: Auction reserve prices and market allowance prices in the California cap-and-trade system to end of 2017

Source:  http://calcarbondash.org/ and CARB

The Regional Greenhouse Gas Initiative (RGGI) has similar arrangements but with a much lower reserve price, and there too the price has been above the floor.

The environmental effectiveness of price containment mechanisms depends in large part on what eventually happens to any unsold allowances.  In the case of California this issue particularly affects the upper Price Containment Reserve, from which allowances are released if prices go above defined thresholds.  Allowances from this reserve appear most unlikely to be required in the current phase, as prices seem highly unlikely to reach the threshold levels.  If these unsold allowances in the reserve are cancelled, or otherwise put beyond use, cumulative emissions will be lower.  However if they eventually find their way back into the system, and enable the corresponding quantity of emissions to take place, the environmental benefit may not be realised, or at least not it full.  Some sort of cancellation mechanism is therefore needed, for example cancelling allowances that have been in the reserve for more than a specified number of years.

So price floors can work, however in the case of the California system at least two things need to be agreed as the rules for the system after 2020 are debated this year.

First, continuation of the escalation of the floor price needs be confirmed at least at the current rate, and ideally the rate should be increased.

Secondly, rules for cancelling unsold allowances from the Price Containment Reserve need to be defined.  The cancellation of allowances from the Market Stability Reserve included in the recent reforms to the EUETS sets a valuable precedent in this respect.

The theoretical advantages of a floor price in an ETS are well known.  The experience of auction reserve prices now proving effective in practice over a number of years should encourage other jurisdictions, especially the EU, to introduce similar arrangements.  And those jurisdictions such as California where they are already in place need to continue to develop and enhance them.

Adam Whitmore – 15^th February 2018

Emissions reductions from carbon pricing can be big, quick and cheap

The UK carbon tax on fuel for power generation provides the most clear-cut example anywhere in the world of large scale emissions reductions from carbon pricing.   These reductions have been achieved by a price that, while higher than in the EU ETS, remains moderate or low against a range of other markers, including other carbon taxes.

The carbon price for fuels used in power generation in the UK consists of two components.  The first is the price of allowances (EUAs) under the EUETS.  The second is the UK’s own carbon tax for the power sector, known as Carbon Price Support (CPS).  The Chart below shows how the level CPS (green bars on the chart) increased over the period 2013 to 2017[i].  These increases led to a total price – CPS plus the price of EUAs under the EUETS (grey bars on the chart) – increasing, despite the price of EUAs remaining weak.

This increase in the carbon price has been accompanied by about a 90% reduction in emissions from coal generation, which fell by over 100 million tonnes over the period (black line on chart).   Various factors contributed to this reduction in the use of coal in power generation, including the planned closure of some plant and the effect of regulation of other pollutants.  Nevertheless the increase in the carbon price since 2014 has played a crucial role in stimulating this reduction in emissions by making coal generation more expensive than gas[ii].  According to a report by analysts Aurora, the increase in carbon price support accounted for three quarters of the total reduction in generation from coal achieved by 2016[iii].

The net fall in emissions over the period (shown as the dashed blue line on chart) was smaller, at around 70 million tonnes p.a. [iv] This is because generation from coal was largely displaced by generation from gas. The attribution of three quarters of this 70 million tonnes to carbon price support implies a little over 50 million tonnes p.a. of net emission reductions due to carbon price support.   This is equivalent to a reduction of more than 10% of total UK greenhouse gas emissions.  The financial value of the reduced environmental damage from avoiding these emissions was approximately £1.6 billion in 2016 and £1.8 billion in 2017^[v].

Chart:  Carbon Prices and Emissions in the UK power sector

The UK tax has thus proved highly effective in reducing emissions, producing a substantial environmental benefit[vi].  As such it has provided a useful illustration both of the value of a floor price and more broadly of the effectiveness of carbon pricing.

This has been achieved by a price that, while set at a more adequate level than in the EU ETS, remains moderate or low against a range of other markers, including other carbon taxes.  CPS plus the EUA price was around €26/tCO₂ in 2017 (US$30/tCO₂).  The French the carbon tax rose from €22/tCO₂ to €31/tCO₂ over 2016-2017. In Canada for provinces electing to adopt a fixed price the carbon price needs to reach CAN$50/tCO₂ (€34/tCO₂) by 2022[vii].  These levels remain below US EPA 2015 estimates of the Social Cost of Carbon of around €40/tCO₂ [viii].

This type of low cost emissions reduction is exactly the sort of behaviour that a carbon price should be stimulating, but which is failing to happen as a result of the EU ETS because the EUA price is too low.  More such successes are needed if temperature rises are to be limited to those set out in the Paris Agreement.  This means more carbon pricing should follow the UK’s example of establishing an adequate floor price.  This should include an EU wide auction reserve for the EUETS.  The reserve price should be set at somewhere between €30 and €40/t, increasing over time.  This would likely lead to substantial further emissions reductions across the EU.

Adam Whitmore – 17^th January 2018

Notes:

[i] Emissions date for 2017 remains preliminary.  UK carbon price support reached at £18/tCO₂ (€20/tCO2) in the fiscal year 2015/6 and was retained at this level in 2016/7.  In 2013/4 and 2014/5 levels were £4.94 and £9.55 respectively.  This reflected defined escalation rates and lags in incorporating changes in EUA prices. https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/293849/TIIN_6002_7047_carbon_price_floor_and_other_technical_amendments.pdf and www.parliament.uk/briefing-papers/sn05927.pdf

[ii] http://www.theenergycollective.com/onclimatechangepolicy/2392892/when-carbon-pricing-works-2

[iii] https://www.edie.net/news/6/Higher-carbon-price-needed-to-phase-out-UK-coal-generation-by-2025/

[iv] Based on UK coal generation estimated weighted average emissions intensity of 880gCO2/kWh, and 350gCO₂/kWh for gas generation.

[v] 50 million tonnes p.a. at a social cost of carbon based on US EPA estimates of $47/tonne (€40/tonne).

[vi] There is a standard objection to a floor in one country under the EUETS is that it does not change of the overall cap at an EU level so, it is said, does not decrease emissions.  However this does not hold under the present conditions of the EUETS, and is unlikely to do so in any case.  A review of how emissions reductions from national measures, such as the UK carbon price floor, do in fact reduce total cumulative emissions over time is provided was provided in my recent post here.

[vii] The tax has now set at a fixed level of £18/tonne.  It was previously set around two years in advance, targeting a total price comprising the tax plus the EUA price.  There was no guarantee that it would set a true floor price, as EUA prices could and did change a good deal in the interim.  Indeed, in 2013 support was set at £4.94/tCO2, reflecting previous expectations of higher EUA prices, leading to prices well below the original target for the year of £16/tCO2 in 2009 prices (around £17.70 in 2013 prices). See https://openknowledge.worldbank.org/handle/10986/28510?locale-attribute=en.  The price is also below the levels expected to be needed to meet international goals (see section 1.2), and below the social cost of carbon as estimated by the US EPA (see https://onclimatechangepolicydotorg.wordpress.com/carbon-pricing/8-the-social-cost-of-carbon/ and references therein).

[viii] Based on 2015 estimates.