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Friday, October 25, 2013

Are fossil fuels a prudent investment? Investors controlling $3 trillion want to know.

A very significant amount of fossil fuel reserves - corporate assets - that now underpin the financial might of oil, gas, coal and power companies will be unburnable if the world is to avoid catastrophic climate disruption.  Only wholesale, mandatory adoption of carbon capture and storage or carbon capture and utilization technologies on all powerplant and industrial sources can alter that very inconvenient truth.  

In light of that sobering fact, some of the largest pension funds in the U.S. and the world are asking 45 of the world’s top oil, gas, coal and electric power companies to do detailed assessments of how efforts to control climate change could impact their businesses and profitability.

The 70 funds signing on to the request control about $3 trillion in assets. The effort is being coordinated by Ceres and Carbon Tracker. 

This article sums up the situation:
Oil and coal are still wildly efficient and abundant energy sources, but the associated costs of both pulling carbon out of the ground and burning it are way, way up. This, coupled with a decreasing demand in much of the world -- cars are more efficient, alternative fuels are getting better, and there are more of them -- is a potential recipe for disaster if oil and gas companies continue to ignore the effects of a market changing along with the climate. Even today, prices have dropped in the U.S. due to excess inventory. This argument isn't from Carbon Tracker but Craig Mackenzie, one of those 70 signers, from an article he published in Responsible Investor.
How loudly will all this money talk in moving us toward a sustainable - and habitable - climate?

Tuesday, October 22, 2013

Stanford study - and others - say natgas' climate benefits will be small

Stanford University’s Energy Modeling Forum has published a new report that models the role that new natural gas supplies will play in North American energy markets.  It finds that they will do little to reduce overall CO2 emissions over the next several decades.

The report’s summary says that “Natural gas has lower emissions of carbon dioxide, sulfur dioxide and nitrogen oxides at the burnertip than coal and oil.” True enough, though it doesn't mention vast reductions in soot and mercury pollution that are gained in a switch from coal to gas, and misses mention of how those qualities can significantly reduce toxic air pollution - and cancer and autism. Still, it says that:     
continued shale gas development within North America is likely to have more sweeping impacts on future energy prices than on the economy or the environment. Shale development…boosts the economy by $70 billion annually over the next several decades. Although this amount appears large, it represents a relatively modest 0.46 percent of the US economy. 
Shale development has relatively modest impacts on carbon dioxide, nitrogen oxide and sulfur dioxide emissions, particularly after 2020. Since 2006, electricity generation has become less carbon intensive as its natural gas share increased from 16 to 24 percent and its coal share decreased from 52 to 41 percent. Over future years, this trend towards reducing emissions becomes less pronounced as natural gas begins to displace nuclear and renewable energy that would have been used otherwise in new powerplants…

The Stanford study says that the economy will also play a role: 
Another contributor to the modest emissions impact is the somewhat higher economic growth that stimulates more emissions. Reinforcing this trend is the greater fuel and power consumption resulting from lower natural gas and electricity prices. 
The Stanford findings are not surprising. The  Union of Concerned Scientists, other smart energy thinkers - including our new Energy Secretary -  and other reports from the International Energy Agency have concluded that a transition from a coal- to a natural gas-dominated electricity system would not be sufficient to meet U.S. climate goals. 

The bottom line is this.  Natgas is enabling significant short-term improvements in carbon emissions, reductions in carbon intensity of the economy, and reductions in toxic air pollution.  Because natgas combustion is still a significant source of carbon emissions, and because methane emissions from natgas production and transmission are still huge unresolved issues, natgas remains at best a short-term climate stabilization tool.  

The Stanford findings might be significantly different with different energy policies. Natgas could have a much more benefical impacts and a longer future in our energy mix – without distorting investment decisions in cleaner technologies – if carbon capture and storage technology was required on natgas plants - and a price is placed on carbon. Will we ever see that day?

Monday, October 21, 2013

UK’s plans for CCS: a model for the world?

The UK government has responded to the work of its Carbon Capture and Storage Cost Reduction Task Force, whose work I’ve blogged about here and here.

In a new report: CCS in the UK: Government response to the CCS Cost Reduction Task Force, the UK government lays out a comprehensive approach to achieving commercial-scale CCS that includes five key components:

  • A CCS commercialization program
  • A coordinated research, development, and innovation program
  • Electricity market reform
  • Commitments to working with industry to develop the CCS supply chain, address regulatory barriers, and assist the development of CCS infrastructure
  • International engagement focused on sharing knowledge

The report notes that CCS projects could benefit from lower costs associated with synergies with enhanced oil recovery (EOR).  Here in the U.S., EOR potential is on-shore, while in the UK it is offshore, and perhaps more problematic. The government is also exploring the possibility of supporting a front end engineering design (FEED) study for a CCS network.  Both the EOR and network elements of the UK plan take their cues from work that Pennsylvania did four years ago in partnership with the Clinton Climate Initiative - work that I had the privilege to lead.

The UK’s efforts on CCS are among the most aggressive in the world.  They need to be.  Philippe Benoit, Head of the Energy Efficiency and Environment Division at the International Energy Agency writes here that:  
Despite strong advances in clean energy technologies and serious intentions to address climate change, fossil fuels continue to dominate the world fuel mix…The International Energy Agency (IEA) estimates that even under an ambitious climate scenario, fossil fuels could represent 45 per cent of energy use in 2050.
The urgency of deploying carbon capture and storage (CCS) only increases if we are to achieve low–carbon stabilisation goals to limit the global temperature rise to no more than 2°C. The IEA scenarios assign a very important contribution to CCS to reduce global CO2 emissions: around 17 per cent in 2050. In practice, this means that by 2050 some 8 Gt of CO2, equalling the current United States and European Union annual energy–related CO2 emissions combined [emphasis mine], will need to be captured and stored per year globally. Over the next four decades, this requires the creation of a new industry, comparable in size to today's oil and gas industries – not a small challenge.
Benoit continues: 
The next seven years will be crucial to accelerated development of CCS and for laying the foundation for its envisaged performance for decades to come…Mobilising the large amounts of financial resources necessary will depend on the development of strong business models for CCS, which are so far lacking…Moreover, planning and actions that take future demand into account are needed to encourage development of CO2 storage and transport infrastructure. 
The UK’s work on CCS reflects the urgency of getting the technology to scale in time to deal with the realities of our current – and future – energy mix.  The United States must catch up.  Quickly.  CCS network and using captured CO2 for enhanced oil and gas recovery will be key drivers for the creation of an urgently-needed, new American industry.