August 21, 2017
EU and Switzerland link emission trading – will UK follow?
August 21, 2017
Switzerland and the European Union have moved closer to linking their carbon emissions trading systems (ETS) after the European Commission and Swiss government gave their backing for a deal, reports Reuters.
The news agency notes that “An accord could be signed by the year’s end and needs approval from EU leaders and ratification by the Swiss and EU parliaments.”
The Swiss ETS now includes 54 major carbon dioxide (CO2) emitters. Linking the Swiss and European systems will let these companies access a bigger and more liquid market. “Once the agreement takes effect, not expected before 2019, participants in the EU ETS will be able to use units from the Swiss system for compliance and vice versa, and emissions generated by aviation will also be included in the Swiss system.”
“In line with the proposed regulation in the EU, it is expected that only flights from Switzerland to other countries in the European Economic Area and internal flights will be included,” the Swiss government said after a cabinet meeting.
Like the EU ETS, the Swiss ETS is based on the cap-and-trade principle. The cap was set at 5.63 million tonnes of CO2 for 2013 and is reduced by 1.74 percent every year. The cap will be 4.91 million tonnes in 2020.
The EU ETS is the world’s largest carbon permit market and regulates around half of Europe’s output of heat-trapping gases, forcing more than 11,000 power plants, factories and airlines surrender a carbon allowance for every tonne of carbon dioxide they emit.
See here for the official announcement from the European Commission.
What will be particularly interesting to see is whether the EU-Swiss linkage can serve as a model for a possible EU-UK linkage after Brexit.
Meanwhile, China is preparing to launch a nationwide emissions market later this year after having run several regional pilots since 2013. The Chinese ETS, to be launched in November, will be by far the biggest in the world.
However, outside observers note that it is still unclear how it will be structured exactly. As Scientific American reports, “Expectations are tempered: Details of China’s national system are still murky, but enough information has emerged that observers are skeptical it will be immediately comparable to existing programs, due to design features as well as the haste with which China is rolling it out.”
The article also notes that “No carbon-trading system in the world has actually resulted in significant emissions reductions yet. Due to varying factors, initial emissions caps in the European Union, the U.S. Northeast and California all ended up comfortably above actual emissions, so businesses have not had to pay high prices or face significant incentives to curb their emissions. Rather, the programs have served as political consensus builders that have gotten industry accustomed to climate policies.”
“China’s program, which would dwarf all existing markets, will likely be similarly difficult to link to actual emissions reductions, at least at the outset.”
Concerns also remain “about the quality and opacity of China’s emissions reporting data. The country has produced just two nationwide greenhouse gas inventories, covering 1994 and 2005, as Hsu [Angel Hsu, a professor at Yale-NUS College and Yale University’s School of Forestry and Environmental Studies] pointed out in a paper.”
Desertec died, long live TuNur
August 21, 2017
The famous Desertec project may have died some time ago, the dream of exporting solar power from Northern Africa to Europe lives on. The UK developer TuNur earlier this month filed a permit request to the Tunisian energy ministry to build a massive 4.5 GW concentrating solar power (CSP) plant near Rjim Maatoug, in the southwest of Tunisia. The intention is for the electricity to be transported and sold to Europe, at least in part.
The carbon free electricity delivered by TuNur will be sufficient to power over 5 million European homes or fuel over 7 million electric vehicles, says the company in a press release.
Three HVDC submarine cables are under development, which will allow the transport of power to Europe with low losses, says the company.
The first cable links Tunisia and Malta, as Malta is already connected to the European grid, and “this connection will help reinforce Malta’s position as an energy hub in the center of the Mediterranean”. Note that the Malta-Sicily interconnector, which connects Malta to the European grid, only became operational in 2015, very recently. But it has a capacity of only 200 MW.
The second cable system will link Tunisia to central Italy, with a shoring point North of Rome. “This second cable system has been under development for several years and is currently being evaluated as a Project of Common Interest by the European Community”, notes TuNur.
“A third cable is under study and will link Tunisia directly to the South of France”, the company hopefully adds.
Illustration supplied by TuNur. Note that the website of Medrec, which seems to have the most details on the Tunisia-Italy interconnector, speaks of a 1000 MW project, not 2000 MW.
According to Kevin Sara, CEO of TuNur, “The economics of the project are compelling: the site in the Sahara receives twice as much solar energy compared to sites in central Europe, thus, for the same investment, we can produce twice as much electricity. In a subsidy-free world, we will always be a low cost producer, even when transmission costs are factored in.”
What TuNur does not mention is that CSP in recent years has been lagging behind solar PV in reducing its costs. It will be interesting to see if TuNur can make CSP competitive. The TuNur plan is to build a first stage consisting of a relatively small 250 megawatt CSP plant based on the familiar model of a tower surrounded by a field of heliostats (special mirrors), using molten salt as an energy carrier and storage medium.
The second stage is much more ambitious: “the project consists of a 2,250 MW CSP Tower plant with molten salt storage…with a dedicated 2,000 MW HVDC transmission line from the site, across Tunisia, through the Strait of Sicily, East of Sardinia and the Tyrrhenian Sea, landing North of Rome, in Italy. Once landed in Italy, 9,000 GWh per annum of low carbon dispatchable power will be transported to off-takers in Europe.”
This indeed seems reminiscent of the Desertec dream.
Oil companies: are they going electric?
August 21, 2017
You have no doubt read our article on Energy Post about “the surprising New Energy side of Shell” (5 July 2017).
In this interview, Geert van de Wouw, Managing Director of Shell’s venture capital unit Shell Technology Ventures, part of the company’s New Energies division, explains how Shell is (quietly) getting ready to become a major player in a wide range of energy services and renewable energies, from solar PV to microgrids, load balancing, storage, smart mobility, smart meters and many other ‘big data’ applications.
This may have been an inspiration for Bloomberg news agency to investigate how “Major oil companies are joining Silicon Valley in backing energy-technology start-ups”. Bloomberg provides a useful overview of the investments Shell, Total, BP, ExxonMobil, Chevron and Statoil are making in alternative energies.
You can check out the list for yourself. What strikes me about it is not only that the investments are fairly limited, but also that there seems to be a clear division between Shell, Total and Statoil on the one hand and BP, ExxonMobil and Chevron on the other.
The first group is investing in wind and solar power (i.e. renewable electricity) as well as smart energy technologies (in addition to sectors such as biofuels and CCS). The second group is investing in biofuels and activities such as CCS and fuel cells, but not directly in the electricity sector.
In other words, some oil companies have clearly made the decision to get involved in the electricity sector. Understandable in view of the trend towards electrification going on in the world. Others, however, have decided that this is not where their core competence lies. It will be interesting to see how this will play out.
Meanwhile, on 25 July Shell’s $12 billion new floating LNG plant, the Prelude, arrived in Australia. As one newspaper account put it: “The Prelude “makes the Sydney Opera House, London Eye and Taj Mahal look like doll houses, contains five times more steel than the Sydney Harbour Bridge, is almost twice as long as the Titanic and 21/2 times as wide. Feast your eyes on Prelude — the biggest vessel the world has ever seen.”
The 488-metre-long vessel is expected to start production in 2018. “The arrival of [Prelude in Australia] signals a milestone for the region as an energy hub”, Royal Dutch Shell said. The vessel will allow Shell to pull natural gas from seven production wells at the Prelude field off the coast of Western Australia. At 3.6 million tons of LNG expected each year, the facility can process an amount equivalent to Hong Kong’s entire demand for natural gas.
This is just to put things in perspective…
What the Saudi Aramco IPO will tell us about climate policy
August 21, 2017
It is being billed as “the world’s largest ever initial public offering (IPO)” – the planned public sale of (part of) Saudi Aramco – the world’s largest oil producer.
But hold on, aren’t we supposed to do all we can to reduce greenhouse gas emissions? And isn’t oil demand supposed to peak within a decade or so? Well, yes. This makes it all the more interesting to see how global climate policies will affect the valuation of the Saudi oil behemoth.
In a new report, NGO Oil Change International notes that “coming two years after the Paris Agreement, the initial public offering (IPO) of Saudi Aramco will be strongly shaped by climate change. Most analysts believe that Crown Prince Muhammad bin Salman’s US $2 trillion estimate of Aramco’s value was unrealistic, reckoning instead on somewhere in the range $1 to 1.5 trillion. But there has been a gap in commentary, on how moves to decarbonise the energy system will affect the IPO’s valuation.”
Oil Change International’s new briefing aims to fill that gap. It examines the climate dimensions of the proposed IPO through three lenses:
- how oil price will affect Aramco’s valuation
- how Aramco’s oil production will compete with that of international oil companies (IOCs) in light of constrained demand
- and how Aramco’s reserves relate to carbon budgets
The main conclusions:
- Compared to a base-case estimate of around $1.5 trillion, the value of Aramco could be between 25% to 40% lower in the IEA’s safer-climate scenarios (which correspond to the absolute minimum ambition within the range of the Paris goals).
- If oil prices stay at $50 in real terms, Aramco’s value could be reduced to less than $700 billion, 55% below the base case.
The report notes that “If fully extracted and burned, Saudi reserves would have a profound impact on the climate. Emissions from Saudi reserves would amount to 112 Gt of carbon dioxide, one seventh of total global emissions in a 2°C carbon budget, or one third of total global emissions in a 1.5°C carbon budget. The problem is not so much Aramco on its own, but Aramco in combination with IOCs, which constantly explore for and open up new reserves, to replace what they have extracted.”
The report notes that:
- Emissions from the oil, gas and coal in the world’s already-producing fields and mines are enough to take warming beyond 2°C.
- Aramco’s reserves may only be fully extracted if IOCs immediately stop exploring for and developing new reserves. The different production strategies of Saudi Aramco and of IOCs are together not compatible with achieving the Paris Agreement’s goal of keeping global warming well below 2° Celsius and aiming for 1.5°.
- If IOCs continue to add new oil and gas, Aramco’s reserves stand to push the world beyond climate limits: after carbon budgets are exhausted, there will still be strong economic incentives to extract them due to their low cost.
- If the IPO realises a value at the higher end of the likely range (say, above $1 trillion), its investors could face significant risk from climate policy.
- If it comes out lower, this may raise questions of whether IOCs are overvalued.
The IPO is thus “a real test of whether investors are thinking seriously about climate change.”