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Buildings emissions 2050: triple renovations rate today, avoid stress tomorrow

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ENERGY WATCH #1 - December 20, 2018

Buildings emissions 2050: triple renovations rate today, avoid unnecessary stress tomorrow

by Arasan Aruliah

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Buildings are responsible for 39% of total energy-related global emissions. More action is required from governments, cities and business if the buildings and construction sector is to reach net zero by 2050. Renovations to existing stock are vital but at the current rate of 1% we won’t get there – it needs to triple. Any delay in upping the rate will just increase pressure on the sector down the line. EPW takes a look at what hurdles must be overcome to make it happen.

According to a new report released at COP24 by the Global Alliance for Buildings and Construction,  some progress has been made. Their 2018 Global Status Report – Towards a Zero-Emission, Efficient and Resilient Buildings and Construction Sector emphasises that emissions from buildings and construction have peaked, thanks to energy efficiency gains in areas such as heating, lighting and cooking, and with more offices and homes being powered by cleaner forms of energy. Shifts towards energy saving technologies like heat pumps, improved windows and insulation, the use of less energy-intensive materials, and buildings design, are all paying off.

However, the report underlines that the buildings sector – a huge engine of the global economy – still accounts for a significant 39% of total energy-related CO2 emissions and 36% of final energy use. Net zero by 2050 is still a long way away.

The report was written in collaboration with the International Energy Agency (IEA) and UN Environment. Dr Fatih Birol, Executive Director of the IEA, warns: “Developments within the sector such as the growing uptake of air conditioners are having a big impact on energy and environmental trends at the global level… If we don’t make buildings more efficient, their rising energy use will impact us all, whether it be through access to affordable energy services, poor air quality or higher energy bills.” In other words, the global growth in buildings and population is outpacing the gains from energy efficiency improvements, meaning final energy demand in buildings has risen by 5% since 2010 (Figure 2).

Efficiency gains across the board, except in space cooling

Energy intensity per unit of floor area is another way of measuring energy efficiency. The data shows that space heating and lighting have improved the most since 2010 (Figure 3). The shift to energy‐efficient technologies, such as light‐emitting diodes (LEDs) and heat pumps in some markets, has played a role in those energy intensity improvements. Building envelope measures have also helped to improve heating and cooling energy intensities per square metre, through improved thermal performance (e.g. material choice) and better building design and orientation. All this has helped overcome growth in population and increases in wealth to achieve important energy savings per floor area in recent years. In fact, only space cooling has grown in energy intensity per unit floor area.

Emissions are levelling off, but that’s not good enough

Buildings sector emissions appear to have stabilised at around 9.5 gigatonnes of carbon dioxide (GtCO2) annually in 2015‐17, or 28% of the global energy‐related CO2 emissions. When energy‐related emissions from buildings construction (i.e. manufacturing of building materials) are included, total buildings‐related CO2 emissions amounted to more than 11 GtCO2 in 2017, or 39% of the global energy‐related emissions. That also remains unchanged from 2016. “This is potentially an indicator that buildings sector emissions have capped, but they are still well below the necessary reductions to achieve the global Sustainable Development Goals (SDGs),” says the report.

Energy efficiency investment in buildings is slowing

More investment is needed. Total energy efficiency spending for buildings increased by 4.1% (2.5% adjusted for inflation) in 2017 to $423bn (Figure 9). That means it slightly outpaced the 3‐4% annual growth rate of the total investment in buildings construction and renovation, but that is still a slowdown when compared to the 6‐11% annual growth rates in energy efficiency spending from 2014 to 2016. And whatever the growth rate, energy efficiency remains a small portion of the overall spending on buildings.

Europe has the tools, we’re just not using them

Net zero by 2050 is a steep hill to climb for the world, and that includes Europe. But the tools to succeed are already available, according to a study commissioned by Eurima, the European Insulation Manufacturers’ Association. The study looks at all the opportunities, including the building envelope (efficient design and insulation of roofs, walls, floor, windows), heating and control systems, and renewable energy heating solutions. Eurima Director General, Jan te Bos, says “solutions that are already commercially available can take us 75% of the way to net zero, if deployed at scale. The remaining 25% can be achieved based on known approaches and technologies, if efforts to scale up and commercialise are made.”

The message is slowly getting through. For new builds, France’s building code requires all new construction to fall under its definition of an nZEB (nearly zero-energy buildings). In Austria, Belgium and Italy, more than 20% of residential new constructions in 2017 were nZEBs. For renovations, Denmark’s renovation rates are between 1.5%–2%, well above the EU average, but still not high enough: the Eurima study concludes that 3% of buildings need to be renovated every year, up from just 1% today, for the EU to reach net zero.

Residential buildings hold the key

A report by Climate Action Tracker (CAT), published in November, identifies residential buildings as one of three areas (the other two are electricity supply, and passenger road transport) the EU should focus on to scale up climate action to meet the Paris targets. “The reductions in these three sectors alone are enough to reduce EU28 total greenhouse gas emissions by up to 52% below 1990 levels in 2030,” says their report. But following the current trend in reducing buildings emissions won’t reduce them to zero. Even following the “best in class” nations, like Denmark, will only get us half way there. The report concludes: “Paris Agreement-compatibility requires the renovation rate of the building sector to increase significantly from the current 1%—ideally to around 5%—with the energy demand per square meter decreasing by between 75% and 100%.”

The policies are being put in place

In the summer of this year the EU amended and strengthened the Energy Performance in Buildings Directive (EPBD). EuroACE heralded it as a big step forward. EuroACE is the European Alliance of Companies for Energy Efficiency in Buildings, with members ranging across the commercial buildings sector. In November they published their “EuroACE Guide to EPBD Implementation” to help decision-makers understand and take action following the new rules.

The detailed guide is specifically targeted at the government officials in the EU Member States and “stakeholders in the whole construction value chain from the owner, through the design teams to the site and to all associations that represent this value chain.“

EuroACE Secretary General Adrian Joyce said: “[The new EPBD] is one of the most important changes that has occurred in the EU buildings sector in the last 15 years. At last, EU legislators have recognised that our biggest problems are not the standards we use for our new buildings but the ones we use to renovate our existing ones. “

In 2005, total energy consumption in the EU was around 1,800 million tonnes of oil equivalent (mtoe). So, by hitting the new EPDB targets alone the EU can reduce overall energy consumption by 360mtoe by 2050. At the same time, given most of the energy used in buildings comes from burning fossil fuels, particularly gas for heating, the EU can reduce its reliance on imported gas by around 60%.

“Just treating the building sector will reduce energy demand in the overall economy by 32% if we achieve our goals,” says Joyce. In fact, this sector is ripe for rapid transition. Joyce concludes: “The Buildings sector is the most readily accessible for achieving dramatic cuts in emissions”.

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Why OPEC is losing its ability to dictate crude oil prices

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ENERGY WATCH #2 - December 20, 2018

Why OPEC is losing its ability to dictate crude oil prices

by Gaurav Sharma

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With the United States emerging as a ‘buffer’ crude oil producer and consumers marching towards energy efficiency, the cartel is struggling to rediscover its once powerful voice.

Talk of ‘Peak Oil’, or rapid depletion of crude reserves, was all the rage at the turn of the millennium. Oil producers’ underpinning of everything from human mobility to cosmetics, plastics to aviation, put them at the heart of the global economy.

But the theory made two flawed assumptions – first, that emerging technologies could not meaningfully enhance oil production and make hitherto difficult exploration prospects viable, and second, that humankind could not proactively seek alternatives to its crude addiction.

There also existed a feared crude cartel – the Organization of Petroleum Exporting Countries (OPEC) – whose member nations once controlled over 40% of global oil production, and held over 81% of proven global reserves, well capable of spooking the market.

Some in its corridors populated by producers with state-oil giants lapped up the Peak Oil theory, and their own inflated sense of self in a rapidly evolving world to the extent of being blind-sighted by an altering market dynamic. That failing is now being laid bare with the emergence of a major buffer producer, energy efficiencies and the quest for fossil fuel alternatives.

Crude tale of sheikhs versus shale

These days the ‘US Shale Revolution’ is only too visible, but it began in the late 1970s when private American exploration and production independents, set about finding viable methods to tap hydrocarbons trapped in shale rock formations.

Ridicule, failures, hardship and in some cases financial ruin followed, but in the end their ingenuity resulted in the practice of hydraulic fracturing or ‘fracking’, and the concept of horizontal drilling. Process viability and efficiency continued to improve as the industry emerged from a downturn caused by the global financial crisis (2009), all of it under OPEC’s eyes.

As US unconventional output started rising in 2012-13, OPEC first ignored and then dismissed it, before passively acknowledging the “alternative source.” By the summer of 2014, with American oil serving as a drag on three-figure oil prices, the cartel – at the insistence of its heavyweight de facto leader Saudi Arabia – decided to keep its taps open by ramping up production.

The thinking, of then Saudi Oil Minister Ali Al-Naimi, was to have OPEC’s barrels compete with shale barrels and let the market take its course, since US producers were banned from exporting crude oil; a restriction in place since 1975.

But President Barack Obama overturned the ban in 2015, at a time when Washington was importing fewer barrels of OPEC’s oil. By the first quarter of 2016, a full blown oil price slump was in place with the West Texas Intermediate falling below $30 per barrel at one point. Projects were cancelled, investment plummeted, and froth went out of an overheated shale market, yet it wasn’t fatally wounded.

There was hardship around the OPEC table too – especially for the likes of Iran, Venezuela and Nigeria – whose fiscal breakevens demanded $100-plus prices. Something had to give, and the Middle Eastern sheikdoms blinked. Riyadh’s new powerbroker Crown Prince Mohammed Bin Salman packed Al-Naimi off to retirement, replacing him Khalid Al-Falih whose first call at the OPEC table was to ring Moscow.

Dial M for Moscow

By 2016-17, the world’s three largest oil producers were Russia, Saudi Arabia and the US, who were collectively producing more than all OPEC’s 32.5 million barrels per day (bpd), with very divergent political agendas. Al-Falih’s only option was to go beyond OPEC and reach out to the Kremlin, and others.

Al-Naimi described the distrust in vivid detail, labelling cooperation as non-existent or “zero”, even if his successor Al-Falih and Russian counterpart Alexander Novak now appear all smiles on Twitter

Months of wrangling saw 10 non-OPEC producers led by Russia, join hands with OPEC’s then 12, and now 15 members, to announce a production cut of 1.8 million bpd in November 2016. Prices started rising gradually, benefitting among others, none other than the very US shale producers, OPEC was hoping to put out of business.

OPEC also ended up shaking hands with Moscow, striking a partnership with a rival producer, it had historically distrusted. Al-Naimi’s post-retirement autobiography described the distrust in vivid detail, labelling cooperation as non-existent or “zero”, even if his successor Al-Falih and Russian counterpart Alexander Novak now appear all smiles on Twitter.

While compliance with the quota cut averaged above 100% for a time, a very different Twitter account emerged to mess up the works; that of the current White House occupant Donald Trump.

The Donald, discord and Doha

US-Saudi relations mean Washington can always pressure Riyadh over oil. When President George W. Bush saw oil prices as too high in 2007, his preferred mantra was to write letters and call on OPEC to up production via a media sound-bite or two.

But under his watch, the US was the world’s largest importer of crude oil. In 2018, Washington relies less on the global market, and has regained the crown of being the world largest oil producer for the first time since 1973.

In such a setting, whenever the oil price causes even $5 per barrel of political inconvenience, Trump publicly chides OPEC via Twitter, and privately pressurises the Saudis in a way Bush never could.

In the last 12 months Trump has tweeted about OPEC 10 times (and counting) and often when oil ministers’ meetings are in full swing at their Secretariat in Vienna, Austria. While being dismissive in public, the Saudis and their allies do end up accommodating Trump.

In June when the oil price was rising, OPEC said it would put a ‘nominal’ 1 million bpd back into the market. At its recent December summit, while a cut of 1.2 million bpd was announced with Russian-led non-OPEC producers, several producers, including the Russians and Saudis, arrived in Vienna having ramped up their production levels to recent highs, according to data aggregator S&P Global Platts.

Unsurprisingly, as recent oil price declines following the summit suggest, the market is just not convinced. In a matter of days, while promising cuts, the United Arab Emirates announced investment into its oil industry aimed at “boosting production”, while Russia indicated it won’t be able to start the promised cuts (tallying up to 200,000 bpd) before the end of January, and will only get there gradually.

Meanwhile internal discord is boiling up and few at OPEC like the new Saudi-Russian camaraderie. Iran also suspects Riyadh of siding with the US in Trump’s re-imposition of sanctions on Tehran. Timed for maximum impact, Qatar, an OPEC member since 1961, announced it would be quitting the cartel in 2019. Doha’s official line is that it intends to focus on its LNG industry.

Unofficially, a diplomatic boycott instigated against it in 2017 by Saudi Arabia and its allies is thought to be a major contributing factor. Qatar’s decision means it has become the first Middle Eastern nation to quit OPEC. This for an organization that has survived several vitriolic fissures such as the Iran-Iraq war, and Saddam Hussein’s invasion of Kuwait, with all three being OPEC members opting to stay put in their economic interest.

Mediocrity, if not irrelevance, beckons

So low is the market confidence in OPEC that a week before its December 6-7 meeting, the oil price plummeted thrice by over 7% in just 10 sessions.

When the so-called OPEC/non-OPEC cut was unveiled on December 7, the price uptick did not even last into the next week. At the time of writing, oil benchmarks are lurking near 14-month lows.

Traders see OPEC as a house divided and more reliant on non-OPEC producers such as Russia. In volume terms Qatar’s departure matters little. Even including condensates, Doha’s exports touch a mere 1 million bpd, but symbolism matters, as the market looks at internal discord, and strange calls to “institutionalize” its partnership with Russia.

Tectonic plates are shifting with the US tipped to cap 12 million bpd of production in 2019, and over two-thirds of it will come from shale producers. Its light crude exports are incrementally heading to Asia, an OPEC stronghold. The present situation is likely to last for the next 5-7 years, before shale decline rates kick-in. By that time oil demand dynamic might well have materially altered.

Currently, global demand is just shy of 100 million bpd, with growth expectations in 2019 of around 1.2-1.3 million bpd. That’s hardly the stuff of dreams for competing producers. According to the International Energy Agency (IEA), the future of automotive appears increasingly electric, even as internal combustion engines are getting ever more efficient. It means that by 2030, much of oil demand would be predicated on plastics, petrochemicals and aviation.

Demand will still grow, but all players including OPEC members, would be toughing it out in a cramped market. That would make OPEC’s most effective weapon – of upping or cutting production –redundant over the medium term. If it cuts too much, it would risk losing market share and supporting the competition, and if it turns up the volume – a real or perceived glut – would dent all parties.

OPEC still has Saudi Arabia – the world’s only swing producer on its team for comfort – but acknowledges its market share may shrink to 36%, while that of the US will “continue to rise into the late 2020s”. Hence, as the global demand dynamic evolves and supply-side permutations shift, the best OPEC can hope for, short of its dissolution, is mediocrity if not irrelevance.

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CCS – how can we make it happen?

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ENERGY WATCH #3 - December 20, 2018

CCS - how can we make it happen?

by Mike Scott

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CCS plant, Abu Dhabi

Carbon capture, utilisation and storage (CCS) has an important role to play in reducing GHG emissions as long as it is not seen as licence to withdraw from the common goal of pursuing a future based on clean fuel. The International Energy Agency (IEA), considers it essential if we are to limit the worst effects of climate change, and highlights it is a technology that has failed to live up to its potential over the years. The solution is there but how it should financed – and who pays the bill – is not clear but it needs to be rolled out as soon as possible so investors benefit from the cost-learning curve. Otherwise it will just get left behind.

chart: SDS

In May this year, it said that “with only two large-scale carbon capture, utilisation and storage power projects in operation at the end of 2017, with a combined capture capacity of 2.4 million tonnes of CO2 per year, CCUS in power remains well off track to reach the SDS target of 350 million tonnes per year by 2030.

And yet there is a palpable sense of optimism in the sector as 2018 comes to an end. Has the technology’s time finally come?

The Global Carbon Capture and Storage Institute argues that the case for CCS is now “irrefutable” and a vital lifeline to beat climate change, in a new report, The Global Status of CCS, 2018. The world cannot meet its climate targets without CCS, it says. “It has become increasingly clear that the world will need all the technologies, mechanisms and approaches available,” says CEO Brad Page.

He adds that for the first time in many years, the past year has seen significant developments on CCS from a number of governments, including the US, the UK, the Netherlands, Norway and China. Many of them are reviving CCS programmes that were abandoned a number of years ago.

There are currently 18 large-scale CCS facilities operating around the world, with another five under construction and 20 more at various stage of development, he points out.

In 2018, more and more people started to recognise CCS for its cumulative capacity to mitigate climate change, the report says. “In the past year, countries have been incentivising investment, industry has accelerated deployment, new innovations have been unveiled, and new energy economies have emerged. CCS has proven itself as real, happening and here to stay.”

At the same time, the IPCC’s 1.5C report highlights the importance of the technology in helping to meet our climate targets. And that’s all great, up to a point.

But these same arguments were being made over a decade ago and nothing happened because governments and industry couldn’t agree on who should pay for it. Governments cancelled CCS projects because of the cost as the financial crisis started to bite, and the sector entered the doldrums.

There remains a certain amount of ambivalence about CCS, in part because in the past fossil fuel industry analysts have suggested it would obviate the need to roll out renewable energy. CCS technology should not be used to justify less effort elsewhere. It is needed as part of the solution.

Carbon Tracker says that CCS is important, but not a get out of jail free card, not least because to limit temperature rises to 2C, we would have to open one CCS plant every other day, and to get to 1.75C, it would have to be five a week – something that is patently not going to happen in the near term.

DNV GL agrees that “scale projects are needed now if CCS is to stand any chance of benefiting from the cost-learning curve rates enjoyed by other rapidly-advancing elements of the low carbon economy, like renewables and storage.”

But it adds that “our projection is that CCS will capture only 1.5% of emissions in 2050. That is another way of saying that CCS will not advance meaningfully without an extraordinary shift in commercial incentives”.

One of the main reasons for the lack of progress in CCS is that it is more expensive and more difficult than energy efficiency initiatives and renewable generation.

The failure of CCS to advance to date has been enormously frustrating. CCS is the only mitigation technology able to decarbonise large industrial sectors, particularly the steel, cement, fertiliser and petrochemical industries.

The scaling up of CCS needs to happen but progress remains glacial. For things to change meaningfully now requires a significant change in attitude and urgency from both governments and carbon emitters. It’s possible that fossil fuel producers will see a case to act in the existential threat from the rapidly falling costs of renewables and EVs – but most of them seem focused on investing in the latter technologies rather than CCS. Governments may be reviving projects, but they don’t seem much more prepared to incentivise the technology than they were a decade ago.

CCS won’t gain scale until costs come down, and costs won’t come down until more projects are built. But it won’t happen until governments commit to the technology. “Sufficient investment in CCS simply will not happen without strong and sustained government policy,” says the Global CCS Institute.

CCS requires investment in long-lived capital-intensive assets, and that won’t happen unless companies and investors are sufficiently confident in current and future policy to be prepared to commit to investing in the technology.

As the Institute says: “Policy must not only support the business case for investment in CCS, it must win the confidence of investors. Once policy confidence is in place, long-term capital investments can be made and the virtuous cycle of investment and cost reduction will accelerate.”

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RES market share to reach almost 80% to achieve 1.5 degrees

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ENERGY WATCH #4 - December 20, 2018

RES market share to reach almost 80% to achieve 1.5 degrees

by Tom Idle

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The European Commission has just published its annual scenarios report including its projection as to when greenhouse gas emissions need to drop to net zero. For the past four years, the average global de-carbonisation rate showed a 2.6% per year drop. Even the best performing economy in 2017 in terms of carbon intensity reduction – China – only achieved a drop of 5.2% (source: PwC). This won’t get us to 1.5 degrees. What’s needed is a strategy that includes the implementation of renewable energy sources on course for 78% of total power. That will enable the de-carbonisation rate to rise to 9% per year, which is required. EPW considers the implications to the power sector of staying within the scientifically preferred 1.5 degrees of average temperature rise.

Tensions were running high even before the latest UN climate talks had started following the publication of the Intergovernmental Panel on Climate Change’s (IPPC) latest scientific report challenging the current ambition of global efforts to reduce greenhouse gas (GHG) emissions.

For many years, limiting global warming to within no more than a 2 degree rise in average temperatures, based on pre-industrial levels, was a de-facto target for negotiators to work towards.

Now, the IPPC – backed up by the views of 70 scientists – says that 2 degrees of warming is not a “guardrail up to which all would be safe”. Instead, the world should “push the defence line as low as possible” and aim to limit warming to 1.5 degrees.

The special report highlighting the likely impacts of 1.5 degrees warming, received short shrift from the US, Russia, Kuwait and Saudi Arabia, among others, whose negotiators merely ‘noted’ its existence, refusing to ‘welcome’ it. Saudi Arabia’s senior negotiator Ayman Shasly said: “We all know it will cost the world a great deal of cost and all elements to achieve 1.5 degrees. The storyline of the entire report shows that it is achievable, it’s doable, let’s all do it together, which is not fair. What is the equity in this? Where is history in this?”

The European Commission’s Joint Research Centre’s (JRC) latest analysis, also launched at COP 24, provides some of the answers in assessing the likely differences between meeting a 2 degree and a 1.5 degree rise.

Right now, emissions and energy consumption trends show we are not on track to meet either of the goals. But JRC’s Global Energy and Climate Outlook 2018 predicts that to hit the 1.5 degree goal, global GHGs have to drop to net zero by 2065, and by 2080 to meet the 2 degrees target – both of which are technically possible and at relatively low cost to the overall economy. “While this clearly would come with increased investment needs, the overall costs would be equivalent of less than one week of economic activity lost for a given year. The economy would grow, decoupled from greenhouse gas emissions,” it claims.

Comparisons made as to the economic impacts across regions between the Nationally Determined Contributions (NDC) and the 2 degrees scenarios it lays out shows that long-term decarbonisation goes hand-in-hand with high, yearly per capita consumption growth rates in fast-growing, low and middle-income countries.

Achieving higher ambition levels than the NDCs – which leaves the likes of Saudi Arabia and the US so nervous – “can be done at relatively low costs,” argues the report. “While GDP and consumption are expected to decline relative to the NDC scenario in 2050, investment will increase to build the capital stock required for a low emission economy.”