ENERGY WATCH #2 - August 14, 2018
The discrepancy between the climate events going on around us and the “policy response” from the world’s political and economic leaders is becoming ever larger – and ever more difficult to justify.
There is no need to highlight the extreme weather events that have been boiling the planet over the northern hemisphere summer. You would think that in response climate action would steadily grow stronger, but the reverse seems to be happening.
There is the Trump administration of course which is doing all it can to recklessly hasten rather than hinder climate change, with such as measures as freezing car emission standards and more generally trying to become the world’s leading fossil fuel exporter.
But Trump is hardly alone. The EU likes to see itself as climate champion, but European Commission President Juncker, when he visited Washington recently, couldn’t wait to promise Trump that Europe just loves to import LNG from the US, the more the better.
On August 9, the European Commission followed up Juncker’s visit with a press release that went as far as to proudly proclaim “European Union imports of U.S. Liquefied Natural Gas (LNG) are on the rise”.
“Since the arrival of the first U.S. LNG carrier in the Portuguese port of Sines April 2016 and today, EU imports of liquefied natural gas from the U.S. have increased from zero to 2.8 billion cubic meters”, the Commission boasted. (Note, by the way, that 2.8 bcm is a tiny amount – the Nord Stream pipelines have a capacity of 55 bcm each.)
The EU “has co-financed or committed to co-finance LNG infrastructure projects worth over €638 million”, added the Commission, in an attempt apparently to ingratiate itself with Trump, with embarrassing lack of self-respect. “In addition to the existing 150 billion cubic meters of spare capacity in the EU, the EU is supporting 14 LNG infrastructure projects, which will increase capacity by another 15 bcm by 2021, which could welcome imports of liquefied natural gas from the U.S., if the market conditions are right and prices competitive.”
The Commission then goes on demand that the Trump administration remove regulatory restrictions from the export of U.S. LNG! Supreme irony: Brussels demanding less regulation from Donald Trump. You would think that they have better things to do in Brussels – like demanding more action from the U.S. to restrict fossil fuel exports?
But no, “the EU and the U.S. are working within the framework of this Executive Working Group [formed after the Trump-Juncker meeting] to increase U.S. exports of liquefied natural gas to Europe”, said the Commission.
I presume they know in Brussels that gas is a fossil fuel, but perhaps they have not heard yet that the latest exhaustive research shows that “the US natural gas industry is leaking way more methane than previously thought”. Yes, Mr Juncker, your precious U.S. LNG is contributing rather a lot to climate change. If the latest numbers on methane leakage are correct, there is in fact not much difference between coal and gas in their effect on climate. Would the Commission also promote US exports of coal to Europe?
As an aside, did anyone notice that perhaps 150 bcm of spare LNG import capacity is … well, perhaps enough? Who needs more LNG import terminals?
Unfortunately, the news from the world’s other two major emitters, India and China, is not much better. Perhaps inspired by Trump, India’s cabinet recently approved a policy to allow shale gas and oil drilling under the country’s existing production sharing contracts.
According to Oilprice.com, “the [new] uniform oil and gas exploration policy will encourage the current contractors in the licensed and/or leased areas to unlock the potential of unconventional hydrocarbons in the existing acreages, the government said in a statement. The policy is expected to bring in new investment in exploration and production (E&P) and raise the chances for new oil and gas discoveries that could potentially increase India’s domestic production.”
Unconventional oil and gas exploration under existing production sharing contracts (PSCs) “will provide a major boost towards ensuring energy security for India,” India’s Petroleum Minister Dharmendra Pradhan said on Twitter. “The new policy is a complete shift from the ‘one hydrocarbon resource type’ to ‘uniform licensing policy’ for simultaneous exploration and exploitation of oil and gas in an area of 72,027 square kilometers (27,810 square miles) under PSCs.”
China meanwhile has “quietly restarted many coal power projects that had been halted”, according to a report on China Dialogue (republished here on Energy Post). Coal consumption in China increased 3.1% in the first half of this year. The Chinese “peak coal demand” that the world was talking about not so long ago has obviously been put by the wayside.
Indeed, recent data from the China Energy Portal show that “growth in thermal generation continues to outpace renewables in China”.
Here are the figures for Q1 and Q2 of 2018, which speak for themselves:
Isn’t the Paris Agreement making any difference then?
It doesn’t look like it. A telling symptom of the current malaise is the situation around the UN Green Climate Fund. This fund, a key institution that needs to ensure that the developed world helps the developing world invest in climate change mitigation measures, is on the verge of collapse.
As Climate Home reported recently, “The future of the UN’s major climate fund hangs in the balance, with a looming cash shortfall and a boardroom locked in conflict.”
“Tensions between rich and poor country board members came to a head in July as they tried – and failed- to agree a process for raising fresh funds”, notes Climate Home.
Here are the numbers: “Governments promised $10.3 billion in start-up capital, but Donald Trump is refusing to deliver $2bn of the US pledge. The pot has lost another $1bn in value due to currency fluctuations. The board has committed $3.5bn to 74 projects worldwide. That leaves $2.8bn to play with. At the recent rate of approvals, that could be used up within a year. Drumming up a new round of pledges is expected to take at least that long. Last year just $144.7 million was disbursed. The target for 2018 was $900 million, but the fund has stopped reporting this metric on its portfolio dashboard. Instead, it publishes the more flattering value of projects ‘under implementation’, which stands at $1.4bn.”
If the world can’t even get this right, what hope is there for climate policy?
Clearly the problem is not lack of money. It is lack of credible initiatives – which is a failure on both sides – the donors and the recipients of the climate funds.
In this context, think about this: at the end of July, Shell bought back $25 billion of its own shares! Other oil companies are also massively buying up their own shares. These companies are drowning in money, thanks in part to cheap money policies from the central banks, but while the world is on fire, they apparently see no large-scale investment opportunities in low-carbon energy…
How long can this business-as-usual attitude of our political and economic leaders continue? That may depend on the number of droughts, wildfires and heatwaves coming our way.
The Economist reports that on 6 August Sarasin & Partners, an asset manager in London, published a study suggesting that “oil firms are assuming that decarbonisation will be limited”. The company warns that by doing this the companies are “overstating their assets”.
Sarasin notes that eight European oil companies used “price assumptions of $70-80 a barrel, rising by 2% per year with inflation to $127-145 by 2050, to price their assets.” But “that does not appear to assume any drop in demand. The International Energy Agency (IEA) predicts a price of just $60 by 2060…”
A report in the Financial Times notes that pension funds across Europe “are belatedly waking up to the threats to their investment portfolios posed by climate change“. According to this year’s survey by investment consultants Mercer, 17% of European pension funds consider the investment risks posed by climate change, up from just 5% in its 2017 survey.
Environmental law NGO ClientEarth has warned pension funds that they “risk legal action if they fail to consider the effects of climate change on their portfolios. … ClientEarth has written to funds – including the Tesco Pension Scheme, British Airways Pensions and the BP Pension Fund – urging them to consider how they manage and report on climate risk.”
‘We are concerned that you, as scheme trustees, may be failing to take sufficient steps to address climate risk and therefore failing to manage the scheme’s investments in a manner consistent with members’ best interests,’ the letter says. ‘In doing so, you are potentially putting members’ retirement outcomes at risk and exposing yourselves to the possibility of legal challenges for breach of your fiduciary duties’.”
Just possibly, effective climate action will in the end have to be enforced by the courts who might find ways to overrule political inaction.
In the U.S. the Supreme Court ruled on 30 July that a lawsuit filed by young activists who have accused the U.S. government of ignoring the perils of climate change can go ahead. It rejected a request from the Trump administration to block the case.
However, earlier in July, a federal judge dismissed the climate case brought by the city of New York against fossil fuel companies.
As the New York Times noted, “the 23-page decision is a second defeat for local and state governments seeking to use the judiciary to address problems caused by climate change. The first was in a case brought by San Francisco and Oakland that was thrown out last month by Judge William H. Alsup of Federal District Court in San Francisco.” Both New York City and San Francisco have said they will appeal the decisions.
In Europe, the European General Court has just accepted “the people’s climate case” brought in May 2018 by families from Portugal, Germany, France, Italy, Romania, Kenya, Fiji and the Swedish Saami Youth Association Sáminuorra against the European Parliament and the Council of the European Union for the inadequate climate target for 2030. This lawsuit claims that the Union’s climate target fails to protect their human rights.
The European General Court has published the case in the Official Journal of the European Union on 13 August. “This is an important first step in the proceeding of the People’s Climate Case”, said Climate Action Network (CAN) Europe in a reaction. According to CAN, the European Parliament and the Council of the European Union are expected to provide their defence in two months.
Armando Carvalho, the Portuguese plaintiff who lost his tree plantations during the forest fires in 2017 said: “The wildfires destroyed my property in 2017. This year, we are once again struggling with massive heatwaves and wildfires in Europe. Since the beginning of this summer, many other people lost their lives and homes due to worsening impacts of climate change. We cannot remain silent to this. This case is about our common future and we are glad to be one step closer to be heard.”
The People’s Climate Case is supported by a broad range of NGOs, scientists and citizens who believe that the EU can and must increase its 2030 climate target. Wendel Trio, Director of Climate Action Network (CAN) Europe said: “The EU’s existing 2030 climate target is too low to protect people and their fundamental rights.”