ENERGY WATCH #1 - October 16, 2018
IPCC climate alarm: what next for energy? (Oil industry: don’t call us, we’ll call you!)
by Karel Beckman
The latest IPCC “special report on the impacts of global warming of 1.5°c above pre-industrial levels”, which came out on 8 October, has been all over the news of course – you won’t have missed it.
Yet I do want dive into it for a moment, as it contains many important implications for the energy sector which have hardly been covered in the media.
Perhaps the key part in the report, as far as the energy sector goes, are the four “illustrative model pathways” that it outlines which, if they are followed, will limit warming to 1.5°C with no or limited “overshoot”.
The IPCC notes that all these pathways “use Carbon Dioxide Removal (CDR), but the amount varies across pathways, as do the relative contributions of Bioenergy with Carbon Capture and Storage (BECCS) and removals in the Agriculture, Forestry and Other Land Use (AFOLU) sector.”
The pathways are summarized in the following graph:
Some points to note. Although some commentators have said that “carbon removal”, e.g. in the form of CCS (carbon capture and storage), is essential to contain warming, the first scenario (P1) actually does not include CCS. However, this scenario does assume a 32% reduction of final energy demand in 2050 – a tall order.
Note also that the use of coal and oil will have to be reduced drastically in all scenarios, while natural gas shows growth until 2050 in only one scenario (P3). This scenario also assumes a huge expansion of nuclear power (501%), and a very large growth of BECCS (bioenergy with carbon capture and storage). In other words, the gas industry might do well to encourage nuclear power!
Scientists have drawn different conclusions from the IPCC report. Professor Jan Minx, Head of the “applied sustainability science” working group at theMercator Research Institute on Global Commons and Climate Change, concludes (on the website Carbon Brief) that “we will need to suck billions of tonnes of CO2 out of the atmosphere during the second half of the 21st century – permanently and verifiably. Hence, the big message is: we need to be good at both – emission reductions and CDR. If the two are contradictions as some people claim, we will not be able to move along the safest pathways for climate protection.”
Others are more pessimistic. Professor Govindasamy Bala of the Center for Atmospheric and Oceanic Sciences, Indian Institute of Science concludes that “Achieving the CO2 emission reductions to limit the warming to 1.5C is simply not going to happen. Annual emissions have increased by an average of about 2% since Kyoto. If we reverse the course at the same 2% rate, which by itself is an uphill task, it would take about 35 years to cut the emissions by 50%. Hence, the 45% reduction by 2030 for the 1.5C goal, as suggested in the report [shown below], is nearly impossible. Unless a miracle happens, we are going to miss 1.5C or even 2C.”
The response from the oil industry to the IPCC findings has been downright lukewarm. As it happens, oil executives got together in London at the Oil & Money Conference on 9-11 October, right after the IPCC report came out.
Ben van Beurden, the CEO of Shell, seems to have been the only oil executive to take the IPCC report at least half-seriously. Van Beurden came up with an appropriately original (desperate?) solution. He suggested that “a huge tree-planting project the size of the Amazon rainforest would be needed to meet a tougher global warming target, as he argued more renewable energy alone would not be enough”, reports The Guardian.
“You can get to 1.5C, but not by just by pulling the same levers a little bit harder, because they are being pulled roughly as fast and as hard as we are currently imagining”, said Van Beurden. “What we think can be done is massive reforestation. Think of another Brazil in terms of rainforest: you can get to 1.5C,” he told an oil and gas industry audience in London.
“It’s not what some people sometimes think: we’ll just do a little bit more solar, a bit more wind and we’ll get there,” he added.
That’s an interesting remark in itself: does anybody really believe “we will get there” with “a little bit more solar and a bit more wind”?
At the same conference, Van Beurden also said, “Let’s stop quibbling in society about whose fault it is and who should do more.” Sorry, Ben, it doesn’t work that way. You won’t be let off the hook as easily as that!
BP Chief Executive Bob Dudley appeared to be even in greater denial than Van Beurden at the Oil & Money conference.
Dudley, according to a BP press release, “outlined why continued investment in the oil and gas industry is essential to meeting the dual challenge of providing billions of people with more energy while drastically lowering carbon emissions.”
“Arguing against divestment in his keynote speech at the Oil & Money Conference today, Dudley said the energy industry is facing a fork in the road. ‘We could go the way of people who want to drive a wedge between the energy industry and investors. They push for potentially confusing disclosures, raise the spectre of a systemic risk to the financial system from stranded assets and campaign for divestment − all in an effort to squeeze oil and gas out of the fuel mix. They are driven by good intentions, but my concern is that their suggested recommendations could lead to bad outcomes, particularly for some of the most vulnerable people in the world’.
What about the “bad outcomes” from climate change “for some of the most vulnerable people in the world”? Dudley did not seem to have considered those.
“We could take a different, more innovative and collaborative path; one that recognizes that many fuels must play a part in meeting the dual challenge − albeit, made much cleaner, better and kinder to the planet”, he added. Better and kinder? Collaborative path? You wonder what sort of wishful thinking is going on inside the BP offices.
So what “pathway” does Dudley see going forward, concretely? He listed the following actions that we should take:
- Investing in all kinds of renewables − solar, wind, bioenergy, battery technology, and enabling electrification of vehicles.
- Producing natural gas as the perfect partner for intermittent renewables − gas emits half the carbon emissions of coal in power generation.
- Working as part of the Oil and Gas Climate Initiative to develop carbon capture use and storage (CCUS) and to set an ambition to keep methane intensity at 0.20%.
- Promoting well-designed carbon price systems that incentivize everyone − consumers and energy producers alike − to cut emissions.
- Improving energy efficiency in collaboration with automobile manufacturers, working to improve engine-design and manufacture advanced fuels and lubricants. The International Energy Agency says energy efficiency could make the biggest contribution to meeting the Paris goals.
The problem with this little list is of course that it commits to absolutely nothing. It’s business-as-usual with some climate action thrown in, but as Dudley’s colleague Van Beurden admits, that won’t be enough.
Dudley of course knows quite well that, as Reuters reported from the Oil & Money Conference, “demand for oil continues to climb. The International Energy Agency (IEA) estimates global oil demand will hit 100 million barrels per day (bpd) for the first time this year. Without a major shift in policies, the IEA expects world oil demand to rise for at least the next 20 years, heading for 125 million bpd around mid-century.”
Another colleague of Dudley, chief executive of Abu Dhabi oil company ADNOC Sultan al-Jaber said bluntly that “The era of oil is far, in fact, very far from over. There is healthier demand for our product, which is undeniably good news for our industry.”
Similarly, Qatar Petroleum CEO Saad Al Kaabi said in London that it was too much to expect a dramatic reduction in the use of oil and gas, given demand vehicle fuel and petrochemicals. “Oil is not going to completely go away but it is going to reduce,” he said.
“Unless you give me a solution that’s different than just ‘renewables’, or say you want to do away with nuclear power also and so on, unless there is another way of getting there, it’s difficult to comprehend how we’ll achieve it,” Al Kaabi added, echoing Van Beurden’s remark that “a little bit of solar and wind” won’t do the trick.
The fact that the IPCC has just given us four pathways to limit warming to 1.5°C has apparently been lost on the oil executives. It does not harbinger well for the climate – or for the oil industry.
Is there a solution, then, to get the world onto one of the pathways outlined by the IPCC?
What is clear is that any solution has to come from policymakers, who, however, can only be successful if they are massively supported by the public.
In that case, though, they have a very simple instrument that they could use, which won’t require any “targets” or treaties or subsidies: they can set a price on carbon.
That at any rate is what economist William Nordhaus has been advocating for many years: and as it happens, Nordhaus got awarded the Nobel prize on the very same day that the IPCC came out with its report, on 8 October!
As Andrew J. Hoffman and Ellen Hughes-Cromwick write on the website The Conversation, in his book Climate Casino, Nordhaus “explained the many interrelated topics when talking about climate change, from science and energy to economics and politics, while clearly identifying the steps necessary to prevent catastrophe.”
“A premise of his research was that the environment is a public good, shared by all and yet not paid for in any adequate or appropriate way. In other words, we all benefit from it, though we don’t necessarily pay for it. And we are all harmed by its degradation though the value of that damage is not captured in standard market exchange.”
“Nordhaus argued a tax on carbon – say US$25 a ton – or a cap and trade scheme that allows companies to exchange pollution credits – offers the best and most economically efficient way of putting a value on that public good and thus doing something about the problem.”
“Nordhaus showed this by perfecting models that simulated how such taxes and other inputs affect both the economy and climate, depicting how they co-evolve.”
Thus “he was able to show, with great clarity, that the most cost effective way to reduce greenhouse gas emissions is by lifting the price of fossil fuels with a carbon tax. This in turn would provide the appropriate incentives for consumers and businesses to use less of those fuels.”
“Nordhaus was also able to estimate the economic damage from climate change if such policies weren’t adopted. He found that the people who would lose the most were the poor and those living in tropical regions.”
Got that, Mr Dudley?