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The EU’s great CCS and bioenergy debacle – and what we should learn from it

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EXPRESS #1 - October 30, 2018

The EU’s great CCS and bioenergy debacle – and what we should learn from it

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CCS project in the port of Rotterdam was cancelled like all the others

12 commercial-scale CCS demonstration plants were supposed to be up and running in 2015. This was what the European Council asked from the European Commission in 2008.

At the end of 2017, the Commission had spent €424 million on the CCS programme. The result, as of today: zilch. None of the plants ever got built.

It is well-known of course that the EU’s carbon capture and storage (CCS) efforts have failed miserably. Now in a new report, the European Court of Auditors (ECA) has analysed the two major funding programmes for the CCS projects to find out what went wrong and how much this has cost the taxpayer.

The two programmes are the European Energy Programme for Recovery (EERP) and the New Entrants’ Reserve 300 programme (the latter funded by the auctioning of 300 emission allowances under the EU’s Emission Trading System).

Both programmes were set up not only to fund CCS projects, but also other “innovative” renewable energy projects. The latter also failed partially: under the NER300, the Commission spent over half a billion euros on projects that never got off the ground. (Note that this fact is fairly well hidden in the ECA report on page 25 and is not mentioned in the press release.)

So total cost of this financing failure: around €1 billion.

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Let’s look at the two programmes in more detail.

Under the EERP, the Commission granted one billion euro to six CCS projects. At the end of 2017, the Commission had paid out €424 million (see Table 1).

Four out of these six co-funded projects had ended after the grant agreement was terminated, and one project ended without being completed. The only completed project did not represent a commercial size CCS demonstration project, but smaller pilot facilities for capture, transport and storage, notes the ECA.

The ECA report described what happened:

All projects started ground preparation works early. No tangible results from these activities are in use today, except at the project in Spain. The project in the Netherlands constructed a CCS tie-in at the base of the flue gas chimney in the coal-fired power plant that entered into operation in 2013. This project was the only EEPR CCS project to obtain a carbon storage permit under the CCS Directive for its anticipated offshore storage location, but it does not currently capture and store any carbon. The largest expenditure item of the project in the United Kingdom included technology licenses acquired at €17 million and now fully depreciated. Despite €60 million of EU contributions to the capture work, the project delivered no results on this work. The project sponsors never started the construction of the base power plant to which the CCS facilities would be applied. Similar issues existed for the projects In Italy, Germany and Poland, but they were cancelled earlier.

In short, a debacle.

The EEPR did make a positive contribution to the offshore wind sector, notes the ECA.

At the end of 2017, the Commission had paid out €255 million of the €565 million it had granted to nine offshore wind projects. Four projects had reached full completion. For two projects, the grant agreements were terminated early after the Commission had paid out €7.4 million. Three projects are still on going in 2018.

Note that the EEPR was also intended to “quickly stimulate economic growth” after the financial crisis, but it also failed in this respect. Stimulating economic growth “required spending a large portion of the available funds by the end of 2010”, notes the ECA. “While spending money is not an objective in itself, the EEPR CCS and offshore wind programmes did not meet this recovery objective. Payment rates stood around 10% at the end of 2010, and were still below 50% for both programmes at the end of 2017.”

The NER300 programme likewise has delivered not a single successful CCS project, notes the ECA.

NER300 “aimed to award funding to eight projects which would demonstrate the commercial viability of CCS. This funding could be awarded to projects already funded under EEPR, or to other projects demonstrating CCS. After the first NER300 call for proposals of 2011, ten CCS demonstration projects were eligible and had successfully passed the EIB’s due diligence appraisal. The Commission ranked eight projects to consider for grant funding and kept two on a reserve list. Based on this ranking, the Commission asked Member States to confirm their support to these projects. Three Member States confirmed five of these ten projects. Yet, the Commission found that these confirmations were not in line with NER300 legal requirements and did not award any grants to CCS projects for the first call for proposals.”

Under the second call for proposals in 2014, writes the ECA, “only the United Kingdom submitted a CCS project. The Commission awarded a €300 million grant to the project that was also included in the United Kingdom national CCS support scheme. This project planned to capture and store almost 18 million tonnes of CO2 over a ten year demonstration period. However, in November 2015, the UK cancelled its support scheme following a spending review. This left a significant funding gap and the consortium disbanded. At the time of the audit, withdrawal of the project from NER300 was under preparation, meaning that the €300 million grant awarded but yet to be paid, would not be spent on the NER300 CCS objective.”

In other words, the good news is that the NER300 in the end did not spend any money on CCS projects.

In addition to funding CCS projects, however, NER300 also aimed “to support at least one project in every renewable energy project sub-category to demonstrate the viability of a range of innovative renewables not yet commercially available. The Commission awarded €1.8 billion of NER300 funds to 38 innovative renewable energy projects in 2012 and 2014.”

What were the results? Of the 38 projects eligible for financing, only six projects were in operation in 2018, as can be seen in this chart:

The ECA writes that “In February 2015, the Commission amended the NER300 Decision, putting back the deadlines for final investment decision and entry into operation by two years34. The amending Decision mentioned that the economic crisis was the main reason why a significant number of projects awarded NER300 funds were unable to reach final investment decision within the original deadlines. Despite these deadline extensions, seven projects (with total grants awarded exceeding half a billion euro) had withdrawn from NER300 by early 2018. One further project was likely to withdraw in 2018, representing another 31 million euro. Fourteen projects awarded grants in 2014 should still reach final investment decision in 2018.”

Most of the projects that were withdrawn concerned bioenergy, as the chart notes. Note that the final bill could still turn out to be higher, as there are still 14 projects in planning.

Although the ECA tries to find some extenuating circumstances for this debacle (“EEPR and NER300 projects were affected by adverse investment conditions”), they can be no excuse for this failure.

What lessons should we drawn from this? There is only one lesson really: the EU should not be spending any money on energy projects in the first place. Bureaucrats and politicians are not good investment managers – first, because they are not spending their own money, and second, because they don’t have the right incentives.

Needless to say, that is not the lesson that will be drawn in Brussels. An article on Euractiv about the ECA report did not even mention how much money has been wasted. It just talks about how to spend the money that was left in the programmes.

Of course, the Commission has promised that the next time “the new provisions will be spelled out clearly and that cooperation agreements with the EIB will be improved”. Sure. There is always a next time. Until the next ECA report…

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Carbon removal: hopes and dreams of CCS, BECCS, direct-air capture

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ENERGY WATCH #4 - October 23, 2018

Carbon removal: hopes and dreams of CCS, BECCS, direct-air capture

by Karel Beckman

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Global Thermostat plant in Silicon Valley California

“Why we can’t reverse climate change with negative emissions technologies”, was the straightforward title of a recent analysis by CCS-specialist Howard J Herzog of MIT on the website The Conversation.

Herzog notes that featured prominently in the recent IPCC report, is a discussion of “a range of techniques for removing carbon dioxide from the air, called Carbon Dioxide Removal (CDR) technologies or negative emissions technologies (NETs).”

The IPCC said the world would need to rely significantly on these techniques to avoid increasing Earth’s temperatures above 1.5 degrees Celsius, compared to pre-industrial levels.

“Negative emission technologies” comprise a wide range of quite different techniques, notes Herzorg, summarized in this table:

(Note that the table only allows for storing CO2, it does not include the possibility of using CO2 in other applications, see below. KB)

What are the possibilities of these techniques?

Herzog refers to a recent academic paper that discusses the “costs, potentials, and side-effects” of the various NETs.

  • Afforestation/reforestation is one of the least expensive options, with a cost on the order of tens of dollars per ton of CO2, but the scope for carbon removal is small compared to other NETs.
  • On the other extreme is direct air capture, which covers a range of engineered systems meant to remove CO2 from the air. The costs of direct air capture, which has been tested at small scales, are on the order of hundreds of dollars or more per ton of CO2, but is on the high end in terms of the potential amount of CO2 that can be removed.
  • In a 2014 IPCC report, a technology called bio-energy with carbon capture and storage (BECCS) received the most attention. This entails burning plant matter, or biomass, for energy and then collecting the CO2 emissions and pumping the gases underground. Its cost is high, but not excessive, in the range of US$100-200 per ton of CO2 removed. The biggest constraint on the size of its deployment relates to the availability of “low-carbon” biomass. There are carbon emissions associated with the growing, harvesting, and transporting of biomass, as well as potential carbon emissions due to land-use changes – for example, if forests are cut down in favor of other forms of biomass. These emissions must all be kept to a minimum for biomass to be “low-carbon” and for the overall scheme to result in negative emissions. Potential “low-carbon” biomass includes switchgrass or loblolly pine, as opposed to say corn, which is currently turned into liquid fuels and acknowledged to have a high carbon footprint.
  • Some of the proposed NETs are highly speculative. For example, ocean fertilization is generally not considered a realistic option because its environmental impact on the ocean is probably unacceptable. Also, there are questions about how effective it would be in removing CO2.

Herzog also quotes two “much harsher” studies:

  • A study in Nature Climate Change from 2015 which states: “There is no NET (or combination of NETs) currently available that could be implemented to meet the <2°C target without significant impact on either land, energy, water, nutrient, albedo or cost, and so ‘plan A’ must be to immediately and aggressively reduce GHG emissions.”
  • In another study from 2016, researchers Kevin Anderson and Glen Peters concluded “Negative-emission technologies are not an insurance policy, but rather an unjust and high-stakes gamble. There is a real risk they will be unable to deliver on the scale of their promise.”

But Herzog has an even more fundamental criticism of NETs. He notes that “We as a society seem unwilling to undertake sufficient efforts to reduce carbon emissions today at costs of tens of dollars per ton CO2 in order to keep enough CO2 out of the atmosphere to meet stabilization targets of 1.5 or 2 degrees Celsius. However, correcting an “overshoot” means we expect future generations to clean up our mess by removing CO2 from the atmosphere at costs of hundreds of dollars or more per ton CO2, which is what the future deployment of NETs may cost.”

“This makes no sense”, he notes, “economic or otherwise. If we are unwilling to use the relatively cheap mitigation technologies to lower carbon emissions available today, such as improved efficiency, increased renewables, or switching from coal to natural gas, what makes anyone think that future generations will use NETs, which are much, much more expensive?”

Mmhh, good point.

He concludes that it’s OK to use NETs as an offset today, but “treating NETs as a way to compensate for breaking the carbon budget and overshooting stabilization targets is more hope than reality. The technical, economic and environmental barriers of NETs are very real. In formulating climate policy, I believe we cannot count on the future use of NETs to compensate for our failure to do enough mitigation today.”

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Another academic, Paul Behrens, Assistant Professor of Energy and Environmental Change at Leiden University in the Netherlands, wrote an equally critical article on the Conversation focusing just on BECCS.

He notes that “According to models, BECCS is the technology we are banking on to fix our climate disruption and safeguard our future. The models have doubled down on BECCS, but it is an unproven solution on a large scale – and one that has significant and damaging side effects.”

How much are the models, e.g. from the IPCC, relying on BECCS? A lot. “The reliance is so heavy that, on average, current models for meeting 2℃ suggest we will be using BECCS and afforestation to mop up total, annual global emissions by around 2070 (or 2055 for 1.5℃). This results in a massive growth in BECCS power plants through this period, from three today to 700 by 2030, and 16,000 by 2060.”

Yes, 16,000 BECCS power plants … But, Behrens warns, “large-scale BECCS is a monumentally tricky idea. BECCS aims to fix one thing – climate disruption – but makes many other things worse.”

Such as:

  • BECCS on an industrial scale needs many resources. Plants need land, water and fertilisers (sometimes) to grow, and infrastructure to get low-density plant matter from one place to another. We already struggle to do this sustainably.”
  • “Related to this, it is reasonable to think that BECCS will increase food prices. We have to produce 70% extra food by 2050 to just keep up with population and food demand increases. Can we do this while using vast tracts of land for BECCS production? Perhaps only if we have a big change in dietary habits which frees up land?”
  • “While BECCS will provide some electricity, you don’t get much bang for your buck – it has the lowest power density of any other type of energy.”
  • “BECCS make use of thermal power plants so inherit many problems related to running them. Power plants are heat engines and need water for cooling. We already have problems with water cooling, and it is getting worse with climate change.”
  • “Finally, BECCS power plants will produce ash, which is a “better” version than the ash from coal plants (it doesn’t take much), but will still need attention.”

Behrens wonders: how did how did we end up in a situation where the large majority of models point to this one problematic solution?

The reason may be the models themselves. “These models are called Integrated Assessment Models, and come in two main varieties: simple and complex”, explains Behrens. “The complex ones are mostly used for investigating technology choices. The simple ones are often used to explore what the cost of carbon could be. This year’s Nobel Prize winner in economics, Bill Nordhaus, works with these simple models.”

“The overall weaknesses of these models have been covered in compelling and entertaining ways. Given the depth of the complex models, it is difficult to be sure why BECCS dominates. Most would agree that there are three likely possibilities.:

  • First, these models discount future benefits and costs to a large extent. That is, they assume that future benefits and costs are much less in the future than they are today. The default rate at which models discount is 5% per year, meaning that to avoid $100 of climate damage in 2100 is only worth $3 to us today. Many have argued that this is much too high, ethically inappropriate, and misleading.
  • I know of only one study which performs a sensitivity analysis using so-called discount rates. It finds that carbon dioxide removal is significantly reduced with lower discount rates.
  • Second, these models are very sensitive to prices and since a very low price for BECCS is assumed, this is the technology that dominates. The problem is that we don’t actually know what these prices might be, especially on a large scale.
  • Third, these models have a difficult job estimating the damage from climate change. The risk from emitting now and paying later is fat-tailed – there is a non-negligible increased risk of catastrophe even if we do manage to implement choice two at a large scale.

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Are there other carbon removal technologies that are more promising? “If we must hypothesise backstop technologies, then direct air capture is a possibility”, writes Behrens. “As the name implies, it sucks carbon directly from the air.”

“Although it doesn’t generate energy in the process (in fact it uses large amounts of energy), it doesn’t have as many of the problems faced by BECCS. A possible future consists of solar-powered direct air capture in the Middle Eastern desert pulling carbon dioxide from the atmosphere and pumping it underground into reservoirs from which oil was once pumped. This is speculative though, comes with its own big problems, and as yet doesn’t feature much in modelling efforts due to its high cost (though they are coming down quickly).”

Nonetheless, the number of companies working on direct air capture is increasing. The Guardian mentioned four of them in an article recently – Blue Planet, Carbon Engineering, Climeworks and Global Thermostat – noting that they all try not just to capture CO2 directly from the air, they also try to turn the CO2 into a sellable product.

“Carbon Engineering markets a carbon-neutral fuel. Climeworks sends carbon to fertilizers, fuels and soon, the beverage industry. Global Thermostat sells the gas for a wide range of purposes.”

But the Guardian did note that “products made with carbon don’t demand a high enough price to boost capture around the world, so expanding them will require government intervention.”

Louise Charles, a spokeswoman for Climeworks, “said the company has found government support in Europe and has 14 direct-air capture plants built or under construction. But she said there just isn’t enough money in the industry yet. Next year, Climeworks will enter a new market, letting individuals pay to catch and store carbon to account for their own emissions from flying and driving.”

Steve Oldham, the CEO of Carbon Engineering, said interest in his company has increased in the last few weeks in light of the IPCC report, which he said may be good for business but is overall “kind of scary”.

“We think we have a solution that could be part of solving the problem,” Oldham said. “But the missing piece in the middle is policy, and policy requires both need and a solution.”

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Exploratory opinion: let’s go for the bioeconomy

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EXPRESS #4 - October 23, 2018

Exploratory opinion: let’s go for the bioeconomy

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Heavy lobbying in the EU for the bioeconomy

Bioenergy is a controversial topic in EU energy policy. It is noteworthy therefore that the

the European Economic and Social Committee (EESC), an EU advisory body comprising representatives of workers’ and employers’ organisations and other interest groups, has drawn up what it calls an exploratory opinion on Bioeconomy – contributing to achieving the EU’s climate and energy goals and the UN’s Sustainable Development Goals (SDGs).

It has done so following a request from the Austrian Council Presidency.

In its opinion, the EESC concludes that “the bioeconomy creates added economic and social value by producing, converting, and using biological raw material. Furthermore, it is an essential factor to mitigate the impact of climate change, helping to achieve the EU’s climate and energy targets as well as the Sustainable Development Goals (SDGs).”

“The bioeconomy involves replacing fossil fuels and fossil feedstock with bio-based energy and raw materials. Economic activities that are based on the production, extraction, conversion and use of biological natural resources are known as bio economy.  Waste streams, by-products and residues can be a major source of raw materials.”

How does the bioeconomy help climate, asks the EESC?

“The bioeconomy contributes to climate change mitigation through several mechanisms: sequestration of CO2 from the atmosphere in biomass via photosynthesis, storage of carbon in bio-based products and substitution of fossil-based feedstock and products with bio-based ones.”

It notes that “consumers and civil society are essential factors to promote bio economy.”

“Europe needs an active and sustainable forestry management and to promote the use of wood in order to accelerate effective CO2 sequestration”, says Tellervo Kyla-Harakka-Ruonala, rapporteur of the opinion. “Therefore it is important to raise awareness and help consumers make sustainable consumption decisions. We need to explain to our citizens that using high-quality wood furniture and long-lasting wood products in buildings, instead of cheaper synthetic materials, makes a huge difference to our environment.”

The bioeconomy also plays an important role when it comes to transport, states the EESC: “Electrifying transport with energy sources produced from sustainable bio-based energy sources will help to reduce not only CO2 emissions, but also the energy bill and our dependence on foreign energy sources”, according to co-rapporteur Andreas Thurner.

Unfortunately, the “exploratory opinion” of the EESC is quite exploratory indeed. There is no underlying report and no way of knowing how the EESC arrived at its opinion.

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IPCC climate alarm: what next for energy? (Oil industry: don’t call us, we’ll call you!)

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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

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Bob Dudley CEO of BP addresses Oil & Money conference

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!

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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.”

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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?

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Renewables don’t grow fast enough, CO2 emissions keep rising – fossil fuels more expensive

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ENERGY WATCH #2 - October 9, 2018

Renewables don’t grow fast enough, CO2 emissions keep rising – fossil fuels more expensive

by Karel Beckman

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Fatih Birol

The share of renewables in meeting global energy demand is expected to grow by one-fifth in the next five years to reach 12.4% in 2023, according to the IEA’s Renewables 2018 market analysis and forecast report. Renewables will cover 40% of global energy growth.

The biggest growth will come from “modern bioenergy”.

“While the growth in solar PV and wind is set to continue in the electricity sector, bioenergy remains the largest source of renewable energy because of its widespread use in heat and transport, sectors in which other renewables currently play a much smaller role”, notes the IEA.

 

“Modern bioenergy is the overlooked giant of the renewable energy field,” said Fatih Birol, the IEA’s Executive Director. “Its share in the world’s total renewables consumption is about 50% today, in other words as much as hydro, wind, solar and all other renewables combined. We expect modern bioenergy will continue to lead the field, and has huge prospects for further growth. But the right policies and rigorous sustainability regulations will be essential to meet its full potential.”

According to the IEA, “untapped potential of bioenergy in cement, sugar and ethanol industries is also significant. Bioenergy growth in the industry, transport and electricity sectors combined could be as considerable as that of other renewables in the electricity sector. A significant proportion of this potential relies on wastes and residues that offer low lifecycle greenhouse gas (GHG) emissions and mitigate concerns over land-use change. In addition, using these resources can improve waste management and air quality.”

 

Solar PV dominates renewable electricity capacity expansion, notes the IEA. “Renewable capacity additions of 178 gigawatts (GW) in 2017 broke another record, accounting for more than two-thirds of global net electricity capacity growth for the first time. Solar PV capacity expanded the most (97 GW), over half of which was in China.”

Solar PV capacity is forecast to expand by almost 600 GW – more than all other renewable power technologies combined, or as much as twice Japan’s total capacity, reaching 1 terawatt (TW) by the end of the forecast period, notes the IEA. “Despite recent policy changes, China remains the absolute solar PV leader by far, holding almost 40% of global installed PV capacity in 2023. The United States remains the second-largest growth market for solar PV, followed by India, whose capacity quadruples.”

 

Despite the success of solar PV and bioenergy, not all the findings in the IEA report are positive. Thus, “onshore wind additions globally declined for the second year in a row, and hydropower growth continued to decelerate”, notes the IEA, although it adds that “wind capacity is expected to expand by 60%. Meanwhile, spurred by technological progress and significant cost reductions, offshore wind capacity triples…”

***

Another not so positive finding: to meet long-term climate and other sustainability goals, renewable energy is still not growing fast enough. “Should progress continue at the pace currently forecast, the share of renewables in final energy consumption would be roughly 18% by 2040 – significantly below the IEA Sustainable Development Scenario’s benchmark of 28%.”

Even worse: the Guardian interviewed Fatih Birol about the renewables report and discovered that very likely carbon emissions from the energy sector are set to grow this year – for the second year running. This is a “major blow to hopes the world might have turned the corner on tackling climate change”, notes the newspaper.

According to the Guardian, “preliminary analysis by the world’s energy watchdog [i.e. the IEA] shows the industry’s emissions have continued to rise in 2018, suggesting that an increase last year was not a one-off.”

Birol told the Guardian: “When I look at the first nine months of data, I expect in 2018 carbon emissions will increase once again. This is definitely worrying news for our climate goals. We need to see a steep decline in emissions. We are not seeing even flat emissions.”

“Emissions largely flatlined in 2014–16 after climbing for decades, raising hopes that global action on climate change was beginning to turn the tide – but in 2017 they grew by 1.4%. The IEA would not say exactly how much emissions were up this year, as it will not publish official figures until March 2019, but confirmed they had definitely risen to a historic high so far.”

Birol said the growing carbon pollution was a result of the global economy driving coal, oil and gas use. “Energy efficiency improvements and renewables are not good enough to reverse that,” he added.

Birol made clear that the growth in renewables had to be accompanied by coal plant closures in Asia if dangerous climate change is to be avoided. “If there are no early [coal power station] retirements, more than two-thirds of the emissions [in 2040] are already determined today. Unfortunately a big chunk of the problem in my view is the coal in Asia.”

***

There is some positive news too: all fossil fuels (coal, oil and gas) are currently becoming more expensive, making renewables more competitive.

Gas prices last year rose by some 20%. Higher gas and coal prices are “spurring more interest” in renewables, Bloomberg notes in a recent report.

“It’s an opportunity,’’ Paolo Bertuzzi, chief executive officer of Turboden, a unit of Mitsubishi Heavy Industries, said at a Bloomberg conference in London. “What’s important is not just the price but also the trend. If prices are rising, people start to think more about what to do about energy costs.”

The surge in coal stems from record demand for energy in China, which has driven up the cost of power generation fuels of all kinds, notes Bloomberg. That’s drawn cargoes away from Europe and boosted electricity prices from Britain to Italy.

Higher coal and power prices make renewables look like a better economic bet against fossil fuels, according to Ignacio Galan, CEO of Iberdrola. “Fossil fuel costs are increasing, and that’s helping renewable energy,” Galan said in an interview. “It signals that if you invest in fossil fuel sources, you will be penalized.”

***

Credit rating agency Moody’s also noted recently that renewables continue to grow at coal’s expense – and not just in Europe or the U.S., but also in developing nations.

“Emerging markets are set to eclipse developed nations next year in their capacity to generate wind and solar power as equipment costs fall and the energy market approaches peak coal”, according to Moody’s.

“While developed countries have long been leaders in renewable power generation, emerging economies are close to overtaking them, bringing their total installed capacity of wind and solar to 307GW and 272GW — respectively 51 per cent and 53 per cent of global capacity, according to Moody’s calculations.”

“China accounts for the lion’s share of the upsurge. But Middle East and north African countries are scheduled to have installed 14GW in solar plants by the end of 2018 — a seven-fold increase from 2015. Central and South America are also expected to reach 14GW, nearly five times more than in 2015, while India is set to hit 28GW, a jump of nearly six times.”

“Everyone knows the cost of installing solar and wind energy has been coming down, but recently we have seen prices hitting extreme lows in places such as Mexico, Chile, India and Abu Dhabi,” said Swami Venkataraman, senior vice-president at Moody’s Investors Service. “This fall in costs is definitely changing the calculus of [emerging market] governments, allowing them to pursue renewables much more aggressively,” he added.

***

Over in Australia, energy company Origin Energy, one of the leading energy providers in Australia, has said that “the cost of wind and solar farms has fallen so far it is now cheaper than the marginal cost of coal generation, and the company is moving on from the concept of 24/7 base-load”, according to the Australian website Reneweconomy.

The assessment was made by Greg Jarvis, the company’s head of energy trading and operations.

“I have been in this game for so long … the one thing I have seen is just the cost of renewables really change the game,” Jarvis says. “It is amazing what we have been seeing.”

“Renewables are cheaper than the marginal cost of black coal at the moment. They are very cheap.”

Jarvis puts the cost of solar in the mid $40s/MWh and the cost of wind at the low $50s/MWh. That cost of solar is around half the average price of wholesale electricity in most states this year, notes Reneweconomy.

“The assessment accords with other views in the market about the cost of wind and solar, including from UK billionaire Sanjeev Gupta, who is looking at solar to underpin the expansion of his newly bought steel business in Australia.”

Reneweconomy adds that “ with China now mulling a dramatic lift in its 2030 renewable energy target to 35 per cent from 20 per cent, the chances are that the costs of both wind and solar will fall dramatically again.”

And with the falling cost of storage – this is likely to enable “firm” renewables to emerge as a serious contender to existing fossil fuel plants.

Jarvis also made it clear that Origin Energy has moved on from thinking about new generation in terms of

baseload, “which stands in sharp contrast to current government thinking and the conservative commentariat.”

Asked if Origin Energy had moved beyond the idea – promoted by the federal government and many in mainstream media – that reliability depended on 24/7 base-load power, Jarvis said: “Oh, a long time ago. The idea of base-load power stations is well and truly gone.”

“We see a combination of fast gas, pumped hydro and battery storage, and combination of those with renewables is the future,” Jarvis said. “And let’s not forget what’s behind the meter, and how do you aggregate those resources,” he added, noting that Origin was now the biggest installer of rooftop solar in the country, and was also heavily involved in household battery storage.

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EU transforms the European energy sector

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BRUSSELS INSIDER #1 - June 19, 2018

EU transforms the European energy sector

by Sonja van Renssen

Spanish MEP José Blanco López - man behind the rooftop revolution

The EU has agreed on a new renewable energy directive which involves much much more than just a 32% renewables target, which got most attention in the media. It enshrines citizens’ right to produce and consume their own energy (a rooftop revolution!), it limits food-based biofuels (but not wood-based biomass), has rules on green gas, hydrogen, guarantees of origin – and more. Now the Council (Member States) and Parliament are preparing for all-night negotiations to close deals on a new energy efficiency directive and a new energy governance regulation for 2030. After this week, the European energy market won’t be the same.

During the night of Tuesday 19 June, EU negotiators are expected to reach political agreement on a revised energy efficiency directive and a new energy governance regulation for Europe for 2021-30. Together with the deal on a revised renewable energy directive (REDII) last week, this would bring the EU’s entire Clean Energy Package halfway to conclusion.

The four remaining files – a new energy performance of buildings directive was already agreed last December – all relate to power market design. Negotiations on these are due to start in July under the leadership of Austria, which will take over the rotating EU presidency from Bulgaria on 1 July.

MEPs looked jubilant in a photo with EU climate and energy commissioner Miguel Arias Cañete last Thursday 14 June – in the early hours – after they reached agreement on renewables. With a long list of unresolved issues still in the run-up to a meeting of EU energy ministers on 11 June, it was a big achievement.

The equally big disappointment that same day however, was the failure of MEPs, Member States and the European Commission to agree on a new energy efficiency directive. Energy Post understands that the Bulgarian EU presidency hopes to rectify that this evening.

The final negotiations on governance – a requirement for national climate and energy plans, potentially a long-term net zero emissions goal and enforcement mechanisms for the EU’s renewables and energy efficiency targets –  were always scheduled for tonight.

Rooftop revolution

The final text of the new renewable energy directive was not yet available at the time of this writing, hence many stakeholders did not want to comment on specifics and Energy Post will report on more of the details once they become available.

That said, the direction of travel is clear. With REDII, the EU commits itself to a legally binding renewable energy target of 32% for 2030. That’s closer to the Parliament’s proposal of 35% than the 27% the Council had proposed. There is also a review pencilled in for 2023 that could potentially raise (not lower!) the target further.

NGOs singled out new rules on self-consumption as the big victory and new rules on bioenergy as the big defeat.

As we reported earlier, self-consumption was very dear to Spanish rapporteur MEP José Blanco López (“Pepe Blanco”). In the end, he got what he wanted. The deal establishes the right for citizens, communities and cooperatives to produce, consume, store and sell their own renewable energy – without punitive taxes or administration. “EU overturns barriers to rooftop revolution”, exulted Greenpeace EU.

Pepe Blanco himself said: “We managed to reinforce self-consumption as a right, and included the Parliament’s wish for a ban on charges and fees on self-consumed energy until 2026, with some limited exceptions foreseen thereafter, as well as enshrining the right to be remunerated for the self-generated renewable electricity fed into the grid at market value.”

SolarPower Europe, representing the solar industry, also welcomed simplified procedures that will limit permitting for new installations to one year, and the freedom for countries to do solar-specific tenders. Contrary to the Commission’s wishes, opening up renewables support schemes cross-border will remain voluntary for the time being, Energy Post understands.

Bioenergy uproar

Biofuel trade associations welcomed the EU’s commitment to a renewables in transport target of 14% by 2030 (up from 10% by 2020). Note that the Commission didn’t want a transport-specific target at all, after all the controversy over biofuels. MEPs and Member States came up with one anyway.

There are a number of safeguards that come with it however. “We disincentivise investments in new production of food crop-based biofuels,” said Pepe Blanco. First generation biofuels will be capped at 2020 consumption levels in each Member State, up to a cap of 7% (the current cap on first generation biofuels), he explained in a press release.

“High indirect land-use change biofuels will be phased out through a certification process for low ILUC biofuels,” the Spanish rapporteur added.

“The signal that the EU is moving away from the most harmful biofuels, palm oil and soy, is even stronger,” said Green MEP Bas Eickhout. “Their contribution will be capped at 2019 levels until 2023, with a phase-out foreseen from 2023 until 2030. That is quite a victory. There is no precedent for a phase-out of the use of specific crops. The importance of this provision is shown by the reaction of the European Commission, who have expressed their reservations. Apparently there are some Directorates where trade agreements with Indonesia and Malaysia are more important than the environment.”

The European Biodiesel Board said it was “perplexed” about “unclear limitations targeting the use of food crops biofuels”. Fediol, representing the European Vegetable Oil and Proteinmeal industry, warned of “huge uncertainty” for investors until the Commission decides what counts as “high” and “low” ILUC biofuels.

In contrast, NGO Transport and Environment (T&E), which is fiercely critical of biofuels, applauded the result: “EU ends target for food-based biofuels”. See this explanatory diagram: there is a 7% de facto target for advanced fuels – half of that reserved for waste-based biofuels – while Member States are allowed to reduce their 14% renewables in transport target if they go for <7% food-based biofuels.

All parties criticised the prolific use of multipliers in the final deal. The biggest criticism on the bioenergy front however, was reserved for the use of woody biomass. “The EU has failed to fundamentally change its destructive policy of burning wood for energy,” said Linde Zuidema at NGO Fern. She warned against increasing forest harvests, the burning of whole trees and stumps, and the large-scale use of biomass in inefficient electricity installations. WWF said the rules on bioenergy “put both the climate and forests worldwide at risk”.

In practice, this fight was already lost before the Parliament adopted its final negotiating position however.

Meanwhile, the European Biomass Association (AEBIOM) welcomed the first-ever European-wide sustainability criteria for solid bioenergy. It issued a useful infographic summing up the new rules.

Showstopper Germany

There is plenty more in the revised renewables directive, which we will return to along with more detail and analysis in future issues of the Brussels Insider. A few examples: an (indicative) target for a 1.3% annual increase in renewables in heating; a recognition that green hydrogen can count towards emission reductions at refineries (a big breakthrough for green gas!); and what the new directive means for Guarantees of Origin (GOs) and the fledgling corporate renewables sourcing market in Europe (see RE-Source platform launched 6 June).

Some of the new directive’s significance also depends on what gets decided in other parts of the Clean Energy Package. Thomas Nowak, Secretary General of the European Heat Pump Association (EHPA), said last week: “The absence of a parallel deal on the EED [Energy Efficiency Directive] is of great concern, as in particular the re-setting of the primary energy factor for electricity (PEF) will accelerate the introduction of efficient electrification technologies in heating.”

In the same vein, the European Consumer Organisation (Beuc), warned that the upcoming market design talks are crucial: “These negotiations will cover many technicalities such as whether the electricity produced by households is prioritised over the electricity produced by big power companies when it comes to uploading it to the grid.”

More immediately, the hoped-for deal on governance tonight would decide what happens when the EU isn’t on track to either its energy efficiency or renewables targets. In a briefing with journalists on Monday, rapporteur Claude Turmes highlighted the need for a safety mechanism if a whole group of Member States fails to hand in renewables plans (meaning the Commission cannot even calculate whether the EU is on track to its target or not – in other words, how to prevent filibustering).

Turmes also emphasised the importance of an enforcement mechanism for the EU’s energy efficiency target, binding or not. Unlike for renewables, over half of this is expected to be delivered by EU measures: ecodesign, energy labelling, nearly-zero energy buildings, and CO2 standards for cars, vans and trucks. If there is a gap to the target, it’s the Commission that should step up, Turmes argued.

He predicted a “big, big fight” over his proposal to enshrine a net zero emissions goal in the governance regulation.

A lot of what happens tonight will depend on Gerrmany. This was the show-stopper at the negotiations last week, reportedly capping ambition on renewables at the 32%. Understandable perhaps, when the German Federal Network Agency (BNetzA) on 18 June reported that German costs to stabilise the power grid rose to a record €1.4 billion in 2017. And that, while the country is not even on track to meet its renewable energy target for 2020, according to the German Renewable Energy Federation (BEE) a day earlier.

This didn’t stop NGOs from roundly criticising the 32% renewable energy target as too low. “Leaving behind the Paris Agreement”, lamented Climate Action Network (CAN) Europe. But, as we reported last week, Germany is done with “unachievable” targets. That will hold true for energy efficiency as much as for renewables.

Contents – June 19, 2018

Energy Watch:
Many steps back, few forward as we move into the New Gas World
What else can we do? Suck CO2 out of the sky? Store it underground?
Bill Gates makes a small bet on energy storage – China a large one
Should Europe buy or build batteries? Or have the Asians build batteries in Europe?
Brussels Insider:
EU transforms the European energy sector
Interview Jean-Marc Leroy, President Gas Infrastructure Europe: “Green gas is paramount for us, but we are still in the experimentation phase”
Express reads:
More trouble for the Energiewende as utilities call for rapid coal phase out and citizens oppose wind farms
Oil stocks: from rock-solid blue chips to speculative investment
Is the Energy Charter Treaty the Dark Lord of the energy sector?
Renewables: Innogy expands in U.S., EnBW in France, Norway mulls offshore wind expansion