Energy & Technology
This year we will witness a number of milestones in technology to capture, use and store carbon dioxide from industrial sources and power plants – technology we need to reach our goals to reduce greenhouse gas emissions. We will need continued policy and financing support, however, to accelerate deployment worldwide. Innovative research in finding uses for captured carbon will also be essential.
In 2016, the Emirates Steel Industries project in Abu Dhabi will be the world’s first steel plant with carbon capture, use and sequestration (CCUS) technology to begin operations. Globally, seven commercial-scale CCUS projects are under construction and many more are in the planning stages.
In the U.S., two notable CCUS projects are expected to come online soon, including the first-ever incorporation of CCUS technology at a bioethanol refinery at the Archer Daniels Midland project in Illinois and the incorporation of CCUS technology at the coal-fired power plant at the Southern Company Kemper project in Mississippi. Not far behind, in 2017, the NRG Energy Petra Nova project in Texas will also incorporate CCUS technology on coal-fired power generation.
These anticipated project developments reflect the fact that CCUS technology is advancing around the world. Fifteen commercial-scale CCUS projects are operating. Eight of those are in the United States, which has been a leader in this area.
Recent North American milestones include the retrofit of the SaskPower Boundary Dam coal-fired power plant project in Canada with CCUS technology in 2014. In April 2016, the company announced it had exceeded the carbon capture reliability goals established for the technology. SaskPower estimates it could cut costs up to 30 percent on future units based on the experience it has acquired. Also in Canada, in November 2015, Shell incorporated CCUS technology on hydrogen production at the Quest project in Alberta.
CCUS technology grows increasingly important as nations begin to implement their emission reduction pledges under the Paris Agreement. The Intergovernmental Panel on Climate Change Fifth Assessment Synthesis Report concluded that CCUS technology will be essential to meet mid-century climate goals of keeping global temperature rise within 2 degrees Celsius of preindustrial levels. In fact, without CCUS, mitigation costs will rise by 138 percent.
Even as nations take on climate change and diversify their energy portfolios, fossil fuels are expected to serve 78 percent of the world’s energy demand in 2040. The most recent Energy Information Administration analysis suggests that global energy consumption is expected to rise by 48 percent over the next 30 years led by significant increases in the developing world. In Asia in particular, power generation from fossil fuels is expected to continue to grow over the near term.
Earlier this spring, the International Energy Agency (IEA) published a study on retrofitting China’s coal-fired power plants with CCUS technology, which will be critical because China has roughly 900 GW of installed coal-fired power plant capacity and has committed to peaking its CO2 emissions by 2030. The IEA study concludes that one-third of the coal fleet in China is suitable for retrofitting with CCUS technology.
Aside from the power sector, CCUS is a critical technology for the industrial sector, which contributes roughly 25 percent of global emissions. Carbon dioxide (CO2) is a by-product of many manufacturing processes for chemicals, steel, and cement production as well as refining. There are no practical alternatives to CCUS for achieving deep emissions reduction in the industrial sector.
In some cases, the cost of incorporating CCUS technology into industrial processes may be lower than in the power sector because the CO2 stream in the industrial sector is often relatively pure, i.e. less mixed with other gases. A number of industrial CCUS projects are already operational including the Uthmaniyah natural gas processing project in Saudi Arabia that came online in 2015. In the U.S., the Air Products Port Arthur project in Texas incorporating CCUS technology on hydrogen production has been operational since 2013.
As new projects begin operating around the world, the Global CCS Institute concluded that policymakers can learn lessons for CCUS from the development of offshore wind in Europe. Those projects benefited from policy support from national governments through feed-in tariffs and long-term offshore wind capacity targets in national energy plans. The report also concludes that a multi-source approach to finance, including project finance, export credit agency support, multilateral institution lending, and green bank funding, will be helpful for CCUS technology.
Finding uses for the captured carbon will also be essential. At the January World Economic Forum meeting in Davos, Switzerland, the Global CO2 Initiative was launched to develop innovative approaches to transform CO2 into commercial products. Promising options include construction materials, plastics, chemicals, and agricultural products.
As researchers continue exploring new uses for captured carbon, CCUS project developments this year and next continue to highlight the significant potential for CCUS technology to contribute to global emissions reduction.
This blog post first appeared in the Summer 2016 edition of The Current, a publication of the Women's Council for Energy and the Environment.
California and New York are leaders in setting ambitious climate goals. Both have committed to producing half their electricity from renewable sources by 2030. Both have set identical goals of reducing greenhouse gas emissions 40 percent below 1990 levels by 2030.
Where they part ways, however, is on nuclear power, which supplies the majority of zero-emission electricity in the United States. California is letting its nuclear plants ride off into the sunset while New York, which just approved a Clean Energy Standard that specifically includes nuclear power, is actively trying to preserve them.
This summer, Pacific Gas & Electric Company (PG&E) announced it will close its Diablo Canyon nuclear plant – the last one in the state of California – by 2025. After striking an agreement with environmental and labor groups, PG&E said it will seek to replace Diablo Canyon’s roughly 18,000 GWh of annual electricity – almost 10 percent of California’s in-state electricity – through improved energy efficiency, which will decrease demand, and renewable energy.
Many experts think it will be a stretch to reach that goal, especially by 2025, and that natural gas will have to fill the gap, as it has where nuclear plants have closed elsewhere in California, Vermont and Wisconsin. In New England, emissions increased 5 percent in 2015 after the Vermont Yankee nuclear plant shut down and was largely replaced by natural gas-fired electricity.
Diablo Canyon might have kept going if PG&E had gotten its way in negotiations with the state last year to include nuclear power in California’s renewable portfolio standard (RPS). That standard requires utilities to produce a certain amount of electricity from renewable sources like wind, solar, geothermal and hydropower. Including nuclear would have helped it compete economically with other low-carbon energy.
New York’s path
That’s exactly the path being taken in New York, which gets a third of its in-state electricity from nuclear power. To preserve the low-carbon benefits of its economically troubled upstate reactors and ensure its electricity mix becomes increasingly clean – with no backsliding – New York’s Public Service Commission has approved a clean energy standard (CES), which is essentially an RPS that includes nuclear.
New York’s CES mandate, which will take effect in 2017, is a novel approach that incorporates best practices from other states. It’s designed to incentivize new renewables deployment while also preserving existing clean electricity generation.
New York’s CES has three tiers, each with its own supply-demand dynamics. Tier 1 will incentivize new renewable development. Tier 2 is designed to provide sufficient revenue for existing renewable electricity supply. Tier 3 is designed to properly value the emission-free power from the state’s at-risk nuclear power plants.
Nuclear plant operators have long sought to correct what they perceive as a market failure to compensate nuclear power for its low-carbon benefits. If the at-risk reactors were replaced by an equivalent amount of fossil generation, emissions would increase by 14 million metric tons – increasing the state’s carbon dioxide emissions nearly 10 percent.
New York’s plan isn’t without controversy. There’s concern that it’s too costly. However, an associated cost study by the PSC found that the state could “meet its clean energy targets with less than a 1 percent impact on electricity bills.”
Most U.S. states have a renewable portfolio standard or alternative energy standard. Only Ohio allows new nuclear to qualify. Only New York has provisions for existing nuclear power plants.
Illinois is working to expand its RPS to include nuclear into a low-carbon portfolio standard, similar to New York’s CES, but efforts have stalled in the state legislature. Exelon has announced plans to close two nuclear power plants in the state in 2017 and 2018, which could lead to an additional 13 million metric tons of carbon dioxide emissions for the state.
Across the U.S., nine reactors are scheduled to close by 2025, which could increase carbon emissions by about 32 million metric tons, or 1.7 percent of the current total U.S. carbon emissions from the power sector.
New York’s approach to reducing its emissions is a practical, well-considered model that many other states could be following (Arguably, a national price on carbon would be more efficient, though more challenging to enact.)
New York’s four upstate reactors provide significant environmental and economic benefits. From a climate perspective, it doesn’t make sense to prematurely close these facilities when, in the short- and medium-term, they cannot realistically be replaced by alternative zero-emission power sources. Keeping these reactors operational also buys us additional time to address energy storage and transmission challenges to support more renewable generation.
With reasonable policies in place to support the existing U.S. reactor fleet, it will be easier for the U.S. to reduce its emissions and achieve its climate goals.
Rooftop solar panels in central India.
Photo courtesy Coshipi via Flickr
A bold initiative to vastly expand solar energy in developing countries recently reached two major milestones toward its ultimate goal of mobilizing $1 trillion in solar investments by 2030.
In late June, the World Bank Group signed an agreement establishing it as a financial partner of the International Solar Alliance, providing more than $1 billion in support. The Bank Group will develop a roadmap and work with other multilateral development banks and financial institutions to mobilize financing for development and deployment of affordable solar energy.
The news follows the June 7 joint announcement between India and the United States to launch an initiative through the Alliance focusing on off-grid solar energy.
The International Solar Alliance was announced at the Paris climate conference in December by Indian Prime Minister Narendra Modi and French President François Hollande. It was one of many new initiatives involving business, civil society, and public-private partnerships launched in Paris.
The alliance will comprise 121 countries located between the Tropic of Capricorn and the Tropic of Cancer that typically have 300 or more days of sunshine a year. Companies involved in the project include Areva, HSBC France and Tata Steel.
According to the Renewable Energy Policy Network for the 21st Century (REN21), global solar capacity experienced record growth in 2015, with the annual market for new capacity up 25 percent over 2014. More than 50 gigawatts were added, bringing the total global capacity to about 227 gigawatts. That’s about 10 percent of the total amount of electricity the U.S. produced in 2015.
In developing and emerging economies, affordable financing is a challenge. The alliance will work to expand solar power primarily in countries that are resource-rich but energy-poor by mobilizing public finance from richer states to deliver universal energy access. Strategies include lowering financing costs, developing common standards, encouraging knowledge sharing and facilitating R&D collaborations.
President Hollande laid the foundation stone of the International Solar Alliance at the National Institute of Solar Energy in Gurgaon, Haryana in January, marking the first time India has hosted the headquarters of an international agency. The Indian government is investing an initial $30 million to set up the headquarters. The French Development Agency has earmarked over 300 million euros for the next five years to finance the alliance’s first batch of projects.
The solar alliance complements India’s own ambitious solar energy goals, which include a 2030 target of 40 percent of electric power capacity from non-fossil fuel energy sources as part of its intended nationally determined contribution to the Paris Agreement. India also plans to develop 100GW of solar power by 2022, a 30-fold increase in installed capacity.
The growing support for the solar alliance is evidence of rising political momentum around the world to act on climate change and transition to a low-carbon economy. Look for a third major milestone in September, when the Alliance meets for its inaugural Founding Conference in Delhi.
Back in 2005, the U.S. Energy Information Administration projected that, under current policies, U.S. energy-related carbon dioxide emissions would increase nearly 18 percent by 2015.
They did not.
In fact, emissions fell – by more than 12 percent. So we were off by 30 percent.
As Yogi Berra may have said: It's tough to make predictions, especially about the future. We didn’t know then the impact a variety of market and policy factors would have on our energy mix. And we don’t know now all of the factors that could help us meet, or exceed, our Paris Agreement pledge – to reduce our net emissions 26-28 percent below 2005 levels by 2025.
U.S. emissions have fallen over the last 10 years due to factors that include:
- Growth in renewable energy
- Level electricity demand
- Improved vehicle efficiency
- A shift in electricity generation from coal to natural gas.
An unanticipated abundance of cheap natural gas has transformed the U.S. electricity mix. Coal-fired generation has fallen from 50 to 33 percent of the mix, while less carbon-intensive, natural gas-fired generation has risen from 19 to 33 percent.
The last 10 years also included a major economic downturn, which in 2009 drove electricity sales below 2005 levels. Despite a return to positive economic growth in the following year that continues through today, electricity sales have remained flat. Declines in manufacturing; improvements in energy efficiency, including in buildings, lighting, and appliances; warmer winters; and increased use of on-site generation like rooftop solar panels are the likely drivers.
What will happen in the next 10 years?
Certainly, the electric power sector will continue to decarbonize. It is not unreasonable to assume that natural gas will play an even larger role, while coal will play a substantial albeit diminishing role in the electricity mix.
Here are some other factors that are hard to quantify now, but could affect how quickly we transition to a clean energy future:
More zero-emission electricity
Increased clean and renewable electricity production, spurred by the Environmental Protection Agency’s Clean Power Plan and congressional tax credit extensions for wind and solar, could reduce renewable power costs, which have already been dropping. In other words, economies of scale could lead to higher deployments and lower emissions than currently forecast.
Wind and solar generation have grown nearly twelve-fold since 2005, nearly eight times greater than what was expected back then. In the 2016 Annual Energy Outlook, wind and solar generation are projected to increase 2.5 times by 2025. Historical precedent would tend to suggest that this is a highly conservative estimate.
However, sustained low prices in wholesale power markets from low natural gas prices and a proliferation of renewable electricity sources could harm another zero-emission source: nuclear. In particular, we could see natural gas continue to replace zero-emission merchant nuclear plants, moving us in the wrong direction, unless remedies are implemented. Also, low wholesale prices would tend to discourage new renewable generation.
More zero-emission vehicles
Electric vehicles (EVs) make up less than 1 percent of new U.S. car sales. But as their prices drop and range expands, the adoption rate could accelerate over the next 10 years, spurring important reductions from what is now the largest emitting sector. In one sign of growing demand, more than 400,000 people have put down a deposit for a Tesla Model 3 EV that won’t even be on the market until 2018.
Advances in battery storage could drive the transformation of the transportation sector and would provide obvious benefits to the electric power sector as well.
Meanwhile, automakers are exploring alternative fuels: natural gas, hydrogen fuel cells, and biofuels. And more than a dozen states and nations have formed a Zero-Emission Vehicle (ZEV) Alliance to encourage ZEV infrastructure and adoption.
Action by cities, the magnitude of which is not easily captured by national macroeconomic models, could lead to greater than anticipated emission reductions. Starting with the groundbreaking Mayors Climate Protection Agreement in 2005, initiatives are evolving to connect cities with each other to exchange knowledge and achieve economies of scale for new technologies.
More cities are exploring ways to generate additional reductions by 2025. These include: more energy-efficient buildings; better tracking of electricity and water use, innovative financing for more efficient generation, appliances and equipment; and improved public transportation and promotion of electric vehicles.
Last, but not least, steps taken by companies beyond regulatory requirements could produce greater emission reductions than we can foresee. Companies are investing in clean energy projects, reducing emissions throughout the supply chain, establishing internal carbon pricing, and helping customers reduce their carbon footprint. More than 150 companies have signed the American Business Act on Climate Pledge.
C2ES and The U.S. Conference of Mayors are teaming up to encourage city and business leaders to work together to reduce greenhouse gas emissions. Imagine how effective we can be when we coordinate climate action.
A 2015 UNEP report suggests that beyond each countries’ individual commitments to the Paris Agreement, actions by sub-national actors across the globe can result in net additional contributions of 0.75 to 2 billion metric tons of carbon dioxide emissions in 2020.
The United States has significantly reduced its greenhouse gases over the past decade, and has put in place policies ensuring continued reductions in the years ahead. With so many resources and tools at our disposal, it is clear that we can meet or exceed our climate goal. The only uncertainty is how we will do it.
Event: Innovation to Power the Nation
Technology, policy, and business experts discuss how innovative technology and policy can help us reach our climate goals at Innovation to Power the Nation (and World): Reinventing Our Climate Future at 1 p.m. ET on Wednesday, June 29. Watch the livestream.
Speakers include Patent and Trademark Office Director Michelle K. Lee; C2ES President Bob Perciasepe; Dr. Kristina Johnson, CEO of Cube Hydro Partners; Nate Hurst, Chief Sustainability & Social Impact Officer at HP; and Dr. B. Jayant Baliga, inventor and director of the Power Semiconductor Research Center at North Carolina State University.
Cities often lead the way on greenhouse gas reductions, even though they rarely control the operation of the power plants that supply their energy. So how can city initiatives work together with the federal Clean Power Plan to reduce carbon emissions from power plants?
One option is the Clean Energy Incentive Program (CEIP). The U.S. Environmental Protection Agency (EPA) included this early-action program as part of the Clean Power Plan and recently released program design details.
The program is voluntary. If a state chooses to participate, then certain renewable and energy efficiency projects can receive early action credits, including a federal match from EPA. These credits can be used for complying with the Clean Power Plan, so they provide additional financial incentives for clean energy projects.
While we can’t know the full value of the CEIP without knowing how many states participate and how power plants in those states comply with the Clean Power Plan, C2ES estimates the CEIP could drive up to $7.4 billion of private spending on clean energy projects across the country.
A key aspect of the CEIP is its support of project development in low-income communities. Solar and energy efficiency projects in these communities receive double credit, and a special reserve pool is created to make sure these projects can compete with large renewables for credits. This type of project development can support four key goals of city leaders:
1. Taking action to fight climate change;
2. Reducing energy bills for low-income residents;
3. Bringing jobs and investment to the community; and
4. Delivering co-benefits of renewable energy like cleaner air and water.
City leaders have the know-how to channel CEIP credits to their communities, but they will need to partner with their states and businesses to succeed.
Once states choose to participate, city leaders can help articulate the benefits of the CEIP. Cities can also provide data and support to project developers to streamline CEIP projects, especially low-income community projects that often face more hurdles. For example, they could help businesses locate communities that would host projects, work with utilities to identify potential projects, and build public-private partnerships to finance renewable energy.
How does it work?
Step 1: EPA creates a matching pool for each state. The amount of CEIP match available is limited, and EPA will divide the total pool among the states before the program gets started. If a state does not use its full share of the match, those credits will be retired. In other words, the CEIP is use it or lose it. Half of each state’s pool is reserved for low-income community projects and the other half for renewable projects like wind, solar, geothermal, or hydroelectricity.
Step 2: Interested states include the CEIP as part of their implementation approach. States must submit a plan to EPA that details how they will implement the Clean Power Plan. States that opt-in to the CEIP would have to declare that as part of their plan, and then they could receive the EPA match. If states opt out, then clean energy projects within their borders would not be eligible.
Step 3: New clean energy projects are developed in participating states. CEIP credits go only to new projects – renewable projects that start generating electricity on or after Jan. 1, 2020 or low-income energy-efficiency projects that start delivering energy savings on or after Sept. 6, 2016.
Step 4: New clean energy projects benefit the community. CEIP credits are awarded for electricity generated (renewables) or saved (energy efficiency) in 2020 and 2021. Starting in 2022, these projects are eligible for other financing opportunities under the Clean Power Plan.
Step 5: CEIP projects receive tradeable credits. States will verify how much clean energy a project is producing, then distribute the appropriate amount of CEIP credits (half from the state’s pool and half from EPA) to eligible projects. The project developers that receive the credits can sell them to power plants that need them to comply with the Clean Power Plan. CEIP projects don’t need the credits themselves because only fossil fuel-fired power plants are covered by the regulation. The value of CEIP credits will be determined by how power plants reduce their emissions.
The dates in the CEIP design details may change, depending upon the outcome of the legal challenge against the Clean Power Plan.
The CEIP will be open for public comment this summer. Once finalized, it will help promote new clean energy development in communities across the country. Its focus on low-income communities aligns it with other city priorities in addition to fighting climate change. The short timeframe of the program will make public-private collaboration a key to success in attracting CEIP projects.
C2ES, through our Alliance for a Sustainable Future with The U.S. Conference of Mayors, can be a valuable resource on climate policies like the CEIP. By communicating technical information in a meaningful way and facilitating the conversations between cities and businesses, we can advance clean and efficient energy.
When it comes to carbon capture, innovative technology exists, but the financial and policy support needed to accelerate its deployment is lacking.
At a recent Carbon Capture, Utilization & Storage (CCUS) Conference attended by leaders of industry, federal and state agencies, and environmental organizations, one theme that emerged is the importance of policy parity with other low- and zero-carbon energy technologies like wind and solar to advance widespread deployment of CCUS technology.
We know that CCUS technology is essential to meet our mid-century climate goals. In fact, without CCUS, mitigation costs will rise by 138 percent.
Exchange Monitor, the organizer of the CCUS conference, noted that it is “an extremely important technology, enjoying a bit more spotlight on the heels of the Paris climate change agreement.” Many nations specifically referenced CCUS technology in their Nationally Determined Contributions to the agreement, including Canada, China, Norway, Saudi Arabia, the United Arab Emirates, and the United States.
Even as nations diversify their energy portfolios, fossil fuels are expected to serve 78 percent of the world’s energy demand in 2040. The most recent Energy Information Administration analysis suggests that global energy consumption is expected to rise 48 percent over the next 30 years.
Clearly, there will be a need for CCUS technology to be widely deployed, in both the power and industrial sectors. Industry, including refining and chemicals, steel, and cement production, contributes roughly 25 percent of global emissions and there are no practical alternatives to CCUS for achieving deep emissions reduction in this sector.
CCUS project development is not on track, however. The most recent International Energy Agency (IEA) Tracking Clean Energy Progress report notes: “No positive investment decisions were taken on CCUS projects, nor did any advanced planning begin in 2015, resulting in a fall in the total number of projects in the development pipeline.”
Since a project can take five to 10 years from conception to operation, financial and policy support is critical now, the EIA adds. The report concludes: “As with other low-carbon technologies, the market for CCS projects in most regions will be created by policy and regulation.”
That conclusion was echoed at the conference by Dr. Julio Friedmann, the Senior Advisor for Energy Innovation at the Lawrence Livermore National Laboratory and former Principal Deputy Assistant Secretary for Fossil Energy at the U.S. Department of Energy. He said the financing challenge for CCUS projects “is fundamentally a policy issue; this is not a technology issue.” Barry Worthington, Executive Director of the U.S. Energy Association, emphasized at the conference that “providing identical fiscal tools for all no-carbon/low-carbon technologies reduces market distortion.”
Policies that would accelerate the deployment of CCUS technology include:
- Stronger federal and state incentives for carbon dioxide enhanced oil recovery (CO2-EOR)
- The inclusion of CCUS technology in state clean energy standards
- Funding for continued CCUS research, development, and demonstration
- A price on carbon
These policies would help overcome the barriers that innovative CCUS projects face, such as higher cost and higher perception of risk by investors. The cost reductions and performance improvements experienced by the wind and solar energy industries demonstrate that these kinds of policies (tax incentives, renewable portfolio standards, etc.) can accelerate the deployment of low- and zero-carbon energy technologies.
What policy parity means is sustained public sector support through the process of achieving a declining cost curve: from deploying initial first-of-a-kind CCUS technologies in both power and industrial applications to driving deployment of next-of-a-kind projects. It also means sustaining R&D on CCUS technologies so that low- and zero-carbon energy technologies are ultimately competitive without incentives.
As more CCUS projects come online, opportunities for cost reductions become apparent. SaskPower estimates it can save up to 30 percent on future CCUS units at the Boundary Dam power plant.
Finally, there is significant support for accelerated deployment of CCUS technology. C2ES co-convenes the National Enhanced Oil Recovery Initiative, which is a broad and unusual coalition of executives from the electric power industry; state officials; and environmental and labor representatives, all of whom support improved policy for CCUS technology in the United States. Based on our experience, and as expressed at the conference, policy parity needs to be an essential component of future federal and state efforts on climate to meet our agreed-upon goals and to match the growing need for CCUS technology.
Cities and states on the West Coast are teaming up to tackle one of the biggest sources of urban emissions: energy use in buildings.
Three governors, six mayors, and the environment minister of British Columbia adopted the Pacific North America Climate Leadership Agreement this month at the Clean Energy Ministerial in San Francisco. The leaders of British Columbia, California, Los Angeles, Oakland, Oregon, Portland, San Francisco, Seattle, Vancouver, and Washington state agreed to work together to address the energy use and greenhouse gas emissions from buildings.
Energy use in buildings is one of the largest sources of emissions in most cities. Buildings account for 52 percent of emissions in San Francisco, and 33 percent in Seattle. Even in smaller cities, the building sector remains a significant source of emissions. If cities can cut energy use in buildings, it can help them deliver on their ambitious climate mitigation commitments.
Since cities are already filled with buildings, improvements must be made to those that are already in use, rather than waiting for newer, more efficient buildings to be constructed.
A place to start is with benchmarking and disclosure policies, which are in place in 15 cities. Cities require building managers to record and report their energy use with the help of EPA tools. The resulting database can help identify opportunities for reducing energy use. And city officials can use the information to guide policy and create long-term strategies to reduce energy use and emissions.
To ensure that buildings achieve reductions in energy use, cities are complementing benchmarking and disclosure policies with additional actions, including: retro-commissioning, a process that assesses buildings to uncover low-cost operational improvements; supporting buildings through retrofit processes; and ensuring that buildings undergoing major renovations are brought up to current code.
Examples of these policies can be found throughout the West Coast and the U.S. at large. Seattle recently required commercial buildings 50,000 square feet or larger to undertake retro-commissioning processes every five years. Los Angeles is supporting property owners and managers to execute building performance upgrades to achieve 20 percent reductions in energy usage. And Washington, D.C., like many cities, requires major upgrades to existing buildings to meet current, more energy-efficient building codes.
With a comprehensive suite of policies aimed at commercial building efficiency, cities can take action to address one of their largest sources of emissions. We are heartened to see that the Western states and cities have committed to work together on this challenge, and look forward to seeing the local progress that might be accelerated with supportive state policies. By working together, cities and states can help shape policy, investment, and behavior change strategies that can become models for broader action.
PREPARED REMARKS BY ELLIOT DIRINGER
EXECUTIVE VICE PRESIDENT, CENTER FOR CLIMATE AND ENERGY SOLUTIONS
THE PARIS CLIMATE AGREEMENT: A TURNING POINT FOR THE OIL AND GAS INDUSTRY?
JUNE 6, 2016
Thank you, Martin, for the kind introduction. And my thanks to APPEA for inviting me to be with you here this morning.
I appreciate the opportunity to share some views on the landmark Paris Agreement, and on its implications not only for the future of natural gas, but for the future of the oil and gas industry as a whole.
I’d like to touch on five areas:
- First, the logic, and the most pertinent aspects, of the Paris Agreement;
- Second, what the agreement’s long-term goals imply for future energy use;
- Third, how the Paris Agreement is intensifying social and political pressures on the fossil fuel industry;
- Fourth, how I see the industry responding; and
- Finally, some thoughts from an interested observer on how the industry can work to ensure a more sustainable path for itself, and for the planet.
First, though, I’d like to tell you who we are. C2ES is a US-based NGO working to advance practical and effective climate policies in the United States and internationally.
We’re an independent organization, but we work closely with major companies committed to addressing climate change.
Our Business Environmental Leadership Council includes 30 companies, most in the Fortune 500. They span the major sectors of the economy, and include large energy producers and consumers, including three members of APPEA – BHP Billiton, BP and Shell.
In addition to our work with companies, C2ES undertakes in-depth policy analysis, and we facilitate dialogue among diverse stakeholders. One recent example is the role we played behind the scenes convening informal discussions among governments leading up to the Paris conference last December.
Over 15 months, we brought together senior negotiators from two dozen countries – Including Australia – for eight very candid, very in-depth sessions debating the key issues and the best options. The report we drew from these discussions and released last July laid out the essential landing zones for the agreement that was concluded five months later in Paris.
From our perspective, it’s a good agreement, one with the potential to be truly transformative. The Paris Agreement draws lessons from the past 20 years of climate diplomacy to establish a more pragmatic and more inclusive framework for global action.
It’s what we describe as a hybrid agreement; it combines bottom-up and top-down features to strike the right balance between national flexibility, to achieve broad participation, and international rigor, to ensure accountability and to promote rising ambition.
The strong, high-level political momentum that produced the Paris Agreement is continuing.
- More than 170 countries signed the agreement when it was formally opened for signature in April in New York.
- The United States and China have said they will soon go the next step and complete their domestic approval procedures.
- And there are strong signs the agreement will formally come into force as early as this year, but more likely next – much earlier than had been anticipated.
So what, specifically, does the agreement require?
- It commits all parties to make national contributions, backed up by domestic mitigation measures;
- It commits them to regularly report on their emissions and on their progress in implementing their contributions;
- And it commits them to update their contributions every five years.
These contributions are nationally determined – every country decides for itself what it will do – and they are not legally binding. But the binding procedural commitments – to regularly report, and to periodically update your contribution – will provide stronger accountability, and should work to promote rising ambition.
Rising ambition toward what? The agreement sets a number of long-term goals. It sets a temperature goal: keeping warming well below 2 degrees Celsius, and striving to limit it to 1.5. And it sets two emissions-related goals: first, to peak global greenhouse gas emissions as soon as possible; and second, to achieve net zero emissions in the second half of the century.
I’ll repeat that: net zero emissions in the second half of the century.
Of course, the agreement itself can’t ensure that these goals are met. But it establishes mechanisms that will periodically call the question; that will periodically require us to consider – both in capitals and at the global level – whether our near-term actions are in line with these long-term objectives.
So what do these long-term goals imply for the future of fossil fuels?
First, they quite clearly suggest that we need to shift as rapidly as possible to lower-carbon sources of energy – which leads me, of course, to the promise of natural gas.
In the United States, we know firsthand the important role that affordable natural gas can play in reducing emissions.
- By our calculation, more than half the cut in carbon emissions from the U.S. power sector achieved over the past decade came from the substitution of natural gas for coal.
- Natural gas has risen from 19 to 33 percent of our generation mix.
- Going forward, we anticipate bigger increases in natural gas use as the U.S. works to further reduce power sector emissions.
How representative is the U.S. experience? Is it an isolated example? Or is it replicable in other major regions of the world?
The answers depend heavily on local and regional circumstances. But one thing seems clear: the case for natural gas as a bridge fuel really only holds if its increased use is accompanied by a corresponding decline in the use of higher-carbon fuels.
The International Energy Agency forecasts that, under a business-as-usual scenario, natural gas will be the fastest growing fossil fuel through 2040, with global consumption increasing by 70 percent. But the IEA also forecasts that coal use will continue to rise as well.
Here’s another thing that seems clear: The climate benefits of natural gas can be realized only if we do a much better job reducing flaring and reducing methane leakage throughout the natural gas value chain.
I know that estimates of leakage vary widely. But whatever the real levels, they are too high. And there are cost-effective measures available to bring them down. What’s standing in the way?
And here’s one more thing that seems clear: Let’s say we can ensure that rising natural gas use substitutes for, rather than supplements, coal use. And let’s say we do a fabulous job reducing flaring and leaks. That’s still not enough.
Remember, the goal is net zero emissions in the second half of the century. Natural gas is a lower-carbon fuel. It’s not a no-carbon fuel.
So if we envision producing and burning growing quantities of natural gas, we need ways to keep the resulting carbon emissions from reaching the atmosphere. Which leads me to the role of carbon capture utilization and storage – CCUS.
The IEA calculates that nearly 15 percent of the emission reduction needed by 2050 to put us on a 2-degree pathway must come from CCS.
Billions have been invested in CCS and we’re making some headway. I understand that here in Australia, the Gorgon CO2 Injection Project – which is expected to be the largest CO2 storage project in the world – is projected to come on line next year. That will be a critical milestone.
We also need to be thinking about the “U” in CCUS – utilization. Just recently we’ve heard promising developments on that front.
The Ford Motor Company announced a project to capture carbon from its manufacturing emissions. They’re going to use that carbon to make the foam put in auto seats and interiors.
And last month, Exxon Mobil announced it’s expanding its partnership with FuelCell Energy. They’re working on a technology that can capture CO2 from coal and natural gas plants and use it to power fuel cells.
Breakthroughs like that are exactly what we need if we’re ever going to come close to achieving carbon neutrality.
I‘ve talked about some of the technological challenges your industry faces in navigating its way into a low-carbon future. I want to turn now to some of the social and political challenges you face coming out of Paris.
It’s no news to you that the fossil fuel industry faces growing opposition on many fronts. I understand that last month in Newcastle, 2,000 activists managed to shut down the world’s largest coal port for a day, one of 20 coordinated actions against fossil fuel installations on six different continents.
For a large and growing activist community, the Paris Agreement sounded the death knell for the fossil fuel industry.
These activists are committed to pulling every lever they can, under the agreement or elsewhere, to realize their vision of a fossil-free future. And they don’t necessarily distinguish among fossil fuels – for them, the potential carbon benefits of natural gas are outweighed by other perceived risks.
This is not a ragtag band of protestors. It’s an increasingly sophisticated movement, with significant resources, that is getting attention on Wall Street and among policymakers.
Companies are under growing pressure to disclose – indeed, in the U.S., some are under investigation for alleged failure to disclose – and investors are under growing pressure to divest.
- The governor of the Bank of England, Mark Carney, drew a fair bit of notice a few months back when he warned of rising financial risks related to climate change.
- Just a couple of weeks ago, at the Exxon and Chevron shareholder meetings, resolutions calling on the companies to conduct climate-related stress tests were only narrowly voted down.
- Later this year, we’ll hear recommendations on the disclosure of climate-related financial risks from a Financial Stability Board task force chaired by Mike Bloomberg.
A recent headline in the Huffington Post showed how the issue is being portrayed to the public. Here’s how it read: “Climate Change Poses A Big Risk To Your Retirement Savings.”
Alongside the article, I noticed a link to an online petition. The message? “Tell world governments: Keep 80 percent of fossil fuels in the ground.”
My message is that these pressures will not fade away. More likely, they will continue to grow.
So, how, so far, is the industry responding? From where I sit, it’s a mixed picture.
On the one hand, I see companies investing in alternative technologies that could help them diversify.
- I mentioned Exxon’s investment in a novel fuel cell technology.
- It’s been reported that Shell is creating a separate division focused on low-carbon power.
- Total is spending a billion dollars to acquire an advanced battery manufacturer.
- Statoil is developing a utility-scale battery system to go with its offshore wind farms.
I also see some companies – some CEOs, even – signing on to statements in support of policies such as carbon pricing. At the same time – while these are exactly the kinds of investments we need – they represent a tiny fraction of these companies’ assets.?
I hear policymakers saying that when it comes down to brass tacks, and they put specific policy proposals on the table, industry support is nowhere to be found. And I hear some companies arguing that the Paris Agreement is a lot of wishful thinking; that governments won’t follow through; and that climate change poses no real risk to their business models.
So does the Paris agreement represent a turning point for the oil and gas industry? For the moment, at least, it seems to depend who you ask.
My organization is about building common ground, because we believe that’s the only way to make real progress. We worry when we see signs that the demonizing tactics of one side lead the other side to simply dig in. No one’s going to win that way.
We know there’s no solution to climate change without business. But we believe real and lasting solutions are possible only if business shows leadership, rather than fobbing the responsibility off entirely on governments. Governments, on the whole, are showing greater resolve than ever on climate change. But who are we kidding? They can’t possibly do it on their own.
There’s probably no convincing the zealots that the oil and gas industry has a legitimate role in a carbon-constrained future.
But it seems to me you need to do a better job convincing the many others who are not zealots, but who are increasingly, and quite reasonably, concerned about the genuine risks posed by climate change.
I’m not a business analyst. I can’t advise companies on how to best serve the interests of their shareholders. But in the interest of achieving consensus solutions, and avoiding prolonged gridlock, I would offer three suggestions:
First, I would urge the industry to rapidly scale up investment in low-carbon energy; in carbon capture, utilization and storage; and in other viable means of sequestering carbon.
Second, I would urge the industry to chart, and to clearly articulate, a long-term vision for itself that is compatible with climate protection.
And third, I would urge companies to come to the table, roll up their sleeves, and work with policymakers and other stakeholders to enact and implement the policies we need to facilitate a smooth low-carbon transition.
To sum up, the Paris Agreement marks a critical turn in the global climate effort. It sets ambitious goals, and it guarantees a succession of highly visible political moments when our efforts will continually be held up against those goals.
And this puts the oil and gas industry at a crossroads.
Yes, natural gas can be part of the solution. But the broader question is whether the industry will cling as long as possible to its established business model; or whether it will choose to reinvent itself – to work with others to deliver the policies, the technologies, and the investment needed to ensure a more sustainable path for itself, and for the planet.
To me, at least, the choice is clear.
Again, I appreciate the opportunity to share these views. And I thank you for listening.
What if you held a sale and customers bought hardly any of your product? You might conclude that your product wasn’t very popular. If your product happened to be carbon allowances, essentially permission slips to emit carbon pollution, that lack of popularity sounds like a good thing for the climate.
This is essentially what happened last week when California and Quebec, who have joined their carbon markets, announced the results of their most recent auction of allowances. Companies who must buy allowances decided they didn’t need the full amount being offered, presumably because their emissions are declining.
California and Québec began their carbon markets in 2013, and the partners have held joint auctions of allowances every three months since November 2014. Each jurisdiction sets a limit on nearly all fossil fuel combustion at an amount that declines each year (the cap). Businesses responsible for that fossil fuel combustion have to buy allowances at auction to cover their emissions.
Historically, businesses have bought more than 90 percent of the allowances offered. But at the most recent auction, only about 10 percent of the allowances were sold.
This is great news. It means that carbon emissions are going down, and at a faster rate than the policy requires. If emissions were going up, prices at auction would be high. If emissions were going down at the same rate as the cap, then prices might be low but the auction would still sell out.
Market forces, like declining costs of renewable power, are part of the reason why emissions are declining. Businesses can use cost-effective alternatives to fossil fuels in their operations.
Also factoring into the results are the numerous other policies California and Québec have in place to drive down emissions, including ones aimed at increasing energy efficiency. That means businesses use less energy overall.
Is there any reason this might be considered bad news? Well, if you were counting on the money from the sale, it’s a problem.
California has anticipated generating billions in revenue through 2020 from the allowance auctions. But with few allowances sold, that state revenue source drops dramatically. California’s auction revenue is directed to various clean energy programs across the state, which means those programs could be in jeopardy if auction sales remain low.
So, is this an example of cap-and-trade working or not working? I would argue this is how cap-and-trade is supposed to work. The government sets a cap based upon its climate goals, the cap creates a price in the market, and companies incorporate the carbon price into their business decisions. If emissions are low (more accurately, if they are lower than the cap), then businesses don’t buy carbon allowances, pure and simple. Both California and Québec agreed upon rules for handling unsold allowances before their programs started, so businesses know what to expect.
A larger and more difficult question is whether this is an example of carbon pricing working. In both jurisdictions, the cap-and-trade program is only one of many policies aimed at reducing emissions. It’s unclear at the moment to what extent the carbon price is driving down emissions (and allowance demand) versus other policies. A sophisticated statistical analysis is required to answer that question, and as the cap-and-trade program continues there will be observations to enable just such an analysis.
There is often a heated debate around implementing new policies, and it is not unusual to hear predictions that regulating carbon emissions will cause economic doom. But time and again, experience has shown that businesses adapt quickly to new conditions and keep doing what they’re good at – giving us the products and services we want to buy. That they’re doing this while keeping their carbon emissions below a set level is something to celebrate.
Innovation is an essential component to meet the challenges of climate change. Better ways to produce, store, conserve, and transmit energy will help the U.S. and other nations meet the ambitious goals set at the United Nations climate change conference held in Paris in December 2015.
Join the Director of the U.S. Patent and Trademark Office, Michelle K. Lee, and a panel of technology, energy, and climate experts for a discussion on how present and future innovation can change the course of our planet’s future. Questions to explore will include:
- What do we need do more, do differently, do faster, to change course and evolve our energy system to be clean, efficient, accessible, dependable and low-carbon?
- Where do we need breakthroughs in technology to really make a difference?
- What policies would help drive the innovation we need? What business model innovation is needed?
June 29, 2016
1:00 - 3:00 p.m.
Carnegie Institution for Science Auditorium
1530 P St. NW Washington , DC 20005
Hon. Michelle K. Lee
Under Secretary of Commerce for Intellectual Property and Director of the United States Patent and Trademark Office
Dr. B. Jayant Baliga
Director, Power Semiconductor Research Center, North Carolina State University
National Inventors Hall of Fame Inductee, 2016, Insulated Gate Bipolar Transistor
Chief Sustainability & Social Impact Officer, HP
Dr. Kristina Johnson
Chief Executive Officer, Cube Hydro Partners National Inventors Hall of Fame Inductee, 2015, Polarization Control Technology
President, Center for Climate and Energy Solutions
Moderator: Amy Harder
Energy Reporter, The Wall Street Journal
See full bios of speakers