Friday, December 14, 2012

Notes on Energy and Carbon

We’ve had the Doha Agreement, an Autumn Statement, an Energy Bill and an Energy Generation Strategy all coming once. What does all this mean?


COP18, the latest round in the United Nations climate change negotiations, closed in Doha at the weekend. There was strong criticism of the way the conference was run, and agreements were only signed after the conference was extended for an extra day. There was a commitment to extend the Kyoto protocol to 2020 with reduction targets of 18% replacing the previous 5%. Even so, these targets fall well short of what science indicates is needed to keep global warming below 2°C. Most countries which refused to sign the original agreement, including the US and Canada – home of tar sands, still remain outside, but Australia has signed up.

In future, funds will be paid by rich countries to developing countries to help them cope with “loss and damage” due to climate change. The US insisted that there should be no implication of liability, and the funds will be called aid, not compensation. Even so, it’s hard not to see this as developed countries finally making up for their actions, although there will be no central fund and no specific criteria for making payments. It’s not clear whether this will be new money over and above existing aid budgets. Lots to debate at next year’s conference in Warsaw.

The next challenge is to sign a global climate change treaty in 2015, committing both developed and developing countries to emissions reductions. The original 1997 Kyoto protocol applied only to developed countries. At that time China was classed as a developing country. Today it is the world’s biggest CO2 emitter.

UK Energy Futures

20% of electricity generating capacity will close in the next 10 years. The government’s aim is to introduce energy market reforms which will provide stability in the market and encourage £110bn of investment to keep the lights on and enable us to meet our carbon emission targets.
The reforms are complex, including contracts for difference, a government-backed “counterparty” and a “capacity market” designed both to stimulate investment and ensure that there will always be enough generating capacity. Ofgem, the Office for Gas and Electricity Markets, warned last month that the safety margin – the amount of spare generating capacitycould fall from the present 14% to a risky 4% by winter 2015/16. New power stations just cannot be built fast enough to fill that gap.

A Gas Generation Strategy published at the same time as the Autumn Statement reveals that the Chancellor sees gas as the fuel of the future, with plans for 30 new gas-fired power stations, even though Ofgem’s recent report highlighted the risks to energy security from over-reliance on gas.

Gas is far cleaner than coal with much smaller CO2 emissions per kWh of output. There is also the prospect of vast gas reserves here at home, drilled from rocks beneath our feet. That looks like a win/win situation – reduced emissions and a fuel source under our control. The reality is not so straightforward.

There is no doubt that we will always need some gas generation for the foreseeable future to cope with the peaks and troughs of electricity demand. It still emits CO2 and it still – for the moment – relies significantly on imports. Fracking – releasing gas by drilling down and breaking up deep rock layers – is still unproven in the UK. Test drillings in the Blackpool area caused localised earthquakes and disposal of contaminated water from the process is still a problem. A clear incentive for gas, coupled with the government’s tinkering with tariffs which makes renewables unattractive, could lead the UK to the worst of both worlds. In 10 years we might find ourselves with polluting gas power stations and no gas from fracking – because we haven’t found any, because the nimbies have stopped it or because the process is too polluting. We already import 20% of our gas from Qatar on the Persian Gulf. Quite apart from political security, if we continue to buy gas on world markets we will have to pay world prices which are bound to rise in line with demand from China and India, as well as from the rest of the developed world.  At present we also get 20% of our gas from Norway, but at current production levels their reserves will last less than 20 years. Even less, if demand increases.

Other Highlights from the Energy Bill:

Decarbonisation targets will be covered by secondary legislation. No decision before the Climate Change Committee reports in 2016, but the National Grid will be given an “indicative range of decarbonisation scenarios”. Many see this as softening the emissions targets, by a method technically known as Kicking it into the Long Grass.

£7.6bn will be made available to help bring renewables from 11% of the UK energy mix to 30% by 2020. In other words trebling the contribution from renewables in just eight years. With such a clear commitment to gas generation, many organisations are very uncomfortable about risking major investment in renewables.

There will be new nuclear stations and commercialisation of carbon capture and storage (CCS). Controversial or what? Nuclear is no short-term solution and there are still doubts about the technology, designs and costs. It is very safe in operation but has very high whole-life costs and the endless problem of waste. The problem is that we live in such a technological society that we need to keep the lights on at any cost, even if that cost is nuclear. Is CCS the new philosopher’s stone? The philosophers  failed to find the magic ingredient to turn lead into gold, so will we be any more successful at turning CO2 emissions into benign deposits deep below the North Sea? No-one’s done it yet!

Who cares about the Middle East? (or us Europeans?)

In its World Energy Outlook 2012 the International Energy Agency (IEA) predicts that the United States will be producing more oil than Saudi Arabia within five years. The US already imports twice as much oil from Canada as it does from Saudi and with the completion of the planned Keystone XL pipeline this can only increase. (The Keystone XL pipeline will carry crude oil from the tar sands in Alberta to the refineries in Texas.) Partly due to fracking, the US will be the world’s leading natural gas producer by 2015. All this means that America is likely to be self-sufficient in energy by 2035. It will still be wedded to fossil fuels and committed to continuing CO2 emissions. It will be using far less coal, but exporting increasing amounts to China. We understand that Chinese power stations emit just as much CO2 from American coal as American ones do.

2035 is a very long way off. Many of us could be retired by then. But if the US does become energy self-sufficient, why would it want a presence in the Middle East? And what will that do for the UK if it’s still relying on gas from the Persian Gulf to fuel Mr Osborne’s power stations?

Fly with me! And to hell with emissions!

President Obama has just signed into law an exemption for US airlines from the European carbon tax (EU-ETS), despite identifying climate change as a major challenge for his second term. Not sure how the US can exempt itself from the laws of other sovereign states – I suppose it just does. A bit like the way US diplomats never pay the London congestion charge. Although a lot more serious.

Reduce, Re-use, Recycle

We all feel good about doing our bit to recycle. Separating out the newspapers, sorting the glass from the cans, even washing out those foil trays from the takeaway. Yes it’s a good thing to do, but we achieve even more if we reduce. We save the energy and materials involved in manufacture, we save the energy in distribution, we save the energy involved in collecting, sorting and reprocessing.

So let’s make REDUCE our 2013 New Year’s Resolution!

Reduce the energy you use. For every kWh of electricity you use, 3kWh go into the power station as fuel. So when you reduce, the saving at the power station is three times as much as what you save at home. And if we’re talking about fuels that have to be imported, like gas, coal or oil, (yes, we import all of these) savings at the power station mean a better balance of trade. Significant savings mean that we’ll need fewer power stations. How realistic are savings?

The Department of Energy and Climate Change (DECC) has recently published a paper with the snappy title of “How Much Energy Could Be Saved By Making Small Changes To Everyday Household Behaviours?” The top six behaviours they come up with are:

  1. Turn thermostat down by 2 degrees from 20°C to 18°C (33TWh saved)

  2. Turn thermostat down by 1 degree from 19°C to 18°C (16TWh)

  3. Delay start of heating from October to November (11TWh)

  4. Wear a thick jumper at home in the heating season (6TWh)

  5. Replace standard showerhead with a water efficient shower head and use twice every day
(5 TWh)

  6. Use radiator valves to turn off heating in unused rooms (4TWh)

To put all this into context, 33TWh (terawatt hours) is roughly equal to the output of Drax, Britain’s biggest power station, or 7% of the nation’s electricity. Turning down the heating is of course going to save more gas than electricity, but that’s no reason for not doing it. By the way, how many people do you know who have their thermostats set as low as 20°C in the first place?

The Green Deal

REDUCE is clearly the government’s New Year’s Resolution through the Green Deal. This is a scheme aimed at domestic properties – homeowners, landlords and social housing providers – which starts in January. If you install insulation, renewable energy or a new boiler you can get a loan to cover the costs and pay it back through an addition to your electricity bill. The idea is that these energy-saving investments will cut your energy costs, offsetting the extra on your bill, so overall your outgoings are the same. Once the loan is paid off you keep all the future savings for yourself. In fact, as electricity costs rise the money value of the savings will increase. You might be in profit even before the loan is paid off.

The first step is to arrange a Green Deal assessment. This is carried out by a registered Independent Assessor, who draws up a plan and estimates the potential savings and costs. You then have to contact one or more Green Deal Providers, who will give you quotations for the work including the financing costs. At that point you’ll be able to see exactly how much will be added to your bill, whether the project truly is viable and how long it will take to pay off.

REDUCE is critical to energy saving. As we’ve seen, for every kWh we save at home we save 3kWk of fuel at the power station. Arguably the Green Deal is the government’s most important green initiative. It could be complex, it could be targeted by cowboys, but if it works it will make a very significant difference.

And finally…CRC

Not many surprises in the Autumn Statement on the Carbon Reduction Commitment (CRC). Before the Statement the CRC helpdesk told me that the Performance League Table for 2011/12 would be out some time this month. If it does come out it will be the last one as Mr Osborne has said it will be abolished in future. I doubt if we will see a trace in the press unless Manchester United comes to the top again. The Chancellor announced in the Autumn Statement that CRC would be simplified from 2013, presumably in line with the proposals in the latest consultation. “A full review of the effectiveness of the CRC will be held in 2016 and the tax will be a high priority for removal when the public finances allow.”

Meanwhile, civil servants will be gearing up to administer the new Greenhouse Gas (GHG) reporting requirements. That looks even more complex than CRC, although it won’t raise any revenues. You have to ask how it will work and what it will achieve. Top listed companies have to report on the emissions from all their operations, both national and international. This means that some unlisted companies that are CRC participants, like Thames Water or Yorkshire Building Society, will not be required to report. Others will fall into both CRC and GHG. All will become clear in 2013!

Thank you if you’ve read this far. Have a Happy Christmas and a Sustainable New Year.