What use is hot air?
7 minute read
You’ll have no doubt been following the mainstream press coverage of the Greenhouse Gas reductions linked to the global slowdown. Many of them jumped on this paper published in the journal Nature Climate Change. The authors reported that by early April global daily CO2 emissions had decreased by 17% versus mean 2019 levels with an annualised estimate of -4% year on year (increasing to -7% if some restrictions remain in place until the end of 2020). This is the largest annual drop since the Second World War. Half of the decrease was attributed to changes in surface transport.
Great. So let’s put that into context. According to the Paris Agreement, to achieve the holy grail, a climate only 1.5°C warmer than pre the industrial revolution, CO2 emissions need to fall by 7.6% every year for the next decade. Just process that for a moment…
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…not even the global disruption COVID has caused to the “old normal” is enough to get emissions down to Paris ambitions for a single year. Lockdown will not stop climate change, but it has shown how broken our current system is. The Global Renewables Outlook 2020 Report, published by the International Renewable Energy Agency estimates that $800bn of investment into renewables is required every year to 2050; and that’s just to stay on track for a 2 degree world. Electrical infrastructure and efficiency will need more than double this. Last year, the world managed to invest $250bn into renewables – big oil and gas put double that into fossil fuel extraction.
Can we learn from this stark illustration? Will any of the behaviours adopted during lockdown stick? Will we work from home more and travel less? Will we become more conscientious consumers? Previous catastrophes including the 2008 Financial Crisis, the Asian Financial Crisis and even the collapse of the Soviet Union all saw reductions in CO2 emissions followed by a “retaliatory spike” once economies recovered, which more than made up for the reductions. Is there a reason to think the same thing won’t happen this time? As we mentioned last month Trump is already loosening environmental restrictions and making moves to prop up the US oil industry. We’ve already seen an increase in Chinese oil demand now that lockdown restrictions are being lifted; they are also building new coal power stations. But as I’ve said before, I’m an optimist, so of course I’m going to say ‘yes’.
The nearest point of comparison we have is the 2008 Financial Crisis, but the world has changed a lot even since then. The 2020 energy system is very different, fossil fuels are in decline, renewables are far more competitive – their costs have plummeted (solar by -85% versus 2010 costs and -50% for onshore wind), battery technology and electric vehicles have come on in leaps and bounds but perhaps most crucially the banks, generally, are in good shape and able to lend to the companies and projects that will drive the green recovery.
The volatility and uncertain outlook of the fossil fuel sector has seen private capital flee from it while renewables have held up reasonably well so far this year. It is far easier for governments to cut fossil fuel subsidies with prices at historic lows; it also makes the introduction of Carbon taxes a more realistic conversation – governments will desperately need the revenues from this to repay their COVID debts over the coming decades. We talked a lot last month about the growth and job opportunities that could be created by building back green – today's staggeringly low interest rates will help with the financing of these projects.
The fossil fuel lobbyists will argue that renewables alone are not up to the task of satisfying our ever-increasing energy demands, therefore burning carbon will always need to be a feature of the energy industry. They will say that carbon capture and storage (CCS) technology will reduce emissions and allow us to safely continue to burn fossil fuels. Maybe; let’s have a think about that. It’s true that CCS technology has come a long way; published in February, a Reportlinker market analysis on the global CCS industry estimates the market will grow to over $4.5bn by 2025 at a compounded growth rate of 11.6%. I’d love to give you more detail than that but I’ve not read the report. It costs £4,251.
So some commercial potential then and there are many projects underway. But let’s take a step back – You’re an “Oil Guy”, but for whatever reason, you genuinely do want to reduce carbon emissions; you’ve spent a shed load of cash developing a CCS technology, commercialised it and retrofitted your power stations and chemicals plants. Where do you put all the carbon you stopped from going into the atmosphere? Back underground – compressed and pumped into depleted oil and gas reservoirs. All of this is expensive, and the storage costs by definition will go into perpetuity. Without significant government subsidies, how can these additional overheads not be passed on to consumers as price rises? Making fossil fuels and petrochemicals etc. more expensive, and hastening their replacement by renewables with their near-zero marginal cost? Sounds good to me (besides all the money that could have gone straight into renewables), but why would the Oil Guy bother? True, CCS stands up if you use it to reduce industry emissions while old dirty technologies and processes are phased out, but it will mean we keep burning fossil fuels for longer.
I’m nowhere close to being an expert on the energy industry. If anyone is I’d love to know what is wrong with this logic.
‘U’ is for utilisation, which is what breaks this dynamic – CCU. If the captured carbon can be reused in some way (like to make concrete, biofuels and plastics), it will generate an income, avoid storage costs and negate emissions from the traditional means of producing these products. Using an otherwise dangerous waste product of industrial processes to create these products is a huge step forward (well it will be once CCU technologies are at scale).
The technology and innovation of the myriad of CCS and CCU companies out there, all racing to achieve scale, is astounding and I am certainly in favour of using every tool at our disposal in the fight against climate change. What I can’t get myself comfortable with though is the use of CCS specifically in the energy industry and the moral hazard that is created once the incentive to not burn fossil fuels and move to renewables falls away.