A post revisited — Investment in energy research

A post revisited — Investment in energy research

This post on the remarkable level of investment in energy R&D in the US was written in September 2011. It is not my intent in these retrospectives to play the ‘I told you so’ card but given the egg on the faces of the current and recent Australian governments over energy security, it is pretty hard not to.

Did politicians really think that we have coal, oil and gas and so the job was done?

Emission notwithstanding, did they just sit back and let the end of life for major coal-fired power stations be someone else’ problem?

Well in Australia they did. In America too I suspect. Trump is not pulling the Paris pin because he is a climate sceptic, he’s keeping coal going so that, at least on his watch, the lights stay on across America. Nothing will kill your voter base faster than blackouts attributed to poor planning.

So here is what Alloporus thought in 2011 about energy R&D…


Investment in energy research

In the US Federal research funding into energy is $3 billion. This figure includes investment into oil, coal and gas as well as solar and other alternative energies.

Then there is a further $5 billion invested by the private sector for a total of $8 billion in an industry worth $1 trillion a year; making investment in R&D only 0.8% of revenues.

Apparently $8 billion pays for about 9 days of military involvement in Iraq – pretty scary and perhaps something they might look at when considering reducing budget deficit, but I digress.

The point here is that 0.8% is woeful. Any company that spent less than 1% of revenue on R&D would not last long. Given that energy is so critical to economic performance and given that we have reached peak oil and will eventually run out of coal and gas too, 0.8% seems irresponsible.

And then there is a huge global movement that believes we must tackle climate change by reducing emissions from greenhouse gases.

What should the investment be? In successful economies upwards of 3% of GDP is allocated to R&D, which is roughly $430 billion. This amount must cover many sectors but energy security should be worth at least 5% of the available budget or an order of magnitude more than the current allocation.

We are kidding ourselves if we think that energy security can be achieved when we invest peanuts.


There is money to be made from energy. There always has been. I bet that the first hunter-gatherers who figured out through trial and error how to transport fire with them as they wandered were revered and feared. The thinking and testing that went into creating and catching a spark to start fires was, well, gold to the people who mastered it.

The smart individuals who put a wheel into running water or threw a lump of coal onto the campfire might also have made a relative bob or two.

So it’s not about the returns. It is that it is future money. The power stations cornered the market for a period long enough to scorch the space for new investment. If end of life is 30 or 50 years away there is no market for anything else until then. There is no need to look forward as energy is secure.

This lack of foresight might just be our undoing.

Is the world changing?

Is the world changing?

Love him or loath him, infamous climate scientist Dr Michael Mann recently made an important point about Donald Trump’s rhetoric on bringing manufacturing industry back to make the US great again.

On the America Adapts podcast Mann suggests that to achieve such a goal, manufacturing in the US must embrace the energy revolution. Implying factories running on fossil fuel energy will not be competitive in a global market.

The only way a fossil fuel based industry would be competitive is if there were trade restrictions and tariffs to keep them competitive. This makes Trump’s anti-trade agreement gambit a typical business bully approach to finding a competitive edge that, in this case, US manufacturers would not have.

The evidence is that the energy revolution is well advanced. All over the world technologies are maturing rapidly to deliver distributed clean energy. It is realistic to believe the many mayors and governors that claim carbon neutrality for their towns and jurisdictions when their constituents are all up for a Tesla wall.

Today’s first graders, who will consume a fair amount of electricity in their lifetimes, may not know or care, but most of that energy will not come from a coal-fired power station.

This change from fossil fuel to alternative energy and the accompanying shift from centralised to distributed generation is exactly the one that was needed to tackle the climate issues Michael Mann is so passionate about. Only it is happening because it makes economic sense and not because of a limp international agreement made in a Japanese city or from late night breakthroughs in Paris.

Let’s not kid ourselves. The change is happening certainly. Only it is happening because the technology is becoming commercially competitive. So competitive in fact, that a US president is elected on the back of rhetoric to prop up his countries uncompetitive energy system and hold on to the past.

Does all this mean that the world is changing? Not really. Those first graders, who will spend more of their lives looking at a screen than the trees, may notice more wind farms and will drive an electric car they plug into ports on the street to share the energy captured from the roof at home. But they will also be fiercely competitive and, just like their parents and grand pappy, rely on markets to deliver their lifestyle.

They will work, eat, sleep, and procreate with their mobile device never more than an arm’s length away. They will earn money and use it to pay for their data plans. Not much will be different…

Unless, just maybe, perhaps, possibly…

All this distributed energy makes everything easier, and the system changes. If stuff gets cheaper and cheaper, maybe value is recognised in what people do and not what they have.

Here’s hoping.

Sounds crazy #5 | Carbon price forecasts

August 2013 is silly season here in Australia. We have a federal election in just a few weeks time and the inevitable merry-go-round of vacuous media grabs and absence of policy debate is upon us. It is actually rather depressing as the main parties jostle to hog the middle ground to spend money they don’t have whilst no one else can come up with anything better than “vote for me”.

It is also rather absurd. On the rare occasion when media do delve beyond the rhetoric, or for some unknown reason you dig yourself for evidence to help make a voting choice, what emerges are gems like this pre-election outlook from Treasury.  Somehow the economic boffins that work for the ministry have managed to predict that the carbon price that in Australia is currently fixed at $23 will first fall to $6.20 in 2014/15 [fair enough as the start of the flexible price period when the domestic scheme is pegged to the EU market has been brought forward a year] and then rise to $18.90 by 2016/17 reaching $38.0 by 2020.

Now we should remember that this is what is supposed to happen to a carbon price. The whole idea was that to ensure steady emission reduction the carbon market is capped so that supply is squeezed over time causing prices to rise. A rising price on carbon would encourage energy thrift and starts to make clean energy sources economically viable with the net effect of lower emissions. Except that the political will to set, stick to and steadily lower the cap has been conspicuously absent.

Alloporus borrowed a graph of the historical carbon price in the EU published by Point Carbon and appended the Treasury projections.

It looks like this:

CarbonPriceProjections

As regular readers will know Alloporus is no economist, but whilst $20 seems possible, $40 by 2020 is hugely over-optimistic. It would require a significant step change around 2015 to reverse a market that has a t best been steady but mostly fallen. Such a change would need considerable and coordinated global political will to achieve. No single nation would stick their neck out that far [probably why the Australian government linked the domestic scheme to the international market so as to neatly sidestep the pressure to go it alone].

Then consider that by 2020 we will have seen price shocks in oil [and possibly coal too] that, even if temporary, will have the required effect on emission reduction without the need for a separate policy. In other words fluctuations in energy needs in response to inevitable pulses in the global economy will allow the modest emission reduction targets to be met most of the time.

Of course politically it is best if the carbon price is low, but for any cap-and-trade policy to be effective the price needs to rise steadily. Alloporus suspects that the carbon price forecast from Treasury sound like some middle ground plucked from the ether for political expedience.

The craziness here is that a lot of money has been spent and committed to deliver emission reductions — a ‘clean energy future’ as the policy was tagged. Except that the cap-and-trade approach chosen only works if the price of permits [the carbon price] rose steadily over time. And this required that the market was manipulated buy controlling permit and offset credit supply. Now that governments have shied away from that part of the plan, the whole policy falls over and monies spent on free permits for exposed sectors and, in the case of Australia tax threshold adjustments and cash payments to households, turn into welcome handouts that have no impact on emissions at all.

$38.0 by 2020 is what they would like it to be, except wishful thinking cannot make it so. You actually have to implement the policy.

Carbon farming | when to rant and rave

carbon farming farmland

The other day I received an invitation from the Australian government’s Department of Industry, Innovation, Climate Change, Science, Research and Tertiary Education to a forum with the Domestic Offsets Integrity Committee (the DOIC). This is the committee that approves carbon accounting methodologies for the Carbon Farming Initiative (CFI) scheme that was touted as providing Australian farmers with the opportunity to earn carbon credits from land management change.

The invite was keen to point out that “there are now 16 methodologies available for farmers and landholders to undertake carbon offsets projects” and that “The CFI is a ground-breaking scheme offering Australian farmers and landholders the opportunity to earn carbon credits while potentially achieving environmental and productivity benefits”.

What to do?

My first rational thought was not to go. Why should I spend my own funds and contribute to greenhouse gas emissions by travelling from Sydney to Melbourne to attend a 2 hour discussion on a policy that so far has delivered nothing that a farmer could actually use. The 16 approvals to date are for methodologies related to capture of landfill gas [that most landfills had the infrastructure to do anyway], various approaches to growing trees that you cannot cut down, and avoided emissions from a few specialist activities such as piggeries. These have nothing to do with the bulk of real-world farming practices.

My instinct, however, was to attend and at some point in the proceedings stand up and bellow at the top of my lungs a string of obscenities to vent my frustration at what has been a slow and hugely inefficient process of bureaucratic numbness — not to mention the unnecessary reinvention of a wheel already fashioned by international carbon offset schemes.

Unfortunately such actions would only give me temporary relief and would be be swiftly followed by long-term personal damage. Even writing down my thoughts in this post is probably not very smart.

So instead of the rage filled rant, I will reply to the invitation politely saying, “unfortunately I am unable to attend”.

It is worth looking more closely at my frustration [and maybe at my copout].

The frustration

I have never been wholly convinced by the global approach to climate change policy.

I accept that 7 billion humans plus 10,000 years of agriculture and 200 years of global commerce have had an impact on the climate system and I know that we need to take some action.

What has always troubled me is the premise of the chosen policy that we can actually fix the damage we have caused simply by reversing our actions. As I have blogged before, King Canute really had a better chance.  That we can take an engineering solution as naive as emission reduction to a problem of this magnitude seems to be a scandalous inflation of our capability.

Does it also mean we going to fix Milankovich cycles by tweaking the tilt of the planet or take on the variation in the solar wind [both major climate drivers]? Craziness.

That said, emission reduction is prudent for two key reasons: 1) it will help economies transition away from fossil fuel energy sources to sources that are cleaner and less likely to run out and 2) in the short run will help make business more efficient. Both of these are important outcomes that have little to do with the climate.

What is missing from the policy is an understanding of the need to adapt to climate change particularly in the way we manage landscapes. Yes indeed, the very landscapes that supply almost all the food and water for all those people.

So for the CFI not to have methodologies that give farmers an opportunity to sequester carbon into soil, to rehabilitate vegetation in grazing lands, and to obtain co-benefits from more sustainable land management practices is a huge failing of the policy. And not least because these actions will also deliver adaptation as the climate changes.

So carbon, and by extension the CFI, is really about creating more sustainable and resilient landscapes and helping farmers leave behind unproductive practices  – and by the way, there is the potential for around 100,000,000 tCO2e per annum on the positive side of the national carbon account.

What is more, should carbon permit price track the international markets and come in below $10 tCO2e, land management practices that deliver carbon sequestration into vegetation and soil as well as avoiding emissions may still be cost-effective. Most land management activities sit towards the left of most cost-abatement curves and so are cheaper per ton of abatement than many of the engineering solutions.

The cop out

So why did I choose not to accept the invitation when it provided a great opportunity to scream and shout?

There is an element of shooting the messenger. Public servants are there to deliver the policy frame not necessarily to create it. It is likely that there are higher political forces that have chosen to slow down policy delivery and to steer away from the farming sector, higher than those charged with delivery.

Attending only to have a shout at the wrong people makes no sense.

There is also a feeling that attending would both validate a process that I do not agree and have little impact, particularly as providing feedback seems to have had little effect in the past. The system is still slow, lacks focus, and technical clarity.

An example from the many challenges faced by methodology developers is that the positive list cannot actually be a list of activities to take care of additionality if each methodology has to prove the validity of an activity already on the list. That negates the whole concept of a positive list approach [one tried and rejected by other schemes] seems to fall on deaf ears.

Ultimately though, I have folded and chosen not to point out the faults but to stay silent.

This does not make me feel any better.

Postscript

Whilst I was drafting this post I received n update from one of the major laws firms with an interest in the carbon market. Their take on the status of the CFI is quite contrary to mine — it seems that everything is dandy. In fact they must be drinking out of a glass so half full it’s overflowing.

If only I still had the energy to talk it up.

97% said their cats prefer it

Its official, 97% of peer-reviewed science papers, that expressed a preference, agree that climate change is caused by human activity.

Academics have surveyed nearly 12,000 academic papers penned by 29,000 scientists. There were 4,000-plus papers that took a position on the causes of climate change and less than 100 of these disputed the scientific consensus that climate change is the result of human activity.

Here is what the lead author had to say about the survey

Call me a cynic but all I could think about was the “8 out of 10 owners who expressed a preference said their cats preferred it” Whiskers ad and how I didn’t believe that either.

And later I imagined what it was like back in the day when every intellectual believed that the earth was flat until some crazy dude decided to sail all the way around it.

And later still I decided that it really is missing the point because it does not matter what the cause is, it is the effects we have to worry about.

 

The climate change action thing

Here’s a thing.

The latest AustraliaSCAN survey suggests that fewer and fewer Australians are in favour of environmentalism whilst more people are saying they are against it. Environmentalism is dead?

Meanwhile the Victorian government has shelved its target to cut GHG emissions by 20% by 2020, put restrictions on wind turbines and given up on a planned ceiling on emissions from new coal-fired power stations.

And further north the new Queensland premier wants to pull out of a $500 million solar thermal project.

Rumour has it that conservative state premiers are considering challenging the Federal carbon tax in the High Court.

So, despite the international brownie points that Australia earns from having legislated for an ETS, the reality is some serious disinterest.

Now let’s take a look at the US – the Kyoto averse country that has been the climate action pariah and one of the main reasons put forward inaction anywhere else.

What’s going on there is:

  • EPA has announced proposal emissions limits on new power plants that would preclude coal-fired plants with carbon capture and storage.
  • US Energy Department set target of 75% reduction by 2020 in the price of solar energy systems to give solar a chance of meeting 14% of energy needs
  • US led the world with clean energy investment of US$56 billion
  • California, the 8th largest economy in the world, is introducing an ETS
  • tax credits of up to $7,500 for electric cars and by 2025 fuel efficiency in new cars will have to be doubled

A few years ago Australians walked across the Sydney harbour bridge for climate change action.

What happened?

Can REDD projects address wildlife poaching?

This question came in a forum on REDD, Reduced Emissions from Deforestation and Degradation, the somewhat controversial mechanism to tackle global warming. The idea is that because greenhouse gas emissions from clearing of land for agriculture makes up around a fifth of anthropogenic emissions, it makes sense to reduce clearing especially in tropical forests that are high on carbon and overall environmental value.

One typical pattern is that forests are first logged for commercial timber. This opens up the forest, makes access and further clearing easier. People move in to grow cash and subsistence crops.

REDD projects aim to substitute the financial returns from clearing with the sale of carbon credits that come about from the avoided emissions when forests are protected. In short local people receive payments for keeping their trees and their forest intact.

When it works there are less anthropogenic emissions, forests are protected, funds become available to help people create local economic development. Neat idea.

Since there are a few REDD projects that seem to be working pretty well in Africa, the question in the forum was about extending the concept to address wildlife poaching as well?

A successful REDD project would also protect wildlife because the financial incentive is to retain the integrity of the forest. Local communities are paid to be custodians of the resource.

A collective will would be enough to significantly reduce poaching so long as three key things happen:

local engagement is real

sufficient financial returns from the sale of carbon credits go to the local communities and

there is some long-term certainty in those financial returns

These are the key success criteria for any REDD project and, if met, then local protection of all the natural resources should follow. At least this is my experience talking to landholders in rainforests of Asia.

People everywhere prefer to live where the environment is healthy, the air is clean, the trees are green, and the wildlife free to roam. Only we need to live. Our priority is for a good life for ourselves and our families that is free from strain, risk and uncertainty. Meet this priority and any amount of environmental protection is possible.

What we have to remember is that throughout human history the forests have been cleared to meet these basic needs. So we are asking a lot to forego the route to development taken just about everywhere.

There has to be enough money in the system to meet the needs over the long haul.

The real challenge is that financial returns on REDD projects are neither certain nor comparable with the usual alternatives. Exactly why is another, long story. But I am sure you can guess the message. If we want to save trees or wildlife we have to pay a reasonable market price.