Climate change, innovation and the fossil fuel industries - Insights from UK experience and links to...
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Transcript of Climate change, innovation and the fossil fuel industries - Insights from UK experience and links to...
Climate change, innovation
and the fossil fuel industries
- Insights from UK experience and links to TAR
Presentation to SBSTA consultation on IPCC Third Assessment ReportMilan, 27-28 November 2003
Michael Grubb, Associated Director of Policy, The Carbon Trust
Visiting Professor of Climate Change and Energy Policy, Imperial College, London, &
Senior Research Associate, Department of Applied Economics, Cambridge University
Imperial College OF SCIENCE, TECHNOLOGY AND MEDICINE
The energy context: UK is not an obvious choice ..
‘Britain is an island of coal in a sea of oil and gas’
– Common observation in energy studies during the 1970s and 1980s
“ We could defeat climate change if we chose to. Kyoto is right. We will implement it and call upon all other nations to do so. But it’s only a start. With imagination, we could use or find the technologies that create energy without destroying our planet.”
– Tony Blair, UK Prime Minister, October 2, 2001
Driving forces in UK energy policy have changed radically
Predict and provide: Build coal and nuclear to power industrialisationOil imports for transport and power
1960s
Energy security and domestic production:Develop North Sea for energy independence; supportive regime and production tax incentives
1970s – Early 1980s
Mid 1980s – mid 1990s
Competitiveness and Regional environment:Liberalise electricity and gas systemsReduce coal exposure and S etc emissions
Since late 1990s
Integrate low carbon, competitiveness and securityDiversify in face of North Sea plateau and declineDeepen market liberalisationSupport efficiency and innovation for low C techs
The UK Energy White Paper (2003): perspective and goals
First White Paper on energy policy for 20 years Fundamental reorientation: ‘Our energy future – creating a low
carbon economy’ Central goal, accepts Royal Commission recommendations:
– 60% cut in CO2 emissions by 2050– actions guided by need to deliver Kyoto commitments and remain
on path to this long term objective. Three other objectives to be accommodated (Ch.6: Reliability;
Ch.7: Productivity and competitiveness; Ch.8: Energy and the vulnerable, ‘fuel poor’ at home and abroad).
‘To lead the way in Europe and internationally in developing environmentally sustainable, reliable and competitive energy markets that will support economic growth in every part of the world’.
The low carbon challenge is to profit from the opportunity through good near-term investment
Net impact on global GDP growth marginal or potentially positive over the long-term
Tremendous opportunities in rapidly growing global markets
– £200Bn/yr Environmental goods and services industry
– £100Bn/yr capital spending by electricity supply industry
Developing a low carbon industry sector will allow UK to capture a greater share of the value created
Short term capital investment will be required
– transition costs including infrastructure
– capital costs currently higher for renewables than conventional sources (but declining)
Downside impact on a limited number of disadvantaged industrial sectors
– If action is harmonised within EU, impact limited to externally traded goods (~11% of GDP)
Big long-term opportunity… …but some short-term costs
UK Energy White Paper: renewable electricity support system
Reaffirms 10% renewables by 2010 commitment, ‘aim’ to 20% by 2020
Main instrument: Renewable Obligation Certificates (ROCs)– Like Renewable Portfolio Standards in US– Electricity supply companies have to source given percentage
from renewables – ‘Cap’ (buyout) on ROC prices of 3p/kWh
Additional £100m capital grants for renewable energy (£38m announced 2002 + £60m new)
Overhaul planning systems (both onshore and offshore) Review electricity structure, regulation, etc
No specific regulatory structure for non-electric renewables
Dedicated policy measures help technologies traverse the innovation chain
Note: ROC excludes recycling; Capital grant based on maximum of 40% of typical capital costsSource: PIU Working Papers (OXERA II Base case cost decline)
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p/k
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Wholesale Price
ROC (Buyout)
Capital Grants/ Loans
CCL Exemption
Offshore Wave
Energy Crops
Offshore Wind
Onshore Wind
RD&D Grants
Appropriate economic support for specific technologies will vary as costs decline
General support
Technology specific support
The biggest renewable energy potential in UK is offshore wind energy
Features of UK offshore wind energy
Rapidly developing sector 13 main projects currently in development Almost all are 5 – 10 km offshore Companies include established oil (eg. Shell), electricity
(eg. PowerGen) and offshore engineering service (eg. AMEC) companies
Wind energy investment during next five years expected to average around £1bn/yr
A major contributor to UK renewable energy target (10% by 2010) and longer term goals
First UK offshore wind farm started delivering November 2003
UK Offshore Wind Energy: First wind farm (North Hoyle) now operating
Construction started April 2003, delivered electricity late November 2003
4-5 miles off the North Wales coast
30 wind turbines of 2 megawatts (MW)
electricity to supply 50,000 homes.
Offsets about 160,000 tonnes of CO2 per year
There is rapidly growing involvement from offshore & energy companies as the oil & gas provinces mature
Government established ‘UK renewables’ in Aberdeen (centre of UK oil industry)
Oil industries confirm that offshore wind engineering relatively simple transfer of some core skills – no major engineering problems foreseen
Major issue is stability and duration of government support mechanisms (ROCs currently expire in 2010)
Wider lessons in context of oil and gas reserve / resource profiles?
The carbon in oil and gas reserves is very limited compared to the emissions of most climate scenarios
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Historic coal emissions
Historic gas emissions
Historic oil emissions
Unconventional reserves and resources
Conventional resources (upper estimate)
Conventional reserves
Scenarios
SRES scenarios
Carbon emitted 1990-2100 in various scenarios
OilGas
Coal
Petroleum reserves and climate change
Conventional petroleum is not the problem– Only unconventionals and coal have enough carbon to do
big damage– We are likely to use all the proven petroleum reserves
carbon control raises relative costs of unconventionals and coal, the ‘default’ non-oil alternatives
Important to ensure that any large-scale development of coal-based synfuels, tar sands etc involves CO2 removal and disposal
As conventional oil & gas provinces peak, the industrial opportunities may move towards renewables
Conventional oil and gas could benefit long-term from carbon controls (by making high-carbon backstops more expensive)
Climate change, innovation
and the fossil fuel industries
- Insights from UK experience and links to TAR
Presentation to SBSTA consultation on IPCC Third Assessment ReportMilan, 27-28 November 2003
Michael Grubb, Associated Director of Policy, The Carbon Trust
Visiting Professor of Climate Change and Energy Policy, Imperial College, London, &
Senior Research Associate, Department of Applied Economics, Cambridge University
Imperial College OF SCIENCE, TECHNOLOGY AND MEDICINE
UK Energy White Paper:policy principles and guideposts
Market-oriented – not a return to central planning Need for government to establish the regulatory and
incentive framework Looking for cuts of 10-20% (15-25MtC) below reference
projection by 2020 Non-binding 2020 targets for energy efficiency,
renewable electricity, and CHP No specific proposals for new nuclear build (or other
direct government build) Renewables and efficiency have five years to prove
their potential
UK Energy White Paper:Economic instruments and energy efficiency
Emissions trading: ‘will be at the centre of our energy markets’ entry for key sectors (power stations, refineries, most heavy
industry) into EU scheme from 2005 ambiguity about overall linkage between trading and Climate
Change Levy structures
Energy efficiency ‘develop’ the energy efficiency commitment (EEC) scheme Insulation grant schemes and EECs to secure end to ‘fuel
poverty’ in England by 2010, Britain by 2016-18. Revision of building standards brought forward to 2005, and
push for stronger EU standards on fridges, PCs etc Public sector procurement to ‘set an example’