In early October, while the United States was still reeling from the impact of Hurricane Helene, Abrahm Lustgarten wrote that people fleeing climate disasters will change the American south (Propublica and NYTimes). This isn’t new news. NGOs have been forecasting massive population displacement due to climate change for some time now. For example, in 2021 the World Bank forecast over 200M persons could be displaced, most within their own countries, by 2050. In the United States, estimates are that as many as 13M people will be displaced by the end of the century, primarily from the south.
Lustgarten’s article focused on the social costs of this migration. He made it personal by talking about the follow-on impacts that the hollowing out of the south would set in motion. But what about the risks to business? After all, the southern United States is home to key players in Energy and Oil (45% of US refining capacity is on the Gulf Coast), Retail and Consumer Goods (Walmart, Home Depot, Lowes), Technology and Communications (AT&T, Dell), and Logistics and Transportation (UPS and Fedex). Some estimates are that 30 to 40% of the Fortune 100 will be impacted by changing weather patterns in the South.
Many boards and management teams are already considering the physical risks extreme climate brings. Depending on the business, any or all of these risks must also be considered:
1. Labor Market Disruption: Businesses in coastal areas like Florida and Texas will face labor shortages as younger, skilled workers relocate inland. The remaining population will primarily consist of older individuals with limited capacity for employment, exacerbating productivity issues.
2. Supply Chain Disruptions: Frequent extreme weather events, such as hurricanes, may disrupt supply chains by damaging infrastructure, reducing access to essential goods and inputs. This will increase operational complexity and costs, especially in regions prone to storms and flooding.
3. Market Demand Shifts: As populations move inland, consumer demand will decline in vulnerable coastal areas. Businesses dependent on local markets will experience a reduction in revenue, necessitating adaptation to shifting demographic patterns and potentially moving operations to inland, safer regions.
4. Regulatory and Legal Risks: Businesses in affected regions may face new government regulations regarding disaster preparedness, land use, and environmental protection. The financial burden of complying with these regulations could increase as local governments seek to address the effects of climate migration.
5. Property and Asset Risks: Coastal properties and physical assets in regions identified as “abandonment zones” will likely decrease in value as residents leave. Businesses may find it increasingly difficult to sell or maintain properties in high-risk areas, leading to potential losses and higher insurance costs.
6. Social and Political Instability: As communities age and face greater economic decline, social services will become strained, and political instability may arise. Businesses may encounter a more challenging operational environment with reduced government support and rising tensions in affected communities.
7. Brand and Reputation Risks: Businesses that fail to act on climate risks or support local adaptation efforts may face reputational damage, especially in regions where migration pressures are mounting. Proactive strategies to assist displaced populations or support sustainability could enhance brand image.
8. Financial Risks: Investors may reassess the viability of businesses operating in vulnerable coastal areas. Access to credit may tighten for firms seen as overexposed to climate-related risks, particularly if asset values decline and revenue forecasts are uncertain.
9. Operational Adaptation: Businesses will need to adapt operational models to serve a changing demographic, including older, less mobile populations. This may involve investing in new products, services, or technologies that cater to an aging customer base or relocating operations to safer areas.
Which of these enterprise risks are material to your business? How does your company assess these risks? How frequently? What is your near-term extreme weather mitigation strategy, and your long-term sustainable business strategy?
Last night Justin Trudeau’s beleaguered Liberal Party government survived a non-confidence vote in the Canadian parliament. Conservative Party leader Pierre Poilievre had been campaigning for a vote all summer on the premise that Canadians can’t afford to pay Canada’s carbon tax. Despite the lack of substance in Poilievre’s message, his campaign has had an impact. It seems inevitable that there will be an election fought on the issue of climate policy within the next year.
Andrew Coyne’s editorial earlier this week points out the delicious irony of Poilievre (as a nominal conservative) opposing market force mechanisms to achieve Canada’s greenhouse gas reduction targets. Not only is carbon pricing the most conservative policy choice, it is also the most efficient and fairest way to reduce emissions.
There are a range of ways for Poilievre’s “government in waiting” to reduce emissions, however. The question Canadians should be asking Poilievre is which does he support? What will his policy be, if not a carbon pricing mechanism? How will a Conservative Party government make good on Canada’s international commitments?
Here are some approaches that he could choose.
1. Emissions Pricing: Proven & Effective
Poilievre hates it, but one of the most effective ways to reduce emissions is by putting a price on them, either through a carbon tax or a cap-and-trade system. Both mechanisms create a financial incentive to reduce pollution. Carbon taxes tax emissions directly, while cap-and-trade systems operate auctions allowing large emitters to bid on carbon allowances in accordance with their needs.
Carbon Tax Success: Sweden introduced a carbon tax in 1991, and the results speak for themselves. Since then, Sweden has reduced its emissions by 80%, all while growing real GDP by 100%. By contrast, Canada has grown real GDP by 107% over the same period which tells you that carbon pricing can be implemented without impacting economic growth. (src: World Bank)
Cap-and-Trade in Action: The European Union’s Emissions Trading System (EU ETS), established in 2005, has contributed to a 47% reduction in emissions across covered sectors. The U.S. Regional Greenhouse Gas Initiative (RGGI) has also been highly effective, reducing power sector emissions by 50% between 2009 and 2020, while the region’s economy grew by nearly the same margin.
Carbon pricing is not only an effective emissions reducer, but it can also generate revenue for governments to reinvest in clean technologies.
2. Subsidies and Incentives: Accelerating the Clean Energy Transition
While carbon pricing penalizes pollution, subsidies and incentives reward clean energy solutions. Clean energy solutions have higher up-front costs than fossil solutions, but dramatically lower usage costs and emissions impact. Countries that support renewable energy projects, electric vehicles (EVs), and energy efficiency programs are seeing rapid reductions in emissions as a result.
Renewable Energy Growth: Electricity generation accounts for about 9% of all emissions in Canada. Incentives to drive emissions out of electricity generation, and to build out infrastructure to handle greater demand due to the electrification of the rest of the economy make sense and can have a big impact. Electricity generated from natural gas is responsible for 450 to 550 grams of CO2e/kWh over the lifetime of the plant, versus 20 to 60 grams for solar, and 10 to 20 grams for wind. Fortunately, solar and wind are very affordable now. According to the International Renewable Energy Association (IRENA), since 2021, the weighted average LCOE (levelized cost of energy) for new solar installations in Canada has been lower than the weighted average LCOE of added fossil fuel generation capacity. Onshore wind passed natural gas and goal in 2015 in the Canadian market. Today the LCOE for natural gas-fired power plants in Canada is between $0.07 and $0.14 CAD per kWh, versus $0.03 to $0.06 per kWh for wind and $0.05 and $0.10 for solar.
EV Adoption: In the U.S., tax credits for electric vehicles have been instrumental in increasing EV sales by 50%. This shift toward electric mobility is a key factor in reducing transportation-related emissions. In Canada, transportation is the second largest source of emissions, responsible for 24% of greenhouse gas emissions. Incentives to encourage the electrification of the transportation sector make sense when you consider that total product lifecycle emissions for gasoline powered vehicles are 250 to 300 grams for CO2e per kilometer, versus 50 to 150 grams for electric vehicles.
Subsidies and incentives help buyers overcome cost barriers, making it easier for businesses and consumers to transition to a low-carbon future.
3. Regulatory: Setting Standards for a Cleaner Future
Market mechanisms like emissions pricing and subsidies are powerful, but regulations can enforce emissions reductions at scale. Governments can implement standards for energy production, transportation, and construction to ensure that businesses and individuals meet specific emissions targets.
Renewable Portfolio Standards (RPS): In the U.S., states with RPS policies have seen far greater renewable energy deployment than those without, leading to substantial emissions reductions. Nationwide, Canada performs well, with over 80% of electricity coming from non-emitting sources. However three provinces account for the bulk of emissions from electricity generation — Alberta (41%), Saskatchewan (28%) and Nova Scotia (8.5%). Alberta has a stated goal of 30% of generation from renewables, Saskatchewan 50%, and Nova Scotia 80%, all by 2030.
Fuel Efficiency Standards: Data for Canada are not available, but data from the U.S. Environmental Protection Agency (EPA) reveals that fuel efficiency standards have prevented an estimated emission of 6 billion metric tons of CO₂ since 1975, highlighting the long-term benefits of such policies. The transition to a Zero Emissions Vehicle economy will continue this trend.
Building Codes: Countries that enforce strict energy-efficient building codes, such as Germany, have significantly lowered energy consumption in homes and offices, contributing to nationwide emissions reductions. Canada has energy efficiency measures built into the building code, but not with the same teeth that German regulations have. Given that buildings contribute 13% of Canada’s emissions footprint, strong regulations to drive construction of new low / zero emissions buildings combined with rigorous retrofit requirements for existing buildings could be a possible solution.
Regulations ensure that emissions reductions happen across industries, even in sectors where market forces alone may not be enough to drive change.
4. Public Investment: Building a Sustainable Infrastructure
Governments also play a crucial role in directly investing in public infrastructure and green technologies. Strategic investments can help shift national economies away from fossil fuels and toward renewable energy and electrification.
Renewable Energy Investment: In addition to the investments Canada is making in renewable generation, Canada’s grid is estimated to need a minimum of $400B in upgrades (some estimates are over $1T) to support the country’s 2050 goal. The grid itself is owned by a mixture of public and private entities, varying from province to province. Investment to accelerate the update of the national grid is an important step.
Public Transport: Electrifying public transport can make a significant dent in urban emissions. According to Translink Vancouver, each electric bus in the Vancouver fleet reduces emissions by 100 tons of CO2e annually. Nationally, electrifying public transport would account for 1% to 2% of emissions country-wide.
Public investment in infrastructure is a win-win—it not only reduces emissions but also creates jobs and stimulates economic growth.
5. Phasing Out Fossil Fuel Subsidies
Despite the global push toward clean energy, and Canada’s own 2050 net zero targets, the country still provides between $5B and $20B (depending on what you count as a subsidy) in annual subsidies to the fossil fuel industry. However, phasing out these subsidies can lead to emissions reductions as prices will increase for consumers. Estimates from the International Institute for Sustainable Development (IISD) suggest that prices might rise by 5 to 10 cents per liter.
A 2021 study by IISD found that removing fossil fuel subsidies could reduce emissions by 10% by 2030. By leveling the playing field, governments can help renewables compete more fairly with fossil fuels.
In addition, redirecting subsidies from fossil fuels to clean energy initiatives might accelerate the transition to a low-carbon economy.
Poilievre could consider many other policies as well. For example:
Incentives to encourage regenerative agriculture. The agriculture sector is responsible for 10% of Canadian emissions.
Incentives and regulations to drive more circularity into the Canadian economy. Waste accounts for about 3% of Canadian emissions.
Incentives to decarbonize heavy industry. The cement, steel, chemical and mining industries are responsible for 14% of Canadian emissions.
The key point, however, is that the member from Carleton needs to put some flesh on the bones. “Axe the tax” just isn’t enough.
What if electric vehicles were actually worse for the environment than old-fashioned gas burners? What if, somehow, we have all been deceived by the diabolical Elon Musk and his minions in Fremont California… and hidden pollution costs associated with electric vehicles are actually making global warming worse?
This story, unfortunately, keeps cropping up in corners of the internet. How can we determine what the truth is?
To address this question requires us to consider two parts:
The fuel cycle. What is the “well to wheel” cost associated with operating the vehicle? Depending on the power source, that may include the cost of extraction, refinement, distribution and/or generation.
The vehicle cycle. What is the cost to manufacture, maintain, recycle and/or dispose of the vehicle.
The discipline that answers these types of questions generally, for all types of products (not just automobiles), is called life cycle assessment. In the case of automobiles life cycle assessment is complex. Fortunately, there is a generally accepted methodology and set of models for performing this analysis. Argonne National Labs in Illinois has been working on the Greenhouse gases, Regulated Emissions, and Energy use in Technologies Model (otherwise known as GREET) since the late 1990’s. For a given vehicle and fuel system, GREET allows you to calculate:
Consumption of total energy (energy in non-renewable and renewable sources), fossil fuels (petroleum, fossil natural gas, and coal together), petroleum, coal and natural gas;
Emissions of CO2-equivalent greenhouse gases – primarily carbon dioxide (CO2), methane (CH4), and nitrous oxide (N2O); and
Emissions of six criteria pollutants: volatile organic compounds (VOCs), carbon monoxide (CO), nitrogen oxide (NOx), airborne particulate matter with sizes smaller than 10 micrometre (PM10]), particulate matter with sizes smaller than 2.5 micrometre (PM2.5), and sulfur oxides (SOx).
In the latest iteration, GREET now includes more than 100 fuel production pathways, and more than 70 vehicle and fuel systems.
You could easily drive yourself mad thinking about this. To keep it simple, GREET’s output is expressed simply as emissions per distance travelled. In the United States this is expressed as grams CO2e / mile, and in the rest of the world as grams CO2e / kilometre. The vehicle cycle emissions (those produced during manufacturing) are distributed over the expected lifetime of the vehicle, and then added to the fuel cycle emissions to produce a single aggregate number.
You can see examples how this works on Tesla’s 2020 Impact Report, beginning at page 13. They compare a Tesla Model 3 charged at home using their solar and powerwall product (zero cost electricity) to grid charged. They also compare personal use scenarios with ridesharing scenarios. And finally, they compare those scenarios to an average mid-size gasoline powered vehicle.
The Tesla graphic shows us some interesting facts.
Notice that the manufacturing produced emissions for personal use vehicles seems to be dramatically higher than for vehicles used for ridesharing. The emissions are in fact identical, but because the rideshare scenario presumes a million miles travelled, when expressed in grams of CO2e/mile, the graph appears to show lower manufacturing emissions.
Notice also that the emissions associated with charging from the grid are dramatically higher than for solar. There is an emissions footprint for purchased electricity, that will vary depending on the utility’s generation mix, and depending on where you live. In fact, Tesla shows this in multiple graphics depicting various geographies in their report. But when you generate your own electricity from the sun, you don’t produce emissions.
And finally, notice that the emissions from manufacturing for the solar scenario seem higher than for the grid scenario. They are, in fact, higher. That’s because Tesla adds the emissions associated with manufacturing the solar panel and storage battery into the scenario.
You can see from Tesla’s graphic that emissions associated with using a Tesla Model 3 are dramatically lower than with the average internal combustion engine vehicle they’ve depicted. However, scenarios will vary depending on where the vehicle is manufactured, and where you live. In 2017, the 2 Degrees Institute quantified this difference for the United States and Canada. The study is old, and the underlying assumptions have improved since then, but it still illustrates this point very well. In 2017, driving just 9,000 miles in California would fully offset the embodied emissions in the electric vehicles they studied. To offset those same emissions in Michigan would take over 17,000 miles…. and 38,000 km / 23,600 miles in Alberta Canada.
So yes, electric vehicles have a higher embodied carbon footprint than internal combustion vehicles. However, the difference isn’t significant enough to warrant not switching. Whether you live in LA or Calgary, within less than 2 years that embodied CO2e difference will be erased as you power your vehicle with clean efficient electricity.
770 million people globally lack access to electricity. They’re predominantly in developing nations. Despite international commitments to energy equity, like the UN Sustainable Development Goals, the dominant view is that electricity access for these folks will be a slow and expensive process.
On July 14th, the Carbon Tracker Initiative published a report titled Reach for the Sun, which challenges this view. They forecast that 88% of the growth in global electricity demand between 2019 and 2040 will come from emerging markets. Moreover, demand for fossil fuel generation in those markets has already, or is about to, peak. Those countries are investing in renewables.
They divide the emerging markets up into four groups:
China, which is nearly half the demand for electricity, and 39% of the expected growth.
Coal and gas importers, such as India or Vietnam, which account for 1/3 of the demand for electricity, and nearly half of the growth.
Coal and gas exporters, like Russia and Indonesia, which are 16% of the electricity demand, but only 10% of the forecast growth.
Fragile states, like Nigeria and Iraq, which account for 3% of demand, and about the same percentage of growth.
Carbon Tracker makes the case that emerging markets will leapfrog developed nations in renewable energy deployment as they modernize their economies. With little to no legacy generation infrastructure in place, it makes sense to build out with renewables. Moreover, the added attraction of energy independence makes this a strongly preferable path.
Developed nations in North America and Europe have the disadvantages of:
Sunk costs in the form of coal and gas generation infrastructure.
Political headwinds as vested interests in fossil fuel industry players work against renewables.
Economic headwinds slowing down deployment of renewables as comparitively low growth in demand makes financial cases difficult.
The report is tremendously detailed. There is much to digest here.
The most extraordinary takeaway for me, though, was the similarity between 19th century colonialism, and today’s oligarchy of fossil fuel producing businesses and nations. Colonialism is the control of one group of people by another, generally by establishing colonies of settlers, for the purpose of economic exploitation. Developing nations export raw materials, and in some cases finished goods to the West. Energy independence is an inarguable benefit for them. Yet Western interests have actively sought to thwart renewable deployment in developing nations in order to continue to extract energy “rents” from these economies.
Emissions trading schemes were in the news last week, and China was at the center of the news.
China’s long awaited ETS went live on Friday, after operating seven pilot programs since 2011. It covers 2,225 power plants, responsible for over 40% of China’s national emissions, and is being called the world’s biggest carbon market. Certainly in terms of sheer coverage it is. The 4,000 megatonnes of carbon encompassed in the scheme represents about 12.4% of the global total of 32,300 reported by BP in last week’s Statistical Review of World Energy.
The maximum penalty under the scheme is around $4,600. It’s not a meaningful deterrent.
The scheme is unlike other “cap and trade” systems which use a declining cap to drive down emissions annually. Instead, permits are allocated on the basis of plant size and carbon intensity, and given out freely. If a plant exceeds its emissions cap then it needs to go to the market to buy additional permits. However, in practice the quantity of permits issued means that any plant operating at below 85% capacity will have excess allowances.
The maximum number of allowances that any non-compliant plant will be required to buy is up to 20% of their allocation. Even if operating at 50% above the allocation, they are only required to buy 20% more. It’s a free pass for the dirtiest of plants.
Gas plants are effectively exempt from the scheme. Analysts expect that they will always be net sellers of allowances. Some are even calling the scheme a subsidy for gas power.
The market price per ton is set at about $7, far below global averages.
Carbon Brief has a detailed Q&A, with many more data points. Bottom line is that “The ETS in its current form will likely have no impact” (Transition Zero, “Turning the Supertanker”, page 4). China says it’s in a preliminary benchmarking phase. Much will depend on how China enlarges it, and how carbon is priced in the future.
Separately, last week the EU released more details on it’s proposed “Carbon Border Adjustment Mechanism” (CBAM) as part of it’s “Fit for 55” initiative. The Europeans are careful to call this an adjustment mechanism, and not a border tariff. They claim that it’s neutral and will comply with current WTO rules. Essentially, CBAM requires that products imported into the EU have to meet the same emissions criteria as products produced in the EU. Imports will have to be accompanied by emissions certificates, and if they don’t comply they will have to purchase emissions credits on the open market in order to bring them into compliance. The goals are to both prevent European companies from relocating manufacturing to less stringent countries, and to encourage manufacturers in foreign countries to produce clean products for export to Europe.
CBAM is being received by European partners as a tax, and potentially an illegal tax under the terms of the WTO. It’s a headache for the US which has no emissions trading scheme in place. It’s also a headache for China, which will face (potentially) steep tariffs unless it gets its own house in order. Some believe that CBAM could be a forcing function to get global agreements on emissions trading, as it will put exporters at a disadvantage competing in large markets unless they’re willing to comply.
And that brings us back to China. The world has legitimate complaints about China. It is the world’s largest emitter. China also exports more CO2e than any other economy in the world. As the dominant manufacturing country in the world, China’s dirty power makes its way to the shores of every other nation in the world not just as air pollution, but also as scope 3 emissions in the form of the products we buy and use.
Why produce all that electricity, only to convert it into hydrogen or ammonia? And why ammonia?
Hydrogen is an efficient means to store energy, but with many drawbacks. Transporting liquid hydrogen directly, for example, requires storing the gas at -233C. It turns out that ammonia is also a very efficient means to store energy. Ammonia’s energy density by volume is 1.7x that of liquid hydrogen, and it’s more easily stored and transported as well. Japan intends to use hydrogen and ammonia fired systems for power generation. Mitsubishi is also developing 100% ammonia fired turbines intended for deployment in 2025.
The big drawback to ammonia is the Haber-Bosch process used to produce it at industrial scale today. We use vast amounts of ammonia globally, mostly for fertilizer. Indeed, we could not feed the planet without the Haber-Bosch process. However, the Haber-Bosch process consumes large amounts of energy (1-2% of world energy), takes natural gas as an input to generate hydrogen (3-5% of global production), and emits CO2 directly as a byproduct. “Green ammonia” production uses water electrolysis to generate hydrogen instead of natural gas, which eliminates the emission of CO2, and powers the Haber-Bosch process by renewable electricity. It still consumes large amounts of electricity, but generated from renewable sources instead. Hence the need for a power generation plant capable of powering the entire continent of Australia!
Lastly, there are still many possible efficiencies around the production of ammonia. For example, promising work is underway to produce ammonia using reverse fuel-cell processes directly from water and nitrogen gas. No electrolysis, no Haber-Bosch process, very low energy requirements.
Perhaps one day ammonia will help us to both power and feed the planet, without the emissions downside it creates today.
In 1969 I went to kindergarten at Central Public School in Ontario. It was built in 1882 at a cost of $12,000. Today it’s the oldest remaining building in the city with its original design.
Central was heated with coal. I remember the coal chute at the back of the building, and the dust that seemed to always be present, but especially when a delivery came. My parents homes were all heated with oil, and I can still conjure up the smell of the fumes on the days when the oil truck would arrive with a delivery. The first home I purchased was also heated with oil, but since then my homes have been gas or electric. My experience is common, as energy source shifts have occurred throughout the 20th century.
Cleantechnica published a reference last week to a June RMI brief on how state politicians are moving to block local governments from adopting clean energy requirements for new home builds. Cities in many parts of the United States are simply stepping up and mandating clean air requirements. Berkley CA has banned natural gas in new construction, as have Seattle WA, Norman OK, Brookline MA and at least 45 other cities. Recently, 19 states have passed laws prohibiting these bans. The states use “consumer choice” as the justification, but RMI claims that these efforts are thinly disguised lobbying efforts by the fossil fuel industry.
RMI makes the point that “consumer choice” is a disingenuous argument, since gas companies won’t run a pipeline for just one home. Energy choice is a decision that is made collectively by a group of homeowners at a neighborhood, or even potentially at a municipal level. More importantly, though, the decision to hamstring regulatory efforts is a set-back for net-zero commitments nationwide. Just as cities are now able to require EV charge capacity in all new builds, they should also be able to prohibit gas in new builds.
There will no doubt be legal challenges as cities have the right to enact all kinds of regulation that state level governments shouldn’t be meddling with. It’s also worth noting precedents dating back centuries that cities can enact these bans. The City of London, for example, banned the burning of coal over air quality concerns in the year 1306.
BP’s 70th annual Statistical Review of World Energy came out this past week. This data-rich documents is 70 pages of detailed, country by country, statistics about world energy capacity, production, and consumption with commentary. Here are some of the highlights.
Consumption
Due to COVID-19, last year saw the largest decline in energy consumption since World War 2. Consumption fell by 4.5%, primarily due to the shutdown of the transportation industry. Oil consumption fell by 9.2%, while natural gas fell only 2.3%. But renewables — solar and wind — had their best year ever as capacity increased by 50%. BP themselves were surprised by this, saying “we materially underestimated the growth of wind and solar power over the last five years”. But before we break out the bubbly, let’s put that in context. Even with that super result, renewables are still a small fraction of the global energy mix. Non-emitting energy (Nuclear, Hydroelectric, Solar and Wind) are still just 16.8% of the overall energy mix.
The world is finally weaning itself off coal. Coal generation declined by 405 TWh, which was almost directly correlated to the 358 TWh increase in solar and wind generation. We are truly seeing coal-fired generation being phased out in favor of renewables.
On a country by country basis, the biggest global consumers of energy were the United States (87.79 EJ) and China (145.46 EJ), or 15.8% and 26.1% of global energy consumption. Nobody else comes close, except if you start to combine regions. All of Europe, for example, consumed 77.15 EJ, a little less than the USA. It’s also worth noting that the United States consumed 15.8% of the global energy supply, but has just 4.25% of the population. China consumed 26.1% of the worlds energy, but has 18.5% of the population.
Globally, each human on the planet averages annual consumption of 71.4 Gigajoules (GJ) of electricity. However, Canadians (361GJ), Qataris (594 GJ), Saudi Arabians (303 GJ), Emeratis (423 GJ), and Australians (218 GJ) all are good examples. Or maybe it’s just the weather. Singapore has no natural resources, and Singaporeans use an astonishing 583.9 GJ per person of energy annually, second only to Qataris.
Emissions
Global carbon emissions from energy use also fell, and even more dramatically than energy use itself. Carbon emissions fell by 6.3%, while energy consumption declined by just 4.5%.
Among the big economies, the US generates 18.3% of its energy from non-emitting sources, China 15.7%, and Europe 28.8%. China is still heavily dependent on coal, and Europe has been helped out by a favorable shift to renewable plus the fact that a whopping 36% of France’s energy comes from nuclear. Canada, often in the news because of it’s foot-dragging on emissions targets, does surprisingly well with 35.4% of it’s energy coming from non-emitting sources. This is due to the outsize impact of the country’s hydro-electric industry. Canada, with fewer than 40 million people, is the second largest producer of hydro-electric power globally, only surpassed by China.
The biggest absolute GHG emitters are (in order) China with 9,899.3 megatonnes, the United States (4,457.2), Indonesia (2,302.3), and Russia (1,482.2). Nearly a third of all emissions are from China. This is no surprise, given China’s massive energy appetite, but it’s still sobering nonetheless. Let’s put these into context, though. The US, with 330M people, is a much bigger emitter, per capita, than China. If the Chinese were to pollute the way America does, then their emissions would be close to 19,000 megatonnes. And all of Europe, which is a population of roughly half of China, emits just 3,596.8 megatonnes.
Geopolitics
The geopolitical world of energy stands out clearly in this report.
The United States is well established economically, and has small reserves of oil (68.8M barrels), about 6.7% of the worlds gas reserves (12.6 trillion cubic metres), and almost a quarter of the worlds coal reserves (248,941 million tonnes). At current rates of consumption, the US will exhaust its oil in about 10 years, and gas in 15 years. The US is the “Saudi Arabia of coal”, but most of that resource will stay in the ground.
China, by contrast, sits on a paltry 26M barrels of oil, 8.4 trillion cubic meters of gas, and 143,197 million tonnes of coal. China uses less oil annually than the US, but has only about 4 years reserves remaining. The country uses less than half the gas of the United States today, and thus has 25 years of reserves remaining. And they burn a lot of coal to generate power.
Consequentially, the US is a net exporter of oil and gas. In contrast China imports nearly all the oil and gas it needs to meet its energy needs, and China’s energy needs are growing at a blistering 3.8% annually.
The Chinese have been reluctant to give up coal electric generation, as the one energy source they have in abundance is coal. It is the one tool they have which gives them a measure of energy independence. It should therefore be unsurprising that China now leads the world in renewable power generation (#1 in hydroelectric, solar and wind), and new renewable capacity additions (in 2020 China accounted for 36% of new global solar capacity, and 38% of new global wind capacity). China has no choice. They cannot continue to generate electricity with coal. The global trend toward net-zero emissions means that Chinese companies risk being cut off from global export markets unless they can show that the carbon footprint of the products they sell is acceptable to their customers. Moreover, China cannot continue using coal to generate electricity at home without polluting its already fouled air even more.
It should also come as no surprise that 44% of the electric vehicles manufactured and sold in the world were sold in China. China is completely dependent on foreign oil. They cannot satisfy the growing appetite for vehicles domestically without an alternative to gasoline. They also cannot build the economy they want without the logistics in place to move goods from one location to another. They need electrified transportation more than any other economy globally.
Nuclear
Nuclear was a surprise. The top producer of nuclear energy in the world today is the United States, despite the unpopularity of nuclear domestically. 31% of the nuclear in use today is in the USA (7.39 EJ), although it is declining. The next largest producers of nuclear energy were China (3.25 EJ) and France (3.14 EJ). Few countries globally are adding nuclear capacity, the most notable exception being China, where nuclear (pre-COVID) was growing at a rate of 16.7% annually. Again, unsurprising that China would be building this capacity.
Conclusions
There are three inescapable conclusions in BP’s numbers.
The first is that there is little economic incentive in the west (Europe and North America) to replace fossil fuel generation. The energy demands of the west’s stable economies are growing slowly, having shifted most manufacturing overseas. The western economies’ focus on emissions are largely domestic politics, centered around climate change risk management. To make the transition from fossil fuel to renewable energy will require deft political skills, regulatory frameworks, and a continuation of the economic incentives we have seen.
The second is that Asia-Pacific, having become the center of global manufacturing, must navigate growing their energy use carefully. Global supply chains originate in Asia-Pacific, today. Consequently the region has a ravenous appetite for energy, but must find ways to meet that appetite and grow consumption while managing and reducing GHG emissions. Expect to see this region lead renewable energy deployment globally for some time, as they deal with the double incentive of managing climate change risk, while rapidly growing economies to satisfy western consumers needs.
And finally, the two remaining superpowers of the world, China and the United States, are quite different in their approaches.
America is divided. America has a substantial fossil fuel export business, many politicians support that business, and American free speech rights permit climate deniers to manipulate the public by spreading disinformation about the severity of the climate crisis, and the value of solutions being proposed. The fossil fuel lobby is strong! However, America has the luxury of being able to dither simply by virtue of the fact that it has secure domestic energy resources, and business seems to be stepping into the leadership vacuum in a way that Washington is apparently not able to.
China, in contrast, has a more immediate crisis and as a result seems to have a more unified approach. The Chinese don’t have the energy independence that America has. As a result, they are simply “getting on with it”, rapidly deploying renewables, building electrified products and industry, and making plans to decarbonize generation by taking their coal plants off line. The pace at which China is weaning itself off coal is slower than some in the west want, yes, but it is happening.
The inescapable conclusion is that China is playing a “long game”, building expertise that will serve it well for generations. The rest of the world already buys much of its wind and solar generation capability from China. It’s not hard to see how cars and batteries will be next.
Can a container ship filled with liquified natural gas be “carbon neutral”? Shell Oil and Cheniere Energy want you to believe that. In May, the two companies delivered a shipment of gas to Europe in which emissions associated with the upstream costs of processing and liquifying the gas were offset by carbon credits purchased from Shell’s portfolio of nature-based projects. Emissions were offset to the “FOB delivery point”. This means that Shell and Cheniere have offset the emissions all the way to the point of delivery, as indicated by this statement in their joint press release.
The companies worked together to offset the full lifecycle greenhouse gas emissions associated with the LNG cargo by retiring nature-based offsets to account for the estimated carbon dioxide equivalent (CO2e) emissions produced through the entire value chain, from production through use by the final consumer (all scopes).
What they’re claiming is that independent of how the customer uses the product they’ve delivered, the product itself has been produced in a carbon-neutral fashion. And, of course, their shipping partners are eager to tout their new green credentials too. Astomos Energy, for example, put out a press release stating that they are now purchasing “carbon-neutral LPG”. The appetite for Cheniere’s new products was strong enough that they posted a 40% increase in revenues from a year ago, and bumped guidance, rewarding investors with a 74% increase in the stock price from this time last year.
What this illustrates, quite neatly in fact, is the complexity of decarbonizing supply chains. At Davos this year, the WEF unveiled a report titled “Net-Zero Challenge: the supply chain opportunity“. The central thesis was that 8 supply chains accounted for over 50% of the world’s emissions, and that decarbonizing those supply chains would have impact. The energy industry wasn’t one of the eight supply chains named directly. Why not? Energy is an input into every supply chain. You literally cannot decarbonize supply chains without decarbonizing energy itself.
Let that sink in.
It’s good that Shell and Cheniere have taken the small step of offsetting the emissions associated with creating and shipping their polluting products, even if the marketing of those products as net-zero LPG is deceitful. The next step is to decarbonize energy generation itself — Shell and Cheniere’s customers.
Policy is part of the answer
So how do you decarbonize energy itself? Aside from technology solutions, policy is an incredibly important tool. Yesterday the UNEP Net-Zero Alliance, a group of investment managers representing $6.6 trillion of assets under management, released a position paper calling on governments to adopt common approaches on emissions pricing, to apply emissions pricing to every sector of economies (not just the heavy emitters), to swiftly phase out fossil fuel subsidies, and to fund research and create incentives to decarbonize hard-to-abate sectors. This approach — carrot and stick — works. You can see it visually by checking out the current price of European Usage Allocations futures (as at July 7). Emissions in Europe are now nearly $60/ton, up from $20 in April.
We’re still a long way from where we need to be. Analysts say that the price today needs to be closer to $85, rising to $145 by 2030, in order to reach a 1.5C global warming target. Emissions pricing schemes still only apply to 17% of the world’s carbon emissions. So long as emissions prices stay low, and customers exist that aren’t covered by pricing schemes, there will be a market for green-washed inputs like (unfortunately) fossil fuels.
As individuals, there are are two actions we can take.
When emissions trading becomes a political issue in your country, vote in favor of emissions markets, or cap-and-trade solutions. There will always be those who claim that “the market” is the solution. The market is clearly not infallible, as the Shell / Cheniere announcement shows. Vote for emissions trading schemes with teeth, not un-regulated markets.
When you have the option, buy green energy from your local supplier. Do your homework first, though. Make sure that you aren’t being sold green-washed fossil fuel energy, but rather energy from non-emitting sources like wind, solar, or nuclear.
And Shell, Cheniere… we know you have to serve your shareholders, but shame on you for such cynical marketing tactics. We deserve better.
Both Dave and I were struggling for breath as we hiked across Abra Huacahuasijasa, a 15,200 ft mountain pass overlooking the Sacred Valley of the Incas. We were an unlikely pair — a farmer from western Illinois and a techie from Washington state. The two of us met a few days earlier when we both joined a hiking adventure in Peru. And here we were, experiencing Peru, and sharing details of our lives as we hiked through this magnificent landscape.
Over dinner I learned that his parents had bought their family farm in the 1960’s. The farm they purchased had been 100 acres of mixed use farm land, with both crops and livestock. In the intervening decades Dave and his brother had taken their parents little farm and expanded it to 10,000 acres. Both Dave and his brother were college educated, one with a degree in agricultural science and the other in finance. They had used their educations to expand the family farm into a substantial business.
Today, that farm produces mostly corn and most of the corn they produce is converted into ethanol. The two brothers had doubled down on corn during the ethanol boom of the early 2000’s. They bought up neighboring farms as they became available, invested in equipment to modernize the operation, and used sophisticated trading strategies on futures markets to ensure a steady stream of income, even during poor producing seasons.
The post WW1 agricultural boom had encouraged farmers to expand to feed foreign markets as Europe rebuilt after the war. However, the bottom fell out of that market in the 1920s just as the rise of the automobile crushed local feed markets. American farmers were wiped out by the perfect storm of the transition to the automobile, the retirement of the horse, and the drought of the 1930s that became known as the Great Depression.
Texas tenant farmer, Marysville CA, 1929. Library of Congress, Prints & Photographs Division, FSA/OWI Collection
Over the next two decades, the demand for corn is likely to see a steep decline. Extreme weather due to global warming may also impact agriculture, just as it did during the 1930s.
We may not experience anything like the Great Depression. However, as we move to electrify everything, which we must, let’s also plan for the inevitable impacts it will bring.
