Gas goes global

Unlike the highly liquid global oil market, natural gas has always been traded regionally. Asia, Europe and North America represent three different gas markets with their own unique dynamics.

Regional gas markets

Asia is very reliant on LNG (liquefied natural gas) imports. Natural gas demand significantly outstrips low levels of domestic production. Prices spiked after the Fukushima Daiichi disaster in 2011 when Japan began importing record volumes of gas for electricity generation to replace the output of nuclear power plants that were shut down.

North American gas production has always been strong, but exploded over the past few years. Hydraulic fracturing (or fracking) activity and the discovery of significant shale gas reserves halved North American gas prices between 2010-11. Prices remain at historic lows today. Henry Hub in Louisiana, where North American gas is physically delivered as well as virtually traded, is the world’s most liquid spot and futures market for natural gas. North America’s well-developed pipeline infrastructure also minimises transportation costs and promotes access to the market. And a high degree of competition lowers the barriers to entry.

Europe’s numerous trading hubs are still developing and are yet to match Henry Hub’s liquidity. Until recently the majority of European wholesale gas buyers maintained long-term contracts with mega-suppliers – namely Russia’s Gazprom and Norway’s Statoil. According to the Oxford Energy Institute, 2015 was the first year that more than fifty-percent of gas trades in Europe took place on the spot market. Demand has yet to return to pre-2008 levels and is still soft across the continent, but prices remain consistently higher than in the US.

Gas producers rely on pipeline infrastructure to connect supply with demand centres. This is why North America’s shale gas revolution and the subsequent decline in natural gas prices have not affected European prices – no pipeline crosses the Atlantic. But, LNG can easily be shipped between the continents. Why then are the world’s two biggest gas markets still disconnected?

Intercontinental LNG trade

LNG (liquefied natural gas) is made by cooling natural gas to -162ºC. This transformation to liquid shrinks the volume of the gas 600 times, making it safe and easy to ship. LNG is colourless, odourless and non-toxic. Nevertheless, the added cost of liquefaction, sea transportation in specialised vessels and regasification at the destination has so far limited global arbitrage opportunities.

Yet, a barrage of new LNG investment over the past few years has lead some to speculate that natural gas markets are globalising. The International Energy Agency claims that global liquefaction capacity will increase by forty-five percent between 2015 and 2021, with most of this growth coming from the United States and Australia. If this glut makes enough cheap LNG available then North American and European gas prices might slowly converge.

In February, the Cheniere Energy LNG terminal at Sabine Pass between Texas and Louisiana was the first to begin exporting. In anticipation of a LNG supply glut Eastern European countries, including Poland and Lithuania, have been building regasification terminals. Lithuania is testing floating regasification technology – offshore plants connected by pipeline to the shore. Spain, being part of a peninsula, is isolated from the European continent’s pipeline network. Historically, this has made it an important destination for LNG cargoes. In fact, the economic downturn since 2008 created an opportunity for Spanish buyers to reload LNG cargoes and sell them in Asia where prices are higher. This churn enhances liquidity. Otherwise, LNG is injected into the network all over Europe. There are important regasification terminals in the Mediterranean: Italy, Greece and France, as well as north-western Europe: the UK, the Netherlands and on France’s west coast.

US LNG producers are increasingly flexible too – offering variable volume contracts or FOB (free-on-board) cargoes. Variable volume contracts permit buyers to increase or decrease the amount of gas they take depending on their needs. They may purchase extra volumes to take advantage of high spot prices – reselling the LNG cargo or trading gas locally. Or they may reduce their volume off-take when local demand is low. FOB means a buyer has not yet been found nor locked into delivery. An LNG cargo leaves the liquefaction terminal and can be bought and resold “on board”. The cargo may eventually be dumped in a spot market at a loss if a buyer can’t be found, but LNG suppliers’ willingness to send out FOB cargoes shows liquidity to be improving.

Not yet a single market

European countries are keen to reduce their dependence on Russian gas for political reasons. However, uncertainty remains as to whether US LNG can compete with Gazprom on price.  Analysts at the Oxford Energy Institute estimate Gazprom’s cost of delivering gas to Germany to be 3.5 USD per mmbtu (million British thermal unit). Whereas the break-even price for the cheapest US LNG supplies is around 4.3 USD per mmbtu – even with Henry Hub still trading at historic lows. Gazprom, Europe’s largest gas supplier, has significant spare production capacity and some of the lowest cost production in the world. Given these conditions, LNG traders are unlikely to win a price war on the continent.

In sum, greater supply and liquidity in the global LNG market offers some opportunities for arbitrage between the continents and provides European gas buyers with options. This does have the potential to disrupt Europe’s monopolies and introduce greater competition into the market.  Yet, LNG and pipeline gas markets are not one and the same. Whilst the price gap persists, gas markets will retain their regional characteristics.


Green energy for developing nations

Paradoxically, those nations which are most vulnerable to climate change’s ill effects also require significant energy investment. Yet, emerging economies such as China’s and India’s cannot grow whilst still relying on coal-fired electricity and oil for transport. The consequences for the planet and human lives would be catastrophic. It’s clear that developing countries must leapfrog current technologies in favour of low or zero-carbon energy sources.

This may seem an unfair burden to impose on less prosperous nations. Yet, solar power is becoming financially attractive, in addition to it’s green credentials. The levelised cost of electricity, or the minimum price for which electricity must be sold so that a power plant breaks-even, shows solar power converging on gas and coal. Such gains were driven by significant cost reductions in the manufacturing of solar panels since 2010.

Long-term contracts to purchase solar power in developing countries including South Africa, the United Arab Emirates, Peru and Mexico support such analysis. The Economist cites an example earlier this year: Enel Green Power, an Italian power company, won a tender to provide Peru with 20 years of PV solar power at a rate of less than $48/MWh. Soon after, Mexico also awarded the company a long-term contract to generate solar power at a price of about $40 per MWh. Bloomberg New Energy Finance describes these contracts, and another awarded to ACWA in Dubai in January, as the lowest subsidy-free solar contracts seen so far. 

Large grid-connected solar projects in China and India accounted for most of the global growth in solar capacity additions last year. China’s biggest project yet – a 200 MW solar power plant  in the Gobi desert – is now under construction. It could eventually power up to a million homes. The Indian government is flirting with offering 2-4 GW tenders for solar power plants. Solar power is central to both the Chinese and Indian governments’ plans for economic growth and reducing greenhouse gas emissions. 

Off-grid solar in Africa

Grid-connected, large-scale solar does not suit developing countries currently lacking in grid infrastructure though. Further, difficult terrain, a significant rural population or remote communities present a challenge to electrification. M-Kopa is an innovative company currently bringing cheap, off-grid solar electricity to more than 200, 000 households across Kenya, Uganda and Tanzania – reaching places that landlines and power lines do not. Customers pay 35 dollars upfront for a solar panel, LED bulbs and a flashlight, a radio and cellphones chargers. The package would normally cost around 200 dollars. This is paid off, via a mobile banking service, in installments proportional to the amount of energy consumed. Once their initial loan is paid the electricity is free.

By M-Kopa’s own estimate over 80-percent of their customers live on less than 2 dollars per day. An average off-grid Kenyan household spends 75 cents per day on energy. Kerosene is the most common source of energy – used to cook food and light homes. A customer saves about 750 dollars over four years after switching to M-Kopa’s basic solar kit the company claims. Kerosene is not only expensive, it is also very pollutive – its fumes cause nose and throat irritation, respiratory disease, and blacken the walls of homes. Its combustion also releases greenhouse gases. Yet, M-Kopa is a profitable, private firm – the green benefits are almost an accident.

Self-sufficient energy islands

In Haiti, the poorest country in the Western hemisphere and devastated by the 2010 earthquake, more than 75-percent of the population does not have access to electricity. Non-profit EarthSpark International estimates that rural Haitians spend 6.5-percent of their annual income on kerosene and candles for home lighting, whereas the average American family contributes only 0.5-percent. The inhabitants of Les Anglais had no electricity and relied on kerosene until Earthspark brought a self-sufficient, solar microgrid online last year. The pay-as-you-go system has connected hundreds of homes and reduced households’ energy costs.  Earthspark has ambitions to install a further 25 microgrids throughout Haiti.

The grid-connected electricity that does exist in Haiti  is generated  by burning diesel imported from Venezuela. Isolated islands, such as Haiti, suffer disproportionately from upswings in global energy prices, being dependent on fuel imports. In this context, renewables can become highly competitive with imported fuels for electricity generation.  

An abundance of wind and sun also makes islands well-suited to renewable energies.   Electricity storage technologies are needed to ensure reliable supply from the grid though, since islands also lack interconnections to other regions. Akuo Energy, a French renewables company, has used lithium-ion batteries, existing technology, alongside solar power plants in French overseas island territories to provide a reliable source of clean power. A number of facilities are now in operation in Corsica and Ile de la Réunion that have contributed to improving the islands’ energy self-sufficiency.

Islands with tropical climates also have the necessary oceanic conditions to take advantage of an established renewable energy technology called Ocean Thermal Energy Conversion. OTEC relies on a temperature difference between colder deep water and warmer shallow water. The difference is exploited to vaporise a working fluid circulating in a closed circuit, which in turn spins a turbine coupled to a generator. This provides a reliable, steady source of electricity and no pollution. An OTEC demo facility began operations in Hawaii in 2015 and is currently powering around 150 homes. A pilot project in Martinique is being jointly developed by Akuo Energy and DCNS. Construction is expected to get underway this year. Installation will make this facility the largest OTEC project to date.

The COP21 agreement signed in Paris last year specifically mentions small island nations in the text. This recognises their unenviable position as victims of both climate change and energy poverty. The climate change related calamities visited upon islands include rising seas levels, more intense and more frequent droughts and cyclones, as well as a heightened vulnerability to airborne diseases. Clean energy development is imperative for such island nations, as well as other developing countries: to reduce their energy bills, lift communities out of energy poverty and to improve their self-sufficiency. Incidentally, this will also help bring greenhouse gases under control . 


New Zealand’s contribution

Last year at the 21st United Nations Conference of Parties (COP21) in Paris, 195 countries negotiated a global agreement to address climate change. The agreement does not stipulate specific emissions reduction targets, unlike its predecessor, the expired Kyoto Protocol. Instead each negotiating party was asked to voluntarily submit their Intended Nationally Determined Contributions (INDC) for reducing global emissions.

New Zealand’s INDC commits to reducing greenhouse gas (GHG) emissions to 30-percent below 2005 levels by 2030. Currently, renewables comprise around eighty-percent of New Zealand’s electricity mix. The government plans to increase this to ninety-percent by 2025, following the closure of the two remaining large-scale coal-fired power plants before 2018.

This low-carbon electricity generation is a huge advantage. It might be exploited to decarbonise the transport sector, which produces seventeen-percent of New Zealand’s total GHG emissions. New Zealanders depend heavily on road transport. This is due in part to having a widely dispersed population. Fuel efficiency standards already apply, targeting heavy diesel vehicles for road freight in particular. Fully electrifying public transport networks in Auckland and Wellington, as well as providing incentives for private ownership of electric vehicles, would go some way to reducing GHG emissions from the transport sector.

Yet agriculture contributes almost half of New Zealand’s total GHG emissions. The sheer size of the agricultural sector is impressive given the island nation’s size and population. New Zealand produces around a fifth as much milk as the US – a country seventy times more populous. Agriculture is also behind New Zealand’s high carbon intensity per capita – fifth among industrialised nations.

Nevertheless, New Zealand is one of the world’s most efficient agricultural producers. Milk production has trebled since the 1990s though methane emissions from cattle doubled. New Zealand has been successful in researching and adopting efficient farming practices. This includes effective pasture management, and breeding and feeding animals to yield more milk and meat. The New Zealand Agricultural Greenhouse Gas Research Centre is investigating  new means to breed or feed sheep and cattle so that they produce less methane, or introduce enzymes to their stomachs, through harm-free drug treatment or vaccination, that reduce their methane emissions. The government has committed $48.5 million to the New Zealand Agricultural Greenhouse Gas Research Centre before 2019. A further  $45 million is earmarked for the Global Research Alliance on Agricultural Greenhouse Gases. These institutes promote technologies and practices to reduce agricultural GHG emissions worldwide.

Reducing New Zealand’s agricultural emissions is a significant challenge. Until better technology is developed and widely deployed to capture or mitigate agricultural emissions the government does not expect that aggregate agricultural emissions will be reduced substantially beyond 2030. In the same vein, low-carbon technology must be widely deployed within the transport sector to encourage further emissions reductions post-2030.

This is why the New Zealand government supports a global carbon market. Currently an Emissions Trading Scheme (ETS) operates in New Zealand. Transport fuels are included to incentivise less carbon intensive forms of transport, but the scheme excludes pastoral agriculture. The inclusion of this sector would significantly affect New Zealand’s global competitive advantage and exports.

New Zealand’s agricultural emissions are ultimately associated with meat and dairy products consumed elsewhere in the world. Almost all agricultural produce is exported. New Zealand agricultural producers could not pass on the cost of carbon to consumers even if they were required to participate in the NZ ETS, since China, the US, Australia, Japan, the UK and other importers are liable to seek lower-cost supplies in the global marketplace. If other agricultural exporting countries were required to integrate a carbon price into their sales then the playing field would be more even. In fact New Zealand would have an advantage as one of the more productive agricultural exporters. This would also incentivise low-carbon farming and food production globally.

Currently, the electricity sector is leading the charge to decarbonise the world’s economy by encouraging the uptake of renewables. Yet agriculture comprises 14.5 percent of global GHG emissions. To realise more ambitious reductions in the next decade and beyond, significant research, development and funding needs to be directed towards agricultural technology and practices.

Or we might consider the vegetarian’s solution to climate change. Demand for meat has been rapidly rising in developing and emerging economies including China, India and Brazil. Though a reversal of this trend – and reduced global demand for meat and dairy – may not be the solution that the New Zealand government pictured.

100% renewables

Two or three years ago European think tanks were asking if an electricity mix with a 50%, 60% or even 90% share of renewables was workable. What is threshold above which the electricity grids of Europe would no longer be able to absorb intermittent renewable energies?

Electricity grids have strict ramping constraints, which means the flow of electricity cannot change dramatically from one moment to the next. Solar and wind power introduce intermittency into the grid. We know when the sun will go down, so solar panels’ contribution can be gradually phased out every evening. Different sources of power will have to compensate during the night. Wind speed and direction is less predictable. For countries with a high penetration of wind generation, like Germany or Denmark, what source of power can be called upon to compensate for a sudden drop in wind? Nuclear power plants cannot increase or decrease their output in a timely manner – this takes hours. Efficient Combined Cycle Gas Turbines (CCGT) and other modern thermal generators are fit for the task, but would playing back-up be profitable for these units?

European thermal generators’ annual revenues have suffered over the past few years. The economic downturn since 2008 has had a role to play in this, but competition from renewables is the main source of the discomfort. Renewables generators produce electricity cheaply as they do not have the fuel costs that gas and coal power plants do. Renewables also have priority access to the grid in countries such as France and Germany that are looking to increase renewables’ share in their national electricity mix. This means renewable generators have the right to sell electricity before other producers.

Nevertheless, reliable generation is still required. Thermal generators could charge a heavy premium for electricity during periods of supply scarcity to make up for lost generating hours cannibalised by renewable generators. In this way an increased share of renewables was expected to cause frequent price spikes, as well as negative price events when renewables oversupply the market. Electricity prices would become highly volatile.

Paying thermal generators a ‘capacity’ fee to remain online and ready to increase output at short-notice has been proposed as a solution to their financial troubles.  And if more thermal generators remain in the market then competition between them will help to avoid price spikes.  However, these so-called capacity markets have not found many advocates. France intended to launch an organised market for capacity certificates this year – an initiative that has been put on hold by a European Commission investigation into the competitiveness of the measure.

Yet, more recent research has started to show it is feasible to have an energy-only market with a high penetration of renewables in Europe.[1] The concerns about grid instability and price volatility have not come to pass. Perhaps even 100% of electricity generation could be derived from renewable resources if other conditions are met. What are these conditions?

Firstly, diversity of supply is a tonic. A great number of interconnections crisscross the European continent allowing countries to import or export electricity from their neighbours. This allows surges in renewable supply to be sent elsewhere when needed. In periods of local supply scarcity one country can import from a neighbour. Where supply bottlenecks exist the European Commission incentivises investments in new interconnectors. This can be a slow process but the examples of supply bottlenecks are isolated. For most of the year French and German spot electricity prices converge. This shows that arbitrage is effectively taking place between the continent’s two biggest electricity markets.

Wind and solar capacity has a lower utilisation rate than thermal capacity that only technically need to be offline during maintenance. To ensure reliable electricity production in a system dominated by renewables a greater proportion of capacity needs to be installed – and in diverse locations – in order to increase the diversity of supply.

Disruptive technologies like batteries will eventually be integrated into wind and solar farms to improve control over their electricity output. Battery technology may even compete with thermal generators as back-up for renewable supply disruptions. Other technologies, such as tidal or wave energy, and smart grid management will eventually become commercial as well.

Further, liberalised electricity markets provide utilities and investors with trading opportunities to balance their production portfolios and hedge financial risk. Weather forecasts help to predict the output of a solar farm for the next day. If a producer expects  production to be much higher than initially contracted they can sell excess electricity in an organised, day-ahead auction at a European power exchange. On delivery day, if the producer’s actual output is lower than the contracts sold on the previous day, then they still have the opportunity to buy back the electricity on the intraday market.

European power exchanges are also innovating. New products on these platforms are being tailored to renewable generators’ needs. Previously electricity had to be delivered in one-hour blocks, which does not map onto solar farms’ ramping constraints. The ability to trade with a 15-minute or 30-minute resolution is a relief for traders balancing renewable portfolios. Certificates which guarantee the origin of electricity as renewable will soon be offered on the market too.

Today, a European electricity mix dominated by renewables seems feasible. Renewables’ intermittency has not lead to blackouts or high price volatility. If there’s no new investment in gas and coal-fired generation we may yet witness supply inadequacy in the future. Yet, European cooperation, diversity of supply, new technology and dynamic spot markets may be enough to avoid this fate.


[1] Such as the International Energy Agency’s 2014 report: The Power of Transformation

Another good resource for this topic: Dispelling the nuclear ‘baseload’ myth: nothing renewables can’t do better


Coal condemned

During the last decade, the majority of the OECD countries decoupled their economic growth from energy consumption. Normally these rise in tandem – a trend that persists in developing countries and world’s soon-to-be fastest growing and most populous nation, India.

This decoupling happened as developed nations shifted to providing services and building knowledge economies, which is less energy-intensive than industrial production and manufacturing. China too has started down this path. Policy-makers now talk of “decarbonising” the economy. That is, only producing and consuming energy which does not release greenhouse gases into the atmosphere and contributing to climate change.

Decarbonisation is currently focussed in the electricity sector where it is being helped along by policy incentives. Subsidies, guaranteed prices for electricity and tax-breaks dramatically boosted the growth in renewable electricity generation across Europe in the last few years. The liberalisation of Europe’s electricity markets and new regulation improving competition also played a role. Although, falling prices and technology gains spurred the sector’s expansion more than any government policy, particularly for solar power.

For renewables’ expansion to make any difference to greenhouse gas emissions coal-fired power production has to be tackled. Although it is cheap, burning coal releases significantly more greenhouses gases than other fossil fuels including gas in the electricity sector and oil in transportation. Europe’s aging fleet of coal-fired plants are also extremely inefficient at generating electricity compared to newer gas-fired units. A quarter of electricity in the European Union and almost forty-percent in the United States is still generated by burning coal. It is around two-thirds of the electricity mix in China where the resulting air pollution in its major cities is fuelling a sense of urgency.

Political leaders are aware of this danger and are acting to reduce coal production and consumption in many countries around the world. By 2025 all coal-fired power in the United Kingdom will be shut down according to current plans. New Zealand will close its two remaining large-scale coal-fired power plants in 2018. The provincial government of Alberta in Canada, where the tar sands industry alone produces more emissions than Portugal, has announced plans to phase-out coal power over the next fifteen years. China’s goal is to cap coal consumption in 2025 and accelerate its decline thereafter.

President Obama’s Clean Power Plan intends to restrict emissions from current coal-fired power plans, substitute coal with gas-fired or zero-carbon generation and impose strict emissions standards on new plants. The goal is to cut emissions in the electricity sector by a third relative to 2005 levels. Coal mining states have fiercely contested this “war on coal”, which is bound to be difficult for certain towns and regions whose local economy and workforce are dependent on coal mining, not just in the US. Nevertheless, coal needs to eventually exit the electricity sector if the commitments made by the US and 195 other countries at COP21 in Paris late last year are to materialise.

Yet, none of the above is enough to slow climate change. India is set to contribute the greatest share of growth in global coal demand in the future, mostly from increased domestic production. How it intends to reach its goal to produce forty-percent of its electricity from non-fossil fuel sources by 2020 is unclear. In Germany, coal’s resurgence in the power sector has cast a shadow over its achievements in increased generation from renewable resources. Angela Merkel’s government is working on a plan to phase out coal by mid-century. From the European Unions’s biggest economy this is too long to wait. Decarbonising electricity production by phasing out coal remains a long way off. Coal has been condemned by the world’s leaders but not yet replaced.

COP21 à Paris : les acteurs prennent leur place

Le 30 novembre, des représentants des nations du monde arriveront à Paris avec l’intention d’établir un accord global pour lutter contre le changement climatique. À Copenhague en 2009, le manque d’inputs des participants avant la conférence avait freiné les efforts des négociateurs danois et la COP15 s’était terminé sans accord. Cette fois-ci, les coordinateurs français ont impliqué les participants en amont, en leur demandant de définir des engagements volontaires avant le colloque COP21. Un appel auquel 190 pays ont répondu. Cette approche est flexible et adaptable aux particularités de chaque pays, mais elle engendre un engagement endogène à la fois. Des études en sciences politiques stipulent que l’on est plus susceptible de respecter des règles lorsque l’on a aidé à les mettre en œuvre.

Ainsi, les propositions des grands pollueurs, la Chine et les Etats-Unis, restent à ce jour les plus importantes et reflètent aussi une nouvelle situation politique. Des politiques visant à mieux respecter l’environnement sont devenues plus facile à justifier. En 2030, les chinois prévoient d’atteindre leur pic de consommation de charbon, le combustible fossile le plus polluant, et diminueront leurs émissions de CO2. En parallèle, cela permettra à la Chine de réduire sa pollution atmosphérique extrême afin de limiter les maladies respiratoires associées. Par ailleurs, le « Plan d’Energie Propre » du Président Obama réduira les émissions du secteur électrique américain d’un tiers par rapport au niveau de 2005. Cela équivaudra à retirer 166 millions de voitures du marché. Pourtant, les Etats-Unis réduiraient quand même les émissions GHGs grâce à l’explosion de la production de gaz de schiste.

Parmi les propositions de pays participants à la COP21, nombreuses sont celles visant à diminuer les émissions par le biais des énergies renouvelables.  En Allemagne, les énergies renouvelables sont la fondation même de la transition énergétique. Les autres pays européens briguent également un mix énergétique dominé par les énergies renouvelables. Cela encourage la recherche et le développement des technologies de l’énergie propre, plus efficaces et abordables. L’infrastructure, les outils financiers, les solutions techniques sont aujourd’hui manquants et leur mise en pratique requiert du temps et des fonds. Ainsi, l’on atteindrait une économie européenne plus verte, plus durable, plus noble, mais à l’horizon 2050.

D’ici là, l’Europe doit s’attaquer au charbon: le pire ennemi de la lutte contre le changement climatique. Sa combustion produit le double d’émissions par rapport au gaz naturel, en revanche le charbon est peu coûteux et peut suppléer l’intermittence des énergies renouvelables.

Le gaz naturel, pour sa part, répond également à l’abondance de demandes et à l’intermittence de l’éolien et du solaire sur le réseau électrique. En réalité, l’infrastructure énergétique actuelle répond aux besoins des centrales de charbon et de gaz et est déjà en place à des coûts non récupérables pour les investisseurs. Ainsi, il n’est pas possible d’adapter toutes les infrastructures, ni les mécanismes du marché, aux besoins des énergies renouvelables d’un seul coup sans gros choc économique. Le gaz naturel est le substitut le plus évident du charbon restant, nous permettant de switcher assez efficacement vers un combustible à l’intensité en CO2  moindre. Chaque 1% de la production globale de charbon substituée par le gaz naturel, peut nous faire économiser les mêmes émissions des GHGs  que s’il y avait une augmentation de 11% de la production énergétique des énergies renouvelables.[i]

Le gaz naturel peut nous accompagner pendant la transition vers un futur vert, car celui-ci n’arrivera pas tout de suite. Pourtant sans une augmentation importante du prix du CO2, le gaz naturel restera probablement plus cher que le charbon en Europe. Ces conditions économiques empêchent que la consommation du charbon diminue plus vite. Cela met en danger la capacité des européens à atteindre leurs objectifs de réductions des émissions GHGs.

Ceci est encore plus important dans les pays défavorisés car l’énergie est le moteur du développement économique. L’électrification de l’Afrique sub-saharienne et de l’Asie du Sud améliorera les vies de milliards de personnes. En Europe et en Amérique, l’industrialisation nous a permis de mener à une qualité de vie incroyable par rapport à nos ancêtres. Pourtant, si les pays moins développés à ce jour suivent le même chemin, l’effet sur la planète et le climat sera apocalyptique. Cependant il est extrêmement injuste et impossible de nier leur droit au développement.

C’est pour cette raison que l’Inde est un participant crucial pour la COP21. Ce pays sera le moteur de la croissance pendant les prochaines décennies, comme la Chine l’a été durant les précédentes. L’Inde sera aussi plus peuplée que le Chine dans quelques années. Le charbon constitue environ 40% du mix énergétique tandis qu’environ 25% de la population vit toujours sans électricité. Le charbon de bois et le bois, étant peu coûteux, ils restent des sources d’énergie très importantes. Leur combustion produit du monoxyde de carbone qui est fatal pour les humains à l’inhalation. De plus, un mélange des GHGs très puissants est émis lors de la combustion, y compris les particules, le dioxyde de soufre et le CO2.  Les indiens ont besoin d’une énergie moderne et propre.

A ce jour, la plupart de pays développés est parvenue à découpler la croissance économique et la croissance de consommation énergétique. Au cours du siècle dernier, celles-ci ont augmenté en tandem lorsqu’un pays s’est industrialisé. L’Inde doit se développer en délaissant les combustibles fossiles pour passer directement aux énergies propres: il faut un saut technologique. 

Les indiens ont annoncé leur intention de produire 40% de leur électricité de façon renouvelable d’ici à 2020. À part la Chine, l’Inde était la seule à bloquer un accord global à la COP17 de 2011. Son engagement récent rend la probabilité d’obtenir un accord à Paris très probable, mais l’aspect financier reste important. Le saut technologique nécessaire pourra se réaliser grâce à l’importation des nouvelles technologies et grâce aux investissements étrangers. À Copenhague, 100 milliards de dollars, chaque ans jusqu’à 2020, étaient consacrés aux pays défavorisés pour soutenir le développement des énergies propres, efficaces et renouvelables. Cela doit être encore ratifié à Paris. La Grande Bretagne et la France sont parmi les pays qui ont déjà augmenté leurs engagements financiers. On peut donc s’attendre à des résultats tangibles.

L’épineuse question qui reste concerne les pays qui ne bénéficient pas de l’influence des grands moteurs de croissance économique, surtout les îles nations qui souffrent déjà face à l’élévation du niveau de la mer et l’augmentation de cyclones plus violents. Est-ce que les représentants du monde se soucieront d’eux à la COP21?


[i] According the BP’s 2014 Annual Energy Outlook


La question nucléaire: à la recherche d’une énergie parfaite

En 1985, deux agents français ont sabordé le navire Rainbow Warrior de l’organisation écologiste Greenpeace dans le port d’Auckland en Nouvelle Zélande. Cette opération, effectuée dans la mer territoriale néo-zélandaise, a été conduite sur ordre explicite du Président de la République Française, François Mitterrand. Le Rainbow Warrior faisait alors cap vers l’atoll de Moruroa, situé en Polynésie française, où les militants de Greenpeace avaient tenté d’empêcher des essais nucléaires menés par les militaires français.

Cet incident a marqué un tournant décisif dans la politique néo-zélandaise puisque la résistance au nucléaire est devenue une partie importante de l’identité nationale néo-zélandaise. Cela est toujours le cas aujourd’hui. Tandis que la France se montre toujours fière de ses prouesses technologiques dans le domaine nucléaire, également en matière de production énergétique.

En France, le nucléaire constitue deux tiers de la production électrique, alors que quatre-vingt pour cent de l’électricité est produite de façon renouvelable en Nouvelle-Zélande. Cela ne signifie pas pour autant que Nouvelle Zélande produit moins d’émissions de gaz à effet de serre. Au contraire, vu son immense secteur agricole, les émissions par habitant la place en 5ème position dans le monde, soit seize places devant la France. En outre, c’est grâce à sa géographie que les néo-zélandais parviennent à générer la plupart de leur électricité de façon renouvelable, par le biais de la hydroélectricité et de la géothermie. Peu de pays bénéficient d’un tel écosystème qui permet la production d’électricité par ces moyens peu polluants. Normalement, pour augmenter leur capacité à produire de façon renouvelable, les autres pays sont obligés d’investir dans le solaire ou l’éolien, qui ne sont pas sans coûts.

L’énergie nucléaire a clairement des avantages. Elle ne produit pas d’émissions GHG en générant de l’électricité. Deuxième avantage, les français paient un prix moyen d’électricité beaucoup moins cher que les néo-zélandais. De plus, sa capacité de production est très stable, alors qu’en Nouvelle-Zélande, pendant les années de précipitations inférieures à la moyenne, le risque de coupures d’approvisionnement augmente beaucoup vu la dépendance du pays à l’hydroélectricité.

Face à l’obligation de fournir de l’électricité à une population beaucoup plus importante en France qu’en Nouvelle-Zélande, le gouvernement français a dès lors choisi de se tourner vers le nucléaire. En revanche, la consommation néo-zélandaise ne nécessite pas les gros volumes d’électricité que les centrales nucléaires sont capables de générer. Même s’ils n’étaient pas politiquement contre l’énergie nucléaire, les néo-zélandais n’en auraient pas besoin. Cela rend cette décision politique plus facile pour le petit pays qu’est la Nouvelle Zélande.

Néanmoins, nombreux sont les peuples qui ne soutiennent pas non plus l’énergie nucléaire, compte tenu des risques associés trop graves pour être ignorés. C’est le cas notamment aujourd’hui en Allemagne et au Japon, où la majorité de citoyens s’élève contre l’énergie nucléaire, ainsi qu’en Nouvelle-Zélande. En plus de nombreux décès causés par une explosion nucléaire, des maladies graves frapperaient par la suite tous ceux se trouvant à proximité. Après une telle catastrophe, l’environnement local resterait toxique pour des décennies. L’économie agricole de la région serait détruite. Aucune compensation ne suffirait à couvrir les pertes humaines et les dégradations de qualité de la vie pour les survivants. Même si le risque d’accident est statiquement faible, cela ne règle en rien le problème des déchets radioactifs produits lors de la production d’électricité.

Pourtant, le nombre de gens tué dans les explosions des mines de charbon ou affecté par les maladies pulmonaires est plus important que le nombre de victimes des accidents et des bombes nucléaires combinés. À la fin, il faut comprendre que tous les choix ont leur compromis en énergie. Le peuple français ainsi que le peuple néo-zélandais, comme tant d’autres, font face à cette problématique et essaie d’allier l’abordabilité, l’accessibilité et la sécurité tout en limitant les polluants.

En reconnaissant sa violation de la loi internationale par rapport à le naufrage du Rainbow Warrior, la France s’est excusée officiellement en 1988 et les relations diplomatiques avec la Nouvelle-Zélande ont été rétablies. En 1991 un accord d’amitié a été signé entre la France et la Nouvelle-Zélande. Depuis cet accord les deux gouvernements consacrent des fonds à la promotion d’échanges culturels. Les bourses scolaires font partie de ce programme culturel. L’auteure de ce blog était bénéficiaire de cette bourse en 2013 et elle est venue en France pour étudier la politique énergétique. Ce blog vise à comprendre les choix politiques en matière d’énergie sans condamner pour autant, tout en réalisant que l’énergie parfaite n’existe pas.

The New Zealand test

When machines permitting payment by credit or debit card were first developed New Zealand was one of the first countries within which this EFTPOS technology was deployed. Today one can buy a coffee or even a 50c bag of sweets with their VISA or Mastercard. Most businesses do not have a minimum purchase for which you can use your bank card. Few of us carry cash.

New Zealand’s market is often considered something of a test environment for new technologies. Our small island nation is isolated in the middle of the Pacific Ocean, but we have an advanced economy and large middle class. This, our small population and an open, competitive marketplace makes New Zealand the perfect place to trial new products and innovations. If the product meets a certain need it will rapidly penetrate the market. You will soon know if whether it can be profitable or not – and whether you should launch the product elsewhere in the world.

In May, US company Tesla teamed up with Vector, New Zealand’s biggest electricity distributor, to bring their much lauded lithium-ion batteries to New Zealand homes and businesses.

Like cellphones these batteries do not require heavy investments in supporting infrastructure networks. They permit households and businesses to install PV solar panels whilst managing solar power’s intermittency. The main problem with solar power is that the sun does not shine all of the time. When the skies are cloudy or night falls your photovoltaic rooftop panels stop generating electricity. So households and businesses still need to be connected to the main electricity grid to guarantee their supply, in spite of solar panels installations.

You can resolve this issue by stockpiling electricity during daylight hours to use at night. This seems simple enough. However, batteries boasting the voltage and lifespan needed to supply an average household with enough electricity to keep the lights on have not been brought to market. Basically it is too expensive. Prototypes are also massive in size.

In principle if compact, powerful and affordable batteries hit the market then you would not need to be connected to the electricity distribution network. In fact you or your local community could go off grid.

How many households do not bother to install a landline phone these days? Could new houses avoid connecting to the main electricity grid in the near future? It is only a matter of time before battery technology hits that sweet spot. You can read about how Tesla plans to achieve economies of scale that surmount the current cost problem here.

To take a residence off-grid you would also need a smart monitoring system that conserves energy and warns you to turn off unnecessary devices when the household is running low on juice. Vector is investing in energy management systems that would provide this kind of service. They’ve also been investing in photovoltaic solar power and micro wind turbines. The company is future-proofing its main business – just in case distribution services are no longer needed in New Zealand.

If a decentralised electricity supply model works in New Zealand it will probably fly elsewhere. I still can’t pay for a coffee by credit card in Europe though.

Market distortions favour fossil fuels

Fossil fuel subsidies cost governments 550 billion dollars annually according to the International Energy Agency (IEA), an independent, Paris-­based think tank. The International Monetary Fund (IMF) believes the cost of these subsidies is even higher, comprising 6.5 percent of global GDP.

Oil subsidies for consumers

Subsidies take on many forms. In Saudi Arabia, Nigeria and Venezuela – big oil ­producing countries – citizens pay prices below the cost-of-production at the petrol pump. Oil companies are paying to sell petrol in these markets. Why would they do this? International oil companies can still make a phenomenal profit exporting even just a fraction of their output and selling it at international oil prices. So they’ll agree to production contracts, in countries such as Iraq and Venezuela, where a significant proportion of output is nevertheless destined for the domestic market and sold below-cost.

State-owned oil companies, such as Saudi Aramco, do the same thing, but have a different motive. Saudi Aramco explicitly supports government policy aimed at reducing citizens’ cost-of-living. It can also easily afford to supply domestic markets with below-cost petrol by exporting the remainder.

Be aware that policies aimed at reducing the cost of petrol locally do little to encourage fuel efficiency. Furthermore, the IEA believes that only eight-percent of benefits from such subsidies flow to the poorest fifth of the world’s population.

More sagely, the Saudis also fund public projects, such as schools and infrastructure, with profits reaped from oil exports.

Oil subsidies for producers

Tax-­breaks encouraging the exploration and development of local oil reserves are another means of subsidising the oil sector – to the advantage of producers rather than consumers. In the United States, Exxon, Chevron, BP, Royal Dutch Shell and ConocoPhillips all claim tax breaks for exploration and drilling, known as “intangible drilling costs.” On average, seventy­-percent of these costs are regained within a year. [1]

Also, overseas royalty fees paid to foreign governments by US­-based oil firms can be reclaimed against their corporate income tax. Royalties are essentially the fees set by governments for foreign oil companies who wish to do business with them.

Exxon, Chevron, BP, Royal Dutch Shell and ConocoPhillips are all Fortune 500 companies and remain amongst the most profitable in the world despite the recent decline in international oil prices. Yet they’re not required to pay the full corporate tax rate as other for-­profit US companies do.

What’s more, “small,” independent US oil companies are also permitted tax breaks when the amount of oil extracted from an ageing production site starts to deplete -on top of the tax benefits described above. This is very generous given that tax is already proportionate to profit. Imagine that in 2003 my profit-take is $10 million USD. If the tax rate is 30% then I owe $3 million in taxes. If my profit-take drops to $9 million in 2004 my tax burden declines as well, down to $2.7 million. However, this additional tax-­break promises the bill drops even further. I might only owe $2 million. In this case my after-­tax profit is the same in 2003 and 2004: $7 million. Further, the majority of these “small” independents still have an average market capitalisation of two billion US dollars according to Oil Change International.

Oil companies contest that native exploration and production would not be profitable in the United States without these tax breaks. Yet, if a project is not economically viable why should the government of a market-­based society fund your commercial project? Well, there are circumstances under which this is considered appropriate. Perhaps your project serves the public good. This is why governments pay for fire stations, a police force or infrastructure like roads and electricity lines. Or maybe your project is part of the transition towards a greener and more sustainable economy? Or an attempt to curb greenhouse gas emissions?

Green subsidies for producers

Germany’s generous subsidies for renewable energies aspire to such ends. The country’s ambitious Energiewende policy, meaning energy “turn-around,” is the experiment the whole world is watching.

So far, these subsidies have had questionable success. Coal’s resurgence in Europe, along with the decommissioning of the country’s nuclear fleet, have increased Germany’s greenhouse gas emissions over the past few years.[2] Also, subsidies for renewable wind or solar farms’ installation and operating costs are passed on to the consumer. Average electricity prices in Germany have risen since 2008.

Furthermore, feed­-in tariffs that guarantee renewable energy producers a minimum price for their power, and priority to sell into the grid every day, are threatening the traditional market’s stability. Unprofitable gas and coal power plants’ operating hours are decreasing and many have had to close. This could lead to supply shortages and brown-outs or black-outs in the near future.

Finally, it has been demonstrated that early subsidies for solar panels stunted the innovation that would’ve brought commercially viable solar technologies to Europe’s markets sooner. The same technology lag effect has been observed in offshore wind.

Nevertheless, if energy subsidies exist at all surely they should favour low or zero­-carbon energies? It makes no sense for governments the world over to subsidise – to the tune of billions of dollars – the energies increasing the concentration of greenhouse gases in the atmosphere to the disadvantage of other energy sources. Current subsides for renewables comprise but a fourth of what goes to fossil fuels annually. If renewables were to receive the subsidies that fossil fuels do then the market would favour carbon­-friendly energy production over fossil fuels. It is worth making renewable energy production more profitable than it would be otherwise given the global threat of climate change. The same cannot be said for fossil fuels.

[1] References: The Atlanticthe IEA & the IMF.

[2]  This applies primarily to the electricity sector, but overall emissions did rise between 2009 and 2014. The 2008 drop is attributable to the Global Financial Crisis and economic downturn across Europe. Hopefully 2015 is the year this trend will turn-around. Take a look at this graph.

Climate vs. Weather

Climate change is underway. The mainstream now accepts that human behaviour and industrialisation contributed to increasing the amount of greenhouse gases present in the atmosphere over the last century. Yet, it remains difficult to link specific weather events to climate change.

Climate is not the same as the weather. Weather is a local phenomenon. Also, it is very predictable despite what you might think about your local weather channel. Forecast accuracy increases significantly one week out, one day out, one hour out, as we approach hour zero. Even ten-year olds learn that when winds gather in the harbour and clouds are swept inland, rain will begin to fall as the clouds cool rising above sea level.

Climate is the aggregate of weather patterns on a regional or global scale, averaged out over years, decades or even centuries. Climate systems are “chaotic”. In scientific terms this means highly complex with numerous interdependencies, so it’s very difficult to make predictions.

Scientific models are getting better all the time, but the climate’s “chaotic” nature means even tiny deviations in initial data and assumptions, can lead to wildly divergent results. John Nash’s poetic metaphor, referred to as the butterfly effect, translates this concept into everyday language: when a butterfly flaps its wings, a hurricane is born on the opposite side of the globe. Climate scientists have millions of butterflies to consider.

Furthermore, changes in the aggregate tell us little about the local effects of climate change. Weather scientists can tell us what the weather will be like in London, Dubai or Delhi tomorrow. But climate scientists do not have the same job. They cannot paint a very accurate of picture of what daily weather will be like in Delhi in ten or twenty years time. Will Californian residents suffer fewer droughts if America bans emissions-intensive coal power production? What colour is the butterfly’s wings?

This is where statistics can play an important role. Statistic climate models measure how likely it is that something will happen. Lord Stern’s landmark 2006 report for the British government (research that was updated in a 2014 report with the Global Commission and the Economy and Climate) evaluates the risks and probabilities associated with climate change – from both a business and government policy perspective – despite scientific uncertainty.

We know that extreme weather events have become increasingly probable. We will witness both more frequent and more intense storms, heat waves, polar vortices, droughts and fires. Landscapes are changing as coastline disappears. Higher average temperatures affect ecosystems. The indirect costs of climate change include crop failure, mass migration, loss of biodiversity and a spread in airborne maladies. Dangerous air pollution in many cities worldwide, caused by burning fossil fuels, furnishes us with yet another reason to quit pumping the gases they produce into the atmosphere.

We also know that certain regions face greater risks than others. As fate would have it the regions most susceptible to climate change’s impacts are those least equipped to deal with them. Such as the Pacific islands and South-East Asia.

Why is that? A priori,  proximity to the ocean and the equator entails more extreme weather, which climate change will exacerbate. Yet, these regions are also less developed. They are incredibly dependent on the weather to ensure reliable food production. Insurance policies are rare. Millions of people live in very simple shelters, easily destroyed in high winds or fires. Their communities often lack modern luxuries such as electricity, televisions, insulation, climate control or running water. This means they are more likely to die during or following an extreme weather event – because they do not receive the evacuation message, cannot adequately shelter themselves or escape the heat or cold, and may starve or be forced to drink contaminated water whilst awaiting disaster relief.

Hurricanes are common in the South Pacific region between November and April. However, earlier this year, Vanuatu was battered by extrordinarily violent winds and rain for which there was little precedent. The initial deaths following Cyclone Pam were tragic. However, starvation and water contamination followed and pushed the death toll up. Economic reconstruction of the region, which is primarily dependent on subsistence farming, will take years.

Another recent example: thousands perished in a dangerous heat wave throughout Pakistan and India’s north where temperatures reached 47 degrees Celsius in May of this year. We cannot overestimate the danger of excessive heat for infants and the elderly. People’s bodies become very stressed under such conditions. This combined with dehydration or sleep deprivation leads to fatalities.

Sceptics are right to doubt that Cyclone Pam or the recent heat wave were directly caused by climate change. Drawing a direct vector between burning fossil fuels and extreme weather events is near impossible as explained above.

Nevertheless, these regions have not benefitted from industrialisation, and the tremendous boost to economic well-being it engendered, to the extent that we have across the developed world. Yet, they will be the first to suffer from industrialisation’s perilous side effects.[1]

This is why Cyclone Pam and the Pakistani/Indian heatwave are relevant. These examples help us to identify what is really important about climate change. Climate change is a question of social justice, not the weather.

[1] Not that pockets of wealth do not exist in these regions or people in more developed parts of the world have never known disaster – as witnessed in 2005, in the United States  following Hurricane Katrina.