Methane matters

Long-lived and short-lived greenhouse gases have been the subject of debate in New Zealand for some time. Understanding how they contribute to climate change is particularly important now the Government is considering a new emissions target for 2050. There are three options on the table:

  1. Net zero carbon dioxide
  2. Net zero long-lived gases and stabilised short-lived gases
  3. Net zero emissions across all greenhouse gases

This would replace the current target to cut emissions to 50% below 1990 levels by 2050.1

Which target?

The first target should be dismissed because it ignores other long-lived gases, including nitrous oxide, which accounts for over 10% of New Zealand’s emissions. Nitrous oxide lasts for over 120 years in the atmosphere. It has a warming effect that is more than 250 times that of carbon dioxide over a 100-year timespan.2

New Zealand’s nitrous oxide emissions have also been rising steadily since the 1990s as farming has expanded and intensified. These emissions stem from livestock urine and dung, and fertilisers. Cutting nitrous oxide emissions has the co-benefit of improving the health of our waterways, which have become heavily polluted by nitrate runoff from farms.3

This leaves us with the second and third targets, which is where it gets complicated. Should we cut all greenhouse gases to net zero? What is a long-lived and short-lived gas? And what does ‘net zero’ mean anyway?

Long versus short-lived greenhouse gases

Long-lived gases, including carbon dioxide and nitrous oxide, accumulate in the atmosphere. The total stock of historic emissions has locked in a degree of global warming that cannot be reversed. Ongoing long-lived emissions will continue to warm the climate.

Average global temperatures are now more than 1°C above pre-industrial levels.4 The only way to avoid the 2°C increase in global temperatures that we committed to under the 2015 Paris Agreement is to cut long-lived emissions to net zero. Both the second and third proposed targets take this into account.

Net zero implies that persistent long-lived emissions are offset, either by planting forests that absorb carbon dioxide or purchasing overseas ‘emissions credits’. The latter could, for example, serve to discourage deforestation abroad rather than planting more trees in New Zealand.

Short-lived gases also contribute to global warming, but the flow of emissions rather than the total stock in the atmosphere is what counts. This is because short-lived gases break down and exit the atmosphere faster. For example, methane is a short-lived greenhouse gas with an average atmospheric lifespan of just over 12 years.2 In New Zealand, methane from cattle and sheep makeup over 40% of our total emissions.3 Outside of New Zealand, methane is primarily emitted during oil and gas production, as well as equipment and pipeline leaks.

If atmospheric inflows of methane are equal to outflows then its contribution to global warming is fixed and, unlike long-lived gases, this does not worsen over time. Of course, this still implies some ‘warming’, even if it is not rising. This is the approach proposed for the second target.

Stabilising methane

It could seem fair to say that the New Zealand agricultural sector, which is responsible for the majority of methane emissions, should be allowed to continue emitting as long as it’s not making global warming any worse. However, implementing the second target is still likely to involve reducing methane emissions to shrink their overall contribution to climate change. This begs the question: how much methane-induced warming should be allowed? Or, at what level should we stabilise short-lived emissions?

The answer depends on our emissions budget ⎼ the amount that we can still emit in New Zealand, and globally, before breaching the 2°C temperature threshold agreed in Paris. The more long-lived gases we emit, the more we eat into our short-lived gases allowance. This is illustrated by the Productivity Commission’s diagram below:3

prod-comm-emissions-budget-long-v-short-lived-gases-e1530571389378.png

The second target leaves room for different interpretations of the appropriate stabilisation level. Once it is set up, the new Climate Change Commission will be able to advise on this. Depending on final wording of the second target, successive governments might be able to adjust the level. This could give us some flexibility in achieving our 2050 target, but would also result in some uncertainty for households and businesses. Since the chosen target is likely to remain in law until 2050 we ought to minimise ambiguity.

Warming decelerator

Deploying methane as a global warming ‘decelerator’ is the approach proposed for the third target. If outflows of short-lived gases exceed their flow into the atmosphere, this can actually counteract some of the warming being driven by historic long-lived emissions. If we cut methane emissions to net zero, their contribution to global warming will also reach zero within a few decades. The same cannot be said of long-lived carbon dioxide or nitrous oxide emissions.

The Paris Agreement requires us to “pursu(e) efforts to limit the temperature increase to 1.5°C”. This is a more aspirational target than 2°C, but the Agreement recognises this as the safer limit that “would significantly reduce the risks and impacts of climate change.”5  To have a high likelihood of limiting warming to 1.5°C, we need to limit the atmospheric concentration of greenhouse gases to 350 parts per million.6 But we exceeded this limit in 1988.7 The probability that warming is limited to just 1.5°C has been in steady decline ever since.

As the world continues to emit long-lived gases, cutting methane emissions can delay the arrival of the 1.5°C temperature limit. According to a leaked special report from the UN Intergovernmental Panel on Climate Change, this is expected to happen in 2040.8 Net zero methane would also dramatically improve our chances of avoiding warming of 2°C. Just as importantly, it might see us avoid climate tipping points, like the collapse of the Gulf Stream or the melting of the Arctic permafrost ⎼ events that cannot be reversed.

Methane has a warming effect over 80 times stronger than carbon dioxide over a 20-year period.2 This effect does not last forever, but the next few decades are crucial because we have already run up a debt. Cutting methane emissions to net zero is like selling your car to meet your mortgage repayments and avoid foreclosure.

Our climate, your say

It is difficult to conclude whether the second or third target is best. Both are grounded in science and make sense. 

Should New Zealand cattle, sheep and dairy farmers cut exports and innovate their way to net zero? Industry, as well as the energy and waste sectors that produce long-lived emissions, certainly must. 

New Zealand will not remain unaffected by sea level rises, extreme weather events, drought and wildfires, or an increase in airborne diseases and the other effects of climate change. Yet, we know that developing countries will bear the brunt of this. Should New Zealand cut all emissions to net zero by 2050, so our neighbours in the low-lying coral atolls in the Pacific have the best chance of preserving their homes?

The choice is ultimately a moral one, even cosmopolitan, as it asks us to consider the benefits to people beyond our borders.

You can make a submission here: Our Climate. Your Say.


Footnotes:
[1] New Zealand 2050 target, Ministry for the Environment
[2] Global Warming PotentialIPCC Working Group 1, Assessment Report 5, Chapter 8, Table 8.7
[3] Low-emissions economyProductivity Commission
[4] Climate Monitoring, US National Oceanic and Atmospheric Administration
[5] The Paris Agreement, UNFCCC
[6] Radiative Forcing Stabilisation Level, IPCC Working Group 2, Assessment Report 4, Chapter 19, Figure 19.1
[7] Atmospheric carbon dioxide, US National Oceanic and Atmospheric Administration
[8] IPCC Final Draft ReportReuters


Further reading:

New Zealand Agricultural Greenhouse Gas Research Centre

NZ Climate Change Research Institute, Victoria University

Ministry for the Environment

 

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Net Zero

New Zealand must map out a path to carbon neutrality by 2050 as our challenges are harbingers for the rest of the world. We already have a 85% renewable power mix, but we must figure out how to close this gap. Transport is responsible for most of New Zealand’s carbon dioxide emissions and 20% of total emissions, as is the case globally. Agricultural emissions make up more than half of our emissions profile. Dairy, meat, crops and horticultural products are exported, so international dietary preferences must figure in our national debate on climate change. We must also ask ourselves if aluminium production still has a place in New Zealand, and how many trees we should plant each year.

I moved home to New Zealand late in 2017, just a few weeks after a new centre-left government was formed. The Labour Party entered into a coalition with New Zealand First and a confidence-and-supply agreement with the Greens. Before Christmas, the new climate change minister and Greens’ party leader announced the Government’s intention to pass a Zero Carbon Act, whereby the New Zealand economy would achieve carbon neutrality by 2050. Industry, think-tanks and public sector officials have produced huge volumes of data, modelling, analyses and arguments since then. Within the last few weeks, the Interim Climate Change Commission was announced and the Productivity Commission published a 500-page draft report on the transition to a low-emissions economy. We all want to know what do we need to do to reach net zero.

I am reviving this blog with the aim of discussing climate change issues in New Zealand as I believe what we do here matters greatly. Small-emitting nations are responsible for up to 30% of total global greenhouse gas emissions. Given the nature of our challenges, decarbonising power, transport, agriculture and industry in New Zealand can provide a blueprint for decarbonising the world. We have the opportunity to demonstrate how to reach net zero.

100% renewables

Around 85% of New Zealand’s annual electricity supply is generated from renewable sources. Gas or coal-fired generation is used to meet winter demand peaks and back up supply in low rainfall years.  Hydroelectricity constitutes more than half of the national power mix. In a high hydrology scenario, with good seasonal rainfall and snow melt, hydro-power can meet up to 65% of our annual power needs, but dry years present a great challenge and a barrier to reaching 100% renewables.1

Norway is often held up as an example, given its comparable population size and reliance on hydro-power. However, the tiny Nordic nation has almost six times the amount of lake storage available in New Zealand. That’s just geography and topography. We can’t build another lake. Or we could, but the major legacy hydro-power schemes in New Zealand already disturb our ecosystems and divert major waterways so as to generate power. Under current resource management laws, it is highly unlikely that a new large-scale hydro-power scheme would get built in New Zealand. We could feasibly expand lake storage in current schemes, but not double it, which is what would be required. Further, this would do little to address the main barrier to reaching a 100% renewable power supply, which is our dry-year risk.

Wind power

At an emissions price of $75 or greater it will be economic to build enough wind farms to reach about 95% renewables in New Zealand, according to Concept Consulting. Wind farms will be important to ousting baseload gas and coal power plants over the next decade. This means that fossil fuels will never need be burnt to meet electricity demand when wind is available. Wind power only comprises around 6% of current supply, so resource consent and project permitting should be fast-tracked to encourage new build. Today, a significant number of wind projects have actually been consented, over 2.5GW according to the NZ Wind Energy Association, but project developers are waiting for prices to rise before starting construction. However, wind power cannot ensure our power supply is 100% renewable in a dry year since it is not guaranteed to be available during winter peaks when demand is at its highest. Grid-scale or rooftop solar exacerbates the seasonal storage challenge as it only generates during periods of low demand and has a much higher output during the summer. We need power sources that are as flexible as coal and gas-fired power plants to meet seasonal demand.

Another important issue is that wind is highly correlated throughout New Zealand. To simplify, if it is a windy day in Auckland it is likely to be a windy day in Wellington. When south-westerlies or westerlies, or any given weather system, move across New Zealand we get high volumes of generation at all or most wind farms, but when the weather is mild then wind generation is generally low throughout the country. More geographically diverse locations can be selected for future wind farms to reduce the effect of this correlation. Nevertheless, New Zealand is an island nation lacking any electricity interconnectors to other countries, so we cannot import electricity from a neighbour as happens in the European Union or the United States when wind power cuts out. We are on our own.

Big batteries

Grid-scale battery storage projects have been making headlines around the world. Tesla installed a massive battery in South Australia after Elon Musk made a promise to do it in 100 days or for free on Twitter. Bloomberg New Energy Finance’s (BNEF) lithium-ion battery price index shows a fall from US$1,000 per kWh in 2010 to US$209 per kWh in 2017. This fantastic cost decline is a cause for celebration. It will bring more storage into our homes and bring more flexible services to our power grids. It has already brought us mass-market electric vehicles. Nevertheless, this technology cannot economically provide seasonal or dry-year power storage of the scale required at present. They just do not pack as much punch as hydro storage.

Let’s make some optimistic assumptions. Suppose, Tesla can manufacture a 10kW battery next year. The buffer that we might need in a dry year is 4000 GWh in New Zealand – this is the extra energy we can store in hydro lakes during wet years. We have around 1.5 million households. This suggests we need 400 million batteries, or over 250 Tesla Powerwalls per household. Even at a discounted price of just US$2000 this would require an investment of over US$500,000 per household or US$800 trillion in total. More than four times our current GDP. We could spend that money more wisely to reduce our greenhouse gas emissions.

Car culture

Power sector emissions have declined 13% since 1990 and make up less than 10% of total emissions. In the same period, transport emissions rose 70% and constitute 20% to New Zealand’s emissions. Car ownership reached its highest level ever last year, at 774 light vehicles for every 1,000 New Zealanders. This is almost the highest vehicle ownership per person worldwide (Ministry of Transport).

This is the beast we must tackle. Electrification is the key pathway with existing technology to cut the majority of transport emissions. To charge electric passenger vehicles and e-buses, electrify trains, and reduce fossil fuel usage for heating, a reliable and affordable electricity supply is crucial. Rising power prices or an uncertain supply could frustrate decarbonisation in these emissions-intensive sectors and lead to worse overall outcomes (Concept Consulting). That’s why it is vital to not prematurely force a 100% renewables goal in the power sector.

Nevertheless, with more wind, batteries and additional geothermal power plants, it is technically feasible to reach the 100% renewables target when we have average or high rainfall. This would be achieved at great expense and put significant upwards pressure on power prices. Other flexible technologies, such as demand response or renewable power-to-gas, hold great potential to help New Zealand reach 100% renewables. Biomass or tidal power generation could emerge as affordable means to generate electricity in New Zealand in the next few decades. Solar and wind offer a comparatively low-cost pathway to reduce emissions in most countries that currently have a high share of coal and gas-fired generation, but how we plug the gap between 95% and 100% in New Zealand isn’t obvious yet.

photo-1472718888560-1a1292f1cccb

Farming

The New Zealand Emissions Trading Scheme (ETS) is our main tool for encouraging decarbonisation. The scheme requires emitters to pay for each tonne of carbon dioxide or other greenhouse gas produced – this is called an emissions unit. Farmers are currently exempt from participating in the ETS, which covers energy, waste and industry. To achieve net zero this will have to change since agriculture contributes over half of our emissions. To ensure a gradual transition for farmers, they should receive free emissions units upfront and have trading at the full emissions price phased in over time.

Carbon dioxide is not the culprit in the agricultural sector. In New Zealand, the main agricultural greenhouse gases are nitrous oxide and methane.
Nitrous oxide is a potent, long-lived greenhouse gas with over 200 times the global warming potential of carbon dioxide. Produced from livestock urine and dung, NO2 emissions rose 48.5% between 1990 and 2015, and make up 10% of our total emissions.1

Methane is a short-lived gas in the atmosphere. In other countries it is mainly generated as a byproduct of oil and gas exploration. These are called ‘fugitive’ emissions. In New Zealand, methane is biological in origin stemming from cattle and sheep. It has a very powerful heating effect in the short-term and can serve to accelerate or delay peak temperature or tipping points in the climate system.

Changing land-use from dairy, sheep and cattle farming to new forests or low-emissions crops and horticulture (growing fruit, vegetables and flowers) is key to achieving carbon neutrality in New Zealand by 2050. This implies that fewer sheep and cattle will be farmed in the future. Reducing, though perhaps not eliminating, dairy and meat exports raises important questions about food production. The carbon footprint associated with a diet rich in animal protein is an issue that is likely to loom larger in public debate.

Planting trees

Planting forests, also known as afforestation, currently offsets about 30% of New Zealand’s greenhouse gas emissions annually.1 At the moment, foresters can voluntarily participate in the ETS and profit from offsetting emissions. However, the registration fees and complexities of trading discourage small foresters from joining the scheme. Facilitating forest-owners participation in the ETS will provide new sources of income to agricultural regions, as farmers switch from pastoral farming and dairying to horticulture, crops or forestry.

All pathways to net zero, require forestry to play a major role. Afforestation is like a credit card, buying us time to develop alternative technologies to replace current agricultural and industrial processes. A methane vaccine for animals or other biological inhibitors that can be mixed with their feed are being researched, but these technologies remain unproven. Selective breeding, though it can take decades, will also continue reduce the amount of methane produced per animal.

Beyond 2050, when all economically viable land for new forests has been used, emissions offsets or reductions will have to come from elsewhere, so research and development funding is important. Government funding for research into emissions mitigation technologies is about NZ$20m per year, with roughly NZ$16m going to agricultural programmes. Given the contribution of agriculture to GDP (6% in 2015), and its proportion of total emissions, this is a small sum. More than NZ$1.5 billion is spent funding innovation in other areas.1 One option is to use revenues from the auctioning of emissions units to fund new mitigation technologies and research.

There are few affordable means to cut emissions from pastoral and dairy farming without reducing herd populations at present. Forestry, cropping and horticulture will offer alternatives. If all sectors are covered by the Emissions Trading Scheme, businesses that reduce their emissions will be rewarded and pay for fewer emissions units. It is the main tool we have to encourage the changes and innovation required in all sectors to dramatically cut our emissions and reach net zero by 2050 in New Zealand.


Footnote:

[1] Statistics & figures sourced from the Productivity Commission’s draft report unless otherwise referenced, Low-emissions economy, 27 April 2018.

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.

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.

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.

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.

Canada’s tar sands: unburnable carbon

Canada’s tar sands contain some of the biggest proven oil reserves in the world. They are mainly found in Alberta. But mining these tar sands, to produce ‘synthetic’ crude oil, is expensive. The process also releases more greenhouse gases than conventional oil production does. If we are serious about arresting climate change then these reserves need to stay in the ground.

What are tar sands?

Tar or oil sands are unconventional natural crude oil sources that have a viscous, tar-like consistency. A mixture of sand, clay, water and bitumen, the sands are really a bio-degraded form of crude oil: “Old oil, [it’s] kind of like old wine that’s past its peak.”[i]

The bitumen part must be separated out and then upgraded into a synthetic crude oil (syncrude) before it can be further refined into petroleum products like gasoline and diesel.

Two different production processes can be used to extract the bitumen from tar sands: open-pit mining, used when oil-sands deposits are close to the surface; and in-situ mining, used when oil deposits are deeper underground.

Open-pit mining accounts for around half of all production. The process is destructive. First, forests must be cleared away. Then the tar sands are dug out, using enormous shovels, and they are then transported to processing facilities in trucks several storeys high.

Greenhouse gas emissions

‘Well-to-wheels’ life-cycle methodologies calculate the GHG emissions released in producing a petroleum product and getting it to the petrol pump. They don’t calculate emissions once you start driving. According to IHS CERA an Albertan tar-sands project releases between five and 15 per cent more GHG emissions from ‘well-to-wheels’ than does conventional oil production.

The extra emissions come from two main sources: fuel input and ‘fugitive’ emissions. Fuels used in open mining projects include diesel, electricity and natural gas – for trucking and steam production, and for upgrading the oil to create syncrude. (Syncrude then has to be refined again to obtain the final-use fuel.) Around 20 per cent of all Canadian natural gas produced serves the tar-sands industry.

Fugitive emissions are another problem. They stem from natural gas leakage, venting or flaring during mining. Venting is a process that releases any associated natural gas into the atmosphere; flaring burns off this unwanted by-product – because it’s not profitable to get it to a pipeline. 

Overall, the Canadian oil-sands industry generates emissions equivalent to Portugal’s – as a country. Portugal is ranked 56 out of 142 GHG-emitting countries worldwide.[ii] Open-pit mining also has the added effect of destroying Albertan boreal forest – a net carbon sink. All this makes Canadian tar sands development a significant net contributor to global climate change.

Who is the consumer?

Despite the emissions released during production, final-fuel combustion is ultimately more troubling. Emissions weigh heavily in the consumption phase, contributing 70 to 80 per cent of overall lifecycle emissions.

The US is Canada’s primary export market for syncrude. It is transported by pipeline to specialised refineries mostly in America’s Midwest. Around three-quarters then becomes gasoline and a quarter is turned into diesel, feeding domestic markets.

The controversy surrounding the Canadian-US Keystone XL pipeline project stems from US environmentalists’ opposition to production from the tar sands, since it is a particularly emissions-intensive source of crude oil. Yet, Albertan syncrude can still be imported by train, with or without Keystone XL, and transport by train has historically caused more leaks and accidents

Unburnable carbon

If all known oil reserves worldwide were extracted, produced and then used, climate change would occur on a dramatic, irreversible and dangerous scale. We have a lot of ‘unburnable carbon’. So we need to choose which sources, if any, we are going to develop. ‘Unburnable carbon’ refers to fossil fuels that can’t be burnt if the world it to limit carbon emissions so as not to trigger serious climate change.

Most oil that is easily and commercially producible around the world therefore needs to remain in the ground.

Tar-sands projects are among the world’s most expensive and marginal oil production projects – meaning that the cost of production is significantly higher than for conventional oil. In addition, tar-sands oil is only profitable when international oil prices are close to $100 per barrel. Canadian producers are already taking a hit. The International Energy Agency has estimated that a new Canadian oil sands project will cost up to 10 times that of a conventional project in the Middle East.

The economic cost

Research by the Canadian government and the Pembina Institute shows that Canada’s manufacturing slowdown is partly the result of the Canadian dollar appreciating. This has risen over the past decade as exports, mostly of crude oil, have risen. Essentially, the development of Alberta’s oil sands is hampering the manufacturing growth.

Continued reliance on commodity exports will divert investment away from the transition to a low-carbon economy. Being endowed with diverse natural resources, and having advanced manufacturing, service and innovation sectors, Canada has alternatives. Progress within more innovative and value-additive sectors is being overlooked, locking Canada into a high carbon-intensity development path.

The impact of tar-sands development on global climate change, though alarming, is not the only reason to discourage such development. They are not only of questionable benefit to the Canadian economy overall but are unlikely to remain profitable in a low oil-price climate.

Finally, as a significant GHG emitter, if Canadian politicians were to take a lead on climate change issues they could have a real political impact worldwide. Perhaps, the Canadian government and people could leave these particular hydrocarbons in the ground.


[i] The U.S Oil and Gas Boom, Ifri 2012

[ii] S. Dyer, M. Dow, J. Grant, M. Huot & N. Lemphers, Beneath the Surface : a review of the key facts in the oil sands debate, The Pembina Institute, 2013

Note: where unquoted statistics can be credited to the Pembina Institute.

Welcome

The perfect energy source – that is cheap, safe, abundant, reliable, environmentally friendly and producible on any scale – doesn’t exist.[i] When it comes to energy, we can’t avoid making judgment calls. Energy is policy. It is a choice.

Do we want the most stable, reliable electricity production possible? A government-sponsored nuclear industry, like France’s, makes sense.

Or is cheapest best? This is most relevant to developing economies. Coal is abundant, transportable and very cheap. And very polluting. China is the world’s biggest consumer of coal, but it still plays a huge role in countries like Germany, Poland and the US.

Or do we want to reverse climate change? If so, our society needs revolutionary rethinking. Cars, freight and planes would have to all but disappear.

Sunshine and wind are abundant in many countries and not polluting in themselves (the production of parts, installation and noise pollution aside). But who will bear cost of realising an entirely new smart electricity grid? What power generation will be used as back-up on the days the wind doesn’t blow and the sun doesn’t shine?

This blog is intentionally bipartisan. I am interested in solutions, not ideology. Developing solutions that address climate change and pollution, while also supporting development and fairness, and allowing for profitability. This requires both creative thinking and diverse inputs. We can benefit from the efficiency and dynamism markets encourage without rejecting the crucial role governments can and do play – and should, since safety is at stake.

Misunderstanding of energy issues is pervasive – exacerbated by misleading articles in the media. And our politicians struggle to promote their own energy policies, as they themselves lack clarity about the issues.

A lot of activists with worthy motivations – preventing dangerous climate change from engulfing the planet or radiation from poisoning another generation of young Japanese – make hasty suggestions about how to deal with the problems that worry them.

This isn’t surprising as energy issues are complex. They don’t conform to classic economic models. Each sector seems to have its own strange dynamic. Gas is regional. It is transported by pipelines and blighted by geopolitical manoeuvring. And it has yet to make strong in-roads into the transport fuel market to compete with petrol. It is still mainly being used by industry and for heating.

Oil is traded a hundred times more in paper than in physical barrels. This liquidity stems both from its being easy to transport as well as from strong competition. Yet, fundamental constraints affect the oil market too. The stuff of value is the refined petroleum product obtained from processing crudes. And the refineries that do this are both very expensive and inflexible, and can only be used to refine a particular crude oil.

Oil’s price level directly affects inflation and the cost of living in most of the countries that consume it. And, in the big producing countries, it often forms the backbone of their governments’ budgets, and can dramatically increase or decrease income levels.

Electricity may not be the biggest contributor to climate change, but the debate around renewable energy, particularly solar and wind power, takes centre-stage here. Electricity markets reflect their infrastructural base as electricity can’t be stored it must be consumed immediately after it is created.

The make-up of electricity systems varies greatly according to country – and within nations. For example, New Zealand’s predominantly renewable electricity mix is based on geothermal and hydropower. This is only possible because of the country’s local geographic and climatic conditions.

The often forgotten market is dirty, but abundant coal.

Coal is usually local. It is also the fuel that would suffer most if a price for carbon was integrated in its valuation. A little appreciated fact is that shifting 1% of global coal usage to natural gas would be the equivalent of increasing current renewable energy production by 11%.[ii]

A good understanding of the dynamics of the energy industry and markets is necessary if we are to be serious about addressing the global problems we face; whether these are fair consumer prices, climate change, energy poverty and access, economic and industrial growth, energy supply security or global financial stability. I’m very serious about these – although I don’t believe the solutions are easy or obvious. But we mustn’t be dismayed or dissuaded by the complexity of problems that face us. We will discuss them here.


[i] Although a cheekier analyst might suggest that energy efficiency – not wasting energy – is the cheapest fuel we have.

[ii] Data from BP Energy 2035 Energy Forecast, C.Ruhl, January 2014