Emissions

Businesses which rely on continuing public subsidies or particular formulations of public policy always carry added risk. The reality is that public policy changes. For a brief period there is full-hearted support, often driven by a crisis or a sense of looming danger. But the attention span of electorates and policy makers is short. Something else happens, another crisis looms and a new priority takes precedence.

The news last week that Siemens is to close its solar business is just one of many indications that for the renewables sector times have changed. Read more

The news that Exxon is to build a $10 bn LNG export facility in Texas marks another significant step forward in the story of shale gas and its disruptive impact on the world energy market. Those who want a parallel for the painful process through which so many of the established forces of the industry on one side and the lobby groups on another have struggled to come to terms with the reality of shale gas over the last three years should read John Heilbron’s fascinating book on GalileoRead more

The problems facing the Government’s plan to reform the UK’s electricity market go well beyond the departure of two of the limited number of civil servants who actually understand the proposals. The reality is that the Government is losing its appetite for a scheme which is liable to disintegrate under the weight of its own complexity. Read more

Access to energy is now crucial for India’s continued development. But the scale of the challenge and the changes required could alter the whole structure of governance and the way in which the Indian economy works over the next few years.

A seminar held at Kings College London earlier this week looked at the issues – investment, trade, energy security and the impact of energy on the balance between the urban and the rural communities. We produced more questions than answers but even the questions are instructive. Read more

A report from the Grantham Institute and the Carbon Tracker initiative, titled “Unburnable Carbon”, has produced a studied silence from the energy industry. The study, published last week, is privately being dismissed as the predictable conclusions of people who don’t understand business. But investors should take it more seriously because it opens up some very interesting questions about what energy companies are doing with their money.

In summary, the report says the investment of more capital to find hydrocarbons is a waste of money. More than enough has been already identified to fulfill the world’s needs if we are to meet the carbon limits implied by international agreements on climate change. Under those agreements, carbon use will be reduced over the next four decades, leaving substantial supplies stranded. On this basis, some companies – and therefore the funds which hold them – are carrying dangerous levels of risk, based on the false assumption that the international agreement will never be implemented. The companies are overvalued because some of their assets will never be used.

I have two points of doubt about this thesis. Read more

A Chinese miner unloads coal from a train

Those who keep talking down shale gas should read the views of Elizabeth Muller. Ms Muller does not run a shale gas company. She is co founder and executive Director of Berkeley Earth, an impeccably green non profit research group in California.

In her opinion, environmentalists in the US and elsewhere should be encouraging China to develop its shale gas resources. Those resources are huge – perhaps 50 per cent greater than those of the US, and have yet to be explored in detail. That process is just beginning and includes a number of international companies including Shell.

Ms Muller’s argument, which is unanswerable, is that any development of shale gas will offset the use of some coal. Shale gas is not carbon free but it is cleaner than coal which is China’s basic fuel now. And unless things can be changed radically, will be the dominant source of energy for the next several decades. If shale gas could back out some amount of China’s coal consumption, emissions could be materially reduced. Read more

Burbo Bank Wind Farm, River Mersey
Finally, the UK’s energy policy is taking shape after months of confusion. At its heart is a realisation that, while some decisions are urgent, others can wait. Time and timing matter. The approach is practical as well as political but it won’t suit everyone. And it leaves the biggest issue of all – climate change – unresolved. Read more

The World Economic forum is getting underway in Davos, Switzerland. Getty Images

Fashions come and go and the agenda for the annual meeting of the World Economic Forum in Davos is usually a pretty good guide as to whether skirts are long or short this year. This year’s title for the meeting is “Resilient Dynamism”, which is very cool. But the issues that have slipped down the agenda are energy security and climate change.

There are a few odd sessions, but the focus has shifted and apart from one brief reference to natural resources, neither energy nor climate are mentioned on the web page setting out this year’s themes. This is a very big change from only four or five years ago, when both were prominent topics at every meeting. Read more

What does 2013 hold for the UK’s Climate Change Committee? This worthy body was established in 2009 and is responsible for advising the government on emissions targets and reporting to parliament on the progress being made on reducing greenhouse gas emissions.

The remit sounds reasonable but the reality is that the committee has been written off in Whitehall. The committee’s advice is blatantly ignored and its chief executive, despite his obvious knowledge and capability, has been dismissed by no less than the prime minister as too inexperienced and unqualified to be appointed as permanent secretary of the energy department. For a serious public servant that is pretty damning. Read more

Why are renewables losing out? According to the International Energy Agency, renewables, excluding biomass but including hydro, currently provide just 8 per cent of global electricity supply and 3 per cent of total energy demand. By 2035 on the IEA’s main scenario those figures will rise to just 15 and 7 per cent respectively. That represents some serious growth but not a breakthrough. Hydrocarbons on all the IEA scenarios will still be providing well over 60 per cent of final energy. The figure could be higher if shale gas and tight oil developments spread from the US and if coal prices fall further.

This limited achievement comes despite a decade of high spending on research – especially in the US, and despite a variety of generous subsidies – ranging from direct grants and feed-in tariffs, to protected market shares. In the UK, the support is entrenched in legislation requiring the government to produce long-term plans for reducing emissions over the next four decades. Renewables have benefitted over the past few years from concerns about rising energy prices and energy security, as well as from the desire to tackle climate change. Read more

The news that Areva and the Chinese company Guangdong Nuclear Power Group have pulled out of the bidding for the Horizon franchise to build some of the UK’s next generation of nuclear power stations was unsurprising. Areva is not an operator of nuclear stations and the government is reported to have made clear to the companies that while Chinese investment was welcome, a Chinese operator was not. Read more

Mitt Romney has given Barack Obama a free pass when it comes to energy and environmental policy.  Obama needs only to point to Romney’s energy plan - with its proposed demolition of federal controls on new energy developments and its omission of any mention whatsoever of climate change to claim the votes of the environmental lobby.

Even those most disappointed by the last 4 years can hardly fail to back Obama when the alternative is someone who used his acceptance speech last week to mock Obama’s commitment to the environment and to contrast Obama’s aim of helping to save the earth and the oceans with his own commitment to helping ordinary American families get jobs.  But what won’t be said this week at the Democratic Convention in Charlotte is that the American energy outlook for the next four years at least is already very largely set, and won’t be much altered by whoever is elected in November. Read more

 

Mitt Romney speaks during a campaign rally at American Energy Corporation  in Beallsville, Ohio

Mitt Romney speaks during a campaign rally at American Energy Corporation in Beallsville, Ohio

The Republican presidential candidate Mitt Romney published last week his plan for Energy Independence for the US by 2020.  Critics immediately dismissed the plan as unachievable. But while parts of it certainly look unlikely, many of the proposals could be delivered and by including Canada and Mexico in the calculation, Romney has made “independence” technically possible.   The real challenge, however, is the mindset and beliefs revealed by the plan and its implications for the rest of the world. Read more

Although we hear a great deal about national energy policies it is important to remember that this is a global sector. Prices are set internationally. So are patterns of investment and developments in technology. Emissions and climate change are international issues.  National policies can protect, subsidise or tax different elements of energy production and consumption – but they are essentially local responses to external, global developments.

I think it is therefore worth looking at what is shaping the global market. It would be silly to reduce a complex system to a single answer but what stands out at the moment and for the foreseeable future is the absolutely critical role of China. Read more

Images provided by NASA

Evidence from the American space agency NASA published at the end of July shows the remarkable and disturbing degree to which Greenland’s ice cap has melted.  Taken in combination with extreme weather conditions in the US and Asia over the last few months, what is happening in Greenland raises again the unresolved issue of climate change and what should be done to mitigate the associated risks.  But the traditional approach of gradually reducing emissions by changing the energy mix may no longer be a viable option. Read more

The continuing saga over the UK policy on subsidies to renewable energy supplies should serve as a warning to investors not just in wind power but across the whole energy sector.  Public policy risk is a permanent reality.  The Treasury is right to question the subsidy regime and producers have to be realistic about the nature of the business they are in. Read more