A synopsis of Dieter Helm’s The Carbon Crunch. Part 3 of 3.

Getting real

In the meantime, as Europe invests hundreds of billions of euros in renewables, the real villain – coal – goes from strength to strength.

The increase in carbon in the atmosphere comes largely from the burning of fossil fuels – in particular coal. Coal has twice the carbon impact of gas, and the amount of coal being burnt has increased dramatically over the last 25 years. Between 2000 and 2010 it has increased by 70%, mainly in China and India.

China is over 50% of global coal consumption, while India is only around 9%. China and India will be even more dominant consumers of coal (together around 65%) as coal consumption increases to almost 5 billion tons oil equivalent by 2035.

China and India are together adding three large coal-fired power stations per week – to get an idea of the scale of the challenge, if this power was supplied by wind it would need over 60,000 new turbines a year.

The reality is that current renewables are not a solution to climate change.

The first priority is to replace coal with gas. Gas has half the carbon of coal. Gas is abundant. Gas can meet the intermittency problem arising from renewables.

A price needs to be put on carbon. As long as carbon is an externality, policy makers will need to decide on which investments should be made – picking winners – to manage climate change. The complexity of directing where the investment is made is beyond the ability of anyone (including civil servants).

The UK is in a muddle of regulating firstly just a small part of the electricity supply in terms of solar, and then wind – onshore and offshore, and then gas (as intermittent and zero marginal cost renewables crowd out essential gas-fired power), and then nuclear, while coal continues to have 30-40% of the market. This is repeated (inter alia) in Germany with its energy supplied by solar, wind and lots of coal (Germany burns more than twice as much coal as the UK).

The carbon price must be global. It doesn’t matter where the carbon is produced, it has the same impact on climate. Unilateral carbon pricing just moves pollution elsewhere, and thus has a limited impact. Much of the growth in carbon production will be in China and India, especially with the growth in coal fired power – where hundreds of gigawatts of new coal plants will be built.

A solution is to recognise that the end-consumer is the polluter, and they should pay. The carbon tax should be on consumption and should recognise both domestic production and imports. This can be effective even if applied unilaterally. If China for example does not have a carbon tax, then the tax revenue on Chinese imports would accrue to the importer. This would encourage countries to introduce their own carbon tax. The trade distortion by having a unilateral carbon tax only on production would be corrected.

The tax should be predictable, probably gradually rising, and at a sufficient level to effectively price in the impact of carbon in the atmosphere. Trading carbon schemes such as the European ETS are neither predictable nor at an appropriate level.

There is a need for intensive research to develop the technologies to move to a low-carbon global economy. Technologies such as batteries, storage, transport, IT systems, using the revenues from a carbon tax.

A synopsis of Dieter Helm’s The Carbon Crunch. Part 2 of 3. Read part 1 here.

Renewables are not a magic bullet

Wind is one of the main renewable technologies. The quoted costs of wind rarely include all the direct and indirect costs. A major disadvantage is that the electricity generation is intermittent – the wind needs to blow, not too little, not too much. The quoted capacity is usually the output at optimal conditions. But the average output over the year is typically 20-35% of the quoted capacity (the load factor). Offshore wind should have a load factor at the upper end, although some experience suggests that this falls to around 20% after only a few years as the offshore environment is so harsh.

This intermittency requires the system to have back up when the wind does not blow. Winter in the UK often has weather system highs which bring cold, windless weather – peak demand is at 19:00 in February which then needs to be supplied from other sources, usually gas-fired power.

However on those occasions the wind does blow and demand is lower, wind power – with its zero marginal cost – will displace gas. The gas power plant has thus become intermittent itself as a result of the intermittency of renewables. This makes gas-fired power uneconomic. To ensure there is capacity in the system to meet demand at all times, gas-fired power is needed. Hence the inclusion of substantial amounts of renewables – only possible with subsidies – requires further subsidies for the rest of the system. These are all costs attributable to renewables, together with the transmission system investment to get the power from offshore or remote onshore developments, costs that are not included in the headline costs. Even these headline costs are substantial – onshore wind gets a price for its production of £90/MWh and offshore £150/MWh compared with the wholesale price of around £50/MWh.

Solar is mostly a bust. In Northern Europe is much more expensive than wind, can only work half of the day (and not at all when the peak demand is in the evening), doesn’t work well in winter weather, and has a minimal impact on supply. But the costs can be very substantial – Germany spent €53 billion in subsidies over 10 years.

Biomass globally is a significant energy source, but is mostly wood and animal dung burned in open fires. Biomass for power consists of trees or offcuts processed into pellets then burned in a conventional power station. The concept is that the trees capture carbon from the air and this is then reintroduced through burning. Biomass has become very controversial – energy is used in felling the trees, processing, transportation, and there is a timing aspect of decades to replace the trees. The UK government has terminated subsidies for future schemes.

Biofuels use crops to make ethanol which are used in transport fuels. These schemes mostly make even less sense than biomass. Crops need fertiliser, harvesting, transporting, processing. With corn as the feedstock, the carbon saving is small, or sometimes zero, and the costs substantial both directly and through the impact on food prices. Ethanol from sugar cane looks much more effective.

Nuclear has been a significant part of power generation, especially in France where it provides some 80% of generation. However its contribution in the next 20 years will decline. This is a combination of retiring existing plants, the NGO and Green hatred, the absence of falling capital costs, and the lingering issue of waste disposal.

Toxic politics

The example of German politics illustrate the issues. After the defeat of the Red-Green government under Schroder, Merkel gradually edged her centre-right coalition towards tentative pro-nuclear steps. This included lifting the deadline on closing the existing nuclear power stations with the possibility of life extensions, in exchange for a new fuel-rod tax.

Then Fukushima happened a few weeks later, and the German government did a spectacular U-turn. Now Germany would close all nuclear stations, including eight immediately. The change in policy was applauded by the Polish government as it opened up a huge new market for their coal-powered electricity exports (as well as nuclear powered electricity from France). Carbon emissions will be much higher as a result of the new policy.

So German policy went from a life extension plus a tax, to a partial closedown with a complete closure in a decade without any compensation, and a fuel tax as well. Little wonder that industry believes the regulatory risk is too great for an investment with a 60 year life.

A synopsis of Dieter Helm’s The Carbon Crunch. Part 1 of 3.

The failure of de-industrialisation

In the 25 years since Rio, annual carbon emissions growth has gone from 1.5ppm to the current level of 3 ppm. From a pre-Industrial Revolution concentration of roughly 275 ppm of carbon in the atmosphere, we are rapidly approaching 400 ppm. Since 400-450 ppm is roughly associated with 2C warming, we are on our way to something worse. All those years of talking – Rio 1990, Kyoto 1997, Copenhagen 2009, Durban 2011, Doha 2012, Warsaw 2013, Lima 2014 – has made minimal impact.

In the countries that have implemented carbon policies – largely Europe (as the US and Canada required China to join in before they joined) – essentially the effect has been to de-industrialise. Manufacture of steel, fertilisers and aluminium has been moved to other countries, which often have lower energy efficiency. Countries then import the goods that the policies have caused to be exported.

The UK has reduced its carbon production by 15% since 1990 – a very impressive result. But carbon consumption – carbon production plus the carbon produced in creating the goods that are imported, i.e. the real carbon footprint – has increased by 19%. The UK has just exported its carbon production to China which is fuelled by a huge growth in coal consumption.

A theme in the push for renewables is that fossil fuels will run out, and on the way will become increasingly expensive. A forecast rise in oil, gas and coal prices is assumed in many energy policies, making renewables more attractive. In the UK it is often asserted that renewables will be cheaper than fossil fuels by 2020. Unfortunately fossil fuels are in fact abundant, with recoverable reserves rising every year in spite of production. Gas and in particular coal (with a reserve to production ratio of over 200 years) are especially abundant. Fossil fuel prices are around the same level as 30 years ago.