Friend or Foe: energy price volatility and climate change policies

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Friend or Foe energy price volatility and
climate change policies
Prof. Albert Bressand, February 26, 2009 Global
Roundtable on Climate Change
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Impact of the financial economic crisis

•  
• Prices.
• Policies
• Attitudes

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Impact of the financial economic crisis

• 1. Prices

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Energy prices lastingly depressed

•  
• OPEC production cuts, the coldest European winter
  since 1997, rebounding freight rates, the Ukraine
  gas conflict barely made up for worsening
  economic outlook in January 2009
• Gas prices jumped by 19 in
• Oil and coal increased by merely 4.
• Electricity prices dropped 12 reflecting
  industrial companies' reduced consumption

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A changed relative price environmenthostile to
alternative energy investment

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• Opportunities based on substitution economics
  become less attractive as the fuel being
  substituted becomes less expensive.
• Changes in carbon prices, can reinforce or
  partially offset such trends in energy prices
• Relative economics of GHG abatement opportunities
  as captured in the McKinsey Global Abatement
  Curve.

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Global GHG abatement cost curve beyond
business-as-usual 2030 McKinsey
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A lasting halving of carbon prices in that part
of the world where meaningful prices exist

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• While oil dropped by 68 btw July 08 and January
  09, EUA carbon price fell by only 48. from
  27 June high to 13 in January
• Future carbon prices not encouraging The
  rules of the EU ETS allow companies to borrow up
  to one year's worth of allowances until 2012. A
  significant number of companies seeking to
  preserve cash are taking this route to protect
  their liquidity. Because industries will be
  able to carry their unused allowances over to the
  third period, we will have to wait until the end
  of 2012 for the price of the CO2 to go back up.
• Christian de Perthuis, Mission Climat of
  Caisse des Dépôts
• EU gasoline taxes act as de facto carbon taxes
  and technology incentives. Limited prospects
  for similar taxes in the US.

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Will lower oil prices trigger lower oil gas
investment and a swing back to high oil prices?

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• First oil shock followed by 10 oil, sending
  alternative programs like Brazils sugar-based
  ethanol crashing.
• 70 was largely seen as a floor price for
  investments in tough oil and many
  unconventional and alternative energy sources.
  Present situation differs
• Input prices decline Russian companies now
  profitable at 40
• the high oil price episode was quite prolonged,
  lower prices are attributed to macroeconomic slow
  down, itself of function of financial greed and
  regulatory complacency
• the Peak Oil mindset has caught on, on the
  basis of geololitics (summarized as oil is in
  the wrong place

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Silver lining Low oil prices coexist with peak
oil expectations

• Geopolitics and producing countries policies
  maintain a peak-oil look-alike upstream world
  
• Peak Oil mindset generates larger coalitions in
  support of alternative energy development
• Coal the major obstacle to a full alignment
  between the energy security and the climate
  security groups

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2020 or 2100 pick your peak
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• Physical realities engines for growth, and too
  much hydrocarbons, not too little

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China and the Middle East still driving road
transport energy demand (McKinsey, QBTU)
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Demand by region, 2003
Growth by region, 20032020 100 29
100 66
RoW
USA
RoW
China
24
24
34
Japan
0
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Japan
Middle East
Europe
ME
22
China
Europe
USA
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King Coal, heavies and hydrates


200

100
Estimates from diverse sources (Tboe)

0



Gas
Coal
Oil gas

hydrates
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Reducing emissions and maintaining growth implies
carbon productivity must increase by ten times
Index (2008 1)
Carbon productivity growth required 5.6 percent
per annum
GDP Emissions
Carbon productivity
World GDP growth 3.1 percent per annum (real)
Emissions decrease to reach 20 GtCO2e by
2050 -2.4 percent per annum
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Impact of the financial economic crisis

• 2. Policies

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A disappointing US intellectual policy stance

• - Are the proposed US measures commensurate with
  the size of the challenge and the need for an
  all-energy-sources strategy?
• - Are US policies interdependence-age policies?
  
• - Is the US using international instruments it
  created --or wasting opportunities at its door?

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Big, bold and green Environment Americas
assessment of the recovery package

• 80 billion for clean energy, public
  transportation and green infrastructure, the
  largest such investment in our nation's history.
  
• 1.6 million new green jobs, including 135,000
  green jobs created by a 4.5 billion investment
  in greening federal buildings
• A 68 million ton reduction in our nation's carbon
  footprint, a cut equivalent to a city the size of
  Chicago,
• We even managed to convince congressional leaders
  to drop a controversial 50 billion loan
  guarantee for the coal and nuclear industries,
  thanks in part to 20,000 online petition
  signatures urging our congressional leaders to
  keep President Obama's recovery plan clean and
  green. END OF QUOTE

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Are US policies interdependence-age policies?

• Stimulus package remarkably domestic sometimes
  protectionist in scope
• Engaging China will quickly reach limits set by
  US need for Chinese support on Iran, Iraq, and
  the bond market
• Belief in technology fixes almost intact

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Opportunities at the door the proposed North
American GHG Exchange Strategy

• A North American Greenhouse Gas Exchange
  Strategy (NAGES, modeled on the Clean Development
  Mechanism to create a North American clean energy
  fund) could ensure the United States continues to
  have priority access to Canadas wealth of
  hydro-electricity, natural gas, light petroleum
  and uranium in exchange for off sets for the GHG
  created by their development.
• Mexico, as the seller of the off sets, could then
  develop the infrastructure to clean its energy,
  transportation, housing, and industrial sectors.
  This arrangement would improve U.S. energy
  interdependence and continental climate
  security.
• North America next a report to president
  Obama on Building Sustainable Security
  Competitiveness, North American Center for
  Transborder Studies, Arizona State University

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• 3. Attitudes

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Where is Pogo?

• Complex usage patterns that a system approach to
  technology deployment can make more efficient at
  unchanged behavioral patterns
• and fundamental attitudes that will continue to
  set the stage

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Land use patterns transport infrastructures
essential to total carbon footprint

• Per capita footprint- NYC 7.1 metric ton
  CO2e/y- London 5.9 ton CO2e/y - San Francisco
  11.2 ton CO2e/y - The typical American 24.5
  ton CO2e/y
• NYC emits 58.7 million metric tons of which 3.8
  million tons reflect the direct operation of the
  New York City government

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PHEVs the good, the bad and the ugly where the
technology fix can work

• The worst case scenario is terrifying in NYC a
  30 PHEV fleet could require a doubling of peak
  load capacity
• By contrast, best case could see most charging
  off-peak, better asset utilization, with
  investment limited to safety margin for proper
  maintenance
• Properly managed charging can boost use of low
  carbon electricity
• We, utilities, have to treat this new appliance
  in a very different way from present appliances
  which just assume 7x24 availability of
  electricity Arthur Kressner, Director of RD
  for Power Supply, Con Edison, NY Academy of
  Sciences workshop, Jan.21, 2009

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Where would Americans most like to live and
how do they feel about the place they currently
call home?

• Pew survey For Nearly Half of America, Grass Is
  Greener Somewhere Else

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• Thank you!