MAY 2016: Issue 105
A QUARTERLY JOURNAL FOR DEBATING ENERGY ISSUES AND POLICIES
forum
This issue of Oxford Energy Forum (OEF)
looks at the Paris Agreement (which came
out of COP21 – the 21st Conference of
Parties under the United Nations
Framework Convention on Climate
Change) along with its implications for
individual energy sources, for particular
countries and regions, and for speciﬁc
policy areas. Perhaps most striking is the
range of views contained in the articles
here and the disparity of impacts as
between different sources, countries, and
policy areas. Whereas in the last issue of
OEF (where the focus was on electricity),
there was much emphasis on the
fundamental changes the industry is
undergoing as a result of the rapid growth
of low-carbon sources, and the similarity of
the challenges in different parts of the
world, the emphasis in this issue is on
diversity. While some areas are seeing
major changes and challenges, others are
continuing with something little different
from business-as-usual. The same applies
to fuels; electricity is in the front line in most
countries in relation to climate change
policy, but for the oil and gas industries the
challenges seem to be more to do with the
medium- to longer-term. Perhaps as a
result, investment markets seem distinctly
uninterested in either the challenges or the
opportunities offered by the low-carbon
transition. Is this just realism or dangerous
complacency about future developments?
Diversity is, of course, admirable in many
respects but (given that we are dealing with
an issue which is global and extends
across the whole energy sector) it may
simply indicate the failure of policy makers
to face up to the challenges. The
discrepancy between electricity and other
energy sources is arguably symptomatic of
a wider problem – that energy policy
making is not keeping pace with
environmental ambitions. At present,
energy policy for decarbonization has a
fairly narrow focus – support for renewable
sources (particularly in electricity) and
energy efﬁciency feature in most countries’
plans. But these measures alone will not
deliver the emissions reductions the
Agreement says are needed, and the
narrow focus could create distortions within
the energy sector, add to the cost of the
transition, and delay progress.
The suspicion must be that governments
are concentrating on this narrow set of
measures because they raise fewer
problems, in particular in relation to
consumer acceptance. Strategies for other
sectors – for example heating and cooling
– are only just starting to be developed in a
few areas. Transport is proving resistant to
decarbonization everywhere and the best
that can be expected in this sector is ‘jam
tomorrow’, in the form of the substantial
penetration of electric vehicles, at some
conveniently distant date. Non-renewable
low-carbon sources seem to have stalled
– nuclear is facing big political and
economic challenges and is unlikely to
prosper in current markets. Carbon
Capture and Storage (CCS) is
encountering practical, economic, and
technical problems; previous optimistic
expectations have not been realized.
Meanwhile, governments do not seem to
have thought through the role that should
be played by markets in decarbonization
policy – another discrepancy is between
OXFORD ENERGY FORUM
CONTENTS
COP21 and the implications for energy
Is the Paris Agreement a success and what
does it mean for the energy sector?
Mari Luomi 4
COP21: One step forward, a mile to go
Scott Barrett 7
The implications of the Paris Agreement and
climate change from a legal perspective
Raphael J. Heffron 10
The climate of Paris
John Mitchell 13
COP21 and the future role of natural gas
in the EU
David Robinson 16
Nuclear after Paris: any clearer?
Malcolm Grimston 19
US climate policy in a post-Paris context
Sarah O. Ladislaw 23
Implications of COP21 for China
Isabel Hilton 27
The post-Paris agenda: challenges
ahead for Latin America
Lavinia Hollanda 29
India’s climate and energy goals after COP21:
contradictory or complementary?
Anupama Sen 32
Europe’s climate policy: after Paris
comes the harder part
David Buchan 37
Taking the temperature
Andrew Howard 39
The divestment debate: a view from
energy producers
Frederick J. Lawrence 42
Carbon pricing in the United Kingdom
Paul Johnson 44
Europe crawls towards low-carbon transport
Jos Dings 46
Carbon Capture and Storage in the
thermal coal value chain
Ben Caldecott, Lucas Kruitwagen, and Irem Kok 50
INTRODUCTIONTOTHISISSUE
the sort of policy recommended by many
economists (global carbon taxes, for
instance) and those adopted by policy
makers. Even where carbon taxation
plays a role, as in the UK, the approach is
unsystematic. It is unsurprising that
governments are relying so little on
markets in their response to what has
been described as the biggest market
failure of all time, but the approach does
contain the potential for distortions and
inefﬁciencies. Overall, the impression is
that governments have started with the
relatively easy measures (renewables and
energy efﬁciency) and have little idea
where to go next.
It is this background which may have
given rise to the complacency in some
areas noted above. However, there are
also reasons to question this
complacency. The last issue of OEF may
contain a salutary case study –
developments in electricity have been
much more rapid and (for incumbents) in
many ways more painful than most
expected, with huge losses of market
value, stranded assets and technologies,
and the need to develop new business
models. It is also noteworthy that major
economies, like China, have changed
their stance signiﬁcantly in recent years
– to the extent that it now seems realistic
to expect that China’s emissions will peak
within the next decade. So developments
can take place faster and more
fundamentally than many expect. In this
respect, the importance of the Paris
Agreement may be as much in its
symbolism as in its details – it reﬂects a
shift in global opinion which it could be
short-sighted to ignore, even if the
concrete results are not yet clear.
The ﬁrst group of articles in this issue look
at the agreement itself. Mari Luomi
considers what it adds in institutional and
ﬁnancial terms, where it falls short (in
particular in relation to what the science
suggests is needed), and its lack of
binding elements and procedural muscle.
The main need now is effective
implementation. However, the history in
this area is not very encouraging and it
will take time to gauge how far the
agreement has been a success. Scott
Barrett argues that the strong point of the
agreement (that it was agreed by
consensus) is also its Achilles heel. The
outcome is less than what was needed
and may not be achieved anyway. He
explains this in terms of the problems of
collective action, with reference to an
exercise in experimental economics – in
this experiment, groups chose ambitious,
but still inadequate, collective targets and
it was found that the review process did
not succeed in its aim of increasing
contributions aimed at reaching these
targets. Barrett proposes some additional
measures to secure better coordination.
Raphael J. Heffron presents a personal
view from a legal perspective. The main
signiﬁcance of the Paris Agreement to
him is that it takes the focus of policy
beyond 2020 and sends a signal to ﬁrms
about the need to take action. Legal
constraints on fossil fuel use are only likely
to increase over time and the review
process is likely to increase global
transparency on the issue. The
signiﬁcance of the Paris Agreement is, to
a large extent, as part of a wider process
of changing global attitudes to energy.
A second group of articles look at the
implications for the energy sector. John
Mitchell considers the content of the Paris
proposal, paying particular attention to its
implications on the demand side – not
just products and services, but also
planning, infrastructure, and transport.
The brunt of the changes required will be
borne by the power sector in the near
term – the challenges for oil and gas are
less immediate, but this does not excuse
complacency. There may be greater
challenges to come, and meanwhile it is
by no means clear whether gas will play
the role of transition fuel. David Robinson,
focusing on natural gas in Europe,
develops this theme. In the short term,
gas may beneﬁt from COP21 as coal is
squeezed out in electricity – a process
helped along by policy measures
restricting the use of coal which are likely
to be reinforced in the wake of the Paris
Agreement. However, gas will also face
challenges, being increasingly regarded
merely as back-up for intermittent
renewables. In any event, the long-term
prospects for gas look grim if policy
makers really intend to meet their
emissions reduction targets. Robinson
argues that a strategy on gas
infrastructure is needed. Malcolm
Grimston considers whether nuclear’s
future is any clearer after Paris. It has a
proven ability to deliver big emissions
reductions; nonetheless many countries
and activists are opposed, not always on
solid grounds. However, the biggest
current problem facing nuclear is
probably economic. It is not clear whether
it is possible to overcome the cost and
risk barriers, at least in markets as they
are constituted today.
The third group of articles look at
particular countries and regions. Sarah
Ladislaw considers US climate policy. The
Climate Action Plan looks tough, but the
measures taken so far may not be tough
enough to reach the medium-term goals
it sets, while political parties (and the US
public) remain divided. There is a range of
institutional and other complications
which may work in either direction;
Congress could prove a constraint, on the
other hand, individual states may lead the
way. A lot will depend on the forthcoming
Presidential election.
Isabel Hilton points out how important
China is to the process and how much its
stance has developed since COP15 (the
Copenhagen Climate Change Conference
in 2009). There is now a real prospect that
its emissions could peak within a decade
and, although coal still dominates the
energy mix, it seems to be in long-term
decline. China’s success in implementing
its climate objectives will matter for the
whole world. Lavinia Hollanda looks at the
challenges faced by Latin America. In
some ways they (or at least many countries
in the region) have a favourable starting
point – relatively low carbon intensity due
to the high penetration of hydro power.
However, there are also big challenges
and Hollanda identiﬁes ﬁnancing in
particular. Latin America is also rather
weak in technology development and
innovation. Overall, concerns about
climate change in the region are rather
different from those faced in Europe or
the USA. Anupama Sen looks at India’s
climate and energy goals. The power
sector is a key focus. Although there are
fairly ambitious plans for the development
of renewables, the reliance on coal, and
the relatively low level of electriﬁcation
mean that emissions in this sector are set
to rise many fold. Unlike China, there is no
prospect of emissions peaking in the
foreseeable future, and climate and
energy policy remain contradictory rather
COP21 AND THE IMPLICATIONS FOR ENERGY
2 OXFORD ENERGY FORUM
than complementary. David Buchan
analyses the challenges in Europe. Policy
has hitherto concentrated on electricity
and the sectors involved in the Emissions
Trading Scheme. However, in future more
attention will need to be given to other
sectors and the barriers, particularly in
relation to consumer acceptance, are
much greater. Strategies are being
developed in new areas – for example
heating and cooling in buildings – but it is
not yet clear how far they will affect
individual member state strategies, or
consumer behaviour, as they will need to
do to be effective.
A ﬁnal group of articles looks at some
speciﬁc areas where the Paris Agreement
could have an impact. Andrew Howard
looks at investors’ viewpoints. So far,
climate change has not been a major
driver of sentiment – the jury is still out on
whether governments are prepared to
take strong measures to achieve their
objectives. For instance, the global impact
of carbon pricing is equivalent to only
about 50 cents per barrel of oil – an
insigniﬁcant ﬁgure when set against the
volatility of oil prices. Firmer action by
governments would not necessarily lead
to lower investment in high-carbon
companies – it might simply reduce the
uncertainty surrounding their valuation.
Frederick Lawrence of the Independent
Petroleum Association of America looks at
the divestment debate from a producer’s
perspective – from that viewpoint it
appears ineffective, and likely to cause
more harm to the institutions engaging in
divestment than the companies from
which they are divesting. He argues that
constructive engagement by these
institutions would be a better way forward.
Paul Johnson considers the UK approach
to carbon pricing. Many economists
would argue that an effective and
consistent carbon price would help
minimize the cost of meeting carbon
targets. However, UK policy has not been
consistent over time or as between
different forms of energy consumption.
That adds to costs and reduces
incentives by creating uncertainty about
the future price trajectory. Overall,
Johnson considers the UK approach hard
to square with a commitment to reduce
emissions at minimum cost. Jos Dings
looks at policy for decarbonizing transport
across the EU, and also ﬁnds it wanting.
Most measures have either failed or
disappointed. The promotion of
renewable energy in transport in particular
has been a huge policy mistake. Looking
forward, however, Dings manages to see
opportunities, particularly in energy
efﬁciency and electriﬁcation. He
concludes that although the clock is
ticking, it is not yet too late to make
progress. Finally, Ben Caldecott and
colleagues look at how CCS ﬁts into the
coal value chain, drawing on a study
undertaken by Oxford’s Stranded Assets
Programme. The study found that of the
top 100 coal-ﬁred utilities, two-thirds have
no power stations meeting even fairly
generous retroﬁtability criteria.
Furthermore, coal-based generation ﬁtted
with CCS faces competition from other
low-carbon sources like nuclear and
renewables; overall the role of CCS in the
thermal coal value chain is at best
uncertain, at worst undesirable.
INTRODUCTIONTOTHISISSUE
Scott Barrett is Lenfest-Earth Institute
Professor of Natural Resource
Economics at the School of International
and Public Affairs & Earth Institute,
Columbia University, New York
David Buchan is Senior Research Fellow
at the Oxford Institute for Energy Studies
(OIES)
Ben Caldecott is Executive Director of the
Sustainable Finance Programme at the
Smith School of Enterprise and the
Environment, Oxford University
Jos Dings is Executive Director at
Transport and Environment NGO,
Brussels
Malcolm Grimston is Honorary Senior
Research Fellow at the Centre for
Energy Policy and Technology, Imperial
College London
Raphael J. Heffron is Senior Lecturer at
the Energy and Natural Resources Law
Institute, Queen Mary University of
London
Isabel Hilton is Editor-in-Chief of China
Dialogue
Lavinia Hollanda is Head of Research at
FGV Energia, Brazil
Andrew Howard is Head of Sustainable
Research at Schroders Investment
Managers
Paul Johnson is Director of the Institute
for Fiscal Studies (IFS), London
Irem Kok is on the Sustainable Finance
Programme at the Smith School of
Enterprise and the Environment, Oxford
University
Lucas Kruitwagen is on the Sustainable
Finance Programme at the Smith School
of Enterprise and the Environment,
Oxford University
Sarah Ladislaw is Director and Senior
Fellow, Energy and National Security
Program, Center for Strategic and
International Studies (CSIS),
Washington, DC
Frederick J. Lawrence is Vice President,
Economics and International Affairs at
the Independent Petroleum Association
of America (IPAA)
Mari Luomi is Senior Research Fellow,
Emirates Diplomatic Academy, United
Arab Emirates and Research Associate,
Oxford Institute for Energy Studies (OIES)
John Mitchell is an associate research
fellow at Chatham House, research
adviser at OIES, and honorary fellow at
the Centre for Energy, Petroleum and
Mineral Law and Policy, University of
Dundee
David Robinson is Senior Research
Fellow at the Oxford Institute for Energy
Studies (OIES)
Anupama Sen is Senior Research Fellow
at the Oxford Institute for Energy Studies
(OIES)
The views expressed in this issue are solely
those of the authors and do not necessarily
represent the views of OIES, its members,
or any other organization or company.
CONTRIBUTORS TO THIS ISSUE
MAY 2016: ISSUE 105
3OXFORD ENERGY FORUM
Is the Paris Agreement a success and what does it mean for the
energy sector?
Mari Luomi*
On 12 December 2015, the French
President of the UN Climate Change
Conference gavelled through the
Paris Agreement in the presence of a
few thousand country delegates. The
conference room broke into euphoric
cheers and applause as negotiators
celebrated success in a task that
just six years earlier had seemed
all but impossible. Those who had
been closely involved in the process
described the Paris Agreement as the
best possible outcome. Governments,
investors, experts, and activists
worldwide afﬁrmed it had signalled the
end of the fossil fuel era.
This short article examines these two
afﬁrmations. It asks: what did Paris do
to deserve to be called a success,
and where does it fall short? What
does the Paris Agreement mean for the
energy sector?
On the question of success, the article
examines whether the Paris Agreement
provides the necessary global regulatory
mechanisms to prevent dangerous
climate change. For negotiators who
had seen several years of protracted
negotiations and were desperate to
avoid a similar collapse to that of
Copenhagen in 2009, the deﬁnition of
‘success’ was inevitably lower than for
climate scientists, civil society
advocates, and people all around the
world already feeling the negative
impacts of climate change through
abnormal weather patterns and
increasing extreme weather events.
On energy, this article looks at what
difference, if any, the Paris Agreement
will make for the sector. How can
an agreement that does not make a
single reference to fossil fuels, nor
any substantive reference to energy,
push countries to decarbonize their
energy supply and move towards
more efﬁcient and climate-resilient
energy systems? While a major
outcome from Paris undoubtedly was
the strong signal it sent of collective
political determination, a signal alone is
insufﬁcient if it is not sustained by longterm
policies and regulations, backed
up by investments and divestments.
What is the Paris Agreement?
From a diplomatic perspective, the
Paris Agreement was the culmination
of more than 20 years of negotiations.
It represents a consensus among
195 governments on what the global
regulatory framework for preventing
dangerous climate change post-2020
should look like. According to many,
the Agreement restored faith in the
ability of the multilateral UN system to
agree on collective solutions to global
problems. In recent years, a growing
number of voices have been calling
for the formation of ‘climate clubs’
of major emitters that agree to take
ambitious action in exchange for trade
and other beneﬁts, as being the only
viable solution to achieving the required
emissions reductions. The Paris
conference showed that the time of UN
diplomacy is not over; it can deliver
results even through consensus (the
de facto procedure in the UN climate
negotiations).
As a multilateral treaty, the Paris
Agreement scores high on legitimacy
through its near-universal level of
participation. It also sends a strong
signal on political ambition, and has inbuilt
mechanisms aimed at increasing
ambition over time.
From an international law perspective,
the Paris Agreement consolidated a
‘bottom-up’ architecture for multilateral
climate governance. In the words of
climate law expert Daniel Bodansky
Paris tied
‘a treaty ribbon around … key
elements of the Copenhagen
Accord’
(‘Reﬂections on the Paris Conference’,
Opinio Juris, 15 December 2015).
It includes a system of nationally
determined contributions (and their
non-binding content), an extension
of this system to all countries, and an
afﬁrmation of the pledge to mobilize
US$100 billion in ﬁnance to developing
countries by 2020.
This bottom-up system, in which
countries themselves determine what
they consider a fair and ambitious
contribution is, however, signiﬁcantly
strengthened in the Paris Agreement.
Its ‘hybrid’ approach introduces
a number of regulatory elements,
political mechanisms, and institutional
structures that will be crucial in
ensuring that countries’ individual
plans, and their implementation, add
up to what is required by science.
What does the Paris Agreement add?
Firstly, the Paris Agreement sets global
long-term goals for temperature and
greenhouse gas (GHG) emissions.
Parties to the Agreement subscribe to
a collective goal of holding the global
average temperature increase well
below 2 °C (or even 1.5 °C), of reaching
a global peaking of GHG emissions
‘AS A MULTILATERAL TREATY, THE
PARIS AGREEMENT SCORES HIGH ON
LEGITIMACY THROUGH ITS NEARUNIVERSAL
LEVEL OF PARTICIPATION.’
COP21 AND THE IMPLICATIONS FOR ENERGY
4 OXFORD ENERGY FORUM
as soon as possible, and of achieving
emissions neutrality in the second half
of this century.
Secondly, the Agreement establishes
a system of national climate action
plans (‘nationally determined
contributions’, NDCs), the preparation,
communication, and maintenance of
which are obligatory to all countries.
NDCs need to be communicated every
ﬁve years and must include mitigation
(emissions reduction) measures and
represent a progression over the
country’s previous NDCs.
Thirdly, the agreement lays the
foundations for a framework to
incentivize increasingly ambitious
climate action by countries. This
includes a process and systems to
track countries’ progress towards
their individual goals (transparency
framework) and a process to
periodically assess collective progress
towards the long-term goals of the
agreement (global stocktake).
In order to encourage developing
countries to adopt increasingly
ambitious mitigation targets and
to support their adaptation efforts,
the Paris Agreement enhances the
existing institutional mechanisms for
technology development and transfer,
and for capacity building in developing
countries under the UN Framework
Convention on Climate Change
(UNFCCC). It also provides assurances
on climate ﬁnance by extending the
US$100 billion commitment through
2025 and establishing a process
to deﬁne a common accounting
methodology for public ﬁnance –
this deﬁnition remaining a source of
contention between developed and
developing countries.
Where does the Paris Agreement fall
short?
As noted above, if restoring faith in
multilateral diplomacy and saving
the reputation of the UNFCCC as the
leading global institution for climate
governance are used as the criteria for
success, Paris delivered extremely well.
No doubt it also sent a strong political
signal. However, the Agreement’s
key features also reveal a number of
shortcomings, which may determine
whether it succeeds as a climate
agreement.
‘…A HUGE GAP STILL REMAINS
BETWEEN THE LEVEL OF ACTION
COUNTRIES ARE WILLING TO COMMIT
TO INTERNATIONALLY AND WHAT IS
REQUIRED…’
Firstly, a huge gap still remains
between the level of action countries
are willing to commit to internationally
and what is required according to
science to avoid dangerous climate
change. The celebration by many
vulnerable developing countries of the
hard-fought inclusion of a reference
to 1.5 °C in the Agreement text is
contrasted by the stark reality of the
pledges that countries brought to Paris
(according to most estimates these
would lead to 3 °C of warming or more,
if implemented). A key measure of
success will therefore be how well, and
how fast, the Agreement will incentivize
more ambitious action.
Secondly, the binding elements of the
Paris Agreement are largely procedural.
Achieving broad participation came
with the cost of allowing countries
to self-determine the level, type, and
scope of their national contributions.
Only the process-related aspects
(preparation, communication,
maintenance) of the NDCs are binding.
The exact content of the NDCs is left
to countries to determine.
Thirdly, the Agreement lacks legal
muscle to ensure countries comply
with their pledges or to increase them
to a level that science determines as
sufﬁcient to avoid disastrous climate
change. While crucial in setting a
common direction for all countries, the
long-term goals of the Paris Agreement
are in practice merely aspirational,
given the impossibility of holding
any country, or group of countries,
accountable for non-compliance.
Should a country fail to reach its goals,
a committee of experts will examine the
case in a facilitative and non-punitive
manner. In the absence of a strong
compliance mechanism, the power of
the ambition mechanism is therefore
mainly drawn from peer pressure – in
other words political shaming and
blaming.
What needs to happen now?
Paris resulted in a long to-do list
for both the UNFCCC and national
governments. Under the UNFCCC,
climate negotiators and experts will
spend the next ﬁve years developing
the detailed rules and procedures that
will form the basis for the functioning of
the regulatory, political, and institutional
frameworks supporting the Paris
Agreement (transparency framework,
global stocktake, accounting rules
for ﬁnance, and rules for international
emissions trading, among others).
In order to make the Paris Agreement
operational by 2020, countries will need
to ratify it, formalize their Paris pledges,
and start preparing for their updated
NDCs, which are due by 2020, with
a target year of 2030. For entry into
force, 55 countries representing at least
55 per cent of global GHG emissions
will need to join. Boding well for this
process, the USA and China (which
jointly account for a more than a third
of global emissions) announced in
early April 2016 that they would aim to
join the Agreement as early as possible
in 2016.
The most crucial task, however, will be
turning the countries’ NDCs into onthe-ground
action by translating them
into public policies, programmes, and
MAY 2016: ISSUE 105
5OXFORD ENERGY FORUM
investments. This work should start
even before the Paris Agreement enters
into force. Intergovernmental Panel
on Climate Change (IPCC) emissions
scenarios suggest that delaying more
ambitious action increases both the
costs and risks involved later on. If,
instead of steady reductions, global
GHG emissions are allowed to keep
rising for the next 10–20 years, quick
reductions will be needed thereafter
to stay within 2 °C of warming. This
would translate into higher costs and
increase the likelihood of needing to
resort to controversial geoengineering
technologies – such as bioenergy with
carbon capture and storage (BECCS).
Between 1970 and 2010, according
to the IPCC, global GHG emissions
increased by more than 80 per cent.
Economic and population growth
continue to drive the growth of fossil
fuel consumption, which in turn is
the main driver of climate change:
currently responsible for two-thirds of
human-made GHG emissions. Energy
will therefore be at the centre of global
mitigation efforts.
What does Paris mean for the energy sector?
Despite numerous analyses of the
Paris Agreement from legal and
political perspectives, less attention
has been paid to its implications for
global energy use patterns in the
future. There are several possible
reasons for this: ﬁrstly, energy is a
highly politicized topic in the UNFCCC
negotiations, which is why the Paris
Agreement lacks clear references to
it. The Paris Agreement also leaves it
up to each country to decide how and
where they will reduce their emissions.
At the same time, energy will be a
core component in practically all
countries’ climate plans. According to
the World Resources Institute, 80 per
cent of intended nationally determined
contributions (INDCs) submitted by late
October 2015 referenced clean energy.
Secondly, the long-term goals of the
Paris Agreement are not by any means
breaking news for the energy industry.
The pathway set for emissions to
peak rapidly and reach net zero in the
second half of this century will evidently
require a major transformation of the
entire global energy system. However,
these collective emission goals merely
reﬂect what science tells us, and the
consequences of pursuing them are
generally well known.
For example, the IPCC’s Fifth
Assessment Report from 2014
concluded that:
‘ … mitigation policy could
devalue fossil fuel assets and
reduce revenues for fossil
fuel exporters, but differences
between regions and fuels exist.’
The report also conﬁrmed that, as a
result of mitigation action, coal and oil
export revenues are likely to decrease,
with less certain impacts on natural
gas export revenues, and that the use
of Carbon Capture and Storage (CCS)
technologies would reduce adverse
effects on the value of fossil fuel assets.
What the Paris conference therefore did
was conﬁrm that countries are listening
to science. This is nevertheless a
powerful signal to the energy industries
– if they are listening.
Thirdly, there is no track record of
a link between UNFCCC outcomes
and global emissions. The UNFCCC
and its ﬁrst legally binding treaty (the
Kyoto Protocol) have not, so far, had
a demonstrable net effect on global
GHG emissions. However, this may
be changing as, in March 2016, the
International Energy Agency (IEA)
reported that CO2 emissions from the
energy sector had remained constant
from 2013 to 2015. This was the ﬁrst
time in 40 years that global emissions
had stood still (or fallen) for reasons
unrelated to an economic downturn.
According to the IEA, the trend was
led by changing energy consumption
patterns in China and the USA:
switching from coal to renewables in
the former and from coal to natural gas
in the latter. These changes were offset
by emissions growth elsewhere in Asia,
in the Middle East and, to some extent,
in Europe.
The stalling of global energy emissions
due to changes in just two countries
shows how domestic actions by
major emitters can have a signiﬁcant
impact on global emissions. Here, the
periodic ambition and transparency
mechanisms of the Paris Agreement
can play a key role in building trust for
increasingly ambitious action by all
major economies.
Fourthly, oil markets have in recent
times been more preoccupied with
low prices, which are driven by factors
largely unrelated to climate policy,
namely a glut in supply. The jury is still
out on whether the low oil prices are
a curse or a blessing for ambitious
climate action. On the negative
side, low prices incentivize higher
oil consumption and use of energy
inefﬁcient solutions, especially in the
transport sector (where impacts may
be felt by fuel-efﬁcient vehicles, electric
vehicles, and biofuels), but in some
countries also in the electricity sector.
The IEA estimates that if sustained,
lower oil prices could discourage
US$800 billion in energy efﬁciency
investments through 2040, leading to
higher GHG emissions.
On the positive side, low oil prices
have already made it possible for
many countries to implement badly
needed fossil fuel subsidy reforms. In
the oil industry, they have led to the
postponing of capital expenditure in
‘…ENERGY IS A HIGHLY POLITICIZED
TOPIC IN THE UNFCCC NEGOTIATIONS,
WHICH IS WHY THE PARIS AGREEMENT
LACKS CLEAR REFERENCES TO IT.’
COP21 AND THE IMPLICATIONS FOR ENERGY
6 OXFORD ENERGY FORUM
production and exploration, possibly
to a time in which environmental
regulation or changed market
conditions will make their use no
longer viable. Low oil prices have also
accelerated the determination with
which many oil-producing countries, in
particular in the Gulf, are pursuing their
economic diversiﬁcation efforts. The
United Arab Emirates’ post-oil strategy,
together with plans in Saudi Arabia to
sell shares of the national oil company
to support economic growth and
reform, are powerful signs of this.
Will Paris make a difference?
It is argued here that, in order to
see the real potential of the Paris
Agreement to support the needed
global energy transformation, one must
look beyond its actual and perceived
shortcomings. These include its internal
operational and structural weaknesses
(the gap between pledges and
science, and the weak enforcement
mechanism), issues related to external
perceptions (the UNFCCC’s weak track
record), and parallel energy trends
(low oil prices).
‘DESPITE ALL ITS SHORTCOMINGS,
THE PARIS AGREEMENT, AS A UNIVERSAL
CLIMATE AGREEMENT, REPRESENTS A
REALISTIC COMPROMISE AND ACHIEVES
MORE THAN MANY HAD EXPECTED.’
Post-2015, the question of whether
the Paris Agreement will be successful
or if it will spur change in the energy
sector, is arguably synonymous to
asking if national climate policies will
be strengthened and implemented over
time, and where energy investments
will be directed as a result. Despite all
its shortcomings, the Paris Agreement,
as a universal climate agreement,
represents a realistic compromise
and achieves more than many had
expected. The debate, going forward,
should therefore not be about whether
Paris succeeded or not, but about
how to leverage the Agreement to
support national-level implementation
worldwide. Ultimately, future
generations will not judge ours for
whether the Paris Agreement included
ambitious pledges, or even if it set up
functional conﬁdence-building and
support mechanisms, but whether we,
collectively, managed to cut our energy
emissions quickly and deeply enough
to keep global temperature rise at a
safe level.
*The views expressed in this article
are those of the author, and do not
necessarily reﬂect the views of the
Emirates Diplomatic Academy or the
UAE Government.
COP21: One step forward, a mile to go
Scott Barrett
At the Paris climate conference last
December, all the world’s countries
were able to reach a consensus about
a matter of profound importance. They
agreed that climate change needs to
be halted and that every country must
play a role in halting it.
Why were countries able to reach a
consensus? One reason, of course, is
that all countries recognize the threat
posed by climate change. But another
reason is that, under the rules of the
ﬁrst climate treaty, adopted in Rio in
1992 (the United Nations Framework
Convention on Climate Change, or
UNFCCC) decisions by the parties
must be agreed by consensus. As the
new agreement was being negotiated
under these same rules, opposition by
any country could have sunk the effort
– this is what happened in Copenhagen
in 2009 at the previous make-or-break
climate meeting. All countries agreed
after this that they had no alternative
but to try again.
‘…THE MAIN OBLIGATIONS OF THE
AGREEMENT ARE SELF-DETERMINED
AND EXPLICITLY VOLUNTARY…’
Another reason why a consensus
was reached in Paris is that the main
obligations of the agreement are selfdetermined
and explicitly voluntary
(other obligations are collectively
determined, but the agreement
says that implementation of these
obligations is to incorporate ‘built-in
ﬂexibility’). Previous efforts to negotiate
a climate treaty tried to get countries
to do more than they were willing to
do on their own, without providing any
means for enforcing such obligations.
If the means for enforcement are
lacking, and a consensus is needed,
then it’s obvious how the negotiations
should be structured: you have to ask
countries to accept obligations that
they are willing to accept. You can
urge them to do more, but you cannot
compel them to do more. And since
the obligations are usually expressed
in terms of outcomes that countries
don’t control directly (country-wide
emissions), you have to accept that
meeting these obligations is ultimately
voluntary in order to provide an extra
measure of reassurance.
This is not to say that the negotiations
were tension-free. Although each
country wants to be free to choose its
own obligations, every country would
like all other countries to do much
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more than they are willing to do on
their own. Moreover, every country
knows that all countries together are
better off if they all agree to do more
than they are willing to do on their
own. The problem is that no country
is willing to do this unless given the
reassurance that all other countries
will do it. This is the main purpose
of enforcement – to provide such
reassurance. Unfortunately, when the
means for enforcement is lacking, all
that can happen is that counties urge
others to do more, while at the same
time insisting that their own obligations
be self-determined and voluntary.
People who cheer the Paris Agreement
see it as reducing emissions relative
to a forecast of ‘business-as-usual’.
Indeed, the Secretariat to the
UNFCCC produced an analysis of
all the submitted ‘intended nationally
determined contributions’ shortly before
the Paris conference, and showed
that, if countries fulﬁlled these pledges,
emissions would likely dip slightly
below ‘business-as-usual’.
There are several things to note about
this:
1 We will never observe business-asusual
(by deﬁnition, this is a future
world that will never be realized since
countries are now operating under
the Paris Agreement). The Secretariat
can do no more than try to infer what
emissions would have been in the
absence of the pledges.
2 Countries have incentives to limit their
emissions unilaterally. Every country will
be adversely affected by climate
change – certainly in the longer term
and with respect to ‘abrupt and
catastrophic’ climate change – and
so every country has an incentive to do
something to limit its emissions. The
problem, of course, is that countries
have little incentive to reduce emissions
for the beneﬁt of other countries. We
should expect all countries to do
something, but we should not expect
any country to do enough.
3 Pledges are almost always expressed
in terms of a country’s emissions, and
yet countries do not adopt policies and
measures to control their emissions
directly. They adopt policies and
measures to control their emissions
indirectly. Even if countries adopt the
policies they promise to adopt, there
is no guarantee that the emission
levels they have pledged will be met.
For example, if emissions are
expected to fall due to the adoption of
new energy efﬁciency standards, the
extent of the reduction will depend on
the ‘rebound effect’, about which
there can be signiﬁcant uncertainty.
4 Future emissions will depend on
factors that countries do not control,
such as economic growth,
technological advancements, and
unanticipated shocks such as the
tsunami that caused Japan to close
its nuclear plants and Germany to
phase out nuclear power.
5 Even if a particular country reduces
its emissions, and keeps within its
pledge, the consequence may only
be to increase emissions elsewhere,
because all countries are linked
through global energy markets and
trade.
The most important thing to understand
about the pledges submitted in the lead
up to Paris is that, even if they are all
met, analysis by the Secretariat for the
UNFCCC shows that global emissions
will continue to increase through 2030.
Such an outcome virtually guarantees
that the overall goal agreed in Paris – to
keep global mean temperature change
(relative to pre-industrial levels) ‘well
below’ 2 °C – will not be met.
How is it possible for countries to agree
on a collective goal and then not adopt
the policies needed to meet it? This
is the essence of the collective action
problem. All countries collectively have
an incentive to meet the overall goal.
Each country would be willing to take
measures to play its part in meeting the
overall goal – but only if assured that
all other countries will play their part in
meeting the goal. Of course, there is
also the matter of countries needing to
come to an agreement about the parts
that each should play in this collective
effort – these were all the things that
were not agreed in Paris. As matters
now stand, the only way in which the
voluntary contributions pledged thus far
could achieve the collective 2 °C goal
would be if a ‘miracle’ occurred around
2030 – something like a technological
breakthrough that caused global
emissions to plummet around this
time. Even then, according to another
analysis by the Secretariat for the
UNFCCC, the chances of staying within
the 2 °C goal would be no better than
50–50.
Again, this assumes that countries do what
they have pledged to do. Will they?
Perhaps the most important aspect of
the Paris Agreement is the arrangement
for transparency and review. The
idea is that if countries knew they
were going to be scrutinized, then
they would take the steps needed to
meet or exceed their pledges. But is
this true? To determine the effect of
such a process on behaviour, Astrid
Dannenberg (of the University of
Kassel in Germany) and I conducted
a laboratory experiment involving real
people playing for real money. The
advantage of an experiment is that you
can create the needed ‘counterfactual’.
That is, we can compare behaviour with
and without a review process.
This is what we found: The review
process causes groups to choose a
‘THE PROBLEM, OF COURSE, IS THAT
COUNTRIES HAVE LITTLE INCENTIVE TO
REDUCE EMISSIONS FOR THE BENEFIT
OF OTHER COUNTRIES.’
COP21 AND THE IMPLICATIONS FOR ENERGY
8 OXFORD ENERGY FORUM
more ambitious collective target.
However, the target they choose is still
too weak relative to what is required to
make the group as well off as possible.
We also ﬁnd that the review process
causes the players to announce more
ambitious pledges. However, when
added up, these pledges fall short of
the group’s target. Finally, we ﬁnd that
the review process does not increase
contributions. Moreover, contributions
fall short of pledges. Hence, our research
suggests that the review process will
affect what countries say but not what
they do. The analyses by the UNFCCC
that I noted previously assume that
countries will fulﬁl their voluntary pledges,
but we can’t be sure of this. Over the
past 25 years, many countries have
made pledges to reduce emissions
and then failed to achieve them.
The real problem with the Paris
Agreement is that it embodies the
same approach that has been tried
again and again – that of setting targets
and timetables for emission limits at
the national level, without providing a
means for enforcement.
Are there ways in which a more
ambitious agreement could be
enforced? Recent research by William
Nordhaus of Yale University shows that
a club of like-minded countries could
enforce more demanding obligations
using a generalized tariff. However, the
use of such a tariff could possibly spark
retaliation – a possibility Nordhaus
assumes away. Even if a trade war is
avoided, Nordhaus’s analysis shows
that a tariff will lose its effectiveness
once the price on carbon tops about
US$50/tCO2, which is a pretty low
number compared to what is needed
to bring about a transformation in the
global energy system.
Plainly, the world isn’t ready yet to
contemplate such trade measures. Are
there other options?
To my mind, the best thing about the
Paris Agreement is that it doesn’t forestall
parallel approaches of the kind I have
been recommending for 15 years –
approaches that involve coordination.
One such approach is already
underway. This is an effort to amend
the Montreal Protocol (an agreement
to protect the ozone layer) to limit
hydroﬂuorocarbons (HFCs), a potent
greenhouse gas. This approach will
work because Montreal is designed
very differently from any of the climate
agreements. The climate agreements
have all tried to limit the consumption
of fossil fuels (meaning, the emissions
that occur on a country’s own territory).
The Montreal Protocol is very different.
It not only limits the consumption of
chloroﬂuorocarbons (CFCs); it also
limits the production of CFCs, arranges
for rich countries to pay for the costs
of compliance by poor countries, and
bans trade in CFCs and products
containing CFCs between parties
and non-parties. As a result of this
combination of measures, participation
in this agreement has been full. CFCs
have been phased out. And trade has
never needed to be restricted.
There should now be an effort to
identify other opportunities like this
one. An obvious place to start is with
negotiations under the International
Civil Aviation Organization for
international aviation, and under the
International Maritime Organization for
international maritime shipping. Both
of these organizations should lead
negotiations to establish agreements
for technology standards that can
improve the efﬁciency of transport.
Enforcement in such agreements
would involve ports and airports within
the territories of every party, restricting
access to vessels and planes to those
that comply with the agreed standards.
Other opportunities exist in other
sectors. For example, a change in the
smelting process for making aluminium
could eliminate the emission of
perﬂuorocarbons (PFCs), another
potent greenhouse gas. A new
agreement would mandate that all new
aluminium smelters adopt this technology
by a particular year, and that existing
plants adopt this technology by some
future year. Financial transfers from rich
countries would cover the compliance
costs of poor countries. And all parties
to this agreement would agree to import
aluminium only from countries that
participate in and comply with the
agreement.
This approach of coordinating behaviour
is piecemeal. It isn’t fully cost-effective,
and it won’t, on its own, stabilize
atmospheric concentrations. However,
it is a conceit to believe that these
objectives can somehow be achieved by
a single global, overarching agreement.
Because none of these approaches is
enough, a coalition of willing countries
should also undertake joint research
into ‘game-changing’ technologies,
including the only true backstop
technology for reducing emissions – an
industrial technique for removing CO2
directly from the air. Such a technology
is likely to be very expensive, but the
collective action needed to develop this
technology and to apply it at very large
scale is potentially easier than trying to
change behaviour worldwide.
The Paris Agreement won’t stabilize
the climate, but we should work to get
the most out of this Agreement, which
means investing in its implementation.
In addition to this, we should also
‘OUR RESEARCH SUGGESTS THAT THE
REVIEW PROCESS WILL AFFECT WHAT
COUNTRIES SAY BUT NOT WHAT THEY DO.’
‘THE PARIS AGREEMENT WON’T STABILIZE
THE CLIMATE, BUT WE SHOULD WORK TO
GET THE MOST OUT OF THIS AGREEMENT,
WHICH MEANS INVESTING IN ITS
IMPLEMENTATION.’
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work now to build parallel agreements
around Paris – agreements like an
amended Montreal Protocol and
similar efforts targeted at speciﬁc
sectors and gases. We also need to
contemplate more radical approaches
– enforcement mechanisms like the
one proposed by Nordhaus and
technological remedies such as
‘direct air capture’. The problem of
climate change is unprecedented,
and addressing it fully will require
actions that go beyond the measures
that negotiators have so far dared to
contemplate.
The Implications of the Paris Agreement and climate change from
a legal perspective
Raphael J. Heffron
The hot topic in energy research
for many disciplines has become
discussing the implications of the
UNFCCC Paris Climate Change
Conference (the 21st session of the
Conference of the Parties, or Paris
COP21). And while some heralded
and stood like Tubicenae (trumpeters)
in Ancient Rome to await the policy
makers and their entourages returning
from Paris with their pronouncement
concerning climate change, lawyers,
it can be said, were not rubbing
their hands with glee. From a legal
perspective, the effects of the Paris
Agreement will take time to work their
way into the three levels of energy law:
international, national, and local.
‘…THE EFFECTS OF THE PARIS
AGREEMENT WILL TAKE TIME TO WORK
THEIR WAY INTO THE THREE LEVELS
OF ENERGY LAW: INTERNATIONAL,
NATIONAL, AND LOCAL…’
It is also worth considering that while
the Paris Agreement of 2015 is seen
as a landmark in terms of climate
change negotiations, in some sense
we have been here before. Similar
pronouncements have been made
before and after climate change
negotiations in the past. Some
disciplines have moved on from this
focus and have begun to see climate
change differently. In this context, the
real focus of many climate change
scholars has been to follow the ‘money
trail’. There remains too much money
in the fossil fuel industry. This is the
big battle society is facing and a
transformative shift, in terms of how we
govern the energy sector and indeed
the greater economy, is required.
Paris COP21 and the law
Paris, home to the latest climate
change negotiations, is a city known for
its stories of romance and is indeed a
melting pot of leading literary ﬁgures,
from Joyce to Beckett, to Camus and
Sartre, to name but a few. It has given
us a similar romantic tale about climate
change. And just as Paris remains a
city of romance and literature, it is likely
that Paris COP21 will remain signiﬁcant
in the battle against climate change.
More countries than ever before have
agreed to take action on climate
change. Paris COP21 has delivered
real potential for change, with three
of the world’s largest carbon dioxide
(CO2) emitting countries, India, China,
and the USA having initially agreed to
be part of the Agreement – which will
be signed between 22 April 2016 and
21 April 2017.
In considering the effect of the Paris
COP21 negotiations, the real goal
from a legal perspective is the aim of
moving ‘beyond 2020’. Law in terms of
energy and climate change has been
dominated by the year ‘2020’ – the
year when new targets for emissions,
efﬁciency, and the contribution of
renewable energy would be met under
binding targets for many countries
present at Paris COP21. While these
countries have been focusing on
meeting these targets – with mixed
success in many cases – there has
been little direction as to what will
happen post-2020. The impact of
Paris COP21 is that it has brought this
beyond 2020 debate more into focus.
Certainly, from a legal perspective there
seems to be an acknowledgement that
‘legal thinking’ is essential in thinking
beyond 2020. Policy makers and
scholars in general now recognize the
necessary development of new law to
provide improved, and new, market
structures for the energy sector so that
Paris COP21 climate change goals can
be realized. Lawyers need to play more
of a role in achieving the next stage
of climate change targets, for 2030.
And perhaps in thinking of the wider
energy and climate change community
and their focus on energy transition
scenarios, and of the energy scenarios
of 2030, 2050, and 2080, law has been
a forgotten part of the debate.
Paris COP21 and the ‘silent legal signals’
Paris COP21 has placed climate change
at the forefront of public consciousness
by its achievement of more international
cooperation than ever before on the
issue. This is signiﬁcant when we think
of the indirect legal effects of Paris
COP21. To explain this we can return to
COP21 AND THE IMPLICATIONS FOR ENERGY
10 OXFORD ENERGY FORUM
the idea of following the money trail in
the battle against climate change. We
know that what society refers to as ‘big
business’ is responsible for the majority
of CO2 emissions globally; Heede’s
2014 study (‘Tracing anthropogenic
carbon dioxide and methane emissions
to fossil fuel and cement producers
1854–2010’, Climatic Change) states
that 90 entities (mostly) companies are
responsible for two-thirds of global CO2
emissions. Hence, if these companies
are held more to account and
encouraged to move away from fossil
fuel use, we may begin the signiﬁcant
and necessary transformation of the
economy, and begin to realize the
notion of a low-carbon economy.
In 2001, Noreena Hertz wrote an
excellent book on the silent power and
inﬂuence of big business on society
– it was appropriately titled The Silent
Takeover: Global Capitalism and the
Death of Democracy. I believe that,
aided and abetted by the international
climate change agreements (and in
particular their continued development
resulting in Paris COP21 and its
increase in international support),
we are seeing a slow reduction of
this Silent Takeover where energy is
concerned. To some degree Paris
COP21 conﬁrms to these companies
that the international community is
intent on taking action and that the
time for supporting (institutionally and
ﬁnancially, and directly and indirectly)
these ﬁrms is coming to an end. In
essence these ﬁrms have been sent a
silent legal signal to begin playing their
role in beginning the transformation
to a low-carbon economy and Paris
COP21 conﬁrms this signal.
Indeed, the shift away from fossil fuels
has been signalled to the international
investment community for some time
but Paris COP21 conﬁrms this. The
world’s largest development bank, the
European Investment Bank, has been
investing more and more in international
renewable energy projects – in part
because it is legally obliged to follow
EU energy policy objectives. Other
funds, such as university endowment
funds, have moved out of fossil fuel
energy sources while even Norway’s
sovereign debt fund is divesting all its
coal assets (see ‘Norway fund could
trigger wave of large fossil fuel
divestments, say experts’, The
Guardian, 28 May 2015). Further, in the
USA, coal assets have plummeted,
losing nearly 85 per cent of their value
in the last ﬁve years (see Stranded
Assets and Thermal Coal: An analysis
of environment-related risk exposure,
Ben Caldecott, et al., Oxford Smith
School, 2016). And what value will UK
coal assets have following the recent
announcement by the UK Government
that all coal generation electricity assets
would be closed by 2025?
‘IN THE INTERNATIONAL INVESTMENT
COMMUNITY THERE IS PERHAPS A
REALIZATION THAT SOME FOSSIL FUEL
ASSETS ARE NOW PRICED AT THEIR
PEAK VALUE.’
In the international investment
community there is perhaps a
realization that some fossil fuel assets
are now priced at their peak value.
For example in the USA, Bill Koch
lost approximately US$2 billion in
the decline of coal prices in the last
ﬁve years and admitted he did not
exit the market at the right time. This
understanding is now spreading to the
rest of the fossil fuel community and in
particular to the gas industry. Germany
has had a gas plant built that has never
been turned on. Carbon Capture and
Storage (CCS), as a technology source
for capturing CO2 from gas plants, is
looking further away than ever from
commercial operation. And signiﬁcantly
TOTAL, the French energy giant, has
already begun to sell some assets in
gas (see ‘French oil major Total to sell
$900m of North Sea assets’, Financial
Times, 27 August 2015 and ‘Total sells
stake in North Sea gasﬁeld to SSE in
$900m deal’, Financial Times, 29 July
2015). Indeed, is TOTAL ahead of the
curve, and aware that now is the peak
price period for gas assets?
Paris COP21 set to increase the legal
burdens on fossil fuel use
What has, and is, turning these
companies away from fossil fuel use?
In a nutshell it is the increased legal
burdens that are being placed on these
companies when operating and/or
developing fossil fuel assets. And Paris
COP21 signals that these legal burdens
are here to stay and set to increase.
Consider the following legal trends
internationally in the energy sector,
which demonstrate the increased legal
burdens on energy companies:
Coal mining – operating companies
have to show evidence they have the
ﬁnancial reserves to pay for full
decommissioning.
Offshore oil and gas –
decommissioning costs are escalating;
the threat of legislation to ensure that oil
and gas companies have the ﬁnancial
reserves to pay for decommissioning is
looming in many countries.
Fossil fuel electricity generation
infrastructure – in many countries,
legislation is in place that new fossil
fuel infrastructure can only be built if
it is accompanied by CCS
technology (it should be noted that
there are variations on this, some
countries focus on coal only, while
others state only that they have to
have the ‘capture’ technology built).
Provision of data on CO2 emissions,
toxic pollutants, effects on local and
national public health, and subsidy
support.
The ﬁrst three are self-evident, while the
ﬁnal one is perhaps the most
interesting as it overlaps with Paris
COP21; this is discussed in more detail
in the next section.
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The Paris COP21 ﬁve-year review and data
production
Data production is enabling a new era
– in terms of how we see and think of
the energy sector and its effects – to be
ushered in. More and more people are
questioning why and how we support
different energy sources. In this context,
people are witnessing more of the
external effects of energy, in particular
the issue of poor public health – both
the physical effects and conclusions
reached from the data itself – in a
variety of forms. India, China, and the
USA all have this in common and it is
therefore no surprise that they want
action to some degree. In part, this
results from the spread of information
relating to energy data – this spread
of data is well documented in popular
science books. ‘Energy’ learning and
teaching is increasing signiﬁcantly and
is itself now beginning to mature as
probably the ﬁrst major interdisciplinary
research ﬁeld at universities.
‘THE FIVE-YEAR REVIEW PROCESS OF
PARIS COP21 WILL … FORCE US TO
REVIEW “THE DIRECTION” OF WHERE WE
ARE GOING POST-2020.’
One of the signiﬁcant aspects of
Paris COP21 is its call for a review of
progress and action every ﬁve years.
While countries contemplate the ﬁnal
stages of whether they will meet their
2020 climate change targets, and
some set the narrative of why they may
not have achieved it, the climate and
energy community will be engaged
in a data production rush. This data,
produced over the next ﬁve years, will
contribute signiﬁcantly to how we tackle
climate change beyond 2020.
The ﬁve-year review process of Paris
COP21 will, for certain, force us to
review ‘the direction’ of where we are
going post-2020. It will also encourage
us to review the data produced to
date and to think and explore more
on the issues where more data may
signiﬁcantly inﬂuence public opinion.
For just a few examples of this,
consider the following:
more data on subsidies for the energy
sector is being produced and it is
changing our opinion on support for
fossil fuels (in other words, is renewable
energy so expensive when we factor
in subsidies to fossil fuels and the
spiralling decommissioning costs?);
more data on the public health
consequences (both in terms of cost
to the public health system and of
physical impact on the person) of
fossil fuels is changing the view on
using fossil fuels in the long term; and
more data is being produced, and will
be required in the future, to build new
energy infrastructure – such as that
used in the Environmental Impact
Assessment (EIA) documentation
from 2017 – and this data is required
not just by the public but also by
banks who ﬁnance the projects.
The EIA process and its data
production requirement are increasingly
making fossil fuel energy infrastructure
more difﬁcult to build. It is likely that
a lot of data for the ﬁve-year reviews
under Paris COP21 will come from
the EIA process. The energy data
rush is about to go into overdrive and,
worryingly for the fossil fuel industry,
it seems destined to make a major
contribution to the review of the true
cost of fossil fuel infrastructure – a
review that includes the full cost of
harm from its externalities, and the
subsidy support it receives.
Fossil fuels, the Emperor has no clothes
Paris COP21 highlights a new level of
international cooperation on climate
change. It represents the move to go
beyond 2020, and law has a signiﬁcant
role to play in ensuring that the steps
we need to take for that period are
realized. Paris COP21 is sending clear
signals to the investment community
that there is a major threat to the future
of the fossil fuel industry and that in the
future it will be harder to justify building
new fossil fuel infrastructure.
Indeed, for the success of global action
against climate change, continued use
of fossil fuels is the real challenge.
Perhaps the Paris COP21 achievement
is that it espouses the continued use of
‘subtle’ changes to fossil fuel energy
sources that have dominated our
society for so long. Economic markets
should create incentives to move away
from reliance on these sources, but
considering their domination by fossil
fuel sources, more subtle and slow
reform is needed. Hopefully this is what
we will see with the development of the
Mission Innovation initiative – another
Paris COP21 result – that is aiming to
deploy renewable energy to developing
world countries and beginning the
process of moving these countries away
from further reliance on fossil fuels.
Finally, the responsibility falls on
lawyers to work on continuing to adapt
and change the legislation that is
currently beneﬁcial to fossil fuel energy
sources. They need to encourage –
and continue – the state of undress
of the Emperor, so that all will ﬁnally
realize that the Emperor is, as in the
1837 story by Hans Christian Andersen,
without clothes. In this reality, the
greater achievement of Paris COP21
may be that it has cemented the idea
internationally in public consciousness
that a ‘change’ – from business-asusual
and the continued increase in
fossil fuel use – is needed, and it is
the legal community which can ensure
delivery of this change.
‘…A “CHANGE” – FROM BUSINESS-ASUSUAL
AND THE CONTINUED INCREASE
IN FOSSIL FUEL USE – IS NEEDED, AND IT
IS THE LEGAL COMMUNITY WHICH CAN
ENSURE DELIVERY OF THIS CHANGE.’
COP21 AND THE IMPLICATIONS FOR ENERGY
12 OXFORD ENERGY FORUM
The climate of Paris
John Mitchell
Humanity is the cuckoo in the nest of
nature: supported by it but destroying it.
Humans have always destroyed their
environment in order to thrive and
prosper; now there are many more
humans and much less environment.
Climate change is the latest in a series
of confrontations where nature threatens
to retaliate. There has been progress;
the ‘sustainable development’ movement
of the 1980s and international
cooperation to protect ‘the commons’
threatened by the tragedy of
overexploitation or random development,
for example the UN Convention on the
Law of the Sea (UNCLOS) 1982 (nine
years to negotiate) and the Montreal
Protocol on Ozone Depleting
Substances (1989).
‘HUMANS HAVE ALWAYS DESTROYED THEIR
ENVIRONMENT IN ORDER TO THRIVE AND
PROSPER; NOW THERE ARE MANY MORE
HUMANS AND MUCH LESS ENVIRONMENT.’
The United Nations Framework
Convention on Climate Change
(Rio 1992) showed almost universal
acceptance by governments of the
concept that global warming and
the threat of climate change merited
international action. Disagreements
about degree, responsibility, and
burden sharing prevented satisfactory
progress at Kyoto (1997). The magic
of Paris is a big step towards a more
promising way forward, building on
the Obama–Wen Jiabao agreement in
Copenhagen in 2009.
The keys to Paris
The Paris Agreement has two key
mechanisms which Rio and Kyoto lacked.
1 A substitution of bottom-up for
top-down policy making on climate
mitigation.
By one of those feats of diplomatic
acrobatics at which treaty makers
excel, the Contracting Parties neither
agree to, nor impose, emission limits
on any country. There are Intended
Nationally Determined Contributions
(INDCs), put forward by individual
governments for the period to 2030
(2025 in the case of the USA).
The INDCs are not themselves
innovative. They reﬂect recent energy
and climate policy developments.
The language of the agreement
carefully avoids any suggestion that
the INDCs will be reviewed, or their
policies changed, by collective
action; it speaks in terms of common
methodology and ‘understanding’,
which may include explaining how
each country considers that its INDC:
‘… is fair and ambitious, in the
light of its national circumstances,
and how it contributes towards
achieving the objective of the
Convention’
Implementation is at the discretion
of each government. INDCs do
not take even nominal effect until
2020, though they will inﬂuence
planning and policy developments by
government and industry.
2 A commitment by all countries to a
‘stocktaking’ review every ﬁve years to
assess progress/deviations versus
the INDCs. The Intergovernmental
Panel on Climate Change (IPCC) will
conduct another review of scientiﬁc
evidence and the best estimates of
probable ranges of outcomes of
future global warming. (Their 2014
reports formed the basis of the
perceptions on which the Paris
Agreement is founded).
Together, these constitute a very
sophisticated and subtle form of what
in earlier days was known as ‘pledge
and review’ (rejected at Rio and Kyoto).
It might now be described as ‘intend
and defend’.
Money
Money matters; the Paris Agreement
commits developed countries to ﬁnd
at least US$100 billion a year by 2025
for mitigation and adaptation in
developing countries. For some
countries, such as those in the EU,
the sale of emission permits will
generate ﬂows of money outside the
budgetary process. This can be used
for climate change (and other) policies.
Rules must be developed, and it will
not be surprising if the ﬂexible use of
money helps ease some of the
diplomatic obstacles to the next
round of climate change negotiations.
Some developing countries have
made very clear that they expect
signiﬁcant contributions from
developed countries towards their
estimates of the very large costs of
mitigation and adaptation.
Adaptation
The Paris Agreement commits the
parties to give equal attention to
adaptation and mitigation. There is a
follow-up task: to develop
methodologies and policies for
suitable international action. While
global measures are essential to
mitigate climate change, adaptation
measures are likely to be addressed
mainly through ﬂows of money and
advice to developing and speciﬁcally
threatened countries.
‘THE PARIS AGREEMENT COMMITS THE
PARTIES TO GIVE EQUAL ATTENTION TO
ADAPTATION AND MITIGATION.’
MAY 2016: ISSUE 105
13OXFORD ENERGY FORUM
Follow-ups
The Paris Agreement commits the
United Nations Framework Convention
on Climate Change (UNFCCC)
bureaucracy to a tough diplomatic
agenda. Many people will be
employed in technical work on
measuring emissions, conversions,
and protocols to make the review
process operational.
There will be similar, and probably
more difﬁcult, discussions about the
treatment of emissions from Land
Use, Land-Use Change, and Forestry
(LULUCF). Some countries include
these in their INDCs (because they are
net carbon sinks), but ‘below the line’,
because deﬁnitions are contentious
and activities difﬁcult to monitor.
Emissions trading, a key feature of
the Kyoto protocol, is left ﬂoating in
the Paris Agreement. The European
Emissions Trading System (ETS) has
been cleaned up and a mechanism
for avoiding very low carbon prices
created. There are regional emission
trading systems in the USA and pilot
schemes in China. These are likely to
grow, as they can spread the costs
of reduction to industries where
reduction is cheapest. International
trading, however, presents a set of
administrative challenges which need
not be addressed at this stage and this
has been eschewed by the USA, the
EU, and China.
Joint Implementation (JI) and the Clean
Development Mechanism (CDM) –
both features of Kyoto – are neither
prominent in the Paris Agreement, nor
are they negated. Some countries,
notably the USA, the EU, and China do
not propose to use new international
instruments to count towards their own
targets as Japan does. Japan can
proceed bilaterally, but peer pressure
in the next round of negotiations
may well close down future use of
these mechanisms, or introduce very
strict regulations for validating the
additionality of extraterritorial carbon
savings.
Questions of regulating emissions from
international aviation and international
shipping are being addressed with the
International Civil Aviation Operators
Association (ICOA) and the International
Maritime Organization (IMO).
Demand side
Change in demand is necessary
to implement the INDCs, and in
preparations to go further after 2030.
There are no intentions to restrict
the supply of fossil fuels except by
reducing demand. Most INDCs rely
on emissions growth slowing or
reversing as economies shift away
from manufacturing to less energy
intensive services. This is an issue of
development policy beyond the scope
of the UNFCCC or the Paris Agreement,
but it does include measures to
promote technical efﬁciency and the
adoption of good energy management
practices. This challenges consumers
and manufacturers of all equipment
that uses energy, including buildings.
The automobile industry has been
under pressure for decades to improve
efﬁciency and reduce emissions of
other pollutants; it now has to reduce
greenhouse gas (GHG) emissions.
The US Supreme Court accepted
(2007) that the Environmental
Protection Agency (EPA) is empowered
by the Clean Air Act (1990) to regulate
greenhouse gas emissions from
vehicles, and the EU has added GHGs
to the list of controlled pollutants from
vehicles. Regulations will emerge from
agencies and courts that will seek
to reduce the market for fossil fuels
and create markets for products and
services which avoid their use. The oil,
gas, coal, and power industries will be
required to restrict emissions from their
own operations.
Changes on the demand side will go
beyond simple products and services;
the planning of city infrastructure
and of transport systems will also
change. This will be most evident
in countries like China, where rapid
economic growth means that the new
is overtaking the old and there is time
to avoid being locked into obsolescent
transport systems like those of the USA
and Europe.
Unresolved policies
There are a number of challenges for
the think tanks and special advisers
preparing for the stocktaking in 2018.
The headline issue for the advocacy
groups is whether the object of limiting
the probability of more than 2 °C
warming should be more aggressively
set at 1.5 °C. The next IPCC report may
clarify what the difference in risks is,
but meanwhile the argument is mostly
about prudence; for the ﬁrst couple of
decades, the policies likely to emerge
under a 2 °C regime versus a 1.5 °C
regime are similar. The probabilities
would change – aiming at a 1.5 °C
maximum increases the probability
that a 2 °C maximum will be achieved
– and this is all about probabilities. The
UNFCCC Secretariat has endorsed
the view that the Paris INDCs will be
likely to limit global warming to 2.7 °C
(2.2 °C to 3.4 °C) by 2100. It is difﬁcult
to be precise. Organizations with
climate, or climate and economic,
models show a vast range of estimates.
So much is unknown, not just about
the economic factors underlying
long-term projections, but also about
the sensitivity of climate to levels of
concentration of GHGs (see Energy
and Climate Outlook 2015, MIT Joint
Program of the Science and Policy of
Global Change and Climate Change
2014 Synthesis Report, IPCC, 2014).
Another fundamental question is the
balance between early and late
emission reductions. There is general
agreement that early reduction is best
because it reduces the degree of
COP21 AND THE IMPLICATIONS FOR ENERGY
14 OXFORD ENERGY FORUM
change that will be required later, given
the demographic momentum driving
increasing emissions. Early action will
slow the accumulation of long-lived
GHGs. It would also reduce the risk of
building long-life assets and infrastructure
to be stranded by more severe
emission restrictions. While 2030 is the
date for the INDC contributions listed in
Paris, 2050 is regarded by many
countries as an anchor for simplistic
targets to decarbonize economies (for
example by 50 per cent), while 2100 is
regarded as the ultimate date by which
almost total decarbonization must be
achieved to limit the cumulative growth
of emissions.
‘…2100 IS REGARDED AS THE ULTIMATE
DATE BY WHICH ALMOST TOTAL
DECARBONIZATION MUST BE ACHIEVED
TO LIMIT THE CUMULATIVE GROWTH
OF EMISSIONS.’
However some believe that costs
deferred are costs reduced so that
loading much of the change into 2030–
50 would be sensible. Technology
may improve, so later changes (for
example, massive use of carbon
sequestration) become less expensive,
or geo-engineering (mirrors in the
sky) becomes feasible. ‘Net negative
emissions’ might become possible,
reducing cumulative CO2 or at least
pre-empting later CO2 emissions.
The INDCs
The INDCs of many developing
countries do not offer very speciﬁc
policies, rather general intentions
that do not compromise their growth
aspirations. The idea of ‘differentiated
responsibilities’ between developed
and less-developed countries
originates in the UNFCCC of 1992
and is held to be non-negotiable by
developing countries. China, India, and
other developing countries intend to
reduce their energy intensity of GDP:
China by 60–65 per cent, India by
30–35 per cent (below 2005 levels).
Neither country has a commitment
to reduce emissions from an historic
baseline, unlike developed countries.
India expects signiﬁcant ﬁnancial
contributions from developed countries
to reduce the expected and very large
costs of their climate programme,
particularly in the power sector.
In China, energy intensity will fall as the
economy transitions to a ‘new normal’
(more growth in services, less in heavy
industry), combined with programmes
to improve efﬁciency in vehicles,
industry, and buildings. The carbon
intensity of energy will be reduced by
mandating and subsidizing renewables
for power generation; continuing
nuclear expansion; and building fewer
coal power stations.
Oil and gas demand in China will
continue to grow to 2030 before
peaking; emissions may continue to
grow. In India too, the main driver for
limiting emissions will be economic
transformation – shifting out of
agriculture into manufacturing, with
higher energy intensity but more
renewables. The argument for early
adoption of efﬁciencies is particularly
relevant to India, where a large
proportion of future capital stock has
not yet been built.
Other developing countries maintain
their right to grow, but their INDCs do
not always articulate how either their
energy intensity, or the carbon content
of their energy, is to be reduced.
The INDCs of developed countries
reﬂect recent plans to reduce emissions
from 2005: by 26–28 per cent for the
USA by 2025, 25 per cent for Japan
by 2030, and 30 per cent for the EU
by 2030.
The power sector
In most major countries the INDCs
show that the power sector is due for
most change, and quickly. Direct
government intervention, subsidies,
and regulation will change the mix of
fuels, compulsorily increasing the
share of renewables with dispatch
prioritization and subsidies using
feed-in tariffs; coal use will be reduced
by mandates or taxes. The precise
combination will depend on local
options and policies in which gas
supply – especially imported gas –
will be a high risk residual. Market
structure will change to accommodate
intermittent sources of supply, to
provide increased competition, to
dampen the price increase caused by
greater use of renewables, and to
increase resilience and security of
supply.
Agenda for companies
The international agreements reached
in Paris point very clearly to more
regulations and policies to control and
reduce the emission of greenhouse
gases. These policies will reduce the
demand for carbon-heavy fuel, and
require strict controls on emissions
of methane and other gases. Price
expectations can no longer be based
on assumptions of the rising costs of
supplying ever-increasing quantities
of fossil fuels. Companies (including
state-owned companies) that are
responsible for supplying fuels and
gases will alter their investment
plans accordingly. There will be new
opportunities for manufacturers of
vehicles and equipment, and for
providers of services which avoid the
use of carbon-heavy fuels.
Investors in companies on both the
supply and consumption side may
legitimately ask how they are planning
to adapt their current business models
to these changes. Pessimistic investors
may sell shares, fearing that such
companies cannot successfully adapt
given that the direction is clear but the
route is very uncertain.
MAY 2016: ISSUE 105
15OXFORD ENERGY FORUM
The power sector will bear the brunt of
change in the ﬁrst decade or two.
Power and gas companies need to
adapt to increasing intervention, limits
on their choice of fuel, and mandates
to use more renewables. The power
sector is equally challenged in
developed countries (legacy assets)
and developing countries (the need
for investment to be made under
conditions of uncertainty and
increasing intervention). Political
considerations cloud economic
judgments (coal, nuclear, renewables)
and the ‘golden era of gas’ as a
transitional solution may prove elusive.
Few countries have much oil in their
power generation mix. The changes
mainly affect development of gas
production and investment in
infrastructure routes which would
bring gas, in competition with
internationally priced coal, into export
markets either yet to exist or deﬁned
by government policies. The switch
towards bottom-up policies and local
solutions, even within national
borders, affects competition at each
stage of the supply chain. Major oil
companies investing in gas for
export need to pay attention to the
problems of the power sector, market-
by-market.
For the oil industry, the INDCs to 2030
do not represent a signiﬁcant early
threat. The price collapse of 2014
clearly signalled the need to avoid
overinvestment and high-cost upstream
projects. The shifting balance of
demand from the USA and Europe to
Asia is not new, and will continue to
challenge companies with developed
country downstream businesses. The
real challenge for the oil companies lies
probably after 2030, when
developments of battery technology
coincide with an expansion of
renewable electricity supply.
For advocates who are serious about
limiting climate change, the rainbows
on 2050 and 2100 horizons involve
(among many complexities)
decarbonizing electricity so that
transport can be based on electric
vehicles and public transport systems.
There are major manufacturers of
surface vehicles, ships, and aircraft
who are already engaged in long-term
planning to secure their situation in
such a world. The oil industry shows
little sign of similar efforts. The relative
lack of new challenges on the oil side
does not excuse complacency about
the longer-term developments in
transport and the more immediate
disturbance of the power sector, the
major market for gas.
COP21 and the future role of natural gas in the EU
David Robinson
This article considers the implications
of COP21 for the natural gas industry,
with a focus on the EU and Spain.
The Paris Agreement represents a
successful effort to avoid a complete
breakdown of climate change
negotiations. Although we cannot
assume that the governments who
signed the agreement will comply
with their commitments, or deliver
more ambitious commitments later,
COP21 will inﬂuence public policy and
corporate strategy. This is particularly
important for the natural gas industry
in the EU. It has the potential to
contribute to decarbonization in the
short to medium term, provided it
wins the necessary policy support,
especially to replace coal in the
power sector. However, in the longer
term and assuming the EU meets its
ambitious emissions reduction targets
by 2050, the future for natural gas
looks problematic in the absence of
technological innovations to abate
emissions.
Natural gas may beneﬁt from COP21 in the
near to medium term
The Paris Agreement is potentially
good news for the European natural
gas industry. This is because natural
gas can support decarbonization by
replacing coal in power generation,
providing back-up to intermittent
renewables, and replacing more
carbon-intensive petroleum products in
certain transport and heating markets.
Consequently, the industry considers
itself to be at least a bridge to a lowcarbon
future. It is calling for policies
to support natural gas because the
current relative prices of fossil fuels,
as well as many national government
policies, currently favour oil and coal
over natural gas.
Replacing coal in the power sector
In Europe, electricity demand for
natural gas fell by almost 60 bcm
(more than 10 per cent) between 2010
and 2013. Indeed, electricity accounts
for almost all of the reduction in the
demand for natural gas in Europe
‘THE POWER SECTOR WILL BEAR THE
BRUNT OF CHANGE IN THE FIRST DECADE
OR TWO.’
‘THE PARIS AGREEMENT IS POTENTIALLY
GOOD NEWS FOR THE EUROPEAN
NATURAL GAS INDUSTRY.’
COP21 AND THE IMPLICATIONS FOR ENERGY
16 OXFORD ENERGY FORUM
during that period. Furthermore, within
the market for generation from fossil
fuels, natural gas lost share to coal.
The explanation includes relatively
high and rising natural gas prices, low
prices for CO2 emission allowances,
as well as low and falling prices of
coal. Natural gas prices in Europe
have subsequently fallen due to ample
supply of Russian gas and LNG,
low demand for natural gas, and the
decline in oil prices (often the basis for
indexing prices of natural gas). But coal
prices are also falling. Consequently,
natural gas has not yet won back
market share from coal except in the
UK, where there is a rising CO2 tax ﬂoor
which favours natural gas over coal.
Natural gas demand in the power
sector has also been affected by the
decline in electricity demand, which
has fallen by over 3 per cent in the EU
since 2008. This is partly the result
of the recession, but it also reﬂects a
structural change in the large OECD
countries where the relative decline
in the importance of heavy industry
coincides with demand saturation
and policies to promote energy
conversation and energy efﬁciency.
So while replacing coal with natural gas
in the power sector should be ‘lowhanging
fruit’ as far as decarbonization
is concerned, this is only happening
in some EU countries and it largely
reﬂects policy decisions rather than
markets. For instance, the EU’s Large
Combustion Plant Directive and the
Industrial Emissions Directive have
contributed to the early closure of
existing coal-ﬁred power plants in the
UK. The Paris Agreement will almost
certainly reinforce these policies in EU
countries, further tightening restrictions
on coal-based generation and indirectly
favouring natural gas, at least in
the near to medium term. However,
the evidence suggests that without
additional policy support, at the EU and
national level, natural gas will not be
able to replace coal.
Natural gas as a support to renewable
power
The most signiﬁcant challenge for
natural gas (and to a lesser extent for
coal) in the power sector to date has
been from renewable energy, which
has enjoyed signiﬁcant public policy
support. The ﬁgure ‘Generation by
primary energy: 2030 outlook in the EU
27’ captures the signiﬁcant increase in
output from renewable energy sources
(RES) compared to conventional power
from fossil fuels and nuclear.
‘AS LONG AS INTERMITTENCY
CONTINUES TO BE A CONCERN, NATURAL
GAS WILL PLAY A ROLE AS FLEXIBLE
BACK-UP SUPPLY.’
The natural gas sector points out
that it plays an important role when it
comes to fostering the development
of renewable energies, acting as a
guarantee against their intermittency.
As long as intermittency continues
to be a concern, natural gas will play
a role as ﬂexible back-up supply.
However, there are other sources of
back-up, including demand response,
interconnection, and ﬂexible generation
from other sources (such as hydro,
other renewables, coal, and even
nuclear in some cases). Natural
gas-ﬁred plants will have to compete
with these other sources of ﬂexibility.
The development of low-cost storage
could reduce the value of ﬂexibility
from natural gas. However, it could be
many years before battery technology
is cheap enough, and has achieved the
scale, (and attracted the investment),
to replace gas in the job of balancing
renewables. Furthermore, it could be
many years before renewables can
replace gas in more baseload service
at a price that consumers will accept in
their bills as gas is phased out.
Transport and heating opportunities
Beyond the power sector, there are
some other potential bright spots for
natural gas, in particular as a
competitor to petroleum-based
products in transport and, to a lesser
extent, in heating. Onshore trucking is
potentially an interesting market for
natural gas, but progress to date has
been slow. LNG as a marine bunker
fuel shows more promise and could
be an important market for natural
gas in the 2020s. In some countries,
such as Spain where diesel is an
important heating fuel, natural gas
has the potential to gain share in
heating markets.
For these three reasons, Paris COP21
should help the natural gas sector.
However, decarbonization via natural
gas is not automatic. First, the relative
prices of fossil fuels do not favour
500
0
1,500
1,000
2,000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 20112010 203020202012 2015
TWh
fossil fuel fired
nuclear
res
Generation by primary energy: 2030 outlook in the EU 27
Source: Eurelectric
MAY 2016: ISSUE 105
17OXFORD ENERGY FORUM
natural gas. In the power sector, coal
prices are much lower than gas prices
on a per unit (kWh) basis; ironically, this
is partly due to the fact that low-cost
shale gas is replacing coal in the US
power sector, leading to increased
exports of coal from the USA and to
lower world coal prices. Natural gas
is also facing very low prices from
petroleum products in transport and
heating markets. Second, policy
makers in some countries clearly favour
coal over natural gas. Germany and
Poland seem set to continue to use
coal and lignite on a grand scale for
some time to come. This dwarfs any
discussion of gas versus renewables in
these countries, or indeed any rational
CO2 abatement logic.
What policy support is required?
First a higher price of CO2 emissions
(such as a carbon tax or price) would
clearly favour natural gas over both
coal and oil products. To achieve
that aim, ﬁxing the EU ETS so that
prices are higher and predictable is a
priority for the natural gas sector; the
introduction of carbon prices for the
sectors not covered by the ETS should
also be a priority. The importance of
this sort of policy is evident in the UK,
where the higher and rising CO2 price
ﬂoor is killing off coal quite quickly. A
rising carbon price throughout Europe
would be particularly welcome, and
easier to introduce, while coal and oil
prices are very low.
Second especially in the absence of
adequate carbon prices, the EU should
consider the idea of declining carbon
intensity targets. The USA has introduced
policies that mandate a reduction of
carbon intensity for the power sector in
the medium term (2025–30). This
effectively requires a shift away from
coal and encourages generation from
lower-carbon sources, notably natural
gas and renewable power. The US
Clean Power Plan faces legal hurdles,
notably from states that reject the
authority of the Environmental Protection
Agency (EPA) to impose such a plan.
However, even in the absence of such
a policy the economics are moving in
the same direction, due to the very low
cost of natural gas. In the EU, where
natural gas prices are relatively high
and where coal and carbon prices are
low, a policy aimed at reducing the
carbon intensity of the power sector
would be worth considering.
The longer-term prospects for natural gas
are grim
Even if natural gas can replace coal
in the European power sector over
the next 10–15 years, and replace oil
products in heating and transport over
a similar period, its long-term prospects
are less promising in the absence of
new technologies to abate carbon
emissions. For the EU to meet its 2050
target of a reduction of 80–95 per cent
of GHG emissions compared to 1990,
most governments are planning on a
virtually complete decarbonization of
the electricity sector, and substantial
replacement of fossil fuels in heating
and in transport.
For instance, a recent study by the UK
Energy Research Centre (UKERC)
(‘The future role of natural gas in the
UK’, February 2016) argues that gas is
unlikely to act as a cost effective bridge
to a low-carbon energy future. The
study said that, without Carbon Capture
and Storage (CCS), the scope for UK
gas use in 2050 was little more than
10 per cent of its 2010 level. But,
irrespective of whether CCS was
developed, the report said that, to meet
emissions reduction targets costeffectively,
gas use in power stations
would decline after 2025, when all coal
power stations are to shut. This would
mean that gas-ﬁred power stations built
between now and then would need to
operate on relatively low load factors,
something that investors will doubtless
take into account in their decision whether
to invest in these power stations.
Other research sponsored by UKERC
(‘Decarbonising Heat’, Nick Eyre,
ECI/Oxford, February 2016) also points
to a dramatic fall in natural gas use
for the residential heating market in
its three main policy scenarios – from
about 230 TWh in 2010 to well below
100 TWh in 2050.
In Spain, a study by Deloitte offers a
further indication of the challenges
faced by natural gas. That study
concludes that a reduction of GHG
emissions by 80–95 per cent in 2050
would require that at least 90 per cent
of electricity will be based on
renewable electricity (compared to
38 per cent in 2015) with natural gas
used only as back-up, that personal
electric vehicles will have very high
penetration, and that the heating
market will also be substantially
electriﬁed. However, the study identiﬁes
two sources of new demand for natural
gas, namely to replace petroleum
products for heavy vehicles and
maritime transport, as well as for part
of the heating market. The result is that
natural gas demand in 2050 is forecast
to be similar to current levels.
For long-term growth of natural gas
demand to be compatible with the
avoidance of dangerous interference
with the climate requires the
development of technologies that are
economically viable at scale to absorb
and utilize or store CO2 emissions.
I have in mind direct air capture, as
well as Carbon Capture and Storage
or Utilization (CCS/CCU). We are a
long way from meeting the
requirement for these to be
economically viable at scale.
‘A HIGHER PRICE OF CO2 EMISSIONS
(SUCH AS A CARBON TAX OR PRICE)
WOULD CLEARLY FAVOUR NATURAL GAS
OVER BOTH COAL AND OIL PRODUCTS.’
COP21 AND THE IMPLICATIONS FOR ENERGY
18 OXFORD ENERGY FORUM
Need for a new strategy and policy on
infrastructure
Finally, I would add a note of caution
about the implications for investment
and the recovery of ﬁxed costs in gas
infrastructure. If the EU is serious about
its 80+ per cent emissions reduction
by 2050, the total EU gas market could
be signiﬁcantly smaller than at present,
and it is in any case unlikely to grow
by much. Yet investment timescales in
gas, especially in gas infrastructure,
are very long and investment may well
be needed in order for gas to play a
bridging role in the near to medium
term in certain regions. This has two
implications: one for industry and the
other for policy makers.
‘IF THE EU IS SERIOUS ABOUT ITS
80+ PER CENT EMISSIONS REDUCTION
BY 2050, THE TOTAL EU GAS MARKET
COULD BE SIGNIFICANTLY SMALLER
THAN AT PRESENT.’
The gas industry needs to develop a
coherent long-term strategy to reﬂect
the likelihood of stranded network
assets in certain regions. On the one
hand, if the assets are fully amortized,
they can be abandoned; what matters
are forward-looking costs. On the other
hand, it is worth considering alternative
uses of pipeline, storage, and LNG
infrastructure. Some companies
are already thinking about this; for
example, converting renewables into
hydrogen gas, which can then be
transported, stored, and blended with
natural gas in existing infrastructure.
If CCS becomes more signiﬁcant, it
may also be possible to use the gas
infrastructure to transport and store
CO2, although this will depend on
location and geology. More generally,
the gas industry should be thinking
about the longer-term uses of its
network in a low-carbon world. As
European gas production declines
and if gas consumption also declines,
infrastructure could be the industry’s
main asset.
It is also important for the industry
to press effectively for a clear public
policy to help investors decide whether
to proceed with new investment in
infrastructure. For example, the Spanish
gas industry argues that due to its
signiﬁcant LNG assets, Spain could
play a key role in providing continuity
of European supply. Expanding the
capacity of gas pipeline infrastructure
between Spain and France could help
bolster supply to France and allow
other pipeline supplies to be diverted
further eastwards.
However, for additional Spanish gas
exports to reach central European
markets would require additional
infrastructure investment in France, as
well as the interconnector investment
between Spain and France. It may
be less expensive to transport LNG
to northern Europe than to build
new interconnectors and additional
pipelines through France. The
question is therefore whether these
new infrastructure investments
(interconnectors and national grids)
are economically justiﬁed, and who
would bear the costs if the assets lost
value due to the lack of utilization. This
requires careful and independent study.
But it also requires a clear statement
of European policy with respect to the
future role of natural gas in the EU’s
long-term decarbonization and energy
strategy, along with measures to realize
that policy.
In conclusion, for natural gas to
support decarbonization in the short
to medium term requires urgent policy
support and planning, both at EU and
national levels. In the longer term, in
the absence of economically viable
technologies to capture and use CO2
emissions, the future for natural gas
must be in question if the EU is serious
about moving to a low-carbon energy
system. Given the very long lead times
needed for infrastructure investment,
and the need to reduce emissions
over the next two decades, a clearer
strategy for the role of gas and how
it ﬁts into the transition needs to be
developed to underpin investment.
Nuclear after Paris: any clearer?
Malcolm Grimston
One might have expected that the Paris
Conference of Parties meeting (COP21)
on climate change in December of last
year might have placed a particular
focus on nuclear power. For some
years France has generated a higher
proportion of its power from nuclear
than any other country. This French
version of Germany’s Energiewende –
tournant énergétique perhaps? – came
along a quarter of a century before
Germany’s and, if judged in carbon
reduction terms at least, was notably
more successful. In comparison with
its neighbour, Germany’s energy and
environmental policy (set out in the
1991 and 2000 Renewable Energy
Acts), had had limited success in
reducing greenhouse gas emissions,
even before the 2011 post-Fukushima
decision to close its nuclear plants.
Releases from electricity and heating
followed the same path in France and
Germany until about 1980, after which
MAY 2016: ISSUE 105
19OXFORD ENERGY FORUM
the growing French nuclear ﬂeet
brought emissions down to levels that
were effectively the same as, or slightly
below, those of the early 1960s. German
emissions remained twice their level in
1961, falling less than 1.5 per cent in
the decade after the 2000 Act.
Emissions rose in four of the ﬁve years
following Germany’s decision to exit
from nuclear: even during the warm
summer of 2014, emissions failed to
return to 2011 levels.
France led the ‘dash for nuclear’ (in part
a response to the oil shocks of 1973
and 1979) from 1975 to 1995. For the
only time in history so far, since the start
of the industrial revolution, the global
proportion of primary energy produced
from non-fossil fuels increased
signiﬁcantly, from around 6 per cent in
1975 to 13 per cent in 1995; it has
stubbornly stayed at this level despite
the growth in renewables.
In the two peak years for nuclear
installation so far – 1984 and 1985 –
some 64,000 MW of nuclear capacity
came on line, capable of producing
around 500 TWh of power per year at a
reasonable level of performance. Given
today’s global power demand (around
24,000 TWh), sustaining that rate of
deployment for the following 30 years,
all else being equal, would have
resulted in a world that obtained well
over half of its electricity from non-fossil
sources by now, as opposed to barely
one third.
Antinuclear activists were nonetheless
successful at the key Kyoto COP
meeting in 1997 (COP3) in excluding
nuclear power from the ‘Kyoto’
mechanisms, notably the Clean
Development Mechanism. An illustrative
example of antinuclear tactics came
in 2009 from the Worldwide Fund for
Nature (WWF). In its 2009 G8 Climate
Scorecards, the organization faced a
difﬁculty – calculations based on actual
greenhouse gas emissions from energy
use kept placing countries like France
and Sweden, with their large nuclear
programmes, at the top in terms of
reducing greenhouse gas emissions.
WWF’s response was an object lesson
in Big Green science.
‘WWF does not consider nuclear
power to be a viable policy
option … To reﬂect this, a policy
approach that favours the use
of nuclear power was assessed
by assuming that electricity from
nuclear energy was produced
with gas.’
Sure enough, by redeﬁning ‘very
large volumes of carbon dioxide
emissions’ to include ‘minuscule levels
of radioactive releases’ in such an
‘…THE GROWING FRENCH NUCLEAR
FLEET BROUGHT EMISSIONS DOWN TO
LEVELS THAT WERE EFFECTIVELY THE
SAME AS … THOSE OF THE EARLY 1960S.’
0
50
100
150
200
250
300
CO2emissionsfromelectricity/heating,
1961=100
Germany France
CO2 emissions from electricity and heating, Germany and France
(1961 = 100)
Source: ‘Climate change knowledge portal’, World Bank, 2014
5
7
9
11
13
15 % traded primary energy from non-fossil sources
Percentage of global primary energy from non-fossil sources, 1965–2014
BP Statistical Review of World Energy, 2015
COP21 AND THE IMPLICATIONS FOR ENERGY
20 OXFORD ENERGY FORUM
arbitrary way WWF was able to give
the impression that nuclear power
was not a particularly effective way of
reducing greenhouse gas emissions.
(G8 Climate Scorecards, WWF-Allianz,
July 2009).
In the early days of the Paris summit,
in the words of one commentator,
nuclear power ‘struggled to ﬁnd its
voice’. Things warmed up somewhat
when four of the world’s top climate
scientists (Ken Caldeira, Carnegie
Institute; James Hansen, Columbia
University, credited with getting climate
change onto the US political agenda in
1988; Kerry Emanuel, MIT; and Tom
Wigley, University of Adelaide)
delivered a performing version of their
celebrated 2013 letter calling on
environmentalists to think again on the
nuclear issue – something which
increasing numbers have duly done.
As Caldeira said:
‘The climate doesn’t care whether
electricity comes from a wind
turbine or a nuclear reactor. The
climate just cares about carbon.
I’ve come to see now that the
magnitude of the problem is so
great that we can’t afford to leave
technologies unused that can
potentially help.’
This did not go down well in all
quarters. One Naomi Oreskes, a
history professor, argued that anyone
proposing deviation from a prescribed
100 per cent renewable approach
should be classed a ‘climate denier’
– perhaps a harsh verdict on Hansen
and his colleagues given their record
(‘There is a new form of climate
denialism to look out for’, Guardian,
16 December 2015). Oreskes seems
to depend heavily on work by Mark
Jacobson from Stanford, who claims
that 139 countries can generate all the
energy they need from wind, solar, and
water power technologies by 2050.
Like all such claims, they assume
startling reductions in energy use – by
43 per cent in the UK, 36 per cent in
China, 43 per cent in India. (Current
World Energy Council estimates
suggest a doubling in Chinese energy
use and a 150 per cent increase in
India’s by 2035.) Historically, however,
improvements in energy efﬁciency have
often been associated with growth
in energy demand, by stimulating
demand.
The reasoning behind the ‘energy
efﬁciency argument’ seems to be
along these lines: if we had not
developed the light bulb – ﬁrst
incandescent and more recently LED
– then if viewed from space the earth
would still be producing just as much
artiﬁcial light but it would be coming
largely from candles. On this
assumption the development of
electric lighting has indeed cut energy
use enormously. The development of
the jet engine has slashed energy use
for long haul air travel because
otherwise we would be undertaking
some 15 billion passenger miles each
year by turboprop or maybe even
Gypsy Moth. One would need a lot of
persuading to bet the planet and
secure power supplies on such an
argument – even the IPCC and the
European Union now acknowledge the
importance of these ‘rebound effects’.
It certainly cannot be claimed to be so
self-evident that anyone who remains
unconvinced can be regarded as
‘denying’ anything – except perhaps
the value of blinkered thinking.
The justiﬁcation for treating renewables
more favourably than nuclear power
has usually involved some invocation
of the supposed ‘maturity’ of nuclear
technology against the ‘emergent’
nature of the renewables. This is a
peculiar argument. The ironically
named ‘new’ renewables have been
around almost as long as electricity
as an energy vector. Edison opened
his Pearl Street power station in
1882; the ﬁrst electricity from solar
photovoltaics was generated in 1884;
from wind in 1887; from geothermal
in 1904; from wave in 1910. Denmark,
for example, had 30 MW of windgenerated
electricity capacity by
1900. The dominant (and ultimately
unsustainable) model of electricity
generation in the late nineteenth and
early twentieth centuries – localized
small-scale renewable production
embedded within the demand
network – was swept away when
national supergrids emerged from the
1920s and 1930s onward. Suddenly
consumers could have electricity when
they wanted it without the vast cost
of battery storage. Demand soared.
Hydro (almost) held its own against
fossil fuels, as its power was generally
available when it was needed, but
the story of the middle years of the
twentieth century was of fossil fuels,
with all the associated geopolitical and
environmental challenges they bring.
The ﬁrst nuclear-generated electricity
did not come along until 1951.
Growing divisions within the
environmental community may have
been a factor in the change of tone
in the agreement reached in Paris.
The 32 page ﬁnal document marks a
signiﬁcant shift away from a prescriptive
approach driven by an imperative to
promote certain technologies rather
than to reduce carbon emissions.
There is a single reference to:
‘the need to promote universal
access to sustainable energy in
developing countries, in particular
in Africa, through the enhanced
deployment of renewable energy’
but otherwise neither of the words
‘nuclear’ nor ‘renewable’ is to be
‘ANTINUCLEAR ACTIVISTS WERE
NONETHELESS SUCCESSFUL AT THE
KEY KYOTO COP MEETING IN 1997 IN
EXCLUDING NUCLEAR POWER FROM THE
“KYOTO” MECHANISMS…’
MAY 2016: ISSUE 105
21OXFORD ENERGY FORUM
found. So in principle countries are
free to approach their carbon reduction
programmes in whatever way they
see ﬁt. For the relatively few players
for whom reduction in climate change
emissions is the top priority this will
be welcome.
But it is a far cry from this move
towards treating nuclear and
renewables more equitably to
assuming that a major nuclear revival
is just round the corner. Especially in
the ﬁve years since Fukushima, public
perceptions and political opposition
have remained an obstacle in several
countries, most notably perhaps in
Germany and Japan but also in, for
example Italy, which rejected a return
to nuclear in a 2011 referendum.
(Elsewhere, including the USA,
Canada, Scandinavia, eastern and
central Europe, much of Asia–Paciﬁc,
and the UK, this is much less the case.)
Political and public concerns can be
damaging to nuclear prospects
through direct political decisions
to curtail the lives of reactors, by
preventing their return to service, or by
introducing tighter regulation, which
can increase costs.
‘IT IS COST THAT IS SINKING NUCLEAR
POWER IN THE “OLD” NUCLEAR NATIONS
OF WESTERN EUROPE AND NORTH
AMERICA.’
And it is cost that is sinking nuclear
power in the ‘old’ nuclear nations of
western Europe and North America.
Around the turn of the century the US
Department of Energy was suggesting
that new nuclear capacity should cost
about US$1,500 per kW for the
ﬁrst-of-a-kind (£1,400 today, inﬂation
corrected) and US$1,200 per kW for a
programme of four or more. Even
excluding ﬁnancing costs, Hinkley
Point C is expected to come in at
around £16 billion for 3.3 GW, which
works out at around £5,000 per kW. The
new reactor at Flamanville in Normandy
is currently six years late and around
€7.2 billion over budget; Olkiluoto-3 in
Finland is expected to be 10 years
behind schedule and €5.5 billion over
budget.
The UK government has done as much
as could reasonably be expected to
transfer a signiﬁcant proportion of the
inherent economic risk involved in
nuclear investment from the investor
to the electricity consumer. Though
fuel costs are lower in nuclear stations
than in Combined Cycle Gas Turbines,
CCGT is much quicker and cheaper
to build, and so is much less risky in a
competitive market. Potential nuclear
investors will require some very good
reason to think that power prices will
remain sufﬁciently high for several
decades, to repay the initial investment
and deliver an appropriate rate of
return.
In centrally planned electricity systems
this is reasonably straightforward, at
least in theory; the plant is owned or
operated by a monopolistic supplier
with de facto lifetime contracts for
its output, so any excess costs can
be passed on to captive customers.
Within a broadly competitive market
framework, however, the risks
associated with purely ‘merchant’
nuclear plants have proved too great.
To stand any chance of attracting
investment, then, government has to
offer some long-term guarantees over
the price at which the electrical output
can be sold – in the UK this has taken
the form of a ‘strike price’ of £92.50
per MWh (index linked from 2012
prices) which will run for the ﬁrst 35
years of the plant’s operation, coupled
with loan guarantees on part of the
initial investment. Yet despite these
inducements, despite China offering to
take a one-third stake in the project, the
Final Investment Decision on Hinkley
Point C has been delayed and delayed
since EDF Chief Executive Vincent de
Rivaz’s statement in 2007 that:
‘EDF will turn on its ﬁrst nuclear plant
in Britain before Christmas 2017
because it will be the right time.’
The dash for nuclear has not entirely
evaporated – China has plans to triple
its nuclear capacity to 58 GW by 2020
and there are ambitious plans in India,
for example, with several countries
talking about entering the technology
for the ﬁrst time. If China’s record for
building plants within a reasonable
budget and to time can be exported to
other countries, then nuclear power’s
prospects would look considerably
brighter. Attention is also turning to new
approaches, the so called SMRs (Small
Modular Reactors). In principle, SMRs
could be built as one or two units or as
modules in a bigger complex. The
simpliﬁcation of design, and increased
reliance on passive rather than
engineered safety systems, could
signiﬁcantly reduce the cost of nuclear
plants without any negative implications
for safety or plant reliability: such plants
would rely on naturally occurring
phenomena such as gravity, natural
circulation, and condensation,
guaranteeing (it is claimed) safe
shutdown of the plant even in the highly
unlikely event of an accident. The loss
of economies of scale enjoyed by large
units may, at least to an extent, be
offset by the series economies which
come from building larger numbers of
identical smaller units. A bank of ﬁfteen
100 MW units would be more ﬂexible
than a single 1,500 MW reactor, there
being the option of switching some
units off to follow load rather than trying
to vary the output of single large units,
which tend to be regarded as rather
inﬂexible. Several SMRs are now
operating across the world. But it would
be a mistake to presume (in any
technical ﬁeld) that attractive concepts
on paper can easily be translated into a
large commercial programme.
At the heart of the power problem
in the market economies lies a
COP21 AND THE IMPLICATIONS FOR ENERGY
22 OXFORD ENERGY FORUM
confusion that is still not resolved.
Is electricity basically a commodity
or is it a social/industrial service? If
the former, then government’s role
should involve: setting up a stable
market that corrects for externalities,
notably in the environmental ﬁeld
perhaps through carbon taxes or
tradable emission permits, preventing
oligopoly, and allowing the market
to make the investment it sees ﬁt.
If it is the latter, then government is
effectively the guarantor of last resort.
It might use market forces to help
deliver on its goals, for example by
offering competitive tenders for power
station construction and operation, but
ultimately it remains responsible for the
fuel mix, the environmental outputs,
and the security of supply. At present,
it can be argued, we have the worst of
both worlds. Government (or the power
consumer) is in effect paying rates of
return to the private sector to persuade
private, or rather non-UK government
owned, companies, to carry out
public policy. Even what now look
like very generous terms for Hinkley
Point C have so far failed to persuade
the French to make the investment
required, even with Chinese backing.
So, if the government has that ultimate
responsibility – and who can imagine
any government of the day getting
out unscathed if we could not power
our hospitals, petrol pumps, street
lighting, water distribution network,
mobile communications and so on?
– is it time for government to take
back unequivocally the responsibility
for constructing sufﬁcient low-carbon
generating capacity to face the new
challenges? Once built, the plants
could be sold on or franchised out,
since markets do seem good at
operating existing assets efﬁciently.
Public sector rates of return would
reduce the costs of the capital-intensive
electricity sources signiﬁcantly.
It is not, of course, certain that
government would be any more
reliable as a long-term partner to
nuclear construction companies than
the current short-term market is. It
took a year to persuade the European
Commission to allow the Hinkley Point
C deal and appeals are still going
through the system – in the absence
of Brexit it would be a very difﬁcult
conversation that would lead to the UK
regaining powers over all new plant
construction. But the Hinkley C saga
shows that the present approach does
not work: the market simply cannot
send ﬁrm signals to invest, even with
the high levels of support now on offer.
Unless this barrier can be overcome it
may prove academic whether nuclear
power has indeed come in from the
cold as far as the ﬁght against climate
change is concerned.
US climate policy in a post-Paris context
Sarah O. Ladislaw
The USA’s goal for the UN climate
negotiations in Paris last December
was to secure broad and meaningful
participation from member countries
and establish a long-term, durable
framework for future actions to cope
with a changing climate. Supporters
of the Paris Climate Agreement tout
its success for delivering on that
goal, mobilizing emissions reduction
efforts, and sending signals to
catalyse additional ﬁnance and
investment. However, the Agreement
is also criticized for falling short of the
action necessary to secure the 2 °C
temperature rise limit and for lacking
strong enforcement mechanisms.
Going forward, the objective is to
deliver on the commitments secured
in Paris and ﬁnd ways to enable even
deeper emissions reductions and more
robust adaptation measures that will be
necessary to mitigate the climate risks.
‘THE FUTURE OF US CLIMATE POLICY WILL
BE DETERMINED BY THE OUTCOME OF THE
2016 PRESIDENTIAL ELECTION CYCLE.’
So what is the likely path forward for US
climate policy in a post-Paris context?
Many have argued that the future of
US climate policy will be determined by
the outcome of the 2016 presidential
election cycle. This belief is supported
by two underlying factors.
First, in order for the USA to meet its
near and medium-term emissions
reduction targets, existing policy and
regulatory measures must not only
go forward, but additional emissions
reduction efforts will be required.
Moreover, meeting longer-term
climate objectives will require the
next administration to lay the
groundwork for even more ambitious
emission reduction.
Second, Republican and Democratic
presidential candidates have vastly
different climate policies that would, if
implemented, lead to different energy
sector and emissions outcomes.
US targets are tough to reach, yet not enough
In its Intended Nationally Determined
Contribution (INDC) submission, the
‘THE DASH FOR NUCLEAR HAS NOT
ENTIRELY EVAPORATED.’
MAY 2016: ISSUE 105
23OXFORD ENERGY FORUM
USA has pledged itself to the task of:
‘reducing its greenhouse gas
emissions by 26–28 per cent
below its 2005 level in 2025 and
to make best efforts to reduce its
emissions by 28%.’
This commitment builds on the USA’s
pre-existing goal to reduce emissions
in the range of 17 per cent below
2005 levels by 2020. According to the
latest estimates, US emissions were
6.5 per cent below 2005 levels in 2011.
The 2014 US Climate Action Report,
submitted by the US government to the
UN Conference of Parties, estimates
that current and planned activities laid
out by the administration’s Climate
Action Plan (CAP) will:
‘put the United States on a course
to meet its goal of reducing
emissions in the range of 17 per
cent below 2005 levels by 2020.’
This ﬁnding is predicated on the
assumption that current and planned
activities under the CAP will proceed as
envisioned. Many analysts agree that
the USA is within the realm of meeting
its 2020 climate target.
When it comes to the 2025 target,
however, the USA will have to take
additional action at both the federal and
state level to achieve 26–28 per cent
emissions reductions (see the table
‘Climate Action Plan: additional
actions’). A quick survey of the studies
indicates that existing and announced
climate policies will generate somewhere
on the order of 16–22 per cent
reduction relative to 2005 levels by
2025. The wide range in estimates can
be attributed to several key factors:
uncertainty in the capacity of carbon
sinks and the impact of land use
related emissions;
the emissions impact of existing
policy and regulatory measures;
the underlying assumption about
things like renewable energy
deployment costs, overall level of
methane emissions, and the
cost-effectiveness of efﬁciency
measures; and
baseline assumptions about
economic growth, the relative cost of
fuels, and timeline for implementing
policies.
Several studies offer ways to strengthen
or expand existing policy measures, as
well as suggestions on how to
implement new policies to deliver on
future emissions. One study, conducted
by the World Resources Institute,
suggests that US emissions could be
reduced by 30 per cent by 2025, and
38 per cent by 2030, using additional
policy measures. Because support for
climate policy in Congress is too weak
to deliver on legislative action, many of
these studies prioritize climate policy
actions under existing executive branch
authority. So in order to meet the US
climate targets, the next administration
must not only support existing and
announced policies and regulatory
measures, but also enact new policies
to deliver additional reductions.
Moreover, many of these studies note
that reaching longer-term climate goals
will require a much steeper emission
reduction trajectory post-2025.
Achieving greater emissions reductions
by or before 2025 could help ensure a
smoother pathway to those future
emissions reduction targets.
Democrat and Republican candidates take
different positions on climate change
Political parties in the USA continue to
be divided over the issue of climate
change. Two recent polls illustrate this
divide. In June 2015 a Pew Research
poll found that 87 per cent of Democrats
and 69 per cent of Independents
believe climate change is a serious
issue, compared to only 44 per cent of
Republicans. A more recent poll,
conducted by Monmouth University in
December 2015, found that:
‘64% of Americans support the
US government doing more to
reduce the types of activities that
lead to climate change’
with 74 per cent of Democrats, 66 per
cent of independents, and 47 per cent
‘IN THE USA A GREAT DEAL OF ENERGY
POLICY AUTHORITY RESTS WITHIN STATES.’
Climate Action Plan: additional actions
Clean Power Plan – greenhouse gas
emissions standards on power
sector
Doubling electricity from wind and
solar
Energy efﬁciency in federal buildings
and appliances
Methane emissions standards for
new oil and gas sources
Revised heavy duty vehicle
efﬁciency standards
Phase down hydroﬂuorocarbons
(HFCs)
Protect and restore forests
Methane regulation from agriculture,
coal mines, and existing oil and gas
sources
Landﬁll regulation
New and strengthened federal
appliance efﬁciency standards
Improved GHG and fuel efﬁciency
standards for passenger vehicles
and medium- and heavy-duty trucks
New GHG standards for industry
Emissions standards for new and
existing natural gas systems
Reduced HFC consumption
‘MANY ANALYSTS AGREE THAT THE USA
IS WITHIN THE REALM OF MEETING ITS
2020 CLIMATE TARGET.’
COP21 AND THE IMPLICATIONS FOR ENERGY
24 OXFORD ENERGY FORUM
of Republicans supporting that
position. Taking a deeper look at
American public opinion on the issue,
the country is even more divided when
it comes to both how urgent climate
change is relative to other priorities,
and the precise measures they would
support in an effort to combat climate
change. Public opinion also varies a
great deal on those issues relative to
age, location, and ideological
spectrum.
This divide is magniﬁed by the
presidential campaign both in terms
of the candidates’ stance on climate
change and the relative importance
placed on the issue by either party.
Democratic candidates give climate
change and the creation of a clean
energy economy relatively high billing
in their national platforms and have
detailed policy proposals to support
their positions. Republican candidates,
in contrast, have outlined relatively
few climate and energy-related
policies and tend to talk about them
only when asked or when providing
examples of government overreach
by the current administration (see
the table ‘Democrat candidates:
Republican candidates’). Among the
current candidates, the Democrats
generally support strengthening the US
commitment to emissions reduction in
line with globally agreed upon goals,
whereas the Republican candidates
have, by and large, agreed to roll back
existing emissions reduction efforts.
This contrast has led many to assume
that the climate and energy related
outcomes from a new Democratic
or Republic administration would be
fundamentally different. While this
assumption is true, by and large, it is
also complicated by several factors
that could possibly constrain any new
administration.
Any future administration must deal with
Congress
The composition and functioning of
Congress will enable or constrain the
next administration and its ability to
use legislative measures to deal with
climate change. In the recent past,
divided government and a gridlocked
Congress has proven to be a difﬁcult
environment for both advancing and
repealing climate policies. The 2015
budget appropriations bill that cleared
the way for crude oil exports, solar and
wind tax credit extensions, and US
contributions to global climate funds,
stands in stark contrast to the virtual
stalemate on climate and many other
policies. This has, for some, raised the
question of whether political tradeoffs
could exist on this issue in the
next Congress – especially within the
context of a broader tax reform debate.
While the Obama administration
has advanced climate policy in the
absence of congressional action,
future administrations will be forced to
deal with Congress to reach the more
ambitious edges of their platform, to
fund or defund existing programmes
and agencies, and to meet the US
climate ﬁnance obligations.
Not all climate policy is made at the
federal level
As noted earlier, one source of
additional climate policy is through
state-level activity. In the USA a great
deal of energy policy authority rests
within states. Indeed, states are largely
in control of much of natural resource
development (guided by federal
safety and environmental standards),
electricity sector regulations (renewable
portfolio standards included), and
transportation policies (including
transportation infrastructure decisions).
At present, several states are
leading the way in some of the most
transformative policies inﬂuencing the
energy sector and contributing to the
US emissions reduction target. These
policies include changing the electric
power market structure in places like
New York, implementing and linking
emissions trading systems (for example
in the north-east and California), as well
as many other examples. Several states
Democrat candidates Republican candidates
Accept the existence of man-made
climate change and support the
imperative to act
Targets and goals for renewable
power, carbon free-power, solar, and
emissions reduction
Support extension of federal clean
energy tax incentives and
competitive clean energy grants
Support or advocate strengthening
Clean Power Plan, EPA regulation of
methane emissions
Increase environmental standards
for or ban hydraulic fracturing
Oppose Keystone XL
Called for carbon tax, programs to
support household energy efﬁciency
and purchase of solar panels
Oppose certain areas for offshore
drilling
Question whether manmade climate
change is occurring and do not see
it as a signiﬁcant threat
Pledge to roll back EPA regulations
including the Clean Power Plan or
abolish the EPA
Support Keystone XL and other
similar pipelines
Against energy subsidies
Support pro-production policies on
oil, gas, ethanol
*Summary of campaign positions from campaign websites simpliﬁed to represent the
range of views among candidates in the ﬁeld.
MAY 2016: ISSUE 105
25OXFORD ENERGY FORUM
have already established a leadership
of their own on climate, by establishing
robust domestic emissions reduction
policies and even launching ambitious
internationally coordinated subnational
climate efforts – such as the recently
launched Under 2 MOU which links 127
subnational jurisdictions in a pledge
to reduce greenhouse gas emissions
by 80–95 per cent by 2050. Therefore,
even when federal policy is moving
in one direction, or not at all, states
have a role to play in plotting their own
course.
Rolling back regulation is not easy,
and the likely outcome of such efforts
is uncertainty, which sends a mixed
signal to investors
Several Republican candidates pledged
to roll back many of the environmental
policies put forward by the Obama
administration – most notably the Clean
Power Plan (CPP) which places
emissions limits on new and existing
power generation sources. The way
forward on the CPP is bumpy no matter
which way you go. Enacting the CPP
will require the government to survive
the current legal challenge put forward
by 27 states on the grounds that the
Environmental Protection Agency (EPA)
lacks the legal authority to implement
the regulation as constructed. This
legal outcome will ultimately be settled
by the Supreme Court sometime in the
2018 timeframe, and could involve
remanding the CPP back to the EPA for
alterations. To ‘roll back’ the CPP, as
some candidates want to do, is no
easy task either. The EPA would have to
justify the reason for revoking the
regulation and go through a new
process to undermine the scientiﬁc,
legal, and regulatory underpinning of
the regulation as ﬁnalized. The agency
would undoubtedly be sued in the
process and the most effective and
least time consuming course of action
would be to slow walk or neglect
putting into place new regulation. This
uncertainty translates into a muddy
investment signal for utilities, many of
whom have decided to move forward
with planning for the eventual
implementation of the CPP as being the
best possible way to mitigate the risks
posed by that uncertainty.
Markets, technology, and economics
matter
Policies are important but market
dynamics, economic factors, and
technology changes also shape the
production and use of energy and
will play deterministic roles in whether
society can mitigate the effects of a
changing climate. The effects of many
climate policies are based on:
the pace and scale of economic
growth (note the impact that the 2008
global ﬁnancial crisis had on
emissions and climate policy),
the relative prices of fuels (low natural
gas prices have had a large impact
on the energy fuel mix and emissions
outcome in the USA in the last
several years and low oil prices are
similarly impacting the energy sector
right now in terms of production,
consumption, and vehicle purchasing
patterns), and
the political priorities given to various
policies, based on economic
conditions (for example, politicians
are more likely to care about pro-oil,
gas, and coal production policies in
the USA when prices are high than
when they are low).
The prerogatives of other countries
matters too
The next administration will also
be constrained, or enabled, by the
community of countries with which it
chooses to work and the importance
those countries place on global climate
action. Many have argued that it will
be hard for a US administration that
does not believe in addressing climate
change to walk away from its global
commitments without upsetting other
countries. Given the sheer magnitude
of policies, initiatives, and investments
that have been mobilized to put
momentum behind global climate
action, it will be hard for the USA to
completely reverse position on climate
change in the next administration, but
certainly not impossible. The question
is whether or not other large countries
will hold the USA accountable for
such actions (an area where the Paris
Agreement is not particularly robust)
or proceed along the path they set
forth on in Paris even without US
participation.
It is safe to conclude that the USA is
more likely to reach its existing climate
targets with an administration similar
to the current one, because reaching
those commitments will require defence
of existing policies as well as additional
action. While Democrats are more
inclined to pursue those policies than
Republicans, the path forward is far
more complicated than meets the eye
and either party could face headwinds
as it pursues its agenda.
‘IT WILL BE HARD FOR THE USA TO
COMPLETELY REVERSE POSITION
ON CLIMATE CHANGE IN THE NEXT
ADMINISTRATION, BUT CERTAINLY NOT
IMPOSSIBLE.’
COP21 AND THE IMPLICATIONS FOR ENERGY
26 OXFORD ENERGY FORUM
Implications of COP21 for China
Isabel Hilton
Three months after the historic Paris
Agreement afﬁrmed the ambition of 195
countries to keep global average
temperature rises below 2 °C, the world
had an opportunity to assess how the
efforts of China, the world’s biggest
greenhouse gas (GHG) emitter, will
measure up to its promises, at the annual
meeting of China’s National People’s
Congress (NPC), in Beijing in March.
How quickly big emitters like China and
India migrate to a low emissions
development model will largely determine
the outcomes of the process that the
Paris Agreement has begun. As it stands,
the agreement, based on voluntary
national pledges from the participant
countries, falls well short of what is
required. Its future success will depend
on how far the signatories are willing to
ratchet up their respective national
ambitions in the review mechanism that
was built in to the package.
How far China and India are able to
tighten their national objectives will be
determined, in turn, by the hundreds of
smaller decisions on energy use,
transport, industrial policy, land use,
and city planning that will be taken in
each country over the next ﬁve years.
That was reason enough to keep a close
eye on the outcome of the long domestic
negotiations that resulted in China’s
13th Five Year Plan, approved in March
by the annual meeting of the NPC.
The details will come later as the plan
works its way through China’s state
machine. The outline that was unveiled
in March sets the strategic economic
objectives, and ﬁxes a number of key
targets. These are intended to
determine the direction of the economy
and the priorities that provinces and
cities, as well as the key state
ministries, must respect in their own
economic planning.
Like the Paris Agreement, China’s 13th
Five Year Plan will not bring the world’s
average temperature rise below the
‘safe’ limit of 2 °C. But it does offer the
reassurance that the world’s largest
industrial economy is continuing on a
path, begun ﬁve years ago, towards
a leaner, greener, more efﬁcient, and
more sustainable model, and that
cleaning up the legacy of the previous
30 years – including its GHG emissions
– remains a key priority.
Just a few years ago, China’s behaviour
in Copenhagen was among the many
factors that contributed to the failure of
COP15. By COP21, however, China had
undergone some profound changes:
the Chinese development model, with
its high emissions, high investment,
and low added value, was exhausted;
China’s leaders had been aware since
the turn of the century that the time was
approaching when rising labour costs,
a shrinking workforce, and a cavalier
attitude to the use of resources would
deliver diminishing returns and slower
growth. They also knew, if only from the
example of neighbouring Japan,
Taiwan, and South Korea, that the way
through such difﬁcult passages was to
become leaner and more efﬁcient, and
to move up the value chain.
For China, the development and
manufacture of low-carbon technologies
became the key to maintaining
prosperity in a carbon-constrained
world. China could apply its unmatched
experience of manufacturing at scale to
lower the price of such goods as solar
panels, and, through heavy investment
in research and development, to
become the technology leader in such
sectors as low-carbon mobility, with the
intention of supplying a growing export
market. By the time the 13th Plan was
approved, China was investing more in
research and development per capita
than was Europe. Deployed at home,
low-carbon technologies would help to
curb the pollution that was costing
China 6 per cent of GDP every year and
contributing to the government’s
credibility deﬁcit. China had begun to
see radical mitigation both as a
necessity and as a huge opportunity.
All other things being equal, it had a
strong interest in a successful outcome
to COP21.
Managing an outcome that satisﬁes
195 very different countries is a huge
and multifaceted task. If not carefully
managed, it can go wrong with alarming
speed. The French team, led by
Laurent Fabius, conducted the process
with impressive skill, determined to
avoid a repeat of the Copenhagen
collapse. In the two years before the
conference, diplomats circulated
around major capitals to make sure the
French presidency of the COP
understood each player’s red lines and
ambitions, and to identify any domestic
political obstacles that could throw an
agreement off course. The French were
not in the business of surprises.
China, too, was anxious to avoid
surprises, in particular any surprise
that resembled the closing days of
Copenhagen, when the then prime
minister, Wen Jiabao, had to resort
to subterfuge to avoid negotiating
directly with President Obama, Angela
‘CHINA HAD BEGUN TO SEE RADICAL
MITIGATION BOTH AS A NECESSITY AND
AS A HUGE OPPORTUNITY.’
‘…THE WORLD’S LARGEST INDUSTRIAL
ECONOMY IS CONTINUING … TOWARDS A
LEANER, GREENER, MORE EFFICIENT, AND
MORE SUSTAINABLE MODEL…’
MAY 2016: ISSUE 105
27OXFORD ENERGY FORUM
Merkel, and other leaders in the last
ditch efforts to reach a deal. Not
even the prime minister could modify
a position that had been agreed by
the collective leadership back home.
Nor was there was any opportunity to
repair the damage created by early
toxic exchanges between the US and
Chinese delegations.
The system the French designed –
with voluntary pledges in advance
and national leaders drafted in at the
beginning to set the tone, instead of
as a last minute rescue party for failing
negotiations – removed much of the
potential tension. Progress on climate
cooperation between the USA and
China in the years leading up to Paris
removed even more.
In the domestic politics of China and
the USA, the other plays a potent
symbolic role: when Chinese imagine
modernity and superpower status,
images of the USA come to mind,
along with a fear that the USA seeks
to block China’s path; when the USA
imagines its own decline, China is
usually blamed. The strategic rivalries
between the rising and incumbent
superpowers create tensions in a wide
range of ﬁelds and geographies. But in
climate policy, they have seen the virtue
of cooperation.
In 2013, the US Secretary of State John
Kerry and his Chinese counterpart,
the State Councillor Yang Jiechi,
announced a climate change working
group within the USA–China strategic
and economic dialogue. Progress
was relatively swift: in addition to
ofﬁcial level cooperation in such ﬁelds
as smart grids, GHG accounting,
and policy exchanges on transport
and energy efﬁciency, President
Obama and Xi Jinping made a public
commitment in November 2014 to
work towards an agreement in Paris.
In November 2015, a further series of
announcements and a satisfactory
progress review gave added
momentum to the mood of optimism
that the French presidency saw as
critical to a successful outcome.
The annual report of the USA–China
Climate Change Working Group
(CCWG) gave an account of more than
50 cases of constructive engagement
on climate change, clean energy,
and environment that underscored
their growing climate cooperation –
a relationship that was to bear fruit
in the Paris talks. Even Su Wei, the
characteristically deadpan head of the
Chinese negotiating team, spoke with a
new warmth of USA–China cooperation
at a Paris side event.
Domestic politics in China also played
positively into the Paris process.
Xi Jinping, the general secretary of
the Chinese Communist Party and
president of China since 2012, has
succeeded in gaining control of many
aspects of state power, coupled with a
long running anti-corruption campaign
that has cowed some important
rival centres of inﬂuence. These
developments have raised concerns
about the trend of Chinese politics, but
the concomitant weakening of China’s
collective leadership may have clariﬁed
the task of China’s negotiators, who
could be conﬁdent that they could
take their cue from Xi. And when
negotiations threatened to go off track,
a telephone call between Beijing and
Washington could relieve the pressure.
‘…SOME ANALYSTS PREDICT THAT
CHINA’S EMISSIONS COULD PEAK AS
EARLY AS 2025.’
After Paris, with China’s good intentions
on climate mitigation re-afﬁrmed,
attention shifted to implementation and
the implications of China’s promises for
domestic and international energy.
There is little doubt that China can fulﬁl
its INDC pledges – some analysts
predict that China’s emissions could
peak as early as 2025, well before the
promised 2030 (see, for instance ‘New
study ﬁnds China’s emissions likely to
peak by 2025’, LSE/Granthan Research
Institute, 8 June 2015). Looking further
ahead, several studies suggest that China
could supply more than 60 per cent of
its total energy needs, including
transportation, from renewables by
2050. This would include 85 per cent of
its electricity supply (see ‘China 2050
High Renewable Energy Penetration
Scenario and Roadmap Study’, Energy
Foundation China, 20 April 2015).
How far and how quickly China will
be prepared to increase its ambition
will depend on a number of factors,
including the outcome of the wider
political and economic uncertainties
that the regime is facing. At its
November 2015 plenary, the Chinese
Communist Party announced ﬁve
concepts – innovation, coordination,
green development, opening up, and
sharing – with which it intends to guide
the next phase of China’s development,
aiming to restructure heavy industry,
improve the environment, and enhance
efﬁciency. In the outline 13th Plan, ten
of the 13 mandatory targets relate to
the environment, natural resources,
climate mitigation, or ecosystems.
The most important energy related
targets in the plan are the pledge to
reduce energy intensity by 15 per cent
compared with 2015; to reduce carbon
intensity by 18 per cent, on a 2015
baseline; to cap total energy
consumption at 5 billion tonnes of coal
equivalent (the current level is 4.3 billion
tonnes); and to increase the proportion
of non-fossil fuels in primary energy
consumption to 15 per cent. The
18 per cent carbon intensity reduction
target would set China on track to
reach, and in all likelihood surpass, the
high end of its 2020 climate target of a
45 per cent carbon intensity reduction,
on a 2005 baseline.
Coal, the big bad beast of China’s
energy mix, continues to dominate, but
COP21 AND THE IMPLICATIONS FOR ENERGY
28 OXFORD ENERGY FORUM
it is in decline: coal use fell 2.9 per cent
in 2014 and a further 3.7 per cent in
2015. Although the details of China’s
coal statistics are notoriously
problematic, the trend seems clear:
already China’s coal-ﬁred power
stations are running below economic
levels, with utilization rates
characteristically below 50 per cent.
But in one sign of a familiar dysfunction
in China’s policy implementation, even
as rates of return on new coal plants
were falling below the level necessary
for the plant to pay for itself, and the
national government talked of
promoting the move out of coal,
provincial and local governments
continued to grant permissions for new
coal generation in what risks becoming
one of the world’s larger stranded asset
creation programmes.
According to a Greenpeace analysis,
in 2015 China’s central and provincial
governments approved 210 new coalﬁred
power plants, with a collective
capacity of 169 GW and potential
emissions of around 780 million tonnes
a year. However, given China’s overall
energy demand level and the fact that
any new demand is likely to be met by
renewables, hydro, or nuclear, even if
the plants were built they are unlikely
to run at anything close to full capacity.
In March, in an effort to regain central
control of coal plan approvals, the
National Energy Administration (NEA)
ordered 13 provincial governments
to stop issuing approvals for new
coal-ﬁred power plants until the end
of 2017 and instructed a further 15
provinces to stop building new coal
power plants that have already been
approved. It remains unclear how many
of the plants approved in 2015 will be
affected.
There is less confusion on coal supply:
in December 2015, Xinhua News
Agency reported that China planned to
close 1,000 coal mines and suspend
new capacity approvals until 2019, with
an expected cull of 1.3 million jobs in
the coal sector over the 13th Five Year
Plan. Overall, China aims to reduce
coal’s share of primary energy in 2016
to 62.6 per cent. Over the longer term,
some analysts have suggested that
China could meet 80 per cent of its
energy needs from non-fossil sources
by 2050.
Under the 12th Five Year Plan, China
surpassed its energy and carbon
targets: between 2011 and the end
of 2015, energy intensity fell by
18.2 per cent and carbon intensity
declined 20 per cent. Slower economic
growth and an accelerating decline in
heavy industry should make the 13th
Plan’s carbon and energy intensity
targets highly achievable. China’s
veteran special representative for
climate change, Xie Zhenhua, assured
an audience in Hong Kong in February
(‘China’s climate envoy bullish on
hitting reduction goal for 2020’, South
China Morning Post, 23 February 2016)
that China would have no difﬁculty in
hitting its 2020 targets of cutting carbon
intensity by 50 per cent below 2005
levels, if China met its 13th Plan energy
saving goals.
If carbon intensity was cut by 50 per cent
by 2020, according to Xie, China could
easily peak emissions and cut carbon
intensity by 60–65 per cent on 2005
levels by 2030, in line with China’s
ambition to build a green, service
economy. The transition to 2030 would
be eased, he said, with investments of
4.1 trillion Chinese Yuan Renminbi
(US$628 billion) in green, low-carbon
industries, with the creation of 69 million
new jobs.
Over the coming year, planners at
every level of China’s government
will put ﬂesh on the bones of the 13th
Plan. How smooth the process will be
is uncertain: slower growth, popular
discontent at job losses, and the
difﬁculty of implementing reforms to
the energy market will need to be dealt
with. The temptation to continue with
infrastructure investment will be strong,
and already the plan has attracted
criticism for its projected investment
in expanding high speed rail and in
building new airports. But if China
succeeds, the beneﬁts of its transition
will spread well beyond China. If it fails,
the impacts will be equally widely felt.
The post-Paris agenda: challenges ahead for Latin America
Lavinia Hollanda
The Paris Agreement indicates
that in the coming years, the world
is going to move to a low-carbon
economy, and the energy sector
should be responsible for promoting
big changes in the global climate
scenario. The terms of the agreement
are comprehensive and ambitious,
based on common but differentiated
responsibilities among countries, and
the energy guidelines and contribution
targets of developed and developing
countries differ in many points. This
means that both the developed and
developing world will have to make
’IF CHINA SUCCEEDS, THE BENEFITS OF
ITS TRANSITION WILL SPREAD WELL
BEYOND CHINA. IF IT FAILS, THE IMPACTS
WILL BE EQUALLY WIDELY FELT.’
MAY 2016: ISSUE 105
29OXFORD ENERGY FORUM
efforts to limit the increase in global
temperatures to well below 2 °C above
pre-industrial levels – and pursue
efforts to achieve the 1.5 °C target.
However, the contributions of different
countries towards providing solutions
will be diverse, and will take into
consideration each country’s historical
and current emissions, as well as its
ability to tackle climate change. After
the successful results of COP21, each
country now has a different – and
perhaps more challenging – task of
making the Paris Agreement real. In this
context, what are the implications of
the post-Paris scenario for the energy
industry in Latin America?
Some aspects of Latin America and
of its energy sector give the region an
advantage in the transition to a lowcarbon
economy when compared to
other parts of the world.
The energy mix in the region can be
considered relatively clean compared
to the global average participation
of fossil fuels – some 70 per cent
of the energy demand in the region
is supplied by gas, oil, or coal,
whereas in the world on average this
percentage rises to 82 per cent. When
considering solely the power sector,
the high participation of hydropower
– and, more recently, of the ‘new’
renewables (wind, solar, biomass)
in some countries – brings fossil
fuels contribution to approximately
60 per cent of electricity generation
in the region, compared to the
global average of 73 per cent (IADB
based on IEA data, 2013). Going
forward, an expected increase in
demand, combined with social and
environmental constraints on building
additional capacity in hydropower
plants, indicates that Latin American
countries will need structural change
in order to ﬁnd a path that allows
the region to consume more energy,
at affordable prices, and in a more
responsible way.
Latin America also abounds in natural
resources – these could allow energy
transition to take place within the
region. However, the penetration of
‘new’ renewables (excluding
hydropower) and biofuels in the energy
mix varies greatly among the countries
in the region. In Brazil, for instance, the
installed capacity of wind generation
has increased enormously in the past
six years, from nearly zero in 2009 to
more than 8.5 GW in 2016.
Nevertheless, this represents only
6 per cent of Brazil’s power generation.
In Argentina, a country with signiﬁcant
potential for onshore wind generation,
particularly in the Patagonia region
(‘Beyond Paris: Energy Transition in
Latin America and the Caribbean’,
Institute of the Americas, 2016), wind
power generation is nearly zero. In the
case of solar generation, a comparison
of irradiation maps of countries in the
region with Germany, where currently
21 per cent of capacity comes from
solar generation, indicates that there is
much potential for growth in solar
projects in Latin America. To illustrate
this point, data from SolarGis shows
that the maximum irradiation in
Germany is around 40 per cent lower
than the maximum irradiation in Brazil,
for instance.
In the case of biofuels, Brazil is the
world’s largest sugarcane ethanol
producer and a pioneer in this
segment. Most of the country’s current
light vehicle ﬂeet consists of ﬂex fuel
vehicles, and there is a government
mandate that requires a 27.5 per cent
ethanol mix to gasoline. In the past
years, the biofuels sector in Brazil has
suffered from harsh competition with
oil products, which have been heavily
subsidized by the government, mainly
because of inﬂationary concerns.
The decline in oil prices has given
local governments in Brazil, and in
other countries in Latin America, the
opportunity to gradually eliminate such
subsidies (allowing ethanol to regain
competitiveness) and, potentially, to
enhance further research in advanced
biofuels.
However, in Argentina most of the
energy sector relies on fossil fuels,
mainly gas, while solar and wind
account for less than 1 per cent of
installed capacity (an additional
3 per cent comes from biomass,
IADB Energy Database, 2013). A new
Renewables Law, enacted in October
2015, establishes that 8 per cent of
generation must come from renewables
by the end of 2017, and 20 per cent by
2025. At the same time, Argentina has
the largest gas reserves in the region,
located in the Neuquén Basin (Vaca
Muerta and Los Molles), with an
estimated 20 billion barrels of shale oil
and 583 trillion cubic metres of shale
gas. Since imports of gas represent a
signiﬁcant proportion of the total
domestic supply in countries like
Mexico and Brazil, development of the
Argentinean reserves could potentially
allow natural gas to play a transition
role in the region. In addition, the new
government in Argentina has raised
expectations about the progressive
normalization of the macroeconomic
scenario and the resumption of more
favourable policies for foreign
investments.
An additional asset for Latin America
is its market size. The evaluation of the
Global Competitiveness Index (GCI),
calculated annually by the World
Economic Forum, shows the relevance
of some markets in the region. The
index assesses the performance of
140 countries through the evaluation
of 12 key pillars that drive
competitiveness; these include
institutions, infrastructure,
macroeconomic environment,
education and labour markets,
innovation, and market size.
‘THE ENERGY MIX IN THE REGION CAN BE
CONSIDERED RELATIVELY CLEAN…’
COP21 AND THE IMPLICATIONS FOR ENERGY
30 OXFORD ENERGY FORUM
Concerning market size, there are
seven Latin American countries which
rank among the top 50 markets (such
as Brazil in seventh position and
Mexico ranking eleventh). Even if we
consider a likely income reduction in
the region in the coming years (loosely
due to low commodity prices), some
Latin American markets will remain
globally relevant.
However, Latin America faces great
challenges in the implementation of the
Paris Agreement.
How will the transition be ﬁnanced?
This is probably the region’s most
immediate challenge as energy
and climate change generally have
strong links with a country’s political
and macroeconomic scenario – and
this applies to Latin America. The
participation of Latin America in the
global supply of oil and gas is slightly
below 5 per cent, mainly concentrated
in Mexico, Venezuela, and Brazil, and
to a lesser extent in Colombia and
Argentina (‘The Geopolitics of Oil and
Gas The Role of Latin America’, Lins
et al., Catavento, February 2016).
However, the region’s economies are
highly dependent on natural resources,
with a great deal of revenues relying
on commodities exports – oil and gas
are particularly relevant in Mexico and
Venezuela, and they have a signiﬁcant
impact in Bolivia, Ecuador, Argentina,
and Brazil.
Export dependence and commodity
price ﬂuctuations Dependence on
exports of natural resources has
put some countries at the mercy of
ﬂuctuations in global commodities
prices. Coupled with some
questionable economic policies
implemented in the past years,
this has led to a deterioration in
macroeconomic fundamentals and to
turbulence in the political scenarios
of most of the countries in the region.
There have also been headwinds from
abroad: key players in the commodities
markets, particularly China, have been
showing slower growth rates. Given
these factors, it is unsurprising that
most countries in the region reported
GDP growth deceleration, or even
contraction, in 2015 (the ﬁgure for
Latin America and the Caribbean
was –0.3 per cent, largely affected by
Brazil’s recession); perspectives for
2016 are also weak.
The region faces a trade-off between
the short-term economic gains of
developing existing fossil fuel resources
(once global oil prices allow) and the
longer-term beneﬁts of transitioning
to a less carbon intensive energy
sector (‘How can Latin America avoid
being left behind?’, Alicia Bárcena
Ibarra, World Economic Forum, 18
January 2016). In either case, the
region will need to attract signiﬁcant
investments in order both to overcome
structural gaps and to invest in cleaner
technologies. With high levels of debt
and ﬁscal deﬁcits, Latin American
governments have very limited scope
for maintaining the high levels of public
spending seen over the past 10 years
and are under enormous pressure to
attract foreign investment.
‘…FINANCING THE TRANSITION
TOWARDS A LOWER-CARBON ECONOMY
IN DEVELOPING COUNTRIES IS A
SIGNIFICANT BARRIER TO OVERCOME.’
Where will the ﬁnancing come from if
Latin America’s national governments
are unable to provide the necessary
ﬁnancial resources to turn plans into
action? The Paris Agreement has
acknowledged that ﬁnancing the
transition towards a lower-carbon
economy in developing countries is a
signiﬁcant barrier to overcome. Several
ﬁnancing mechanisms to mitigate
and adapt to climate change have
been made available for developing
countries. These include resources
from both public and private funds
– an example of the latter is the
Breakthrough Energy Coalition, an
initiative backed by private individuals.
However, other countries and regions
more directly affected by extreme
weather and climate-related events
should have priority in receiving these
funds (see ‘Beyond Paris: Energy
Transition in Latin America and the
Caribbean’). As a result, the ability
to attract private investments will be
crucial in establishing the pace of
energy transition in Latin America.
The establishment of a predictable
regulatory environment, with clear rules
and strong institutions, is the key to
unlocking foreign private investment
in the region. Less government
intervention in domestic markets should
also help.
The ability of players in Latin America’s
energy industry to develop and deploy
new and cleaner technologies will also
be important in dictating how fast the
transition will happen in the region. On
the consumer side, with the expected
increase in the region’s urbanization
rate, cities should be the locus of
technological change and could foster
innovation in urban transportation,
water and waste management, and
in the way energy is delivered to
consumers. Moreover, innovation in the
supply side, such as Carbon Capture
and Storage (CCS) and efﬁciency
improvements, will allow the energy
industry to become greener.
However, Latin America as a region
is not particularly well positioned in
terms of innovation and technology
development. A deeper analysis
of the innovation pillar in the Global
Competitiveness Index (GCI) illustrates
the region’s poor innovation capacity
(see the table ‘Economic and
competitiveness indicators in Latin
America’ on page 32). When analysing
‘LATIN AMERICA FACES GREAT
CHALLENGES IN THE IMPLEMENTATION
OF THE PARIS AGREEMENT.’
MAY 2016: ISSUE 105
31OXFORD ENERGY FORUM
this factor, countries like Brazil, Chile,
Colombia and Peru lose position in the
general ranking, while countries like
Mexico, Argentina and Bolivia maintain
their relative positions. The main
factors inﬂuencing negative results
for innovation in the region relate to
low patent registration and availability
of scientists and engineers. In fact,
the share taken by Latin America and
the Caribbean in total global patent
applications has been settled at a
ﬁgure below 3 per cent since the 1990s
(‘How can Latin America avoid being
left behind?’, Alicia Bárcena Ibarra). In
addition, despite the accomplishment
of signiﬁcantly increased school
enrolment, and in years of education
completed, it will be necessary to
improve quality in some countries
in order to further develop the skills
and capabilities of the workforce for
the post-Paris scenario. Perhaps the
only exception relating to technology
development in the region is deep
and ultra-deep water technology in the
oil and gas sector, where Brazil has
been on the frontier with Cenpes (the
research centre at Petrobras). Given
adequate incentives, this knowledge
can be applied to the development of
cleaner technologies to this industry.
In summary, even considering its
relatively clean energy mix, the use
of clean technologies in further
expansions of the energy sector
will be important for reducing
emissions in Latin America. For the
region to overcome the political,
macroeconomic, ﬁnancial, and
technological obstacles hindering it
in its transition to a greener economy,
it will be necessary to promote
cooperation between the public and
private sectors and develop a business
environment capable of attracting
foreign investment. To this end,
governments must deﬁne policies that
foster collaboration between different
stakeholders and encourage agents to
invest in low-carbon alternatives.
A solid, stable, and transparent
regulatory framework will also be
pivotal in supporting investment and
accelerating the transition.
‘IT IS CLEAR THAT DEVELOPED AND
DEVELOPING NATIONS HAVE QUITE
DIFFERENT CONCERNS OVER CLIMATE
CHANGE.’
It is clear that developed and
developing nations have quite different
concerns over climate change.
Similarly, different countries and
regions can be expected to experience
energy transition at different paces.
Discussion of peculiarities in each
country’s approach to energy transition
in the Latin American region can
help increase understanding of their
individual energy policies, and create
a coherent view of the relationship
between energy, climate change, and
the economic and social dimensions
in the region. In the end, if we want to
build a greener and more sustainable
energy sector in Latin America, we had
better start acting now.
India’s climate and energy goals after COP21: contradictory or complementary?
Anupama Sen
The agreement reached at the 21st
Conference of Parties (COP21) in Paris
in December 2015 evoked mixed
reactions in India. While its prime minister
declared that the deal was a win for
‘climate justice’, the environment
minister reportedly stated that the
agreement could have been more
ambitious, as the actions of developed
nations were ‘far below’ their historical
responsibilities. There was, however, a
visible shift in India’s stance at COP21
Economic and competitiveness indicators in Latin America –
selected countries
Indicator Brazil Argentina Venezuela Mexico Colombia
2015 GDP growth1 –3.8% 0.4% –10% 2.5% 2.5%
2016 GDP growth (est.)1 –3.5% –0.7% –6% 2.6% 2.8%
Commodities exports1
(% of total exports)
45.3% 49.8% 87.1% 11%2 58.5%
2013 renewables3 (%) 57% 13% 39% 12% 52%
Rank in GCI (Global
Competitiveness Index)4
75th 106th 131st 61st 66th
GCI – market size4
(on scale 1–7)
5.6–7.0 4.6–5.5 4.6–5.5 5.6–7.0 3.6–4.5
GCI – innovation4
(on scale 1–7)
2.6–3.5 2.6–3.5 0–2.5 2.6–3.5 2.6–3.5
1. ‘World Economic Outlook 2016’, FMI
2. Oil and oil products, INEGI, 2014. Mexico is not a large commodity exporter, but oil
accounts for a signiﬁcant part of government income (31% in 2014)
3. Electricity, including hydro and geothermal, IADB
4. World Economic Forum, Global Competitiveness Index 2015–2016. Ranks out of 140
economies and scores measured on a 1 to 7 scale
COP21 AND THE IMPLICATIONS FOR ENERGY
32 OXFORD ENERGY FORUM
in comparison with previous climate
summits. Arguably, this shift began in
2010 in Cancun, when India pledged
its ﬁrst climate target (to reduce the
emissions intensity of GDP by
20–25 per cent by 2020 from 2005
levels, soon after China announced its
emissions intensity target), and it was
further deﬁned at COP21.
The core of India’s negotiating
position has remained unchanged –
relying on the principle of ‘common
but differentiated responsibility and
respective capabilities’ within the
United Nations Framework Convention
on Climate Change. This relates to
its main domestic and international
challenge which, as described in the
IEA World Energy Outlook 2015, is to
‘demonstrate serious intent to
reduce emissions, while still
preserving sufﬁcient headroom to
allow for economic growth’.
While in the past (prior to 2009) India’s
focus was on resisting international
attempts to impose any emissions limits
that could constrain its energy policy, at
COP21 it explicitly articulated its stance
– namely, that given the limited amount
of carbon space (or total amount of
carbon that can be emitted before the
‘safe’ temperature threshold is breached),
developing countries should be
allocated a ‘fair and equitable’ share to
enable them to pursue critical
development and poverty alleviation
goals. It simultaneously announced
ambitious domestic targets on clean
energy, albeit reiterating a proviso that
these were contingent upon low-cost
technological assistance from the
developed world. Another key feature
of this ‘shift’ was India’s leadership
(jointly with France) in rallying 120
(mostly developing) nations around an
international solar alliance, purportedly
to seek the ﬁnancial assistance
required to scale up the adoption of
solar energy.
Taken at face value, these steps
collectively hint towards the beginning
of a hitherto unprecedented conﬂation
of climate policy and economic
development policy, in contrast to
a previously perceived dichotomy
between climate change mitigation
and economic development (see
‘Neither Brake Nor Accelerator:
Assessing India’s Climate Contribution’,
Navroz Dubash and Radhika Khosla,
Economic and Political Weekly, 17
October 2015). Indeed, many of the
potential characteristics of renewable
energy – such as decentralized solar
systems – present potential solutions
to the problem of rural electriﬁcation,
which is one of the centrepieces of the
current government’s policy pledges.
However, a key question arises: is
India’s shift in its stance on climate
and energy at COP21 consistent
with the commitments in its Intended
Nationally Determined Contribution
(INDC)? In other words, are India’s
goals on climate and energy policy
complementary, or contradictory?
India’s twin climate targets – commitments
versus aspirations
It is in fact important to note that India
has two sets of climate-related policy
targets. The ﬁrst set is enshrined within
its INDC and therefore constitutes ﬁrm
international commitments. These are:
To reduce the emissions intensity of
GDP by 33–35 per cent from 2005
levels by 2030;
To achieve 40 per cent of cumulative
electric installed capacity from
non-fossil fuel sources by 2030, with
the help of technology transfer and
low-cost international ﬁnance, including
the Green Climate Fund; and,
To create an additional carbon sink of
2.5–3.0 billion tonnes of CO2
equivalent, through additional forest
and tree cover by 2030.
The second set of targets reﬂects the
Indian government’s domestic policy
intentions through its long-running
National Action Plan on Climate Change
(launched in 2008). These include:
A ﬁve-fold increase in renewables
installed capacity to 175 Gigawatts
(GW) by 2022;
Of the above, 100 GW from solar,
60 GW from wind, and the remainder
from other sources; and,
A 10 per cent reduction in total
energy consumption (from current
levels) by 2018–19.
Notably, the second set of targets has
received greater publicity than the
INDC targets, and they do not form a
part of the INDC commitments; rather,
they are listed in the INDC as part of
recent government policy initiatives on
climate change mitigation – they can
therefore be construed as domestic
policy aspirations, rather than ﬁrm
international commitments.
Several broad assessments of India’s
INDC targets have been made since
December 2015, and the consensus
appears to be that they are achievable,
but relatively conservative in ambition.
For instance, in contrast with other
large developing economies (Brazil,
China, and South Africa) which had
joined India to represent their collective
interests in 2009, India’s INDC retained
its historical preference for an
emissions intensity target, while at
COP21 Brazil, China, and South Africa
moved from emissions intensity targets
towards absolute emissions targets.
India’s emissions intensity of GDP
(measured in kilograms of CO2 per
2011 PPP$ of GDP) is estimated to
have fallen by around 7.5 per cent from
2005 levels (World Bank World
Development Indicators, 2015).
‘…(PRIOR TO 2009) INDIA’S FOCUS WAS
ON RESISTING INTERNATIONAL ATTEMPTS
TO IMPOSE ANY EMISSIONS LIMITS THAT
COULD CONSTRAIN ITS ENERGY POLICY.’
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However, India’s INDC estimates that
its energy intensity has declined by a
much higher 17 per cent (given the
dominance of fossil fuels, emissions
intensity may have followed a similar
trend). It is likely to continue to decline
as India expands its National Mission
on Energy Efﬁciency (see ‘Energy
Efﬁciency: low-hanging fruit for India’,
Anil Jain, Oxford Energy Forum,
February 2015) and one assessment
puts the likely emissions intensity of GDP
at 41.5 per cent below 2005 levels by
2030 (India Climate Action Tracker, 2015).
‘…NON-FOSSIL FUEL SOURCES ALREADY
COMPRISE 30 PER CENT OF INDIA’S
OVERALL INSTALLED CAPACITY…’
India’s INDC pledge to expand nonfossil
fuel installed electric capacity
(including hydroelectric and nuclear) is
similarly achievable, as non-fossil fuel
sources already comprise 30 per cent
of India’s overall installed capacity –
the majority of this 30 per cent being
hydroelectricity, while within renewable
energy (excluding hydroelectricity)
wind takes the largest share. The IEA
New Policies Scenario (NPS) 2015
for instance, predicts that non-fossil
fuel capacity will reach 46 per cent of
installed capacity in 2040. At the same
time, it is important to note that a target
for installed capacity does not equate
to a target for generation – particularly
given India’s low capacity utilization,
its high transmission and distribution
losses, and the inherent intermittency of
renewables using current technologies.
For instance, Dubash and Khosla,
in ‘Neither Brake Nor Accelerator’,
estimate that the target would translate
into a 21–22 per cent share of
generation, meaning that fossil fuels
are likely to continue to dominate.
However it seems that the effectiveness
of India’s INDC targets, and the scaling
up of a potential ‘climate as development’
narrative, will depend not just on the
success of its domestic policy aspirations
(speciﬁcally on the interactions with INDC
commitments) but also on more granular
measures, such as efﬁciency reforms in
the electricity sector. The consensus
from various assessments appears to
be that the successful achievement of
its domestic policy aspirations could
result in India even exceeding its INDC
emissions intensity and non-fossil fuel
electricity capacity targets. However,
estimates of this vary considerably
(see ‘India’s Climate Pledge Suggests
Signiﬁcant Emissions Growth up to
2030’, Sophie Yeo and Simon Evans,
Carbon Brief, 2 October 2015).
The power sector – the biggest hope, but
also the biggest constraint
India’s installed generating
capacity
Source Percentage of total
Coal 61%
Oil 0.34%
Gas 8%
Nuclear 2%
Hydro 15%
Renewables 13%
The table ‘India’s installed generating
capacity’ gives the percentage
composition of India’s 289 GW of
installed capacity in February 2016.
Within renewables, solar and wind were
13 and 65 per cent, respectively.
According to the IEA, CO2 emissions
from electricity comprise the single
largest proportion (44 per cent) of total
CO2 emissions from fuel combustion in
India (CO2 Emissions from Fuel
Combustion, IEA, 2014). Given that
roughly a third of its population lacks
access to modern commercial energy,
India’s government in 2014 set a target
of providing ‘24 × 7 electricity to all’ by
2019. The viability of this target is
contingent not just upon an expansion
of installed capacity, but also on massive
technical and ﬁnancial reforms to the
electricity sector. Given its dual emissions
and development implications, the
power sector, therefore, represents the
biggest hope for a successful conﬂuence
of climate and energy policy, but at the
same time, its biggest hurdle. The latter
is characterized by two fundamental
problems relating to power sector reform:
First, India’s electricity reform is largely
based on the OECD model, where
prices are eventually set based on
system marginal cost. As electricity
policy in India’s federal structure lies
with individual states, these are at
different stages of reform. However,
India is beginning to demonstrate
problems similar to those seen
currently in the OECD, where a system
based on marginal cost pricing cannot
cope with the intermittency of
renewables, nor provide adequate
long-term incentives for investment in
desirable (that is, alternatives to coal)
backup generation (see ‘Divergent
Paths to a Common Goal?’, Anupama
Sen, OIES paper EL10, May 2014).
Attempts at incorporating renewables
have run into problems. For instance,
a ‘renewables purchase obligation’
(RPO) requires distribution utilities to
purchase a certain proportion (set by
state regulators) of electricity from
renewables, or alternatively an
equivalent amount in ‘renewable
electricity certiﬁcates’ (each equating
to 1 MWh) on India’s two main power
exchanges. However, the exchanges
have reported a growing inventory of
untraded certiﬁcates since the
programme’s inception. For instance,
the Indian Electricity Exchange, which
accounted for over 90 per cent of the
domestic electricity trading market in
2015, reported that of 9.6 million
certiﬁcates available in ﬁscal 2014/15,
only 3.1 million had been traded (see
‘Green certiﬁcates sale down 58% at
4.01 lakh in January’, Economic
Times, 27 January 2016)
This leads to the second problem and
a fundamental reason why India’s
previous attempts at reform failed: the
insolvency of state distribution utilities,
COP21 AND THE IMPLICATIONS FOR ENERGY
34 OXFORD ENERGY FORUM
reﬂecting a failure to enforce costreﬂective
pricing. This has meant that
utilities are often unable to fulﬁl their
RPOs. Policymakers are undoubtedly
aware of these problems: three recent
attempts have been made to
restructure the debts of utilities. The
latest reform, announced in November
2015, asks state governments to
appropriate 75 per cent of distribution
utilities’ debts over a period of two
years. Following this, the debts will
be included as part of state ﬁscal
deﬁcits, thereby necessitating parallel
measures to be taken by states to
increase power sector tariffs and
eliminate subsidies. The incentive to
states to implement this reform is the
awarding of priority in other federal
funding – nine out of 29 states had
signed up at the time of writing.
Subsidies have been successfully
eliminated for energy products such as
gasoline and diesel by liberalizing retail
prices (accompanied by direct subsidy
payments to eligible consumers through
cash transfers). However, the position
of petroleum products, where policy is
made at federal level, is different from
that of electricity, because electricity
policy is a state subject; decision making
for electricity is therefore fragmented
and inﬂuenced by regional politics.
India’s INDC states that the government
will enforce a ‘renewables generation
obligation’ requiring fossil fuel generators
to invest in solar plants or purchase
electricity from renewables equivalent
to 10 per cent of fossil fuel capacity.
Although this moves the policy impact
from the politically sensitive distribution
sector to generation, and may help in
adding capacity, it is unlikely to resolve
the problem of cost-reﬂective pricing,
which requires the building of a political
consensus amongst states and greater
enforcement powers for electricity
regulators.
The unyielding role of coal
An alternative way of scaling up
renewables within electricity is to
disincentive coal, making it less attractive
to consumers. However, this is where
contradictions emerge. Aware of its
pledge on universal electricity access
and its wider ambitions on economic
growth, India’s government aims to triple
domestic coal production to 1.5 billion
tonnes by 2020 and, further, to meet
this entirely from domestic resources
which have a high ash content.
Assessments show that these targets
are ambitious but not impossible (see
‘Indian Steam Coal Imports’, Sylvie
Cornot-Gandolphe, OIES paper CL3,
March 2016). At the same time, it has
announced domestic policy initiatives
on ‘clean coal’, including:
Mandatory supercritical technologies
for coal-ﬁred power plants from 2017
(currently comprising only 16 per cent
of the coal-ﬁred ﬂeet);
The expansion of coal washeries (less
than 20 per cent of coal is washed);
Pricing based on auctions (Indian
coal has at times been half the price
of internationally traded coal);
Environmental regulations on
transportation of coal with high ash
content; and,
A ‘coal cess’, which has been doubled
every year since its inception in 2014
(now roughly US$6/tonne).
However, by most assessments, and
despite current policy measures, coal
will continue to meet the major proportion
of India’s energy demand (set to
0
200
400
600
800
1000
1200
Solar PV
Wind
Bioenergy
Hydro
Nuclear
Gas
Oil
Coal
Trend in growth of installed capacity to 2040 (GW)
Source: Author’s estimates using compound annual average growth rates from IEA World Energy Outlook, 2015
‘CO2 EMISSIONS FROM ELECTRICITY
COMPRISE THE SINGLE LARGEST
PROPORTION (44 PER CENT) OF TOTAL
CO2 EMISSIONS FROM FUEL COMBUSTION
IN INDIA.’
MAY 2016: ISSUE 105
35OXFORD ENERGY FORUM
renewable energy investments in 2016
were estimated at US$286 billion, the
majority being in developing countries
(United Nations Environment Programme).
Although India prefaces its INDC
contribution with ‘sanguinity’ about the
availability of international ﬁnance, the
weight of evidence is against such
sanguinity (as noted in ‘What do India’s
climate contributions mean, and are they
implementable?’, Lavanya Rajamani,
Economic Times, 23 October 2015).
There is an urgent need for greater
clarity on how much of India’s estimated
cost can be funded domestically, and
how much internationally.
India’s climate and energy goals, as they
currently stand, are still contradictory, but
there is room for complementarity and
for exploiting the growing synergies
between the two. This has not been
sufﬁciently explored by governments
(and not just India’s), fearful of yielding
sovereignty over domestic policy. What
may turn the tide in the next few years
is the move towards decentralized
solutions to energy access and
development, along with rising public
concerns over environmental issues
such as abysmal urban air quality (this
has recently caused a slew of litigation
by citizens against India’s administrative
authorities), which could force climate
and energy policy closer together.
increase by 2.5 times) to 2040 (see the
ﬁgure ‘Installed capacity to 2040’ on
page 35).
The IEA World Energy Outlook estimates
that coal-ﬁred capacity in the NPS will
be 17 per cent lower than in the Current
Policies Scenario (CPS); in contrast,
non-fossil fuel capacity will be 48 per cent
higher in the NPS than CPS – but this is
starting from a very low base,
particularly for solar. In reality, solar is
estimated in the IEA-NPS at 28 GW of
capacity in 2020, 100 GW in 2030, and
182 GW in 2040, implying that India
could fail to achieve its ambitious 2022
domestic solar target.
The resultant impact on emissions has
been estimated by the IEA at around
5.2 billion tonnes of CO2 in 2040 in the
NPS (15 per cent lower than the CPS) –
see the ﬁgure ‘CO2 emissions to 2040’.
Although in absolute terms India would
remain one of the largest emitters of
CO2, in per capita terms emissions
would be around 3.4 tonnes (assuming
UN population projections of 1.5 billion),
up from 1.6 tonnes at present – placing
it below predicted 2040 per capita
emissions for the USA, China, and the
EU (‘India’s Climate Pledge’, Yeo and
Evans, 2015).
Turning the coal tide
The biggest uncertainty is, however, not
whether India’s carbon emissions will
continue to grow, but when they will peak.
India has, thus far, resisted putting
forward a target for this (as China has
done), but its INDC states that it
‘reserves the right to make further
submissions as and when required’.
A related uncertainty is over whether
the path to peak emissions could be
speeded up or moved to a lower
trajectory. This is where India’s proviso of
‘access to low cost international
ﬁnance and technology transfer’
comes into play. It is likely to be the
basis of future negotiations and of
adjustments to India’s INDC targets
going forward through the ‘update and
ratchet’ mechanism. India’s INDC puts
forward a preliminary estimate of
US$2.5 trillion (2014 prices) as the cost
of implementing enhanced climate
actions to 2030 – higher than all other
developing countries combined
(‘India’s Climate Pledge’, Yeo and
Evans, 2015). In contrast, global
0
1000
2000
3000
4000
5000
Gas
Oil
Coal
CO2 emissions to 2040 (million tonnes)
Source: IEA World Energy Outlook CPS, 2015; Author
‘THE BIGGEST UNCERTAINTY IS,
HOWEVER, NOT WHETHER INDIA’S
CARBON EMISSIONS WILL CONTINUE TO
GROW, BUT WHEN THEY WILL PEAK.’
COP21 AND THE IMPLICATIONS FOR ENERGY
36 OXFORD ENERGY FORUM
Europe’s climate policy – after Paris comes the harder part
David Buchan
The Paris climate agreement is a big
comfort to the European Union. The
fact that so many governments have
come forward with at least some form
of emission reduction plan leaves
the EU feeling less lonely in the ﬁght
against climate change and less
exposed to competitive threats from
economies with no carbon constraints.
Indeed some EU governments have
subsequently felt sufﬁciently buoyed
by the outcome of Paris to urge the
EU to increase the ambition of what
it laid on the table at Paris. The ﬁnal
communique in Paris exceeded most
expectations by promising action
to keep the rise in global average
temperatures, from pre-industrial
levels, to ‘well below 2 °C’ and to
‘pursue efforts’ to hold the increase to
1.5 °C. As a result, at the March 2016
meeting of EU environment ministers,
Germany, Austria, Portugal, and
Luxembourg criticized the European
Commission for being unwilling to
revise upwards EU climate goals to
reﬂect the increased ambition of the
Paris accord. These governments,
along with green groups, claimed that
while the EU goal of a 40 per cent
reduction of emissions by 2030 (from
the 1990 level) might be compatible
with a 2 °C temperature rise, it was
inadequate to help the world achieve
the lower 1.5 °C target. They also
pointed to the fact that the 2030
emission reduction goal, set in 2014,
was couched as ‘at least 40 per cent’.
But the Commission is leaving the
2030 target unchanged – and for the
good reason that in the current general
political turmoil inside the EU, any
adjustment might well be down rather
than up. For the 2030 goals will be
harder to achieve the 2020 targets.
This is not so evident as regards
the slightly less than half Europe’s
emissions that are produced by the
10,000 power generators and industrial
operators covered by the Emissions
Trading Scheme (ETS). Largely due
to recession and slow growth in the
eurozone, the EU will have no difﬁculty
at all in meeting the sub-target of a
21 per cent decrease (from 2005 levels)
in ETS emissions by 2020. The 2030
sub-target of a 43 per cent reduction in
ETS emissions ought to be achievable,
but progress here could be stymied by
developments in three sectors of power
generation:
Coal-ﬁred generation plant.
Construction of new coal plant is still
continuing in central and eastern
Europe, chieﬂy in Poland, whose new
nationalist and somewhat climatesceptic
government is making
support for the mining sector a key
part of its industrial and social policy,
but also in the Czech Republic. In
western Europe, a small amount of
coal plant is still being built in
Germany and the Netherlands, but in
capacity terms this is dwarfed by the
scale of coal plant closures in the
UK, where the government has said
all coal generation should shut down
by 2025. The mirror image of this
east–west divergence on coal is that
more gas-ﬁred generation is being
built in western Europe than in
eastern Europe, though the overall
amount is small.
Renewable electricity. There has
been a slowdown in new renewable
capacity in the UK and in several
central and east European member
states. The UK is withdrawing
subsidy for onshore wind and, partly
as a result, will probably miss its
2020 renewable target, as may
Poland where the new government’s
pro-coal policies are bringing to a
halt the sizeable increase in
renewable capacity seen in recent
years. Declining enthusiasm for
renewables is evident elsewhere in
the region, where Hungary, the
Czech Republic, and Bulgaria failed
to erect a single wind turbine last
year. None of this is surprising, given
that it was the UK and east European
states which successfully lobbied for
the EU to drop renewable energy
targets for individual member states
after 2020.
Nuclear power. In terms of emissions
reductions, the continuance of some
new investment in coal generation
and the slowing increase in
renewables would matter less if there
were a real prospect that Europe could
at least maintain output of near zerocarbon
nuclear power. At present the
share of electricity produced from
nuclear power is 27 per cent, which
is the same portion of the electricity
mix as that provided by renewables.
In the latest of the ‘indicative’ nuclear
programmes that are periodically
required to be published under the
Euratom Treaty, the European
Commission ‘estimates that the
nuclear electricity generation
capacity would decline by 2025’.
This seems obvious, partly because
by that date the last German reactor
will have shut and France will have,
according to its 2015 energy
transition law, reduced the nuclear
share of its electricity mix to
50 per cent, and partly because
even if Electricité de France makes a
ﬁnal investment decision this year on
a new UK reactor at Hinkley Point this
will not start generating until 2025.
‘THE 2030 GOALS WILL BE HARDER TO
ACHIEVE THE 2020 TARGETS.’
MAY 2016: ISSUE 105
37OXFORD ENERGY FORUM
But the Commission’s ‘indicative’
programme enters the realm of make
believe in predicting that the decline
in nuclear will reverse by 2030 and
rise slightly to provide a 17–21 per cent
share of the electricity mix by 2050.
This assumes that, in addition to the
reactors currently being built or
expanded (as in France, Finland, and
Slovakia), or under negotiation (as in
the UK and Hungary), the nuclear
projects still on the drawing board in
Bulgaria, the Czech Republic,
Lithuania, Poland, and Romania will
all go ahead. Even with maximum life
extensions of existing reactors, if the
EU were to maintain a 20 per cent
nuclear share of the electricity mix, by
2050 80 per cent of the output would
have to be from new nuclear reactors
built, on the Commission estimate, at
a cost of €350–450 billion. This is, to
put it politely, most implausible.
However, achievement of the 43 per cent
emission reduction goal in the sectors
covered by the ETS is possible:
if the agreed reforms to the ETS
produce a high carbon price,
if this in turn favours gas over coal,
if the cost of renewables continues to
come down, and
if this in turn brings the rate of
subsidy for renewables down to a
politically sustainable, and therefore
stable, level.
Europe’s decarbonization strategy is
designed to start with the electricity
sector that can then replace fossil fuels
in heating and transport. Not only is
the priority on decarbonizing electricity
logical, it is also, in one sense, easier
– it only requires behavioural change
from a relatively small number of
energy producers, not a multitude of
energy consumers, as in the heating
and transport sectors.
It is this behavioural challenge that
makes decarbonization particularly
difﬁcult in the sectors (chieﬂy transport,
buildings, agriculture) of the European
economy which are not covered by the
ETS but which account for nearly
60 per cent of Europe’s emissions. The
challenge is somewhat eased by the
fact that, in contrast to the one-carbonprice-hits-everyone
regime of the ETS,
the burden of decarbonizing the nonETS
sectors is adjusted to the member
state’s ability to bear it – higher targets
for richer states, lower ones for poorer
states. This burden-sharing – which the
European Commission prefers to call
‘effort sharing’ – is not the most efﬁcient
form of emission reduction, because
the most energy-wasteful countries
are often the poorest – such as those
in central and eastern Europe – but it
has been chosen as being the most
politically acceptable.
In the current EU energy and climate
regime, non-ETS emissions are
supposed to decline (from 2005 levels)
by an overall 10 per cent by 2020.
But within that ceiling, poorer states
(the mainly smaller economies in
eastern Europe) are allowed to increase
their non-ETS emissions by up to
20 per cent by 2020 (from 2005 levels),
while the richer ones (which include
the ﬁve largest EU states that are all in
western Europe) have to cut emissions
by up to 20 per cent. Apart from three
or four west European member states,
most of the EU-28 will have no problem
meeting their 2020 targets, and the
10 per cent overall non-ETS target will
be easily met.
However, the post-2020 regime will
be considerably tougher. The overall
target for 2030 is a 30 per cent
reduction (again on 2005 levels) in
non-ETS emissions, and while
differentiated targets remain for
individual states, they range from a
zero percentage increase for poorer
states to a 40 per cent reduction for
the richest. The Commission is shortly
to propose where the legally binding
targets for individual states should
ﬁt along this 0–40 percentage point
spectrum. In the absence of radical
relative changes in national income,
it will presumably again see a state
like Bulgaria getting the easiest target
(such as just keeping its non-ETS
emissions ﬂat through the 2020s) and
a state like Denmark having to cut its
non-ETS emissions by up to 40 per cent
(though for the 2030 regime there is the
possibility of states with very stiff nonETS
targets getting some easing, in
return for foregoing some of their ETS
allowances).
The biggest emitting sector is transport,
accounting for a third of all non-ETS
emissions. It is also the most difﬁcult to
decarbonize (see ‘Europe crawls towards
low-carbon transport’ by Jos Dings,
page 46). The European Environment
Agency (EEA) has made some
projections: it foresees overall transport
emissions falling by only 0.7 per cent
by 2020, and staying steady, in the
absence of any new policies, up to 2030.
By contrast, the EEA forecasts
signiﬁcant reductions in emissions
from residential and commercial
buildings (which at present account for
27 per cent of all non-ETS emissions),
both up to 2020 and beyond. To
accelerate progress in this area, the
Commission has this year produced
what it called its ﬁrst ever strategy for
heating and cooling in residential and
commercial building, and in industry.
If this is to work, it will involve not
only tightening existing legislation
on energy efﬁciency and the energy
used in buildings, but also behavioural
‘EUROPE’S DECARBONIZATION STRATEGY
IS DESIGNED TO START WITH THE
ELECTRICITY SECTOR…’
‘THE BIGGEST EMITTING SECTOR IS
TRANSPORT, ACCOUNTING FOR A THIRD
OF ALL NON-ETS EMISSIONS.’
COP21 AND THE IMPLICATIONS FOR ENERGY
38 OXFORD ENERGY FORUM
changes such as, for instance, better
cost-sharing arrangements between
owners and tenants so that both reap
the beneﬁt of renovating buildings they
own or inhabit. In the difﬁcult task of
reducing emissions outside the ETS,
the Commission has at last identiﬁed
one area in which it can, so to speak,
push on an open door.
Taking the temperature
Andrew Howard
From a vantage point inside ﬁnancial
markets, it feels at times that investors
are shouldering weightier expectations
to lead the line in addressing climate
change than they can deliver. At the
time of writing, four of the 13 articles
on the UN Framework Convention
on Climate Change (UNFCCC)
homepage describe the role of various
climate investments in addressing the
challenge. ‘Financial ﬂows’ is the ﬁrst
topic on its list of action areas.
High proﬁle efforts such as the Montreal
Pledge – which commits investors to
measure and disclose the carbon
footprints of their portfolios in order to
demonstrate commitment to tackling
climate change – have fuelled the
rhetoric, despite their relatively small
scale. The US$100 billion of assets
managed by Montreal Pledge signatories
equates to around 0.1 per cent of the
world’s professionally managed assets.
While there is no doubt that capital
markets will be vital to facilitating the
very signiﬁcant investments needed to
decarbonize the world’s energy
infrastructure and economy, ﬁnancial
markets will not blindly lead that transition.
Investments will follow where economic
and ﬁnancial incentives lead, and at
this point those incentives have not
yielded an avalanche of investment in
climate technologies or infrastructure.
The selection of charts (‘Value of
selected climate markets, relative to
traditional equivalents’) plotting the
global value of investments that focus
on clean energy or on climate solutions,
relative to their fossil fuel counterparts,
put the scale of climate-focused
ﬁnancial investment in context.
The small numbers seem at odds with
many headlines. The IEA’s latest
World Energy Outlook states that
60 per cent of new power investment
went into renewables in 2014, equating
to 130 GW of renewables capacity.
Although that ﬁgure equates to only
around 60 per cent of investment in
upstream oil and gas production,
renewables play a far bigger role in
the industry than in capital markets.
The circle is largely squared by the
relatively small share of that investment
coming from public markets. The UN
Environment Programme has
estimated that while global new
investment in renewable energy has
risen by 20 per cent annually over the
last decade, reaching US$270 billion
in 2014, less than 10 per cent comes
from public capital markets. Most is
funded by companies’ own cash ﬂows
or private vehicles.
This could change quickly. With a
clearer regulatory and economic
signal, rising investment could push
the industry to mature quickly, reducing
technical and execution risks and
less than
2% of
oil & gas
equities
0
1,000
2,000
3,000
4,000
Alternative
energy
Oil & gas
$bn Renewable energy equities
less than
0.1% of
global
corporate
bonds
0
20,000
40,000
60,000
80,000
100,000
Green bonds Global corporate
bonds
$bn Green bonds
less than
2% of
oil & gas
commodities
0
1,000
2,000
3,000
4,000
Carbon
markets
Oil & gas
commodities
$bn Global carbon markets
Value of selected climate markets, relative to traditional equivalents
Source: Datastream, The Climate Group, Climate Bonds, Statista
‘INVESTMENTS WILL FOLLOW WHERE
ECONOMIC AND FINANCIAL INCENTIVES
LEAD…’
MAY 2016: ISSUE 105
39OXFORD ENERGY FORUM
improving the liquidity of available
investments. As a study in the pace
of change possible: US$500–600
billion was invested in the US shale
industry during 2005–10, pushing its
share in US energy supply to around
20 per cent from a standing start.
Technological and regulatory changes
created an economic opportunity into
which capital ﬂooded.
In this article, we look more closely at
why investment has not been greater
to date. Populist challenges attributing
the industry’s muted response to
ignorance (‘they don’t understand’),
myopia (‘they only care about the next
quarter’), or vague conspiracy theories
all miss the mark and do nothing to
help unpick solutions.
The job of an investor is to maximize
the value of investments managed on
behalf of clients, most of whom are,
ultimately, the general public. The
majority of professional investors
have no mandate to pursue
environmental agendas or to use their
clients’ money for social or political
goals, however well intentioned. That
is the impassionate lens through
which ﬁnancial markets look at
climate change.
Through that lens, we can dissect in
stages the reasons for the apparently
limited ﬁnancial market response to
climate change, relative to the scale
of the problem:
1 Are enough investors aware of the
issue and does it seem likely to have
a big enough effect on corporate
values to worry about?
2 Does it look likely that regulators,
governments, consumers, or another
group will take meaningful action to
address the threat?
3 Is there a logical way to work out how
those actions will affect the values of
individual companies or asset
classes?
On the ﬁrst question: climate change
is clearly on investors’ radar screens
and the scale of the challenge has
been well publicized. Over the last
year, the Financial Times has run more
stories on ‘climate change’ than on
‘tax evasion’, and only slightly fewer for
‘climate change’ than it has published
on ‘terrorism’ (see the ﬁgure ‘FT articles
referring to selected topics’). Fewer
than 10 per cent of those articles
mention scepticism over the science or
threat of climate change and none we
found concluded that those sceptical
arguments are valid.
On the second question: whether
regulators, governments, consumers,
or some other constituency will take
steps to address the threat is less clear.
Last year’s agreement in Paris resulted
in global leaders agreeing to take
steps to limit the increase in the global
average temperature to well below
2 °C above pre-industrial levels, and to
pursue efforts to limit the temperature
increase to 1.5 °C.
On the face of it, this is stern stuff.
By our estimates, the targets published
by individual countries prior to that
point imply an emissions pathway
consistent with temperature rises
around 3.5 °C. The Paris Agreement
should have been followed by
governments queuing up to ratchet
those national targets. They haven’t.
Financial markets will be driven by
evidence that global ambitions to
address the causes of climate change
are grounded in a willingness to take
practical regulatory steps. So far, the
jury is out.
Carbon pricing is a key plank of most
policymakers’ climate toolkits, but it is
yet to approach levels at which it
might become ﬁnancially meaningful.
Dividing the global value of carbon
markets by annual emissions yields
a global average price around US$1
for each tonne of carbon emitted
annually. At that level, the carbon
‘CLIMATE CHANGE IS CLEARLY ON
INVESTORS’ RADAR SCREENS AND THE
SCALE OF THE CHALLENGE HAS BEEN
WELL PUBLICIZED.’
0
100
200
300
400
500
600
700
800
2012
Q1
2012
Q2
2012
Q3
2012
Q4
2013
Q1
2013
Q2
2013
Q3
2013
Q4
2014
Q1
2014
Q2
2014
Q3
2014
Q4
2015
Q1
2015
Q2
2015
Q3
2015
Q4
2016
Q1
Climate
change
Terrorism
Tax evasion
FT articles referring to selected topics
Source: Financial Times
COP21 AND THE IMPLICATIONS FOR ENERGY
40 OXFORD ENERGY FORUM
contained in a barrel of oil is worth
under 50 cents, a ﬁgure smaller than
the average daily change in the price of
oil over the last few years. Any
calculation of the effects of carbon
pricing on companies’ proﬁtability or
value relies either on a lot of decimal
places, or the assumption that carbon
prices will rise signiﬁcantly, which in
turn relies on regulators taking much
sterner steps.
Although we start from a low base, it is
also clear that political action is
strengthening. A decade ago, the ﬁrst
carbon markets had just launched,
whereas we estimate that today existing
or planned carbon trading schemes will
cover close to one-third of global
emissions, albeit with relatively loose
caps that lead to muted prices.
Although the pace of change is unclear,
most investors are clear that the
trajectory is towards more stringent
regulatory action.
‘…WE ESTIMATE THAT TODAY EXISTING
OR PLANNED CARBON TRADING SCHEMES
WILL COVER CLOSE TO ONE-THIRD OF
GLOBAL EMISSIONS…’
On the third question: if convictions
in the likelihood of regulatory action
continue to strengthen (as they are),
ideas on how to translate that risk
into investment decisions will become
more critical. To date, proposals have
focused on relatively blunt responses,
often developed by environmental
groups with limited ﬁnancial expertise,
which are logical ﬁrst steps but which
rarely provide sensible long-term
solutions.
Carbon footprinting measures the
amount of carbon emitted by the
companies an investor owns when
he or she invests £1 in an investment
fund. It says little about how rising
carbon prices will impact the value of
those companies, an altogether
trickier question demanding
knowledge of industry structures,
pricing dynamics, and ﬁnancial
markets.
Clean energy funds funnel
investment into listed alternative
energy technology companies. Most
have performed poorly, reﬂecting
both their sensitivity to changing
regulation and the difﬁculties many
sectors have faced in generating
attractive levels of proﬁtability, often
weighed down by the excess
capacity caused by heavy
investment in relatively immature
markets.
Fossil fuel divestment campaigns
generate compelling headlines, but
the leap from reductions in fossil fuel
use to underperformance by
producers of those commodities
misses the nuances of resource
economics and the depressed
valuations on which they trade.
Green bonds, carbon markets, or
other emerging investments have,
so far, only scratched the surfaces of
the broader asset markets of which
they are parts, generally with
disappointing performances to date
(see the ﬁgure ‘Performances of
selected carbon investments relative
to comparable benchmarks’).
In principle, the availability of a deep
enough pool of liquid investment
opportunities will be important once
those conditions are established.
Illiquidity and the relatively high
costs associated with ﬁnding and
managing small investments have
been challenges in the past. However,
in practice, those barriers tend to fall
quickly once capital builds momentum.
Assuming that political responses
follow through on the commitments
made by leaders in Paris last year,
ﬁnancial market attention will turn to
solutions that assimilate the investment
implications of tougher responses. The
investment strategies that result may
not line up with environmental groups’
goals or political hopes for ﬁnancial
market intervention.
Implications will be more nuanced than
the blunt approaches advocated to
date; the biggest investment effects of
climate policies are likely to be outside
0
20
40
60
80
100
120
140
160
180
201620152014201320122011201020092008200720062005
S&P Green Bond
Index rel to broad
corporate bond
index
S&P Global
Alternative Energy
rel to S&P Global
1200
S&P US Carbon
Efficient Index rel
to S&P 500
Performances of selected carbon investments relative to comparable benchmarks
Source: Datastream
MAY 2016: ISSUE 105
41OXFORD ENERGY FORUM
the clean technology sectors that will
provide many solutions. Rather than
narrow investment in clean energy
technologies, attractive opportunities
are likely to emerge in other industries
where companies can generate indirect
competitive advantages through
managing the indirect effects of
regulation and consumer expectations
on their costs, pricing, or growth.
Instead of reducing investments in
all high-carbon companies, greater
regulatory clarity may actually make it
easier to value fossil fuel companies,
even if they face dwindling growth.
Financial markets are uniquely adept
at hunting down value, but it is likely to
emerge in unexpected places.
The divestment debate: a view from energy producers
Frederick J. Lawrence
Over the past year, nearly 30 UK
universities have yielded to the
pressure of climate activists and
considered whether to rid their
endowments of fossil fuel-related
assets. The anti-fossil fuel camp will
tell of the growing number of notable
universities that have pledged to divest
of such assets, with Glasgow, Shefﬁeld,
and Warwick among them. However,
the lines of success are blurred when
you look behind the headlines. Oxford,
for example, reportedly divested its
£3 billion endowment, when in fact it
had committed to avoid investment in
coal or oil sands only – both sectors
in which it was not invested in the ﬁrst
instance. Not only does this raise the
question ‘What is true divestment?’, but
moreover, what are the motives behind
the divestment movement? There is
little reason to believe that divestment
will affect the bottom lines of the
companies the activists hope to derail,
or that it will produce a tangible solution
to the climate challenges they wish to
address.
‘THERE IS LITTLE REASON TO BELIEVE
THAT DIVESTMENT WILL AFFECT THE
BOTTOM LINES OF THE COMPANIES THE
ACTIVISTS HOPE TO DERAIL…’
Some leaders of the divestment
movement accept that their efforts are
primarily symbolic in nature. Stephen
Heintz, president of the Rockefeller
Brothers Fund (RBF), admitted in 2015
that the fund’s decision to divest from
many fossil fuel stocks was ‘largely
symbolic’ and meant to incite others to
change behaviour. But even the RBF
couldn’t commit itself to full divestment
at ﬁrst – it initially dropped only coal
and oil sands stocks, which resulted in
a less than 1 per cent decrease in the
fund’s fossil fuel exposure. Much like
Oxford’s decision, activists listed RBF
in the win column, despite the fact that
the organization continued to invest in
oil and gas (a decision which was just
recently expanded). The reality is that
calls to action – even those intended as
symbols – eventually need to be clearly
deﬁnable, yet divestment proponents
seem to be comfortable with loose
guidelines over what divestment truly is.
Why aren’t car manufacturers, or banks
holding debt of mining companies,
considered to be as unsavoury as
oil explorers? On the ﬂip side, why
shouldn’t oil and gas ﬁrms investing in
green technologies be encouraged to
continue these pursuits?
Perhaps it’s the parallels with boycotts
of the past that give activists a false
sense of conﬁdence. The global reach
of the divestment campaign has
activists comparing their tactics to
those deployed in the 1980s in protest
against South African Apartheid.
Yet even some of the proponents of
climate change action admit that while
divestment is focused on a worthy
cause, when observed on the morality
scale it clearly does not warrant the
same attention as those issues eliciting
divestment support in the past. When
asked about how his involvement
in introducing divestment bills in
response to human rights violations in
Iran and Sudan compares, former US
Representative Barney Frank explained:
‘Changing out of fossil fuels is
important, but it doesn’t have
the same moral problem. […]
Objecting to blatant violations
of human rights is different than
pushing for public policy change,
even if a very worthy one.’
Equally, such boycotts have proven to
be ineffective time and again – even for
the most worthy of causes. Professor
Ivo Welch of the University of California
– Los Angeles (UCLA) is a prominent
voice on the effectiveness of boycotts
adopted during Apartheid.
‘Unfortunately, when we started
measuring [the effect of the
boycott], we found that it had no
impact whatsoever’
he told a popular American radio
programme. He found that there was
always a way to escape the boycott
because there would always be another
buyer in the market. Experts at the
‘FINANCIAL MARKETS ARE UNIQUELY
ADEPT AT HUNTING DOWN VALUE,
BUT IT IS LIKELY TO EMERGE IN
UNEXPECTED PLACES.’
COP21 AND THE IMPLICATIONS FOR ENERGY
42 OXFORD ENERGY FORUM
Stranded Assets Programme of the
University of Oxford’s Smith School of
Enterprise and the Environment (the
‘Oxford Smith School’) concluded in a
2013 report (Stranded assets and the
fossil fuel divestment campaign: what
does divestment mean for the valuation
of fossil fuel assets?, Atif Ansar, Ben
Caldecott, and James Tilbury, Oxford
Smith School) that the same would
be true in the case of fossil fuel
divestment, as divested holdings
‘are likely to ﬁnd their way quickly
to neutral investors’ [which
could result in] ‘unintended
consequences’ (Stranded assets
and the fossil fuel divestment
campaign, p. 18).
Not only could the stock end up in less
sympathetic hands, but the presence
of another buyer would also mean
a divestment strategy would have a
nil effect on the bottom lines of the
targeted companies.
‘THE EXCLUSION OF THE FOSSIL FUEL
INDUSTRY FROM A PORTFOLIO COULD
RESULT IN SIGNIFICANT LOSSES IN
RETURNS.’
Divestment may not have a material
effect on fossil fuel companies, but
it may very well have a signiﬁcant
ﬁnancial impact on individual investor
portfolios and on the performance
of critical pension funds. There are
obvious downsides to removing
such a signiﬁcant global sector from
a portfolio. Oil and gas stocks in
particular provide a level of risk and
return not easily replicated – certainly
not by simply replacing them with
renewables stocks, as so many
divestment proponents suggest. Two
separate reports commissioned by
IPAA concluded that the exclusion of
the fossil fuel industry from a portfolio
could result in signiﬁcant losses in
returns. University of Chicago Law
School Professor Daniel Fischel
found, in his 2015 report (‘Fossil Fuel
Divestment: A Costly and Ineffective
Investment Strategy’) that portfolios
divested of energy equities produced
returns 0.7 percentage points lower
than ones that invested in energy on
an absolute basis, representing a
23 per cent loss over a 50 year time
period (‘Fossil Fuel Divestment’, p. 10).
Europe Economics concluded a similar
percentage point loss, and found that
if sustaining lower returns was not an
option, then an investor would have to
take on more than 20 per cent extra
risk in their investment portfolio (Costs
to Investors of Boycotting Fossil Fuels,
Andrew Lilico, et al., 2015, p. 13).
Professor Fischel added another
dimension to the debate: management
fees involved in complying with
divestment policies could squander
any potential gains in returns. Any
investor knows that the more personal
attention their portfolio requires, the
higher the management fees that are
likely to be applied. While there is
an increasing number of specialized
funds and ‘climate conscious’ tools
on offer, there is no standardized
strategy for divesting a fund of fossil
fuels. Instead, investors must identify
the speciﬁc securities to be divested
from – a service which comes at a cost.
As fossil fuel companies evolve and
new investment opportunities arise,
there will be ongoing compliance costs
required to stay ahead of the curve.
The Leonardo DiCaprios of the world
may be able to absorb such a cost,
but a university with only a £191 million
endowment, like that of Heriot-Watt, for
example, should think twice about the
cost–beneﬁt of the decision to divest
– especially when there is no clear
reward.
However, the current low-oil price
environment has bolstered the
divestment argument, albeit artiﬁcially.
After all, isn’t the plunging oil price a
signal of a failing industry? Not in the
slightest, and even some activists
admit it. Journalist and 350.org Board
member Naomi Klein admitted in a
recent interview that fossil fuel-based
industries have
‘just lost their best argument’ [in
the oil price drop, but confessed
that] ‘They won’t lose it for long.
So that’s another reason to pound
away at it.’
But even if an investor is fortunate
enough not to have to worry about
returns, there are other issues at
stake when considering a position
on divestment. Of course, deciding
to divest your own earnings based
on your personal beliefs is your
prerogative. But leveraging a university
endowment in the name of a moral
cause – one which has no clear beneﬁt
to the operation of the university –
cannot be seen as prudent. In the
case of Harvard University, 35 per cent
of its operating budget comes from
the endowment – that’s US$13 billion
that could in theory be leveraged for
political points for the climate activist
camp. However, Harvard president
Drew Faust made the university into
a case study of how to consider the
plight of concerned students and
alumni, and ultimately concluded that
‘the endowment is a resource, not
an instrument to impel social or
political change.’
As Hertford College lecturer Clive
Hambler wrote in a recent letter to The
Independent, Professor Sir Richard
Southwood, former Vice-Chancellor
at Oxford, said that a university
should not take an ofﬁcial position
on an environmental topic. Instead,
the university exists to foster debate,
not to cement a position and thereby
suppress academic free speech. This
reverence for opposing views may be
foreign to many corporate interests,
but that’s what makes the academic
community so important to public
discourse, and why maintaining its
MAY 2016: ISSUE 105
43OXFORD ENERGY FORUM
integrity should be a priority over
scoring political points.
Simply put, a political statement does
not equate to useful action. But what
divestment activists often discount is
the role that the fossil fuel industry can
play in aiding a smooth energy transition
around the world. That transition begins
with an acknowledgement by key
decision makers of our widespread
dependence on fossil fuels, and a
recognition that divestment is hypocritical
in the face of that reality. According to the
US Energy Information Administration
(EIA), global consumption of petroleum
and other liquid fuels grew by 1.4 million
barrels per day in 2015, and they
predict fossil fuels will still supply almost
80 per cent of the world’s energy by
2040. Ms Faust, among others, included
this observation in her rationale for
Harvard not to divest, saying
‘it is hard for me to reconcile
that reliance [on fossil fuelbased
energy] with a refusal to
countenance any relationship with
these companies through our
investments.’
Looking ahead, a signiﬁcant amount of
expertise sits with oil and gas companies
that could prove integral to the world’s
energy transition – the framework of
which is being developed today. For
example, ExxonMobil has a working
interest in more than one-third of the
world’s existing carbon capture capacity
(much of it used for Enhanced Oil
Recovery). In 2014, as reported in the
company’s Corporate Citizenship report,
the company captured more than six
million tonnes of CO2. Such contributions
have not gone unnoticed by Oxford
Martin’s Net Carbon Zero Initiative,
which observed in its 2015 report that:
‘Should large-scale carbon
dioxide disposal eventually be
required to stabilise climate, many
of the skills and expertise required
may be found or developed within
the oil, gas and fossil fuel utility
sectors’ (Working Principles for
Investment in Fossil Fuels, Oxford
Martin School, 2015, p. 2).
This isn’t to say that the oil and gas
industry does not acknowledge its role
in carbon generation, but it believes
there is a better way to achieve the end
goal of reducing carbon emissions,
by pooling our resources and working
together rather than in silos. As
researchers at Oxford’s Stranded
Assets programme concluded, since
divestment would likely not affect the
bottom lines of the companies activists
wish to reach,
‘neutral debt or equity investors
have little cause to shun fossil
fuel companies’ (Stranded assets
and the fossil fuel divestment
campaign, p. 12).
Instead, they found, communication
with management teams can be more
effective before using the ‘trump card’
of divestment. There are signs of this
bearing fruit as well. Shareholder
engagement with oil and gas majors
BP and Shell led to the companies
committing to adjust their business
models in accordance with
international pledges to limit global
warming. Constructive engagement of
this sort is a better way forward than
divestment, both for investors and for
the climate itself.
Carbon pricing in the United Kingdom
Paul Johnson
Nick Stern argued in his inﬂuential review
that action to mitigate climate change
could be carried out at modest cost but that
‘costs will be higher if … policymakers
fail to make the most
of economic instruments that
allow emissions to be reduced
whenever, wherever and however
it is cheapest to do so.’
One of the key instruments – but not the
only one – is of course the imposition of
a carbon price.
An effective carbon price which
minimizes costs would have a number
of important features:
1 The carbon price should be
consistent across different forms
of emissions;
2 Policy should be stable and
predictable to allow producers and
consumers to plan their investments
and consumption appropriately;
3 Many would argue that the carbon
price should rise over time as the
marginal cost of each unit of carbon
emitted rises.
Ideally the carbon price should also
be consistent internationally since it
doesn’t matter where the emissions
take place. That’s why international
‘…A SIGNIFICANT AMOUNT OF EXPERTISE
SITS WITH OIL AND GAS COMPANIES
THAT COULD PROVE INTEGRAL TO THE
WORLD’S ENERGY TRANSITION…’
‘COMMUNICATION WITH MANAGEMENT
TEAMS CAN BE MORE EFFECTIVE
BEFORE USING THE “TRUMP CARD”
OF DIVESTMENT.’
COP21 AND THE IMPLICATIONS FOR ENERGY
44 OXFORD ENERGY FORUM
trading schemes such as the EU
Emissions Trading Scheme (ETS) ought
to have a prominent role to play. The
way in which pricing interacts with a
range of other policies will also matter.
This is not an issue that can be solved
by pricing alone.
‘UK POLICY ON CARBON PRICING DOESN’T
COME CLOSE TO MEETING THESE BASIC
PREREQUISITES FOR EFFECTIVE POLICY.’
Almost needless to say, UK policy on
carbon pricing doesn’t come close to
meeting these basic prerequisites for
effective policy. Prices vary dramatically
according to the source of emissions
and the nature of the consumer. Policy
has been notably unstable, providing
little certainty for either consumers or
industry. In the case of road fuel the
effective carbon price has been falling
rather than rising. The failure of the EU
ETS to bind has made these domestic
policies, and policy failings, especially
important.
Consistent pricing
The proceeds of environmental levies
such as the renewables obligation,
contracts for difference, and feed-in
tariffs are forecast by the Ofﬁce for
Budget Responsibility to double from
about £6 billion in 2015/16 to over £12
billion in 2020/21. In addition, receipts
from the Climate Change Levy (CCL)
are due to rise from £1.8 billion to
£2.2 billion. These are increasingly
signiﬁcant economically. But they do
not add up to a consistent carbon
price. There are numerous policies,
for example, which add to the cost
of electricity consumption, but few
of these costs are imposed on gas
consumption – for which the effective
carbon price is close to zero. In fact
once one accounts for the fact that
VAT for domestic fuels (both gas and
electricity) is charged at only 5 per cent,
rather than at the standard 20 per cent
rate, gas consumption by households
is effectively subsidized. There is a
negative carbon price.
The treatment of gas and electricity is
becoming more unequal over time as
new market arrangements designed
to subsidize renewable electricity
generation result in a rising price
of electricity. Ignoring the implicit
VAT subsidy, work by researchers
at the Institute for Fiscal Studies,
published in 2013, suggested that
by 2020 the implicit carbon price
faced by households would be
well over £100 per tonne of CO2 for
electricity consumption – ten times
the implicit carbon price for gas
consumption. Given the relatively rapid
rate of decarbonization of electricity
production the price signals are
increasingly worrisome – favouring use
of carbon-emitting gas over the use of
non carbon-emitting electricity.
There are differences in prices also
according to end user, with businesses
facing a range of additional pricing
policies and signiﬁcantly higher carbon
prices than households. It is hard
to see any rationale for this beyond
a view that it is politically easier to
increase charges on business energy
consumption than on households.
There are also differences between
businesses of different sizes and
types. Like households, businesses
face higher implicit taxes on electricity
than on gas, though the Budget 2016
announcement that the ratio between
CCL rates for electricity and gas will be
rebalanced from 2.5:1 to 1:1 will be a
small movement in the right direction.
Even without going through the alphabet
soup of different taxes, charges, and
initiatives that make up these different
carbon prices it is clear that pricing
policy is not consistent. The priority for
change should surely be to narrow the
differential between the treatment of
gas and electricity by ﬁnding a
consistent basis for taxing gas use.
Consistent policy
Policy is not coherent in the way it
treats carbon in different forms of
energy consumption, and nor is it
consistent over time. This inconsistency
creates costs and reduces incentives
to respond to price signals given
uncertainty over how long they will
persist for.
Take for example the carbon price
support rate. This was introduced in
April 2013 speciﬁcally to top up the EU
ETS carbon price to meet the carbon
price ﬂoor set by the government. It
was intended both to raise the carbon
price faced by those covered by the
ETS and to create certainty over the
carbon price. To do that it set a carbon
price ﬂoor going forward to 2018. In the
face of ETS prices well below intended
levels this was, arguably, a defensible
policy. There is, of course, the question
of its relationship with the ETS itself
and the fact that, to the extent that
it reduced emissions in the tradable
sector in the UK, it would allow more
emissions elsewhere in Europe. But as
a domestic policy it had some merit.
In the Budget just one year later the
plans for a rising price ﬂoor were
shelved, and a new ﬂoor level, not
increasing over time, was announced.
This sort of reverse clearly undermines
the purpose of the policy.
More recently, in Budget 2015, the
government announced that the CCL
exemption for renewably sourced
electricity would be removed. Selfevidently
this removes the price
incentive for businesses to source
low-carbon electricity as well as
representing a sudden change in
policy direction. That it appeared in
‘POLICY IS NOT COHERENT IN THE WAY IT
TREATS CARBON IN DIFFERENT FORMS OF
ENERGY CONSUMPTION, AND NOR IS IT
CONSISTENT OVER TIME.’
MAY 2016: ISSUE 105
45OXFORD ENERGY FORUM
the Budget ‘scorecard’ as rectifying
an ‘imbalance’ in the tax system, and
hence counted towards achieving £5
billion in revenue from ‘avoidance and
tax planning, evasion and compliance,
and imbalances in the tax system’,
may tell us something about the policy
making process.
A more welcome change, though
a change nonetheless, will be the
abolition of the Carbon Reduction
Commitment energy efﬁciency
scheme announced in Budget 2016,
to take effect from 2019, with revenue
recouped from a higher CCL. This will
simplify an horriﬁcally complex set of
policies – themselves a testament to
earlier policy failure.
Taxes on motorists
While most of the policy action has
been on energy it remains the case
that the biggest environmental tax by
far is that on petrol and diesel. From a
ﬁscal point of view this brings in nearly
£30 billion a year – far more important
than all other environmental taxes and
levies combined. Of course this is
not just a carbon tax since much the
biggest externality created by driving
is congestion, and the rates of tax are
well in excess of anything that could be
justiﬁed by carbon emissions alone.
This is another area of inconsistent
pricing policy though. The real tax rate
per litre of fuel – and hence per unit of
emission – has been falling since 2010
and is currently at its lowest level in 20
years, but given the changes in petrol
prices and fuel efﬁciency, the cost of
driving now is lower than it was even
longer ago than this. This is a policy
choice that looks odd in the context of
growing congestion and carbon costs.
It is hard to know what the right tax level
should be on road fuel, but it should
certainly be rising over time. This is also
a policy choice which has not been
made explicitly or on a long-term basis.
Tax increases have been announced
and subsequently abandoned with
monotonous regularity.
Taxes on car ownership have also been
reformed substantially; increasing
Vehicle Excise Duty (VED) in the ﬁrst
year of registration for high emitting
vehicles, but with a ﬂat rate VED
payment in each subsequent year at
a level unrelated to CO2 emissions. In
part, the reform reﬂected the extent to
which an increasing fraction of new
cars were falling into zero and lowerrated
VED bands as emissions levels
have fallen. Policy needs to adapt to
such change. It also reﬂects a belief in
the importance of up front incentives.
In conclusion
Carbon emissions in the UK are
on a downward path. Electricity
decarbonization is happening relatively
swiftly. Average emissions from
vehicles are falling. The ﬁrst two carbon
budgets on the route to the UK’s 2050
target will be more than met. The lack
of coherence in pricing, though, risks
stalling this progress and making future
progress more expensive than it need
be. Following policies which subsidize
gas consumption, penalize business
over households, and reduce the cost
of petrol consumption are hard to
square with a commitment to reduce
emissions at minimum economic cost.
Europe crawls towards low-carbon transport
Jos Dings
On the back of the Paris climate
deal and record high global
temperatures, Europe is slowly
crawling towards a 2030 low-carbon
strategy for transport. Later this year
the European Commission is
supposed to present a strategy paper,
followed by concrete policy initiatives
over the next year or so. This article
looks into what Europe has done so
far in the context of 2020 initiatives
and what the key lessons are for
the forthcoming action with timeline
2030.
What transport emissions are and where
they will go
European Environment Agency
numbers (data from the EEA document
‘Greenhouse gas emissions from
transport’) indicate that in 2013
European Union transport greenhouse
gas (GHG) emissions (including
aviation and shipping) were 1,161 million
tonnes of CO2 equivalent. This is 20 per
cent up from 1990 levels. Transport is
the only sector which has seen emissions
rise in the past quarter of a century, to
the point that it currently represents
28 per cent of the EU’s overall GHG
emissions. However, on a positive note,
transport emissions peaked in 2007;
2013 emissions are 12 per cent down
from that pre-global ﬁnancial crisis level
of 1,314 million tonnes. It should be
noted that these transport numbers
only include emissions from combustion
‘…THE BIGGEST ENVIRONMENTAL TAX BY
FAR IS THAT ON PETROL AND DIESEL.’
‘TRANSPORT IS THE ONLY SECTOR
WHICH HAS SEEN EMISSIONS RISE IN
THE PAST QUARTER OF A CENTURY…’
COP21 AND THE IMPLICATIONS FOR ENERGY
46 OXFORD ENERGY FORUM
of fossil hydrocarbons – mostly diesel,
petrol, kerosene, and heavy fuel oil.
Upstream emissions from the production
of all energy sources used for transport,
including electricity and all emissions
from biofuels, are excluded. Especially
the latter is a serious omission, as this
piece will show.
In October 2014 EU leaders agreed that
sectors outside the Emissions Trading
Scheme (ETS) should reduce their GHG
emissions by 30 per cent compared with
2005 levels. Transport is the biggest of
these non-ETS sectors, followed by
buildings and agriculture. Assuming
that transport should also contribute
with a 30 per cent reduction, this means
that surface transport should reduce its
emissions by 23 per cent from 2013
levels. Against a baseline scenario
expecting stabilization, this is no small
task. And if the ﬁve-year ‘review-andtighten’
process enshrined in the Paris
deal takes effect in Europe too, we should
plan for hitting lower numbers in 2030.
Unsurprisingly the reﬁning sector is
feeling the pinch of lower demand for
its products; since 2009, 22 reﬁneries
in Europe have closed, leaving 84 in
operation. Hitting European reduction
targets would surely mean closing
another 15 or 20 by 2030; an inevitable
consequence of success.
However, using less oil is an undisputed
net economic boon for a continent
90 per cent dependent on imports, the
value of which represented €300 billion
in 2013 or 2.5 per cent of EU GDP.
In any case, if the world takes its Paris
pledges seriously, low oil prices are
here to stay, not because of oversupply
but lack of demand. Low oil prices are
not an excuse for inaction – they are a
consequence of success.
Can Europe take credit for the emissions
drop since 2007?
The short answer is – only a very
little bit, because most of the
policies implemented either failed or
disappointed. The long answer follows
below.
Without doubt, the potentially most
effective policy Europe has adopted is
the regulation to reduce CO2 emissions
from cars to 95 g/km in 2021 – which
is 40 per cent below the 2007 level of
158 g/km.
It is also the ﬁrst disappointment.
Between 2009 and 2014, the year the
regulation was adopted, ofﬁcial average
CO2 emissions of new cars dropped from
146 to 123 g/km, a sizeable 16 per cent
cut in ﬁve years. Sadly though,
real-world fuel consumption (hence
CO2 emissions) from new cars dropped
by only 3–4 per cent, from 173 to 167 g/km,
according to ﬁgures aggregated from
11 databases of logged fuel
consumption of individual car models
(see ‘Mind the Gap 2015: Closing the
chasm between test and real-world car
CO2 emissions’, Transport &
Environment, 28 September 2015). This
less-than-1 per cent per year efﬁciency
improvement is lower than what had
been achieved before legislation
(1–1.5 per cent). The gap between
ofﬁcial and real-world fuel consumption
has grown to 40 per cent and for some
recently introduced models it is even
50 per cent. Manufacturers achieved
the vast majority of ofﬁcial CO2 cuts
simply through exploiting loopholes in
the test cycle.
The test procedure will change in 2017,
and it will close quite a few of the
largest loopholes. But under pressure
from the industry, the effect of the
loopholes will still be carried over in the
new test through a much (15–20 per cent)
weaker 2021 CO2 standard. So we
currently have a reasonable standard
on a poor test; we will end up with a
poor standard on a reasonable test.
Real-world CO2 is expected to drop
over the next ﬁve years to 140–145 g/km
in 2021; a far cry from the expected
110 g/km when it was introduced. Cars
in 2021 will only be some 18 per cent
more efﬁcient than in 2009; much
more is possible, even at negative
societal cost.
On trucks, Europe has not yet achieved
anything in terms of CO2 legislation;
fuel efﬁciency has been stagnant
(‘Europe’s lost decade of truck fuel
economy’, Transport & Environment,
2 December 2015) for 20 years now,
meaning that emissions grow along
with vehicles miles travelled.
In terms of modal shift, stagnation is
the word again; changes have been
very limited apart from a big loss in
share of rail freight in the 1990s. Since
then, gains in some west European
countries have been offset by strong
losses in many east European
member states.
A good trend, though, has been the
progressive introduction of kilometre
charges for lorries; this already covers
15 countries, the latest being Belgium
on 1 April 2016. There is strong
evidence (‘Price sensitivity of European
road freight transport’, Signiﬁcance
and CE Delft, June 2010) that such
charges encourage fuller and cleaner
lorries, shorter distances, and modal
shift to rail.
Renewable energy policy in transport
has so far been an outright failure.
Almost all of the current 5.5 per cent
renewable energy in transport is
biofuels; and some 75 per cent of these
biofuels is made up of biodiesel from
virgin vegetable oil. Unobtrusively, on
10 March the European Commission
‘MANUFACTURERS ACHIEVED THE VAST
MAJORITY OF OFFICIAL CO2 CUTS SIMPLY
THROUGH EXPLOITING LOOPHOLES IN
THE TEST CYCLE.’
‘RENEWABLE ENERGY POLICY IN
TRANSPORT HAS SO FAR BEEN AN
OUTRIGHT FAILURE.’
MAY 2016: ISSUE 105
47OXFORD ENERGY FORUM
uploaded an explosive report (‘The
land use change impact of biofuels
consumed in the EU’, ECOFYS,
27 August 2015) on the damning
climate impact of such fuels. The
report only looks at emissions from
land-use changes, such as forest
clearing, ploughing, and peat draining
resulting from biofuels consumption in
Europe. This type of emissions, for
biodiesel alone, is already some
30 per cent higher than the full lifecycle
emissions of fossil diesel. Add in direct
emissions – from tractors, fertilizers,
and the like – and lifecycle biodiesel
emissions are 80 per cent (!) higher
than those of fossil diesel (‘Globiom:
the basis for biofuel policy post-2020’,
Transport & Environment, April 2020).
This further strengthens ﬁndings from
an earlier study (‘Assessing the Land
Use Change Consequences of
European Biofuel Policies’, October
2011) for the Commission. Biofuels
used in Europe currently increase, not
reduce, transport GHG emissions and
the picture will not change until 2020.
Notwithstanding this, all biofuels are
still counted as having zero emissions,
giving governments all over Europe a
reason to mandate or subsidize them:
it helps them meet their climate
obligations, on paper. A huge policy
mistake and a huge accounting error
that needs to be ﬁxed as soon as
possible.
‘SHIPPING EMISSIONS HAVE DROPPED
STRONGLY, BY 23 PER CENT SINCE
THEIR 2007 PEAK.’
Shipping emissions have dropped
strongly, by 23 per cent since their
2007 peak. This has little to do with
trade which is close to pre-crisis levels,
or with better ships (‘Historical Trends
in Ship Design Efﬁciency, The Impact
of Hull Form on Efﬁciency’, CE Delft,
March 2016), but has everything to
do with high fuel prices and ﬂeet
overcapacity, both of which give strong
incentives for so-called ‘slow steaming’
– sailing more slowly, giving big savings
in fuel consumption. Aviation emissions
are close to pre-crisis levels; possibly
the inclusion of the sector in the EU
ETS for intra-EU ﬂights has made a
modest impact in controlling emissions
but ETS carbon prices that equate to
1–2 cents per litre of kerosene are
unlikely to have made a major
difference.
In short – EU climate policy in transport
has made precious little difference
yet. Most of the 12 per cent drop in
emissions between 2007 and 2013 has
to do with lower economic activity and
high oil prices.
But much can be done if only we learn
lessons and use opportunities
The good news is that Europe has laid
some useful foundations for further
actions and that prospects for change
are better than they were.
By far the most important change in
the energy, climate, and transport
landscape since the ﬁnancial crisis has
been the precipitous drop in the prices
of solar and wind power and in the cost
of batteries. Solar panel prices have
dropped by some 85 per cent in the
past seven years; wind prices by some
60 per cent.
Cars and surface passenger transport
Recently Bloomberg released a
report (‘Electric Vehicles to be 35%
of Global New Car Sales by 2040’,
Bloomberg New Energy Finance,
25 February 2016) on the future of
electric vehicles (EVs) – stating that
the price of batteries had dropped by
two-thirds since 2010. This equates to
a drop of 20 per cent per year; close
to a revolution. These are stunning
numbers and the end is not in sight,
leading Bloomberg to predict a ‘Kodak
moment’ for internal combustion
vehicles at some point in the 2020s. In
China, 52,000 electric cars were sold
(‘Electric Vehicle Sales Continue to
be Unstoppable in China – Up 170%’,
Inside EVs, March 2016) in January
and February 2016. This is on track to
smash Europe’s 59,000 (‘Alternative
Fuel Vehicle registrations: +20.0%
in 2015; +21.1% in Q4’, European
Automobile Manufacturers Association,
5 February 2016) in the whole of 2015
by a factor of ﬁve or so.
And of course there was the event
every mainstream newspaper and
website covered – Tesla’s unveiling of
its electric Model 3 leading to – by
mid-April – an eye watering 400,000
pre-orders from enthusiasts who had
to stump up US$1,000 for the honour
of being ﬁrst in line to pay US$35,000
for a car at a point almost two years
from now.
Will Europe capitalize on this
opportunity or not? That’s the big
question. In Norway the share of EVs in
new car sales is close to 30 per cent;
in Bulgaria exactly one (1) EV was sold
in the last quarter of 2015. This shows
that policy matters enormously.
‘…ONE IN EVERY TWO VEHICLES SOLD
IN EUROPE IS A DIESEL; ELSEWHERE IT
IS ONE IN 20.’
For now, the continent seems, even in
the wake of the VW diesel scandal, to
cling to diesel as its prime technology,
slowing down the transition to much
more promising hybridization and
electriﬁcation avenues. Europe gives
diesel cars a fuel tax break worth €27
billion (‘Europe’s tax deals for diesel’,
Transport & Environment, 23 October
2015), something no other region does.
As a result, one in every two vehicles
sold in Europe is a diesel; elsewhere
it is one in 20. Diesel cars have some
10–15 per cent lower CO2 emissions
compared with a same-size regular
petrol car, but cost around €2,000
more; the comparison is therefore
COP21 AND THE IMPLICATIONS FOR ENERGY
48 OXFORD ENERGY FORUM
one of apples and oranges. Investing
that money in hybridizing a petrol
drivetrain gives 25–30 per cent CO2
beneﬁts. Stimulating diesel is a very
costly climate policy and isolates our
carmakers on the world stage – even
leaving aside the air quality problems
we face as a result of 20 years of
diesels dodging their emissions tests.
Japan has the lead in hybrids and,
together with South Korea, in batteries;
China and California are much more
aggressive in promoting electric
vehicles and Tesla is the undisputed
leader in EVs. Europe needs to turn its
defensive attitude on electriﬁcation into
an awareness that there is no choice; if
we don’t act Asia and Silicon Valley will
rule the roost in 2030.
A key policy instrument is ambitious
CO2 standards for new cars for 2025
and an associated ‘ﬂexible mandate’
for ultra-low-carbon vehicles. That –
supplemented with real-world testing to
avoid a new round of exploitation of
testing ﬂexibilities – will convince
Europe’s carmakers that there is indeed
no choice but to invest in fuel efﬁciency
and breakthrough technologies, after
so many years of wavering.
‘Electriﬁcation’ is not just about electric
cars. It is also about making Europe’s
fragmented market work for the use of
electric vehicles. With growing distances
driven on a charge, international
standardization of plugs and payment
systems is urgently necessary.
The rise of smaller electric vehicles,
including ebikes, is a tremendous
opportunity to ﬁll the huge current void
between cars (often way too heavy and
large for the task at hand) and bikes.
More broadly, electriﬁcation goes hand
in hand with the sharing economy; an
electric vehicle, after all, is expensive to
buy and cheap to use, and hence an
ideal asset for sharing. Electric vehicles
can hence play an important role in
delinking car use from ownership; an
important precondition for smarter
mobility with a much better match
between demand and supply.
And the electric mode we have,
rail transport, can be more smartly
used. Booking a rail ticket for a trip
that covers more than one company
is close to impossible. No EU-wide
booking sites exist that offer multimodal
booking; simply because the railway
undertakings, in contrast with airlines,
do not share the necessary data with
each other or with third-party providers.
As a result people by default book air
tickets for longer distances. Mandating
the sharing of necessary data is
surely a policy that should be thought
through, especially for undertakings
that receive public money for their
services (most do).
Freight
Freight transport should not be
overlooked; in 2030 it will represent
some 40 per cent of surface transport
emissions.
‘NUMEROUS MARKET FAILURES HOLD
BACK THE SUPPLY OF, AND DEMAND FOR,
BETTER LORRIES.’
For trucks, we urgently need CO2
standards too, to break the two
decades of efﬁciency stagnation
mentioned earlier. Numerous market
failures hold back the supply of, and
demand for, better lorries; standards
can break these failures. The EU is
thinking of adopting a regulation to
start monitoring truck CO2 emissions;
the USA is in the process of adopting
Stage 2 fuel efﬁciency standards and
the expectation is that US trucks will
be more economical than European
ones within a decade. This is a real
threat to the dominant 40 per cent
share of the world’s truck market that
EU manufacturers have today. Again
Europe is sliding from a standard
maker to a standard taker.
And Europe needs to think urgently on
what zero-carbon freight looks like. Is
it trolley trucks with catenary lines on
the main motorway network, with diesel
and/or batteries as backup for the last
(dozens of) miles? Is it hydrogen made
from sustainable electricity? Is it ‘powerto-liquid’?
Biodiesel will surely not be
available in the quantities required;
vegetable oil-based biodiesel simply
needs to be phased out as we have
seen. Discussion on this vital topic is
lacking.
The impact of truck policies can be
reinforced by differentiating kilometre
charges for the CO2 emissions of the
truck. Hauliers can then be certain
that a truck certiﬁed for better fuel
consumption and lower or zero CO2 will
produce a good payback, if not in fuel
savings, then in lower road tolls. The
Commission should make a proposal
to mandate such a differentiation.
Aviation and shipping
A study (‘Emission Reduction Targets
for International Aviation and Shipping’,
November 2015) for the European
Parliament throws up the challenge
squarely:
‘If, as in the past, the ambition
of these sectors continues to fall
behind efforts in other sectors
and if action to combat climate
change is further postponed,
their CO2 emission shares in
global CO2 emissions may
rise substantially to 22% for
international aviation and 17%
for maritime transport by 2050,
or almost 40% of global CO2
emissions if both sectors are
considered together.’
Paris left aviation and shipping
unmentioned, leaving the current
situation of inaction intact; a gaping
hole in the Agreement.
Aviation remains one of the biggest
anomalies in transport policy. It is
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49OXFORD ENERGY FORUM
the most carbon-intensive mode of
transport and the fastest-growing
one, yet it enjoys well-documented
exemptions from fuel tax as well as
from VAT on tickets; together these
exemptions amount to some €30 billion
a year. The inclusion of intra-EU ﬂights
in the EU ETS was a very modest start
to remedying this situation; yet the
fury this modest measure unleashed
amongst the world’s airlines was again
an illustration of how used the sector is
to special treatment and privileges.
This fury has led the International
Civil Aviation Organization (ICAO), a
UN body, to say it wants to ‘develop’
a global market-based measure; in
October its Assembly will vote on
whether it will pass, and in what form.
It is already clear that carbon offsets
will be its mainstay; just as Europe
has rightly decided not to use them
for compliance with its climate targets.
At the very least, Europe should
make sure that any global action
complements, not replaces, the ETS.
The ICAO also recently adopted a CO2
standard for new aircraft; unfortunately
it will make no difference to
emissions (‘International Civil Aviation
Organization CO2 standard for new
aircraft’, International Council on Clean
Transportation, 9 February 2016).
In shipping one important challenge
is to close the massive gap between
efﬁcient and inefﬁcient ships, and
to ensure that the huge potential for
further efﬁciencies, including speed
and power reduction, is used. The
current so-called ‘Energy Efﬁciency
Design Index’ for 2020 and 2030 fails to
do this (‘Historical trends in ship design
efﬁciency 2016’, CE Delft, 1 April 2016)
and needs to be tightened; it is truly a
low-hanging fruit.
‘BOTH THE AVIATION AND SHIPPING
SECTORS NEED TO FIND A ZERO-CARBON
ENERGY SOURCE URGENTLY.’
Both the aviation and shipping sectors
need to ﬁnd a zero-carbon energy
source urgently. Airlines have been
saying that biofuels will be part of the
solution; however, they have resisted
any binding measure towards that
effect. Apart from that, availability of
sufﬁcient truly sustainable bioenergy is
very challenging.
Options such as power-to-liquid need
to be looked at urgently; but without a
serious policy to mandate or incentivize
such better fuels, fossil kerosene and
marine fuel oil and gas oil will remain
the mainstay for a long time.
Conclusion
Transport has, so far, been
quite resistant to efforts towards
decarbonization. EU policies adopted
in the ﬁrst climate package (for 2020)
have, almost without exception,
either disappointed (for example CO2
standards) or failed (biofuels). This
is not so much due to the lack of
technical options – study after study
has demonstrated the potential for
signiﬁcant cuts at low or even negative
cost. The challenge is a political one
– between the resistance to change
of the car, truck, oil, aviation, and
shipping industries, and the inability or
unwillingness of Europe’s institutions
(including, and especially, the Council
of Member States!) to overcome that
resistance.
As a result Europe is in real danger
of losing its lead to the USA and Asia
– not to mention failing to deliver on
the Paris deal. The good news is that
Europe can draw plenty of lessons
from its ﬁrst efforts for its second
(2030) climate package and that, more
than ever, there are opportunities for
progress, especially in the ﬁelds of
energy efﬁciency and electriﬁcation. It’s
not yet too late, but the clock is ticking.
Carbon Capture and Storage in the thermal coal value chain
Ben Caldecott, Lucas Kruitwagen, and Irem Kok
Carbon Capture and Storage (CCS)
has a role to play in deep, economywide
decarbonization, with potential
application in the mitigation of industry
and power sector emissions and
late century negative emissions. Its
high cost and low deployment to
date has, however, made it a critical
uncertainty in climate and energy
technology scenarios. Recent work by
the Stranded Assets Programme of the
University of Oxford’s Smith School of
Enterprise and the Environment (the
‘Oxford Smith School’) has identiﬁed
the limited role CCS might play in
mitigating environment-related risk
in the thermal coal value chain. We
present the ﬁndings of this report and
comment on the role CCS might play
in the thermal coal value chain as a
greenhouse gas (GHG) mitigation
technology for coal-ﬁred power stations
and for emerging coal-processing
technologies.
Scenario inclusion
Several scenarios include coal-ﬁred
CCS as a requisite technology for
cost-efﬁcient mitigation of power sector
emissions. The IEA’s Energy
Technology Perspectives 2015 (ETP)
and World Energy Outlook 2015 (WEO)
COP21 AND THE IMPLICATIONS FOR ENERGY
50 OXFORD ENERGY FORUM
respectively project power sector CCS
deployment of 2.7 and 3 Gt/yr by 2040
in their 2 °C warming-compatible
scenarios. The ﬁrst CCS-equipped
power station with Mt-scale CO2
capture was completed in 2014. The
Global CCS Institute reports that 14
CCS-equipped power stations are
currently planned to operate by 2025,
with combined capture of
approximately 23 Mt/yr (‘Large Scale
CCS Projects’, Global CCS Institute).
Achieving the IEA’s 2 °C-warming
projections will require continued
deployment of CCS capacity at an
annual growth rate of approximately
37 per cent between 2025 and 2040.
The IPCC’s Fifth Assessment Report
(AR5), of 2014, projects CCS
deployment of between 7 and 17 Gt/yr
by 2050 in a cost effective
2 °C-warming scenario. In scenarios
without substantial deployment of
CCS, the IPCC’s AR5 projects that
agriculture, afforestation, and other
land use (AFOLU) will contribute
signiﬁcantly to net-negative emissions
in the middle and latter portions of this
century. The Oxford Smith School has
also estimated the potential of
negative-emissions technologies to
extend carbon budgets through 2100
(see Stranded Carbon Assets and
Negative Emissions Technologies,
Ben Caldecott et al., Oxford Smith
School, 2015).
Less understood is the role CCS might
play in the mitigation of emissions
from coal processing technologies
(CPTs) – a collective name for coal-toliquids
(CTL), coal-to-gas (CTG), and
underground coal gasiﬁcation (UCG)
technologies. CPTs often involve an
interim gasiﬁcation step – ideal for
pre-combustion carbon capture. There
are additional synergies between
UCG and CCS, as CO2 can be stored
in the coal cavity after extraction and
gasiﬁcation (see ‘Coal gasiﬁcation: The
clean energy of the future?’, Richard
Anderson, BBC News, 14 April 2014).
A limitation of the 2 °C warmingcompatible
scenarios currently
employed is that geological storage is
often assumed to be abundant and of
uniform high quality. Geological CO2
storage options have been described in
the IPCC special report Carbon Dioxide
Capture and Storage (IPCC, 2005),
and by the Global Energy Technology
Strategy (GETS) programme in Carbon
Dioxide Capture and Geologic Storage
(J.J. Dooley et al., 2006). Deep saline
formations, depleted oil and gas
ﬁelds, saline-ﬁlled basalt formations,
unmineable coal seams, salt caverns,
and organic shale formations are all
suitable for geological CO2 storage,
where permeability and porosity allow
CO2 to be stored in empty pockets in
the rock (see Carbon Dioxide Capture
and Geologic Storage).
Although geological storage of CO2
could be carried out in a range of
geological formations with sedimentary
basins, including both onshore and
offshore formations, the IPCC’s special
report Carbon Dioxide Capture and
Storage notes that some of these
sedimentary formations are too shallow
or have too low permeability, and carry
the risk of hydrate ice crystallization,
thermal fracturing of cement seals,
mobilization of fault lines, and the
formation of underground fractures,
all of which can lead to CO2 leakage
(‘Carbon capture and storage: how
green can black be?’, R. Stuart
Haszeldine, Science Magazine, 2009).
The availability of safe and suitable
geological storage capacity is a critical
factor in estimating the potential of
CO2 storage as an effective global
mitigation strategy. However, it is
difﬁcult to estimate the exact storage
capacity of saline formations due to
variability of geological data, which has
not been well established in regions
lying outside of major oil and gas
provinces (‘Carbon dioxide capture
and geological storage’, Sam Holloway,
Philosophical Transactions of Royal
Society, 2007).
‘THE AVAILABILITY OF SAFE AND
SUITABLE GEOLOGICAL STORAGE
CAPACITY IS A CRITICAL FACTOR IN
ESTIMATING THE POTENTIAL OF CO2
STORAGE…’
Moreover, the technical capacity for
geological storage does not necessarily
amount to economic storage capacity,
which is affected by issues of technical
feasibility, safety, and environmental
impacts (such as potential leakage),
as well as public opposition to nearby
gas storage facilities (Carbon Dioxide
Capture and Storage). The availability
of high-quality geological storage
resource and the associated costs of
CO2 transport and storage is one of the
drivers of the economics of CCS. The
IEA’s Energy Technology Perspectives
2015 estimates that the cost of
transporting and storing CO2 might
range from US$1/t to US$100/t; the
IPCC’s Fifth Assessment Report uses a
central estimate of US$10/t.
Findings from ‘Stranded Assets and
Thermal Coal’
The Oxford Smith School recently
published an extensive study of
environment-related risks in the thermal
coal value chain (see Stranded Assets
and Thermal Coal: An analysis of
environment-related risk exposure, Ben
Caldecott, et al., Oxford Smith School,
2016). The study developed extensive
asset-level datasets for:
the top 100 coal-ﬁred power utilities,
the top 20 thermal coal miners with
≥30 per cent revenue from thermal
coal, and
the top 30 CPT companies.
‘…14 CCS-EQUIPPED POWER STATIONS
ARE CURRENTLY PLANNED TO OPERATE
BY 2025…’
MAY 2016: ISSUE 105
51OXFORD ENERGY FORUM
(These were collectively known as the
‘top thermal coal value chain
companies’.) Hypotheses of how
different environment-related risk factors
could affect the value of assets in the
thermal coal value chain were
developed and appropriate measures
for these risks identiﬁed (see the table
‘Local Risk Hypotheses (LRHs) and
National Risk Hypotheses (NRHs)’ and
Stranded Assets and Thermal Coal for
full references). Local Risk Hypotheses
(‘U’ and ‘P’ for ‘utility’ and ‘coal
processing technology’ respectively) are
assessed at the local level and whereas
National Risk Hypotheses affect all
assets in the country in a similar way.
LRH-U1, for example, hypothesises risk
exposure for coal-ﬁred power stations
proportional to the carbon intensity of
generated electricity, on a kg.CO2/MWh
basis. Each asset was then measured
against each risk and this exposure
data was aggregated company by
company, enabling a comparison of
company portfolios.
One of the hypotheses developed and
examined is the suitability of coal-ﬁred
power stations and CPT plants for
CCS retroﬁt. The hypothesis is that
coal-ﬁred power stations and CPT
plants not suitable for the retroﬁt of
CCS technology might be at more risk
of premature closure. Such power
stations do not have the option of CCS
retroﬁt in the case of strong GHG
mitigation requirements, enforced
either with targeted policy or with
carbon pricing.
Local Risk Hypotheses (LRHs) and National Risk Hypotheses (NRHs)
Name of environment-related risk Reference to dataset for risk exposure analysis
Coal-ﬁred power utilities
LRH-U1 Carbon intensity CARMA/CoalSwarm/WEPP/Oxford Smith School
LRH-U2 Plant age CARMA/CoalSwarm/WEPP
LRH-U3 Local air pollution Boys et al. (2015)/NASA’s SEDAC
LRH-U4 Water stress WRI’s Aqueduct
LRH-U5 Quality of coal CoalSwarm/WEPP
LRH-U6 CCS retroﬁtability CARMA/CoalSwarm/WEPP/Geogreen
LRH-U7 Future heat stress IPCC AR5
NRH-U1 Electricity demand outlook IEA
NRH-U2 ‘Utility death spiral’ Oxford Smith School
NRH-U3 Renewables resource Lu et al. (2009)/ McKinsey & Co/SolarGIS
NRH-U4 Renewables policy support EY’s Renewables Attractiveness Index
NRH-U5 Renewables generation outlook BP/REN21
NRH-U6 Gas resource BP/IEA
NRH-U7 Gas generation outlook IEA
NRH-U8 Falling utilization rates Oxford Smith School
NRH-U9 Regulatory water stress WRI’s Aqueduct
NRH-U10 CCS legal environment Global CCS Institute
Coal processing technology companies
LRH-P1 Plant age World Gasiﬁcation Database
LRH-P2 Water stress WRI’s Aqueduct
LRH-P3 CCS retroﬁtability World Gasiﬁcation Database/GeoGreen
NRH-P1 CPT policy support Oxford Smith School
NRH-P2 Oil and gas demand outlook IEA
NRH-P3 Oil and gas indigenous resources BP
NRH-P4 Other local environmental Oxford Smith School
NRH-P5 Regulatory water stress WRI’s Aqueduct
NRH-P6 CCS policy outlook Global CCS Institute
COP21 AND THE IMPLICATIONS FOR ENERGY
52 OXFORD ENERGY FORUM
In 2012, the IEA examined the global
ﬂeet of power stations suitable for
retroﬁt with CCS (CCS Retroﬁt:
Analysis of the Globally-installed
Power Plant Fleet, IEA, 2012). The
IEA developed criteria sets based
on plant age, efﬁciency, and size. In
Stranded Assets and Thermal Coal
this methodology was repeated with
an added fourth criterion: proximity
to a suitable geological reservoir. A
geographical dataset of geological
reservoir suitability was obtained from
CCS consultancy Geogreen, with
permission of the IEA Greenhouse Gas
R&D Programme.
In order to be deemed retroﬁtable with
CCS, a power station must meet the
mid-level criteria of the 2012 IEA study
noted above (CCS Retroﬁt) being:
less than 20 years old,
emitting less than 1 tCO2/MWh, and
having a nominal generating capacity
greater than 100 MW.
These screening criteria identify plants
which are the best candidates for
investment in CCS technology: they
are the highest value (having long
remaining lives and high efﬁciency)
and are large enough to enable
economies of scale in technology
deployment. Adding geological
proximity, the power station must be
located within 40 km of a ‘suitable’ or
‘highly suitable’ geological reservoir
– sedimentary basins or continental
margins with well understood geology
(Global Storage Resources Gap
Analysis for Policy Makers, Geogreen,
2011). The proximity threshold of 40 km
was ﬁrst chosen as a screening
criterion by the USA’s National Energy
Technology Laboratory (Coal-Fired
Power Plants in the United States:
Examination of the Costs of Retroﬁtting
with CO2 Capture Technology (2011)),
with the implicit assumption that this
distance avoided prohibitive CO2
transport costs.
The retroﬁtable and non-retroﬁtable
assets are then aggregated by generating
capacity to develop a company-level
opinion of exposure to CCS retroﬁtability
in coal-ﬁred power stations.
Of the top 100 coal-ﬁred power utilities
listed in the ﬁgure ‘CCS retroﬁtability
(coal-ﬁred power utilities)’, 65 had no
assets deemed ‘retroﬁtable’. Many of
these same utilities have indicated that
they believe CCS retroﬁts are possible
for their coal ﬂeets and give them a
route to being compatible with a
low-carbon future (see ‘Carbon Capture
and Storage: A Vital Tool to Help Tackle
Climate Change’, E.ON SE, 2016;
Public Engagement on Enel’s CCS
Projects, Enel S.p.A., 2011).
‘…CCS RETROFIT PROJECTS WILL NOT
BE SUFFICIENT TO ENSURE RESILIENCE
TO A CARBON-CONSTRAINED FUTURE FOR
MANY COAL-FIRED POWER UTILITIES.’
Others have initiated CCS retroﬁt projects
but have met substantial barriers and
setbacks, with notable examples
including RWE AG’s Hurth project (‘RWE
Goldenbergwerk Fact Sheet: Carbon
Dioxide Capture and Storage Project’,
MIT, 2015), American Electric Power Co.
Inc.’s Mountaineer project (‘Utility Shelves
Ambitious Plan to Limit Carbon’, Matthew
Wald and John Broder, The New York
Times, 2011), and SSE plc’s Peterhead
project (‘UK cancels pioneering £1 bn
carbon capture and storage competition’,
Damian Carrington, The Guardian, 2015).
The ﬁgure ‘CCS retroﬁtability (coal-ﬁred
power utilities)’ shows the retroﬁtability
and coal-ﬁred power generation of all top
100 coal-ﬁred power utilities. Our analysis
suggests that CCS retroﬁt projects will
not be sufﬁcient to ensure resilience to
a carbon-constrained future for many
coal-ﬁred power utilities.
Stranded Assets and Thermal Coal
developed a similar methodology for
examining the CCS retroﬁtability of CPT
companies. CPT plants within 40 km of
a ‘suitable’ or ‘highly suitable’ reservoir
are considered retroﬁtable. Of the top
30 CPT companies, nine had no assets
deemed retroﬁtable. The ﬁgure ‘CCS
retroﬁtability (coal-processing technology
companies)’ shows the CCS retroﬁtability
of the top 30 CPT companies.
A number of qualitative observations
of environment-related risks related to
UCG and CCS were also made. UCG
and CCS have a synergistic
relationship in that CO2 can be directly
stored in geological voids created by
the gasiﬁcation process. The amount
of CO2 that can be stored is, however,
ultimately limited; the volume of
by-product CO2 from syngas creation
is four or ﬁve times greater than the
void volume created in the coal seam
(‘Water management issues in the
underground gasiﬁcation of coal and
subsequent use of the voids for
long-term CO2 storage’, Younger et al.,
IMWA, 2010; ‘The feasibility of in situ
geological sequestration of supercritical
CO2 coupled to underground coal
gasiﬁcation’, David Schiffrin, Energy
and Environmental Science, 2015).
Further, CO2 storage cannot occur
concurrently with the gasiﬁcation process
in many geologies (‘TOPS: technology
options for coupled underground coal
gasiﬁcation and CO2 capture and
storage’, Durucan et al., Energy Procedia,
2014). David Schiffrin (in The feasibility of
in situ geological sequestration) warns
that heating and extraction during UCG
generate signiﬁcant thermal stresses in
the coal voids, which could lead to roof
collapse and CO2 leakage. To avoid roof
collapse and leakage, the void must be
within depths below 800 to 1000 metres;
with the right temperature and pressure,
the CO2 density would then be high
enough to limit the storage volume
required (‘Review of underground
gasiﬁcation technologies and carbon
capture’, Stuart Self et al., International
Journal of Energy and Environmental
Engineering, 3, 1–8, 2012). Additionally,
a careful site selection is required to
MAY 2016: ISSUE 105
53OXFORD ENERGY FORUM
≥25% retrofitable
<25% retrofitable
0% retrofitable
1,000 10,000 100,000 1,000,000
CHINA HUANENG GROUP CORP
CHINA GUODIAN CORP
CHINA DATANG CORP
CHINA HUADIAN GROUP CORP
CHINA POWER INVESTMENT CORP
SHENHUA GROUP CORP LTD
CHINA RESOURCES POWER…
GUANGDONG YUDEAN GROUP CO…
STATE GRID CORP OF CHINA
ZHEJIANG ENERGY GROUP CO LTD
BEIJING ENERGY INVEST HOLDING
HEBEI CONSTR & INVEST GROUP
SHANXI INTL ELEC GROUP CO LTD
STATE DEV INVESTMENT CORP
SHENERGY COMPANY LTD
JIANGSU GUOXIN INVEST GROUP
CITIC PACIFIC LTD
HENAN INVESTMENT GROUP CO LTD
ZHEJIANG PROV ENERGY GROUP CO
DATONG COAL MINE GROUP CO LTD
SHENZHEN ENERGY GROUP CO LTD
CHINA PETRO & CHEM (SINOPEC)
WENERGY-ANHUI PROV ENERGY
GDF SUEZ SA
VATTENFALL GROUP
ENEL SPA
E.ON SE
EDF GROUP
RWE AG
PUBLIC POWER CORP (DEI)
PGE POLSKA GRUPA ENERGETYCZNA
STEAG GMBH
CEZ AS
ENBW ENERGIE BADEN-…
TAURON POLSKA ENERGIA SA
SCOTTISH AND SOUTHERN ENERGY
NTPC LTD
TATA GROUP
ADANI POWER LTD
VEDANTA RESOURCES PLC
RELIANCE INFRASTRUCTURE LTD
DAMODAR VALLEY CORP (DVC)
MP POWER GENERATING CO LTD
GUJARAT STATE ELEC CORP LTD
ANDHRA PRADESH POWER GEN…
JINDAL STEEL & POWER LTD
NEYVELI LIGNITE CORP LTD
HARYANA POWER GEN CO (HPGC)
WEST BENGAL POWER DEV CORP
TAMIL NADU GEN & DIST CORP LTD
RAJASTHAN RV UTPADAN NIGAM
MAHARASHTRA STATE POWER…
UTTAR PRADESH RAJYA VIDYUT
1,000 10,000 100,000 1,000,000
ESKOM HOLDINGS SOC LTD
KOREA ELECTRIC POWER CORP
PT PLN PERSERO
MINISTRY OF ECONOMIC AFFAIRS
FORMOSA PLASTICS CORP
CLP GROUP
J-POWER
DTEK
AGL ENERGY LTD
ISRAEL ELECTRIC CORP
COMISION FEDERAL DE ELEC
TRANSALTA CORP
CHUBU ELECTRIC POWER CO INC
TENAGA NASIONAL BERHAD (TNB)
OOO SIBERIAN GENERATING CO
CHEUNG KONG INFRASTRUCTURE
ELECTRICITY OF VIETNAM (EVN)
INTER RAO UES
TOHOKU ELECTRIC POWER CO
SUMITOMO CORP
ECU - ENERGY CO OF UKRAINE
EUROSIBENERGO
GAZPROM
ELEKTROPRIVREDA SRBIJE (EPS)
NRG ENERGY INC
SOUTHERN CO
DUKE ENERGY CORP
AMERICAN ELECTRIC POWER CO…
TENNESSEE VALLEY AUTHORITY
DYNEGY HOLDINGS INC
AES CORP
XCEL ENERGY INC
BERKSHIRE HATHAWAY ENERGY…
FIRSTENERGY CORP
PPL CORP
DOMINION
ENERGY FUTURE HOLDINGS CORP
RIVERSTONE HOLDINGS
DTE ENERGY CO
GREAT PLAINS ENERGY INC
WISCONSIN ENERGY CORP
AMEREN CORP
ENTERGY CORP
ALLIANT ENERGY CORP
BASIN ELECTRIC POWER COOP
SANTEE COOPER
SALT RIVER PROJECT (AZ)
CHINAEUINDIA
OTHERUSA
CCS retroﬁtability (coal-ﬁred power utilities)
COP21 AND THE IMPLICATIONS FOR ENERGY
54 OXFORD ENERGY FORUM
avoid potential water contamination
and depletion risks associated with
future UCG-CCS operations (Water
management issues in the underground
gasiﬁcation of coal’, Younger et al., 2010).
Finally, Durucan et al. (‘TOPS: technology
options’, 2014) observe that potential
interactions between injected CO2 and
coal gasiﬁcation products could further
complicate CO2 storage.
Analysis of ﬁndings
Of the top 100 coal-ﬁred power utilities,
two-thirds have no power stations
meeting our generous retroﬁtability
criteria. The EU and the USA have more
companies that have no retroﬁtable
power stations, and of those that do, less
than 30 per cent of their coal-ﬁred
capacity is retroﬁtable. Retroﬁt with CCS
seems an unlikely option for the mitigation
of emissions from existing coal-ﬁred
power stations in the USA and the EU. We
can also argue that CCS retroﬁtability has
not been a strong criterion for choices in
the location of coal-ﬁred power stations.
Optimal access to coal resource or
shipping infrastructure and electricity
transmission infrastructure have more
likely driven location decisions for coalﬁred
generating stations, despite the hope
that new power stations are ‘CCS ready’.
Power stations in China are relatively
more retroﬁtable with CCS than EU and
US companies. These power stations, all
things being equal, are relatively more
resilient to asset stranding in the case of
ambitious power sector mitigation targets.
Of the top 30 CPT companies, 22 are
Chinese. Most have some, if not
complete, CCS retroﬁtability potential,
including giants Datang, Sinopec, and
Shenhua Group. Most non-Chinese CPT
companies are also completely
retroﬁtable, including the three South
Korean companies in the top 30, and the
senior CPT company Sasol. CCS
implementation could be a mitigation
option for these companies, although
there are a very large number of key
uncertainties that would stymie this.
Policy makers must consider the limited
availability of economic geological
storage resource in designs to incentivize
the rapid development and deployment
of CCS. In the power sector, coal-ﬁred
power stations are unlikely to be the
benefactors of such policy, given that they
produce twice as much CO2 per unit of
electricity as gas-ﬁred power (see the
IPCC’s Fifth Assessment Report) while
fulﬁlling the same grid needs of
dispatchable and ﬂexible power.
Further, CCS-equipped power generation
must compete with nuclear power and
renewables as a low-carbon generating
option. The latter has demonstrated clear
and consistent cost reduction, making it
cost-competitive in many locations, a
trend Bloomberg New Energy Finance
indicates is set to continue (‘Wind and
solar boost cost-competitiveness versus
fossil fuels’, BNEF, 2015). Scarce
economic storage resource would be
better allocated to addressing ‘hard to
treat’ residual emissions from agriculture,
industry, and aviation, which have fewer
mitigation options.
The potential role of CCS in helping tackle
industrial emissions, and of being a key
part of negative emission technologies in
the latter half of the century, bear no
prescriptive role for the coal value chain in
CCS deployment. We ﬁnd that the role of
CCS in the thermal coal value chain is at
best uncertain, due to its stunted
deployment, and at worst undesirable,
due to the low value of coal-derived
carbon relative to other carbon sources.
Daily nominal syngas production [kNm3/d]
100% retrofitable partially retrofitable 0% retrofitable
- 20,000 40,000 60,000 80,000 100,000
DATANG
SHENHUA GROUP
YITAI COAL OIL MANUFACTURING CO…
SINOPEC
CHINACOAL GROUP
QINGHUA GROUP
YANKUANG GROUP
GUANGHUI ENERGY CO
PUCHENG CLEAN ENERGY CHEMICAL CO
XINHU GROUP
WISON (NANJING) CLEAN ENERGY CO
CHINA NATIONAL OFFSHORE OIL…
SANWEI RESOURCE GROUP
INNER MONGOLIA ZHUOZHENG COAL…
TIANJIN BOHAI CHEMICAL GROUP
JIEHUA CHEMICAL
HUALU HENGSHENG CHEMICALS
JIANGSU LINGGU CHEMICAL CO
HARBIN YILAN COAL GASIFICATION
ANHUI HUAYI CHEMICAL CO
YANTAI WANHUA
XINJIANG XINLIANXIN FERTILIZER CO. LTD.
SASOL
DAKOTA GASIFICATION CO
TOKYO ELECTRIC POWER COMPANY…
KOREA SOUTH EAST POWER CO (KOSEP)
KOREA SOUTHERN POWER CO (KOSPO)
JINDAL STEEL & POWER LTD
POSCO
EAST CHINA ENERGY
CHINAOTHER
CCS retroﬁtability (coal-processing technology companies)
MAY 2016: ISSUE 105
55OXFORD ENERGY FORUM
EDITOR: Bassam Fattouh
CO-EDITORS: Malcolm Keay
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