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You are here: Home / Archives for Innovation

July 8, 2016

The Scale of the Energy Access Gap

By Benjamin M. Attia
Access to electricity is a key catalyst correlated with economic development.

The International Energy Agency (IEA) recently estimated that over 1.5 billion people do not have access to affordable electricity, representing one quarter of the world’s population [1]. In the absence of aggressive new policies and significant financing, it is estimated that that number will drop to only 1.3 billion by 2030 [1]. The United Nations’ (UN) Sustainable Energy for All (SE4ALL) initiative, which is working toward a goal of global universal energy access by 2030, estimates that approximately 600 million of these unelectrified people live in Sub-Saharan Africa [2]. This number is expected to rise to approximately 645 million by 2030 under a business-as-usual scenario due to expected explosive population growth [2, 3]. This widening gap of energy access is a complex and multidimensional problem and represents an important hindrance to economic development and social change in the developing world.

Historically, the access gap since the initial commercialization of electricity has “consistently been between 1 and 2 billion people… as grid expansion has roughly paced global population” growth [4]. This suggests that the access gap is a reflection of a persistent lack of equity in distribution. In fact, in 1983, Krugmann and Goldemberg famously estimated that at 1983 global consumption levels, the “energy cost of satisfying the basic human needs” of every person on the planet was well within the available supply of energy resources [5, p. 60].

Today, the consumption and distribution inequalities are even more pronounced. In 2011, the average American consumed 13,240 kilowatt hours (kWh) per person per year, while the average Ethiopian consumed only 56 kWh [6]. Further, across all of Sub-Saharan Africa, annual per capita kWh use is one-sixth the load requirements of a relatively efficient American refrigerator [7]. Globally, the poorest three-quarters of the world’s population comprise less than ten percent of total energy consumption [8, p. 5].

The inequities that underline energy poverty and energy access are also fundamentally connected to climate change. Looking ahead, the world’s demand for electricity is estimated to increase by more than 70% by 2040, and the World Bank and IEA estimate that a doubling in installed energy capacity will be necessary to meet the anticipated growing demands of emerging markets [9], [10]. Despite the accelerating paradigm shift to low-carbon and renewable energy generation technologies, there is a paradoxical irony to the link between development and climate change which has left the poorest countries with the lowest contributions to greenhouse gas (GHG) emissions as the most vulnerable and most susceptible to the effects of climate change [11, p. 591, 12]. As markets evolve to value avoided GHG emissions [13, p. 215], reconciling the joint–and possibly conflicting– goals of development through universal energy access and combating climate change will accelerate, but at present, the inequity in energy access is only further exacerbated by the parallel inequities with respect to climate change adaptation measures.

Many scholars agree that access to electricity in itself is not fully sufficient to bring about the required economic and social development to break the cycle of poverty [14, p. 1058, 15, p. 2194]. It has also been widely settled that access to electricity is a key catalyst correlated with economic development and that a lack of electricity access is a key bottleneck to growth [16], see [17] for comprehensive rebuttal]. However, approaches for tackling the problems associated with energy poverty are often difficult to scale up because of the difficulties associated with navigating this uneven technical, sociocultural, agricultural, and institutional landscape, and, as will be demonstrated below, the multidimensionality of energy access inhibits scalability of any one catch-all solution.

The IEA estimates that 30% of those without access to electricity would best be served by grid extension, 52.5% would be best served by micro-grids, and 17.5% would best be served by stand-alone energy systems [3, p. 14]. There is a clear need for investment in rural electrification initiatives at all three levels and a clear gap in understanding routes and sinks for effective impact investing [3, p. 14]. National grid extension programs and firms selling small energy systems are generally much better funded than the community-scale solution of micro-grids, despite their significant potential market share and niche ability to provide scale benefits, rapid deployment, flexibility of business models, and energy storage, security, and reliability [3, p. 15]. The micro-grid space is rife with opportunity to build markets, innovate new business models, develop new financing mechanisms, and provide the sustainable development benefits of renewable electrification and increased economic potential.

As one development professional put it, “If rural [people] have power in their lives, they will have more power over their lives” [16]. Access to electricity is not the answer to the greater global problems of poverty and inequity, but can be a good place to start.

References
[1] “World Energy Outlook 2014,” Paris, France, 2014.
[2] SE4ALL, “Energy for all: Financing Access for the poor,” in Energy for All Conference, 2011.
[3] M. Franz, N. Peterschmidt, M. Rohrer, and B. Kondev, “Mini-grid Policy Toolkit: Policy and Business Frameworks for Successful Mini-grid Roll-outs,” EUEI Partnership Dialogue Facility, Escheborn, 2014.
[4] P. Alstone, D. Gershenson, and D. M. Kammen, “Decentralized energy systems for clean electricity access,” Nat. Clim. Chang., vol. 5, no. 4, pp. 305–314, 2015.
[5] H. Krugmann and J. Goldemberg, “The energy cost of satisfying basic human needs,” Technol. Forecast. Soc. Change, vol. 24, no. 1, pp. 45–60, 1983.
[6] C. Kenny, “If Everyone Gets Electricity, Can the Planet Survive?,” The Atlantic, 2015.
[7] “Power Africa Annual Report,” 2014.
[8] J. Tomei and D. Gent, “Equity and the energy trilemma Delivering sustainable energy access in low-income communities,” International Institute for Environment & Development, London, United Kingdom, 2015.
[9] “World Energy Outlook 2015 Factsheet,” Paris, France, 2015.
[10] R. K. Akikur, R. Saidur, H. W. Ping, and K. R. Ullah, “Comparative study of stand-alone and hybrid solar energy systems suitable for off-grid rural electrification: A review,” Renew. Sustain. Energy Rev., vol. 27, pp. 738–752, 2013.
[11] A. Yadoo and H. Cruickshank, “The role for low carbon electrification technologies in poverty reduction and climate change strategies: A focus on renewable energy mini-grids with case studies in Nepal, Peru and Kenya,” Energy Policy, vol. 42, pp. 591–602, 2012.
[12] J. Byrne, Y.-D. Wang, H. Lee, and J. Kim, “An equity and sustainability-based policy response to global climate change,” Energy Policy, vol. 24, no. 4, pp. 335–343, 1998.
[13] U. Deichmann, C. Meisner, S. Murray, and D. Wheeler, “The economics of renewable energy expansion in rural Sub-Saharan Africa,” Energy Policy, vol. 39, no. 1, pp. 215–227, 2011.
[14 A. Bhide and C. R. Monroy, “Energy poverty: A special focus on energy poverty in India and renewable energy technologies,” Renew. Sustain. Energy Rev., vol. 15, no. 2, pp. 1057–1066, 2011.
[15] B. Mainali and S. Silveira, “Financing off-grid rural electrification: Country case Nepal,” Energy, vol. 36, no. 4, pp. 2194–2201, 2011.
[16] D. Mans, “Back to the Future: Africa’s Mobile Revolution Should Inspire Rural Energy Solutions,” Huffington Post, 20-May-2014.
[17] L. A. Odarno, “Negotiating the Labrynth of Modernity’s Promise: A Paradigm Analysis of Energy Poverty in Peri-Urban Kumasi, Ghana,” University of Delaware, 2014.

Filed Under: Energy Access, Energy and Climate Investment, Energy Markets, Renewable Energy, Uncategorized Tagged With: Abundant Energy, Clean Energy Financing, Energy Access, Energy Markets, Innovation, Renewable Energy, Water-Energy Nexus

January 15, 2016

Post-Paris Agreement: FREE’S Focus on Subnational Climate Action

By Job Taminiau and Joseph Nyangon
Accelerating climate action and finance at subnational level based on the Paris Agreement.

The 21st Conference of the Parties to the U.N. Framework Convention on Climate Change, or COP 21 (also known as the Paris climate summit) closed in Le Bourget, France after two weeks of intense negotiations, with negotiators agreeing on a landmark “Paris Agreement.” The conference took place from November 30 – December 12, 2015 and was attended by a delegation from the Foundation for Renewable Energy and Environment (FREE). The FREE delegation included Dr. John Byrne, Chairman and President, and Dr. Job Taminiau, Research Principal of FREE. This blog post briefly discusses the outcome document of the negotiations and highlights the experience of attending COP-21.

FREE’s Participation in the COP process
The FREE delegation participated in official side events, interviews, discussions, and meetings throughout the second week of the negotiations. Overall, the FREE delegation was very impressed by the ‘can do’ attitude of, particularly, the subnational actors that were present at the COP. In fact, these subnational actors, on more than one occasion, highlighted their willingness to not only follow-up on negotiators’ progress to seal a deal but to champion and “ratchet-up” local climate action as a viable pathway for future climate change mitigation and adaptation.

FREE co-sponsored and co-organized two side events at the conference. In a side event on the potential contribution of cities to address climate change, co-sponsored and co-organized by FREE in collaboration with the Center for Energy and Environmental Policy (CEEP, University of Delaware) and the Climate Alliance of European Cities with Indigenous Rainforest Peoples (or simply “Climate Alliance”), the Global Covenant of Mayors, and others, Dr. Taminiau offered a perspective on subnational climate change innovation, leadership, and governance by drawing from examples of ‘solar city’ strategies. Such a project could offer a substantial improvement in a city’s energy profile: for example, a high density, vertical city like Seoul could supply 66% of daylight electricity needs for the year and 35% of all-hours annual electricity needs from the use of 30% of the rooftop real estate available in the city. The Europe-based Climate Alliance was a very suitable partner for this message: the organization works with more than 1,700 cities and municipalities spread across 26 European countries to reduce their greenhouse gas emissions.

COP21_Paris Agreement_FREE_John_Byrne_Job_Taminiau_Paris_AgreementL-R: Dr. Taminiau and Dr. Byrne at the Paris climate change conference

Flanked by among others, Camille Gira of Luxembourg European Union Council Presidency; Magda Aelvoet, Minister of State, President, Federal Council for Sustainable Development, Belgium; Tine Heyse, Deputy Mayor of Ghent, Belgium; Josefa Errazuriz, Mayor of Providencia, Chile; Julie Laernoes, Vice-President of Nantes Metropole, France; Marie-Christine Marghem, Belgian Federal Minister of Energy, Environment and Sustainable Development; and Ellý Katrin Gudmundsdottir, Chief Executive Officer and Deputy Mayor of Reykjavik, Iceland, Dr. Taminiau argued that cities are well positioned to help bend the carbon curve. “Cities could be the power plant of the future,” he added.

The second side event organized by the Climate Change Center Korea was titled “Preparing Action Plans for a Post-2020 Climate Change Regime in Asia.” Former prime ministers and senior government officers from Asia were among the participants in this well-attended event, highlighting the need for a new finance, markets and policy regime as well as stronger cooperation and partnerships in Asia to combat climate change. Dr. Duck-Soo Han, Chairman of the Board of Directors of the Climate Change Center and Former Prime Minister of Republic of Korea called for enhanced financial and technological resources in Asia to combat climate change. Professor Haibin Zhang of Peking University and a Member of the Global Advisory Board of the Center for Climate and Sustainable Development Law and Policy (CSDLAP) offered a Chinese perspective on climate policy governance. Dr. Oliver Lah of Wuppertal Institute for Climate (Germany) examined EU-Asia climate partnerships. And Richie Ahuja, Regional Director for Asia of the Environmental Defense Fund (EDF) summarized work in Asian region on clean energy and clean cooking systems as low-carbon solutions.

COP21_Paris Agreement_FREE_John_Byrne_Climate_Action
Dr. Byrne presenting findings from a study on the financeability of large urban solar plants in Amsterdam, London, Munich, New York, Seoul, and Tokyo. Photo by IISD/ENB

Dr. Byrne presented findings from a six-city study on the financeability of large urban solar plants. He described results from Amsterdam, London, Munich, New York, Seoul, and Tokyo, noting financing and policy needs on the cost of installations in these cities to enable infrastructure-scale investment. Particularly, New York City, London, Munich, and Amsterdam could be successful in implementing a solar city strategy without many changes to existing policy structures. Seoul and Tokyo, meanwhile, require more modification to existing conditions in order to produce a viable project that could attract financial resources from investors. For instance, FREE’s researchers find that such infrastructure-scale solar development is financeable in 13 years for Seoul, 10 years for New York City, and 11-12 years for London, Munich and Amsterdam (Figure 1).

Solar city implementation options for the six municipalities under a 10-year financing maturity.
Figure 1. Solar city implementation options for the six municipalities under a 12-year financing maturity. [1]

The Paris Agreement: A New Direction for Climate Change Governance?
Forged by nearly 200 countries to ramp-up climate mitigation and adaptation measures to reel in planet-warming carbon emissions, the Paris Agreement marks a historic shift in climate diplomacy. Indeed, the agreement has been hailed as a monumental step in the climate change negotiation process: “For the first time, every country in the world has pledged to curb emissions, strengthen resilience and join in common cause to take common climate action,” said UN Secretary General Ban Ki-moon during the conference’s closing session. “This is a resounding success for multilateralism,” he declared. Key elements of the new agreement include:

  1. A goal to hold the increase in global average temperature to “well below 2°C and endeavour to reach 1.5°C” relative to pre-industrial temperatures;
  2. Successive nationally determined contributions outlining Parties’ commitments to reduce climate change emissions, to be updated every five years. Each round of commitments needs to represent a progression from previous commitments; and
  3. A regular process of review of the implementation of the Paris Agreement. This “global stocktake” which informs collective efforts on mitigation, adaptation and support on technology development and transfer for developing country parties will take place in 2023 and every five years thereafter.

Six years after the 2009 diplomatic disaster of Copenhagen, the path to Paris had been well-prepared. The COP talks in Copenhagen, in no small part, collapsed due to the continued focus on a top-down, legally binding agreement with strong emission reduction commitments for which, ultimately, willingness to sign on by nation-states was low. The Copenhagen Accord (2009) and subsequent Cancun Agreements (2010) formulated a new approach revolving around a new way of target-setting of more bottom-up, self-determined, national targets. This ‘pledge-and-review’ approach yielded approval from a much larger set of nation-states, including the United States and China. A “fresh” architecture for climate action was set out to be the goal in the follow-up Durban Platform for Enhanced Action (2011).[2] The bilateral talks and agreements between China, the U.S., and India can also be seen as critical preparatory work that allowed for the outcome in Paris. For example, U.S. President Barack Obama and his Chinese counterpart President Xi Jinping met in September 2015 in Washington D.C. announcing new and strengthened bilateral and multilateral climate cooperation, including the establishment of a national cap-and-trade program in China by 2017, providing momentum for success in Paris.

The Paris Agreement marks a break from the past, representing an unprecedented inflection point in the global response to climate change. Over twenty years of negotiations have brought the international community to a point where self-determination, rather than top-down treaty pursuits, has become the new approach moving forward. In this, there appear to be at least two main elements that will shape climate change governance for the years to come.

First, the agreement provides a process for governments to ratchet-up efforts to limit global temperature rise and, for the first time, includes commitments from all key Parties to the convention. The agreement puts emphasis on registering commitments at global, national, provincial/state, local, and corporate scales, and tracks national performance over time. Every five years, beginning in 2020, each country will be required to communicate a new nationally determined contribution for reducing emissions. Potentially, this implies that the Paris Agreement could be the main platform within which climate change action at the global level is articulated for years, only to be routinely updated rather than fully redrafted.

Second, as the focus shifts to implementation, the success of the agreement lies in the Convention’s ability to engage the private sector, financial institutions, cities, and transnational and subnational authorities. Indeed, as Christiana Figueres highlighted during the 2016 Investor Summit on Climate Risk, the Paris Agreement was “clearly the easiest of the components”. [3] Noting the Paris Agreement as the “starting line”, Christiana Figueres continued that the real challenge is to take all the “fantastic intentions” and move them to actual implementation. Similarly, Secretary General Ban Ki-Moon emphasized the gravity of the challenge that lies ahead: “We have an agreement. It is a good agreement. You should all be proud. Now we must stay united – and bring the same spirit to the crucial test of implementation. That work starts tomorrow”.[4]

COP_21_Paris_Agreement Celebration_Christiana Figueres_Laurence Tubiana_Ban_Ki_moon_François_Hollande
L-R: Laurence Tubiana, COP 21 Presidency; UNFCCC Executive Secretary Christiana Figueres; UN Secretary-General Ban Ki-moon; COP 21/CMP 11 President Laurent Fabius, Foreign Minister, France; and President François Hollande, France, celebrating the conclusion of the event. Photo by IISD/ENB

The Bottom Line: Paris Agreement Implementation Requires Subnational Creativity, Innovation, and Leadership
The FREE delegation proposed ‘polycentric’ strategies to COP-21 as a viable way forward for the international community. The proposal is based on ideas and models developed and implemented by FREE, such as the promising contribution of the Pennsylvania Sustainable Energy Finance Program (PennSEF), the innovative character of the Sustainable Energy Utility (SEU) model, or the transformative potential of ‘solar cities’. The proposal titled “A Polycentric Response to the Climate Change Challenge Relying on Creativity, Innovation, and Leadership” highlights the critical importance of subnational actors, particularly cities and other municipal agents. [5] Relying on a wide and diverse landscape of actors to address climate change, the proposed focus on ‘polycentric’ strategies could capture and scale-up the innovation, leadership, and creativity taking place.

FREE has well-established experience with sustainable energy financing programs and, through research such as on solar cities, is actively developing options for transformative change. The SEU model, for instance, has been implemented in the U.S. state of Delaware (with a second bond issuance planned for the near-term) and in Washington, DC and is being actively explored in India and Korea. The U.S. White House in an announcement made by President Obama recognized the SEU model for its promise of transformative change and capability to lower energy use and carbon emissions while improving state economic development. Other programs, like PennSEF and planned future projects, combine innovations in finance, policy and market approaches and are needed to mobilize necessary levels of climate finance and fulfilment of existing commitments of the Paris Agreement.

Concerns linger as to, for instance, the observation that much more needs to be done than is currently pledged by the nation-states in order to meet the two degree target (the so-called ‘ambition gap’). The bottom line of the Paris Agreement therefore is that implementation will require the mobilization of state and non-state actors to perform substantial technical, methodological, and policy efforts to support the accord when it enters into force. A critical factor in this is the leveraging of financial resources to drive transformative change. FREE plans to assist state and non-state actors in developing these capacities. Recombination and careful consideration of the policy-market-finance interaction is at the foundation of FREE’s project portfolio and can deliver a critical contribution towards the implementation of the Paris Agreement.

Notes
[1] Byrne, J., Taminiau, J., Kim, K.N., Seo J., and Lee, J. (2015). “A solar city strategy applied to six municipalities: integrating market, finance, and policy factors for infrastructure-scale photovoltaic development in Amsterdam, London, Munich, New York, Seoul, and Tokyo.” Wiley Interdisciplinary Reviews: Energy and Environment.
[2] As mentioned on the UNFCCC website: https://unfccc.int/key_steps/durban_outcomes/items/6825.php
[3] As discussed at the 2016 Investor Summit on Climate Risk. The Summit seeks to sustain the momentum from Paris and was organized by Ceres, the United Nations Foundation, and the United Nations Office for Partnerships.
[4] https://www.un.org/apps/news/infocus/sgspeeches/statments_full.asp?statID=2875#.Vqe9cSo4HIV
[5] This position paper was authored by Dr. Job Taminiau and Dr. John Byrne in their respective capacity at the Center for Energy & Environmental Policy (CEEP, University of Delaware).

Filed Under: Climate Change, Energy and Climate Investment, Sustainable Urban Infrastructure Tagged With: Clean Energy Financing, Climate Change, Climate Finance, Innovation, Paris Agreement, Renewable Energy, Sustainable Cities, Sustainable Investing

February 17, 2015

Obama’s Budget Proposals for Clean Energy and Climate Investment

By Joseph Nyangon
Investment in R&D is crucial to achieving simultaneously the objectives of economic growth and sustainable development.

A cross-country theme in the clean energy programs supported by the Obama budget proposal is the need for federal and private funding for research and development. Photo: Shutterstock
A cross-country theme in the clean energy programs supported by the Obama budget proposal is the need for federal and private funding for research and development. Photo: Shutterstock

President Obama has released a $4 trillion budget proposal for FY 2016. It contains a range of programs designed to encourage the deployment of next-generation clean energy and energy efficiency technologies. Here are the top five things to know about the budget in terms of clean energy and environmental investments:

1. Clean Power State Incentive Fund
The U.S. President proposes a $4 billion incentive fund to encourage states to make faster and deeper cuts in carbon emissions from electricity than would be required under the Clean Power Plan. The Environmental Protection Agency (EPA) is to administer the Clean Power State Incentive Fund, which would enable states to invest in activities that advance and complement the agency’s Clean Power Plan. The administration outlines several goals, including addressing impacts from the environmental pollution in low-income communities to supporting businesses to catalyze investment in renewable energy, energy efficiency and combined heat and power. The budget also includes $239 million to support reductions in greenhouse gas emissions programs at the EPA [1]. In particular, $25 million would be used to help states develop their Clean Power Plan strategies.

2. Permanent extension of renewable energy investment tax credits
The renewable energy Production Tax Credit (PTC) has been an important lifeline for the wind industry in the United States. It expired at the end of 2013 and Congress agreed to a one-year extension, which expired in 2014. Tom Kiernan, CEO of the American Wind Energy Association (AWEA), has called on Congress to extend the PTC, noting that “Investing in wind power makes sense and that the Production Tax Credit is the right policy to continue growing this abundant, homegrown resource.” [2] The FY 2016 budget proposal concurs, proposing a long-term and stable clean energy policy based on a permanent extension of solar and wind investment tax incentives, and reforming the incentives to make them simpler and more efficient. A separate incentive scheme for solar, the Investment Tax Credit (ITC), which authorized a 30% tax credit through 2016 before falling to 10% thereafter is set to expire at the end of 2018. The administration has proposed a permanent extension.

3. Increased investment in clean energy technologies and R&D
The administration has proposed an investment of $7.4 billion in pollution-cutting technologies—an increase of nearly 7% [3] from the $6.5 billion allocations in the FY 2015 [4], for clean energy programs and sustainable technologies. These investments in solar, wind, low-carbon fossil fuels and energy-efficiency initiatives primarily cover programs at the departments of Energy, Defense, Agriculture, and the National Science Foundation. Examples of the programs outlined in the budget include investment in electric vehicles to enhance their affordability and convenience; improvement in building efficiency programs; climate-proofing electric power grid such as storm hardening, flood-proofing, installing higher temperature-rated transformers and replacing underground transformers with saltwater submersible types; carbon capture and storage; and investment in research and development (R&D) to measure and mitigate fugitive methane emissions from natural gas systems.

4. Advancing international climate negotiations efforts and investing in the Green Climate Fund
The budget also provides $1.29 billion to advance the goals of the Global Climate Change Initiative and the President’s Climate Action Plan (which supports bilateral and multilateral engagement with major and emerging economies). This includes $500 million for U.S. contributions to the U.N.’s Green Climate Fund (GCF) to help catalyze additional private sector support for international climate action and $230 million for the Climate Investment Fund. So far, the GCF has received pledges totaling $10.2 billion from countries such as Japan, South Korea, Norway, Mexico, Sweden, United Kingdom, Indonesia, Mongolia, and more. [5]

5. Energy and climate resilience
The budget contains a panoply of provisions designed to help vulnerable parts of the country enhance their energy and climate resilience and preparedness, including increased investments in community and ecosystem resilience, and a better understanding of the projected impacts of climate change. For example, allocation of $400 million for National Flood Insurance Program Risk Mapping efforts, an increase of $184 million over FY 2015 funding levels. Additional funding has been proposed to tackle coastal resilience, wildfires, and drought resilience. These include $50 million towards the NOAA Regional Coastal Resilience Grants, $89 million to promote water conservation efforts, and $200 million to FEMA primarily for mitigation planning and facilities hardening, an increase of $175 million over current funding levels.

A cross-country theme in the clean energy programs supported by the Obama budget proposal is the need for federal and private funding for R&D [6]. The United States enjoyed remarkable success recently because of pharmaceutical and biomedical research (even if proponents of the free-market often less understand it). From securitizing energy efficiency retrofits to unlocking capital in private equity and pension funds to harnessing green bonds, investment in R&D to fund projects targeting climate resilience and low-carbon technologies is crucial to achieving simultaneously the objectives of economic growth and sustainable development. It is why analyzing the trend in federal budgetary allocation for clean energy investment is vital for understanding signals of long-term economic transformation. In every dimension of clean energy economic growth, there is a critical technological need, which must be underpinned by increasing capital flow in basic scientific research.

Notes
[1] Nyangon, J. (2015). Impacts of shale boom in the U.S. and beyond. FREE. https://freefutures.org/impacts-of-shale-boom-in-the-u-s-and-beyond/
[2] The state of the wind industry is strong: https://thehill.com/blogs/congress-blog/energy-environment/230248-the-state-of-the-wind-industry-is-strong
[3] Obama 2016 budget urges states to cut emissions faster: https://www.reuters.com/article/2015/02/02/us-usa-budget-energy-idUSKBN0L60AF20150202
[4] Budget of the United States Government, Fiscal Year 2015: https://www.whitehouse.gov/sites/default/files/omb/budget/fy2015/assets/budget.pdf
[5] Green Climate Fund Initial Resource Mobilisation: https://news.gcfund.org/wp-content/uploads/2015/02/pledges_GCF_dec14.pdf
[6] Nyangon, J. (2015). Why the U.S. urgently needs to invest in a modern energy system. FREE. https://freefutures.org/why-the-u-s-urgently-needs-to-invest-in-modernizing-its-energy-infrastructure/

Filed Under: Energy and Climate Investment, Energy Economics, Renewable Energy Tagged With: Decarbonization, Energy Markets, Innovation, Natural Gas, Sustainable Investing

January 28, 2015

Pathways to Deep Decarbonization Report

By Jeongseok Seo

For deep decarbonization of each country to be realized, three common tools are needed: energy efficiency and conservation, low-carbon electricity, and fuel switching.
For deep decarbonization of each country to be realized, three common tools are needed: energy efficiency and conservation, low-carbon electricity, and fuel switching.

Pathways to Deep Decarbonization 2014 Report is an inaugural effort of the Deep Decarbonization Pathways Project (DDPP). Launched in Seoul in October 2013, the DDPP is “a collaborative initiative to understand and show how individual countries can transition to a low-carbon economy and how the world can meet the internationally agreed targets for limiting the increase in global mean surface temperature to less than 2 degree Celsius” [1]. This report is prepared jointly by 27 partner organizations from 15 member countries and published by Sustainable Development Solutions Network (SDSN) and the Institute for Sustainable Development and International Relations (IDDRI), which are leading the project.

Key findings of this report show that total CO2-energy emissions from 15 preliminary deep decarbonization pathways (DDPs) identified can lead to a decrease in emissions by 45%. While this does not achieve the full decarbonization needed to assure to stay below 2 degree Celsius limit, the report stresses that pathways can be immediately implemented, which moves us substantially toward a global goal of living sustainably. For deep decarbonization of each country to occur, the report provides three common tools: energy efficiency and conservation, low-carbon electricity, and fuel switching [2].

This report can be viewed as a general guidance document for how a country can contribute to the global efforts in limiting the 2 degree Celsius threshold. Detailed analyses for individual countries will be released on the DDPP website. Two country-level reports have so far been released: the U.S. and Australia, and a report on France is scheduled to be released in the first half of 2015.

While many analysts would find much to agree with in terms of the value in identifying and developing deep decarbonization pathways, the objective of this report has also raised concerns. First, the underlying principles and assumptions of the report appear to be rooted in eco-modernization principles, in which humans not only fix severe problems like climate change but also can secure continued economic growth vis-à-vis technological innovations and through advancement in environmental management. While this perspective seems to be popular, it can be criticized for its dependency on experts and bureaucrats, most of whom are rarely exposed to the difficulties arising from climate change [3]. Some also object to an initiative like this because it seeks to endorse a vain ambition to ‘master’ nature. And some will criticize the effort for its failure to include NGOs in the pathway-building exercise [4]. Participation from civil society in each country could enrich country-level reports which will follow. Even so, DDPP is worth the attention of researchers and citizens seeking ideas on how to build a sustainable future.

References

[1] Deep Decarbonization Pathways official website: https://resources.unsdsn.org/pathways-to-deep-decarbonization-2014-report
[2] SDSN and IDDRI. Pathways to Deep Decarbonization 2014 Report. Sustainable Development Solution Network and the Institute for Sustainable Development and International Relations (IDDRI). Retrieved from: https://unsdsn.org/wp-content/uploads/2014/09/DDPP_Digit.pdf
[3] Glover, Leigh (2006). Postmodern Climate Change. New York: Routledge.
[4] Byrne et al. (2002) “The Production of Unequal Nature,” in Environmental Justice, Discourses in International Political Economy (New Brunswick, NJ: Transaction Publishers)

Filed Under: Energy and Climate Investment, Energy Economics, Renewable Energy Tagged With: Decarbonization, Energy Efficiency, Energy Markets, Innovation, Renewable Energy, Sustainable Investing

January 23, 2015

Impacts of Shale Boom in the U.S. and Beyond

By Joseph Nyangon

EIA estimates the growth in natural gas in the U.S. will increase by an average of 1.6% annually between 2012 and 2040. Photo: Reuters.
EIA estimates the growth in natural gas in the U.S. will increase by an average of 1.6% annually between 2012 and 2040. Photo: Reuters.

The unconventional oil and gas boom has shaken up energy markets in the U.S. and beyond. Across many American states, the energy sector is experiencing a number of changes far larger than in its history including improvements in policies, business models, technologies, and investment options to make energy cleaner, more plentiful and diversified, cheaper to store and capable of handling increased demand more intelligently. Technological advances have significantly enhanced production of oil and gas from shale, turning the U.S. into a major oil producer, with most of the new production coming from unconventional sources.

The U.S. Bureau of Labor Statistics estimates a drop in the producer price index for natural gas of nearly 57% between 2007 and 2012 because of increased supply from unconventional oil and gas sources. [1] Unlike other countries with abundant shale resource potential in Europe, Asia and Latin America, the U.S. enjoys some big advantages, such as solid financial foundation for risky projects, open access, a well-developed supply chain built upon many years of serving communities and rewarding shareholders. This is allowing sufficiently robust domestic supplies to meet even significant growth in demand across major sectors of the economy for example transportation, electric power generation, and manufacturing. The U.S. Energy Information Administration (EIA) estimates the growth in natural gas in the U.S. will increase by an average of 1.6% annually between 2012 and 2040. [2] This is more than double EIA’s projected 0.8% annual growth rate in consumption over the same period.

Yet the long-term trend in shale boom is clear. The projection by EIA points to a continuing supply growth for oil and gas out of the shale regions in the U.S., with composition of shale energy expected to reach 56% of total production by 2040. [3]

new production
Source: U.S. Energy Information Administration [4]
Because of the big shifts in production now underway, the industry is continuing to attract more domestic and foreign private investment, which is introducing strong competition in a sector that only a decade ago was deemed obsolete and high cost. A declining trend in U.S. power generation emissions attributed to fuel switching from coal-fired power plants to natural gas systems provides conditions, economic and environmental, that enable electric utilities to improve their operations because shale can come online and offline more quickly. This enhances the capacities of utilities to implement demand-side management strategies more effectively.

Consider the following recent developments:

  • Since 2007, annual production of shale gas in the U.S. has increased by nearly 51% and technically recoverable reserves have grown five-fold, according to EIA. [5] In particular, increased drilling in the Marcellus Shale has stimulated economic growth in places like Pennsylvania, traditionally a coal-producing state. At the same time, hydraulic fracturing (“fracking”) and horizontal drilling have caused concerns about their impact on the environment.
  • The EIA predicts that liquefied natural gas (LNG), as a share of U.S. natural gas consumption will grow to 12.4% by 2030 from current levels of around 3%. As energy consumption in general has grown, so has the demand for natural gas. Investment in new LNG gasification terminals will continue to become attractive because of the rising shale boom, flexible contracting arrangements, and falling liquefaction and shipping costs making LNG shipments more responsive to natural gas prices.
  • Promising oil “plays” (i.e. a commercially exploited energy deposit) in the Niobrara in Northern Colorado and parts of Kansas, Nebraska and Wyoming have revived big local economic gains. Introduction of advanced technologies in oil and gas extraction has led to significant rise in production in the Barnett Shale in Texas since 2003. [6] Drilling has also expanded in other areas, such as the Haynesville and Fayetteville shale plays in Texas, Arkansas, and Louisiana.
  • For now, rising U.S. shale supply is exerting pressure on global energy markets, pushing oil and gas prices to record lows. The upside of the falling oil prices is that it provides the U.S. with a unique opportunity to reform its energy policy towards a path of low-carbon future our society so clearly needs. Globally, more effective management of supply and demand is required to catalyze further investments and competition in energy markets, especially in Asia, Europe, and parts of Africa.

So far, the expansion in production points to continued market stability and economic gains in the long term. Domestically, more U.S. output will likely shield the country from frequent price spikes and seasonal price volatility. In the short term, a shortage of skilled engineers, seismologists, geologists and other experts may hamper production though, forcing energy companies to increase specialized training in oil and gas operations.

Over the long-term, that expertise may be exported to other countries, providing positive balance of trade benefits to the U.S. Even so, the decision by OPEC not to cut back on its production quota in November 2014 in an attempt to prop up oil prices has exerted pressure on non-OPEC producers especially the U.S. and Canada to reduce their production. But this has not stopped oil-prices from tumbling to fresh lows (settling below $50 a barrel) and forcing Goldman Sachs and Société Générale to sharply reduce their oil-price forecasts. [7]

However, increased production may not keep oil and gas prices down in the long-term as a prolonged price slump could tighten profit margins forcing energy companies to cut or delay investment projects. Escalating conflicts of attrition among top oil-producing nations are also possible as countries scramble for new energy markets. The resultant price rout, if that happens, would weigh on other markets and sectors devaluing currencies exposed to oil exports as well as intensifying risks to oil-dedicated sovereign wealth funds.


Notes

[1] U.S. natural gas gross withdrawals, U.S. Energy Information Administration (EIA), (U.S. Department of Energy, Jan. 12, 2015), www.eia.gov/dnav/ng/hist/n9010us2m.htm.
[2] “Annual energy outlook 2014,” Figure MT-43. U.S. natural gas production, 1990-2040, EIA, May 2014, https://www.eia.gov/forecasts/aeo/MT_naturalgas.cfm.
[3] “Annual energy outlook 2014,” Figure MT-44. U.S. natural gas production, 1990-2040, EIA, https://www.eia.gov/forecasts/aeo/MT_naturalgas.cfm.
[4] Drilling Productivity Report, EIA, Jan. 22, 2015), https://www.eia.gov/petroleum/drilling/#tabs-summary-1
[5] EIA, 2008. EIA, U.S. Natural Gas Supply, Consumption, and Inventories. In STEO Table Browser. Retrieved from https://www.eia.gov/outlooks/steo/data/browser/#/?v=15&f=A&s=0&start=2007&end=2015&ctype=linechart&maptype=0&linechart=NGMPPUS.
[6] “Technology drives natural gas production growth from shale gas formations,” EIA, July 2011, https://www.eia.gov/todayinenergy/detail.cfm?id=2170.
[7] Friedman, Nicole, 2015. Oil Prices Fall to Fresh Lows. The Wall Street Journal. Accessed on January 12, 2013, Available at: https://www.wsj.com/articles/brent-crude-falls-below-50-in-asian-trading-1421039495?KEYWORDS=Goldman+Sachs+

Filed Under: Energy Economics, Energy Markets Tagged With: Energy Markets, Innovation, Natural Gas, Shale Gas

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