Peak Oil, Climate Change and energy security in Europe: decarbonising the economy Dr. John Barry School of Politics, International Studies and Philosophy Queen’s University Belfast [email protected] Factors driving Energy Geo-Politics The ‘triple crunch’ - economic and financial crisis, climate change, peak oil/energy security as well as military aspects of the latter Resource Nationalism: ‘energy independence’ as new objective of national energy policy-makers Political Instability: In key energy producing and transit regions Growing demand: Rising Powers (BRICs) Climate Change: EU global leader Price instability: Spikes and disruptive lows and significant nvestment uncertainty Peak oil/gas: Peak gas – at least inside the EU and rapid rise in unconventional gas sources – fracking Peak oil and energy insecurity We need to decrease our dependence on oil, coal and gas Not just electricity, but heating, transport and our food system is dependent upon a nonrenewable, climatechange causing energy source Peak Oil Peaking of World Oil Production – Impacts, Mitigation and Risk Management, by Hirsch et.al. (2005), commissioned by the US Department of Energy. Peak oil represents “an unprecedented risk management problem…the problems associated with world oil production will not be temporary, and past ‘energy crisis’ experience will provide relatively little guidance. The challenge of oil peaking deserves immediate, serious attention, if risks are to be fully understood and mitigation begun on a timely basis” (Hirsch et.al 2005:5). Cubic Mile of Oil/Year Forfas 2006 report,‘A Baseline Assessment of Ireland’s Oil Dependence’ “The high probability that a supply of cheap oil will peak over the next 10-15 years poses a serious challenge for the global economy. We in Ireland are more dependent on imported oil for our energy requirements than almost every other European country and it will take up to 10 years to significantly reduce this dependence. Therefore, it is essential that we now begin to prepare for such a challenge.” (Forfas 2006:1). Former Irish Energy Minister Eamon Ryan – ‘planned retreat from fossil fuels’ (2008) Bundeswehr Transformation Centre, Future Analysis Branch (November 2010), Peak Oil: Security Policy Implications of Scarce Resources Armed Forces, Capabilities and Technologies in the 21 st Century Environmental Dimensions of Security Sub-study 1 PEAK OIL Security policy implications of scarce resources Bundeswehr Transformation Centre Future Analysis Branch Prötzeler Chaussee 25 15344 Strausberg November 2010 www.zentrum-transformation.bundeswehr.de “Even if the developments described in this study do not occur as depicted, it is still necessary and sensible to prepare for peak oil. The time factor may be decisive for a successful transformation towards post-fossil societies. In order to accelerate democratic decision processes in this respect, it is necessary to embed the dangers of an eroding resource basis in the public mind. This is the only way to develop the necessary problem awareness for prospective settings of the course.”, (2010: 93) 6 The geopolitics of carbon energy – the ategic Ellipse ‘strategic ellipse’…more turbulence ahead Pipeline Geo-Politics: Russia and EU relations EU Energy Politics Framing European Union energy politics ‘Energy Security’ Dependency upon energy imports Concerns with security of supply Environmental stress Governance Developing shared institutions Formal rules, legal systems, binding treaties Informal patterns of cooperation, trust, reputational factors Pipelines do not solve energy security problems Pipelines transfer energy security problems to question of governance in transit states Marketisation Need to create competition amongst suppliers Energy prices set by supply and demand to solve energy security issues Promotion of market norms in energy by the European Commission – ETS European Emissions Trading System In 2005, the EU launched the Emissions Trading System (EU ETS), the first international carbon-trading scheme in the world. It is a ‘cap and trade’ system Following a three-year pilot period, Phase II of the EU ETS was launched in 2008. Across its 27 Member States, the EU ETS covers large plants from CO2-emission intensive industrial sectors, namely power generation, mineral oil refineries, coke ovens, iron and steel and factories producing cement, glass, lime, brick, ceramics, pulp and paper, and all combustion activities with a rated thermal input exceeding above 20MWh. Bulgaria and Romania joined in 2007, bringing the total number of installations to over 12,000. How the ETS works... 1. Member State proposed a limit (‘cap’) on total emissions from relevant installations 2. The plans approved by the European Commission, in many cases after some revision. 3. The ‘cap’ is converted into allowances, known as EUAs (1 tonne of Carbon Dioxide = 1 EUA) 4. The Member States distribute these allowances to installations in the scheme in their country according to their approved plan. 5. Up to 10% of the allowances may be auctioned instead of being given for free. These auctions will be largest in the UK and in Germany. 6. Installations must monitor and report verified carbon emissions 7. At the end of each year, installations must surrender sufficient allowances to cover their emissions and can buy additional allowances or sell any surplus Next trading phase to start this year (2013-2020) – main changes : 1. A centralised EU-wide cap on emissions will be set 2. The ‘cap' will reduce over time: The 'cap' will decline by at least 1.74% a year, so that emissions in 2020 will be at least 21% below their level in 2005 3. Inclusion of aviation sector 4. At least 50% of allowances will be auctioned from 2013 (rather than given free to installations). ETS – the EU flagship policy on decarbonisation and promotion of green/clean industrial innovation Political Economic rationale of cap and trade Orthodox economic view: Property rights define the right to pollute and efficiency is obtained if rights are being traded Limit the rights to be issued implies an instrument for emission reduction Because of scarcity, rights get a value. If transaction costs are low and participants are well informed, ETS assures allocative efficiency >> reduction of pollution at the lowest costs possible for society. At present over 20 emission trading systems worldwide. EU ETS is the largest. Alternative view: ‘The Great Emissions Rights Give-Away’ ? Giving away rights to pollute rather than obliging polluters to buy such allowances from EU citizens CO2 emissions – pollution of the atmosphere – a commons /public good The atmosphere is the common property of us all and the right to use it as a dump for the gases given off when fossil fuels burn belongs equally to us all. Rights to this limited resource should not be given away to companies – they should buy those rights from each EU citizen. That is, there should be a per capita allowance for each EU citizen and not windfall profits for major carbon polluters ETS (phases I and II) as a subsidy scheme for carbon polluters? Auctioning of 50% allowances in Phase III (2013-2020), somewhat rectifies this?, but precedent set EU ETS would not encourage innovation because it has provided overly generous allocation of emissions permits, and awarded permits to polluters free of charge. Low carbon innovation is evidence in UK and across the EU but not perhaps due to the ETS EU ETS Mixed results…but would an EU wide carbon tax have worked better to incentivise decarbonisation? Or a higher floor price for carbon? Collapsed since 2008 Permits in the ETS are trading at prices well below the level thought necessary to stimulate green investment and innovation. The target was for the price to be €30/tCO2 in 2020 and rising. But..... th 17 January 2013 “An EU executive plan to reduce a glut of carbon emissions allowances, which are trading close to record lows, can pass provided it gets German support, EU Climate Commissioner Connie Hedegaard said on Wednesday. The European Commission proposal, known as backloading, would remove permits from the first three years of the new phase of the carbon market (2013-2015) and put them back on the market at the end of it (2019-2020). Coal-dependent Poland is strongly opposed to anything that could drive up the cost of allowances on the European Union's Emissions Trading Scheme (ETS), where a surplus generated mostly by economic recession has pushed the price to less than six euros, compared with around 30 euros ($40) in 2008”. The global economic recession has reduced EU CO2 more than the ETS? EU ETS can achieve emission reductions at lowest possible costs EU ETS is the largest ETS in the world (€60 billion annually) EU ETS is a political market: politics define the target and allocate emissions Strong pressure on politicians to accomodate vested interests This resulted in various adaptations that resulted in a a less effective and efficient economic instrument than in textbook economics is suggested. Windfall profits remain a problem and consumers are overcompensating companies for their costs. Carbon leakage is another negative side-effect – carbon intensive industries relocating outside the EU UK context UK Climate Change Act (2008) Improve carbon management and help towards a low carbon economy in the UK Demonstrate strong UK leadership internationally- ‘Green deal’ – Conservative-Liberal coalition approach Investment in renewables (wind and nuclear) Current public and political backlash against wind energy in the UK Energy security and low energy and electricity prices Political Backlash against renewables “Osborne is the mastermind behind a secret campaign to destroy the PM's green agenda, says Chancellor's father-in-law”, Mail on Sunday , 15th November 2012 “Explaining the recent reshuffle, Peter Lilley, a member of the Commons climate change committee, said: ‘I think Osborne wanted to get people into key positions who could begin to get the Government off the hook from the commitments it made very foolishly – the “greenest government ever”.’ Compare with… “A green economy is not a sub-set of the economy at large – our whole economy needs to be green. A green economy will maximise value and growth across the whole economy, while managing natural assets sustainably”. Government Report from 2011 Future UK low carbon transition? – natural gas (including unconventional) and nuclear power… and perhaps carbon capture and sequestration The dash for gas Current gas prices in UK reflect not current gas supply-demand Oversupply due to massive investments based on demand projection prior to the economic crisis Oversupply due to the closure of US market (Shale/Unconventionals) Demand collapse due to current economic crisis Political momentum behind unconventional shale gas - ‘Fracking’ Also a major issue here in Northern Ireland Major environmental, economic and public/local resistance to deal with... Nuclear power Low carbon, not renewable Current UK low carbon transition – nuclear versus wind energy The government assumes there will be a requirement of 60 GWe of net new generating capacity by 2025, of which 35 GWe is to come from renewables. The Revised National Policy Statement for Nuclear Power Generation (October 2010), states that the expectation is for ‘a significant proportion’ of the remaining 25 GWe to come from nuclear, although the government has not set a fixed target for nuclear capacity UK committed to building new nuclear power stations - likely to be at least 5 new nuclear power stations Climate change and peak oil – ‘renaissance for the nuclear industry....until Fukushima disaster in Japan (2011) ‘Green New Deal’ approach Counter-cyclical investment strategy – energy, housing – to create /sustain jobs in low carbon infrastructure Finance – from pension funds, green bonds (local authorities), green investment bank Not simply a ‘tax and spend’ policy – also need to reduce carbon subsidies – politically difficult Reducing Carbon subsidies Removing the market-distorting effects of fossil fuel subsidies (hundreds of £billions)– could lead to half of the necessary global reduction in carbon emissions (Fatid Biriol, Chief Economist, International Energy Association , 2012) “Despite the growth in low-carbon sources of energy, fossil fuels remain dominant in the global energy mix, supported by subsidies that amounted to $523 billion in 2011, up almost 30% on 2010 and six times more than subsidies to renewables” (IEA, 2012, World Energy Outlook, p.1) ….. despite the G20 in 2009 committing to phase them out…. The creation of a level playing field by removing the subsidies to large, centralised, capital intensive carbon energy and transportation investments would provide a re-balancing of the market for more renewable, labour intensive and distributed energy and transportation investments. “Removing subsidies to carbon-intensive technologies, pricing pollution and creating a ‘level playing field’ is also important to enable low carbon alternatives to compete fairly in the market, and to find ways of helping these technologies to move quickly into the market-place”. (OECD’s Ministerial Environment Policy Committee, 2009) Phasing out fossil-fuel subsidies presents a triple-win solution - enhance energy security, reduce greenhouse gas (GHG) emissions ; result in green economic growth. Concluding thoughts... There is a huge portfolio of technologies at demand and supply side that have the potential to reach deep cuts in GHG emissions; Technology must be accompanied by life style changes; There is an urgent need to focus on reducing energy consumption as well as decarbonising energy production And to also focus on the carbon intensity/’lock-in’ of the food system i.e. decarbonisation is not simply to do with energy, electricity, heating, transport The future is ... low carbon and electric Electricity is the only energy vector that can be further decarbonised in the foreseeable future through a range of technologies and offers the prospect of for example, low carbon road transport through hybrid and electric vehicle and of contributing to low carbon heating through heat pump systems. Technology diffusion will not come by itself, there is a need for a whole range of policy measures including education and information, providing a long term price signal for GHG emissions, efficiency standards, R&D, incentives and support schemes. Also urgent need to reduce or remove carbon subsidies Consider carbon taxation as a more efficient and fair way to drive low carbon innovation rather than an ETS?