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 j.barry@qub.ac.uk
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’

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
Dependency upon energy imports
Concerns with security of supply
Environmental stress
Governance


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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?