Future Energy

Is it Time for Fair Trade Oil?

Source: tropical-rainforest-animals.com

Oil is oil is oil and it is well nigh impossible to separate it once it's in the pipeline.  But that was then and this is now.  Two stories I came across today suggest that there are some out there that are working hard to differentiate between oil sources, as difficult as that sounds.

First, according to the Globe & Mail, Canada's federal government seems to be picking a fight with the European Union as the EU pushes European fuel suppliers to reduce the carbon footprint of supplied fuels over the next decade (see Oil sands row threatens EU trade deal, sources say, February 22, 2011). 

"Canada has threatened to scrap a trade deal with the European Union if the EU persists with plans that would block imports of Canada’s highly polluting tar sands, according to EU documents and sources .....The Commission had initially proposed that tar sands be ascribed a greenhouse gas value of 107 grams per megajoule of fuel, making it clear to buyers that it had far greater impact than average crude oil at 87.1 grams. The latest EU research, published this month, backs that up."

I'm not quite clear on why Canada would pick a fight over a product that the EU does not, and is unlikely to, import from Canada.  However, what interested me was the "certifying" of different oil sources ... an interesting precedence (and perhaps a reason for the disagreement).

Much more interesting was an article in GOOD magazine's Issue 022, The Energy Issue.  On a safari through the range of energy issues facing the U.S. today, GOOD slipped a short mention of David Poritz's Gaia Certification Ltd. and its efforts to establish a certification standard for oil sources.  According to GOOD, Poritz's goal is "Fair Trade" in fuels, that allows consumers to pick the the level of environmental performance that they are willing to pay for.  His model is the Forest Stewardship Council, which oversees standards for certifying woodlands and forest product producers.  You may have noticed companies like Home Depot selling FSC lumber or Staples selling FSC paper.

A quick look at the website suggests Gaia Certification is just getting started, and choosing to do so in Ecuador (where Chevron has become embroiled in lawsuits and accusations of systemic oil spills and pollution).  Drawing on participation from industry, NGO's, government and indigenous communities, Gaia is on the verge of issuing its first set of certification standards, which will serve as the basis for rating the practices of individual countries.

A summary of what Gaia is trying to achieve:

"The mission of Gaia Certification Ltd. is to create a market-driven process that will reward and distinguish world-class oil and gas producers for outstanding social and environmental performance through the active engagement of consumers, civil society, NGOs and the oil industry."

And Poritz is quoted by GOOD, outlining the value proposition for energy marketers as the world makes the transition to low-carbon fuels:

"There’s real market value here for energy producers, ...... It takes time to move to all renewables. We’re in transition, and that transition has to feel good."

It could be the start of something interesting - a first step towards extended product responsibility for the oil industry.  Forget Regular, Premium and Super, imagine going to your local boutique gasoline bar and having a choice of Fort McMurray Mild, Colorado Medium or, for the more discriminating the really good imported stuff, Ecuadorean Dark.

 

 

Picturing Energy Use - Who Knew it Could be So Simple

I've always liked a good diagram to help me understand something complex, and, as they say, a picture is worth a thousand words.  That's particularly true of the diagrams of U.S. and Canadian energy consumption I found on the Lawrence Livermore National Laboratory website.

The first diagram shows estimated U.S. energy use in 2009.

The second diagram shows U.S. carbon emissions for 2008.  as you would expect the dominant roles of coal for electricity generation and petroleum transportation fuels in the U.S. carbon budget is readily apparent.

 

The third diagram looks at estimated future U.S. energy use by 2050.  The big changes that are apparent relate to the expected growth of renewable sources of electricity, the role of hydrogen as an energy intermediary and the dramatic drop in use of oil (looks like LLNL is a believer in peak oil).

The fourth diagram looks at U.S. energy losses, the biggest single proportion of which is electricity generation, transmission and distribution losses.   Notably, more than 55% of current energy consumption in the U.S. is wasted (and I would assume that a similar proportion is wasted in Canada).

LLNL hasn't limited itself to looking only at U.S. energy consumption patterns either.  Below are two more diagrams which look at 2007 energy use in Canada and 2006 carbon emissions in Canada.

The biggest difference in energy use patterns when comparing to the U.S. is the truncated lines indicating energy exports - mostly to the U.S.

Comparing carbon emission patterns with those in the U.S. highlights the much smaller role of coal in Canada.

Enjoy.

Off the Cliff: US Climate (Energy) Policy

The last few weeks have seen a slow train wreck as recent efforts to craft a climate/energy bill died in the U.S. Senate.  While the House was able to bring the bloated Waxman-Markey Bill forward a year ago, Senate Majority Leader Harry Reid last week announced that he would not even try to bring forward a compromise bill to the Senate.  And since mid-term elections in November appear likely to favour the Republicans, that seems to translate into a death sentence for any kind coherent climate or energy legislation in the U.S. for a while to come.

The list of commentators weighing in on who is to blame is long, including:

• Andrew Revkin - The Broken Senate and the Energy and Climate Challenge (Dot Earth)
• David Roberts - The Death of the Climate Bill (Grist Magazine)
• Robert Redford - Its the Opportunity, Stupid (The Huffington Post)
• Bradford Plumer - No Climate Bill? Then No Nukes, Either. (The Vine/The New Republic)
• Eileen Claussen - Climate Bill: Where to From Here? (Climate Compass/Pew Center)

(And probably many, many more than I have the time to read.)

However, among the most detailed and coherent assessments is one provided by Eric Pooley, a deputy-editor at Bloomberg Business Week, writing at Yale's environment 360 blog (see The Wreckage of Climate Bill, Some Clues for Moving Forward, July 28^th).  Mr. Pooley identified 6 culprits worthy of blame, including:

1. Professional climate deniers
2. Senate Republicans
3. Senate Democrats
4. The (Electric) Power Barons
5. The Green Group (environmental NGO's)
6. President Obama.

The list of who to blame doesn't leave to many out (although, interestingly, he identifies Representative Henry Waxman and House Speaker Nancy Pelosi as 'the only grown-ups in the room' during this debacle).

But perhaps the better part of Pooley's assessment is the consideration of options for Plan B - i.e. how does the U.S. move forward to address an issue (climate change) that is becoming ever more urgent.  Briefly, he looks to existing policy and institutions to lead the way - as they have indeed been doing for some years now. 

According to an analysis by the World Resources Institute, by leveraging existing authority over the next ten years the U.S. could reduce greenhouse gas emissions by 5 percent to 12 percent below 2005 levels. This is far short of the 17 percent reduction Obama promised in Copenhagen and nothing close to what needs to be done. But if we continue cutting emissions before asking voters to embrace a cap, we prove that cuts are both technologically feasible and economically sustainable. And we’ll be in a better position when the next legislative opportunity comes.

Until then, the climate war will be waged by cities, states, regional cap-and-trade programs, and, above all, the EPA, which early next year is set to begin regulating stationary sources of CO2 — power plants and large factories.

So in many respects, U.S. Climate policy and action may not look a lot different than it did under the leadership of George Bush.  Not exactly a ringing endorsement of President Obama's leadership on this file but a significantly better performance than we are seeing here in Canada where emissions steadily rise in the face of both federal and provincial unwillingness to act.

Pooley does point out the importance of the EPA going forward and the likelihood that Republican attacks will now shift to that agency. 

Tough new EPA rules for conventional pollutants will help, and so will new EPA carbon regulations. Perhaps these strict new regulations will refresh the power bosses’ appetite for a cap. But they have plenty of lawyers, and the long, ugly battles over implementation of EPA regulations could extend the current period of uncertainty by many years. Republicans (and some Democrats) will try to strip EPA of its authority over carbon, or at least delay implementation of its new rules.

Illustrating the Need for Sustainability: 100 Places to Remember Before They Disappear

After 15 years of working with companies and sometimes governments, helping them to manage the sustainability and the issues that affect sustainable development, I still oftentimes find it a fuzzy concept.  So I really appreciate it when something comes along that helps even me to put a real image to the issues. 

This time, that image has come from (for me) a surprising place.  Not too long ago Newsweek released a special issue that looks at some of the places that could disappear or be radically changed as global warming exerts a growing influence on the world in which we live (100 Places to Remember Before They Disappear; Newsweek Special Issue, Spring 2010). 

While I would have liked to see a stronger link between global warming and the descriptions that accompany each picture/location, the magazine is a great illustration of why environmental sustainability and sustainable human development is needed.

"To read this book is to be reminded that, like the tea bushes, human beings also occupy a narrow ecological niche .... the distribution of human settlements around the globe is crucially dependent on specific patterns of rainfall, sunlight, temperature and wind, all of which will be affected by global warming.  Mountain glaciers may seem like a remote concern to most city dwellers, but if you live downstream from them - in Southern California, say - it matters a great deal how and when they form and melt."

And unlike many pictorial statements of whats at stake, Newsweek demonstrates that it is not just natural ecosystems that are at risk.  With photos of many of the worlds most populous or beautiful urban settings, they make the point that global warming poses risks to  the places we have constructed and live in - indeed to civilisation itself.

"This book isn't about atmospheric chemistry or carbon emissions; its about people, the places they inhabit and the places they have made, and a heart-tugging evocation of what we may lose if global warming proceeds apace ... this book is a reminder of what's at stake if we are complacent in the face of a rapidly changing climate."

And the photos illustrate some beautiful locations ...........

 

The Maldives                                                 Paris, France                                 Ontong Java Atoll, Solomon Is.

Newsweek is to be commended for publishing such a high profile look at just what is at risk as a result of the current official paralysis regarding efforts to reduce emissions and other carbon releases to the atmosphere. 

[Well I'm slow, but I get there eventually.  I still appreciate Newsweek's effort at publishing the 100 Places ... issue but it seems that its based on a project by a Danish media group Co-Life developed for and presented at the Copenhagen COP meeting last fall.  The main website for the initiative, including a place to by the books and posters, is here: 100 Places to Remember Before They Disappear.]

Climate Change Affects Beer? Now its getting serious!

Source: Irritated Tulsan blog

The New Scientist reported last week that a Czech climatologist has concluded that higher temperatures are reducing the quality of the Saalz hops found in the region's classic lager beers (see Climate Change Depresses Beer Drinkers, September 13, 2009).  And this effect is being felt in the traditional hop growing regions of Germany and Slovakia as well. 

Warmer air temperatures are blamed for reducing concentrations of alpha acids in the hops - the element that provides the slightly sharp/bitter taste of good lager - since 1954.

And to add insult to injury, in a somewhat dated article, the Australian Broadcast Corporation, reported that the price of beer is likely to rise as some sources of malt barley are lost to changing temperatures and water shortages (see Scientist: Climate Change to Impact Beer Production, April 8, 2008 and Climate Change Will Impact Beer Production: Scientist, CTV.ca, April 8, 2008).

Reducing U.S. Greenhouse Gas Emissions

McKinsey is a Bit More Optimistic Than the Energy Industry Lobby

In recent days, McKinsey & Company, in partnership with the Conference Board, released the results of a study examining the potential for the U.S. to reduce its emissions of greenhouse gases.  Entitled Reducing U.S. Greenhouse Gas Emissions: How Much and At What Cost?, the results are based on the work of a research team that included industry experts, academics and NGO's.

The study is important because of what it says about the impact of climate change policies that will be required to begin addressing concerns for the effects of global warming.  My conclusion from reading the McKinsey analysis is that the road we seem likely to go down, to policies and legislation that address the issue, will be managable and may even bring certain economic benefits.

Overall, the study found that:

"The United States could reduce greenhouse gas emissions in 2030 by 3.0 to 4.5 gigatons of CO2e using tested approaches and high-potential emerging technologies.  These reductions would involve pursuing a wide array of abatement optionsavailable at marginal costs less than $50 per ton, with the average net cost to the economy being far lower if the nation can capture sizable gains from energy efficiency.  Achieveing these reductions to the lowest cost to the economy, however, will require strong, coordinated, economy-wide action that begins in the near future."

The potential reduction would equal approximately 31% to 46% of projected 2030 U.S. greenhouse gas emissions (2005 emissions were 7.2 gigatons while projected 2030 emissions are expected to be 9.7 gigatons). 

The research team reportedly looked at 250 different options, many of which are identified in a very good figure outlining the expected 2030 mid-range abatement curve (see Exhibit B, page xiii).  By far the biggest proportion of opportunities identified were related to energy efficiency in the transportation, residdential, commercial and industrial sectors.  Other energy related options included 'natural gas and petroleum systems management', biomass and wind power development and carbon capture and storage in association with coal-fired power.

The Executive Summary concludes with a positive statement that is significant contrast to the various industry association fears voiced in the Wall Street Journal's Energy Roundup blog yesterday. McKinsey's concluding statement was:

"Creating comprehensive approaches will be challenging: they will need to combine durable policies and a slate of strong near-term actions that mobilize economic sectors and geographies across the U.S.  The pursuit of GHG abatement, however, will undoubtedly stimulate new businesses and economic opportunities not covered by our cost-focused analysis."

Contrast that with the Edison Electric Institute's comments that the Climate Security Bill just passed by a Sernate Committee (which would lead to some of the approaches examined by McKinsey):

"would undermine America's economic security, force consumers and industry to pay significantly higher energy prices and discourage investment in cleaner-energy technologies." 

Or the American Petroleum Institute's comments that the proposed energy bill would "wipe out 5 million jobs and knock off 4% of the U.S. gross national product through 2030".

My bet is with McKinsey's analysis.

Bali Climate Meetings Key to Energy Future

          

Effective Global Climate Policies Could 'Set The Table' for Sustainable Energy Developers

The UN Framework Convention on Climate Change (UNFCCC) talks in Bali, Indonesia this week and next are the latest symptom of the growing concern globally for the effects of Climate Change (Pew Centre, a U.S. Foundation provides some good background on the Bali meetings, here). 

These concerns resulted in the Kyoto Protocol, negotiated under the auspices of the UNFCCC in 1997.  And despite the problems with that treaty, officials, Environmental and other NGO's, industry representatives and others are at it again.  Over the next two weeks, officials will try to layout a roadmap for developing the an agree for action beyond 2012.

Concerns for climate change or global warming are one of the strongest drivers for the transition to a more sustainable energy future.  The outcome in Bali will have a significant and long lasting influence on the environment for developing sustainable energy in the years to come.

With that in mind, I thought you might find a it useful if I was to pull together a brief summary of press commentary on the meetings.

Picking up on what be one of the most important themes of any post-2012 agreement, engaging developing nations such as China and India in any planned action, the Financial Times yesterday included commentary from Indonesia's Minister of Finance and the head of the World Bank group (see Bali Must Bring Developing Nations on Board, December 5th).

The Globe & Mail is today highlighting what may be one of the less savory partnerships emerging from the meetings, Canada, Japan and the U.S. acting in concert to push back against mandatory targets or other kinds of binding commitments, leading some of the ENGO's interviewed to suggest the three are trying to derail any kind of agreement in Bali.  (see Ottawa Gains Key Allies to 'Move Beyond Kyoto', December 6th).  The Globe & Mail notes that:

"Japan and Canada have dominated the 'Fossil of the Day awards' - sarcastic prizes given everyday by environmentalists to the worst-performing nation at the Bali conference."

On a more positive note, The Australian reports that Australia's new Prime Minister, Kevin Rudd,  has told Chinese Premier Wen Jiobao that he "is willing to act as an intermediary between China and the developed world", helping to bridge the gap on cutting greenhouse gases (see Rudd to Bridge China-West Climate Gap, December 6th).  This comes after Australia's about-face at the strt of the meetings where it commited to signing the Kyoto Protocol.

Picking up on the theme I started with, i.e. the climate change meetings will have a significant influence on the development climate for sustainable energy, I came across a somewhat dated commentary in Greentech Media that talks about the challenge facing alternative or 'green' energy providers if concerns for climate change are to be addressed (see In Depth: Can Technology Save the World?, September 4th, 2007).

Shifting focus to the fate of climate policy discussions in the U.S. - the big prize for carbon market investors when that country moves to address greenhous gas emissions - the Baltimore Sun reports that the U.S. Climate Security Act has passed in the Senate Committee on Environment & Public Works (see Historic Climate Bill Gets Yes Vote in Committtee, December 5th).  The bill would put in place a national cap and trade system for greenhouse gas emissions.  My understanding is that while the Bill has little chance of passing into law, it will play a significant role in setting the template for a post-Bush U.S. response to climate change.

In response to the Senate Committee's agreement, the Wall Street Journal Energy Round-up blog, has already identified a wave of apocalyptic economic predictions form the likes of the Edison Electric Institute, American Petroleum Institute and others (see Running the Numbers Game, Dec 5th).  I assume that the real debate is only just getting started.

Developing effective global policy is a complex, difficult business.  As the above clippings suggest this seems to be particularly true for climate change.  While I understand the complexity, I can only hope that the participants in Bali (and Washington) understand the urgency and the impacts that are already occuring and push on to develop effective policy now when there is a chance for cost-efficient implementation.  Developing a sustainable energy future demands good, consistant policy and incentives.

The alternative is to wait until the need for action is overwhelming and the likely response knee-jerk and costly. 

If the saner course happens, it looks like the current government in Ottawa has already chosen to not be a part.

Banks Focus On Climate Change Investing

With lessons for the rest of us

Late last week, Deutsche Asset Management (DeAM), a division of the Deutsche Bank, became the most recent global financial institution to issue a climate change research omnibus report.  Like earlier efforts by other institutions, the Bank’s report, Investing in Climate Change: An Asset Management Perspective, is as much about signalling their competency to manage the emerging risk/opportunity elephant that is climate change as it is about investment research.  Release of the report coincided with their announcement that DeAM had hired a lead climate change strategist, Mark Fulton, and formed a five person Climate Change Investment Committee.

Giving a look forward, the Bank’s Global Head of Asset Management, Kevin Parker, states:

Our specific strategies seek to invest in industries and companies that are involved in both the mitigation of, and the adaptation to, climate change.  In mitigation, we look at industries that are in the energy efficiency and clean technology fields.  In adaptation, we search for companies that work on adjusting to climate change.

Interestingly, the Bank examines different strategies and concludes that a diversified portfolio which includes a broad universe of companies exposed to climate change offers lower risk and volatility than a “pure play” that concentrates on investing in a narrower field of generally small cap, focused companies (e.g. clean-tech).

Earlier this year, Citigroup, Lehman Brothers and UBS each provided similar takes on climate change and the investment opportunities it creates.  Lehman Brothers report, The Business of Climate Change: Challenges and Opportunities may be the largest of the research papers, weighing in with 145 pages.  (Neither Citigroup’s report, Climatic Consequences: Investment Implications of a Changing Climate, nor the UBS report, Climate Change: Beyond Whether appears to be available to non-clients.)

During 2006, Toronto’s Sprott Asset Management provided research that examined the implications of abrupt climate change (see Investment Implications of Abrupt Climatic Change).   The U.K.’s Carbon Trust also introduced two research efforts intended primarily to educate the institutional investment community (see Climate Change & Equity Valuations, and Climate Change and Shareholder Value).

All of these papers are similar in providing a brief summary of the science and emerging policy of climate change, identification of key themes or drivers and a broad brush review of the respective investment strategies.   Where they differed was in the level of detail given in their recommendations.  Citigroup’s report appears to advance the theme furthest, going so far as to name 74 companies in 21 sectors that the authors believe to be well-positioned to capture the opportunities climate change will bring. 

If I had to recommend one paper to read, it would probably be The Business of Climate Change: Challenges and Opportunities, prepared by Lehman Bros.  It’s the longest but also the most readable of the reports I've had access to.   

(JPMorgan doesn’t appear to offer an omnibus report on climate change, but has established JPMorgan Climate Change Research as a sub-section of its Global Corporate Research and appears to be producing a steady stream of publicly accessible reports on specific issues and opportunities related to climate change.)

Lessons for sustainable energy investors

While each of the reports brings the respective institution’s spin to the issues, a number of common themes emerge for investing in sustainable energy.

·         Energy and the energy system that develops in response to climate change policy and regulation are central to all of the investment themes explored by the Banks;

·         While much of the current excitement in energy is focused on renewable energy and clean-tech, i.e. mitigation strategies, the Banks also urge a focus on investment in adaptation (although, most of these relate to companies outside of the energy sector);

·         As might be expected, a key focus is on sustainable energy technologies, including:

o   Renewables;

o   Biofuels;

o   Hydrogen technologies; and

o   Energy efficiency;

·         Emission efficient power generation (nuclear, coal gasification, carbon capture technologies).

None of the insights provided by these banks is particularly new or unexpected.  However, it is informative to have each of the Banks pull their thoughts together in one place and its nice to know what the professionals are thinking.

Transparency and Carbon Risk

Last week, with the assistance of Bill Clinton, the Carbon Disclosure Project (CDP) released its fifth annual report on corporate climate change disclosure. A not-for-profit organization, the CDP approached 2,400 corporations requesting information on their greenhouse gas emissions and the steps they are taking to manage their climate change risks and opportunities. The survey was conducted on behalf of 315 signatory institutional investors representing $41 trillion in assets.

As part of this year’s report, the CDP worked with Innovest to develop the Climate Disclosure Leadership Index (CLI). This index highlights 68 companies distinguished by the quality of their climate change disclosure and compares their carbon exposure, emissions reporting and carbon beta ratings. Included in this select group were four North American energy companies, including Exelon and Entergy (U.S. electrical utilities), ExxonMobil and Suncor (a Canadian oil sands producer).

The CDP is all about pushing corporations to increase their climate change disclosure - increasing their transparency with respect to a key environmental risk.

In the U.S., a group of state pension fund officials and environmental groups are taking a more direct path to the same end. The Washington Post reports that in a petition filed September 18th the group led by CERES is asking the U.S. Securities and Exchange Commission (SEC) to force all public companies to provide investors with more comprehensive information of the expected risks they face with climate change. This move follows on the a multi-year campaign in which social investment organizations have launched repeated shareholder resolutions at the annual general meetings of energy companies pressuring them to provide better disclosure of climate risks and/or develop action plans for addressing climate change.

[It’s worth remembering that efforts to get companies to release carbon risk information are only ten years old. Investors have been seeking accurate financial information from these same companies for upwards of a century and it is only with the heavy hand of regulation that the SEC and its peers in other jurisdictions are able to ensure that public companies routinely provide high quality financial reports (and even with regulation the likes of Enron pop up from time to time).]

While transparency, particularly with respect to environmental risks, is essential for sustainable investing, how much should transparency itself be valued in determining what is sustainable and what is not?

When I ask this question, Suncor comes to mind. Suncor consistently ranks high in sustainability rankings such as those offered by the Dow Jones Sustainability Index or the above noted Climate Disclosure Leadership Index. In part, these high ratings are based on the company’s excellent communications, explicit recognition of its risks and plans to address them. However, at the end of the day Suncor’s primary business is the extraction of oil from Canada’s oil sands. By definition, its principal product has a high carbon content.

For example, in 2005 Suncor reported emissions intensity of 0.44 tonnes CO2 per cubic metre of oil equivalent (tonnes CO2/m3OE). This is certainly better than the average emissions intensity of Canadian bitumen producers (0.52 tonnes CO2/m3OE - based on information from three companies of which one was Suncor) (CAPP Stewardship Report, 2006) but substantially more than the emissions intensity of conventional oil & gas producers.

2005 Emissions Intensity in the Canadian Oil Industry (tonnes CO2/m3OE)

Suncor 0.44
CAPP – Bitumen Mining/Upgrading 0.52
CAPP – Conventional Oil & Gas Production 0.23
Petro-Canada 0.19

Is Suncor a sustainable energy company?