Block’s Indicator of Sustainable Growth

by Ray Block

Cleantech Media says that in venture capital investing, ethanol and fuel investing was the big thing in 2007, solar energy in 2008, and 2009 will be the year of smart grid and storage.

 

The need for a smart grid is acute in a world, where there is a need to cut down on carbon emissions. Yet in the present system of centralised electricity generation, usually far from centres of demand, coupled with long transmission lines, and distribution systems to the end customer, more than two thirds of what is produced is lost going up into the atmosphere, or in transmission lines and distribution to the end customers.

 

This has given rise to the concept of decentralised energy systems, where electricity is generated close to or at the point of use. Greenpeace UK envisages that “buildings, instead of being passive consumers of energy, would become power stations, constituent parts of local energy networks. They would have solar photovoltaic panels, solar water heaters, micro wind turbines, heat pumps for extracting energy from the earth. They might also be linked to commercial or domestic operated combined heat and power systems.”

 

Far fetched, not really. Sure it’s going to cost a great deal of money. The International Energy Agency says that the European Union will spend the equivalent of US$648 billion in modernising and replacing the transmission and distribution networks in the new age of decentralised systems.

 

In a joint presentation by the Mayor of London, Boris Johnson and Greenpeace (UK), “a conservative decentralised energy scenario of a combination of efficient supply such as heat and power and energy saving measures in homes and businesses could slash London’s annual energy requirements- even with new growth- by 23 per cent, to just under 100 TWh by 2025.”

 

“Together with a rapid expansion of renewable energy from wind, solar PV, biomass and waste energy sources within London, this would mean a 27 per cent cut in carbon dioxide.” They conclude that this scenario would make the “building of three new 1.6 GW nuclear power stations entirely unnecessary. A more radical decentralised scenario would achieve even deeper reductions in energy demand and emissions.”

 

The European experience of the need to overcome the inadequacies of the centralised generating systems is echoed loud and clear across the Atlantic, with America sharing the same problem. Global Smart Energy reporting on the aging power grid in United States, says that the high voltage transmission system, roughly 150,000 miles long across the country is in urgent need of vast expenditure to update it.

 

 The transmission system was never designed to ship large amounts of power cross country. But that’s precisely what it is forced to do increasingly with large losses to the system. In the US, bulk power transactions jumped 300 per cent from 1998 to 2004. In 1998, 300 of those transactions were incomplete because of congestion. In 2004, 2,300 transactions were incomplete. “Transmission losses, which occur partly due to congestion, have jumped from 5 per cent in 1970 to 9.5 per cent in 2001.”

 

Now that maintenance can no longer be deferred, David Owens, vice president, Business Operations at Edison Electric Institute puts the upgrading of the grid at nearly $1 trillion (that is $1 thousand billion) through 2030 in North America (includes Canada). Owens says “we’re now confronting one of the most serious periods in the electric industry’s future.” In addition to the $1 trillion on infrastructure, Owens says “our prices and costs are escalating, the American public is concerned about the environment and embrace more aggressively energy efficiency.”

 

On the need for the transformation of the electric power infrastructure, Global Smart Energy says the traditional approach to electric power through large centralised plants, high voltage transmission lines and medium voltage distribution was a suitable infrastructure for the last century.

 

But a 21^st century economy cannot be built on such a grid.  “Much of the grid is still largely electromechanical using physical switches and analog controls. This equipment is no longer up to the challenge of a world where bulk power is shipped hundreds or even thousands of miles, where local utilities must coordinate constantly with nearby utilities and transmission operators.”

 

Global Smart Energy says that at least 300 venture capital funds have entered the “clean tech” space in the last three years. This would be mainly in renewable energy or smart devices in new infrastructure. “Of the venture money invested in the first half of 2008, more than 50 per cent went to the smart grid space…..An estimated $38 billion in various funds is now targeting cleantech- not counting  the investment money available from private equity firms, utilities and regional angel groups.”

 

The smart grid money is going into intelligent devices, two way communications, and advanced controlled systems including smart meters. “Eventually, the electric power system will be monitored from end to end, from the generators to the transformers and substations, to the lines themselves, to the meters and right into the customer premises via smart thermostats. This end-to-end intelligence is already in place for rhe telecommunications and internet networks, and it will occur in the electric power infrastructure as well.”

 

 

 

 

 

 

 

Posted under Climate Change, Global Warming, Renewable Energies

by Ray Block

My note of November 22 2008 about Barack Obama being the climate change agent has been borne out with the environment team he has nominated, subject to US Senate’s confirmation, when the new administration takes office on January 20. 

 

Unlike the current president with his failed policies- Bush’s current director of the environment protection agency recently approved seven new coal mines, the new team all have green credentials, and there is not a single coal or oil person among them. It is a refreshing change from the climate change sceptics, who dominated the key Washington roles in energy and environment policy, and who regularly censured government scientific reports on global warming.

 

Steven Chu, Nobel Prize recipient in 1999 for physics, a professor at the University of California at Berkeley and director of the department of energy’s Lawrence Berkeley National Laboratory will be the new energy secretary. At Berkeley, Chu led research on storage of solar energy, and on the development of other renewable energy sources.

 

Lisa Jackson, a chemical engineer and former environmental policy official from New Jersey is to head the environmental protection agency. The most important move of all is the appointment of Carol Browning, who headed the EPA under President Clinton as White House energy and environmental policy “tsar.” This role is to co-ordinate the different government agencies involved in energy policy.

 

Still another appointment is for Nancy Sutley, Los Angeles’s Deputy Mayor for energy and environment as chair of White House council on environmental quality. Another very friendly person to environment is Hilda Solis, Californian congresswoman as Labor Secretary.

 

As a member of the House of Representative’s environment and commerce committee, and of the House select committee on energy independence and global warming, Hilda Solis’ major legislative achievement was the 2007 “Green Jobs” Act. As part of the overall 2007 energy act, it mandated federal funding for green collar job training, energy efficiency retrofit and service, green building construction, and solar panels.  The Wall Street Journal’s environmental capital blog suggested that the aim is to create three million new green jobs over the next decade.

 

It will be interesting to see how well the new green team performs. A lot is going to rest on their shoulders.

 

 

 

 

Posted under Climate Change, Global Warming, Low Carbon Economy, Renewable Energies

By Ray Block

As a practical minded economist, who accepts the imperative for reducing greenhouse gas, the decision to name this blog “block’s indicator of sustainable growth” was premised on two themes.  .

 

One of these was the historical evidence that too fast growth over a long period in both the developed and major developing economies, as was evident in the late 1990s and again this decade, usually heralds the beginnings of recession.

 

The longer the boom is prolonged by too lax central bank action, the greater the approaching downturn. And as such a boom is accompanied by record levels of unrestrained financial speculation and greed, the longer is the recession and the larger the level of asset write downs. The outcome is always pain and misery to masses of people.

 

The other theme was the realisation that there was strong evidence of major changes in world weather patterns, more devastating and crippling rains and prolonged droughts, rising sea levels, greater losses in threatened species, substantial increases in polluted rivers and streams, and higher densities of  atmospheric pollution. And this was being accompanied by ever rising world population. So that by 2050, there would be a crowded planet with nine billion people.

 

As the Australian prime minister, Kevin Rudd, pointed out in the government’s white paper (December 15 2008), in introducing the carbon pollution reduction scheme to start July 1 2010, “Australia, as one of the hottest and driest continents on earth, will be one of the nations hardest and fastest hit by climate change if we don’t act now” He went on:

 

“Unmitigated climate change poses a significant threat to Australia’s economic security. It challenges our prosperity and risks undermining the viability of many of our coastal, rural and regional communities. It is in our national interest to take strong and decisive action on climate change.”

 

Against this background, there was no way that any political astute Australian government could legislate for a 25 per cent to 40 per cent reduction in C02 emissions by 2020, as demanded by the extreme environmentalists. But to opt only for a 5 per cent cut in carbon emissions below 2000 levels by 2020 seems at first glance somewhat meagre.

 

Even if this is accompanied by a larger commitment for a 15 per cent cut in emissions, if there is a comprehensive global agreement to stabilise atmospheric concentrations of CO2 to be limited to a maximum 450 ppm by 2020. The other Australian commitments are for a 20 per cent level of renewable energy to total energy consumed by 2020, and for overall emissions to fall by 60 per cent below 2000 levels by 2050.

 

By comparison with the Australian position, the European Union’s 27 country agreement is for a 20 per cent cut in emissions by 2020 below 1990 levels, along with a 20 per cent level of renewable energy to total energy consumed by 2020, and a 20 per cent increase in energy efficiency by 2020. The 20 per cent cut in emissions below 1990 levels would rise to 30 per cent, in the event of an international agreement by other developed countries.

 

The Australian government argues that on a per capita basis, the reduction in CO2 for the European Union would be a commitment by 2020 of 24 per cent (34 per cent if international agreement), while for Australia the comparable reduction is for a per capita reduction of 27 per cent (34 per cent if international agreement).

 

On a strict comparison basis of measuring emissions reduction below 1990 levels, the Australian government’s commitment is for a per capita cut of 34 per cent (41 per cent if international agreement). The other point in Australia’s favour is that Australia expects a population growth of 34-41 per cent over the 1990 to 2020 level, compared to the European Union’s relatively stable population over the same period, which makes the per capita comparisons even more valid.

 

There are a number of similarities between the European emissions trading scheme and the Australian scheme in that they are both of the cap and trade variety, and similarly there is the same type of industry concessions spread like confetti over the two schemes.

 

In Europe, industries such as steel, paper, cement, chemicals etc will only need to phase in carbon credits initially at 20 per cent in 2013, and rising only to 70 per cent by 2020. Indeed, these concessions end only in 2027.

 

In Australia, concessions are given to emissions-intensive trade-exposed industries, such as LNG extraction and processing, petroleum refineries, coal mines etc.  Protected industries will receive 25 per cent of all carbon pollution permits free or at discount, rising up to 45 per cent by 2020.

 

Unlike the European scheme, where the power companies in Western Europe will have to buy at auction all their carbon permits from 2013, Australia has large concessions for coal-fired electricity generation, which are emissions-intensive, but not trade-exposed.

 

A fixed administrative allocation of permits to these generators will take place delivering assistance of around A$3.9 billion, based on an initial carbon price of $25 per tonne. These permits will be distributed to each eligible generator over the first five years of the scheme. The amount of assistance for each generator will be determined upfront, before the emissions scheme commences in 2010. This suggests that the coal-fired generators will have little incentive to upgrade their facilities, unless there is a quick breakthrough in the carbon capture and storage technology.

 

Politically crafted to secure parliamentary approval, and at the same time placate a wary industry, at a time of low mineral and metal prices. Add in an economy just staying narrowly out of recession, there still remains large elements of potential roadblocks to the legislation expected to be introduced in Parliament during February 2009.

 

The Government has control of the lower house of Parliament, but relies on considerable bargaining to secure support in the Senate. The minority green party is vehemently opposed to what they consider as sell out politics, while the Liberal-Narional Party coalition in opposition will do what they can to embarrass the governing Labor Party.

 

And despite the industry concessions, the white paper is only warily accepted by them. The Australian Industry Group, representing the bulk of heavy industry calls the government’s white paper “a positive compromise but a stretch nonetheless” and estimates it will add about A$7 billion to business costs in 2010 after compensation, rising to $10.5 billion by 2020.

 

 

 

 

 

 

 

 

Posted under Carbon Abatement Scheme, Climate Change, European Emission Trading Scheme, Global Warming, Low Carbon Economy, Renewable Energies

by Ray Block

The final agreement on climate change by the 27 countries making up the European Union, which is to be ratified by the European Parliament this coming week was hailed as historic. But like a type of swiss cheese, the agreement is full of holes and wriggle room.

 

As earlier proposed by the EU officials in Brussels, the basis of the agreement is for a three part process – a 20 per cent reduction in CO2 emissions from the 1990 level to be achieved by 2020; renewable energy as a proportion of total energy used reaching 20 per cent by 2020; and a 20 per cent increase in energy efficiency by 2020.

 

There is a fourth goal, that the EU would commit itself to a 30 per cent reduction in emissions, rather than just 20 per cent, if by the time of the Copenhagen conference in 2009, there was broad agreement between the developed and developing countries for a global agreement on CO2 emissions.

 

So far, so good. But these targets have been rightly condemned by the environment movement. For one thing, power companies and heavy industry retain the right to free allocation of emissions allowances on which CO2 quotas are based to 2012, limiting the amount of costly new plant and equipment to be installed for scaling up the reduction of carbon emissions.

 

This compares with the previous system, whereby the EU commission had proposed by 2013 full government auctions of carbon permits. Under the new time table in 2013, the power companies in the western European countries will have to buy all their carbon permits at government auction.  For the eastern European countries, the power producers only need to start at 30 per cent auctioning in 2013, with a gradual phase in to 100 per cent by 2020.

 

Heavy industries such as steel, paper, cement, chemicals etc are singled out even more favourably for considerable concessions. Germany in particular had feared that some of the industries would flee to non-EU countries. Now heavy industries will only need to phase in carbon credits initially at 20 per cent in 2013, and rising only to 70 per cent by 2020. It will take until 2027 before all the concessions are ended.

 

The nine eastern European countries, which earlier were rocking the boat, are treated even more generously. Half of the revenues generated from the auctioning of allowances in the EU greenhouse gas emissions will be used in the east to reduce emissions, mitigate and adapt to climate change, and for measures to avoid deforestation, to develop renewable energies, energy efficiency and other technologies to move towards a safe and sustainable low carbon economy.

 

The coal industry, the biggest carbon emitter of all also received last minute concessions. The EU will spend nine billion euros on carbon capture and storage to commercialise the process to make coal “clean”, and the UK hopes to win two of the 12 demonstration projects to be set up.

 

The new rules centre on the EU emissions trading scheme, which requires companies exceeding their CO2 quotas to buy permits from businesses that emit less. The new EU law will reduce the annual quotas for electricity, steel, paper and other industries now in the trading system by 11 per cent on average in 2013-2020 compared with 2008-2012.

 

The political issue now resolved was over the extent to which the EU should add to the costs for industry of reducing C02 emissions to allocate the allowances that make up the shrinking quotas.

 

 

 

 

 

 

 

 

 

 

 

 

 

Posted under Carbon Abatement Scheme, Climate Change, Global Warming, Renewable Energies

by Ray Block

 The 12 day gabfest at the UN climate change talks in Poznan Poland, with a cast of thousands including the delegates is full of opposing views, as could be expected. It demonstrates just how difficult it is going to be to reach agreement this time next year, when hard decisions about the level of carbon emissions are to be made at the Copenhagen meeting.

 

Poznan in hindsight was unfortunately timed, although the date was selected two years ago, as it comes in the midst of a deep world recession, and financial markets still in disarray, with large scale unemployment and belt tightening.

 

Renewable energy developments have been largely put on hold. And with the world’s most important change agent, Barack Obama, not taking office until January 20 robs the Poznan’s deliberations of any real significance.

 

The new President’s proposed targets -to cut US emissions to 1990 levels by 2020, and to reduce them 80 per cent by 2050- are being condemned by developing countries, particularly India and China, as being too little demonstrate just how difficult it is for the richer countries to smooth out significant rifts with the poorer 85 per cent of the global population.

 

Leaving aside the global warming sceptics who are always going to cast doubt that man-made emissions are leading to a dangerous level of emissions in  the atmosphere, there are a lot of conflicting issues to be reconciled.

 

Even the coalition of interests making up the European Union are at odds over decisions of the Brussels officials, who have set targets of a 20 per cent cut in greenhouse gases to 1990 levels by 2020, a 20 per cent renewable energy target by 2020, and a 20 per cent increase in energy efficiency by 2020.

 

Earlier this month, the current President of the EU, Nicholas Sarzosy, was being challenged by the nine eastern European countries led by Poland, who have no chance of reaching the targets within the next 12 years. On top of that, Italy is also rebelling with these targets.

 

The greater level of impatience by developing countries for very substantial cuts in carbon emissions by developed countries is being matched by UN requests that the rich countries pay heavily to assist the developing countries cut their own emissions.

 

South African Environmental Affairs Minister Marthinus Van Schalkwyn said all rich countries must commit to “deep absolute domestic emission cuts” of 80-95 per cent by2020. “Japan, Russia, Australia and Canada have avoided putting their numbers on the table for too long. They now need to come forward with credible and ambitious mid-term targets within the 25 to 40 per cent range.

”The United Nations says that the developed countries will need to make available US$130 billion or more to enable the developing countries start the transforming role in cutting emissions. In addition, they say it is the duty of the developed countries to make available the transfer of technologies, that would help the developing countries play their role in mitigating climate change. Such as being given solar and wind energy technologies.

 

 

 

 

Posted under Carbon Abatement Scheme, Climate Change, European Emission Trading Scheme, Global Warming, Low Carbon Economy, Renewable Energies