Peak Oil, Climate Change and energy security in Europe: decarbonising the economy Dr. John Barry School of Politics, International Studies and Philosophy.

Peak Oil, Climate Change and energy security in Europe: decarbonising the economy

Dr. John BarryDr. John BarrySchool of Politics, International Studies and PhilosophySchool of Politics, International Studies and PhilosophyQueen’s University Belfast [email protected] Queen’s University Belfast [email protected]

Factors driving Energy Factors driving Energy Geo-PoliticsGeo-Politics

The ‘triple crunch’ - economic and financial crisis, climate change, The ‘triple crunch’ - economic and financial crisis, climate change, peak oil/energy security as well as military aspects of the latter peak oil/energy security as well as military aspects of the latter

Resource Nationalism: ‘energy independence’ as new objective of Resource Nationalism: ‘energy independence’ as new objective of national energy policy-makersnational energy policy-makers

Political Instability: In key energy producing and transit regionsPolitical Instability: In key energy producing and transit regions

Growing demand: Rising Powers (BRICs)Growing demand: Rising Powers (BRICs)

Climate Change: EU global leaderClimate Change: EU global leader

Price instability: Spikes and disruptive lows and significant nvestment Price instability: Spikes and disruptive lows and significant nvestment uncertaintyuncertainty

Peak oil/gas: Peak gas – at least inside the EU and rapid rise in Peak oil/gas: Peak gas – at least inside the EU and rapid rise in unconventional gas sources – fracking unconventional gas sources – fracking

Peak oil and energy Peak oil and energy insecurityinsecurity

We need to decrease We need to decrease our dependence on our dependence on oil, coal and gasoil, coal and gas

Not just electricity, but Not just electricity, but heating, transport heating, transport and our food system and our food system is dependent upon a is dependent upon a non-renewable, non-renewable, climate-change climate-change causing energy causing energy sourcesource

Peak OilPeak 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/YearCubic 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 Bundeswehr Transformation Centre, Future Analysis Branch (November 2010), Analysis Branch (November 2010), Peak Oil: Peak Oil:

Security Policy Implications of Scarce Security Policy Implications of Scarce ResourcesResources

““Even if the developments Even if the developments described in this study do described in this study do not occur as depicted, it is not occur as depicted, it is still necessary and still necessary and sensible to prepare for sensible to prepare for peak oil. The time factor peak oil. The time factor may be decisive for a may be decisive for a successful transformation successful transformation towards post-fossil towards post-fossil societies. In order to societies. In order to accelerate democratic accelerate democratic decision processes in this decision processes in this respect, it is necessary to respect, it is necessary to embed the dangers of an embed the dangers of an eroding resource basis in eroding resource basis in the public mind. This is the public mind. This is the only way to develop the only way to develop the necessary problem the necessary problem awareness for prospective awareness for prospective settings of the course.”, settings of the course.”, (2010: 93)(2010: 93)

The geopolitics of carbon energy – the The geopolitics of carbon energy – the ‘strategic ellipse’…more turbulence ‘strategic ellipse’…more turbulence

aheadahead

Pipeline Geo-Politics: Russia Pipeline Geo-Politics: Russia and EU relationsand EU relations

EU Energy PoliticsEU Energy Politics Framing European Union energy politicsFraming European Union energy politics

‘‘Energy Security’Energy Security’ Dependency upon energy imports Dependency upon energy imports Concerns with security of supply Concerns with security of supply Environmental stress Environmental stress

GovernanceGovernance Developing shared institutionsDeveloping shared institutions

Formal rules, legal systems, binding treatiesFormal rules, legal systems, binding treaties Informal patterns of cooperation, trust, reputational factors Informal patterns of cooperation, trust, reputational factors

Pipelines do not solve energy security problemsPipelines do not solve energy security problems Pipelines transfer energy security problems to question of governance Pipelines transfer energy security problems to question of governance

in transit statesin transit states

MarketisationMarketisation Need to create competition amongst suppliers Need to create competition amongst suppliers Energy prices set by supply and demand to solve energy security issuesEnergy prices set by supply and demand to solve energy security issues Promotion of market norms in energy by the European Commission – Promotion of market norms in energy by the European Commission –

ETS ETS

European Emissions European Emissions Trading SystemTrading System

In 2005, the EU launched the Emissions Trading System (EU In 2005, the EU launched the Emissions Trading System (EU ETS), the first international carbon-trading scheme in the ETS), the first international carbon-trading scheme in the world. world. It is a ‘cap and trade’ system It is a ‘cap and trade’ system

Following a three-year pilot period, Phase II of the EU ETS was Following a three-year pilot period, Phase II of the EU ETS was launched in 2008. Across its 27 Member States, the EU ETS launched in 2008. Across its 27 Member States, the EU ETS covers large plants from CO2-emission intensive industrial covers large plants from CO2-emission intensive industrial sectors, namely power generation, mineral oil refineries, sectors, namely power generation, mineral oil refineries, coke ovens, iron and steel and factories producing cement, coke ovens, iron and steel and factories producing cement, glass, lime, brick, ceramics, pulp and paper, and all glass, lime, brick, ceramics, pulp and paper, and all combustion activities with a rated thermal input exceeding combustion activities with a rated thermal input exceeding above 20MWh. above 20MWh.

Bulgaria and Romania joined in 2007, bringing the total Bulgaria and Romania joined in 2007, bringing the total number of installations to over 12,000. number of installations to over 12,000.

How the ETS works...How the ETS works...

1.1. Member State proposed a limit (‘cap’) on total emissions from relevant  Member State proposed a limit (‘cap’) on total emissions from relevant  installationsinstallations

2.2. The plans  approved by the European Commission, in many cases after The plans  approved by the European Commission, in many cases after some revision.some revision.

3.3. The ‘cap’ is converted into allowances, known as EUAs (1 tonne of The ‘cap’ is converted into allowances, known as EUAs (1 tonne of Carbon Dioxide = 1 EUA)Carbon Dioxide = 1 EUA)

4.4. The Member States distribute these allowances to installations in the The Member States distribute these allowances to installations in the scheme in their country according to their approved plan.scheme in their country according to their approved plan.

5.5. Up to 10% of the allowances may be auctioned instead of being given 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.for free. These auctions will be largest in the UK and in Germany.

6.6. Installations must monitor and report verified carbon emissionsInstallations must monitor and report verified carbon emissions

7.7. At the end of each year, installations must surrender sufficient At the end of each year, installations must surrender sufficient allowances to cover their emissions and can buy additional allowances allowances to cover their emissions and can buy additional allowances or sell any surplusor sell any surplus

Next trading phase to start this Next trading phase to start this year (2013-2020) – main year (2013-2020) – main

changes : changes :

1.1. A centralised EU-wide cap on emissions will be A centralised EU-wide cap on emissions will be setset

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 ETS – the EU flagship policy on decarbonisation and promotion of green/clean industrial innovation promotion of green/clean industrial innovation

Political Economic Political Economic rationale of cap and rationale of cap and

tradetradeOrthodox economic view: Orthodox economic view:

Property rights define the right to pollute and efficiency is Property rights define the right to pollute and efficiency is obtained if rights are being tradedobtained if rights are being tradedLimit the rights to be issued implies an instrument for Limit the rights to be issued implies an instrument for

emission reduction emission reduction Because of scarcity, rights get a value. Because of scarcity, rights get a value. If transaction costs are low and participants are well If transaction costs are low and participants are well

informed, ETS assures allocative efficiency >> informed, ETS assures allocative efficiency >> reduction of pollution at the lowest costs possible for reduction of pollution at the lowest costs possible for society. society.

At present over 20 emission trading systems worldwide. At present over 20 emission trading systems worldwide. EU ETS is the largest.EU ETS is the largest.

Alternative view: Alternative view: ‘The ‘The Great Emissions Rights Great Emissions Rights

Give-Away’ ?Give-Away’ ?

Giving away rights to pollute rather than obliging polluters to buy such allowances from Giving away rights to pollute rather than obliging polluters to buy such allowances from EU citizens EU citizens

CO2 emissions – pollution of the atmosphere – a commons /public good 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 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 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 resource should not be given away to companies – they should buy those rights from each EU citizen. each EU citizen.

That is, there should be a per capita allowance for each EU citizen and not windfall profits That is, there should be a per capita allowance for each EU citizen and not windfall profits for major carbon pollutersfor major carbon polluters

ETS (phases I and II) as a subsidy scheme for 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 Auctioning of 50% allowances in Phase III (2013-2020), somewhat rectifies this?, but precedent set precedent set

EU ETS would not encourage innovation because it has provided overly generous EU ETS would not encourage innovation because it has provided overly generous allocation of emissions permits, and awarded permits to polluters free of charge.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 Low carbon innovation is evidence in UK and across the EU but not perhaps due to the ETSETS

EU ETSEU ETS

Mixed results…but would an EU wide carbon tax Mixed results…but would an EU wide carbon tax have worked better to incentivise decarbonisation?have worked better to incentivise decarbonisation?

Or a higher floor price for carbon? Collapsed since Or a higher floor price for carbon? Collapsed since 20082008

Permits in the ETS are trading at prices well below Permits in the ETS are trading at prices well below the level thought necessary to stimulate green the level thought necessary to stimulate green investment and innovation. investment and innovation.

The target was for the price to be €30/tCO2 in 2020 The target was for the price to be €30/tCO2 in 2020 and rising. and rising.

But.....But.....

1717thth January 2013 January 2013

““An EU executive plan to reduce a glut of carbon emissions An EU executive plan to reduce a glut of carbon emissions allowances, which are trading close to record lows, can pass allowances, which are trading close to record lows, can pass provided it gets German support, EU Climate Commissioner provided it gets German support, EU Climate Commissioner Connie Hedegaard said on Wednesday.Connie Hedegaard said on Wednesday.

The European Commission proposal, known as backloading, would The European Commission proposal, known as backloading, would remove permits from the first three years of the new phase of remove permits from the first three years of the new phase of the carbon market (2013-2015) and put them back on the the carbon market (2013-2015) and put them back on the market at the end of it (2019-2020).market at the end of it (2019-2020).

Coal-dependent Poland is strongly opposed to anything that could Coal-dependent Poland is strongly opposed to anything that could drive up the cost of allowances on the European Union's drive up the cost of allowances on the European Union's Emissions Trading Scheme (ETS), where a surplus generated Emissions Trading Scheme (ETS), where a surplus generated mostly by economic recession has pushed the price to less than mostly by economic recession has pushed the price to less than six euros, compared with around 30 euros ($40) in 2008”.six euros, compared with around 30 euros ($40) in 2008”.

The global economic recession has reduced EU CO2 more than the The global economic recession has reduced EU CO2 more than the ETS? ETS?

EU ETS can achieve emission reductions at lowest possible costsEU ETS can achieve emission reductions at lowest possible costs

EU ETS is the largest ETS in the world (€60 billion annually)EU ETS is the largest ETS in the world (€60 billion annually)

EU ETS is a political market: politics define the target and EU ETS is a political market: politics define the target and allocate emissionsallocate emissions

Strong pressure on politicians to accomodate vested interestsStrong pressure on politicians to accomodate vested interests

This resulted in various adaptations that resulted in a a less This resulted in various adaptations that resulted in a a less effective and efficient economic instrument than in textbook effective and efficient economic instrument than in textbook economics is suggested. economics is suggested.

Windfall profits remain a problem and consumers are Windfall profits remain a problem and consumers are overcompensating companies for their costs. overcompensating companies for their costs.

Carbon leakage is another negative side-effect – carbon Carbon leakage is another negative side-effect – carbon intensive industries relocating outside the EUintensive industries relocating outside the EU

UK contextUK context

UK Climate Change Act (2008)UK Climate Change Act (2008)Improve carbon management and help towards a low Improve carbon management and help towards a low carbon economy in the UKcarbon economy in the UKDemonstrate strong UK leadership internationally- Demonstrate strong UK leadership internationally-

‘‘Green deal’ – Conservative-Liberal coalition approachGreen deal’ – Conservative-Liberal coalition approach

Investment in renewables (wind and nuclear)Investment in renewables (wind and nuclear)

Current public and political backlash against wind Current public and political backlash against wind energy in the UKenergy in the UK

Energy security and low energy and electricity pricesEnergy security and low energy and electricity prices

Political Backlash Political Backlash against renewablesagainst renewables

““Osborne is the mastermind behind a secret campaign to destroy Osborne is the mastermind behind a secret campaign to destroy the PM's green agenda, says Chancellor's father-in-law”, the PM's green agenda, says Chancellor's father-in-law”, Mail on Mail on Sunday Sunday , 15, 15thth November 2012 November 2012

““Explaining the recent reshuffle, Peter Lilley, a member of the Commons Explaining the recent reshuffle, Peter Lilley, a member of the Commons climate change committee, said: ‘I think Osborne wanted to get people climate change committee, said: ‘I think Osborne wanted to get people into key positions who could begin to get the Government off the hook into key positions who could begin to get the Government off the hook from the commitments it made very foolishly – the “greenest government from the commitments it made very foolishly – the “greenest government ever”.’ever”.’

Compare with… “A green economy is not a sub-set of the economy at 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 large – our whole economy needs to be green. A green economy will maximise value and growth across the whole economy, while maximise value and growth across the whole economy, while managing natural assets sustainably”. Government Report from managing natural assets sustainably”. Government Report from 20112011

Future UK low carbon transition? – natural gas (including unconventional) Future UK low carbon transition? – natural gas (including unconventional) and nuclear power… and perhaps carbon capture and sequestration and nuclear power… and perhaps carbon capture and sequestration

The dash for gasThe dash for gas

Current gas prices in UK reflect not current gas supply-Current gas prices in UK reflect not current gas supply-demanddemand

Oversupply due to massive investments based on Oversupply due to massive investments based on demand projection prior to the economic crisisdemand projection prior to the economic crisis

Oversupply due to the closure of US market Oversupply due to the closure of US market (Shale/Unconventionals)(Shale/Unconventionals)

Demand collapse due to current economic crisisDemand collapse due to current economic crisis

Political momentum behind unconventional shale gas - Political momentum behind unconventional shale gas - ‘Fracking’ ‘Fracking’

Also a major issue here in Northern Ireland Also a major issue here in Northern Ireland

Major environmental, economic and public/local resistance to Major environmental, economic and public/local resistance to deal with... deal with...

Nuclear powerNuclear powerLow carbon, not renewableLow carbon, not renewable

Current UK low carbon transition – nuclear versus wind energyCurrent UK low carbon transition – nuclear versus wind energy

The government assumes there will be a requirement of 60 GWe of net 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 new generating capacity by 2025, of which 35 GWe is to come from renewables.renewables.

The The Revised National Policy Statement for Nuclear Power GenerationRevised National Policy Statement for Nuclear Power Generation (October 2010), states that the expectation is for ‘a significant (October 2010), states that the expectation is for ‘a significant proportion’ of the remaining 25 GWe to come from nuclear, although proportion’ of the remaining 25 GWe to come from nuclear, although the government has not set a fixed target for nuclear capacity the government has not set a fixed target for nuclear capacity

UK committed to building new nuclear power stations - likely to be at UK committed to building new nuclear power stations - likely to be at least 5 new nuclear power stations least 5 new nuclear power stations

Climate change and peak oil – ‘renaissance for the nuclear Climate change and peak oil – ‘renaissance for the nuclear industry....until Fukushima disaster in Japan (2011)industry....until Fukushima disaster in Japan (2011)

‘‘Green New Deal’ Green New Deal’ approach approach

Counter-cyclical investment strategy – energy, Counter-cyclical investment strategy – energy, housing – to create /sustain jobs in low carbon housing – to create /sustain jobs in low carbon infrastructureinfrastructure

Finance – from pension funds, green bonds Finance – from pension funds, green bonds (local authorities), green investment bank(local authorities), green investment bank

Not simply a ‘tax and spend’ policy – also need Not simply a ‘tax and spend’ policy – also need to reduce carbon subsidies – politically difficult to reduce carbon subsidies – politically difficult

Reducing Carbon Reducing Carbon subsidiessubsidies

Removing the market-distorting effects of fossil fuel subsidies (hundreds of £billions)– 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, could lead to half of the necessary global reduction in carbon emissions (Fatid Biriol, Chief Economist, Chief Economist, International Energy Association , 2012)International Energy Association , 2012)

““Despite the growth in low-carbon sources of energy, fossil fuels remain dominant in the 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 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, almost 30% on 2010 and six times more than subsidies to renewables” (IEA, 2012, World Energy OutlookWorld Energy Outlook, p.1), p.1)

…….. despite the G20 in 2009 committing to phase them out…... despite the G20 in 2009 committing to phase them out….

The creation of a level playing field by removing the subsidies to large, centralised, 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-capital intensive carbon energy and transportation investments would provide a re-balancing of the market for more renewable, labour intensive and distributed energy balancing of the market for more renewable, labour intensive and distributed energy and transportation investments. and transportation investments.

““Removing subsidies to carbon-intensive technologies, pricing pollution and creating a Removing subsidies to carbon-intensive technologies, pricing pollution and creating a ‘level playing field’ is also important to enable low carbon alternatives to compete ‘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 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) into the market-place”. (OECD’s Ministerial Environment Policy Committee, 2009)

PPhasing out fossil-fuel subsidies presents a triple-win solution - enhance energy security, hasing out fossil-fuel subsidies presents a triple-win solution - enhance energy security, reduce greenhouse gas (GHG) emissions ; result in green economic growth.reduce greenhouse gas (GHG) emissions ; result in green economic growth.

Concluding thoughts...Concluding thoughts...

There is a huge portfolio of technologies at demand There is a huge portfolio of technologies at demand and supply side that have the potential to reach and supply side that have the potential to reach deep cuts in GHG emissions;deep cuts in GHG emissions;

Technology must be accompanied by life style Technology must be accompanied by life style changes; changes;

There is an urgent need to focus on There is an urgent need to focus on reducing reducing energy consumption energy consumption as well as decarbonising as well as decarbonising energy production energy production

And to also focus on the carbon intensity/’lock-in’ of And to also focus on the carbon intensity/’lock-in’ of the food system i.e. decarbonisation is not simply the food system i.e. decarbonisation is not simply to do with energy, electricity, heating, transportto do with energy, electricity, heating, transport

The future is ... low The future is ... low carbon and electriccarbon and electric

Electricity is the only energy vector that can be further Electricity is the only energy vector that can be further decarbonised in the foreseeable future through a decarbonised in the foreseeable future through a range of technologies and offers the prospect of for range of technologies and offers the prospect of for example, low carbon road transport through hybrid example, low carbon road transport through hybrid and electric vehicle and of contributing to low carbon and electric vehicle and of contributing to low carbon heating through heat pump systems. heating through heat pump systems.

Technology diffusion will not come by itself, there is a Technology diffusion will not come by itself, there is a need for a whole range of policy measures including need for a whole range of policy measures including education and information, providing a long term education and information, providing a long term price signal for GHG emissions, efficiency standards, price signal for GHG emissions, efficiency standards, R&D, incentives and support schemes.R&D, incentives and support schemes.

Also urgent need to reduce or remove carbon subsidies Also urgent need to reduce or remove carbon subsidies

Consider carbon taxation as a more efficient and fair way Consider carbon taxation as a more efficient and fair way to drive low carbon innovation rather than an ETS? to drive low carbon innovation rather than an ETS?