Tag Archives: climate change

IEA Takes New Tact on Renewables – 11/4/16

The International Energy Agency (IEA) reported that in 2015, for the first time, renewable energy passed coal as the world’s biggest source of new power-generating capacity.

The IEA, established as a watchdog of the industry in the wake of the 1973 oil crisis, found that renewable energy generating capacity is increasing faster than it projected. Based on existing policies, the IEA updated its forecasts to show 825GW of new renewable capacity will be added globally from 2015-21, 13% more than it projected just last year.

Although the IEA’s stated goal is to provide impartial advice, it’s been criticized for publishing overly conservative estimates that have failed to predict the growth of wind and solar power. Bloomberg New Energy Finance provides graphs as shown below to illustrate the IEA’s previous underestimations of solar and wind power growth.

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According to a spokesman for the industry, this year’s forecasts seek to reflect the growing number of countries adopting climate change policies, as well as the global deal to curb carbon emissions and global warming agreed in Paris Climate Agreement.

The IEA expects the share of renewables in total power generation to rise to 28% from 21%. The rise would be driven by government policies to curb global warming and reduce air pollution, as well as falling prices of solar panels and wind turbines. The IEA expects the United States to pass the EU and become the second-biggest market for renewables after China in the next few years, thanks to an extension of federal tax credits to wind and solar producers.

Because electricity demand in rich countries is falling, more renewable power are expected to drive other sources of electricity out of the market. As shown below in a chart from Economist.com, electricity-generation growth from renewables is expected to displace that from conventional sources. In the U.S. or the EU, conventional sources would mean fossil fuels while for Japan it would refer primarily to nuclear power.

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Exxon and Climate Change Risks – 11/3/16

At ExxonMobil’s annual shareholders meeting in May, Rex Tillerson, CEO and chairman, addressed climate change directly for the first time in years.

Still, it’s not as though he had much choice.

With Exxon under investigation by New York’s attorney general for allegedly misleading the public on climate change and the ratification of the Paris agreement on climate change, shareholders wanted answers. With governments in all major economies committed to reducing carbon emissions, institutional investors are asking what the oil industry plans to do.

Of the 11 proxy items Exxon shareholders put forth for a vote this year, six dealt with climate risks. None passed, but the votes they attracted demand attention. A proxy asking that Exxon assess and report on the potential impact that climate-change policies on its business reached a surprisingly high 38%.

Big oil companies are often seen as solid investments. Oil products fuel most transportation and transportation is the backbone of the economy, not to mention there seemed to be an inexhaustible amount of oil to find. Those facts haven’t changed, but there are important issues that get glossed over: Greater fuel efficiency (or electric cars depending how far ahead you look) mean less oil demand, extracting oil is getting more expensive as exhausted sources of crude oil in accessible areas force exploration of the Arctic and beneath the oceans, and environmental regulations are adding even more of a burden. If you toss in shale oil and low oil prices, then existing business models look shakier than ever.

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The combination of the myriad of problems facing them raises the question of how major oil companies will respond as the ground shifts underneath them. Few companies have more to lose than Exxon and investors pushing it to take better account of those risks.

To achieve the goals of the Paris accord, it is likely that a large amount of known hydrocarbon reserves must stay in the ground, barring some miraculous new carbon capture technology. Not extracting (see: not selling) that oil translates to trillions in losses for Exxon and others as their holdings become worthless. Unlike most companies, Exxon has refused to write down the value of their reserves in light of cheap oil in line with its 2014 report denying that any of its reserves were at risk of being stranded. Many are skeptical of that particular quirk of accounting, not the least of which being the SEC.

Nervous that their concerns are not getting through, Exxon’s biggest shareholders are pushing for more power over the board of directors. The one proxy that passed at May’s meeting would allow shareholders that have owned at least 3% of Exxon’s outstanding shares for at least three years nominate their own candidates for the board. In addition, Blackrock, the world’s biggest asset manager and Exxon’s second-biggest shareholder, voted against two of Exxon’s directors this year, possibly in retaliation for their reluctance to engage in a private session about climate risks.

Even if it comes grudgingly, Exxon is being forced to acknowledge that climate risks pose a very real threat to its business model. How much progress shareholder’s make between now and the next annual meeting will certainly be interesting.

EIA Finds CO2 Emissions Are Falling – 10/27/16

U.S. energy-related CO2 emissions totaled 2,530 million metric tons in the first six months of 2016, the lowest emissions level for the first six months of the year since 1991, according to the U.S. Energy Information Agency. The EIA attributed the low emissions to mild weather and a decline in energy-related emissions.

The EIA’s Short-Term Energy Outlook projects that energy-associated CO2 emissions will fall to 5,179 million metric tons in 2016, the lowest annual level since 1992.

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In the first six months of 2016, the United States had the fewest heating degree days since at least 1949, the earliest year for which EIA has monthly data for all 50 states. Overall, total primary energy consumption was 2% lower compared with the first six months of 2015. The decrease was most notable in the residential and electric power sectors, where primary energy consumption decreased 9% and 3%, respectively.

Coal and natural gas consumption each decreased compared to the first six months of 2015. More so for coal, which generates more carbon emissions than natural gas. Coal consumption fell 18%, while natural gas consumption fell 1%.

Consumption of renewable fuels that do not produce carbon dioxide increased 9% during the first six months of 2016 compared with the same period in 2015. Wind energy, which saw the largest electricity generating capacity additions of any fuel in 2015, accounted for nearly half the increase. Hydroelectric power, which has increased with the easing of drought conditions on the West Coast, accounted for 35% of the increase in consumption of renewable energy. Solar energy accounted for 13% of the increase and is expected to see the largest capacity additions of any fuel in 2016.

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Washington Voters Consider Carbon Tax – 10/12/16

While the rest of the country is deciding who will become the next president, Washington state will also be voting on the country’s first revenue-neutral carbon tax.

Long held in esteem by economists, a carbon tax is seen by many as the most efficient means of embedding the environmental cost of carbon dioxide emissions into the price consumers and businesses pay for energy. By making emissions more expensive the tax is intended to be a market-based solution that lets businesses decide the best approach to reductions. And because the revenue is used to cut other taxes, the market distortions caused by government intervention are minimized.

And yet, the carbon tax is finding middling support. A poll of support for Initiative 732, as the Washington initiative is known, has found voters roughly split on the issue with resistance coming from both the right and left. Besides the usual opposition to any emissions regulation, some environmentalists believe the measure doesn’t go far enough.

After Democratic Governor Jay Inslee’s proposed a cap-and-trade plan modeled on California’s failed the Democratic-controlled state House or the Republican-controlled Senate, I-732 was supposed to be a compromise to satisfy both sides.

The measure would impose a $15 tax per ton of CO2 in the first year, rising to $25 in the second, and by 3.5% after inflation annually to $100 in current dollars. It would also add 25 cents to the price of a gallon of gasoline.

The measure is projected to add about $8 to the average monthly electric bill. The revenue from the tax would be returned to taxpayers via a cut in the state sales tax, elimination of a business tax, and a tax rebate of up to $1,500 a year to 460,000 low-income workers.

The main reason some environmentalists oppose the measure is its being revenue-neutral. Those people want the revenue I-732 collects to go towards other programs even if it means cutting its appeal and chances of succeeding.

Since more businesses are seeing carbon taxes as the least harmful means of accomplishing emissions reductions, it will be interesting to see how the vote in Washington will go and whether other states will follow its example.

Paris Climate Agreement On Track for Final Ratification – 10/10/16

With a greenlight from the EU, a global climate deal struck last year in Paris among 195 countries aimed at limiting climate change is set to go into effect.

The condition for the climate deal going into force was having 55 countries representing 55% of the world’s greenhouse gas emissions have ratify it. After the US and China accepted the deal, 60 countries representing 47.7% of global greenhouse gas emissions had signed on. Since the EU represents about 12% of global emissions their entry will undoubtedly push the deal into effect.

India, which is responsible for 4.1% of emissions, also formally adopted the Paris agreement on Oct. 2.

The deal will be enacted 30 days after its ratification requirements have been met. The first meeting of the parties to the agreement, the CMA, will take place during the next annual United Nations climate conference, scheduled November 7, 2016.

Under the agreement, countries will be expected to act individually to keep average global temperatures from rising more than 2 degrees Celsius above preindustrial levels. Since a legally binding resolution would have required ratification by the Senate, which the Obama administration acknowledged was unlikely, no country can be forced to adhere to the deal. However, it does require countries to release targets and report emissions as a means to shame nations into compliance.

Once the agreement enters into force this year, the U.S. is prevented from pulling out for 4 years.

Another Round of Appeals for the CPP – 10/3/16

In a recent hearing by an federal appeals court, two sides made their arguments against the ambitious Clean Power Plan (CPP).

The CPP, President Barack Obama’s plan for shifting U.S. electrical power generation toward cleaner sources, was labeled either as an unlawful power grab by the executive branch or a necessary step in mitigating climate change risks by proponents.

The Environmental Protection Agency (EPA) rule is one of Obama’s bolder steps to meet the carbon-cutting promise the U.S. made in Paris Climate Agreement. It aims to cut carbon-dioxide emissions from power plants 32% below 2005 levels by 2030 using the Clean Air Act as its basis. States aren’t given particular paths to meeting their goals, but doing so will almost certainly require phasing out coal plants in favor of cleaner power sources.

“The reality is that, even though the [U.S. Supreme Court (SCOTUS)] has ruled that carbon dioxide is an air pollutant, and even though SCOTUS has ruled that [111(d) of the Clean Air Act] applies to power plants, the other side is still looking for some way to avoid facing the music,” David Doniger, director of climate and clean air program for the Natural Resources Defense Council (NRDC).

The 10 judges hearing the case — six appointed by Democratic presidents and four by Republicans — sharply questioned lawyers for both sides about the plan’s legal viability. The judges didn’t say when they will issue a decision, but Doniger suggested a decision would be released in three to five months. Regardless of the decision, an appeal with SCOTUS is expected.

In February, the U.S. Supreme Court cast doubt on the plan’s legal viability when it put the program on hold after lawyers representing the 27 states and many industry groups filed lawsuits. The EPA is supported in the case by 18 states, as well as many major tech companies like Apple, Google, and Microsoft. Ultimately, the SCOTUS did not rule on the merits of the case so the decision returned to appeals courts.

The results of the presidential election, therefore, will have a significant effect on how the outcome of the case since the Senate seems set on blocking Obama’s appointee through November.

The case is State of West Virginia v. Environmental Protection Agency, 15-1363, U.S. Court of Appeals, District of Columbia Circuit (Washington).

U.S. and China Agree to Battle Climate Change – 9/14/16

The presidents of the U.S. and China have recently agreed to make a joint effort to battle climate change. Together, the two countries represented roughly 38% of global emissions in 2015.

The new effort includes formal adoption the international climate-change agreement reached in Paris by both nations, as well as a road map for achieving emissions reductions in commercial aircraft and for phasing out hydrofluorocarbons, which aren’t covered by the Paris agreement.

How committed the U.S. remains to meeting the goals will depend on the outcome of November’s presidential election. Democratic nominee Hillary Clinton and Republican nominee Donald Trump support and reject climate change, respectively. Since the agreement was largely a project of the Obama administration, the next administration will be able to continue or dismantle efforts to reduce emissions as they see fit.

Despite criticism from the European Union and other countries that wanted binding targets, the final Paris deal only requires countries to issue targets and disclose their progress along the way. Without the binding targets, which Obama shunned as a means of avoiding getting approval for the agreement from a hostile Congress, the main deterrent for cheating on targets is peer pressure.

The two countries also agreed to negotiate a freeze and phase down the consumption and production of hydrofluorocarbons, which are thought to have a major role in depleting the ozone layer. The deal would be an amendment to a pact known as the Montreal Protocol, which many entered into after the effect HFC’s had on ozone was discovered.

Agreement on climate change comes as a rare sign of cooperation in an otherwise tense relationship between the U.S. and China on trade, human rights, influence over the Pacific, and a myriad of other issues. With even the Chinese president acknowledging a need to reduce emissions, it appears as though world leaders are reaching a consensus on the dangers of cataclysmic climate change.

Shale Gas News and Future Expectations – 8/29/16

In the U.S. Energy Information Administration’s International Energy Outlook 2016 (IEO2016) and Annual Energy Outlook 2016 (AEO2016), shale gas is expected to account for 30% of world natural gas production by 2040.

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Natural gas production from shale gas plays accounted for 50% of total U.S. natural gas production in 2015 and it is expected to increase all the way through 2040, according to the EIA, before accounting for 70% of total U.S. natural gas production by 2040.

Shale gas is expected to continuing growing as a percentage of world natural gas production as well.

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Shale gas production is projected to account for almost 30% of Canada’s total natural gas production by 2040, more than 40% of China’s, almost 75% of Argentina’s, 33% of Algeria’s, and more than 75% of Mexico’s.

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Politics may prompt faster adoption of natural gas as a replacement for coal.

In the EU, the European parliament is already taking steps to enable faster carbon reductions in Europe’s emissions market. A environment committee panel is scheduled to vote on Dec. 8 on a package of legislation that could, among other things such as restructuring overlapping policies and allowances, mean a cut in emission permits. Should such a cut occur, natural gas is the cheapest “clean” alternative to the coal that currently powers much of Europe as it gives off roughly half the emissions per unit of power produced.

Meanwhile, the stance the U.S. government takes on carbon emissions and, by extension, coal.

The two presidential candidates have energy policies on opposite ends of the spectrum of climate change argument. On one hand, the Democratic nominee would continue the Obama administration’s current policies including the Clean Power Plan that would have the EPA limit carbon emissions from power plants. On the other hand, the Republican nominee would attempt to end those policies. The latter scenario would certainly be less harsh for coal companies. That said, natural gas usage would certainly increase under both, just much more so under the Democrat than the Republican.

Social Costs and Carbon – 8/22/16

The issue of social costs versus private costs comes up often in economics. When measuring the costs and benefits of policies, economists do not just total up expenses and revenues of all affected firms to get an idea of how a policy would affect the economy because they recognize that in the best interest for businesses may not be best for society as a whole.

For example, free trade introduces competition that can cost domestic firms business while bringing the benefits of greater specialization of labor and lower prices for consumers. There are always costs and benefits to any action, but part of the government’s purpose is to curb the worst excesses of markets to see that certain “bad” outcomes don’t arise. Anti-dumping tariffs keep cheap Chinese steel from drowning out domestic suppliers, watchdog agencies keep an eye out for fraud.

If trade is tricky, then climate change is trickier. Though public opinion is moving towards a broad acceptance that climate change exists, there is still a lot of conflict over the issue. Pumping toxic sludge into a river has obvious social costs as that kind of pollution kills off downstream activities that require clean water. On the other hand, pumping CO2 into the air is not so noticeable nor so obviously disruptive in the U.S. that most people are willing to reduce usage of the relatively cheap fossil fuels that keep the economy humming along sans some sort of government intervention. And that intervention may soon become a reality.

A federal appeals court in Chicago recently approved a regulatory practice that would help account for projected costs of climate change following a White House issued guidance to Federal agencies. The regulation would have every level of government adding a new line to their balance sheets to consider the social cost of carbon when making decisions. Soon government agencies may decide that current fossil fuel prices do not reflect social costs which would prompt actions such as the increased taxes on fuels or restrictions on pollution for power plants.

The Obama administration has estimated the cost of carbon emissions to be about $36 a ton in 2015. Companies involved in the debate have generally accepted that there is an unspoken social cost greater than $0 that governments consult when drafting climate policy. Even so, the change in accounting comes as hard-fought and will likely continue to make its way through the courts on the urging of critics who know that once the cost gets an explicit line on balance sheets, it will be much harder to take it off.

Power Producers and Clean Energy p.II – 8/16/16

NRG Energy has seen difficult times: falling profitability during the energy glut, technical difficulties at its solar plants, poor results for residential solar and a electric vehicle charging network projects, and the replacement of a CEO that pushed ambitious clean power projects. Given how many energy companies have disappeared in the last five years, NRG’s troubles are not so unusual and are useful for explaining how tricky energy has gotten.

One part of the story is the boom in the United States natural gas production. The fracking of shale deposits revealed gas deposits of unbelievable size that could be accessed relatively cheaply and quickly, pulling down the price of all electricity. In turn, all of NRG’s projects from coal to renewables were less profitable. Investors lost faith in the company, NRG’s stock plummeted. Coal assets were hit especially hard as shown by devastating last half-decade for coal mining companies illustrated below, made only less profitable by new regulations on pollution that disproportionately affected coal power plants.

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But most energy companies have suffered in some way or another during the glut. NRG’s more interesting troubles come from its attempts to branch out into clean power that, unfortunately, coincided with the glut that hamstrung conventional revenue sources.

All power producers and utilities will eventually be required to make more electricity while emitting fewer greenhouse gases; they face a hard fact in that. However, NRG tried to change faster than most in the last decade under David Crane who began running the company in 2003 and began acting on environmental concerns in 2006. He called environmental protection a “moral imperative” as he made large investments in wind, solar, and electric-car charging stations, and promised massive carbon emissions cuts exceeding those pledged in the Paris Climate Talks of 2015.

Yet, now Mr. Crane is no longer leading NRG. After NRG stock plummeted 63%, he was let go in December of 2015. Investors tired of earnings calls dedicated to clean-power projects that seemed more like a distraction from the energy glut crisis than a path to the future and the NRG board named the COO, Mr. Gutierrez, as the new leader.

Strangely enough, Mr. Gutierrez is committed to a similar path as Mr. Crane. He led an NRG task force that recommended that the company adopt ambitious targets for emissions reduction and has recently recommitted to those goals. Though bending to investors on some projects that haven’t panned out yet, he seems ready to continue to tackle climate change as a serious threat to the company’s business model. Still managing carbon assets while also preparing for a time when solar and wind assets will dominate balance sheets, he has seen NRG shares rise 40% during his tenure.

Mr. Gutierrez has already backed away from residential solar and electric-vehicle charging projects, but NRG still provides solar installations to big companies and continues to spend hundreds of millions to acquire more solar and wind assets. Today, NRG generates about 9% of its electricity from renewable assets, or nine times what it generated from them when Obama first took office. Across the industry, a majority of power plants being built today use renewables, not fossil fuels.

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One day NRG will produce a majority of its power from renewables. Investors and board members will come around to accepting that fact the cheaper solar and wind power become. For now, Mr. Gutierrez has the unenviable position of satisfying today’s investors while planning for a greener future, readying more sustainable assets while burning more profitable fossil fuels. One day NRG will be the clean power company Mr. Crane wanted it to be, until then Mr. Gutierrez has his work cut out for him.

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