The Bittter Lake

This is a reprint of a post I put up recently on my personal blog:

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Figure 1: The Bitter lake [Credit: BBC, 2015]

If you’ve not already seen it, the BBC have a film out on i-player by the always excellent Adam Curtis, called Bitter Lake. In this film Curtis discusses the effects of the West’s Middle Eastern policy, often in pursuit of oil. The film highlights how such policy has frequently become unstuck due to politicians sticking to simplistic explanations, of what are often very complex internal issues within these states. The film in particular focuses on Afghanistan and the various western interventions in this country.

The film is not for the feint hearted and includes many shocking scenes, the sort that the BBC never broadcast and hence why I doubt this film will ever be broadcast on television. For example the aftermath of an assassination “attempt” on Karzai’s convoy (about 25min’s in, which does seem to imply it was just his trigger happy security guards being jumpy rather than anything else). Indeed the film has provoked much controversy, being both praised as brilliant and on the other hand condemned by the very sorts who you’d think it would appeal too.

Meeting at Bitter Lake … President Franklin Roosevelt (right) meets King Abdulaziz. Photograph: Cour

Figure 2: The Bitter Lake Accord, Suez Canal Zone, 1945.

The film gets its name from the Bitter Lake agreement, where in the twilight weeks of World War II, in one of his last major policy decisions, President Roosevelt met with the Saudi king and they struck a deal through which the US would gain access to Saudi oil and in return the Saudi’s would get a guarantee of security. However, this deal threatened in the long term to undermine everything that Roosevelt had worked towards, and directly led to the events of 9/11.

The religion of Saudi Arabia has, since the 1800’s been not Islam but Wahhabism, an often puritanical, xenophobic and technophobic offshoot of mainstream Sunni Islam. Wahhabism itself grew as a counter to Western Imperialism (notably the Ottoman Empire) and it was both one of the Saudi Kingdom’s key strengths…but also its greatest internal threat. Indeed from time to time the Royal family has literally been forced to turn on the Wahhabists and buried more than a few in holes in the desert.

Mecca-Clock-Tower-03

Figure 3: One can think of no greater example of Saudi excess, corruption and megalomania than this enormous monstrosity overshadowing Islam’s most holy site.

One solution that the Saudi’s developed was the idea that the best way of dealing with the more troublesome extremists, was to give them a pile of money, which thanks to the oil revenues they now weren’t short off, bundle them off to somewhere like Pakistan to set up a Madrasa and spread the good Wahhabi word. Its a bit like the old Irish policy, in some families, of sending the smart brother to college so he could become an engineer or a doctor, letting the middle ones take up a trade and become plumbers or joiners, while the idiot brother gets bundled off to a seminary. Similarly, in Saudi families, the runt of the litter, the kid who was too dumb to pass high school…and spent his spare time torturing small animals, gets bundled off to some foreign Madrasa where he’s out of sight and out of mind and not making waves for people back home.

And for a time this tactic worked, however the end result has been to create a number of very serious long term problems, notably in that these Wahhabi preachers have now indoctrinated a substantial portion of the Muslim populations in certain countries with teachings that actually contradict traditional Muslim teachings in those countries. There is for example very little tradition in many Muslim countries of women wearing full face veils. Yet many Muslim women in some countries now do so, despite the obvious practical problems it creates, as they are still expected to do the jobs and chore’s they’d long performed without wearing the veil or Burka.

This growth in Wahhabism, was fuelled by Western policies. For example, the man who actually inspired the 9/11 hijackers, was an Egyptian by the name of Sayyid Qutb. This simple school inspector had been radicalised in part thanks to his treatment by the Nasser regime, with whom the US was at the time co-operating on security matters. Nasser represented the opposing force in Islam, of Muslim secularism which sought to exploit the west and copy some of its methods, notably Western technology and industrialisation. However in the process, the Pan-Arabians succeeded in alienating many more conservative Muslims as well as trampling on the traditional systems of tribal loyalties that had held such societies together for Millennia.

For example, in the 1950’s the US helped build a dam in Helmand province of Afghanistan as part of a programme to modernise the country. However the dam forced many off their land. Also for the dam to function, it relied on a system of canals to provide water to farms, which soon became clogged due to lack of maintenance. This causes significant disruption to local tribal life as well as making it difficult for local tribes to farm, as the dam had also raised the salt levels within the water table….until the locals realised that instead they could grow Opium poppies! For decades after, this Opium crop would be a major problem for the West, both due to the drug problems that resulted in the West, but also the funds it would funnel to terrorist groups.

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Figure 4: Taliban heroin poppies…brought to you by Morrison Knudsen!

Recently on US TV there was a controversial debate between Bill Maher, Ben Affleck (of all people) and American author Sam Harris. The crux of this debate was a simplistic spinning of the conflicts within the Arab world into a fight between “good” Muslims versus “bad” Muslims, when in fact a more accurate analysis would be Muslims and the rest of the civilised world against Wahhabi extremists. For increasingly, during the 1980’s the Wahhabist’s “exported” from countries like Saudi Arabia were being utilised as a counter to the Pan-Arabism of Nasser, Saddam or the Asad’s, which both the Saudi’s and the US now considered as their enemies and allies of the soviets.

When a pan-Arabian regime took root in Afghanistan, the Americans tried all they could to destabilise it, eventually leading to a Russian invasion. The Saudi’s and the US (under Reagan), then persuaded many Muslim extremists to go off to fight a Jihad against the Russians in the hope that the US could get one back on the sov’s for Vietnam. They even convinced a number of Arab countries to effectively empty their prisons of many violent Jihadi’s, who had been rotting (often on death row) for various attempted rebellion’s, and send them to Afghanistan to fight to soviets….and probably in the very real hope that they’d be killed, thus solving two problems at once. Of those who went to Afghanistan included Al-Qaeda’s number 1 and 2, Bin Laden and Al-Zawahiri, a follower of the aforementioned Sayyid Qutb. It seemed like a good plan…until a number of those Jihadi’s put their CIA training to good use over the skies of New York….15 of the 19 of them being Saudi’s.

And again, it was the simplistic analysis of the problem in both Moscow and Washington that was the problem. Neither understood the complex system of tribal loyalties and long running cultural rivalries. Reagan had an almost megalomaniac obsession with the conflict, even dedicating the inaugural launch of the space shuttle to the Afghan fighters…or comparing the Mujahideen to the founding fathers of the US.

Reagan_sitting_with_people_from_the_Afghanistan-Pakistan_region_in_February_1983

Figure 5: The Taliban who came too tea….a picture I doubt you’ll find in the Reagan Presidential library!

Similarly the Soviet leadership did not initially understand that the reason for the revolt was due to the land reforms that had been imposed on the country and the tribal feuds this had set off. Much of the reason why local tribes fought the soviets had little to do with politics, or religion for that matter, but in defence of tribal claims. And indeed they often used one side or another against one another. For the surest way of getting you’re rival killed was to go to the Soviets and tell them such and such a person was Mujahideen, or visa versa. And many tribal elders would happily switch sides at the drop of a hat if the winds of change suited.

And when the Americans and British came into Helmand province in the 2000’s the locals played the same game, using the coalition forces to settle long standing tribal scores. In part, this was because that the West failed to understand the consequences of putting the likes of Karzai in charge of the country, who presided over a regime that was institutionally corrupt and widely despised. The end result was that both the soviet occupation of the country and the Western one did not have any appropriated outcome. And similarly in Iraq, the West backed a president who alienated the Sunni’s, who promptly threw in their lot with ISIS, who took over half the country, leaving the Americans playing catch up very quickly.

The result is to make something of a mockery of fifty years of western diplomacy and some will take this as a clear sign as to why the West should stay out of Middle East affairs. However one valid criticism would be to accuse Adam Curtis of making the very same mistake that he accuses Western governments of, he relies too much on simplistic explanations and a fairly narrow interpretation of the facts, and quite a lot of hyperbole.

For example, he goes so far as to claim that much of the global trade on stock markets is ultimately a massive ponzi scheme fuelled by Saudi oil money. This is going perhaps a little far. Certainly, a point I would make (as an expert on energy) is that much of the supposed wealth of the West is somewhat imaginary, as its dependant on the availability of cheap fossil fuels which won’t always be available, hence unless we come up with some alternatives there’s going to be some sort of major economic correction. However it would be incorrect to conclude that the stock markets only exist because of petro-dollars (he is aware that they existed long before oil came along?).

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Figure 6: Are we in the middle of the 3rd Iraq war (picture from the 1991 war) or will future historians call this the 5th Oil war?

Also, one has to be careful in this narrative of blaming the West for everything. After all, nobody made the Taliban become Taliban. The US certainly scored an own goal by helping to train and equip them, but it wouldn’t be fair to blame the West without pointing the finger at other factors closer to home, the Wahhabists, corrupt and oppressive local regimes, ignorance and greed on the part of locals?

Take this Jihadi John character. Certain apologists for ISIS, such as professional moron Russell Brand, have been trying to argue its all the West fault he decided to go to Syria and take to beheading aid workers and journalists, ignoring the fact that clearly he was radicalised long before the security services got near him. Its not as if MI5 put a plane ticket in his hand and a machete in the other? And are we going to blame MI5 for those 3 girls who were groomed online and when missing last month?

But either way this film does raise awkward questions, such as what to do about ISIS. Nobody can doubt that ISIS are a murderous and dangerous perversion. Tales from within ISIS held territories speak of such horrors as mass executions, crucifixions and a regime, run by sex-mad slave drivers, that literally collects not just outrageous taxes, but even taxes paid in blood (and you thought taxes in the UK were tough!). The city of Raqqa (ISIS capital) has seen its population drop by more than half since they took over. Veils for women indeed simply aren’t enough, as in almost monty python-esque style they’ve introduced double veil’s with gloves.

In short its difficult to argue how anything could be better than leaving the likes of ISIS in charge. And the argument that we should just let the Kurds and Shia’s sort out ISIS ignores the likely consequences of that. For example, the Kurds have taken much land and territory in both Syria and neighbouring provinces of Iraq, as have the Shia’s, who are currently advancing on Tikirit….possibly with the assistance of the Iranian Revolutionary guard.

A convoy of Kurdish peshmerga fighters drive through Arbil after leaving a base in northern Iraq

Figure 7: The Kurdish Peshmerga, who are happy to include women within their ranks, have made many recent gains and are on the verge of linking up with Shia/Iranian militia advancing from the South.

But will these groups give up the land afterwards? The land captured is majority Sunni areas but with large Shia or Kurdish minorities. And it contains in many cases large oil reserves. Suppose they hold onto the land, or indeed start fighting each other over this land? It could mean that the war against ISIS is replaced with a wider internal conflict inside Iraq, or possibly a war between Iraq and Syria with Turkey and Iran backing one side or another.

But of course Western boots on the ground, won’t necessarily work out any better. After all if the plan is to repeat past Western mistakes, it would be merely a case of the West demonstrating one of the proof’s of madness (doing the same thing over and over and expecting a different result). Its all well and good, throwing rocks at Western policy, but its possible that a lack of intervention could be as bad, if not worse, than further intervention.

Hence why I’d argue a more effective strategy is to break our addiction to oil. No petro-dollars, no Saudi money to Madrasa’s and ISIS. It also means being careful whose side we pick. Another flash point is the West’s unyielding support for Israel, ignoring Israel ethnic cleansing in the West Bank and its production of WMD’s. Obviously, doing as Netanyahu suggests, would be dangerous, without first tackling Israeli nuclear weapons. To argue that Iran can’t have Nukes, but we’ll let Israel have them is clearly hypocritical.

In short there needs to be an end to Western double standards, backing up one heavily armed oppressive regime (such as the Gulf States), then bombing or isolating another one (such as Saddam’s Iraq or Iran) and ignoring totally the crimes of others (such as Israel). Equally thought the West needs to wake up to the fact that we’re in the mess due to attempts to secure oil reserves. So a programme of reducing the Western addiction to oil is certainly essential.

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The oil price dilemma

Figure 1: Recent trend in global oil production [Source: Gail Tverberg, Our Finite World, 2012 http://ourfiniteworld.com/2012/04/09/what-the-new-2011-eia-oil-supply-data-shows/ ]

Figure 1: Recent trend in global oil production [Source: Gail Tverberg, Our Finite World, 2012]

A recent drop in world oil prices, has seen prices descending past the symbolic point of $50 a barrel. This is likely to prove a double edged sword, as I think we’ll all be learning soon enough. However, it has also led to yet more fuel to the self perpetuating myths regarding unconventional fossil fuels, with many in the media crediting Shale gas and shale oil with causing this price drop. Peak oil apparently is now dead.

Figure 2: Brent Crude Oil Prices since 2007 [Source: Shortsideoflong.com, 2015 http://shortsideoflong.com/ ]

Figure 2: Brent Crude Oil Prices since 2007 [Source: Shortsideoflong.com, 2015]

Part of the problem here is that many forget that the price of any commodity merely reflects the current state of supply and demand for that commodity. Let us suppose for example, that you were to wander into a butcher’s shop on Christmas eve looking for a Turkey. Well assuming the butcher didn’t just laugh his ass off at you (all his regular customers put in orders months earlier!), you would be paying through the nose for a bird. Not because we’d hit “peak Turkey” but because demand was outstripping supply.

Similarly, if you went into the same shop on the 26th of December, you’d likely see the bargain bins overflowing with Turkey, now on sale at a knock down price. This drop isn’t due to any new supplies of Turkey (in fact its very likely Turkey production is winding down), but because retailers know that most people have stuffed themselves full of Turkey over the holidays probably won’t touch it again for many months, so they are anxious to clean out the freezers.

Obviously if the price goes a certain direction and stays on that course for several years, then this would be something we could be a little more certain on. So its important to put the current price drop in the right perspective. And that said, it has to be remembered that the price of oil has generally been trading at around $100 since 2006, excluding a few brief price drops here and there notably after the start of the economic crash. And this is despite the fact that the global economy has been going through one of the worst recessions in recent economic history, the sort of thing that would normally be expected to produce low oil prices.

Figure 3: Sources of non-conventional oil [Source: Miller and Sorell, 2013 http://rsta.royalsocietypublishing.org/content/372/2006/20130179 ]

Figure 3: Sources of non-conventional oil [Source: Miller and Sorell, 2013]

But returning to Shale oil and the Tar sands, could they be behind this drop in price? Well, no, they still represent a fairly small share of the overall oil market. Globally, just over 80% of all oil production is what we’d call conventional oil, of the remaining 20% the bulk of this is Natural Gas liquids (NGL’s, the liquid portion of gas recovered from natural gas operations) with tar sands and Shale oil representing about 5% and the balance comes from Refinery Gains or minor sources such as biofuels. There is,, I would note, some controversy as to whether we should include NGL’s. Some authors argue that as you can’t put it in you’re car (its mostly stuff like Ethane and Propane) its fiddling the books to include it with oil. Others argue, that production of NGL’s is sufficiently mature that it should not be considered an “unconventional” source.

Either way, what most people would generally associate with the term “unconventional oil” (Tar sands from Canada, American Shale oil, Venezuelan heavy oil) is a tiny part of global oil production and clearly cannot drive the price to the extend suggested.

Furthermore, of the actual growth in oil production added since 2005, 47% of that growth has been either process gains at refineries and new or expanding field production in conventional oil fields. A further 31% has come from NGL’s, leaving growth in “unconventional oil” a mere 22% of recent growth in production.

I’m not denying that shale oil has led to a boom in parts of the US and a lot of money was made by some as a consequence. Its just the production from these sources are a tiny fraction of global output and is unlikely to have had any serious effect on prices. In much the same way that one hot dog stand at a football match is going to have a pretty profitable day, but that doesn’t means he’s going to feed tens of thousands of people with one small burger van!

Figure 4: Gains in production since 2005 [Source: econbrowser.com, 2013 http://econbrowser.com/archives/2013/09/the_peak_in_wor_1 based on EIA data http://www.eia.gov/cfapps/ipdbproject/IEDIndex3.cfm ]

Figure 4: Gains in production since 2005 [Source: econbrowser.com, 2013 based on EIA data]

So what else could be causing this drop in price? Well on the supply side, as noted, there have been some gains from conventional oil fields, in particular in the field of Enhanced Oil Recovery from mature oil fields. Also Libya seemed to be bouncing back, at least until a few weeks ago. And the terrible events in Northern Iraq don’t seem to have dented oil production much….yet!

Meanwhile on the demand side, the EU is again looking jittery, which has likely sent many speculators running for cover. Russia was entering recession even before the drop in oil prices and even China is looking a bit worse for wear. Also advances in technology, such the latest hybrid and electric cars have resulted in vehicles becoming much more fuel efficient, reducing the demand for fuel.

So there’s lots of things going on that would be serving to reduce demand at a time when supplies have been increasing. It is a trend we’ve seen many times before in the oil industry, notably back in the 1970’s and then the 1990’s. Demand reaches stellar levels until its finally choked off by a lack of oil, generally followed by a recession. With the price of oil high, the Oil Majors and OPEC bet the farm on a series of expensive mega oil projects to cash in. With oil prices high, these net bumper profits, encouraging them to up their bets. Only for the oil market to become flooded, leading to a glut, leading to low oil prices, which usually sparks another economic boom….followed by a bust and the whole cycle repeats!

So its just business as usual play out, right? Well no. This drop in price is very different from past events. The one consequence of all of this fracking, as well as activity such as deep water drilling, enhanced oil recovery, etc. has been to greatly increase the operating costs for the major oil companies. As the graphs below illustrate the CAPEX (the money that oil companies spend on R&D as well as finding and developing new oil fields), has soared. Yet at the same time, the profit margins of the major oil firms has fallen. In short they are having to run faster to stand still.

Figure 5: CAPEX expenditure by oil companies by year [Source: Douglas-Westwood & Barclay's capital, 2014, via This finite world http://gailtheactuary.files.wordpress.com/2014/02/kopits-41-upstream-spend-continues-strong.png]

Figure 5: CAPEX expenditure by oil companies by year [Source: Douglas-Westwood, 2014, via This finite world]

Figure 6: Profit margin of the Oil and gas sector [Source: Citigroup Research, 2014 http://www.stocksinvalue.com.au/worleyparsons-bides-time/ ]

Figure 6: Profit margin of the Oil and gas sector [Source: Citigroup Research, 2014]

Furthermore, drilling and production costs, the money it costs to keep things ticking over on these new oil developments (be they unconventional or otherwise) is now much higher than has traditionally been the case. Certainly a lot higher than the present price of $50 a barrel. Hence there’s only so long that the oil companies can sustain production from these fields.

Figure 7: The global cost of oil drilling per well [Source: Smart planet.com (2012) http://www.smartplanet.com/blog/the-energy-futurist/the-cost-of-new-oil-supply/ using EIA data]

Figure 7: The global cost of oil drilling per well [Source: Smart planet.com (2012) using EIA data]

And my spies tell me, that there’s already been dissent within the ranks. Even before the recent drops in prices, shareholders in many oil and gas companies were getting very worried about about this huge escalation in expenditure. Needless to say, we can assume they are even more worried now. Probably any time the business news comes on, more than a few start rolling on the floor and chewing the carpet. If I was to hear news of a group of angry persons approaching Kock Industries or Chevron HQ carrying several large crosses and a bag of nails, it would be safe to assume that they aren’t Greenpeace, nor some Christian group of re-enactors, but angry shareholders who’ve finally had enough!

Figure 8: Rates of CAPEX and R&D expenditure, by sector for S&P listed companies [Source: Goldman Sachs (2014), via BusinessInsider.com http://uk.businessinsider.com/energy-capex-and-rd-2014-11?r=US ]

Figure 8: Rates of CAPEX and R&D expenditure, by sector for S&P listed companies [Source: Goldman Sachs (2014), via BusinessInsider.com]

And this explosion in expenditure in the oil industry has also been sucking in capital from other parts of the financial system. As another graph from Citigroup shows (figure 8) the energy industry has gone from 11% of the S&P market’s CAPEX to 24% of it. And indeed when we look at just the shale gas/oil industry alone, its profitability v’s expenditure looks even worse that the rest of the industry. And most of that is financed by lots of dough from the financial services industry, who needless to say are panicking as we speak, over fears they might be left with a trillion dollars worth of Zombie assets.

And these fears of a “Zombie Apocalypse” also explains another difference between recent events and past oil price drops. In the past, during any supply glut, the Oil Majors assumed that they could rely on OPEC to cut production and stabilise prices. Given how dependant OPEC nations are on the price of oil (as oil exports are a large part of government revenue), it has generally been in their best interest to do so. However, at a recent meeting OPEC effectively said no to calls for a production cut.

Why OPEC did this is easily explained by putting yourself in their shoes. Why should they sacrifice market share just to keep the shale oil producers in business? In previous times, OPEC relied on the assumption that if they cut production nobody would be able to respond and fill in the resulting gap, guaranteeing that prices would rise. However, all of that fracking propaganda (which OPEC oil minsters have also been bombarded with) has left OPEC less certain of this. And ultimately they are gambling that the oil majors, with their much higher production costs, will blink first. After all, in any situation where there’s a price war, its usually the smaller company, with its higher operating costs, living on credit, who goes to the wall first.

Figure 9: Break even costs of oil production by various methods [Source: IHS-CERA (2006), via the Royal Society (UK) http://rsta.royalsocietypublishing.org/content/372/2006/20130179 ]

Figure 9: Break even costs of oil production by various methods [Source: IHS-CERA (2006), via the Royal Society (UK)]

The inevitable end game is likely therefore to involve several of the oil major’s loosing their shirts, Middle East countries having to cut back their budgets and a complete halt or go slow on all new oil projects, along with an aggressive cost cutting program, resulting in numerous job losses. This could well render such debates as those over the Keystone pipeline, drilling in the ANWR or shale gas drilling in the UK all somewhat moot, as nobody will want to invest in these projects.

Of course this is also bad news for renewables, as cheaper fossil fuels makes it harder for them to compete. Quite apart from the danger that nervous investors worried about the risk of large losses in the fossil fuel side of the energy business might be reluctant to commit to large scale capital projects. Justifying energy efficiency measures also becomes harder. Although in the UK at least the unwillingness of energy companies to respond to these events by ending their monopolistic price gouging cutting utility bills does still make such measures worthwhile.

However perhaps long term, the real losers will perhaps rather ironically be the cornucopians. They will often point to the large reserves of unconventional resources and claim that “the magic of the market” will see those resources extracted. However this analysis ignores the realities of geology (only a fraction of these resources are actually recoverable) as well as the rules of market capitalism. Prices fluctuate as a result of supply and demand factors. And during the periods of low prices much of this unconventional fossil fuel will be rendered uneconomic. Hence much of the world’s oil and gas resources will probably always remain in the ground.

As the late Matt Simmons once pointed out, the best thing that could ever happen to the oil industry would be for prices to go to some extraordinary high value (say $200 a barrel) and stay there. Of course, whether we’d be prepared to pay that much and whether oil demand would remain at its current levels at such prices seems doubtful. Also the timeline between renewables becoming competitive against fossil fuels would drop, again rendering most of the fossil fuel reserves uneconomic.

However, any gains in production since 2005 does tend to undermine the suspicion that conventional oil peaked in 2006. That said, if you look at the data, its obvious the rate of production growth is definitely slowing. While there was an increase in global oil production of 12.7% between 1997 and 2005, between 2005 and 2013, despite all that money thrown at shale oil, the tar sands, EOR and numerous conventional oil projects, the result was only a 4.1% increase in production. Like I said, running faster to stand still.

Hence when this spurt in new production runs its course, and that’s not likely to take more than a few years, its very difficult to see how unconventional resources (which again are only 5% of production, and unlikely to ever exceed 20% of the total) replacing Middle Eastern oil. Once the major oil fields in the Middle East peak, its very difficult to envisage anything that’s going to replace them.

So rumours of peak oil’s death are perhaps greatly exaggerated.

Posted in economics, energy, fossil fuels, peak oil, politics, power, Shale Gas, Shale oil, Tar Sands | Leave a comment

Renewable Subsidy Myths

One of the claims you will often hear from the anti-renewables brigade is that the only reason why power companies build wind farms or erect solar panels is because they are chasing subsidy money…. that our taxes pay for! This is of course one of the founding myths of the political right and their justification for a near pathological hatred of renewable energy. I think it would be useful to pick apart this myth.

Figure 1: Solar and wind power subsidies are a likely battle ground topic in the next 2015 UK general election [Credit: Good Energy, 2014 http://www.goodenergy.co.uk/press/releases/2014/05/13/good-energy-ceo-responds-to-government-solar-subsidy-review ]

Figure 1: Solar and wind power subsidies are a likely battle ground topic in the next 2015 UK general election [Credit: Good Energy, 2014]

Firstly it should be remembered that not all countries subsidise renewable electricity generation. Some have no formal subsidy system, others merely provide tax breaks (in particular capital gains tax as the upfront costs of renewables can be high while fossil fuel companies get to write off fuel taxes as tax deductible). Even then in most countries where there is a subsidy, those subsidies come not from the exchequer but usually from some sort of tariff on wholesale electricity production. In the UK for example, about 6% of the average bill pays for, amongst other things, subsidising renewable power generation.

Figure 1: Breakdown of an average Bill [Source: BBC (2012) http://www.bbc.co.uk/news/business-15352599 based on Ofgem data]

Figure 2: Breakdown of an average Bill [Source: BBC (2012) based on Ofgem data]

In the UK, under the present subsidy regime, a power company receives about £30.7 per MWh for wind power installations above 50 MW’s, for a period of 10 years. For solar power the subsidy rate is £63.88 per MWh over 20 years. More generous subsidies are available for smaller installations of both, however as we’re looking at the major energy utilities, they would generally be drawing on these subsidy rates.

While this might sound like I lot of money, its worth remembering that the going rate for the overnight cost of a wind farm is estimated at about £93/MWh according to Ofgem (as I’ll discuss later, other sources suggest the true cost of wind power is lower, but to compare like with like, I’m sticking with the Ofgem subsidy rate and cost figures).

Figure 3: The growth of UK renewables http://commons.wikimedia.org/wiki/File:UK_renewables_installed_capacity.PN

Figure 3: The growth of UK renewables

This effectively means that of the £93 price tag for wind energy, only 33% is initally subsidized. Indeed, given that the subsidy disappears after 10 years, so the adjusted subsidy level is only 13.2%, the remaining 86.8% of the costs is met by the power company and its financial backers. It is dubious at best to suggest that power companies would spend 86.8% of the capital, just so they could claw back the 13.2% via a subsidy….that they end up paying anyway whenever they generate electricity using a fossil fuel power station! What school of finance did this lot study in? Hogwarts!

Figure 4: The price breakdown for a wind turbine (onshore) [Source: RESCO.org.uk, 2013 http://www.resco.org.uk/wind-and-marine-power/ ]

Figure 4: The price breakdown for a wind turbine (onshore) [Source: RESCO.org.uk, 2013]

So why do the power companies build wind farms? Well the raw costs of building a wind farm is between £55-25 per MWh (depending on how you do you’re sums), i.e. generally below the wholesale current wholesale costs for electricity (about £45-55/MWh at present). The remaining part of the bill for wind power (and again, its worth remembering the industry tends to quote much lower estimated costs than Ofgem) is generally fixed one off costs (wiring the wind farm up to the grid or installing support infrastructure), financing costs, maintenance and the costs of backup. This last one is a bit of a grey area as wind power often gets lumped with a disproportionate share of the bill even thought all energy sources need backing up to deal with an unexpected problem. Either way, this is of course the whole point of the subsidy, as it helps to even up the odds.

Figure 5: Breakdown of the levelised costs of wind energy compared to CCGT [Source: Wind-power-program.org, 2011 http://www.wind-power-program.com/intermittency2.htm ]

Figure 5: Breakdown of the levelised costs of wind energy v’s CCGT [Source: Wind-power-program.org, 2011]

Furthermore, during periods of strong electricity demand and high winds (quite common in winter) the wholesale price of electricity can rise well above the £93/MWh figure mentioned above. Hence, from the power companies point of view, wind power is a useful defence against high gas and coal prices….or Putin turning off the gas! Its very probable that in the absence of subsidies some wind farm would continue, although probably not on the scale we currently see.

Figure 6: The falling price of PV....and how success seems to be “rewarded” by the Tories! [Source: smarthomeenergy.co.uk, 2012 http://smarthomeenergy.co.uk/rise-and-fall-uk-solar-pv-subsidies-infographic ]

Figure 6: The falling price of PV….and how success seems to be “rewarded” by the Tories! [Source: smarthomeenergy uk, 2012]

Similarly for solar energy, given Ofgem’s estimated cost of £145/MWh for solar electricity, this means the subsidy rate over the 35 year life of a PV panel will be at most 25% of the overall costs. The remaining 75% will, again, come from private capital.

To put these figures in comparison it might be useful to compare this with the subsidy system for nuclear power. They are set to receive a fixed price of £92.5/MW inflation adjusted at 2012 prices. This appears to be smaller than the fixed price for wind, however considering the current wholesale price of £55/MWh (and that’s at the upper limit of recent prices), this amounts to a subsidy rate of 68.8%, about five times the subsidy rate for wind power and 2.7 times the rate for solar.

This should demonstrate the hypocrisy of the UK Tory parties plans to limit renewable energy subsidies to £200 million per year. If such a cap were applied to Hinkley C it, given the annual subsidy costs to this plant in the order of £700-800 million per year, it would have to shut down after just a few months having blown the lid off its subsidy cap.

Figure 7: US Federal expenditure on various energy sources (note this only covers direct federal spending and does not account for other subsidy routes, such as tax breaks, etc.) [Source: DBL Investor Capital, based on DoE data, via Cleantechica.org (2011) http://cleantechnica.com/2011/09/27/early-fossil-fuel-nuclear-energy-subsidies-crush-early-renewable-energy-subsidies/ ]

Figure 7: US historical Federal expenditure on various energy sources [Source: DBL Investor Capital, based on DoE data, via Cleantechica.org, 2011]

The only situation where Hinkley C starts to make sense is if the wholesale price of electricity rises substantially…but of course only a modest rise would put renewables into the black (i.e. renewables would be profitable without any subsidy). In short no matter which we we look at it, renewables, notably wind energy give us more bangs for our subsidy bucks than nuclear.

This is of course one of the main arguments behind Angela Merkel’s conservative government’s decision to pull the plug on Germany’s nuclear programme. The amount of subsidy needed to keep nuclear on government funded life support was much larger per MWh than that for renewables, even the then immature sources such as solar power. And given how much solar power prices have fallen since then, this is a decision that appears to have been justified.

Figure 8: Subsidy rates for different low carbon options [Source: Craig Morris, Renewable Energy World, via Cleantechica.com (2013) http://cleantechnica.com/2013/11/05/nuclear-prices-market-graph/ ]

Figure 8: Subsidy rates for different low carbon options [Source: Craig Morris, REG, via Cleantechica, 2013]

And similarly, its worth remembering that fossil fuels are not subsidy free. As I discuss in a prior post, both within the UK and worldwide, the vast bulk of energy subsidies are spent propping up fossil fuel consumption. The IEA has estimated that only 16% of global energy subsidies go to renewables, the vast majority of the remainder is spent subsidizing fossil fuel consumption.

Figure 3, Energy subsidies world wide (excluding nuclear) [credit: The Guardian based on IEA data]

Figure 9, Energy subsidies world wide (excluding nuclear) [credit: The Guardian (2012), IEA data]

And ironically, many of these subsidies DO come directly out of our taxes. As this link here discusses, the vast bulk of energy subsidies directly from the US tax payers has historically gone to the fossil fuel and nuclear industry, not renewables.

Figure 10: An expansion of figure 7, breaking down in 2010 billions the amount of federal subsidy received by each energy source in the US [Source: DBL Investor Capital, based on DoE data, via Cleantechica.org (2011) http://cleantechnica.com/2011/09/27/early-fossil-fuel-nuclear-energy-subsidies-crush-early-renewable-energy-subsidies/ ]

Figure 10: An expansion of figure 7, breaking down in 2010 billions the amount of historical federal subsidy received by each energy source in the US [Source: DBL Investor Capital, based on DoE data, via Cleantechica, 2011]

And within the UK too, fossil fuels receive many generous subsidy’s ranging from tax breaks and other sweat heart deals to encourage oil/gas drilling, winter fuel payments to the elderly, road building to satisfy the Jeremy Clarkson brigade, or load guarantees issued in support of UK based (but often foreign owned) fossil fuel companies. Indeed, the UK government is currently in hot water over the loaning of £1.7 billion to support fossil fuel exploration in foreign countries. In other words, the Tory’s are willing to spend more money to increase our addiction to foreign owned oil than they’re willing to spend on increasing indigenous renewable energy supplies! And let’s not even bring up the matter of the government’s pre-Christmas hamper to the power industry, in which they gave away many hundreds of millions to the power companies to essentially do sod all.

Indeed the IEA has gone on further recently and suggests that once we assess all energy sources on a levelised playing field, i.e. account for the off the balance sheet costs such as dealing with climate change or the health effects of pollution, back up against intermittency, etc., wind power is actually the cheapest form of energy generation. And in another story a report by the WWF suggests that Scotland’s electricity grid could be carbon neutral by 2030 (if current expansion of the industry continues).

In short if the right wing opponents of renewables truly believed what they claim, why aren’t they clamping down on this stealth subsidies of fossil fuels? Indeed, given that it is the government who has to pay for the clean up costs whenever a storm (made that bit stronger by global warming) wipes out a town, or the state is forced to increasingly act as the insurer of last resort to coastal communities the private insurance industry refuses to insure (thanks to climate change). Well one has to ask, surely the libertarian response would be to impose a carbon tax of some sort to level the playing field and get the fossil fuel industry to pay what they owe?

Of course the answer to this betrays the truth, that renewable subsidies were always a messy compromise intended to get polticans off the hook for their unwillingness to upset too many apple cards by cutting off support for the fossil fuel and nuclear lobby. Rolling back renewable subsidies is more about protecting special interests than saving taxpayers money. An all too common trait of politicians on the right, in particular the hard-right populists such as UKIP and the Tea Party is to tempt people into the delusion that they can simply blame others for their misfortune.

Can’t get a job? its not your fault for being underskilled, nor the Republicans/Tory’s fault for wrecking the economy, its those nasty evil hobbits immigrants coming into the country. Stuck in a traffic jam? Its not because of a lack of public transport/investment in road infrastructure (thanks to tax cuts!), its the fault of foreigners clogging up our roads (even thought they make up less than 10% of UK drivers!). Taxes too high? Its not because of the $1.1 trillion spent on a war for oil, but those lazy migrants or “inner city youths”, who when their not busy working….or driving around aimlessly…are presumably claiming benefits….in what little spare time they have, one assumes!

Similarly when it comes to energy, those on the right also practice dog whistle politics, blaming “subsidies” for all manner of things, which they are not in any way responsible for. Indeed, if the hard right has its way, the results are likely to be entirely counter productive. More state money spent on energy sources (likely nuclear and fossil fuels) on projects that are in the long term, not viable, probably leading eventually to a lot of very expensive white elephants that will never generate any actual electricity.

Posted in budget deficit, clean energy, climate change, economics, efficiency, energy, fossil fuels, Global warming denial, nuclear, politics, power, renewables, subsidy, sustainability, sustainable, Uncategorized | Leave a comment

Balancing it all

My attitude towards the environment and dealing with climate change is that of striking a balance between the understandable panic from climate scientists and the practicalities of what’s possible.

I would argue that the priority, for the time being, should be to go after the “low hanging fruit” and make the bigger and relatively painless cuts first, and in the UK that generally means improving the energy efficiency of buildings (approximately 42% of the UK’s energy consumption), better transport (39%) and to a lesser extent low-carbon electricity. There is little point proposing some of the more extreme measures that you here from some quarters (e.g. banning cars, short haul flying or even pets). For at the moment, such things aren’t going to be supported by the majority of people, which makes implementing them in any democratic society impossible.

Meat is murder….for the climate!

Figure 1: From the Horizon program “should we eat meat”

Figure 1: From the Horizon program “should we eat meat?

This delimma is perhaps best expressed by looking at the issue of meat and its climate impact.  I bring this up as a result of a recent BBC Horizon episode, “Should we eat Meat?”. This program discussed the environmental impact of food production and in particular meat production. Already between 30-40% of world food production is feed to animals and vast amounts of land have been turned over to support animals, which is believed to have almost doubled over the last few decades, often resulting in the clearing of forests and intrusion of grazing into wilderness areas. It is now estimated that 14.5% of anthropogenic greenhouse gas emissions are from meat production. Which isn’t difficult to believe when you realise that a cow belches out between 70-120 kg’s of methane per year  (I do wonder sometimes if we could rig cows up to the gas grid and harvest all that gas, but I’m sure there’s some practical obstacle…and the animal right people would probably complain!).

Figure 2: Carbon footprint of different animals and farming methods

Figure 2: Carbon footprint of different animals and farming methods

And more worryingly these trends are set to continue if not get worse, as affluence in Asia appears to be leading to ever higher consumption of meat. It’s been suggested that emissions related to meat production may increase by 80% or possibly even double between now and the 2050.

Figure 3: Food production, meat v’s crops [Credit: BBC http://www.bbc.co.uk/schools/gcsebitesize/science/triple_aqa/humans_and_environment/food_production/revision/1/ ]

Figure 3: Food production, meat v’s crops [Credit: BBC]

However, it is important we keep our eye on the bigger picture. For example at one point in the aforementioned documentary the narrator, Dr Michael Mosley), suggested that meat produced at a feed lot has a lower carbon footprint than meat produced by grass fed cattle, as a consequence of the reduced amounts of methane produced. While this is technically true (at least in America, where there is a large debate regarding grass v’s feedlot), it’s a bit like arguing that a Hummer running on ethanol is better for the environment than one running on petrol.

Figure 4: Intensive farming of animals, in particular cows can be very energy intensive

Figure 4: Intensive farming of animals, in particular cows can be very energy intensive

Again we have to look at the bigger picture. A fairer comparison would mean accounting for the carbon footprint of all of that corn fed to cattle at a feedlot (which tends to be fairly carbon intensive) and the fertiliser they need to grow such crops and their disposal policies for many tons of cow “waste” a day, which in the absence of a natural means of disposal (the advantage of allowing cows to graze in a field). One also has to consider food miles, an important consideration when comparing local farmers markets to supermarket stocked food.

Also it should be remembered that a lot of the land we have traditionally used for grazing has often been unsuitable for growing crops. In the British Isles for example the bulk of the hill farming areas have traditionally been used to breed livestock because you can’t really grow anything on these hillsides, save the odd crop of root vegetables on the flatter parts of the valley floor. Aside from that all these places are good for is breeding sheep, cattle, deer, midges and suicidal poets!

Figure 5: The hills of boney Scotland, good for hairy Coo’s (these in Glencoe)…not for crops!

Figure 5: The hills of boney Scotland, good for hairy Coo’s (these in Glencoe)…not for crops!

Environmentalists will point to the high carbon footprint of such animals as sheep, cattle and deer. But we have to keep in mind that if, say, we were to abandon such farms as part of some climate change mitigation measure, given that the land would be taken over by nature, i.e. wild deer, sheep and goats populations….it would continue to produce greenhouse gases. So in essence we’d be merely pulling an Enron style accounting trick moving a chuck of carbon emissions from the “caused by humans” column to the “caused by nature” one.

Furthermore allowing animal populations to breed out of control isn’t good for the environment. Already there are problems in Scotland with the vast size of the country’s deer herds, both the wild ones and those managed by estates. These represent a serious threat to what’s left of the ancient Caledonian forests, as well as efforts to establish a viable timber industry in Scotland (again, useful in combating climate change). Go to any highland forest these days and you’ll find these 7 foot high deer fences around the trees to keep the deer out (Indeed when out for a cycle some months back I had to lift my bike over one of these fences, not fun!).

Figure 6: The Monarch of the Glen (taken in Glen Quoich), I enquired if he was aware of his carbon footprint but he didn’t say much!

Figure 6: The Monarch of the Glen (taken in Glen Quoich), I enquired if he was aware of his carbon footprint but he didn’t say much!

And also we are only considering the carbon production of such highland farms, what about the carbon absorption? One of the advantages of the British Isle’s bracing” climate is that plants grow like crazy, absorbing carbon dioxide as they grow.

Properly managed therefore I would argue that your average Scottish croft farm, while not perfect from an environmental point of view, are among some of the most sustainable food production methods available. And this is reflected in other traditional farming methods practiced worldwide. The Tsembaga tribe of New Guinea for example practice a form of sustainable slash and burn agriculture along with animal husbandry (specifically pigs). They produce a yield of 16.5 times the energy back from food that the put in. By contrast a US Corn farm has an energetic efficiency of just 2.4 and a US rice farm 1.37 (from a slightly dated source, “Energy” 2nd ed by G. J. Aubecht, 1989). And these figures don’t include food miles or post-harvest processing.

The problem as regards meat is that our demand for meat has exceeded that which can be produced by sustainable means. This has forced us to give over not just grazing land, but land which could otherwise be used to grow crops, to provide food for livestock. It has also led to the clear cutting of forests, particularly in South America, to increase land available for food production, much of which is fed to animals to support meat production. In essence we’ve exceeded the earth’s “carrying capacity” for meat production and in order to meet increasing demand we have to pay a higher and heavier price for each kilo of meat.

While there are many health benefits of becoming vegan (a similar program on BBC’s Horizon also addressed these), advocating it as a climate change prevention measure is probably unsellable politically (you’re not going to get the majority to support it just to shave a few grams of carbon emissions). A better strategy might be to argue about bringing meat production levels down to a level we can sustain long term. One recent study suggested that no more than 2 portions of red meat and 7 of white meat per week would seem a more reasonable target, at least within the UK. Again, it’s all about balance.

Figure 7: A graph by Simon Fairlie http://www.theguardian.com/profile/simon-fairlie  from the recent BBC Horizon program showing the limits to sustainable meat production, via plant products (blue, 40MT/year), Food wastes (orange, 110 MT/year) & Grazing land (Green, 40 MT/year). Once we exceed these limits the resources needed increase exponentially [Source: BBC, 2014]

Figure 7: A graph by Simon Fairlie from the recent BBC Horizon program showing the limits to sustainable meat production, via plant products (blue, 40MT/yr), Food wastes (orange, 110MT/yr) & Grazing land (Green, 40 MT/yr). Once we exceed these limits the resources needed increase exponentially [Source: BBC, 2014]

 Travelling without moving

And we’ll likely face a similar dilemma with practically everything else in the next few decades.

For example, one of the key issues regarding peak oil isn’t that we’re “running out” of oil  or other fossil fuels (unfortunately there’s still plenty left, more than enough to cause dangerous climate change). It’s that the global demand for oil and gas has, since 2006, been exceeding the amount that can be extracted from conventional sources. This has forced the world to rely more and more on unconventional sources, which tend to be both more expensive and have a much heavier environmental footprint than conventional fossil fuels. In short, we have to run faster just to stand still.

Indeed one could argue that the entire debate about climate change is one of balance. There is nothing intrinsically wrong with emissions of greenhouse gases into the atmosphere, as noted, the natural world emits significant quantities (as do volcano’s and other geological processes) of the stuff, and the greenhouse effect is central to how the planet’s climate operates. However since the industrial revolution we’ve been emitting far more greenhouse gases than the atmosphere and the biosphere can cope with. A situation not helped by us tearing down rainforests, one of the very mechanisms the biosphere relies on to lock away excess carbon.

So again it’s a question of balance, we could probably maintain our current farming methods and a meat heavy diet. But, we’d need to find a non-fossil fuel means of meeting all of those energy inputs and eliminate other sources of emissions to compensate. Such as, for example, eliminating all non-zero emissions vehicles. Or alternatively, we keep the cars (although we’d still need to find an energy source to power them long term) but cut back on meat production substantially (i.e. Jeremy Clarkson needs to consider becoming a vegan!).

Water wars

And since we’re speaking of farming there’s also water resources to consider. Now it should come as little surprise living on a planet where two-thirds of the surface is covered in vast oceans and where we have thousands of tons of water floating over our heads (called “clouds”), that the earth is not short of water and there is little danger of “running out” of the stuff.

Figure 8: Water shortage’s in some parts of the world are starting to become one of the world’s most urgent and potentially destabilising issues [Credit: Greengif.gr, 2012]

Figure 8: Water shortage’s in some parts of the world are starting to become one of the world’s most urgent and potentially destabilising issues [Credit: Greengif.gr, 2012]

However the problem is that where we need water isn’t necessarily where most of the fresh water resources are located. For example farms in India or the Mid-western USA farmers are frequently forced to rely on ground water pumped up from underground aquifers. And the water levels in these have been dropping alarmingly recently. Again a switch to meat doesn’t help as animals tend to have much higher water demands than crops. All well and good in Scotland when over 4 metres worth of the stuff literally falls out of the sky each year, but not everyone is “blessed” with such rainfall.

Indeed even within the British Isles there can be water shortages, particularly in the South East, where most of the population live. You may enquire; why not just build a big aqueduct between Scotland and Southern England? Of course one has to consider the expense of that, not just to build it, but maintain all of that pumping equipment. And it’s not just a shortage of fresh water, but dealing with waste water that’s the problem. In many parts of the world there is in fact plenty of water, it’s just it’s been contaminated by pollution or sewage from some source or another.

So again it’s a question of balance, there is a certain level of water use that is sustainable. Exceed this and suddenly you’re being forced into making lots of very expensive decisions, as well as imposing a substantial strain on the environment (which long term may well result in less water being available). Thus better conservation of water resources is probably better than spending loads of money on massive civil infrastructure projects, but also better management of waste water.

And it’s probable we’ll have to make some tough choices about whether for example farming in certain arid areas of the world should be sustained long term. Particularly once climate change starts making for erratic rainfall patterns and droughts in certain vulnerable regions, notably the Mid-Western states of the USA.

This is why sometimes wonder if the symbol of the environmental movement, rather than a Panda, should instead be a set of weighting scales.

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Hoovering up some trouble

There was much talk this last week or so about new legislation from the EU to limit the power rating of vacuum cleaners. Inevitably, this got the wholly eared anti-EU brigade worked up into a right old frenzy . The EU wants to ban beloved Henry the vacuum cleaner the Daily Mail claims….actually we have a Henry at work and unlike the tabloids I actually checked its power rating and at 1,200 Watts it’s not effected by present limits, although it might fall foul of the reg’s in a few years time.

Figure 1: Is the EU really trying to ban Henry?

Figure 1: Is the EU really trying to ban Henry?

Indeed the swivel eye’d UKIP types failed to notice that the bulk of the vacuum cleaners that would be affected tended to be cheaper ones, often coming from Asia, while the more expensive and often more energy efficient ones, such as Britain’s Dyson for example, will scarcely be affected by these rules (although Dyson is worried about the future direction of this legislation). You’d have been forgiven for a moment into thinking UKIP were lobbying on behalf of Chinese manufacturers and against British jobs.

It is important to put this legislation in the proper context. In effect what the EU is doing, a measure approved by heads of government in 2010 and 2013 (including Cameron I might add), is building on efforts to limit the emissions from cars and road vehicles. Since the 90’s increasingly stringent measures being gradually applied to all new road vehicles, not only in the EU but also Japan and the US. This has seen dramatic reductions in emissions from vehicles, with the benefits of improved fuel economy and reduced air pollution.

Figure 2 - Falling vehicle emissions within the EU [Credit: SMMT.co.uk, 2012 http://www.smmt.co.uk/co2report/#new-car-co2-emissions ]

Figure 2 – Falling vehicle emissions within the EU [Credit: SMMT.co.uk, 2012]

Then as now, the naysayers argued that this legislation was impossible to implement, it won’t work, people want cars with big engines, they won’t buy ones with smaller engines, the car industry would collapse and Europe would become one giant Cuba where people would hang onto the old gas guzzler well past its use by date rather than swap it for some Trabant type EU approved cars. Needless to say the opposite proved to be true.

Most people (other than Jeremy Clarkson) don’t care what size engine their car has, so long as it delivers the level of performance they are looking for. So if by for example using better engine management, or fitting a turbocharger, a car manufacturer can get a 1L engine to do the same job as previously you’d have needed a 1.4L (a tactic called “engine downsizing”), most car buyers don’t really care. Indeed many will take the 1L option with its lower road tax, better fuel economy and lower running costs. As I described in a previous post, once forced to change by legislation, car makers quickly discovered all sorts of tricks they could pull to reduce emissions and improve fuel economy of cars.

My car (a Clio) for example gets about 48 mpg, while the latest version of the Clio (a hybrid) is about to be launched in France boasts a fuel economy of 141 mpg. While it will probably deliver closer to 70-80 mpg (by my reckoning) on non-BEV and comparable drive cycle to the older version, we’re still talking of a near halving of fuel consumption.

Figure 3: EU proposals on electrical goods builds on the success of legislation introduced to clean up cars, the XLR for example boasts a fuel economy of over 300 mpg! [Credit: CNET.au, 2010]

Figure 3: EU proposals on electrical goods builds on the success of legislation introduced to clean up cars, the XLR for example boasts a fuel economy of over 300 mpg! [Credit: CNET.au, 2010]

And sales of cars, in particular the more fuel efficient ones has soared while it is the gas guzzlers that are heading more and more for the scrap heap. Indeed while European and Japanese car makers have increased market share since this process started, US car makers (who managed to lobby Congress under G. W. Bush to scrap efficiency measures) went bankrupt as customers voted with their feet and choose more fuel efficient European and Japanese cars instead.

So in essence the plan is to do the same to electrical goods, not just vacuum cleaners but hair driers, fridges, toasters, washing machines, etc. And this is based on reports from within the scientific literature which detail how such reductions are possible, through better design of such products. And as Britain’s Dyson have long demonstrated, a more powerful motor doesn’t guarantee you a cleaner with good suction, no more than a car with a large engine guarantee’s anything other than a higher fuel bill

But does this legislation go too far? Well yes and no I’d say, the devil is in the detail. For example Dyson, while broadly in favour of this directive is attempting to have a judicial review of how the system rates different vacuum cleaners. Given that it tests them empty this puts his bag-less units at a disadvantage over its rivals.

It is also worth remembering that the point of legislation against vehicles wasn’t just about carbon emissions and energy efficiency, but about all the other nasties coming out of a vehicle’s tail pipe (NOx, SO2, COx, etc.). These emissions represent a major health hazard, which is hardly fair on the many people (particularly those with chronic lung conditions) who choose not to drive but still have to inhale the fumes every time they go outside. Similar smoking bans were justifiable given that not everyone chooses to smoke and the rest of us would rather not have come home smelling like an ashtray.

Of course, equally it’s important to remember where the electricity to run a hoover comes from i.e. likely a fossil fuel plant, including in the UK still some coal fired stations, with a massive level of emissions (and again its not just carbon dioxide we’re worried about). But that said, there is a bit of a difference between the indirect emissions from a hoover and the direct emissions from a car.

Also the success of previous legislation covering vehicle emissions, improved building standards or the phase out of the old incandescent bulbs, was a good rapport with the industry itself. Indeed incandescent bulbs were never actually banned, the manufacturers voluntarily withdrew them from sale (admittedly under the threat of an outright ban). This doesn’t seem be the situation in the case of vacuum cleaners.

It is also important to assure the public that the products on sale will be able to do the same job as previously; otherwise you’re going to get the sort of hysteria with people hoarding light bulbs due to the mistaken belief that they are cheaper (which is only true if the electricity was free!) or because they don’t produce the “correct” lighting (the consumer group Which? have a buyer’s guide that addresses a number of these issues).

Figure 4: Comparison chart of different light bulbs [Source: Which? 2010]

Figure 4: Comparison chart of different light bulbs [Source: Which?]

To me this highlights the need for a carbon tax in place of VAT. It would work like this, the VAT rate for any product would be calculated according to the product’s lifetime carbon footprint. Thus products with a relatively low carbon footprint and high efficiency will come with a very low rate of VAT (or possibly even zero), cheaper made but less efficient products would pay a higher rate of tax, probably to the point where it made no economic sense to buy them.

Furthermore this tax would apply to the full life cycle of the product. Therefore when the time came to get rid of the car/vacuum cleaner/fridge some of the tax (say 50% of it) would be repaid if it was disposed of sensibly (e.g. recycled), noting that an up-front surcharge would have already been applied at purchase for its disposal (a number of EU states already have this policy, where you pay for a product’s end of life disposal the day you buy it). This would of course solve a whole host of problems, notably fly tipping.

While one can accuse the EU commission of being a little heavy handed and somewhat undiplomatic, the fact is that the only limitations of consumer choice they are implementing is removing the option to choose to be screwed over by a manufacturer selling stuff which seems to be cheaper, but actually works out as having much higher running costs (and thus an higher overall cost of ownership).

But this legislation is no excuse for the Tabloids and their allies UKIP (who seem to have done very little over the last few years to stop this bill’s passage through the EU) to stir up panic buying just to suit their agenda by creating a false controversy. Indeed I might also note that the Daily Mail seemed to be trying to profit from this by offering to sell its deluded readers some cheap knock off stock. Either way it shouldn’t distract from the need to improve energy efficiency as a key part of our future energy strategy.

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Energy Monopolies

Figure 1: Community owned wind farms are a big part of any energy solution [Credit: eaem.co.uk, 2012]

Figure 1: Community owned wind farms are a big part of any energy solution [Credit: eaem.co.uk, 2012]

One of the things I’ve long liked about renewables is the fact that they are infinitely scalable. They can go from a GW scale array of wind turbines or a dam, right the way down to a solar panel or a water heater on the roof of a house. This smaller end of the scale is handy as it offers a way to get around the big six energy firms and effectively turn your house into its own power station.

 .                                                                                                                                           .
A key part of Germany’s renewable energy strategy has involved both individual ownership of renewables but also by community owned co-operatives. Where for example the residents of a village or a group of farmers come together to buy and build their own wind farm, using the electricity themselves or selling it back to the grid. It is this bottom up approach to energy that is the reason why the Germans have been able to install much renewables infrastructure without significant need to taxpayer support and without many objections from locals to wind farms (given that after all, its their wind farm!).

Figure 2: Break down of the ownership of renewables in Germany [Source: ]

Figure 2: Breakdown of ownership of renewables in Germany [Source: German Renewables agency, 2013]

However the big six, anxious to protect their monopoly and the Tories, anxious to encourage a dash for gas have been trying to stop such free market notions from spreading to the UK. The government has been blocking efforts to found such co-operatives, while the utilities have begun to charge excessive amounts of money for the all-important grid connection.

 .                                                                                                                                           .
And this is not just a UK phenomenon. In the US, noting that one or two of the UK’s big six operate over the pond, similar efforts to promote locally owned renewables have faced opposition from the energy firms and their political allies. This has led to the formation of the so-called “green tea party” who are committed to the normal tea party values of small government, but recognise that renewables can help them to live independent of government, and thus they are strong supporters of community ownership schemes and other pro-renewable incentives.

 .                                                                                                                                           .
For the last couple of months, and with those winter bills fast approaching, the energy companies have been pulling every excuse they can think of out of the book to explain high energy prices. Firstly they claimed it was high wholesale gas prices. Then it was pointed out that while they seem very fast to put prices up when the gas price goes up, they were very slow to put them down with the gas price fell.

 

And the obvious solution to this would be to build more wind farms, as this tends to insulate against sudden peaks in gas price.
Next, they claimed it was green energy tariffs, convincing the government to get rid of such charges, against the advice of many within the energy industry. Of course they make up about 6% of the average energy bill and cannot possibly explain a 40-175% rise in energy bills over 5 years.

Figure 1: Breakdown of an average Bill [Source: BBC (2012) http://www.bbc.co.uk/news/business-15352599 based on Ofgem data]

Figure 3: Breakdown of an average Bill [Source: BBC & Ofgem (2012)]

Recently the energy industry suggested that the reason for high bills is not that they are a price gouging monopoly, but in fact due “over regulation” of the industry…which is a bit like the mafia claiming that the reason why there is so much crime is because there’s too many cops. I suspect next month they’ll be claiming bills are high because the dog ate their homework.

 

The real reason for bills being high however is that our present energy market is run by rules written by 80’s era yuppies for yuppies. The Thatcher government turned the UK energy market into a casino where traders could buy and sell energy. It also led to the consolidation of the UK’s energy supply into a handful of large firms. And as I’ve pointed out before for capitalism to work, there has to be competition, else it can end up less efficient and more costly than the public sector.

 

With no effective competition, the big six have no major incentive to build new power stations, even if this risks the lights going out…in fact given that this would push up energy prices and lead to higher profits the energy companies have if anything a perverse incentive NOT to invest in new infrastructure. Hence why recently the taxpayer was forced to step in to pay for the next generation of nuclear power stations…or more precisely we’ll be paying via our energy bills for the next 60 years!

 

Clearly one of two things needs to happen, re-nationalisation of large parts of the grid, or changes made to how these companies operate to ensure serious and effective competition between them. Or allowing new players into the market, such as these community led schemes.

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Shipping and Carbon emissions

Figure 1: Shipping needs to clean up its act [Source: Flickr/Tom Turner/SeaTeam Images, 2009]

Figure 1: Shipping needs to clean up its act [Source: Flickr/Tom Turner, 2009]

One of the problems with carbon emissions is that certain sources of said emissions are often invisible to us. There is as it were a herd of carbon elephants in the room which we tend to ignore because we can’t see them (out of sight, out of mind). And one of those elephants is international shipping. There are an estimated 90,000 commercial cargo ships worldwide, transporting countless millions of tons of cargo on a weekly basis. The ability to move such large quantities of material around the planet, cheaply and efficiently is critical to global trade. Indeed large quantities of the world’s fossil fuels are ultimately move by ship.

Figure 2: If the Global Shipping fleet was a country it would be the 6th largest source of emissions [Source: IMO (2009)]

Figure 2: If the Global Shipping fleet was a country it would be the 6th largest source of emissions [Source: IMO (2009)]

As figure 2 shows, the global shipping fleet does represent a substantial portion of carbon emissions, more than Germany in fact. A situation made worse by the fact that shipping has generally avoided the sort of legislation that has applied to vehicles, aircraft or power stations over the last few decades. As a consequence it’s not just the carbon emissions we’re worried about but everything else, notably the very high emission rates for sulphur and NOx from shipping (which until recently was hundreds of times higher than is legal for cars). About 10% of global sulphur and 30% of NOx emissions are believed to come from shipping. Already legislators in both the EU and the US are showing signs that they plan to take action and enact legislation to cut back the emissions from ships.

That said, we have to put the emissions from shipping in context. While the overall emissions from a ship can be high, relative to the cargo they carry (i.e. g CO2 per kg per km) shipping cargo results in much lower emissions than via planes or trucks. So eliminating shipping isn’t necessarily a good idea, if we assume said cargo will have to be transported one way or another. Cleaning up the shipping industry’s act is a more sensible option. For as we’ve seen with vehicles and other applications, there are a host of simple ways to cut emissions.

Figure 3: While shipping emissions are high, one has to put those emissions in context of alternative means of transport [Source: Shippingandco2.org, 2012]

Figure 3: While shipping emissions are high, one has to put those emissions in context of alternative means of transport [Source: Shippingandco2.org, 2012]

All too aware of the way things are heading the IMO has itself brought out a number of reports which suggest some practical steps to cutting the shipping fleet’s emissions. The DNV has also released a report entitled “shipping 2020“, which discusses the various options at the disposal of ship owners in order to curb emissions.

Figure 4: A summary of current and upcoming ship emissions legislation [Source: DNV, 2012]

Figure 4: A summary of current and upcoming ship emissions legislation [Source: DNV, 2012]

One of the first ideas is slow cruising. By just cutting the speed of ships, by 20% the emissions generated can go down by as much as 40%. Of course this is not just a straightforward case of the skipper pulling back on the engine telegraph. Slower speeds means longer transport times, which can be an issue for companies dependant on “Just In Time” manufacturing strategies. Also its not necessarily good for the engines, as some ships run on two-stroke engines that are designed to run at a particular speed for minimum wear and maximum efficiency. Hence you end up with more maintenance issues. And of course there are times a captain has to order full steam ahead (to get out of the path of a hurricane, escaping pirates off the Somali coast, etc.).

Also there is the option of changing the fuel used. Currently many ships still use bunker fuel, which is basically the lowest grade of fuel, typically one step up from the stuff that we tar roads with. As you can imagine the pollution generated by such fuels can be considerable. So simply swapping to diesel fuel can have significant benefits, not only lowering sulphur and NOx emissions but potentially greater efficiency and improved flexibility. While it’s difficult to be specific as to carbon emissions (again depends on a host of operating parameters, I nice paper about that here) you are talking about a drop of at least 5-10%.

Figure 5: Diesel v’s Bunker fuel (aka fuel oil) [Source: NOSCA, 2013]

Figure 5: Diesel v’s Bunker fuel (aka fuel oil) [Source: NOSCA, 2013]

However the major disadvantage is cost, diesel is generally a much more expensive a fuel, hence why some in the industry haven’t given up on fuel oil and are hoping new blends of the stuff will be sufficient to satisfy NOx and Sulphur abatements by the time they come into force.

Another fuel option is LNG. Already some LNG transporters have dual fuel engines that can consume the boil off gas and use it to power the ship. However the idea is being floated of running entire cargo ships on LNG. While its generally a more bulky fuel than diesel, given that cargo ships tend to have a certain level of free deck space, retrofitting containerised fuel tanks won’t be that problematic for many ships. It is suggested that emissions of sulphur could be cut by 90-95% and carbon emissions by 20-25% by this measure. LNG also happens to be generally cheaper as a fuel than many other alternatives, such as diesel.

Of course there are issues here. Some ship engines are not compatible with using LNG. The cost of retrofitting such ships to run on LNG would likely be prohibitively expensive. There are also safety issues to consider, as some ships carrying hazardous cargo have to be cautious of what they carry, and having a couple of containers of LNG on the deck just might not be a good idea from a health and safety point of view, although one assumes purpose build LNG ships would have adequate safeguards in place to avoid these issues.

 

Power plant changes

Figure 6: Marine engines tend to be on something of a different scale to any other vehicle! [Source: Wartsila http://www.emma-maersk.com/engine/Wartsila_Sulzer_RTA96-C.htm ]

Figure 6: Marine engines tend to be on something of a different scale to any other vehicle! [Source: Wartsila]

Still another option would be to change the powerplant altogether. As noted, many ships still use two-stroke diesel engines. While it’s a bit of an unfair generalisation to say that four stroke diesel engines are better (this paper discusses the different performance of engines and fuel types in a little more detail), diesel engines do tend to last a bit longer, provide higher efficiency (thus better fuel economy) and lower emissions. Obviously this would have to be done at the construction stage for ships, although it should be noted that one of the disadvantages with four stroke engines is that then tend to be a good deal more expensive.

Marine Gas turbine engines are another option. This involves putting the same gas turbine engines used on planes or power stations and using it as the main powerplant as a ship or in combination with diesel engines. The benefits are greater power to weight ratio’s and higher fuel economy, but at the expensive of higher capital costs. While such engines have generally been used up until now  in relatively small and fast naval vessels, increasingly larger ships are being fitted with them. For example the new UK Aircraft carriers will be powered by Gas Turbine engines as were the previous Illustrious class helicopter carriers.

Civilian operators have been slow to adopt gas turbines, again largely due to cost. But its an idea that is catching on, particularly for cruise ship’s as they tend to have higher electrical demand (the new Queen Mary 2 will use a mix of GT and standard diesel engines). Gas turbines are well suited to this role, as well as supporting dual fuel operation.

This of course brings us to the idea of integrated electrical propulsion, effectively adopting the same idea as hybridisation in cars, where the ships engines are merely used to generate electricity, with electric motors, typically water jets or mounted in Azimuth pods, actually move the ship. It should be noted that the fuel economy benefits of hybridisation, aren’t quite as good as those for automotive…given that ships tend to plot along at 20 knots while cars have to deal with stop and go traffic.

Figure 7: Modern ships increasingly use Electric motors mounted in Azimuth pods to drive the ship [ABB Marine]

Figure 7: Modern ships increasingly use Electric motors mounted in Azimuth pods to drive the ship [ABB Marine]

However the technical benefits tend to include the simplification of the drive train (e.g. no need for a gear box), improved ship manoeuvrability (some modern ships can practically turn on a dime if needed!) and the fact that the power plant does not need to be located towards the bottom and rear of the ship (as it doesn’t need to be physically connected to the propellers anymore), which allows greater flexibility in terms of ship design.

 

Streamlining and aerodynamics

And more flexible ship design can have benefits, notably in much the same way the streamlining of trucks and cars has produced greater fuel economy, doing the same with ships can result in fuel savings. This is of course another way to shave a few kg’s off one carbon emissions, use a hull design that’s more streamlined, generating less drag and thus lower fuel consumption .

Figure 8: Ship designers are increasingly looking at more streamlined ship designs to improve fuel economy [Source: Nissan USA http://www.nissanusa.com/innovations/innovation-for-the-planet.article.html]

Figure 8: Ship designers are increasingly looking at more streamlined ship designs to improve fuel economy [Source: Nissan USA]

 

Renewable alternatives

Obviously a number of the benefits discussed could go a long way towards reducing carbon emissions from shipping, but most generally involve ships that still run on fossil fuels. Could it be possible to propel ships with renewables? After all, before steam power came along most of the world’s trade was carried on wind propelled ships.

Figure 9: Could we see a return of the wind jammers? [Source: Marineinsight.com, 2013 http://www.marineinsight.com/marine/marine-news/headline/top-7-green-ship-concepts-using-wind-energy/ ]

Figure 9: Could we see a return of the wind jammers? [Source: Marineinsight.com, 2013]

Experiments have been carried out using wind power to propel ships. These include modern sails fitted to a cargo ship, using giant kites to catch higher altitude winds and so-called rotor sails (these rely on the Magnus effect, the same phenomenon that keeps a football spinning in flight).

Similarly solar powered ships have been tested, with and a number of boats of various sizes powered by PV arrays. The large surface area of many ships could well represent a perfect spot for lots of solar cells. In 2012, the Turanor PlanetSolar successfully circumnavigated the globe operating under solar power.

Figure 10: Recent advances in solar cell and litium-Ion battery technology has resulted in solar power ships [Source: planetsolar.org]

Figure 10: Recent advances in solar cell and litium-Ion battery technology has resulted in solar power ships [Source: planetsolar.org]

That said, to be realistic there are obvious practical problems with this, i.e. what does a ship do when there’s no wind, no sun and it needs to up the speed to get out of danger? One assumes ships will need some alternative form of propulsion as a back-up (the Turanor uses Li-ion batteries to store power overnight). It also seems probable that moving a ship at a decent cruising speed is going to be difficult under renewables power directly, particularly for cargo ships.

Even so renewables can clearly be used to supplement the propulsion of a ship, which helps to lower its overall carbon footprint, much as has been the case with building integrated renewables. Also there is the matter of powering the ship when it is in port. A ship at dock still needs to be powered up, often achieved by running its main engines, using a smaller APU system or connecting up to shorebased power  (so called “cold ironing”). Given the new and increasingly stringent legislation mentioned earlier, running the main engines in power is going to become an increasingly difficult (if not illegal) activity and renewables can help to meet these energy needs eliminating the need for APU’s.

Fuel cells, either running on fossil fuels or directly on hydrogen can also help out in this regard and may indeed provide a long term replacement as the primary energy source for ships.

In some respects building a fuel cell powered ship is somewhat easier than a fuel cell powered car. Ships tend to cruise along at a fixed speed for days, while a car has to perform stop go traffic. The issue of power to weight ratio’s tends to be less of an issue with ships. Both of these factors thus allows the use of more robust fuel cell technology such as Solid Oxide fuel cells instead of the super-expensive PEM types  favoured for cars. Experiments with fuel cell powered ships have been conducted by the Norwegians (a modestly sized cargo ship, pictured), Iceland (fishing boat sized craft) and various smaller inland craft  (such as barges and pleasure craft).

Figure 11: the Viking lady, the world’s first fuel cell powered capital ship ran on LNG [Source: fuelcelltoday.com, 2012 http://www.fuelcelltoday.com/analysis/analyst-views/2012/12-12-05-fuel-cells-for-greener-shipping ]

Figure 11: the Viking lady, the world’s first fuel cell powered capital ship ran on LNG [Source: fuelcelltoday.com, 2012]

That said, a fuel cell powered boat will, if powered by hydrogen, come with many of the same issues mentioned with regard to LNG or CNG, as well as the higher capital costs associated with all electric propulsion. Also at present no fuel cell manufacturer makes fuel cells large enough to power a large ocean going cargo ship, although one assumes existing designs could be just scaled up. There’s also the issue of how a fuel cell will react towards long term exposure to a salty environment such as those at sea. Even so there is at least in the interim a role for fuel cells to play, for example as APU’s for ships in port.

 

Nuclear?

On paper a ship would appear to be an ideal spot to install a small nuclear reactor. While only a handful of civilian ships have been powered by nuclear power  (mostly icebreakers) they have been used for many decades to power naval vessels of all sizes (submarines, carriers, cruisers), so this is proven technology.

However while I hear much enthusiasm for nuclear powered civilian ships from nuclear energy supporters, I rarely hear this from the shipping industry. Perhaps this is because they’ve spent the last 50 years trying to cut down capital costs, maximising cargo capacity of ships, minimise crew size (some are even discussing the possibility of fully automated cargo ships with no crew on board on certain routes) and avoiding getting tied up in pesky government regulations (hence why so many ships operate under flags of convenience).

Nuclear powered shipping involves breaking all of these rules. Nuclear reactors greatly increase the capital costs, reduce cargo capacity, increasing the size of the crew (notably with highly skilled nuclear engineers and the high salaries they command) and one assumes the public will demand that such ships are properly regulated (and one has to question whether flag of convenience nations can adequately do that).

Figure 12: The MV Sevmorput, a nuclear powered cargo ship proved to be a technical success but an economic failure (she is currently awaiting scrapping), the US have seen similar experiences with the NS Savanah [Source: Shipspotter.org]

Figure 12: The MV Sevmorput, a nuclear powered cargo ship proved to be a technical success but an economic failure (she is currently awaiting scrapping), the US have seen similar experiences with the NS Savanah [Source: Shipspotter.org]

And on that issue of public acceptance, its worth pointing out that during the cold war many towns and cities declared themselves “nuclear free zones”, meaning local ordinances forbid the operation or handling of nuclear materials within the city or region. My home town of Cork (a crucial port on the transatlantic route) happens to be one of those. Convincing locals to relax such rules would probably require high safety standards and strict regulations (both of which have largely rendered civilian nuclear power uneconomic). Else nuclear ships could well find a number of the world’s ports and waterways barred to them.

Consequently I don’t see nuclear powered cargo ships as a possibility unless there is a significant change in the way the shipping industry does business or without a major increase in fuel costs.

 

A Greener future?

There are as always solutions to the shipping industry’s problems. A host of modest measures taken in concert can produce a significant drop in the carbon emissions and pollution related to shipping. Some of these options can be easily retrofitted or applied to existing ships, others would require more fundamental changes.

Figure 13: A summary of the different options and the cost benefits, according to the DNV 2020 report [Source: DNV, 2012]

Figure 13: A summary of the different options and the cost benefits, according to the DNV 2020 report [Source: DNV, 2012]

The cargo ship of the future could look radically different from those today. Incorporating many new technologies and concepts, some of which have already been discussed here.

Figure 14: The container ship of the 2030’s as envisaged by NYK http://marineinsight.com/wp-content/uploads/2011/06/090422_Picture_Prototype_model_of_NYK_Super_Eco_ship_2030.jpg

Figure 14: The container ship of the 2030’s, as envisaged by NYK [marine insight.com, 2011]

On which point it’s worth noting that the average lifetime age of a cargo ship is only about 25 years, before its run into the sands off Alang.

Indeed this is perhaps a final consideration, what is the end of life plan for a ship? There is a need for tougher legislation both to control how ships are dismantled, but also how they are constructed with a view to reducing the environmental impact when they are broken up. One possibility is the idea of adopting similar rules as apply to the car industry, where the manufacturer is obliged to participate in the recycling of the very vehicles they built in the first place.

Figure 14: The end of life and final disposal of ships has to be considered [Ex-SS American Star wrecked, Source: Wollex (2004) via wikimages]

Figure 15: The end of life and final disposal of ships has to be considered, pictured is the SS American Star, wrecked off the Canary’s  [Source: Wollex (2004) via wikimages]

Also one has to consider the more fundamental question – do we really need all these cargo ships? Making products closer to home, buying locally manufactured goods does go along way to reducing carbon emissions. Thus the future of shipping could well be one with not just cleaner ships, but hopefully less of them.

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