How to decarbonise the transportation sector

Two big bits of news to start: the EU’s sweeping new decarbonisation plan is out. Second, Saudi Arabia and the United Arab Emirates, two pivotal Opec members whose spat derailed the cartel’s recent meeting, have patched up their differences, at least for now. Oil prices fell on the news.

Hello again from Energy Source, which taps into a feast of reports that came our way this week. Today’s first note is on the thorny problem of decarbonising the transport sector. Our second is on the International Energy Agency’s new electricity report — and coal’s surprising short-term revival. The third takes in another report on federal policies necessary for a rapid scaling-up of clean energy infrastructure.

And another reader request. I’m doing interviews about the implications of the EU’s new carbon border adjustment mechanism — part of today’s big unveiling in Brussels, explained beautifully here. (For some of the internal intrigue about the EU’s move, check out today’s newsletter from our colleagues at Europe Express.) If you have views about what it will mean for American oil and gas exporters, please drop me a note at derek.brower@ft.com. Thanks!

A multipronged approach is needed to decarbonise transportation

Electrifying everything isn’t the answer for decarbonising our planes, trains and automobiles.

At least that’s the takeaway from a new deep dive on decarbonising the transport sector from the Clean Air Task Force, a climate focused non-profit group. CATF argues getting to net-zero emissions is going to take a radical re-plumbing of the global transport sector with roles carved out for batteries, hydrogen, biofuels and maybe even some oil.

For nearly 100 years oil has dominated the transportation sector, providing the fuel for basically everything we use to move ourselves, and all our stuff, around the world. Finding a carbon-free replacement is among the thorniest problems for any path to a net-zero emissions economy.

Some climate activists have argued that electrifying everything, essentially swapping out gasoline, diesel, jet fuel and fuel oil for batteries (charged with clean electricity), is the best way to clean up the transport sector’s emissions — which account for around 30 per cent of the US total.

“There is a lot of support out there for electrifying everything, and there’s a sense that any policy that promotes technologies that aren’t part of electric vehicles is somehow, you know, capitulation,” Jonathan Lewis, senior counsel at CATF and one of the report’s authors, told ES. “We don’t see it that way.”

Rather, CATF argues that batteries might work for our cars, but clean hydrogen could work better for the 18-wheelers hauling goods from coast-to-coast. Carbon-free ammonia might prove the most cost-effective fuel for shipping goods across oceans. Biofuels or continued use of jet fuel, with emissions offset through carbon capture and storage or other technologies, could be best for planes.

“Those other technologies, particularly zero-carbon fuels like hydrogen, are going to be absolutely essential to decarbonising the whole transportation sector, which has to be the goal,” Lewis said.

One of the biggest challenges this poses for policymakers is that it is not clear yet which technologies are going to work best in which sectors.

“There’s a tendency to want to figure out the best technology for decarbonising transportation and what’s the policy that gets us to that technology as quickly as possible,” said Lewis. “One of the problems with that approach is that the likelihood of failure is higher if you’re simply putting all your eggs in one basket . . . we just don’t know how these systems are going to work yet.”

Instead of locking in particular technologies, policymakers should set broad targets on emissions reductions from the sector — such as a zero-carbon fuel standard by 2050 — but let companies in different sectors experiment with various strategies and fuels to get there, the report argues.

“Some may work better than we expect. Some may work not as well. So having multiple zero-carbon energy carrier technologies and multiple policies for promoting their use really increases the chance of success,” said Lewis.

(Justin Jacobs)

IEA report: coal makes a comeback

Remember last year, when the world was going to “build back better”? It’s not happening yet. 

A new report from the International Energy Agency, showing that global electricity demand is expected to rebound after last year’s dip, will sound some alarm bells. Coal is back (see Data Drill). Its resurgence will send global power sector CO2 emissions to all-time highs. 

The IEA’s road map for net-zero emissions by 2050 called for a 6 per cent decline in coal-fired generation annually. Yet coal will grow by almost 5 per cent this year, and another 3 per cent in 2022, hitting a new peak, the report says.

“Stronger policy actions are needed to reach climate goals,” the agency says in the semi-annual Electricity Market Report, out today. But while 70 per cent of emissions come from countries where governments have made net-zero pledges, “less than one-quarter of regions with a pledge have set this in law, and most lack a detailed implementation pathway”.

Among the report’s key findings:

• Renewable generation will keep growing quickly (8 per cent in 2021 and 6 per cent in 2022), but will only meet about half of the forecast increase in demand. Fossil fuels, primarily coal, will fill the gap.

• Coal’s share of electricity in the EU — which just unveiled its big decarbonisation plan — climbed back to its pre-pandemic level this year, thanks to nuclear plant retirements, high natural gas prices, and lower wind power output. Some EU countries sped up their coal phaseout plans, the IEA says, so coal’s European revival should be shortlived. 

• Coal use bounced back in China too, and now accounts for 66.5 per cent of all generation, higher than in the past two years. The country now holds more than half of the world’s total coal generation capacity. (China added about 20 gigawatts of coal last year — equivalent to the solar additions expected annually in the US in the next two years.)

• But China accounted for almost half the 280 gigawatts of renewable capacity added worldwide in 2020. All told, global renewable additions will keep rising, albeit more slowly in the next few years.

• CO2 emissions from electricity generation fell 1 per cent in 2019 and 3.5 per cent in 2020, but will rise by 3.5 per cent this year and 2.5 per cent in 2022, hitting an all-time high.

(Derek Brower)

Federal policy, not markets, will drive the energy transition, new report says

The US government must create broad incentives for renewable energy, from carbon pricing to clean energy standards to market reforms, says a new report by the Aspen Economic Strategy Group.

“The problem of climate change is vexing, and not one that private markets will solve on their own,” Severin Borenstein, faculty director at UC Berkeley’s Energy Institute, and Ryan Kellogg, a University of Chicago professor, write in the report.

Rather, more government funding for the research and development of clean energy technology is needed, as well as the centralisation of federal authority over long-distance transmission, the report says. The latter would prevent states from halting construction of cross-country power infrastructure. The government should also improve the reliability of electricity markets and make retail electricity prices more transparent and affordable. 

The report also emphasises the need for a just transition, recommending that licenses for clean energy technology be free to other countries and that policies address the needs of displaced workers and disadvantaged communities.

“Federal policy choices will play a leading role in determining whether, where, and when these investments will occur, how costly they will be, and who will bear those costs,” it states.

The Aspen Economic Strategy Group recommendations are timely. They come a day after Senate Democrats announced a $3.5tn spending plan that includes nearly $1tn in funding for climate change initiatives. Energy Source will be closely following the viability of the Democrats’ plan, particularly after politicians and activists’ criticism of Biden’s bipartisan infrastructure plan for failing to appropriately address climate change.

(Amanda Chu)

Data Drill

As Derek mentioned earlier in the newsletter, coal production is ramping up, according to the IEA. Its use in power generation will rise again over the next year (see above), and prices are climbing. But a new Moody’s report says the boom is temporary. With companies and countries under mounting pressure to reduce emissions and meet climate targets, coal will be the long-term casualty.

The industry is also now laden with hazard for investors. In the past two years, credit risk for coal increased by over 30 per cent.

And social opposition is not the only risk for coal production. The fossil fuel’s poor credit rating is also because of the high health and safety risks, waste hazards, and poor relations with local communities, according to Moody’s. Even in Asia, which is still a huge coal consumer, coal will face long-term decline. In April, President Xi Jinping announced that China’s coal consumption would peak in 2025. 

Oil and gas companies are also in danger — they saw the greatest increase in credit risk over the past two years. Still, they are more than three times more likely than coal companies to be investment grade. (Amanda Chu)

Power Points

• The rise of EVs demands investment into power grids.

• Pipeline cancellations force companies to rethink how they transport oil and gas.

• Oil majors insist hydrogen will soon become economically viable. 

• Snam CEO cites hydrogen as key to the energy revolution. 

• UK retirement of nuclear reactors could halt decarbonisation efforts.

• Virtual power plants help reduce energy costs and pressure on grids.

• Brussels offers financial aid to help achieve climate agenda.

• The Green New Deal does not exist. (The Atlantic)