December 2015: Post Paris Blues

Lydia Powell, Akhilesh Sati and Ashish Gupta, Observer Research Foundation

Climate Change

December was dominated by news on negotiations in Paris and post Paris analysis. India’s call for a just and equitable agreement that takes aim at lifestyle emissions rather than livelihood emissions failed but few in the media thought that this was important enough to be reported. The Paris Agreement was more about the power and tastes of western civil society organisations than about democratic responsibilities and choices of nation states. The influence of civil society organisations such as 350.org that see fossil fuels as the biggest enemy of mankind was much stronger than democratic preferences of large nation states such as India. The media which the civil society trusts as the final arbiter of policy hailed the agreement as historic. Thanks to the simplifying powers of the media the world is now convinced that the complex phenomena of climate change has been conquered by man.

Conventional Fuels

Oil & Gas

Oil prices continued to fall in December. This was both good and bad for India. One of the many reasons why oil prices are low is that global economy has not revived as anticipated. Obviously this has not been good for India as export markets are shrinking.

image (1)

Source: PPAC

This is taking a toll on employment in the manufacturing sector as well as the service sector. Tax take from the petroleum sector is falling and this has led to calls for an increase in ad valorem levy on oil cess. On the other hand low oil prices have enabled higher consumption. This is good for India as higher energy consumption can potentially contribute to higher levels of economic activity. Demand for oil products grew by 6 percent in November but demand growth was not uniform along all products. Petrol consumption continued to show double digit growth while consumption of most other petroleum products including diesel has slowed down substantially. The growth in petrol consumption signals growth in use of personal vehicles. On the other hand the decline in consumption of diesel signals a decline in economic activity. It will not be a good sign if the latter catches up with the former.

The other big headline in December was the ground breaking ceremony for the TAPI pipeline in which the Hon’ble Vice President of India participated. The speed with which announcements of progress are being made on TAPI defiles logic. The world is awash with cheap natural gas and yet this has had little or no impact on consumption levels in India.  In this light, it is not clear why India would rush to consume gas delivered through a cross border pipeline.

image (2)

Source: PPAC

There were reports of an alternative undersea gas pipeline from Iran as well. Only one of the many pipeline options can succeed, even in theory. GAIL was reported to be promoting gas as an alternative to coal based power generation in and around cities. The idea has not worked in Delhi and it is unlikely that it will work in any other city.

The nuclear sector got back on the news in December with the visit of the India Prime Minister to Japan and Russia. India and Japan signed an MoU on peaceful use of nuclear energy. There were announcements of many more nuclear plants from Russia. There was also talk of a policy to fast track nuclear plants. Whether it is promoting natural gas or nuclear energy as fuel for power generation the real problem has been the absence of a clear economic case.  The economic case will strengthen only when demand takes off.

Coal

The lime light was on coal as the climate deal was being negotiated in Paris. Notwithstanding the article in the Paris agreement that seeks to limit funding for non-green energy sources, India  stressed on efficient utilisation of coal resources with minimum damage to the environment. To take the commitment forward, the government announced a plan to bring in a new regime for sampling and testing of dry coal from 1 January 2016 to ensure supplying quality coal to consumers. The decision was the outcome of controversies between NTPC and CIL on the quality of coal. Coal India Ltd (CIL) has roped in additional third­party agencies such as Allied (India), Shree Coal Research LLP, Mitra SK Pvt Ltd, R V Briggs & Company Pvt Ltd. As per the new rules, the authorized representatives of NTPC and CIL shall jointly witness the process of sample collection as per Bureau of Indian Standard regulation. It has also been decided that coal will be crushed before supplying to the consumers from 1 January 2016 onwards. This decision can be seen as an endeavour towards efficiency wherein the customers pays for the quality that is determined independently.

In another major development, the Cabinet Committee on Economic Affairs (CCEA) approved the allotment of coal blocks to PSUs for sale of coal mainly to medium, small and cottage industries under the provisions of the Coal Mines (Special Provisions) Act, 2015 keeping in mind the interest of small and medium enterprises. This is a step towards commercial mining as state utilities will be allowed to sell coal to private companies. This could put an end to the Centre’s monopoly over mining and sale of coal. This will also enhance domestic production of coal and eventually reduce imports.

Apart from this, the Union Cabinet also has approved a policy framework for development of Underground Coal Gasification (UCG) in coal and lignite bearing areas in the country. Central Mine Planning and Design Institute Limited (CMPDIL) has been  selected as the nodal agency for development of bid documents, work programme, conducting the bidding process, evaluation of bids, monitoring and process protocols etc. An Inter-Ministerial Committee under the Ministry of Coal with members from concerned Ministries has been entrusted with the task of identification of the areas, deciding  blocks to be put to bidding or awarding them to Public Sector Units (PSUs) on nomination basis. Given the limited coal reserves, UGC is a way forward towards securing energy security as the method allows extracting of energy from coal/lignite resources which are otherwise regarded as uneconomical to work through conventional mining methods.

Views are those of the authors                    

Authors can be contacted at lydia@orfonline.org, akhileshs@orfonline.org, ashishgupta@orfonline.org

Courtesy: Energy News Monitor | Volume XII; Issue 28

 

Advertisements

Paris Outcome: Guarantee for Sustainable Green Careers

Lydia Powell, Observer Research Foundation

Key decisions and quick comments

  • Limiting global temperature increase well below 2 degrees Celsius, while urging efforts to limit the increase to 1.5 degrees

Why should man think that he is in control of the global thermostat?

  • Establish binding commitments by all parties to make intended nationally determined contributions’ (INDCs) and to pursue domestic measures aimed at achieving them

What is the cost of not meeting the commitment? What if commitments are set on the basis of what would happen anyway? There may not be any ‘additionality in the jargon of CDM.  As the world in general and China in particular are undergoing major structural shifts away from energy (coal) intensive manufacturing, emissions are expected to peak in 2016 without the aid of a Paris treaty

  • Commit all countries to report regularly on their emissions and progress made in implementing and achieving their INDCs, and to undergo international review

Is this called the greening of sovereignty? When international technocracy is given the licence to influence domestic policy, will it not amount to a compromise on democracy?

  • Commit all countries to submit new INDCs every five years, with the clear expectation that they will represent a progression beyond previous one

When achievement of targets is a factor that will be evaluated internationally then will targets not be intentionally set at low levels?

  • Reaffirm the binding obligations of developed countries under the UNFCCC to support the efforts of developing countries, while for the first time encouraging voluntary contributions by developing countries too

Spreading climate guilt equally among 9 billion people will reduce per person guilt and consequently per person cost for the wealthy; Why not also think of spreading per person wealth equally?

  • Extend the current goal of mobilizing $100 billion a year in support by 2020 through 2025, with a new, higher goal to be set for the period after 2025 with public private partnerships

What is the cost of not meeting this commitment? Will business investment now be counted as green aid?

  • Extend a mechanism to address ‘loss and damage’ resulting from climate change, which explicitly will not ‘involve or provide a basis for any liability or compensation’

Isn’t limited liability restricted to the commercial world? Under international environmental law should not the polluter pay for damages caused?

  • Require parties engaging in international emissions trading to avoid double counting;
  • Call for a new mechanism, similar to the Clean Development Mechanism under the Kyoto Protocol, enabling emission reductions in one country to be counted toward another country’s INDC

What is the rationale for revival of failed schemes from the Kyoto era? Will it not provide an incentive for developing countries to increase emissions so that they can be paid to reduce emissions as it in the past? Or is the real motive to re-industrialise the west through the creation of a sustainable green industry and along with it millions of secure and sustainable green jobs?

  • Making finance flows consistent with a pathway towards low greenhouse gas emissions and climate-resilient development

Is this a weapon of mass destruction that targets coal? If so what is the alternative and who will pay for it?

The Paris agreement is hailed as a giant leap for mankind in the history of climate change negotiations. This is certainly true for certain sections of mankind who fought to equalise the unequal world in all climate forums held in the last two decades. The Paris agreement equalises the unequal world by driving the final nail on the coffin that began to be assembled in Durban to bury principles enshrined under the United Nations Framework Convention on Climate Change (UNFCCC) such as common but differentiated responsibilities and respective capabilities (CBDR-RC) and historic responsibility of developed countries in causing climate change.  The ‘other’ larger sections of mankind were counting on these principles for extracting some degree of fairness and equity in any agreement on climate change. The terms annex I countries, non-annex I countries, historic responsibility etc that captured the differences between countries have been eliminated from the text. Though some of the developing countries believe that differentiation is preserved in the Paris text, they would well advised to get themselves the best lawyers who can dig out differentiation in the current text.

What the Paris agreement has done is to demolish opposition raised at Copenhagen over the same issues by developing countries using a sense of procedural justice to cover for the destruction of distributive justice in the agreement. Given that reaching an agreement, irrespective of its quality, is portrayed by the media (and accepted by most people who have come to see the media as the only arbiter of knowledge) as the answer to the complex problem of climate change, the Paris agreement may be labelled as an achievement. The credit for convincing 200 countries to agree to something clearly goes to deft diplomacy by the French who maintained a sense of transparency and ownership of the final text. The French did not replace the official text produced by the Ad Hoc Working Group on the Durban Platform for Enhanced Action (ADP) process with a text of their own as the Danes did in Copenhagen. This helped the process, but according to many observers of the negotiating process, the procedure in Paris was less transparent than the process at Copenhagen.  In place of broad and open representative meetings, the French Presidency held consultative meetings with individual countries based on which the negotiating text was altered several times. Though many sections of the final text were new to the delegates, they accepted it as they felt that they had made a contribution to it.

Overall, the Paris agreement seeks to bring the whole world into a rule institutional mechanism based on unequal market relations similar to most other international institutional mechanisms such as the WTO. It will impose identical prescriptions for carbon emission reduction on all countries regardless of local conditions.  Developing countries will be expected to accept all western prescriptions or risk withholding of aid and finance.  Energy choices will be set by fluid carbon (financial) markets that will be motivated by profit rather than local country or community interest. The final architecture is likely to be non-reciprocal and will be an ideological weapon used to regulate the development of developing countries. This will be couched in feigned concern for Indian or Chinese lungs that are supposedly being congested by local pollution (which has little to do with carbon emissions) or the concern over brown and black bodies being washed away by rising sea levels. Those who dare to ask why there is no concern for the same coloured folk who live under inhuman conditions and die premature deaths in much larger numbers on account of poverty will be consigned to the margins of Marxism.

The rhetoric of equality under the global institutional governing mechanism for climate change will not be matched by developed country behaviour. The last minute wrangling over the words ‘shall’ and ‘should’ in the final text of the Paris agreement by the United States is instructive in this regard. The United States essentially did not want the Paris text to reflect the spirit of the Ten Commandments in which each commandment categorically declares ‘thou shall not steal’ or ‘thou shall not commit adultery’. Instead the US wanted the Paris text to say ‘thou should not steal’ which means that the option of stealing is not completely ruled out. The final text of Article 4.4 said that:

‘Developed  country  Parties should continue  taking  the  lead  by  undertaking  economy-wide  absolute  emission reduction  targets. Developing  country  Parties  should  continue  enhancing  their  mitigation  efforts,  and  are encouraged  to  move  over  time  towards  economy-wide  emission  reduction  or  limitation  targets  in  the  light  of different national circumstances’

This means that not undertaking economy-wide absolute emission reduction targets is an option for developed countries. There is nothing new in the Paris agreement that is not present in other international agreements. All are equal as long as all are under the same rules is the underlying premise. According to the Paris agreement a family living under a plastic sheet on the streets of Mumbai has the same responsibility in addressing climate change as that of a family living in a palace in London. The rationale is that the family under the blue plastic sheet has a non-zero probability (even if of negligible magnitude) of becoming rich, moving into a palace, consuming energy and emitting carbon of the same volume as that of the family in a palace in London and must therefore start paying the price. The fact that paying the price of a prospect with negligible probability further reduces the probability of the prospect is not of concern to anyone. The Paris agreement (or Treaty as the lawyers say it is) does not guarantee an equitable, prosperous and sustainable world. What it guarantees are prosperous and sustainable green careers and green markets that will ensure that the world remains inequitable and troubled as it has always been.

Views are those of the author                    

Author can be contacted at lydia@orfonline.org

Courtesy: Energy News Monitor | Volume XII; Issue 27

 

The ‘Hottest’ Year Ever

Briefing: International Energy November 2015

Lydia Powell and Ashish Gupta, Observer Research Foundation

Carbon Constraints

For those who firmly believe that mandates rather than markets are the best way to control choices of human beings, particularly energy choices, this is the ‘hottest’ year ever. Not only has the World Meteorological Organization (WMO) announced that 2015 is the hottest year ever on record, influential leaders including the Pope and the Presidents of the World Bank and the United Nations have signalled their determination to make it the hottest year ever for striking a global climate deal.

Signing of a global deal is the story that the world has latched on to as it finds it appealing and is likely to stick to it even if evidence of its ability to change the course of the world is lacking. In the oversimplified media narrative China, India and the United States are in the cage reserved for the defendant and the most of the rest of the world on the benches reserved for the plaintiff in the court room in Paris. India and to a lesser extent China are in the cage primarily on account of their physical size or people numbers. The United States is there because of the size of energy the people of the United States consume. There is a big difference but media generalisations do not worry about such nuances. If there is no-deal, one or all of those in the cage will be assigned blame. India may be singled out for blame as it is too vocal in defending its position. Once an enemy (fossil fuels/coal/India/china or a combination of these) is found and punished in Paris the world is likely to move on with its life of production and consumption not realising that it is this life of production and consumption that causes emissions.

Hydrocarbon Markets

The rejection of Keystone XL by the Obama government came as a shock to Canada in early November.  But there was comfort for TransCanada as it received a contract to build a natural gas pipeline to Mexico.  This is the year of a Paris Climate Deal and one could not have expected a different decision from Obama.  A report by US regulators found that aggressive acquisition and exploration strategies from 2010 to 2014 had led to an increase in leverage making many borrowers susceptible to protracted decline in commodity prices. The trouble for Petrobras of Brazil increased with strikes over pay which reduced oil production by over 200,000 barrels per day (bpd). Low oil prices are reported to be impacting Arab Gulf projects. Saudi Aramco is said to be considering delay of expansion plans for a key oil field and also planning postponement of development of an LNG terminal. The international energy agency (IEA) released its world energy outlook for 2015 (WEO 2015) in November. Some of the key trends that the report predicts are a phase out of fossil fuel subsidies in many parts of the world, decoupling between economic growth and carbon emissions, china’s shift to a less energy intensive growth path, India taking over from China as the driver of growth and the return of Iran to the energy markets. The IEA is cautious in its predictions for oil prices. It expects a rebalancing of the oil market at $ 80/bbl in 2020 but hedges its bet with a high probability for prices staying around $50/bbl in the next decade and moving towards $85/bbl only in 2040. IEA does not see a future for coal with its share in the energy basket falling to 10% by 2040 from about 45% now.

Global oil production exceeded demand by roughly 1 million/bpd destroying hopes of a price rebound.  Meanwhile oil production from US shale basins was reported to be declining with the largest declines coming from Eagle Ford. There was speculation over OPEC decisions but most thought that status quo will prevail. A less noticed development was the slashing of natural gas prices by China which could assist in increasing the demand for natural gas.

Coal Markets 

November was a bad month for coal as it was painted as the enemy to be killed in Paris but it was also portrayed as a cause of development. The UK announced its ambition to phase out the burning of coal by 2025. Coal fired electricity generation is expected to be replaced by natural gas and renewable as long as coal-burning plants cannot find an effective way to capture carbon emissions.

Coal may now emerge as the fuel for the poor in poor regions. Interestingly it is already reported to be happening in United States where wealthy states like California are moving most aggressively to stop using coal, while poor states like Kentucky and West Virginia cannot do away with coal.

Rich nations are working aggressively to reduce funding for coal projects. The Organisation of Economic Cooperation and Development (OECD) struck a deal to restrict subsidies used to export technology for coal-fired power plants.

On the other hand Japan stated that Japanese exports of advanced technology for coal-fired power plants will help fight global warming. Japanese Prime Minister Shinzo Abe in 2013 pledged to triple the country’s export of infrastructure that includes power stations to about 30 trillion yen ($244.88 billion) by 2020.

The similar views proposed by World Coal Association in its report “India’s Energy Trilemma” released last month. The analysis shows that replacing sub-critical coal plants by super-critical or ultra-critical technology saves CO2 at a cost of around $10/ tonne in 2035. By comparison, abating a tonne of CO2 through deployment of large scale renewable can cost up to $40/ tonne even accounting for the cost declines expected through 2035.

Though the report is India specific it applies to all developing countries that cannot absorb high cost of cleaner sources. This is important for developing countries because coal is commodity which needs infrastructure to be erected before coal is mined and where it is used. Huge investment (often financed through debt) along with hard work goes into for developing such infrastructure. One cannot turn them into Non-performing Assets under pressure in a single stroke. The fortunes for coal may turn once a Paris deal is signed and the world finds something else to worry about.

Views are those of the authors                    

Authors can be contacted at lydia@orfonline.org, ashishgupta@orfonline.org

Courtesy: Energy News Monitor | Volume XII; Issue 25