Friday Climate Focus: Coal Export Bans, Natural Gas is 'Green', 3000 Empty Flights only to keep your Flying Routes, & more
Edition #13
Hi there! Welcome to another edition of Climate Focus.
I hope you have had as wonderful a start as possible to the year. This little pandemic that is trudging along into its 3rd year (and dragging us with it) unfortunately means one must qualify what we can hope for each other.
Today’s edition is a two-part story that begins in the East and ends in the West. This is, of course, besides the Bonus and Banter section at the end of my newsletter.
(On the topic of East and West, and completely unrelated to this newsletter, I used to find it rather comical as a child the Middle East is actually South West Asia. I still do.
“The Middle East is to my west”, he said as he chuckled to himself.)
Part 1: (Another) Energy Shortage in the Cards?
Remember some time last year when there was quite a bit of furore around sky-high electricity prices and energy shortages across the world? It might seem like it was a long time ago (at least to me it does), but it was as recent as October of last year. (Read my post on this: Global Energy Shortage, ca. 2021)
The 2021 Energy Shortage in one line: Increase in demand for electricity post-pandemic and a shortage of supply of coal in China had knock-on effects on India and consequently, Europe.
China ordered its domestic mines to exponentially increase its coal production to meet the spike in demand and to reduce spiralling electricity prices. India and Europe did a few things to stave off a worst-case scenario.
In what is an additional instance that is questioning the association between coal and energy security of countries, a potential decrease in coal supply to China this month is raising fears of another impending energy shortage.
Earlier this week, Indonesia banned coal exports for a month citing a shortage to meet domestic residential and industrial requirements.
Indonesia is the largest supplier of coal to China, after China banned all imports from Australia last year, including coal, amidst an ongoing diplomatic dispute.
Commodity prices are always a leading indicator of all good and bad things, and coal futures in China rose nearly 8%, and is affecting prices of other industrial commodities too.
This is after a near 6% increase a couple of weeks ago over the government’s crackdown on illegal mining.
My $0.02
There are a couple of reasons to not sound the alarm yet:
Indonesia’s ban may yet only apply on cargoes that haven’t been loaded, which means China could receive imports through the first half of January
The country’s coal demand tends to fall towards early February when factories shut down in the build up to Lunar New Year
China is sitting on a comfortable stockpile of reserves off the back of record coal production in the last couple of months of 2021, although the crackdown on illegal mining could result in lower than expected replenishment
China has been ramping up imports from Russia in recent months
With that said, the Indonesian export ban could set off a domino effect on supply to other major economies and regions. Especially, with the following situation continuing to be of relevance since the time I had written about it previously -
Volumetrically, China’s demand has absorbed 80 percent of the growth in global LNG supply. In other words, 80 percent of the new LNG produced in 2021 has gone to China, forcing the rest of the world to apportion the remainder. Europe has lost out, its imports falling 20 percent.
Right, that’s a nice segue to the second part of the story.
Part 2: How Green Must ‘Green Fuels’ Be?
When you want to transition to a green economy like the European Union committed to do by 2050, it is important to establish a common classification that spells out which economic activities qualify as sustainable or green practices.
The European Commission introduced the Taxonomy Regulation to do just that in 2020 and it is a work-in-progress.
The primary objective of the regulation (and rightfully so) is to redirect money towards sustainable projects and allow for a coordinated scaling of sustainable technologies.
Earlier this week, the European Commission began consultations with its member countries over affording green labels to natural gas and nuclear energy.
And that’s when everybody went…
A short explainer:
Nuclear power does not emit greenhouse gases but produces toxic waste that requires safe disposal and can pose radiation risks.
Natural gas is mainly made up of methane, which has more potent global warming properties than carbon dioxide in the near term, that can leak during production and distribution.
The green labelling system is expected to cover 80% of the total greenhouse emissions in the EU, and is considered an important step to address the transition challenges of its different member nations and what runs their electricity grids.
Both these fuel sources are expected to play an integral role “as a means to facilitate the transition towards a predominantly renewable-based future” of Europe. The new classification will pave the way for mobilising private investments into new gas plants for the coming decade, and into nuclear plants for the coming two decades.
My $0.02
The risk profile of each of these sources is so vastly different that I don’t think it is appropriate to talk about the two in the same breath. My personal opinion is that while nuclear has had and continues to have its set of problems, the backlash about its inclusion is ill-advised, given its potential to provide reliable, affordable, zero-carbon energy.
You can quote me on this: The European Commission made the right call by classifying nuclear energy as ‘green’.
For the purpose of this post, I will discuss the implications of calling natural gas as a ‘green’ fuel.
Gas plants can receive the green label in one of two ways.
One is if they produce less than 100g of carbon dioxide equivalent for every kilowatt hour of electricity over the project’s lifetime — the average carbon intensity of EU energy is 230 grammes of greenhouse gases for every kilowatt hour.
The second is if they meet several conditions, including being built before 2030, emitting less than 270g of CO2 per kilowatt hour and not providing a substantial amount of additional electricity capacity compared with the plants they replace.
The pro-nuclear bloc led by France, and the pro-gas (tee-hee!) bloc which includes Southern and Eastern nations advocated that the taxonomy not punish existing sources of energy that predominantly supply Europe’s energy demand.
Remember that energy shortage that we were just talking about? It most certainly made a better case for these nations.
To give the European Commission its due, calling natural gas a ‘transitional’ fuel is the best they could do. Moreover, it apparently comes with strict guidelines, based on scientific evidence, for new gas plants replacing existing fossil fuels on emissions per unit of electricity generated.
The EU currently imports ~75% of its natural gas requirements, most of which comes from Russia. I wrote about Russia’s strained relationship with, well, practically all the countries that matter in the West, in the context of the energy crisis. Here is a short excerpt.
From Russia, With(out) Love?
Russia supplied nearly 40% of Europe’s natural gas demand in 2019 and 2020, but has since scaled back distribution. Natural gas flows per day in the 2000-km Yamal pipeline, that originates in Russia and ends in Germany through Belarus and Poland, fell to just below a quarter of its typical rate in July this year and hasn’t increased since.
There have been claims that Russia has intentionally reduced supply, with a view to hasten approvals for Nord Stream 2 (NS2). NS2 is an underwater gas pipeline proposed to be constructed across the Baltic Sea that would directly connect Russia and Germany.
NS2 comes with political baggage, primarily because it takes away Ukraine’s leverage to be relevant to the European energy landscape. Ukraine is an important ally to the West, and the EU-bloc did not view Russia’s incursions in Crimea very kindly.
There’s no way to know Russian motivations for sure, but educated guesses can be made.
Germany announced last month that a decision on the approval of Nord Stream 2 is unlikely until the second half of 2022.
In the meanwhile, Russia resumed supply of natural gas to Europe via the Ukraine pipeline earlier this week. It had remained suspended since April of last year.
If you take all this into consideration and add the energy situation in China, it is understandable that the European Commission wants to mobilise capital to improve its domestic supply of natural gas while balancing its ambition to be a global climate leader.
Russia’s vast energy reserves means it holds sufficient leverage in this geopolitical chess that’s going on. Watch this space closely.
Bonus
#1/ The 1,000 km range threshold in EVs
Quick question: What does it take to build a prototype electric vehicle that covers a 1,000 kms on a single charge?
Two things:
— Engineering inputs from a Formula 1 and a Formula E team.
— 117 neatly integrated solar cells on the roof of a car
Mercedes-Benz unveiled their latest electric vehicle with a range that is sure to allay doubts among its customers about lack of charging infrastructure when on the road. And this was achieved with the help of the elite engineering nous from its motorsport arm. The on-road version which is expected in 2024 or 2025 will apparently have twice the range of a fully charged Tesla Model S.
Another exciting aspect of this development, and something that I am personally applauding, is the application of the technological advances that come with this vehicle in medium and heavy vehicles - the holy grail of electric mobility.
#2/ In Today’s Edition of “Yet Another Company Being Climate-Callous”
#3/ This one is for fellow Data Nerds out there
#4/ It’s not a good time to be Royal Dutch Shell
In what is a victory for climate activism, a court in South Africa ordered Royal Dutch Shell to temporarily suspend all seismic surveys after local communities took legal action. This comes after a groundbreaking judgement last June by a district court in The Hague that ordered the company to reduce its global emissions to 45% of 2019 levels by the end of this decade.
You can read more about the more recent court ruling in this very wittily titled article: ‘Shell’s Seismic Vessel Leaving South Africa After Court Loss’
Banter
It’s so true that I am not sure whether to laugh or rue what I am seeing