Monday, June 15, 2009

Technology and innovation: Climate change Rx?

Jotman's live-blogging of the International Press Institute (IPI) World Congress in Helsinki continues...

I walked from my hotel to Finlandia Center -- the building where the Helsinki Accords of 1975 had been negotiated. It seemed a fitting venue for a high-level panel discussion of what is easily the most pressing and contentious international issue of 2009. Panelists at this morning session included the chairman of the world's largest oil company. According to Forbes, Royal Dutch Shell ranks as the world's second largest company overall-- after GE.

To my surprise, Shell chairman Jorma Ollila came across as far more
environmentally conscious than any number of US political leaders.

Moreover, I did not detect any spin. After the talk walked over and asked Ollila what was going on.

"Look, I may be chairman of an oil company," he told me, "but I'm also a citizen and a human being."

Of course, as chairman of Shell Ollila has had access to the leading scientists and all the data pertaining to climate change. Having examined the research for himself, Ollila came came across as deeply concerned. "Worried" might be a better word. I was struck by the conviction with which Ollila maintained that we have to act -- and act now.

Because based on what the panel told us, time is not on our side. There has been a lot of optimism -- especially in the US about the possibility of solving the climate change crisis with technology. Today's panel discussion focused on how this can be made to happen; on how technology can make for a green future. But the panelists explained why this process will invariably take time. More time, in fact, than most people with a technology background who think about the problem tend to realize at first. Longer, for example, than someone like Ollila had assumed when he first arrived at Shell. Ollila, it so happens, came to Shell from the telecom industry, where innovation happens in the blink of an eye. Today Ollila serves not only as chairman of Shell, but also heads Nokia. It's a clearly a testimony to the perceived importance of technology to the energy industry that Shell brought a former Nokia executive to the helm. Speaking with Ollila after the presentation he told me, "Shell has long been the most technologically-driven of the big oil companies." He added, "Shell invests 50% more in renewable technologies than any other big oil company."

Listening to the discussion, it became apparent to me that Ollila is uniquely positioned at a critical time. It was well worth listening to what the Shell chairman and his fellow panelists had to say in Helsinki.

The panel line-up:

Charles Kolstad, Professor of Environmental Economics and Policy, Donald Bren School of Environmental Science and Management, University of California, Santa Barbara, CA
Jorma Ollila, Chairman of Nokia; Chairman of Royal Dutch Shell
Ali Sayigh, Director-General, World Renewable Energy Network (WREN), Brighton, UK
Curtis Brainard (Moderator), Editor, The Observatory, Columbia Journalism Review, Columbia University, New York
I entered the conference room just as Ali Sayigh, head of the World Renewable Energy Network, was finishing up his talk.

"Even in small area of Sahara, there is enough wind energy to power the whole world," he was saying.

Jorma Ollila, Chairman of Nokia and Royal Dutch Shell, was next to speak.

Jorma Ollila: I will address the question as to whether it is possible to decarbonize in a viable way.

I will assume technological innovations can be successful. Let's assume that is the case. I'm clearly not wanting to minimize the vast challenges that lie ahead. In fact, the more daunting challenge is to manage how we produce energy and allow a raise in living standards.

Developed economies have used up the atmosphere's capacity to absorb CO2; now developing countries are entering a phase where their need for energy is becoming intensive.

Let's acknowledge three truths:
  1. The demand for energy will continue to surge.
  2. Energy supply will struggle to keep pace.
  3. There will be increasing climate stress based on the current consumption pattern.
We need to obtain as much energy as possible from renewable sources -- and more. We need to strive toward fewer emissions in a "business as usual" pattern. Business-as-usual means that emissions would double by 2050. But in reality we can't continue to consume more than the current level. An 80 percent reduction from current levels is a reasonable goal. Thus, these two alternatives lie ahead. One is socially and morally unacceptable.

Therefore, policies and incentives must be put forward so we get it right.

Firstly, we need a cap and trade system that a puts a cost on emissions, that credibly commits us to a path of energy reductions by creating incentives to cut emissions.

Second, we need government support for changes. Government support is critical over the course of next decade -- to deploy by 2020s. We have it in the lab, we do not have commercial projects. This process is not viable without the right kind of government support.

Looking at the Obama government's actions, related to the stimulus package: I see significant and commendable R&D support. Europe took some significant decision earlier this spring -- the US will go there too I understand.

The points are mutually reinforcing, not exclusive. Emissions caps will become more popular as costs get reduced of meeting caps.

In addition to policy angle, there is a geopolitical angle: significant change with regards to emerging markets. Advanced economies must lead by example. This will necessitate resource transfers from developing to emerging markets. But transfers from govt to govt are problematic. Consider the position of a US political leader who proposed such a transfer. He would face political problems.

Cap and trade is a politically feasible way to make the transfers. CDM is a license to do arbitrage -- create opportunities between developed and developing economies. [Jotman: Clean Development Mechanism (CDM) "is an arrangement under the Kyoto Protocol allowing industrialised countries to invest in projects that reduce emissions in developing countries as an alternative to more expensive emission reductions in their own countries."] HFC reduction projects, for example. [Jotman: "by destroying the HFCs factories can earn carbon credits"]

Pace of change is limited by the trillions of dollars tied up in US capital investments. For example, a car lasts 20 years. A power plants last 40 years. To speed up the pace of change would mean premature scrapping of capital investments. In the recent Shell Energy Scenarios, that is. [Jotman: presumably, by scrapping investments prematurely you waste a certain amount of energy].

Blueprints: The projected climate outcome would require stabilization at 650ppm in the second half of century. Renewable energy would consist of about 60% of energy. CCS on all new power plants 2020 (West) and elsewhere (2030). That's based on Shell and MIT modeling. Clearly we need this kind of scenario at a minimum. We need better, but we face severe constraints.

Hence the need to increase pace of policy reform.

Charles Kolstad, UC Santa Barbara: How to de-carbonize world's economy? What does that mean to average citizen? This is the real story; an untold story. How we might actually do it as a world and as individuals. People assume we need only regulation and Bingo! -- down goes emissions. [Prof. Kolstad's full presentation is available as a PdF file].

After some debate, with regards to the problem of acid rain, the technology got implemented, and nobody noticed the price. Just a slight electricity increase. In the grand scheme of things the cost paled in comparison other events such as the housing crisis, etc.

With carbon.... new technologies will emerge. Also behavioral changes by individuals will be required. Proponents have argued its straightforward if we have the mind to do it. Make carbon expensive, and unleash creativity. On the other hand, skeptics say we will take a "hit" on our quality of life.

To say where the truth lies, we need clear investigative journalism.

Major legislation -- an economic experiment -- is before the US Congress... We have been trying to reign in energy consumption since 1973. This panel discussion could have been taken place in 1979!

How to transform major economies? What would it look like to citizens? Look at countries who have (chart). High density use less, low density more.

Progress (chart). Consensus of economics literature is that it is doable at not too much cost to people -- though few economists study this.

California emissions by sector (chart).

Half of emissions from industry (chart). Half under personal control. Buying China made good or paying taxes leads to building more stuff that makes emissions.

Key to make selfish virtue part of decision-making. Direct regulation efficiency standards. Prevent leakage.

Look for:
  • A more electricity intensive from carbon free sources, will happen over 20-30 years.
  • Lighting changes. LED use will reduce electricity by factor of 10-20.
  • What to do about existing lighting in housing.
  • People are choosing lighter/smaller vehicles.
Allow me to close with the old "frog in water story" in which the frog is slowly brought to boil, but told differently (positively). If we slowly increase the pressure to reduce carbon, we will find ourselves in new world and not even miss old world.

Being speedy and in a hurry will increase costs. Don't prematurely phase-out infrastructure. [Jotman: I guess because it costs so much energy to produce the new infrastructure.... I suppose that's the calculation].

Economists: will not be cheap or easy; but doable, and considering magnitude of the risks, justified.

Moderator: To what extent do we have the options we need?

Ali Sayigh: I disagree with my colleague from Shell that we can wait until 2050. Look at how we have increased oil production. In 1991 Beijing was 90 percent bicycles. Time is not on our side. You have to design your home to be viable and efficient to reduce CO2 emission. I think we don't have time to wait. The technology is available. We have responsibility to our children and grandchildren to take the necessary action today.

Moreover, CDM is not a solution! It is a cheating way to allow more CO2 in the atmosphere. A better way is to set up the power station in developing country, and allow them to export the energy to a neighbor.

Jorma Ollila: No disagreement. Timeline spot on. Where are we with respect to technology?

We all agree we have the need to invest in renewable technologies. But look at what is happening this year with respect to investment in energy. According to the International Energy Agency (IEA) investment in alternative energy is down by 20 percent! Because of our other capacity. This year investment in renewable technologies is down by 40 percent compared to last year. Some mature technologies are about to be commercialized. Why down? Oil prices collapsed, so viability based on return of investment is different this year.

That's why we need public policy in order to get investment into renewables. Its a complex bind. I'm impressed with what US Energy Secretary Chu and President Obama have said with respect to their aims in terms of the stimulus package.

So where are we? With respect to biofuels? Wind? Solar? When will they be significant?

Today 80 percent of energy is carbon-based. (And if all goes as planned) we will only be down to 70-75 percent by 2030. However, by 2050 renewable would account for much more -- the renewables really kick in around then.

Charles Kolstad: Price of carbon will have an impact. Without a price of carbon it's hard to get behavior change. In terms of R&D, we have not been successful in many areas. Compact florescent light bulb is most effective success of the past 30 yrs. Govt R&D succeeds best when the horizon is far away. When it comes to consumer technologies evidence isn't there (that governments can drive innovation).

Question: What's the mass media's carbon footprint?

Charles Kolstad: Electric paper is one innovation we can look toward...

Question from Nigerian: Look at what is happening in developing countries, a lot problems in terms of production processes in developing countries. Poverty: we see a link between poverty and climate change. The "hack wood" problem. Desertification.

Ali Sayigh: We are not against oil. Nigeria has sun. Nigeria, therefore, can supply energy to whole world, even without oil. Take Abu Dabi, richest place in the world, they are building up a solar city. China is also building a solar city.

Charles Kolstad: Many impacts of climate change are not projected to happen in the West. There is a need to manage these. Developing countries must not have to bear the burden of cleaning up emissions. We will all need to cooperate, but the West needs to bear the burden in a substantial way, in engaging those countries.

Question from Simon Lee of Los Angeles: The Nokia/Shell gentleman is talking about success by 2050. Forty years! Now, if we look back forty years, observe how technology has changed our lives in portions of that period, say the last 20 years. Why in this matter do we project such slow technological change? First mobile phones cost $$$$, now same mobile phone costs $ -- for tiny phones! What is it about this kind of R&D that makes it so much slower; why must it take so much longer with respect to the energy sector?

Jorma Ollila: I asked this myself when I entered Shell from Nokia. It took a while. You have Moore's law in effect in telecom. When that exponentially kicks in you can do wonders with the products. But the energy laws of thermodynamics limit what you can do in this other area. Nobody can figure out how to get around these. Mr. Chu (scientist who is new US energy secretary) can do a good job, but he hasn't been able to go around these laws.

Bill Gates was saying to me that it's not a problem; that the sun radiates 18,000 times more energy than what we consume. But we can't figure out how to do it cheaply. Bill Gates became interested. So are many others. The Google founders are funding venture work in renewable energy. It's an intriguing problem for them.

How to scale renewables to satisfy energy needs?

Ali Sayigh: Oil industries invest to make profit. Don't say "change the system." We have to educate everybody. We need legislation to speed up a change in lifestyle. And so the media has a key role to play.

Hindu Newspaper Editor: If you were to put a figure on costs, in terms of GDP how much will it cost to put a cap on emissions? How is the burden to be shared globally?

Charles Kolstad: The cost estimate is one percent of GDP -- around that. The Stern Review has figures as high as 7 or 8 percent in extreme case of costs being higher than expected. Look at the Ozone Treaty on CFCs: any extra costs were to be paid for by developed world. Such an approach seems more than reasonable. CFCs have become more targeted; carbon pervasive, of course. I suspect that the developed world, in any agreement, will agree to absorb much if not all of costs.

Question: There is talk about the "green paradox." [Jotman: The "green paradox" says that "policies of lowering carbon demand may aggravate rather than alleviate climate change"] Some areas using more energy, even as others use less. Do we need new taxation or market system to make greenhouse gas reduction more effective? [Jotman: i.e. should there be a carbon tax?]

Charles Kolstad: The green paradox, tax-wise, is that if you tax, producers could reduce the price of oil. Cap and trade gives you insurance on such price reductions by producers.

Jorma Ollila: In a perfect world, "cap and trade" and tax amount to the same thing. The question is, which system addresses the real world better? Industry prefers a cap and trade system to tax for two reasons. First, for SO2 reduction you can buy SO2 certificates. It works well. (Though implementation so far it has been confined and small). The system that was first implemented in Europe proved to have been too liberal in allocating certificates. Some "stupid Euro system" talk resulted in the US media. Second, the only problem with tax is that it is hard to do politically.

Ali Sayigh: A reward system is preferable than tax or punishment. Politicians can't be counted on, we need the media to educate the public.

Nigerian asks question: Nothing was said by the chairman of Shell about the problem in Nigeria caused by Shell!

Jorma Ollila: I had thought the poverty issue had been well-addressed by my colleagues. The link between climate change and poverty is well known. In terms of an industrial company's footprint, during past decade, starting year in the 2000, all major corporations are taking this issue seriously. Their track record (needs to be more) transparent. Confirmed by independent bodies. Industry track record... More needs to be done at my company.

Concerning Nigeria. The gas flaring. Nigeria is the only country of more than a dozen in which Shell is operating where gas flaring is happening. For two reasons. First, funding. Second, security. Major areas where it is not possible to work and address some issues need to be addressed. The majority of those properties are owned by the national Nigerian oil company, and they have not been willing to do so. Shell is a minority shareholder -- 30 percent. We want the flaring stopped. It's expensive to stop the flaring. It requires an investment of billions. So the trade off is different.

And so concluded the panel discussion -- a discussion not about whether to do something, but how to do it. The big questions seemed to revolve less around economics or science but largely come down to a question of political resolve, and getting the policies right for timely action.

Jotman live-blogged the following panel discussions at the IPI World Congress:

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