S: Today we are talking with Bridget McIntosh, Founder of Carbon Bridge Pte Ltd, a carbon asset advisory company in the Asia Pacific specializing in the Mekong region.

BM:  Thanks Steve.  Nice to be here.

S: Many of the readers of this blog will not be familiar with the Kyoto Protocol and what it aims to do. Could you give us a short explanation and a good reference to more info

BM:  The Kyoto Protocol is a worldwide agreement to cut greenhouse gas emissions – those countries who have ratified Kyoto agreed to cut their emissions on average by around 5% below their emissions in 1990. Developing countries do not have targets as their share (and hence responsibility) of the world’s accumulated emissions is significantly lower than industrialized countries who’s development has benefited from the combustion of fossil fuels.  Under Kyoto, developing countries can create and sell emission reduction credits to developed countries who can use it to meet their targets.  This is what the CDM is all about.  Kyoto is only a first step, and certainly not sufficient to avoid serious changes to our climate.  But it’s a start.

S: Thanks for that, I personally find the carbon industry quite confusing and illogical, but you know this already.  Going into 2012, when the Kyoto protocol ends, what do you think will happen.

BM:  I sincerely hope that we can have a worldwide agreement so we can work towards stabilizing emissions in our atmosphere to 450ppm.  That will mean developed countries need to commit to reducing emissions between 25-40%.  UK and Europe have committed something similar, but only if other countries also commit to high levels of reductions.  What do I think will happen? What will we get? Not that! So hopefully an agreement to cut emission by only 20%; with some of the more industrialized developing countries taking on commitments.  This may be through a sectoral approach, where polluting industries such as cement, aluminum, iron etc worldwide face a common benchmark regardless of the location – countries that go below that are able to trade emissions.  This helps to address some of the concerns of shifting industries offshore to countries without targets and helps keep industries competitive.  It’s such a shame that Obama didn’t appear on the scene at the last election  …

S: Given that so much money has been deployed to “trade carbon”, it is unlikely that this industry wil simply disappear in 2013.  What do you think will happen….Do you think VERs (Voluntary Emission reductions) will become the de facto standard in the absence of international resolve?

BM:  Yes, a lot of investment has been deployed into projects that reduce greenhouse emissions as a result of the Kyoto Protocol and the trade of carbon to countries /companies using CERs to meet their targets.  The CDM and hence CERs has a mandate to continue post 2013, however the question is whether there will be demand for such CERs and this demand will depend on the agreements reached post 2012. if there are no international agreements to cut emissions, then governments and countries may choose to set targets alone and define which standards they will accept.  The CDM may be one of those standard, or others such as the Voluntary Carbon Standards (VCS).  Whichever it is, the fundamentals for proving projects conduct real and measurable and verified reductions is necessary.  Already the EU have set such targets under their EU ETS (Emissions Trading Scheme), that mandate reductions with our without an international agreement, and allows the use of CERs.

S: the media seems to be focused on the trading of carbon and the impacts of climate change. They seem to be ignoring the actual physical work of stopping emissions.  Do you think this will change?  There seems tobe a bigger role for media here. Have you been interviewed for TV programs for instance???  I dont really have the face for television….

BM:  <<laughs a little too hard >>. But seriously, understanding the impacts of climate change is important if we’re going to mobilize and action and do something about it. Focusing on trading carbon per se is not so bad, but it really should always link back to the project reducing emissions, rather on the movement of credits.

S: I get the feeling that the world is still in denial about climate change.  You are out there doing your bit.  What do you think people can do from a personal view point to make an impact?

BM:  educate themselves of the seriousness of climate change (so it becomes real, and not just a word that people ‘harp on about’).  To take action on an individual level, we all need to be more energy efficient; the basics at home like using efficient showerheads, light bulbs, washing machines, fridges etc; using public transport or avoid car trips with 1 person; offset unavoidable emissions.  On a macro level, we need to call our governments to account – get them to the international table to reach a real target; do more to encourage renewable energy and energy efficiency; to address the imbalance in support for the fossil fuel industry; support research and infrastructure around new technologies.

S: If you had threee wishes…what would you do to change the climate change equation?

BM:  Wish 1 – use the global economic restructuring that will come out of the GFC to create sustainable economies that address the risks of climate change and redefines our energy use and dependence on fossil fuels.

Wish 2 – all countries quit their bickering and come to the table to agree to curb greenhouse emissions by 450ppm by 2020

Wish 3 – we come up with an effective mechanism to avoid worldwide deforestation, a mechanism that somehow addresses the realities of the forestry industry (fun and games) in developing countries.  Cutting forests is a double whammy – it releases stored emissions, and it takes away the very mechanism – photosynthesis – that helps us pull CO2 out of our atmosphere.

Really I’d like to find a way where we can all live in this world sustainably, so that my baby Nina can enjoy the wonders of this earth as much as we have … and without fear of natural resource wars

S: Today we are talking with Tim Hanlin, Founder of Australian Climate Exchange, a carbon trading platform based in Australia which has hosted a market for trading in Verified Emission Reduction (VERs) from both domestic and international projects since it listed its first products in July 2007

TH: Thanks. Nice to be here at such an interesting time in the Australian and International carbon markets

S: Many of the readers of this blog will not be familiar with the Australian Governments Commitment to the Kyoto Protocol and what it aims to do. Could you give us a short explanation and a good reference to more info.

TH: The current Australian Government was swept into power at the end of 2007 on the back of a commitment to reverse the previous administrations opposition to Kyoto and its first official act was to ratify the treaty. Since then it has maintained an aggressive timetable of introducing what it calls its Carbon Pollution Reduction Scheme or CPRS which is a fancy title for what is an ETS. The CPRS is due to start in the 2010/11 financial year and will cover up to 75% of Australia’s Emissions and all 6 Kyoto Greenhouse (only Agriculture is excluded from the scheme but is likely to be included by 2015). This width of coverage and the fact that 75% of the permits in the scheme will be auctioned as opposed to given to obligated parties for free are the headline differences (and strengths) of the CPRS over the European Union’s ETS.

Another interesting aspect of the CPRS that has emerged from the Government’s White Paper on the scheme design is that Certified Emission Reduction (CERs) from clean development projects in developing countries can be used by Australian companies as a substitute for having to surrender permits (AEUs) to cover their emissions in a financial year and that there is no limit to how much of their inventory can be covered by CERs instead of AEUs. Further, The CPRS will allow the use of post 2012 Vintage CERs as long as the project was instigated before 2012. This has meant that many Cleantech project proponents are now looking to the Australian market to sell their CER production because there is the ability to sign up to longer term off-take contracts than any other market.

For details on the CPRS the link to the White Paper is http://www.climatechange.gov.au/whitepaper/index.html and for those that don’t want to wade through the 600plus pages you could request a recording of our two hour webinar summary from http://www.climateexchange.com.au/Content/fContact.aspx

S: There seems to be a lot of indecision in the press.  Does the Australian public understand the implications in the cost of goods and services?

TH: The press doesn’t understand it which means the Australian public have no chance to truly understand it. There is a basic understanding that the cost of energy and therefore goods and services will rise but the government has pledged to compensate households for this impact out of the proceeds of the auctioning of permits. Further, transport fuel will be fully rebated for the cost of the carbon permits, which will limit the impact on consumers.

One of the big issues with the CPRS as a tool for reducing Australia’s emissions at least cost is that much of the cheapest abatement (energy efficiency) is not going to be exposed to a carbon price signal because of the government’s decision to compensate households and rebate transport fuels. Ultimately and somewhat ironically this will mean that the cost of abatement will be higher economy wide which will mean that the cost implication for goods and services will greater in subsequent year of the scheme.

S: There must be a huge groundswell of public attention to climate change after the horrible bush fires a few weeks ago.  My Mum and Older Brother were on the farm 6km from Wandong and saw it all.  They were saved as they wind blew the fire the other way.  My brother told me it was the most terrifying thing he had ever seen.  I dont mean to use this event to push a cause, but are the public in Australian thinking this way?  I know I am…but I am quite biased…poor people had no chance against this type of thing…

TH: Steve I have been fascinated by the fact that it took so long for the media to make the connection between the severity of the weather conditions that caused the firestorms and climate change. Even then it has only been a passing reference and a recognition that our building codes and fire risk management procedures are no longer adequate to cope with the type of fires that we will see increasingly more of. Just yesterday emergency services officials were describing the weather conditions in Victoria as extreme as those of what is now being called “Black Saturday” and yet no one is commenting in the media that we have had, in a period of less than three weeks weather conditions that are more extreme than have been experienced by fire fighters in living memory and the link to Climate Change. In contrast I remember being infuriated by some media commentators linking the Boxing Day Tsunamis to Climate Change.

The point I am trying to make here Steve is that it seems to me that the issue of Climate Change is being pushed onto the back burner so to speak by the Global Financial Crisis. It is almost as if the media (in Australia at least) has decided that we can’t afford to tackle Climate Change at this time and it is best to play it down or at least keep it in the background.

S: Sorry to be dramatic but it is something close to my heart.  It was interesting to see the commercial fall out from the fires with SP AUSNET being sued.  When we meet last year in Singapore I mentioned that I felt the only way to make carbon a viable commodity is to have a cost for it either through risk premium of insurance or advertising value for sustainable behavior.  Is the Australian Governments strategy going to allow for the development of a “value” or “cost” for the emitters?

TH: An ETS is a fairly narrow tool that must be deployed as part of a wider strategy for both mitigation and adaptation. We have not seen any indication, apart from the increased renewable energy target announcement, that the government have other complimentary measures that together make up a coherent strategy. Their focus has been on making the CPRS politically palatable and therefore most of the proceeds of the permit auctions are being used to compensate heavy emitters or consumers rather than encouraging research, development and commercialisation of Cleantech and adaptation measures. There will be a “cost” to emitters but that economic signal is being muddied by distortions in the scheme design.

There is no doubt in my mind that the insurance industry is the most switched on in terms of its strategic understanding of the future cost of our continued growth in emissions and in my view governments globally must come up with strategies that links the future impact cost of a tonne of CO2 emitted today with a charge for emitting it (a la Stern’s Social Cost of Carbon and Marginal Abatement Cost comparison).I think in the current political and economic constructs this may be a long way off from being achievable.

S: I note that the Minister, Hon Penny Wong, has a role relating to climate change, not carbon.  Do you think they are bundling the carbon emissions, water, land usage, productivity and other sustainability issues into one portfolio?  I recently read Prof Jared Diamonds Book, Collapse, about the collapse of civilizations.  he makes some pointed comments about Australian society. Do you think there is sufficient societal momentum to create a viable industry which helps us mitigate climate change?

TH: That’s two questions in one Steve. Firstly on the portfolio issue, the Minister’s portfolio of Climate Change and Water as a separate portfolio to Environment underscores the current Australian Government’s recognition that:

a) These issues are inextricably linked in the Australian context and

b) They are the two biggest issues facing Australia in this and future generations

Reducing Australia’s emissions and negotiating our share of the load is an integral part of managing Australia’s response to climate change so once again while decarbonising our economy is important it is only a part of the wider climate change issue. On the second question, I haven’t read Prof Diamond’s book, but my view on Australia’s appetite for dealing with this issue I would make this point – Despite the fact that it is an overused cliché, Australia is a society that fundamentally believes in a fair go and I believe there is an appetite to do our fair share, however there is still a very poor understanding of the issues and we are a long way from a shared vision of what we should be expected to contribute in a coordinated global effort.

I tend to use taxi drivers as my litmus test of Aussie society because they mix with the widest group of people on a daily basis ( as both receivers and disseminators of the shared vision) and after 3 years of running ACX I still get into cabs and if the driver asks me what I do for a living and I tell him or her that I run Australia’s carbon trading platform the response is almost always along the lines of “so tell me this carbon emissions thing is it for real”, but if you start talking about the Global Financial Crisis they will give you an expert commentary that is equal to what you would get on CNBC.

S Tim it seems that we are the middle of a period of significant change with a risk of business as usual. This is a discussion we will need to revisit in six months. Thanks for you time spent with us today and keep up the good work with the exchange.

S: Hi Warwick, Welcome to Notes on Sustainability.

W: Hi Steve, thanks for the chance to discuss sustainability with you.

S: I thought it would be good to paint a picture of the energy usage of both corporate computing and personal computing worldwide.  For instance, will variable clock speed computing have a  big impact in corporate Data Centers. Using 1000 Watts per square meter in power alone with another 800 Watts for cooling and ventilation for the computer room (Data Centre) space, there must be huge scope for energy reduction…

W:  Actually there seem to be a heap of good things happening, which generally work together, which is good, but you have to watch out for the caveats.. taking your variable clock speed example, in theory if the machine is not fully CPU utilised you can afford to reduce the clock speed to a point where it is fully utilised, with the reduced clock speed you can then afford to reduce the voltage and thus reduce the power consumed and of course heat generated (both the CPU and the power supply). Of course if the CPU was fully utilised then the plan doesnt work too well, we dont have scope to slow it down.

Another view might be “why dont we more fully utilise our CPUs?”.. and this approach can be met with things like virtualisation (many virtual hosts on the same machine), scavenging idle machines for use in a grid. There are lots of other things happening in this space though, like DC powered servers, HP’s dynamic smart cooling, scavenging non data centre based machines (eg user’s workstations) for use in a grid, even CISCO is helping out with network virutalisation via their new Nexus and ”data centre ethernet” protocol.

S: How would this translate in personal computing energy usage?  How many PC’s are there worldwide, I have no idea?

W: For an individual not many of the DC greening things translate (perhaps only the variable clock speed when that migrates from servers into workstations), but on a global scale giving away your spare cycles will help the world by allowing someone else to not consume so much power (eg participate in a grid like folding@home or something similar). There are a few trends happening which inadvertently reduce power (ie the user hadnt done anything deliberately to reduce power), such as the tendency for home users to use laptops at home instead of desktops (Laptops quite often are less energy hungry than their desktop equivalents because they have to be able to run off a battery, so use CMOS components, etc). Also swapping the CRT screens to LCDs for desktops. And power management on desktops with cooperative peripherals (eg monitor swaps to standby, drives spin down, printer goes to standby, etc etc). Another move is toward solid state disks, or All these are doing their bit.

S: I noticed that someone in India is looking to create a system which can use the TV as a monitor with a really low cost…This must be changing the way computer makers are thinking about PC’s and thus the energy profile.  Do you see a convergence in computing devices, phones, TV’s etc? Will this impact how we use software and thus how much energy we use.

W: Yeah there was a ”$100 PC” product in US (which failed..I guess no one wanted such a low end machine), but the idea seemed to have found root again in India. Recently there has been a plethora of low end laptops coming out (often quite small, running off solid state disks, possibly running linux).

But I think the convergence trends are still with a phone/PDA/PC device. Perhaps eventually these will use a google-type application service instead of the not quite compatible mobile office stuff and store files on line, and with the latest Xbox/playstation/etc (the only other reason you might have a PC is for games) and we might see the end of a home PC.

S: I think it is only fair that everyone gets access to information and computing power.  Do you think it is a case of using the same amount of energy and resources to do more or is there likely to be a breakthrough in the way IT is delivered?

W: I am sure that we will see more “applications as a service” and “cloud storage” meaning almost any device can meet the normal (non games) needs, of course someone will say “are you kidding, you want me to use a phone keyboard to draw a visio diagram?” but phones already have USB ports, I can easily imagine that your phone will connect your LCD monitor/keyboard/mouse via wireless broadband to your internet based “applications as a service” and “cloud storage”, then you have computing anywhere anytime.. without a computer. The telcos will start offering these “cloud services” free as a reason to consume more bandwidth on your wireless broadband.

S:  I always wanted a phone which could plug into a computer unit beside my TV. I remember the James Bond Movie ‘The Man with the golden gun’.   He assembled it from his cigarette lighter, cigarette case and tie pin and some other funky stuff.   Do you think we will be there soon?

W; Woops I think I just answered that question above…but let’sextend it….you have a new digital photo frame on your desk which acts as the monitor, connects via bluetooth to the phone, the keyboard is on those roll up rubber things connected to the photoframe via USB. The Phone itself is this freed to act as a mouse (it is GPS enabled to detectas you move it around…ok, I realise GPS isnt that good..yet, perhaps it uses the camera on a paper sheet with a gid pointer on it…like the old sun mouses). Anyway you can see if we had the will, we already have the technology..

Things we should do: bluetooth enabled TVs so the phone can be a TiVo (record what you want to watch and play it later).., also bluetooth enabled fax/doorbell video/burglar alarm/bathroom scales/fridge/microwave/coffeemaker/toaster/etc.

S:  Warwick thanks for taking time to chare your thoughts on this. I suppose this leads onto discussion of home energy usage….

Today we are talking with Martin Kleinelanghorst who is the most knowledgeable person I know about biofuels…

S: Hi Martin, Welcome to Notes on Sustainability.

M: Hi Steve. Thanks for inviting me to this forum.

S: With crude oil and palm oil prices so low, biofuels in Asia aren’t looking too attractive. What do you think will evolve in the industry?

M:

That’s right, Steve. Crude oil and palm oil prices have gone through a very volatile phase and even for real experts who are supposed to know, it can be a frustrating experience to predict the future. I remember Lord Brown forecasting US$ 40 a barrel in the first half of 2007, just before prices steadily climbed to over $140. That made him look like a fool for a while, despite having access to perhaps the best and most reliable data in the industry. In that sense, I guess I am in good company when I share my views with you. Let me give you a brief answer first, and then I shall try to shed some light on a range of issues which I believe need to be considered before we can dare to make a more comprehensive prediction.

First, my short answer would be that biodiesel will continue to play a role as a component in the global renewable energy mix, albeit a less prominent one than generally assumed as recently as 2006. The role will shift to the regional and local level where production and consumption points move closer together and distribution costs are kept low.

This shift is clearly the result of significant changes in commodity price dynamics, new correlation effects and distribution cost developments that were previously not observed. But it is also due to recent and ongoing discussions about its impact on biodiversity and the destruction of rain forests as an important carbon sink.

Critics argue that palm oil plantations are the main culprit for the loss of biodiversity and large stretches of rain forest. However, it should be noted that there is a considerable degree of hypocrisy at work here, as none of the critics care to mention that rubber comes from the same latitudes, yet it has been used for car tyres for decades without ever being questioned or discredited as eco-unfriendly. What is also omitted is that palm oil plantations are often established on land that has already been cleared and plundered of its very valuable tropical woods by logging companies who very often engage in illegal logging on the back of permits of rather dubious origin.

There is of course another issue latent in the discussions. When, say, the UK or Norway extract their domestic resources, which happen to be oil and natural gas, and burn them to their respective nation’s benefit and produce significant amounts of CO₂ in the process, there is by and large a general level of acceptance. Yet, when Indonesia and Malaysia use their national resources, which are rain forests, and extract lumber and vegetable oil for their nation’s benefit, we hear an outcry in the international community that such behaviour must be stopped in the interest of biodiversity and to maintain our CO₂ balance. Nobody would question the sovereign rights of the UK or Norway over their oil and natural gas. Yet, implicit in the discussion over biodiversity is the notion that Indonesia’s and Malaysia’s assets are somehow a common good of humankind that must be protected and therefore should be off-limits for these two countries. An interesting conundrum of considerable ethical and legal dimensions. I am afraid I cannot offer you a solution this time round, Steve.

It is all a question of degree, I suppose. With over 6 billion inhabitants on this planet, we have passed the threshold of sustainability (some believe as early as 1980 in fact), which compels us to draw a line in the sand and say, “No further on this path. We have to alter our ways.”

I believe the prospects of biodiesel can be developed from looking at a few simple facts: Size of the industry, growth rates, and supply and demand balance. Let’s start with size.

Biodiesel is a direct substitute for petroleum based diesel. Annual petroleum diesel demand worldwide comes to well over 1 billion tonnes. If we take just the top five consumers (US, Europe, China, India, and Japan) representing some 600 million tonnes, and ask them to replace 5% of their petroleum diesel with biodiesel, this will translate to a demand of 30 million tonnes of biodiesel.

Against this, the entire vegetable oil market is only 130 million tonnes in size (leaving aside the fact that not all vegetable oil is suitable for biodiesel conversion). If all those 30 million tonnes were converted into biodiesel, it would take away 23% of the entire vegetable oil market, with significant repercussions in the market place that would dwarf the price swings we have seen since 2006. Extend this formula to all countries, and these 23% become 50%. At the same time, the impact on CO₂ reductions is limited to 5%. In view of this, it comes as no surprise that the initial euphoria surrounding biodiesel has been replaced by a more realistic assessment, namely a relaxation of the target date of a 10% bio-component in diesel in the EU from 2010 to 2020.

Ramping up vegetable oil production would partly help to address the issue, and indeed this is what we have seen with palm oil. Production has virtually exploded in a mere 10 years, from 20.5m tonnes in 1999 to almost 40m tonnes now. And mind you, this increase in supply has barely kept pace with a corresponding increase in demand, mostly from India and China, so here this rapid expansion had for most of the period very little to do with the demand for biodiesel.

But there is a natural limit to how much vegetable oil can be produced every year on the land available. Barring some spectacular invention that could increase yields by a factor of ten or more, vegetable oil supply is too small by a factor of 20 to meet worldwide diesel consumption. Sumatra Bioscience has announced the filing of a patent in Sept 2008 that promises a tripling of yields with their F1 hybrid seeds. They expect commercialization of this hybrid by 2018, so it won’t have any impact for at least another 10 years. Algae have also enormous potential in theory, as some species under lab conditions have produced yields that were five, sometimes ten times as high as those of the oil palm. While technically feasible, we have not seen any significant technological breakthrough that would make algae as a source of vegetable oil commercially viable on a large scale, and in my view they are unlikely to be viable for perhaps another 10 years.

I remain skeptical until I have seen further evidence. Furthermore, the general release of Genetically Modified (GM) seeds into the biosphere is an irreversible step the medium to long term consequences of which are largely unknown. I can only hope that the people in charge act responsibly.

What matters greatly in this context is the utilization of land. The oil palm easily produces 4000 kg of oil per hectare, compared to a mere 400 kg in the case of the soybean plant. Hence we should be far more worried about soybean plantations in Brazil than about oil palms in Indonesia.

Predicting future demand, we also ought to look at the cost of production. Although government intervention tends to distort the market fundamentals in all sorts of ways (import taxes, export taxes, domestic subsidies) at the end of the day a product will be subject to the law of supply and demand.

Fundamentally, production costs of both crude oil and palm oil are of the same order of magnitude. At a heat value of biodiesel of 37.5 MJ/kg, and a palm oil yield of 4400 kg/ha.yr, plus production costs (including conversion into biodiesel) of US$ 300/to, we get US$ 28.80/MWh energy cost. For petroleum diesel the heat value is 43 MJ/kg. If we assume extraction plus conversion costs of US$ 0.75/gallon, we get US$ 20.91/MWh energy cost, which is lower, but a similar figure. For comparison: the corresponding figure for PV solar energy would be US$ 1000/MWh or higher. In other words: barring extraordinary political tensions that could impact supplies, the market will be driven by demand for both commodities. However, significant increases of production costs are far more likely to occur for crude oil than for palm oil. In that sense, on the cost side palm oil has the edge. In Europe on the other hand, with rapeseed oil as feedstock being more expensive to produce, crude oil has currently the edge.

Furthermore, although 85% the supply of palm oil is coming from just two countries and the liquidity of palm oil is a minute fraction of that of crude oil, there are short term direct substitutes for palm oil, such as sunflower, or soybean oil, which can be grown from one year to the next. Crude oil has enormous liquidity, but crude oil based products do not have such substitutes as palm oil based products as long as biotechnological innovation and the build-up of biochemical plant capacities have gained greater traction.

Back in the here and now, however, other mundane, yet crucial factors remain: consumption patterns of Indian and Chinese housewives would be one of them, representing still the largest single consumer category of all.

Perhaps the most important point at last: the two dominant palm oil producers Malaysia and Indonesia are facing dwindling oil reserves, while experiencing population growth, continued industrialization, motorization (with families and small enterprises switching from scooters to cars), urbanization (with commuter distances increasing between sprawling suburbs and inner cities), and a rise of the middle class. All these factors will cause fuel consumption to grow in these countries at 4% or above. With fuel subsidies already crippling their national budgets today, the prospects for both countries will only worsen, if no remedy is found and implemented. We will therefore see an increase of domestic consumption of biodiesel in these countries at the expense of exports to Europe, the US, or the rest of Asia. The case can also be made for other populous ASEAN countries such as the Philippines, Thailand, and Vietnam who will face similar transportation fuel supply challenges, but do not have significant domestic crude oil reserves.

In summary, the biodiesel industry in Asia is here to stay, but it is undergoing a change of direction to shift its focus towards the domestic and intra-Asian markets away from its export orientation it started out on around four years ago.

S: The argument against using food crops for fuels has been widely accepted in the EU.  Do you think it will be sustainable for EU governments to push for the use of biofuels in the long term and if so, where from?

M:

The trouble with the EU is that there is not one single policy reflecting the shared view of all member states. We are dealing with four large countries (Ger, Fra, Ita, UK) each with their own agenda how to address their national energy challenges. Then there are a number of medium sized countries (Spa, Pol) with a few ideas of their own. The remaining countries — and there are 21 of them! — are left to choose which agenda they consider most favourable to their own interests.

Just take for instance the sharp contrast between the UK which has enjoyed energy autarky for the best part of the last 30 years, but is now running low on North Sea Brent, France which is relying heavily on nuclear energy, and Germany which has made arrangements with Russia over the supply of natural gas for the medium term, with some not insignificant political implications that follow from such a deal. Viewed from this angle, it is difficult to conceive of the notion of one single EU wide biofuels policy other than on paper.

If there is one common interest shared among EU governments in their drive for more biofuels then it is the objective to bridge transportation fuel shortages, cushion the impact of price hikes, and reduce dependencies on foreign sources by establishing or expanding domestic fuel resources, until such time when other energy sources can take over, namely: wind, solar, and perhaps geothermal.

Germany, Spain, and Denmark are pioneering the use of wind and solar energy for electricity generation and for the next generation of cars that will no longer be driven by combustion engines. But this transition will take time, so combustion engines will be around for at least another 15 years in the EU, and the EU will tolerate domestic biodiesel and environmentally acceptable bioethanol imports from abroad, be it from Brazil or Asia.

Fuel cell and hydrogen technology are technically mature enough to be implemented, yet they are still far too expensive to be produced on a large scale, not least because the infrastructure that would be required for these technologies must be financed, and it is yet unclear who would pay for these new facilities.

To go further into detail, let’s distinguish between biodiesel and ethanol, because their business cases differ greatly.

Historically, the biodiesel market in the EU was the first and, perhaps apart from China, still is, the largest of its kind in terms of demand. However, while supply was produced almost entirely domestically, the expansion of palm oil production in Malaysia and Indonesia since 2000, and from 2005 onwards the explosion of the crude oil price and the price advantage of palm oil over rapeseed oil threatened to change the established status quo. The inclusion of new Eastern European EU member states vying for EU subsidies also changed the dynamics. This caused various national governments in the EU to reassess their long term strategy with respect to biodiesel. Recent policy changes have made clear to me that the preference is for domestically produced diesel over imports, although the official line might suggest otherwise.

As for the general public in the EU, they are concerned about the impact certain biofuels might have had on the availability and prices of food crops – if the biofuels were produced abroad. Yet there are companies in Germany producing biogas from grain, because EU subsidies make it worthwhile. For my father, who personally experienced hunger in the aftermath of world war 2, this is sacrilege and beyond comprehension. And many younger people who do not share his personal experience also object to it on purely ethical grounds. So the dividing lines don’t follow national borders, but divide families as well as local communities.

A cynic may summarize it this way: On a government and company level, biodiesel was “good for the environment” as long as the beneficiaries were domestic EU farmers. Biodiesel became “bad for the environment” when the beneficiaries threatened to be Malaysian and Indonesian plantation owners. Now the EU policy shift in focus towards wind and solar energy development have in my view made clear where the EU sees its long term priorities. So, I don’t see the EU mounting a fervent defense to the rescue of biodiesel or trying to get it out of the doldrums. We should not expect additional demand for non-European biodiesel coming from Europe.

In view of the EU’s decision for a 10% biodiesel component by 2020 instead of 2010, this relaxation is tantamount to putting it off indefinitely. The new catch word is 20-20-20, referring to 20% reduction of primary energy use, 20% renewables in the mix, and 20% reduction of GHG emissions, all by 2020. Given the fact that the EU is modifying its policy every year, investors have a hard time if they want to use the EU framework as a guide for making investment decisions.

Chemical plants are highly capital intensive and require at least 10 years for depreciation and amortization. Just take Germany’s decision to introduce taxation for biodiesel producers in 2007 after promising tax exemption until at least the end of 2010. This about turn has already driven a large number of local producers into insolvency, when the new tax coincided with price hikes in the vegetable oil market. I don’t think that is a coincidence. It ties in with Germany’s new focus on wind and solar.

Having said all this, my criticism may be a bit harsh. After all, Europe is the true driving force behind the global renewable energy initiative and the most advanced in terms of implementing measures to get results. We can do research in laboratories all day long, but if the results don’t get implemented we might as well leave them undiscovered and save the money for other, more useful applications. This is exactly what happened during the 1990s when oil became cheap for a while and the innovation process was stalled.

What I also like about the European policy is that it is robust. It is multi-faceted which takes advantage of trying several approaches at the same time, then comparing outcomes. This allows for adjustments and optimization in a dynamic sort of way. It’s called evolution. It may not be such a bad thing after all that within a given framework different EU countries follow different agendas. By contrast, in the US we see practically a one-track renewable energy policy: corn based ethanol.

As for ethanol, here the US and Brazil are by far the largest markets, both in terms of supply and demand, representing well over 80% in both cases. Since the bioethanol industry in the EU is insignificant in size by comparison, the EU has a less biased view on the matter. As a result, Brazil receives benign treatment and import duties of cane based ethanol are considerably lower than those for corn based ethanol from the US, and in my view rightly so, for environmental reasons.

Corn based ethanol in the US is folly, in my view. The overall energy balance is barely positive, some argue it is even negative. Cane based ethanol on the other hand makes sense. Hence I see the EU fostering relations with Brazil while driving a hard bargain with the US. Other players who can come up with an attractive proposition would be welcome in Brussels.

S:  Cellulosic Ethanol (CE) has been a big topic recently.  Some false starts for projects promising conversion of biomass to ethanol have occurred regionally.  What is your view of the time frame for this technology being successfully implemented? The US, EU and Malaysia have made encouraging starts but do you think it will fly in the near term?

M:

Yes, some people have jumped the gun and promised more than they could deliver. That is not surprising, given the promise CE holds for the future of biofuels. Here is a fuel technology that can use almost anything made of organic material and turn it into a liquid fuel. If it gets produced on a large scale it will have a material impact on crude oil consumption for fuel.

Going by the announcements made by the technology leaders in Europe and the US, CE has still some way to go before it is commercially viable though. My estimate is that we won’t see a fully-fledged CE plant before 2012 that produces bioethanol both (1) at commercially competitive prices and (2) on a meaningful scale. Laboratories can produce bioethanol at a rate of 1 tonnes per hour. What we need to see is at least 10 tonnes per hour.

There are plenty of announcements by US based companies who claim to be able to produce “commercially viable” 2^nd generation ethanol. Yet, none of them show a fully costed price of ethanol that properly includes construction and depreciation of the plant. Until this is done, statements such as “US$ 2/gallon conversion costs” are something of a charade.

The new US president Obama and his administration may shake things up, though, but we don’t know yet. Low crude oil prices may tempt people in key positions to let up and cause the innovation process to slow down. This would obviously be the worst that can happen to the renewable energy movement.

However, with Steve Chu and John Holdren appointed to key positions in the US administration, both scientists with a track record of sound research of the highest calibre, there are good reasons to believe that the best possible policy benefiting the environment will be identified and implemented. For once, this sounds too good to be true.

Under Obama, we should expect an accelerated allocation of funds and resources towards US energy independence. CE has the benefit of combining substantially higher efficiency in producing fuel while using existing combustion technology and fuel storage and distribution infrastructure. Wind, solar, fuel cell, or hydrogen fuels require very high investments in infrastructure before their full benefits can be harvested. It gives CE an edge in the short to medium term.

S:  Despite the difficulties, CE still has immense commercial capacity. Some countries like Cambodia and Laos could achieve significant levels of energy independence.  Do you think the technology will have wide applications or only for large scale plants?

M:

It is true that small bioethanol plants have suffered from high construction costs in the past. A critical benchmark seems to be the 50 million tonnes (approx. 16.7 million gallons) output threshold. Most investors have striven to build plants of this size and tried to avoid building smaller plants. Increased energy efficiency, cost savings of construction material, and a favourable variable to fixed cost ratio strongly suggest this course of action.

Now, these insights have held for proven technology such as 1^st generation ethanol. 2^nd generation ethanol is still in its infancy and we can expect a healthy dose of teething problems in the up-scaling process. In my conversations with R&D people I repeatedly hear the mantra that up-scaling in biotechnological processes is notoriously difficult and anybody trying to take a shortcut will get punished.

It is therefore not such a bad idea to start with a 1^st generation plant, and bolt on 2^nd generation technology as and when it becomes available. The cost outlay for 2^nd generation technology will most likely be not so much for mechanical equipment, but for intellectual property rights and the purchase of enzymes. In addition, it may not be wise to commit large funds in a one-off investment into technology that two years later may have already become obsolete due to advances in the field. A phased approach is therefore highly recommended.

S:  Are there any other developments in biofuels which could make them more attractive?  For instance Indonesia has moved quickly into Jatropha biofuels but this has yet to produce results.  Do you think there is a role for government guided industry development?

M:

I am skeptical about Jatropha in Indonesia on a large scale because it represents a deviation from the optimal utilization of land. On arid land it does have an edge over the oil palm, but how much arid land is there in Indonesia? And on the arid land that does exist Jatropha competes with edible crops just as much as the oil palm does on wet land. Jatropha yields are only a quarter of what palm oil yields are.

Indonesia is very fortunate in the sense that it combines volcanic soil with being located at latitudes that allow the optimal growth of the oil palm. Few other places offer this perfect combination, not even Brazil with its abundance of land in the tropical belt. Why would anybody volunteer to squander their resources by planting suboptimal crops? Let those countries that are less blessed grow Jatropha. Burma, Cambodia, Vietnam, India, Madagascar, they all qualify in this respect.

Government guided industry development is certainly a path I can see as being beneficial and potentially very rewarding. Many countries have successfully pursued such policies, Japan, Korea, Singapore, and more recently China have used this tool to their advantage. By creating incentives to entrepreneurs and by protecting fledgling industry clusters through attractive credit terms or favourable tax regimes, various industries in these countries attained critical mass: ship building, precision engineering, electronics, automotive, biotechnology are just a few examples. A biofuels industry can become the nucleus for further development into chemical, pharmaceutical or biotechnological clusters.

S:  Thanks for your time and insight Martin.

This mode is an enduring theme in the sustainability debate.  No one really has enough information to turn the problem around and companies are making “green-washing” claims to allay consumer fears.

FOR THE RECORD, We, humans have the technology to turn around most of the damage to the planetary eco-system.

The problem is that our leaders don’t have sufficient information to lead the turn around.  The beloved financial community can only see short term gains and are pre-occupied with “Carbon Credits” and staying in business.

Through all this hype there needs to be a clear framework for response. This information is really quite simple but has been in front of us all the time.  So here it is, according to the source,

RULE ONE – WHAT WE HUMANS NEED AND CAN NOT DO WITHOUT

Breathable Oxygen or we are dead in 3 mins,

Unpolluted water or we are dead in 3 days,

Suitably nutritious and un-contaminated food or we are dead in 3 weeks,

Suitable shelter within 3 months or we can not raise our young,

RULE TWO – THE THINGS WERE ARE SO ACCUSTOMED TO AND THINK WE CAN NOT DO WITHOUT AS WOULDN’T MAKE ANY MONEY!

Cheap Energy for industry, lighting, transport,

Resources to easily exploit to provide our standard of living

Education to allow us to use energy to exploit resources

Communication to allow us to share how we use energy to exploit resources with our education,

(These needs have only really been around for about a century in a meaningful way….and contributed to the unbalanced resource, energy and waste system which have developed due to cheap oil and tolerance of pollution).

RULE THREE – The technology to reduce pollutions and wastage is already here and is commercially viable…

Technology for treatment of existing waste is already hear but can not be fully implemented as funds are not available for most of the developing world.

Clean Energy is available but is struggling to compete with traditional polluting sources as the real cost of pollution is not measured or charged.  China, India and the USA remain the main obstacles to securing a level playing field for energy technologies.

Some examples where a change can make a huge difference-

Palm Oil Mill Effluent currently goes to ponds and turns to methane – for a standard mill, 32,000 Tonnes of CO2 equivalents (about 1500 Tonnes of Methane which is 21 times more damaging to the ozone layer).  By capturing this methane and using it to fuel boilers, engines or trucks, Mill owners can save money and create jobs.  This is changing but a lot of owners dont understand how they can save money.

Town Councils and local Governments collect rubbish and mostly bury it in the ground.  This creates lots of pollution in the ground water and causes lots of problems with rats and disease.  By hiring people to sort the rubbish, recycling the plastics/glass/metals/computer parts & phones, turn the food into biogas for energy and then bury the balance in an enclosed fill or burn the balance (this can produce some very nasty chemicals in the air but a number of companies are working on solving the air pollution risks).  This thinking is yet to catch on in the emerging markets of the world but it really should.  Jobs and industry are created.  More energy is available.  And yes there is a net reduction in the amount or Methane released.

Power stations can capture CO2 released from thier smoke stacks and use sewerage water to grow algae in special bioreactors.  This technology is in its infancy but is expected to produce algae for biofuels whilst reducing the impact of coal. When coupled with the push to CO2 reducing “clean Coal” technology, this greatly reduce the imapct of coal power.

Simplified packaging of items can greatly reduced the energy and resource cost of production and also the cost to the environment.

Stay tuned for more info.

S

I think the test facing us is multifaceted:

1     Collapsing banking system and world Wide financial collapse.

2     Consequent breakdown in accepted world order – “we are too linked together to  go to war..” – HMMM lets hope so.

3     Lack of real money to feed, water, clothe, house and provide utility to people all around the world….including many who previously were better feed, clothed, housed, and serviced with utiility.

4     Lack of funds to create the climate mitigation projects to slow climate change due to collapsing carbon prices and lack of liquidity for project developers.

I am no financial sage but I am sure that none of the current financial sages have any idea where we are headed.  I recently spoke with a another banker, the chief economist for another emerging markets bank, who said he felt that the only course of action open to the United States was to print more money.  There would be benefits of more local jobs but hyperinflation and loss of international standing would be mean the end of the current world order.  Needless to say anyone outside the US who bought US treasuries would suffer immensely.  I cant see China being terribly happy about that.  It would be a body blow to world trade.

From a sustainability point of view, the days of the huge carbon mitigation projects are finished.  The small scale local action projects will drive the debate in the next two years.  The funds simply aren’t there.

I suppose it will be a matter of who is left standing in the fight against climate change…..But wars are like that.

S

This Blog is a collection of notes from diverse sources about how the world is changing back to old values of thrift, re-use and preservation of resources.

This is not about taking us back to the stone age.  We will discuss the changes which are taking place across the world in our lives and the value being recognised.

We will discuss diverse topics through interviews with industry experts in fields including:

renewable energy – biogas, wind, biomass, solar, ethanol,

new technologies -electric cars, new engines, water purification, water recycling,

efficiency gains – low energy computing, fuel switching, process optimisation,

Grass roots efforts – recycling, clean water, sanitation,

Please feel free to tell us about any new areas we should cover.

We have only three rules – no profanity, no religous/political/racial commentary, no unsupported commentary.

Thanks

S