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Six Part Structure

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Six Part Structure

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  1. Sustainable Development in the Hydrocarbon IndustryNicholas SternIG Patel Professor of Economics & Government,Chair of the Grantham Research Institute on Climate Change and the Environment, Chair of the Centre for Climate Change Economics and Policy.London School of Economics and Political Science Cartagena, Colombia 19 October 2012

  2. Six Part Structure • Part 1: Scale and risk and the new energy-industrial revolution • Part 2: Sustainable development in hydrocarbons • Part 3: Unburnable carbon and the importance of CCS • Part 4: The rush to gas • Part 5: Responsible production and consumption • Part 6: Implications for Colombia’s future development 2

  3. What our global targets should be Holding below 500ppm CO2e, and reducing from there, is necessary to give a reasonable (say 50-50) chance of staying below 2°C(around 20% chance of greater than 3°C). A plausible emissions path is close to 50Gt CO2e in 2010, 44Gt in 2020, under 35Gt in 2030 and under 20Gt in 2050. Likely to have to go ‘well under’. Clearly necessary to ‘peak’ before 2020. Can do a little more earlier and a little less later and vice versa but shape of feasible paths similar, and very costly to catch up if postpone action. Note that a 2°C path (50-50) requires very strong action on emissions over this century and beyond. 3 Source: Bowen and Ranger (2009).

  4. Cleantech& Biotech (2009-) 6TH WAVE Waves of innovation Information& Telecom (1971-) Oil, Automobiles & Mass Production (1910-1975) 5TH WAVE Steel, Electricity& Heavy Engineering (1875-1920) INNOVATION 4TH WAVE Steam & Railways (1830-1870) 3RD WAVE Industrial (1770-1830) 2NDWAVE 1STWAVE 1800 1850 1900 1950 2000 Source:DONG Energy (2009); diagram based on Perez (2002) drawing on report by Merrill Lynch (2008) (schematic not precise quantitative vertical axis). 4

  5. Sustainable development in hydrocarbons A combination of policies required: Encouraging substitution of gas for coal; CCS development and deployment; Electrification of transport and heating; Energy efficiency in both consumption and production. A role for offsets to avoid deforestation? REDD+ policies would place a value on the forest that would otherwise be degraded or destroyed in the process of exploring and extracting hydrocarbons. Areas with high conservation value could attract high offset prices shifting economic incentives towards preservation of the biodiversity on the ground. 5

  6. Unburnable carbon (I) * Total potential emissions from proven fossil fuel reserves of top 100 listed (globally) coal, oil and gas companies. Note: CO2 only. Source: www.carbontracker.org/carbonbubble 6

  7. Unburnable Carbon (II) • Given that supply of other countries likely to be fairly elastic a restriction by Colombia would likely be replaced by production elsewhere. • Should producers plan together for leaving resources in the ground? Otherwise there is an individual incentive to bring production forward if some will have to be left in ground. • Should coal producers be supporting CCS R&D and demonstration to prolong demand for their product? * http://www.equion-energia.com/documentos/colombia_oyg_2012.pdf 7

  8. Future US gas price projections* ** *Consistent with gas price projections in IEA (2012) “Golden Rules for a Golden Age of Gas” World Energy Outlook Special Report on Unconventional Gas. ** In 2011, the average heat content of natural gas for the residential, commercial, and industrial sectors was about 1,023 Btu per cf; one Mcf = 1.023 MMBtu (http://www.eia.gov/tools/faqs/faq.cfm?id=45&t=8). 8

  9. US electricity generation from gas and renewables growing strongly US Electricity Generation 2005-2011 (TWH) Note: total has stayed fairly constant at around 4, 100 TWH; oil has become negligible; and coal has decreased from around 2,000 to 1,734 TWH (2005-2011). 9

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