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Top 5: A $75 Carbon Tax Will Help Meet 2°C

10.29.19 | Blog | By:

Hello friends! After a short break, I’m back with my monthly take on five most interesting developments in fuels and vehicles trends. Items I selected include:

  • IMF Study on Carbon Taxes: A $75 ton carbon tax by 2030 could help meet 2°C. Yes, that would increase electricity and gasoline costs, but the blow could be softened with cuts in other taxes and/or a dividend to consumers.
  • Soil Regeneration and Carbon Sequestration: The UN-FAO says it will take US$300 billion to stop the rise in GHGs and buy about 20 years to decarbonize through regenerating 900 million hectares of land globally. What does it mean for fuels? Read on.
  • Hydrogen Study: Department of Energy’s SLAC National Accelerator Laboratory and Stanford University have shown for the first time that a cheap catalyst can split water and generate hydrogen gas for hours on end in the harsh environment of a commercial device. The upshot: this would make electrolyzers cheaper meaning cheaper hydrogen meaning decarbonization (including of transport) becomes more achievable.
  • Peak Car: It may be upon us. That might be good for GHG emissions, but not the global economy.
  • Future Fuels for Shipping: Maersk and Lloyd’s Register have found that alcohols (ethanol and methanol), biomethane and ammonia are the best pathways to reaching net zero in shipping.

1. International Monetary Fund: Fiscal Policies to Curb Climate Change ― According to a new study by the IMF, carbon taxes are the most powerful and efficient tools to reduce energy use and shift to clean energy sources, but only if they are implemented in a fair and growth-friendly way. To limit global warming to 2°C or less, the IMF suggests that countries introduce a carbon tax set to rise quickly to $75 a ton in 2030.

This would mean household electric bills would increase by 43% cumulatively over the next decade on average and more in countries that still rely heavily on coal in electricity generation, less elsewhere. The IMF says gasoline would cost 14% more on average. That’s a political no-go in the U.S., parts of Europe (think Yellow Vests) and elsewhere. However, the revenues from the between ½ and 4½ percent of GDP (depending on the country) could be used to cut other taxes, such as income or payroll taxes. It could even be returned to the people as a dividend as proposed by the Climate Leadership Council.

About 50 countries have a carbon pricing scheme in some form, though the global average carbon price is currently only $2 a ton. The IMF says a carbon price floor of $50 and $25 a ton in 2030 for advanced and developing G20 countries respectively would reduce emissions 100% more than countries’ current commitments in the 2015 Paris Agreement, shown in the figure below. To me it makes sense in achieving real, meaningful CO2 reductions especially if other kinds of regulations are eliminated or streamlined.

CO2 Reduction for G20 Countries under Alternative Ambition Scenarios, 2030

Source: IMF staff calculations

Note: Carbon prices are per ton. For some emerging market economies (advanced economies), the $25 ($50) floor is not enough to meet the Paris pledges. In the second scenario from the top, countries meet the price floor or the Paris pledge, whichever is more stringent; in the third scenario from the top, all countries meet their respective price floor, but some may not meet their Paris pledges.

Countries that want to use different policies, like regulations to reduce emission rates or curb coal use, could join the price floor agreement if they calculate the carbon price equivalent of their policies, according to the IMF.

2. TIME: These U.N. Climate Scientists Think They Can Halt Global Warming for $300 Billion. Here’s How. ― It will take US$300 billion to stop the rise in GHGs and buy about 20 years to decarbonize, according to the United Nations Food and Agriculture Organization (UN-FAO). That’s roughly the GDP of Chile or the world’s military spending every 60 days, according to TIME magazine. How? Through combating deserterification by restoring 900 million hectares of 2 billion hectares of degraded land, returning it to pasture, producing food crops or reforestation and locking in carbon in the soil. US$300 billion seems like a lot ― but to provide some perspective, China spent US$65 billion alone to achieve 5% sales penetration of electric vehicles.

Meantime, farmers in the U.S. and elsewhere, are experimenting with “regenerative growing practices” that would serve to achieve the same thing ― retain soil carbon ― as well as boost yields, reduce water and fertilizer use, and carry a significant collateral benefit: they sequester in the soil carbon released from burning fossil fuels. This recent Wall Street Journal article covers the issue and details a new initiative known as the Indigo Carbon marketplace, which is acting as a marketplace and connector to consumers and companies looking to reduce their carbon footprint by paying farmers to sequester carbon. Carbon taxation is not popular in the U.S. despite growing public consciousness about climate change (though I would point out that the sales pitch to the public has been horrible).

Why not support farmers and GHG reduction by enacting a federal policy, a tax credit, for soil carbon sequestration?  This has been suggested recently by consultants as something the airlines should do (and quickly) to offset emissions:

“Airline executives should be persuaded to invest in carbon sequestration due to the emissions-reduction potential alone. But in addition to providing an effective means of hitting their goal of zero emissions growth starting in 2020, partnering with farmers on carbon sequestration also promises airline execs a boost to their public image. They’d be combating climate change, living up to their promises and helping farmers and communities across the world. Who doesn’t love that story?…

 

…Airlines are often cited as one of the most intensely disliked industries in the world. The new social phenomenon of “flight-shaming” is already reducing airline business in Scandinavia and could catch on in other parts of the world. So emerging as a key player in the fight against climate change — as well as a champion of the farming community — could help airlines maintain their social license to operate.”

Elsewhere on the transport side, there have been two studies showing the benefits of soil carbon retention with respect to corn and ethanol. The first was carried out by the Laboratory for Applied Spatial Analysis at Southern Illinois University Edwardsville (SIUE-LASA), highlights the flaws in research into land use change based on satellite imagery, which was referenced in the EPA’s 2018 Second Triennial Report.

The second study, which was partially funded by the U.S. Department of Energy (DOE) and the U.S. Department of Agriculture (USDA), found that corn residue retained on fields results in the sequestration of approximately 0.41 metric tons of carbon per hectare per year in the soil. This finding suggests that the carbon intensity of corn-based ethanol is significantly below current estimates by the EPA, the California Air Resources Board, and others. It also implied that leaving more residue on fields can have a larger carbon benefit than removal and conversion into ethanol. (For more insight on this topic, check out my podcast interview of Ron Alverson, past chairman of the American Coalition for Ethanol (ACE)).

3. SLAC National Accelerator Laboratory: Study Shows a Much Cheaper Catalyst Can Generate Hydrogen in a Commercial Device ― Researchers at the Department of Energy’s SLAC National Accelerator Laboratory and Stanford University have shown for the first time that a cheap catalyst can split water and generate hydrogen gas for hours on end in the harsh environment of a commercial device. The electrolyzer technology, which is based on a polymer electrolyte membrane (PEM), has potential for large-scale hydrogen production powered by renewable energy, but it has been held back in part by the high cost of the precious metal catalysts, like platinum and iridium, needed to boost the efficiency of the chemical reactions.

SLAC researchers say this study points the way toward a cheaper solution. There’s been extensive work over the years to develop alternatives to precious metal catalysts for PEM systems, but this research may be among the first to demonstrate high performance in a commercial electrolyzer.

Electrolysis works much like a battery in reverse: Rather than generating electricity, it uses electrical current to split water into hydrogen and oxygen. The reactions that generate hydrogen and oxygen gas take place on different electrodes using different precious metal catalysts. This is shown in the graphic below.

Source: Greg Stewart/SLAC National Accelerator Laboratory

In this case, the platinum catalyst on the hydrogen-generating side was replaced with a catalyst consisting of cobalt phosphide nanoparticles deposited on carbon to form a fine black powder, which was produced by the researchers at SLAC and Stanford. The cobalt phosphide catalyst operated extremely well for the entire duration of the test, more than 1,700 hours – an indication that it may be hardy enough for everyday use in reactions that can take place at elevated temperatures, pressures and current densities and in extremely acidic conditions over extended lengths of time.

What does it all mean? Cheaper electrolyzers mean cheaper hydrogen. And cheaper hydrogen may make decarbonizing transport, power generation  and heating ―among other things ― cheaper and more possible to achieve.  In fact, a recent Bloomberg analysis found that the costs of renewable hydrogen costs may fall to as low as $1.40 a kilogram by 2030 from the current range of $2.50 to $6.80 and could slide further to 80 cents by 2050 due in part to the falling costs of electrolyzers.

4. The Wall Street Journal: ‘Peak Car’ is Holding Back the Global Economy ― Have we hit “peak car”? It’s possible, with this article noting that in the U.S., car sales peaked in 2016; in the European Union, in 2000; and in Japan, in 1990. Emerging markets were supposed to pick up the slack, but they too show signs of plateauing: Sales in the last 12 months are down 12% from mid-2018 in China and 14% in India.

Throw in market saturation in these key markets, rising trade barriers and ever-tightening vehicle emissions, fuel economy and zero emission vehicle standards as well as the threat of national and local internal combustion engine vehicle (ICEV) bans, and it’s easy to see why the industry is struggling. Moreover, in its latest World Economic Outlook, the IMF estimates the sector accounts for 5.7% of global economic output and 8% of world trade. The IMF thinks autos contributed a fifth of last year’s slowing in global GDP and a third of the slowdown in trade.

5. Maersk: Alcohol, Biomethane and Ammonia Are the Best-Positioned Fuels to Reach Zero Net Emissions ―  Maersk and Lloyd’s Register have found that alcohols (ethanol and methanol), biomethane and ammonia are the best pathways to reaching net zero in shipping. Here’s how they view each fuel:

  • Alcohols: They are not a highly toxic liquid with various possible production pathways directly from biomass and/or via renewable hydrogen combined with carbon from either biomass or carbon capture. Existing solutions for handling the low flash point and for burning alcohols are well proven. Ethanol and methanol are fully mixable in the vessel’s bunker tanks, creating bunkering flexibility. But the transition of the industry towards alcohol-based solutions is yet to be defined.
  • Biomethane: It has a potential smooth transition given existing technology and infrastructure. The challenge is methane slip—the emission of unburned methane along the entire supply chain.
  • Ammonia: It is truly carbon free and can be produced from renewable electricity. The energy conversion rate of this system is higher than that of biomaterial-based systems, but the production pathway cannot tap into potential energy sources as e.g. waste biomass. The main challenge for ammonia is that it is highly toxic and even small accidents can create major risks to the crew and the environment. The transition from current to future applications is also a huge challenge for ammonia.

Neither batteries or hydrogen is viewed as playing a role in the sector.

Tammy Klein is a consultant and strategic advisor providing market and policy intelligence and analysis on transportation fuels to the auto and oil industries, governments, and NGOs. She writes and advises on petroleum fuels, biofuels, alternative fuels, automotive fuels, and fuels policy.

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