Moving the world energy paradigm

Moving world energy paradigm towards CO2 free systems

INTRODUCTION

Withe the new US administration questioning the value and importance of climate maintenance it is perhaps worth exploring ways in which we can continue to meet the COP21 Paris agreement and  preserve the engine of the world economy – fossil fuel – as a major provider.

Methods for moving world energy production towards CO2 non-emitting systems such as solar, wind and tide are well known, well researched and to a growing extent “proven”, albeit only in certain scenarios.
Energy per-se is the most important component of the world economy and so the main problem we face is how to persuade/encourage the world at large to embrace these alternative energy production techniques in increasingly difficult circumstances when unabated energy production from fossil fuel is economically advantageous and flexibly deployable. So,

We don’t need to invent new methods to create energy, nor do we need new methods to  in order to limit CO2 emissions. From a technical perspective, these can already be done. What we do need is:

Both of these can be done in a direct and progressive way, such that conventional economic activity can then readily kick in to balance the books.
Rationing of this sort would be based upon carbon content of the fossil fuel. The total ration made available for “free burn”, license purposes, each year, would exactly mirror the COP21 agreement in Paris in 2014, so that we would automatically and directly solve the world’s CO2 problem.

To completely solve the world’s problem, we would need a world-wide rationing regime for “free burn” fossil fuel. Instantaneously setting a worldwide regime with worldwide a target is probably unrealistic. However:
Each national scheme would be based on “National Permits” to produce, sell and purchase fossil fuel for “free burn” use within each participating country. The “National Permits” would be sold at “National Permit” auctions. The National Permits available for sale in any participating nation at these auctions would be dated and for any given year an annual limit would apply, equal, in carbon equivalent terms, to that agreed at COP21. Thereafter, “free burn” energy production may only be carried out within the national boundaries, during any year against such “National Permits”[1].

Gradually, “Permitted” fossil fuel use dwindles, in line with the COP21 agreement. Likewise, the energy resulting from this source dwindles and possibly during the early stages of the process, the market price of energy overall inflates Meanwhile, what happens to the receipts from the Permit auction sales?

One answer is obvious. This income stream could be set up as a national energy fund (NEF) which could be used at the discretion on the national government for such purposes as subsidizing the early inflationary phase of the new style energy market (on a non-discriminatory basis), or simply as a national investment fund (such as Norway).

 

 

 

 

 

 

DISCUSSION:

Avoiding global warming caused by unabated “free burn” fossil fuel for energy production is not a technical problem for the world to solve, it is a commercial one.

Technically there are many ways in which energy can be created in a whole plethora of circumstances, each serving different needs. In each case the amount of energy produced, the cost of production and delivery and the portability of production varies according to the circumstance.

 

Since the beginning of the industrial revolution c.1750 AD:

 

 

the most cost effective method of energy production and delivery at an industrial scale, has been the burning fossil fuel with the attendant release into the atmosphere of copious quantities  of carbon dioxide (CO2) “free burn”

 

 

Whilst cost effective and therefore economically the favoured, this method of energy production and delivery, it is increasingly regarded as environmentally unacceptable.

So, we have a conflict between the economic answer and the environmentally acceptable answer.

We live in a competitive world with freedom of choice applying at every stage. But human behavior individually and collectively has almost always been driven by personal self-interest (PSI).  Rarely has anything changed collective human behavior other than PSI.  This dictates that without a massive effort in favour of an alternative, the economic answer prevails.

For all life forms including the vast majority if human kind, PSI is defined within a very short time horizon.  In human society it is predominately measured in “well-being” terms which, beyond the personal poverty horizon, simply boils down to an economic/financial/+political measurement.

Ergo this philosophical proposition facing the “carbon crisis” is that unless any putative solution delivers PSI in the shape of economic/financial/+political gain for those making the decision, it will always be rejected and the proposition will fail. So, the test that we will have to apply henceforth to any putative solution to the carbon crisis will be that the proposed solution MUST deliver PSI for the decision makers. In general, this PSI will always be based on economic/financial/+political gain. (“Political gain” here is just a special and generally longer term form of economic/financial gain).

This rule applies whether the decision makers are individuals, companies, governments or agglomerations of some or all of these.

So, if humanity is to survive the present carbon crisis, the above philosophical proposition needs to be explored and modified sufficiently to ensure that the environmental argument has supremacy over the crude economic argument in an AGREED and clear way whilst all other aspects of the resulting method remain and operate in their normal fashion.

The AGREED outcome based on harnessing PSI, can then evolve into a practical and universally acceptable PLAN which will deliver a practical resolution of the carbon crisis.

Whilst Fossil Fuel (absent special taxes and subsidies) retains its position across the world as the most readily available, transportable and flexible deliverer of the most economically successful and therefore dominant source of energy this cannot happen. So the necessary solution to the carbon crisis depends upon the delivery of an acceptable, “PSI resilient” way of reducing the natural and innate competitive position of fossil fuel, without damaging the functionality of the world economy including the fossil fuel industry in its widest sense.

This is inevitably the acid test for a viable solution to the carbon crisis but is it conceivably possible?

 

An alternative mechanism to implement COP 21

 

The key to achieving success is to change from supply side management to demand side management by progressively limiting the sale of fossil fuel destined for free burn. This policy albeit for different strategic goals is what OPEC and other major producers of fossil fuel have been operating since the first oil shock in 1973, albeit for different strategic reasons.

If the world as a whole took over this role it could revolutionise and regain control the fossil fuel market and hence the energy market on behalf of the world population and its climate.

 

This can be achieved through the issue/observation, of carbon content Permits.

This only requires a few simple steps:

  1. Set limits for the total annual free burn fossil fuel CARBON CONTENT permits to be sold. This limit would be the amount equivalent in carbon content to that specified under COP21.
  2. This in turn, automatically limits CO2 release from fossil fuel free burn into the atmosphere to the pre-defined acceptable levels set out at COP21.
  3. It could be operated and administered by individual nations, by economic collaborators or by the world at large.

 

To achieve this aim it would only need the recognition of two distinct classes of fossil fuel delineated by end use.

1: PERMITTED FOSSIL FUEL PRODUCTION – FOSSIL FUEL PRODUCED under a PERMIT

2: ACCREDITED FOSSIL FUEL – FOSSIL FUEL PRODUCED for sale only to an accredited user

Each sale of fossil fuel can only be sold and subsequently used for its intended class of use

The essential differences between the two classes of fossil fuel are:

1: PERMIT CONTROLLED PRODUCTION

2: ACCREDITED USE – CONTROLLED PRODUCTION

 

Fossil fuel which is intended for free burn requires a permit

CEV Permit ownership is restricted to licenced traders.

Licenced traders are appointed and may initially include:

  • fossil fuel producers,
  • energy producers and
  • bone-fide traders
  • + other classes of major user

 

Permits are denominated in terms of; carbon-equivalent-value (CEV)

Permits are valid for 12 months commencing from the date on the face of the permit but can be forward purchased [x] years ahead.

During the currency of a permit, its owner may:

Purchase fossil fuel up to the CEV of the permit.

Engage in free burn (or otherwise) of the fossil fuel without restriction.

Sell the permit to another registered trader.

 

Ownership of Permits (for Free Burn)

  • Open bidding for the initial ownership of CEV permits, is carried out periodically at CEV
  • At CEV auctions, licenced traders (subject to their repute and financial standing) can bid for for and obtain annually dated tradable permits of any designated CEV allowing “free burn” of the stated amount of fossil fuel.
  • monitoring of Permitted sales
  • During the currency of each permit, the licenced permit owner must:
    1. make monthly returns of its CEV1 utilisation, itemising the OWNER’s purchase and usage of fossil fuel and
    2. declare any remaining ullage.
  • When a permit is exhausted it must be returned to be struck off.
  • When the permit expiry date is reached, it is automatically struck2 off irrespective of any remaining ullage

 

  • TOTAL Permitted sale – ANNUAL limits
  • The combined CEV of all of the permits made available to be sold at auction for any year, is capped so as to be no greater than the COP21 target carbon trajectory, for that year (by country, economic block or world wide).
  • Auctions (and second sales) can deal in permits for the current year or for a forward dated year up to [x] years forward. (by country, block or word wide)
  • 2: ACCREDITED USE – CONTROLLED PRODUCTION
  • Accredited fossil fuel market
  • Fossil fuel Accredited sales may occur only in facilities where the products of any resulting combustion are rendered harmless by being captured or otherwise converted into benign products SUCH AS CaCO3. ALL Such facilities must be formally accredited as such.
  • Sales can only be classed as Accredited where the sale is to an accredited end customer for accredited
  • Accredited customers
  • Accredited sales are unaffected by the permit constrained market — and
  • Permit constrained sales are unaffected by the accredited market.
    • For Accredited purchases, potential end customers must apply to become Accredited customers and be approved as such.
    • Accredited end customers may initially include, those engaged in industries which carry out benign conversion of CO2 (e.g. to CaCO3) or CO2 re-sequestration.
  • uniquely important Accredited customers
  • Accredited customers may, from time to time, also include end customers in industries that are recognised as uniquely important, either economically, commercially or strategically including those who’s product is, at that time, irreplaceable
  • Uniquely important accredited customers might include:
    • Airlines,
    • Military requirements
    • Humanitarian supporting purposes
    • …..plus other transitory inclusions during the start-up years
  • accreditation of customers

The Accreditation process for customers is handled on a commercial basis by existing certification agencies.

  • MARKET CAPACITY
  • Overall market capacity

Over 30-50 years, the capacity of the permitted market (for free burn fossil fuel), will become progressively more constrained by its adherence to COP21 agreements.

  • Incentive to invest – confidence to proceed
  • Incentive to invest and confidence to proceed
    Detailed aspects:

Throughout its history the fossil fuel E&P industry has been technically strong and financially robust.

BY Embracing a market driven mechanism such as this, without arbitrary taxes and subsidies, the fossil fuel E&P industry has a real incentive to invest in Accredited fossil fuelled energy. It can thereby, continue to grow its overall MARKET share within a predictable and understood future energy market.

  • FREE markets – Competition for ENERGY & fossil fuel

With this mechanism,  EACH type of energy creation PROCES IS TREATED EQUALY – no discriminatory1 subsidy or taxation CAN EXIST NOR IS ONE NECESSARY.

Markets for fossil fuel and for energy are both FREE markets.

Thus, no individual energy TYPE  is able to gain arbitrary competitive benefit over any other energy TYPE. nor will any energy TYPE confront any arbitrary obstacle.

  • FREE markets – pricing fossil fuel

Fossil fuel producers (Oil & gas companies and coal producers) can sell both to the permitted fossil fuel energy market and to the accredited fossil fuel energy market.

 

Success in selling to either permitted or the accredited fossil fuel markets depends on THE CHOSEN MARKET:

  1. In the permitted market: The price offered by (the diminishing numbers) of permitted customers (those who have already bought and paid for permits).  As against:
  2. In the accredited market: The price offered by a small but growing and totally unrestricted number of accredited customers who have already invested in the additional plant necessary to qualify as

(BUT TO REMAIN COMPETITIVE OVERALL, they will have to take this

into  account, in their offer price.)

  • If the price of a permit is low enough and energy companies believe the price of a permit will remain low, they will postpone accreditation investment in their own facilities, continue to purchase permits and purchase permitted fossil fuel.
  • BUT the price of permits will inevitably rise as availability of permits in the market steadily reduces (in accordance with COP21).
  • If the price of a permit is low enough and energy companies believe the price of a permit will remain low, they will postpone accreditation investment in their own facilities, continue to purchase permits and purchase permitted fossil fuel.
  • BUT the price of permits will inevitably rise as availability of permits in the market steadily reduces (in accordance with COP21).

At, this “turning point” or in anticipation of it, energy companies must either:

  1. Switch away from fossil fuel, to renewable energy or:
  2. Invest in or sponsor, accredited fossil fuel energy

The day-to-day outcome will be market driven.

A positive choice exists for the fossil fuel industry:

  1. Increase demand by investing in accredited fossil fuel energy or
  2. In order to maintain fossil fuel price, reduce the supply being offered to that demanded only by the permitted market in line with the controlled shrinking market demand.

 

SUMMARY & OUTCOME:

This is a market driven implementation programme to achieve COP21. It conceives two parallel free markets for fossil fuel energy, both of which compete freely with all other forms of energy production:

In each set of circumstances, the most cost efficient form of energy production naturally comes to the fore and becomes the economic choice for:

  • Consumers
  • Fossil fuel producers
  • Energy companies
  • Investment providers
  • Tax payers (they no longer fund state subsidies to support uncompetitive energy production)

All consumers pay the competitive, free MARKET price, for the energy they consume.

Two approaches to the management and control of CO2 emissions have been compared;

  1. successfully and directly managing/controlling CO2 emissions
  2. successfully and directly managing/control fossil fuel production and sales,

The technical outcome from each is, identical as the item being controlled before, during and after is the same carbon atom.

This COP21 based plan offers a BALANCED overall outcome
END

 

[1] Note: This does not address the issue of importing finished or part-finished goods from territories not participating in the schemes but various methods are available for overcoming this issue. Also it might be possible to spawn an international trade in “permits”.