Schizophrenia at HKSAR Environment Bureau

On December 16th, KS Wong who is the Secretary for the Environment in HK made an announcement following the news that tariffs for CLP Power[1] customers will rise by 3.1% next year: "Using clean energy[2] to reduce carbon emissions and improve air quality will inevitably increase pressure on power companies to raise electricity tariffs […]. The two power companies, together with the Government, have tried to have various means to stabilize the price. At the same time, we have to consider various means, including the stabilization fund so we can have a certain reserve of a reasonable percentage, and we can then have a more stabilized situation over the time." . This is a quite surprising announcement[3], coming from HK Secretary for the ENVIRONMENT !

Enquiring further allows for more comments. In fact, there are three “departments” in the Environment Bureau (see http://www.enb.gov.hk/en/top.html): environmental protection, energy, and sustainable development. And looking at the energy policy objectives, the first one is price, then come safety and reliability and then…environmental concerns. How can it be? First it seems that until quite recently, with cheap energy imported from Mainland China there was no real need for an energy policy so it has been put under the responsibility of the Environment Bureau because it had to be put somewhere. Second it so Hong Kong style to have price concerns before anything and it is quite revealing that it is even the case at the Environmental Bureau.

However, there is a more optimistic view on KS Wong statement. Energy price is a big concern for HK business and HK population. Everybody knows that a cleaner energy will be more costly and this rises an important issue of policy acceptance. What if, to deal with that issue, KS Wong was manipulating expectations by paving the way for further electricity price increase due to cleaner energy? He would be using his “energy policy hat” to deal with environmental policy acceptance? Maybe not such a bad idea: fuzzy information has proven efficient for monetary policy, why not using it for the environmental policy? There is room for economic analysis, here.

 

---

[1] On of the two companies providing electricity for HK.

[2] HK is turning for more gas and less coal for electricity generation.

[3] See also previous post on how the fall in oil prices is a bad news for climate change.

Is renewable energy really inexhaustible?

By Prudence Dato, prudence.dato@univ-savoie.fr, IREGE/University of Savoie (France).

  There exists a myth about renewable energy (RE) and the large benefit that our society could gain from renewable energy. Usually, we heard that renewable energy-let say solar energy or wind energy- is a clean energy and also a good alternative for oil because it is not polluting environment and is inexhaustible. It is true that our society could not escape the climate change consequences without adopting renewable energy which is seen as a promising solution. We always avoid some characteristics of solar/wind energy may be because we want to be optimistic. Those characteristics are for instance, the availability of inputs that could serve to produce renewable energy (solar/wind, metals, etc.). We commonly assume that solar/wind is always available (it is not so true), but clearly one should care about the availability of rare materials such as metals that need to be used to produce solar panels or wind turbines. For instance, Alonso et al. (2012) [1] projected that neodymium demand for wind turbines could grow by as much as 700 percent over the next 25 years; demand for dysprosium, also needed for wind turbines, could increase by 2,600 percent. Moreover, the production of 4 gigawatts (GW) of peak power using thin-film cadmium telluride photovoltaic requires 340 tons and 390 tons of cadmium and tellurium, respectively. However, it represents 2% and 82% of 2008 estimated world refinery production of cadmium and tellurium from primary sources[2]. The issue of exhaustibility of RE is close to the entropy pessimist view or strong sustainability arguments developed by Ayres (2006)[3] in the sense that a self-reproducing industrial system producing PV cells is not possible.

 For many centuries ago, the society was thinking that non-renewable energy such as oil was abundant and consequently they did not need to care either about its depletion or about the pollution it induces. At the end of the day, we get ourselves trapped by the challenge of climate change. So, now that we hope that an alternative is possible to escape the drama, are we going to get ourselves into the same situations as before? How are we going to produce renewable energy if in the future we completely deplete all the rare metals (that exists in a limited quantity)? Are we not just moving the problem of oil depletion to that of metals depletion? Also, note that all the manufacturing processes of solar panels or wind turbines are energy-intensive and partly rely on “dirty energy sources” with potential negative environmental implications.[4]Although, energy transition to clean energy is the ultimate solution for sustainable growth, we should start looking for how to optimally design the materials that serve to produce renewable energy in order to reduce the pressure on rare metals. Otherwise, the opportunity cost is going to be high in the case our society solely relies on renewable energy and misses rare materials.

---

[1] Alonso, E., Sherman, A. M., Wallington, T. J., Everson, M. P., Field, F. R., Roth, R., & Kirchain, R. E., 2012. Evaluating rare earth element availability: A case with revolutionary demand from clean technologies. Environmental science & technology, 46(6), 3406-3414.

[2] http://pubs.usgs.gov/circ/1365/Circ1365.pdf

[3] Ayres, R. U., 2007. On the practical limits to substitution. Ecological Economics, 61(1), 115-128.

[4] Tsoutsos, T., Frantzeskaki, N., & Gekas, V., 2005. Environmental impacts from the solar energy technologies. Energy Policy, 33(3), 289-296.

Bad news : Oil prices are falling !

Why is there this general feeling that the current persistent fall in oil prices is a bad thing? Thinking back to the 70’s, when the oil shock was made responsible of all the economic turmoil, it can be surprising.

For developed countries, some people (like Mario Draghi) are afraid that it may cause deflation or at least feed self-fulfilling deflation, by generating the feeling of deflation (see NYTimes). But it may simply serve as an excuse for central banks that argue not to be responsible for the deflation. For developing countries, it may hinder their growth provided they are oil exporters (see SCMP).

However, the most important issue to me has a worldwide scope: these low prices affect fossil fuel consumption and climate change. Renewable sources of energy are too expensive but their opportunity cost becomes even higher with cheap oil. Moreover, low prices indicates (at least partly, there may be action from the demand side as well) an abundant supply, meaning that economists should remove the exhaustibility constraint from their models that in some way was helping to mitigate climate change (since D’Arge and Kogiku; RES 1973).

Anyway let’s keep hope: you can always find engineers that are convinced that the peak oil is something relevant … and even very frightening!

Link to the New-York Times: http://www.nytimes.com/2014/12/05/upshot/falling-oil-prices-create-a-central-banking-conundrum.html?_r=0&abt=0002&abg=0

Link to the SCMP: http://www.scmp.com/business/commodities/article/1649741/free-fall-oil-prices-may-cut-both-ways-emerging-markets

D’Arge, R. and K. Kogiku (1973). Economic growth and the environment, Review of

Economic Studies, 40, 61-77.

Green Growth for the Energy Transition (the French law on energy transition). Act I: what and when?

By Prudence Dato, prudence.dato@univ-savoie.fr, IREGE/University of Savoie (France).

In a series of notes, we will present an economic analysis of the energy transition law in France. 

Act I, scene 1: Ambitious objectives (setting the drama)
- Looking for energy efficiency : France intends for instance to reduce its final energy consumption by 50% by 2050 in relation to the 2012 benchmark and increase the annual rate of reduction of final energy intensity by 2.5% between now and 2030.

- Looking for green energy: the law also proposes a reduction in final energy consumption of fossil fuels by 30% by 2030 in relation to the 2012 benchmark and bring the proportion of renewable energies to 23% of gross final energy consumption.

- Tackling waste is also considered together with the promotion of circular economy from product design to recycling.



Act I, scene 2 : The fundings (when usually troubles start)
Financial resources to support the action plans will come from incentives from both public financial players, local authorities and private sector. The hope is to generate 100,000 jobs in three years thanks to green growth, building and new energies. So troubles have not really started. Is it because the exact means to reach the green objectives …and the 100,000 additionnal jobs are not very precise? Therefore nobody is severely hurt.



Act I, scene 3 : The happy (temporary?) development
This French law with its 64 articles and almost 500 amendments has been adopted (314/219) in a special commission by French Parliament the 14th of October 2014.
This happy result comes from the “nobody hurt” feature so we can expect real troubles to come later in the play…
France is joining other European countries like Germany (Energiewende in 2011), UK (2013) and Danemark (2012) that have implemented their own law on energy transition. We hope that cooperation and coordination between European states will help make the energy transition a success in Europe.

For more details, see (pdf) and http://www.developpement-durable.gouv.fr/-La-transition-energetique-pour-la-.html (in french).

Smog around climate change

First there was on November 12th, 2014 this US-China climate agreement setting targets for CO₂ emissions out to the year 2030. Then on November 19th, 2014, China announced a cap on annual coal consumption at 4.2 billion tonnes in seven years (it was 3.61 billion tonnes last year). Has China become a true GHG fighter and save the planet from climate change?
Maybe that is not so clear...because of the smog issue!
Because what matters for China is smog (do notice that it tends to discourage foreigners from living there and consequently, a new French campus in Beijing will be equipped with pumped purified air, see SCMP 20th-11-2014 A5). In some way, fighting against smog may well be consistent with fighting against climate change...but it does not perfectly fit: in the same plan released by the State Council as the one requiring a cap on coal (the enemy number one because its burning is the main responsible for smog) there are tasks set out to develop new and existing oil fields in nine regions where there are proven reserves ... and a call for foreign bids on deep-sea offshore projects and for R&D on deep-sea oil discovery and technology.
So the interesting question is: will China pursuing the goal of smog mitigation help reaching the goal of climate change mitigation?


For more details on China's plan: http://www.scmp.com/news/china/article/1644074/china-issues-energy-action-plan-tackle-smog-using-less-coal

Why is there shale gas exploitation in the US and not elsewhere?

I attended some times ago a lecture by Professor Mason (Director of Oak Ridge National LaboratoryU.S. Department of Energy )  on “Science technology for the energy challenge”. I was very surprised to hear explaining the reasons why shale gas is very developed in US and Canada but nowhere else. I am sure French people will appreciate: the first reason is that… it is a very complicated technology and US industry has a better understanding of it! Then comes the issues of the mineral rights for exploitation and finally…the existence of some challenges for water use but…there are some solution and anyway “ No form of energy comes free of environmental consequences” (he thought it was then time for a comparison with windmills people sometimes do not like to see...). For a video of Prof. Mason lecture, go to : http://www6.cityu.edu.hk/cityvod/video/play/VPRT/CityU_lecture_Dr_Mason.aspx

His interesting answer about shale gas is at 1.18.

Energy Fuel sources for electricity generation in KH

In Hong Kong, the actual situation for electricity generation can be described as follows. Coal is used for 53%, nuclear represents 23%, natural gas 22% and renewable resources generates 2% of electricity for Hong Kong.  The current scheme for electricity generation will expire in 2018 (or 2023 if extended) and the government wants to rethink the energy-mix on the basis of the following considerations:

·         some of the power generating units will start to be retired in the coming few years;

·         the government is expecting a rising demand for electricity notwithstanding the small growth projected;

·         there is a will to meet the air pollutant emission reduction targets already set to improve air quality, both locally and regionally;

·         Hong Kong is committed to the carbon intensity reduction target proposed during the public consultation on Hong Kong’s climate change strategy and action agenda in 2010.

Hong Kong SAR Government (2014) proposes a quick review of the strengths and weaknesses of each energy source. On the basis of this quick review, two options are proposed. Option 1 consists in importing more electricity through purchase from the Mainland powergrid while option 2 proposes to use more natural gas for local generation. The other options seem to have been thrown away quite quickly!!!

Reference: Hong Kong SAR Government (2014) « Future Fuel Mix For Electricity Generation  Consultation Document»