Climate Change and the Private Sector

Scaling Up Private Sector Response to Climate Change

Craig Hart

• Publisher: Routledge
• Year: 2013
• Print ISBN:
  9781138686953
• eBook ISBN:
  9781135011642
• Topic: Business
• Subtopic: Business General
• Index: Business

Climate Change and the Private Sector explores the challenges of transforming our energy infrastructure to become carbon neutral and adapting to climate change in the twenty-first century. It examines the critical role that the private sector must play in these challenges.

To transform the global energy complex to be carbon neutral within a time frame designed to prevent irreparable damage to the environment presents unprecedented challenges. The private sector must deploy financial, material, and engineering resources on a scale never before undertaken — with government providing leadership, removing barriers and supporting industry efforts through policies that mobilize markets to achieve environmental objectives. A key element of supporting private sector initiative to address climate change is policies that help form and sustain markets that supply, finance and generate demand for the technologies necessary to transform our energy infrastructure. The characteristics and examples of these policies are explored in detail.

Companies that respond to these challenges both by mitigating greenhouse gases and adapting to climate change will enhance their own competitiveness and contribute to society in the process. Companies that embrace the challenge to decarbonize their manufacturing operations, whether in response to regulation (or the threat of regulation) or market opportunities, invariably discover ways to improve their operations in the process that could potentially enhance their ability to produce better products, more efficiently. The book explores examples of companies that have redesigned their products and manufacturing processes, and in doing so transformed themselves and reshaped their industries. As in the case of companies mitigating greenhouse gas emissions, companies that lead their industries in adapting their own operations to a changing physical environment are more likely to ensure their resilience in a changing business environment.

This book provides business, policy and academic audiences with an in-depth exploration of the subject, and a practical guide to action.

1 Energy and climate change challenges of the twenty-first century

The twenty-first century's greatest challenge is to meet society's increasing demand for energy, while stabilizing atmospheric greenhouse gas concentrations in order to prevent dangerous climate change. The challenge will likely impact every aspect of human endeavor and change the way we live on our planet. The magnitude of this challenge is unprecedented in human history.

Limiting temperature increase below 2°C, a level identified as potentially the tipping point for dangerous climate change, requires atmospheric greenhouse gas concentrations to stabilize at a maximum level of 450 ppm CO₂-e. According to the Intergovernmental Panel on Climate Change (IPCC), to cap temperature rise at 2°C, global emissions must peak by 2015 and be reduced by about 85 percent by 2050 (Metz et al. 2007a). Achieving these reductions would require all major industrialized nations and large developing countries to shift to non-fossil or carbon neutral energy sources.

This transition requires us to transform our energy infrastructure over the next several decades – a relatively short period of time given the magnitude of the challenge. Without extraordinary levels of investment to transform our present energy infrastructure, we will remain locked-in to our current carbon emissions path (Unruh 2000, 2002; Unruh and Carrillo-Hermosilla 2006; Grubler 1998).

Much of the responsibility for developing and financing carbon neutral infrastructure will fall upon the private sector. Society increasingly relies upon the private sector for investment capital, and their planning, implementation and management capabilities for developing infrastructure. Today, the private sector accounts for an estimated 86 percent of total investment capital (UNFCCC 2007).

The private sector's role in providing capital and know-how is the foundation of developed market economies and it has become increasingly important for developing economies as well. World Bank data show that mixed public and private investment has increased dramatically from US$8 billion in 1990 to almost US$137 billion in 2009 in 149 low- and middle-income countries for infrastructure projects in the energy, transportation, telecommunications and water sectors (World Bank 2011). The growth of the private sector in the advanced developing world is displacing bilateral and multilateral investment. Net private capital flows into emerging market countries relative to the volume of net bilateral and multilateral lending grew from 52.4 percent of total net flows in 1990 to over 100 percent of total net flows for the first time in 2000 for 30 emerging market countries in Asia, Latin America, Africa, Eastern Europe and the Middle East (Institute of International Finance 2007).

The private sector also plays a central role in technology innovation. Companies committed to innovation, such as DuPont and Toyota featured in case studies in Chapter 4, commit between 4 and 5 percent of their revenues to research and development (R&D). These and other companies can play an even greater role in advancing the development and adoption of clean energy technologies with the proper incentives and government policies. For example, a study of R&D budgets of the major oil companies found that R&D expenditures were less than 1 percent of total revenues from 1970 to 1995 (Enos 2002). At these rates, combined R&D budgets of the seven largest petroleum companies, a significant portion of which is typically devoted to exploration and development, could be as high as $12.7 billion in 2009. This is comparable to the energy R&D budgets of the seven top-spending countries. Policies that promote scaling up R&D investment for clean energy among private sector companies will be critical to meeting our energy transformation challenge.

Scale of transformation to develop carbon neutral energy infrastructure

To place the magnitude of the energy-climate change transition into perspective, consider that annual global production of primary energy from all sources in 2006 was 15.8 TW (EIA 2008). Demand for primary energy is expected to grow to as much as 30–40 TW by 2050 (Hoffert et al. 1998). Stabilizing CO₂ levels below 450 ppm is estimated to require emission-free energy of 25 TW by 2050 (Hoffert et al. 2002).

Tables 1.1 and 1.2 show both conventional and renewable energy options available to us at the present time. Transition to a carbon neutral energy system will require maximizing energy efficiency, fuel switching to lower-carbon fuels and adopting renewable technologies such as geothermal, wind and solar. We will also need to consider expanding nuclear power and technologies such as carbon capture and sequestration to support a carbon neutral infrastructure.

To illustrate the magnitude of the transformation necessary to introduce these technologies on the needed scale, we consider the construction and expenditure rates to develop 10 TW of carbon neutral electricity infrastructure by 2050. Our efforts to achieve carbon neutral infrastructure will draw on all available technologies. Using the wedge approach proposed by Pacala and Socolow (2004), we select seven carbon neutral technology wedges presented in Table 1.3 that might be employed to produce 10 TW of electricity generation within 50 years: nuclear fission, solar photovoltaic, wind, two wedges of coal with carbon capture and sequestration, geothermal, and energy efficiency measures. Each technology provides 1.43 TW of energy. By dividing the 10 TW goal into equal pieces, the burden of meeting the energy-climate change challenge is shared by a broad set of technologies and supply chains.

Table 1.1 Non-renewable energy technologies

Technology	Total breakeven busbar price cents/kWh (assumed fuel cost)	Cost of construction $/Kw, construction time	Carbon dioxide emissions	Contribution to total primary energy supply 2011 (%)
Oil	5.7–10.8 ($20–50/bbl)	$800, 3–5 years	1,671 lb/MWh	33.07
Coal	3.9–7.3 ($15–100/ton)	$1,200, 3–5 years; IGCC: $1,890, 5–7 years	2,191 lb/MWh	30.34
Natural gas	2.6–4.9 ($1–4 Mbtu)	$600, 1–2 years	1,212 lb/MWh	23.67
Nuclear fission	7.3	$2,400, 3–6 years	38 lb/MWh	4.88
Tar sand and oil shale	Profitable at $30–45/bbl	$5–7 billion (50,000 barrel/day facility)	5,580 lb/MWh	Negligible

Sources: BP (2012); Lewis (2005); Tester et al. (2005); Rand (2005); EIA (2008); MIT (2006); Woynillowicz et al. (2005); Bartsch and Muller (2000); Meier (2002).

Notes
All costs assume new baseload capacity in 2003 US$. R&D for combined oil and gas.

Table 1.2 Renewable energy technologies

Sources: Tester et al. (2005); REN21 (2012); Barbose et al. (2012).

Note
Figures for biomass include non-renewable biomass and underestimate traditional rural uses of biomass. CSP: concentrated solar power.

Table 1.3 10 TW actual generation capacity: 50-year technology wedge scenario

Technology	50 year goal	Construction rate	Expenditure rate
Nuclear fission	1,429 1 GW plants	1 plant every 12 days	$139 million/day
Solar PV	476.2 billion m^2	26.1 million m^2/day	$1,776 million to $660 million/day
Wind	794,444 3 MW land turbines	44 turbines/day	$130.6 million/day
	595,833 3 MW offshore turbines	33 turbines/day	$196 million/day
Coal plus carbon capture and sequestration	6,730 500 MW IGCC plants	1 plant every 2.5 days	$348 million/day
	692.8 billion metric tonne CO2 sequestration capacity	543.3 million metric tonne CO2 capacity/year	$39.7–1,071.7 million/day*
Geothermal	21,200 75 MW plants	1.2 plants/day	$87–$218 million/day
Improved efficiency and enhanced sinks	1.43 TW saved	0	0

Notes
Nuclear estimates are based on Lewis (2005). The solar PV system is designed to provide 1.43 TW of capacity taking into account 15% capacity factor, thus requiring the system to be 9.5 TW nameplate capacity. Solar calculations assume a global mean solar insolation of 200 w/m² and 10% peak efficiency panels rendering 20 w per square meter starting at $3.40/w installed cost on a nameplate basis (Barbose et al. 2012). Solar costs are reported above as daily investment for years 1 and 50 assuming a 2% reduction in overall price per year, however as non-technology components (e.g., labor) will account for an increasing portion of overall cost, costs could level off or even increase. Wind installed cost is $1 million/MW onshore and $2 million/MW offshore; 30% capacity factor onshore and 40% capacity factor offshore. IGCC estimates assume an 85% capacity factor and $1,890/kW capital costs. Carbon sequestration capital costs are assumed to be $26.67/metric tonne based on a $5/tonne annual levelized cost for oil or gas reservoir storage, 20% O&M costs and a 15% capital charge factor (Heddle et al. 2003; Howard Herzog (2006), personal communications); other sequestration data is from MIT (2006). Geothermal estimates assume a 90% capacity factor, average plant size of 75 MW, and construction costs of $1,000 to $2,500/kW.

* Because the amount of carbon sequestered increases each year due to additions of capture-ready generation facilities, daily sequestration cost figures range from $39.7 million at the beginning of the 50-year period to $2.0 billion by the end of the 50-year period if reserves are not set aside to cover future costs.

Developing 10 TW of carbon neutral electricity generation capacity will require periodic replacement of equipment. Table 1.4 sets forth the estimated construction and investment rates for the solar and wind technology wedges once replacement of equipment is necessary starting in years 31–50 for solar PV and years 21–50 for wind.

Due to the intermittency of solar and wind resources, supp...

Table of contents

• Cover
• Half Title
• Routledge explorations in environmental economics
• Title Page
• Copyright Page
• Table of Contents
• List of figures
• List of tables
• About the author
• Foreword
• Acknowledgments
• List of acronyms and symbols
• 1 Energy and climate change challenges of the twenty-first century
• 2 Policies to support private sector investment in clean energy technologies
• 3 Cap and trade
• 4 Competitiveness, innovation and response to carbon regulation
• 5 Adaptation challenges and strategies
• 6 Risk management approaches for adapting to climate change
• 7 Mobilizing the private sector for sustainable development
• Notes
• References
• Index