Quote of the day

“I find economics increasingly satisfactory, and I think I am rather good at it.”– John Maynard Keynes
Showing posts with label carbon credits. Show all posts
Showing posts with label carbon credits. Show all posts

Saturday, 11 September 2021

Coal in Cumbria vs long term goals

 Log in to the paper and read the comments section; consider how hard it can be to have effective strategies when resistance is strong:


The Cumbrian coal mine is careless diplomacy and economic idiocy

Whitehaven Colliery plan is a dark stain on the UK’s green ambitions and it will soon be obsolete

Demonstrators hold placards outside the proposed Whitehaven Colliery
As long as it entertains creating a brand new coal mine at Whitehaven Colliery, the Government is undermining its position on decarbonisation CREDIT: PA

Britain has sold its climate credibility for a mess of brown pottage. The proposed Whitehaven coal mine in Cumbria has no commercial rationale and will be obsolescent before it ever opens.

One can only sympathise with Alok Sharma. The president of Glasgow’s Cop26 “summit to save the world” is entering the last critical phase of talks with China, India and Russia, only to be undercut at home by well-meaning Tory colleagues living in an economic time-warp, and deaf to the higher notes of global statecraft.

Over coming weeks, Mr Sharma will strive to conjure some sort of G20 consensus on the hardest of the hard issues: a timetable for the total phase-out of “unabated coal power”, the bedrock requirement for a 1.5-degree world.

While he does so, his own country will be debating a brand new mine at Whitehaven Colliery, intended to produce coking coal until the middle of the 21st century. The public inquiry began this week and will run for four weeks, a ghastly torment for Mr Sharma’s negotiating team.

British Steel worker in Scunthorpe
Coking coal in British steel “could be displaced completely by 2035” CREDIT: PA

Documents submitted by owners West Cumbria Mining now suggest that 83pc of the 2.8m-ton production will be exported to Europe, some of it to Turkey. Europe? Really?

Presumably the Australian private equity group backing the mine – EMR Capital – is aware of the near unstoppable political moves in Brussels to extend the EU’s carbon trading scheme to steel producers, which account for 6pc of the EU’s total CO2 emissions.

Carbon futures prices in Europe have tripled in a year to €63 (£54) a ton. They will hit €100 a ton by the mid-to-late 2020s almost automatically because the European Commission is dialling down the permits. By that point coking coal will be caught in a hostile scissor-action of moving variables, ever less able to compete with exempted “green” steel made from hydrogen via electrolysis.

Chris Goodall, from Carbon Commentary, has crunched the figures: a ton of coal-based steel typically is responsible for 1.9 tons of CO2. Ergo, a carbon fee of €100 will add nearly €200 a ton to the final cost. That would raise the price of European steel by a third.

Turkey will have to shadow the EU carbon price, and so will others such as Ukraine. If they resist, they will be shut out of Europe’s market or forced to pay a “level playing field” charge. We are moving to a new world trading system of carbon border tariffs.

ArcelorMittal, the world’s biggest steel producer outside China, can see the writing on the wall. It is building a commercial-scale plant at Gijon in Spain, aiming for 2.6 tons a year of green steel from 2025 onwards. It will use hydrogen in a “direct reduction” process, drawing on the solar parks of the Spanish meseta where costs are near £25 MWh – getting close to free energy.

There will be costs replacing old steel with green steel infrastructure but governments are stepping in with blanket subsidies because none wish to miss the hydrogen boat. Berlin has promised to spend whatever it takes to help ThyssenKrupp and other German steelmakers to make the switch. Mirabile dictu, Big Steel is switching.

Lord Deben, chairman of the Climate Change Committee, says the coking coal in British steel “could be displaced completely by 2035”, the date set for net-zero steel emissions in this country. The Cumbrian coal would be obsolete, sellable only to a diminishing group of climate pariah states.

The CCC is being cautious. It will happen sooner than that. One thing we have learnt in the lightning-fast field of renewable energy is that the advances keep coming earlier than almost anybody expected, making a mockery of forecasts by status quo bureaucracies such as the UK Treasury or the International Energy Agency.

Michael Liebreich, founder of Bloomberg New Energy Finance, says green steel will have reached sufficient global scale by 2030 to undermine the market for coking coal. The game will be over by 2040.

He thinks the UK authorities should set three conditions for Whitehaven: no subsidy, no bailout; and a bond for decommissioning. “If they can still raise money under those terms, it is hard to see why they should not be allowed to lose it,” he said.

A land yacht sails along the beach past an offshore wind farm
The Cumbrian colliery is supposed to create 500 jobs, but if employment is the objective it might better be met by creating engineering and technical support jobs for the offshore wind farms in the Irish Sea CREDIT: Getty

The mystery is why mining veteran Owen Hegarty, from EMR Capital, is bothering with such a nonsensical venture. “There are technical challenges digging under the sea off Cumbria. 

It is far less expensive to mine coking coal in other parts of the world,” said Dave Jones from Ember. Mr Hegarty’s swashbuckling fellow Australian, Andrew “Twiggy” Forrest, is making the opposite bet after his Damascene conversion. The ex-Fortescue tycoon and epic carbon emitter aims to produce gargantuan quantities of green hydrogen from arrays of wind and solar across the outback of north-west Australia.

Twiggy calls it a “clear cut economic choice” regardless of climate science. There is nowhere cheaper on the planet to make power and therefore to make clean steel in situ. He thinks Australia can corner a large chunk of the $12 trillion (£8.7 trillion) hydrogen market worldwide, rendering the country’s current coal industry trivial to the point of irrelevance.

For starters, he plans an annual output of 15m tons of green hydrogen by 2030, with 50m later. Green steel, here we come.

The Cumbrian colliery is supposed to create 500 jobs, if workers can be found for underground toil in a region facing a labour shortage. If employment is the objective it might better be met by engineering and technical support jobs for the offshore wind farms in the Irish Sea. Each new gigawatt requires 1,500 workers.

The service hub for BP’s three gigawatt joint venture off Anglesey will probably go to Wales but there will be plenty more coastal jobs as the UK leads the world with 40 gigawatts of offshore wind by 2030.

While this wind power will never be as cheap as Spanish or Australian solar, it will be very cheap and effectively free for large chunks of each 24-hour cycle, nicely adapted for green hydrogen production at prices that will outcompete Cumbrian coking coal.

The Whitehaven Colliery is never going to happen. But the fiasco has dragged on long enough to leave Britain with an excruciating diplomatic embarrassment. Worse yet – unless you are a climate denialist – it has intruded on the delicate chemistry of Cop26. One weeps at the ineptitude.

Wednesday, 17 April 2019

Great example of demand & supply in a crucial area of market failure

Although some of this may seem a bit technical, read it as an example of the unintended consequences of trying to regulate a market in order to correct market failure. It is the overall issue you should get your head around - a classic trading scenario, i.e. sell your permits to raise cash and flatter your earnings; discover you need to buy them back, except there aren't enough on offer, so the price sky rockets, crippling some companies:

Rocketing EU carbon prices spell big trouble for careless companies, and for coal

Coal has been priced out of the UK market by higher carbon taxes. Europe is now following CREDIT:PHYS.ORG

Europe's carbon market is on fire. New rules and a shortage of permits have driven futures contracts to an ­11-year high of €27 a tonne, with an ­extra twist from the vagaries of Brexit.
The contracts have jumped sixfold over the past two years and have been the hottest trade in the commodity universe.
The German bank Berenberg said prices are likely to double or triple again over coming months as companies bid up the contracts in a desperate scramble to avert fines for pollution.
The spike spells trouble for industrial companies and airlines across ­Europe that have run out of permits, or those that tried to play the market by selling their allowances in the hope of buying back contracts at a lower price later. This trade has blown up in their faces.


“Industry has been ignoring the carbon price issue and now they are going to face a really big surprise,” said Phil MacDonald from Sandbag, which monitors the carbon market.
The EU contract is the price that 11,000 power plants, steel foundries and factories – covering 45pc of ­Europe’s greenhouse emissions – must pay for each tonne of carbon emitted under the “polluter pays principle”.
Lawson Steele, Berenberg’s utility strategist, said a twist in the EU rules has led to a chronic deficit of
 allowances. “Companies should be trying to buy as many permits as they can to protect themselves but the level of knowledge in the industry is really low,” he said.
Mr Steele said it may ultimately take prices of €107 to clear the market. This is the penalty level for companies that fail to cover their C02 emissions.
British Steel has already had to ­request an emergency loan of £100m from the Government to avoid fines when the deadline expires this month, prompting sceptics to ask whether it tried to cash in its permits to create cash flow or to flatter its books.
“They sold their 2019 allowances to cover their 2018 emissions. They messed up,” said Mr MacDonald. The company’s allocated permits would be worth almost £140m at today’s prices.
He said a string of European companies in steel, chemicals and energy have been playing the same trick and are now in trouble.
The wise virgins such as German’s power utility RWE snapped up carbon contracts when they were going cheap and are now largely hedged into the early 2020s. The shake-out will produce a generation of winners and losers.
British Steel says it needs the emergency loan to manage the uncertainties of Brexit. Brussels has suspended the new allocation of permits this year for UK firms until the Withdrawal Agreement has passed.
Airlines are also under pressure ­because the growth of aviation has outstripped their permits, which they need for intra-EU flights.
Exeter-based Flybe said last October that carbon costs were part of its undoing. Lufthansa reported losses of €335m (£290m) for the first quarter. It blamed most of the damage on rising fuel costs but its short statement left many questions unanswered.
The carbon trading scheme is the spearhead of EU efforts to cut emissions by 40pc by 2030, compared to 1990 levels. It has so far been a rolling disaster, a byword for market illiteracy. It issued too many carbon permits, with no way of adjusting when industrial output collapsed during the Great Recession and again during the eurozone banking crisis. The carbon price collapsed. Coal use surged.
Brussels is now trying to restore sanity. A new structure launched this year empowers a market stability reserve (MSR) to soak up the glut of contracts. In theory it is supposed to operate like a central bank, tightening and loosening to keep the market in balance. In reality the scheme is lurching from one extreme to the other.
The price surge has become self-­fulfilling. Industries with a stash of ­unused credits are hoarding them for gain rather than putting them up for auction.
What the new regime has achieved is to erode the cost advantage for coal, ­although it may take prices of €35 to €40 to force a full switch to natural gas. Wind and solar are gaining the edge even without subsidy. “We’re now at the tipping point where the cost of building new renewables is competitive with the running costs of existing coal and gas,” said Sandbag.
Britain has imposed an extra £18 a tonne on top of the EU carbon prices. This has already priced coal out of the UK market but it has also come at a competitive cost for heavy industries in the North that must compete with EU rivals.
The roles are now being reversed to some degree. The higher the price of EU carbon permits, the more it vindicates the UK’s huge investmentin offshore wind and zero-carbon power. Green countries come out ahead. Laggards in Eastern Europe pay a penalty that reduces their cost advantage on wages.
The Government plans to keep Britain tied to the EU trading scheme after Brexit. However, if there is no deal, the EU’s carbon prices could suddenly plunge again. British companies would no longer be able to use their permits. They would sell them and flood the EU market.
The EU carbon price has now ­become a Brexit barometer. Every time the pendulum swings towards no deal the contracts surge: as it swings back to a softer Brexit the price falls again.
Perhaps it is time for Europe to find a better way to tax carbon.