COP19: "We seem to be adding to the carbon bubble rather than trying to deflate it"
November 20, 2013
Jon Williams, and Jonathan Grant of PwC’s sustainability and climate change on the reign of king coal in Warsaw.
Jon Williams is a partner in PwC's sustainability & climate change team and specialist in financial services and climate change:
"Much has been written about the return of King Coal. No wonder, with the dramatic dash for cheap shale gas in the US displacing coal, prices are tumbling. That makes it very tempting for power generators to fire up coal capacity and mothball more expensive gas plants. Good for energy prices and utility company profits - in the short term at least.
"But that ignores two more serious long term problems. Firstly, it may add to the power capacity shortfall later this decade, as generators use up their regulated capped coal powered capacity early. Secondly, it may well take the country in completely the wrong direction in our efforts to tackle climate change, and threaten our leadership role in the climate negotiations currently underway in Warsaw. These talks have already heard pleas for old coal plants to be closed and newer ones to be fitted with Carbon Capture and Storage (CCS) technology, something that across the EU we have consistently failed to deliver.
"This should matter to longer term investors such as pension funds. Their portfolio's are weighted towards carbon-intensive stocks such as energy, utilities, transport, mining and metals, typically seen as a safe haven given the relatively low volatility and predictable nature of returns. However, the potential carbon liabilities of these companies are not reflected either on their balance sheets or in their share prices, and a change in regulation or pricing could leave many of these assets stranded.
“We seem to be adding to the carbon bubble rather than trying to deflate it. By using our carbon budget more quickly, the adjustment needed to achieve the 2 degrees target may well be more painful and more costly, and the price will be paid by investors such as pension funds, and ultimately their individual members."
Jonathan Grant is a director in PwC’s sustainability and climate change team and a specialist in climate policy, carbon emissions and CCS.
"All of this debate is against the backdrop of negligible progress with the deployment of Carbon Capture and Storage (CCS) technology. In the recent PwC Low Carbon Economy Index (LCEI) we reported that the number of operational CCS projects has not changed since 2011: 7 industrial plants were capturing approximately 24 mtCO2 per year. A fundamental issue is the lack of progress of CCS projects integrated with power generation, which doesn't bode well for Christiana Figueres' ambition that all new coal plants have CCS attached.
More than three quarters of CCS projects in operation or under construction are located in the US and Canada. This includes the first two power generation, large scale CCS plants which are due to become operational in the US in 2014. The EU contribution to CCS development by comparison, has been slower than anticipated. The European Commission’s NER300 competition aimed to fund several CCS projects but none was successful in the first round due to lack to support by the member states concerned or funding gaps. While in the UK, the Department of Energy and Climate Change announced support for two projects that would capture 4.5 million tonnes of CO2 per year from power plants, overall, it is unlikely that these will be operational before 2020.
Without rapid deployment of this technology, and with no signs of reduction in the use of fossil fuels, there is a limit to how much carbon emissions can be abated in
the short run."
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