Ambitious clean energy goals hinge on global support
Renewables, hydrogen and efficiency goals are challenging, but less contentious than fossil fuels, write Georgia Gratton, Tatiana Serova and Stefan Krumpelmann
Sultan al-Jaber, president-designate of Cop 28, has set ambitious goals for the UN climate summit in Dubai later this year. His targets — to double energy efficiency and hydrogen output and to triple installed renewable energy capacity, all by 2030 — are broadly in line with OECD energy watchdog the IEA's net zero scenario.
But geopolitics will come into play at Cop 28, as the aims will need unanimous agreement to make it into the summit's final text — and even if they do, there are fiscal and practical barriers to implementation this decade.
The 198 parties to the UN Framework Convention on Climate Change have long clashed over the role of fossil fuels. But al-Jaber could find more support for calls to ramp up clean energy technologies, rather than to scale back conventional fuels, particularly from fellow oil producing countries. The EU has already backed the energy efficiency and renewables targets.
Al-Jaber's goal to triple renewable energy to 11,000GW by 2030 is optimistic. But renewable energy installations soared last year and the IEA has forecast that global renewable power capacity will reach 4,500GW in 2024 — equal to the total power generation capacity of China and the US combined.
In Europe, the need to move away from Russian gas has been a strong incentive for the uptick in renewable energy capacity. Brussels was quick to update legislation to allow faster deployment of wind and solar photovoltaic (PV) projects, streamlining permitting processes and upgrading clean energy targets. Renewable energy is now due to account for 42.5pc of overall energy consumption by 2030, up from 32pc previously. In response to the US' Inflation Reduction Act (IRA), Europe has also proposed the Net Zero Industry Act, aimed at boosting domestic manufacturing of renewable energy technologies.
And European developers do not lack ambition. French power utility Engie has a 85GW pipeline of renewables projects, 27GW of which are in Europe, while Swedish state-owned utility Vattenfall expects to commission at least 8GW of wind power capacity over 2023-30, Argus data show. But regulatory changes and financial incentives might not be enough to accelerate renewable energy additions. Inflation has driven up the cost of components and supply chains are struggling, pushing some developers to halt renewables projects, with wind more affected than solar.
Concentrated risk
The IEA has warned of "potentially risky levels of concentration in clean energy supply chains" for components and manufacturing. The majority of announced manufacturing capacity expansion plans for solar, onshore wind and electric vehicle batteries up to 2030 are in China, which is far ahead on renewables deployment. The country could meet its 2030 renewables target five years before the deadline, despite phasing out renewable energy subsidies, the IEA found.
Asia accounted for about 60pc of new renewable power capacity additions last year, led by China, according to renewable energy agency Irena. The Middle East commissioned 3.2GW of new renewable energy projects last year — an increase of 13pc on the year and its highest expansion to date, Irena data show. Saudi Arabia's state-owned Aramco is aiming for 12GW of installed solar and wind power by 2030.
In the US, solar and wind additions are expected to rise in 2023-24, according to the IEA. But the IRA will be a "game-changer" to drive expansion from 2025 onwards. And India's push to lift domestic manufacturing of solar PV components should allow the country to become "fully self-sufficient in terms of solar PV supply in the next 4-5 years", the IEA found.
Some of the projected renewables capacity is likely to be required to hit al-Jaber's hydrogen goal. His target of doubling hydrogen production to 180mn t/yr by 2030 should be reached through "a dramatic scale-up of new low-carbon hydrogen production and decarbonisation of existing hydrogen production", he wrote last month. Global hydrogen production, at around 90mn t in 2022, was nearly all from fossil fuels with unabated CO2 emissions.
Well over 90mn t/yr of low-carbon hydrogen would be needed to reach al-Jaber's stated target, but hitting this by 2030 would mean surpassing even the most ambitious projections. The IEA says low-carbon hydrogen production would have to reach 73mn t/yr by 2030 to put the world on track for net zero carbon emissions by 2030 — comprising 51mn t/yr of renewable hydrogen and 22mn t/yr produced from natural gas with carbon capture, utilisation and storage.
Hydrogen: Hopes vs reality?
And even this will be a stretch. Announced low-carbon hydrogen projects would provide a cumulative production capacity of 38mn t/yr by 2030, of which around two-thirds would be for renewable hydrogen, Belgium-based lobby group the Hydrogen Council said in May. While the pipeline of announced projects is growing rapidly, only a handful have reached a final investment decision. Slow permitting processes, regulatory uncertainties and strained supply chains have held back project developers. Potential buyers are hesitant to commit to long-term offtake agreements because low-carbon hydrogen is typically still much more costly than conventional alternatives, especially if it is made from renewable power.
Global hydrogen trade should be "fast-tracked" to help reach the production targets and countries should "support mutual recognition of hydrogen standards", al-Jaber says. Governments and other organisations have drawn up plans for certification schemes, but approaches differ widely and there has been little progress towards reaching uniform standards, which poses another potential barrier.
Environmental organisations often call for focus on energy efficiency as the "first fuel", but high upfront costs and a lack of return on investment are common obstacles. High energy prices last year, partly driven by the war in Ukraine, have provided economic motivation for energy savings. China and the US introduced new or strengthened policies and funding for energy efficiency last year, while the EU adapted legislation. Its energy efficiency directive now sets a binding target of an 11.7pc cut in final energy consumption by 2030, compared with the 2020 reference year.
The buildings sector presents the highest potential for energy intensity improvement, although the pace of renovation is still relatively slow in Europe. The cooling sector could also benefit from higher energy efficiency — a salient issue given recent heatwaves in Asia, the US and Europe.
Beyond the crisis, some countries have decided to make energy demand cuts a long-term policy in order to achieve their climate goals. But those advanced policies have not yet been implemented on a global scale. Progress on efficiency must double to reach net zero emissions, the IEA says.
Al-Jaber's targets, if well-received, could help supercharge a transition that is already well under way. The IEA expects global spending on clean energy to reach $1.7 trillion this year — compared with $1 trillion on fossil fuels. But a backslide on climate ambition at the recent G20 meeting, including around ramping up renewables deployment, could foreshadow problems reaching a consensus at Cop. And although a significant increase in renewables, hydrogen and energy efficiency is necessary to reach climate goals, it risks taking the emphasis off reducing emissions through cutting fossil fuel output and consumption.
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Q&A: Corporate reporting and certification schemes
Q&A: Corporate reporting and certification schemes
London, 28 June (Argus) — Corporate reporting standards and obligations are becoming more granular and falling under greater scrutiny across the EU, after new rules came into force at the start of 2024. Argus spoke to net zero adviser Nils Holta at environmental solutions provider Ecohz to review changes to EU legislation and consider their impact on wholesale energy attribute certificates markets. Edited highlights follow: Let's start by decoding the acronyms and taking stock of changes to reporting standards this year. What do the principles of the CSRD and ESRS look like? How do these align with the EU Taxonomy? These are all thematically related pieces of legislation, that are not formally linked to each other. The Corporate Sustainability Reporting Directive (CSRD) and the EU Sustainable Investment Taxonomy are two of the angles of a sustainability transparency triangle completed by the Green Claims Directive (GCD). Through these policy mechanisms, the EU seeks to cover sustainability reporting, sustainability criteria for investments, and marketing information to consumers. Essentially, the EU is trying to add sustainability as a new dimension of the single market, alongside standardised comparisons on quality and price. The CSRD relates more to the finance side. Through the annex with the European Sustainability Reporting Standards (ESRS), it details how companies should report on their sustainability impact, their sustainability-related risks, and any financial opportunities that arrive as a result of sustainability matters. It has been developed as an addition to European financial disclosure requirements, and in Norway, for instance, it has been transposed through amendments to the "accounting law" (Regnskapsloven). For financial undertakings, the Sustainable Finance Disclosure Regulation (SFDR) plays much the same role, albeit at a higher level of granularity. On the consumer-facing side, companies will soon be required to adhere to the GCD when promoting their products' environmental profiles to final consumers in what the EU calls "explicit environmental claims". While not quite the same as sustainability reporting, it fits in a market dynamic where the EU expects economic actors to be more transparent about the environmental qualities of their products — like we are used to for price and quality. Finally, we have the EU Taxonomy for sustainable activities, or just the Taxonomy. The Taxonomy is a list of economic activities with clear criteria on how they can be performed sustainably, and, in some cases, how they can be considered a transitional activity to more sustainable options. The Taxonomy also mandates that large undertakings and financial actors disclose the percentage of their Capex [capital expenditure], Opex [operating expenditure], and turnover that is invested in, finances, or derives from activities that are considered sustainable under the Taxonomy. Here is the link to the CSRD (ESRS), GCD and SFDR. If you are required to report on the percentage of your investments or turnover that is associated with sustainable activities, you need to know how all the companies you invest in are performing. And through the CSRD they are required to share this information in a transparent and streamlined manner. If, as a company, you want to make a claim about a product's environmental profile, you are now also required to possess and sort the information necessary to found that claim through the same directive. So here we have the triangle — the Taxonomy and SFDR push investors towards sustainable investments. The GCD provides consumers with a choice to consume sustainably, and the CSRD and ESRS ensure that companies have the information necessary for the other two to work. So the EU wants you to base Taxonomy reporting or environmental claims on the information published in your CSRD reporting? Not quite. I should stress at this point that EU law does not require companies to use the same methodologies for their CSRD reporting as for explicit environmental claims under the GCD or for showing criteria alignment with the Taxonomy. The simple reason is that communication to different audiences — shareholders, financial sector institutions, consumers — might require different approaches. It is, however, very simple to base claims under the Taxonomy or GCD on information gathered for CSRD reporting, and I have seen companies rely on CSRD reporting for claims of Taxonomy-alignment in their annual reports. How are things changing within the CSRD in terms of how industrial and corporate (I&C) companies will need to document energy — power and gas — consumption throughout their supply chains? What does it mean in terms of scope 2 and 3 emissions? This is a good place to clarify terminology. The CSRD is an EU directive that mandates sustainability reporting, sets out how member states are responsible for making sure companies report, and details which categories of companies need to report. All in all, we are taking about at least 50,000 EU-based companies and maybe another 10,000 non-EU companies with operations in the EU, as a rough assessment. The ESRS are the technical standards, outlining — over some 300 pages — how companies can assess what information they need to report and how this can be reported. The ESRS go into detail regarding how questions about energy consumption and climate transition plans or supply chains are asked and framed. Thank you for the clarification, and now back to the market-based vs location-based reporting? In general, the ESRS move towards market-based reporting. Emissions are to be reported by scope — 1, 2 and 3 — separately and using both market-based and location-based methodologies for Scope 2. They are also to be reported against total turnover, so investors can see the greenhouse gas intensity of their investments' turnover. At the same time, the ESRS clearly state that energy consumption must be reported using the market-based methodology in the case of Scope 2, and that it "can" be market-based in Scope 1, which for most companies would primarily relate to gas. The latter is highly technical and is tied to the EU emissions trading system monitoring and reporting requirements. Disclosing companies must report Scope 3 as it was reported to them. There is no option to not report on Scope 3 emissions outside of Europe, which means that these 60,000 or so companies will push their own reporting requirements through their entire value chain. It also means that oil and gas companies will finally need to include emissions from combustion of their own products in their sustainability reporting. Considering that changes to the CSRD will lead to greater focus on Scope 3 emissions, how is this likely to impact the energy attribute certificates (EAC) markets? Are you already seeing changing approaches to EAC procurement? How do biomethane and hydrogen fit into the picture, and is there a role for carbon offsets? What we are seeing is a greater corporate interest in understanding their own value chain and getting their suppliers to cover Scope 2 consumption with EACs. They can even use the divergence between location and market-based reporting to stress how much they actually achieve by sourcing renewable energy. The result is quite literally the difference between the two numbers. The ESRS do not open for carbon offsets as a way of reducing total emissions. Any offsets must be reported separately. Biomethane and hydrogen would both serve to decarbonise your gas combustion, so mainly Scope 1. However, the requirements for credible claims to consumption are tied to a bundled model, so we expect less focus on certificate trade and more focus on efficient value chains to deliver the product as a whole. There are a lot of open questions here tied to member state transposition of the Renewable Energy Directive (RED) III — and in some cases RED II — and to the coming Union Database for renewable fuels. How will the GCD impact consumer disclosure requirements and how does it tangentially relate to the Taxonomy? Do you expect this to also drive more granular purchases in EAC markets? When procuring EACs, will additional specifications such as eco labels become more prominent in the market? There is no specific link between the GCD and the Taxonomy, but Taxonomy-alignment would definitely be one of the things that can be communicated and substantiated in a way that is aligned with the GCD. Using an eco-label is a way to distinguish your product among several who all use renewable electricity. However, it is difficult to assess exactly how companies and consumers will react to this information in the long term. In the near future, we expect the GCD to lead to a reduction in environmental performance claims overall, at least until companies have a decent understanding of what and how they should communicate. The fine is up to 10pc of total turnover. There are often questions around how nuclear power is viewed in the EU Taxonomy — can you clarify that? And how do you see nuclear power — through scope 2/3 — playing a role in I&C companies documenting carbon neutrality through disclosure mechanisms? There has been a growing trend of energy suppliers offering carbon-neutral tariffs as opposed to renewable owing to the greater cost of documenting renewables through EACs, on top of already higher outright power and gas prices. Do you see I&C customers taking a similar route? Under the Taxonomy, nuclear is not considered renewable. It is, however, acknowledged as carbon-neutral, and we see several EU initiatives targeted at promoting "low-carbon" rather than renewable solutions. There is also an addendum to the Taxonomy, where nuclear and gas-fired power plants can be considered Taxonomy-aligned under certain circumstances. For gas, this relates to replacing coal and being time-limited in nature; while for nuclear, it is tied to a series of environmental and waste-treatment requirements. As long as the market recognises a qualitative difference between renewable and nuclear, EACs for each will be priced differently. Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.
Mexico to tap economist for energy minister
Mexico to tap economist for energy minister
Mexico City, 27 June (Argus) — Mexican president-elect Claudia Sheinbaum appointed economist and lawyer Luz Elena Gonzalez to become energy minister in her government that will take office on 1 October. Gonzalez has a long record in public service and served as finance director of the Mexico City government during Sheinbaum's tenure as the capital's mayor from 2018-2024. She has no direct energy industry experience. Sheinbaum won a convincing victory in the 2 June presidential elections and will take office on 1 October when Morena political party founder and current president Andres Manuel Lopez Obrador ends his six-year term. Gonzalez will face a range of challenges as energy minister including completion of the long-delayed Olmeca refinery, development of a plan to tackle state-owned Pemex's enormous debt, expansion of Mexico's electricity generation and grid capacity with a renewed focus on clean energy and the construction of natural gas storage. She will also be in charge of policy decisions that will define the role of private-sector investors in the energy sector. Gonzalez will replace Miguel Angel Maciel, appointed following energy minister Rocio Nahle's resignation in October 2023 to pursue the Veracruz gubernatorial election. Nahle, who took office as energy minister in 2018, led efforts to build the Olmeca refinery and has been a strident supporter of Lopez Obrador's energy sovereignty policy that has sought to restrict private-sector investment. Sheinbaum also appointed Jesus Esteva as transport minister, Raquel Buenrostro as civil service minister, David Kershenobich as health minister and Edna Elena Vega as urban and rural development minister. All of the candidates appointed today have either worked with Sheinbaum during her period as Mexico City mayor or in Lopez Obrador's government. By Rebecca Conan Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.
UK election pledges show different paths to net zero
UK election pledges show different paths to net zero
The outcome of the election will have a significant impact on the pace of energy transition, particularly regarding North Sea gas production, writes Georgia Gratton London, 26 June (Argus) — The UK's two main political parties have set out their plans on energy and climate change in their manifestos, ahead of the country's general election on 4 July. Energy security and the cost to consumers is a common theme, but the two parties diverge on their approach to the energy transition. Both the incumbent Conservative and opposition Labour parties are committed to the country's goal of achieving net zero emissions by 2050, which is legally-binding and was passed with significant cross-party support under a Conservative government in 2019. The Conservatives have promised a "pragmatic and proportionate" route to achieve that target — guaranteeing "no new green levies or charges". Labour, which according to recent polls is on course to secure a sizeable majority, has pledged to accelerate the path to net zero, and has committed to a zero-carbon UK power system by 2030. Labour has pledged to "maintain a strategic reserve of gas power stations to guarantee security of supply", but its manifesto does not clarify whether that would involve building any new plants to replace ageing units. In contrast, the Conservative manifesto reiterates previously announced plans to build new gas-fired power stations. The party had previously committed to a decarbonised power network by 2035, in line with a G7 pledge, although that is not mentioned in its manifesto. Both parties are considering measures that could reduce residential gas demand in the long term. They have pledged to invest similar amounts of public money in energy efficiency schemes — £6.6bn ($8.3bn) over the next parliament for Labour, which it says will be used to upgrade 5mn homes, against £6bn over the next three years for the Conservatives, which their manifesto says will "make a million homes warmer". Labour also plans to work with the private sector, including banks and building societies, to facilitate the provision of further private finance in such schemes. The Conservative Party announced that it will fund an "energy efficiency voucher scheme", without providing further details. The different pace of the parties' energy transition plans is apparent from their respective renewable energy targets. Labour's plans to "double onshore wind, triple solar power, and quadruple offshore wind by 2030" would result in installed capacity of 31GW, 48GW and 59GW, respectively, against an end of 2023 baseline. The Conservatives' target to triple offshore wind by the end of the next parliament would put installed capacity at 44GW in 2029 — below the 50GW target for 2030 set in 2022 — while it said it supports solar and onshore wind in some circumstances. The two main parties support nuclear power, including small modular reactors, although those are unlikely to be operational until after 2030. And both pledge to cut planning bureaucracy and tackle grid connections. Diverging upstream The parties have adopted markedly different positions with regard to North Sea oil and gas production. Labour is clear that it "will not revoke existing licences" in the North Sea, but it will not issue any new licences for oil, gas or coal exploration or production, and has pledged to "ban fracking for good". The Conservatives have restated their aim to legislate for annual North Sea licensing rounds, and to "retain the current moratorium on fracking". The Conservative Party aims to keep the windfall tax — which effectively results in a 75pc rate — on oil and gas producers' profits in place "until 2028-29, unless prices fall back to normal sooner". Labour has confirmed plans to lift the rate to 78pc and to retain the tax until the end of the next parliament, which is likely to be mid-2029. Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.
Eurogas disappointed in hydrogen target scaling back
Eurogas disappointed in hydrogen target scaling back
Brussels, 25 June (Argus) — New Eurogas president and Eni's director for global gas and LNG Cristian Signoretto told Argus of his disappointment in an apparent scaling back in EU renewable hydrogen production targets, but said that he remains confident that a cheaper pathway exists for the fuel. He called for a technologically neutral approach while demand shifts to decarbonised gas over the long term. Do you see decarbonisation shifting to a slower pace over the next few years? We have clear decarbonisation targets for 2050. This continues to be a challenge that the gas industry wants to meet. And if you look at delivering security of supply and affordable energy, then you end up with a system that needs molecules. Gas is obviously part of that solution. What do you think about the apparent scaling back in the EU's 2040 impact assessment of the EU's 10mn t/yr of renewable hydrogen imports by 2030? We are a little disappointed, but there is still a lot of work to be done on the EU's 2040 targets. We are working on our own analysis and study setting out the best way to get to the 2040 overall decarbonisation targets. We are confident it will show a cheaper and more resilient pathway to reach those targets with the help of gas molecules. What are your key asks when the EU implements revised gas and hydrogen laws? For the gas and hydrogen package, we are focusing on several themes such as the implementation of the methane regulation. Methane has a major impact for climate change. We need to cover methane in exporting and producing countries and also in transmission and distribution. Another theme is ensuring definitions of low carbon gases and green gases are standardised as much as possible. We believe in a technology neutral approach to decarbonisation. It is not for policymakers to choose winners. Can the EU do more to help wean central and eastern European countries off Russian gas? Flows have to change to phase-out Russian gas. Transmission system operators (TSOs) have already done a lot, but there are still bottlenecks on networks. Flows will change further if Ukrainian transit is phased out at the end of this year. But Europe needs to avoid regulatory barriers, such as the German storage tariffs on gas moving through to other EU countries. On the whole, energy markets and systems have been fairly successful in overcoming the Russian crisis, in particular revising the European gas grid over 18 months to ensure gas flows are now no longer going only east to west. Another positive sign is that gas prices are very much aligned within Europe in a clear sign that the single market for gas is functioning, apparently more so than the European power market, as evidenced by the strong differentials among national markets. Is imposing an EU methane intensity limit in 2030 not a risk for energy security? Gas is a global business. We need to import gas. But Europe also wants gas imports that follow certain standards. There has to be correct timing and proper engagement between the EU and producing countries and we need to make sure other countries follow suit with Europe's decarbonisation target. We cannot solve all the issues on our own early on while we wait for climate leadership to possibly become a competitive advantage for Europe in the future. Are 2030 climate and energy goals set in stone if China, India, and others do not make equivalent efforts? European competitiveness is a very important issue, up there with defence, energy and climate change. It is not about backing down. But all other polluting countries need to be tackling climate change. Otherwise Europe runs the risk of finding itself isolated and not solving the climate issue alone. Would a more flexible approach to CO2-neutral fuels used in internal combustion engines maintain a pathway for gas in transport? An electric vehicle or an internal combustion engine vehicle with low carbon gas or low carbon fuel should be treated in the same way. We should take a technologically neutral approach as long as CO2 emissions are equivalent. Major shipowners are investing heavily in dual-fuel engines to also run on LNG. From a technology perspective, LNG is a route to decarbonisation in the short term. It is also a cheaper option today and will become decarbonised gas in the long term. By Dafydd ab Iago Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.
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