Business Model Innovation by Business Models Inc. Training Summary
01_Day_1_Oxburgh
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Policies, Politics and Policies, Politics and Greenhouse GasesGreenhouse Gases
Ron OxburghRon Oxburgh
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Twentieth CenturyTwentieth Century
Developed world optimised to cheap, Developed world optimised to cheap, abundant fossil fuel & raw materialsabundant fossil fuel & raw materials
BUTBUT• The end of fossil fuel supplies coming into sightThe end of fossil fuel supplies coming into sight• Burgeoning world population needing fuelBurgeoning world population needing fuel• Anthropogenic greenhouse gases making Anthropogenic greenhouse gases making
planet inhospitable to current inhabitantsplanet inhospitable to current inhabitants
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The ScienceThe Science
The link between anthropogenic The link between anthropogenic GHG and global warmingGHG and global warming
Short circuiting of part of the C-cycleShort circuiting of part of the C-cycle Endorsed by nearly all authoritative Endorsed by nearly all authoritative
scientific opinionscientific opinion Location and timing of detailed Location and timing of detailed
consequences less clear consequences less clear
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The Practical ProblemThe Practical Problem
Prosperity of developed world Prosperity of developed world built on fossil fuelsbuilt on fossil fuels
Full replacement of fossil fuels Full replacement of fossil fuels not possible for some decadesnot possible for some decades
Ca. 30 years to bring GHG Ca. 30 years to bring GHG emissions under control?emissions under control?
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Energy Policy DriversEnergy Policy Drivers PricePrice Energy securityEnergy security Environmental securityEnvironmental security
To some extent these push To some extent these push in the same directionin the same direction
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ResponsesResponses
EconomiseEconomise Greater efficiencyGreater efficiency Change fuel mix Change fuel mix Substitute renewables for fossil fuelsSubstitute renewables for fossil fuels NuclearNuclear Carbon capture and storageCarbon capture and storage
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The Challenge of InfrastructureThe Challenge of Infrastructure
Value of hundreds of Value of hundreds of trillions of dollarstrillions of dollars
Very slow renewal of Very slow renewal of existing infrastructure existing infrastructure geared to cheap fuelgeared to cheap fuel
For 2025 we have only For 2025 we have only today’s technologytoday’s technology
Cars 10 -15 yrsCars 10 -15 yrs Aircraft 20 -30 yrsAircraft 20 -30 yrs Wind turbines 25 Wind turbines 25
yrsyrs Pwr. plants 40+yrsPwr. plants 40+yrs Trains 30+ yearsTrains 30+ years Elec. distribn Elec. distribn
40+yrs40+yrs Houses 70+ yearsHouses 70+ years
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Implication of Infrastructure ‘Drag’Implication of Infrastructure ‘Drag’
Major change feasible and affordable if, and only if, carried out as part of life cycle replacement or expansion new-build over a long period
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Expansion in Energy Expansion in Energy DemandDemand
We are aiming at a moving targetWe are aiming at a moving target World population is growingWorld population is growing Every population uses more energy Every population uses more energy
as its becomes more prosperousas its becomes more prosperous
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GDP & Energy use GDP & Energy use – various countries 2001– various countries 2001
0
50
100
150
200
250
300
350
400
$0 $5,000 $10,000 $15,000 $20,000 $25,000 $30,000 $35,000 $40,000
GDP per capita, US$ 1995 ppp
Ene
rgy
Use
, GJ
per
capi
ta
Canada
Russia
USA
UK
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Increase in Energy Use vs GDPIncrease in Energy Use vs GDP1971-2001, Malaysia & Korea1971-2001, Malaysia & Korea
0
20
40
60
80
100
120
140
160
180
$0 $2,000 $4,000 $6,000 $8,000 $10,000
$12,000
$14,000
$16,000
GDP per Capita
Pri
ma
ry e
ne
rgy
Pe
r C
ap
ita
KOREA
MALAYSIA
1971
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Primary Energy / CO2Primary Energy / CO2
0
10
20
30
40
50
60
70
0 200 400 600 800 1000 1200
GJ primary energy per person
Ton
nes
CO
2 pe
r per
son
IcelandSw
N
Kuw
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People and EmissionsPeople and Emissions
0
50
100
150
200
250
300
0.0 2000.0 4000.0 6000.0 8000.0 10000.0
Millions of people
Gj p
er h
ead
per y
ear
Developed
Emerg
ing
Developing
Poor
est
2002
6.2 B
2050
9.2 B
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Implications of a larger and more Implications of a larger and more prosperous world populationprosperous world population
If climate change is to be If climate change is to be contained the emissions of the contained the emissions of the developing and emerging developing and emerging countries have to be managed at countries have to be managed at least as carefully as those of the least as carefully as those of the developed world.developed world.
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CoalCoal
AbundantAbundant Widely distributedWidely distributed InexpensiveInexpensive Easily burnedEasily burned High in GHG emissionsHigh in GHG emissions
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Coal is relatively abundant –Coal is relatively abundant –Energy Value of ReservesEnergy Value of Reserves
0
100
200
300
400
500
600
OIL Gas Coal
10^9
Tonnes o
il equiv
ale
nt
Data from BP Statistical Review
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Coal can be dirty –Coal can be dirty –Kg CO2 / MJ energyKg CO2 / MJ energy
00.050.1
0.150.2
0.250.3
0.35
Hard
coal Oil
Coal I
GCCGas
Gas C
CGT
Coal I
GCCS
Hydro
etc.
Nucle
ar
CO
2, k
g/M
J
Energy produced depends on fuel and efficiency of conversion
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Main Exporters and Importers of oil Main Exporters and Importers of oil & gas& gas
0
20
40
60
80
100
120
Mid E Russia Africa S.& C.Am
China India N.Am
Billio
n To
nne
oil e
quiv
alen
t res
erve
s 20
03
oil
gasEXPORT IMPORT
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Oil, Gas and CoalOil, Gas and Coal
0
20
40
60
80
100
120
140
Mid E Russia Africa S.& C.Am
China India N.AmBilli
on T
onne
Oil
Equ
ival
ent R
eser
ves
oil
gas
coal
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Approximate real terms fuel price Approximate real terms fuel price ranges 1985 – ‘05 ranges 1985 – ‘05
0 10 20 30 40 50 60
$ / barrel oil equivalent
Oil
Gas
Coal
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Implications of CoalImplications of Coal
Considerations of cost and security Considerations of cost and security of supply will make coal central to of supply will make coal central to world energy policies for at least world energy policies for at least three decadesthree decades
Because coal can be the most Because coal can be the most polluting fossil fuel there can be no polluting fossil fuel there can be no credible climate strategy that does credible climate strategy that does not have managing coal at its corenot have managing coal at its core
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Where Next?Where Next? No silver bullet –’wedges’No silver bullet –’wedges’
Produce as little CO2 as Produce as little CO2 as possible and sequester as possible and sequester as cheaply as possiblecheaply as possible
CoalCoal
Global problem but poorest Global problem but poorest worst hitworst hit
The West caused the The West caused the problem – obligation to problem – obligation to help?help?
Science
Policy
PoliticsIndustry
Technology
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The Way ForwardThe Way Forward Growth and GHG management can be compatible Growth and GHG management can be compatible
e.g. EU plan - start now with replacement and e.g. EU plan - start now with replacement and new buildnew build
Right regulatory/fiscal framework essentialRight regulatory/fiscal framework essential
But political vs action timescales?But political vs action timescales?
Credible strategy for the developing world?Credible strategy for the developing world?
Not Not badbad for business, for business, differentdifferent for business for business
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Thank YouThank You
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2002 Primary energy sources 2002 Primary energy sources EU 25EU 25
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0E
nerg
y E
J &
GT
CO
2 x
10^2
Transport
vehiclesair
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2002 Emissions by Primary energy 2002 Emissions by Primary energy source – EU 25source – EU 25
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
Ene
rgy
EJ
& G
T C
O2
x 10
^2
• Transport 50% oil use – 60% of oil emissions
• Coal more emissions per unit energy than oil
• Oil more emissions per unit energy than Gas
Total 1.3 GT pa
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AssumptionsAssumptions
Per capita energy consumption of ‘the Per capita energy consumption of ‘the 25’ will over time rise to the average of 25’ will over time rise to the average of the ’former 15’the ’former 15’
Politically and socially impracticable to Politically and socially impracticable to reduce freedom of individuals to travelreduce freedom of individuals to travel
Infrastructure now needs to be re-Infrastructure now needs to be re-optimised to:optimised to:
Minimise use of fossil fuelsMinimise use of fossil fuels Minimise CO2 emissionsMinimise CO2 emissions Allow increase in overall energy consumptionAllow increase in overall energy consumption
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Reactions to Climate ThreatReactions to Climate Threat
Denial of the phenomenon & Denial of the phenomenon & the sciencethe science
Acceptance of science but:Acceptance of science but:• ““Effective action impossible”Effective action impossible”
oror• ““Protect ourselves with Protect ourselves with
technology”technology” ““The Kyoto response”The Kyoto response”
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A strategy to 2025 - TransportA strategy to 2025 - Transport
ExpectExpect Vehicle fleet increases 220 to 300 millionVehicle fleet increases 220 to 300 million Annual distance per vehicle declines 16,000 km to Annual distance per vehicle declines 16,000 km to
14,000 km14,000 kmRequireRequire Bio content of fuel increases to 8%Bio content of fuel increases to 8%** Vehicle fleet achieves hybrid efficienciesVehicle fleet achieves hybrid efficiencies**
(i.e. improves from 9.7 l/100km to 6.5l/100km)(i.e. improves from 9.7 l/100km to 6.5l/100km)
Outcome:Outcome: ~30% fall in vehicle emissions ~30% fall in vehicle emissions & ~20% rise in distance driven& ~20% rise in distance driven
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Electricity – Approximate Installed Electricity – Approximate Installed CapacityCapacity
FUELFUEL 20022002 20252025 Coal: Coal: 130 130 130 GW130 GW Clean coal : Clean coal : 0 0 45 GW 45 GW Oil: Oil: 40 40 CCGT: CCGT: 90 90 255 GW255 GW
Nuclear: Nuclear: 130 130 150 GW150 GW Wind: Wind: 5 5 80 GW 80 GW Hydro/Geoth etc.: 50 Hydro/Geoth etc.: 50 70 GW 70 GW
TOTALTOTAL 450450 730 GW 730 GW
Increase electricity generation by ~60%Increase electricity generation by ~60%Decrease emissions by ~8%Decrease emissions by ~8%
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The Balance Sheet – Final UseThe Balance Sheet – Final Use(rounded figures)(rounded figures)
20022002 20252025 20022002 20252025
GWGW GWGW G tonnesG tonnes CO2CO2
ElectricityElectricity 450450 730730 0.740.74 0.680.68
EJEJ EJEJ
VehiclesVehicles 1010 88 0.240.24 0.160.16
Air, sea, chems Air, sea, chems etc.etc. 1414 1010 0.320.32 0.20.2
TOTALTOTAL 1.31.3 1.041.04
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OIL
GAS
0
20
40
60
80
Biomass
Renewables
Nuclear
Gas
Oil
Coal
COAL
-1.4
-1.2
-1
-0.8
-0.6
-0.4
-0.2
2002 2025
Sequestration
Transportchanges
Gas for powergeneration
More windand solar
Ca
rbon
em
iss i
on
s , G
TE
ner
gy ,
EJ
EU-25 Energy and Carbon Changes to 2025
20% emissions reduction
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The TransitionThe Transition
The relevant technologies already The relevant technologies already existexist
At present no business case - who At present no business case - who wants them?wants them?
There must be credible a There must be credible a regulatory/fiscal frameworkregulatory/fiscal framework
Change affordable as part of the Change affordable as part of the natural plant replacement cycle (30+ natural plant replacement cycle (30+ years), or as new buildyears), or as new build
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The PoliticsThe Politics
International International competition – level competition – level playing fields?playing fields?
Continuing political will Continuing political will in developed world?in developed world?
Cooperation in the Cooperation in the Developing World?Developing World?
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Energy Use in ‘the 25’Energy Use in ‘the 25’
0.00
50.00
100.00
150.00
200.00
250.00
300.00
350.00
400.00
450.00
$0 $10,000 $20,000 $30,000 $40,000 $50,000
GDP per cap
GJ
pe
r c
ap
pe
r a
nn
um
Series1
Accession
Countries
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ConclusionsConclusions
Emissions reduction is compatible with Emissions reduction is compatible with economic growth and securityeconomic growth and security
IF there is a global political will to do soIF there is a global political will to do so IFF it is done in a planned and gradual wayIFF it is done in a planned and gradual way IFF it is done as new build and life-cycle IFF it is done as new build and life-cycle
replacementreplacement IFF a plan IFF a plan and and consequential regulatory changes consequential regulatory changes
are agreed soonare agreed soon IFF industry is given time to respond IFF industry is given time to respond
appropriatelyappropriately
Coal is so important that sequestration will Coal is so important that sequestration will be be essentialessential
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Populations and EmissionsPopulations and Emissions
050
100150200250300
0.0 2000.0 4000.0 6000.0 8000.0 10000.0
Millions of people
Gj p
er h
ead
per y
ear
Developed
Emerging
Developing
Poorest