Dec-2021

Building blocks to zero emissions (ERTC)

Welcome to the 2021 ERTC and to the city of Madrid. Reviewing the agenda over the next two days, it is clear that European refiners together with the technology companies supporting these refiners are playing a leading role in the energy transition.

Robin Nelson

Article Summary

I recall a recent blog from the IMF on “Reaching Net Zero Emissions”, in which they describe three strategic building blocks: carbon pricing, a green investment plan and measures for a “just transition”.

The EU Emissions Trading System, or ETS, is the world’s pre-eminent carbon pricing mechanism. It is an example of a progressive regulation that was introduced in phases, including a “learning by doing” process, which gave time for industry to adapt. Even then, the ETS has had a painful impact on margins for refineries operating in the EU and the issue of “carbon leakage” remains. The inclusion of a Carbon Border Adjustment Mechanism planned for 2024 should go some way to level the competitive playing field. The ETS, together with the EU New Green Deal strategy, and supported by existing (Fuels Quality Directive, Renewable Energy Directive II) and developing regulations such as the FuelEU Maritime and the RefuelEU Aviation Directives, are clear signals driving the evolution of the EU refining industry.

The papers in this year’s ERTC show progress with “green investments”. EU refiners are leading the diversification away from crude oil refineries reliant on a continuous supply of well-defined “fossil” feedstocks to energy hubs processing a diverse array of hydrocarbon feeds such as sustainable biofuel components, plastic and food waste. In this transformation, the European oil refining industry is uniquely placed with the skills and capabilities required to turn these diverse feedstocks into renewable liquid fuels that meet the specifications and consistency required for road, air and marine transport.

A progressive energy transition will give companies and investors the time needed for renewable energy supplies to reach a scale sufficient to substitute the fossil equivalent. IMF describe an investment hump of approximately $6-10 trillion globally over the decade to 2030.

The third building block is the “just transition”. The IMF blog mentions both domestic and international aspects of the just transition. They highlight that many domestic households, already struggling to afford basic necessities, need help to pay for higher energy costs. Internationally, the need is for financial support for developing economies, particularly where investment in basic infrastructure is required. In their energy transition plan, the EU includes “concrete measures to alleviate energy poverty”.

A just transition requires that affordable energy is available for all, but also takes into account the impact energy supply and use has on the climate. During the transition, carbon pricing to level the cost of fossil fuels with that of the renewable substitutes, along with investments in renewable energy infrastructure, means that energy costs will rise. This is exasperated by the calls to leave fossil fuels in the ground, leading to a reduced investment in fossil fuels. We are not yet at the point where this is feasible without supply disruptions leading to energy crises. 2021 has seen coal shortages in India and China and gas and fuel shortages in the west. As the transition progresses, the gap between energy demand and available renewable energy supply must be balanced with (diminishing amounts of) fossil fuels.

Ultimately, the goal of the energy transition, to wean the world off its reliance on crude oil, is only possible once the supplies of renewable energy are sufficient to be resilient against both troughs in supply and peaks in demand. The transition to an affordable, renewable-based energy system needs to be managed and progressive.

For more infomation contact robin.nelson@decarbonisationtechnology.com

----------

This short article originally appeared in the 2021 ERTC Newspapers, produced by PTQ / DigitalRefining.

You can view the Day 1 Newspaper HERE
You can view the Day 2 Newspaper HERE