Disclaimer. After nearly 40 years managing money for some of the largest life offices and investment managers in the world, I think I have something to offer. These days I'm retired, and I can't by law give you advice. I do make mistakes, but I try hard to do my analysis thoroughly, and to make sure my data are correct. Remember: the unexpected sometimes happens. The expected does too, but all too often it takes longer than you thought it would.

The Goddess of Markets punishes (eventually) greed, folly, laziness and arrogance. No matter how many years you've served Her. Take care. Be humble. And don't blame me.

BTW, clicking on most charts will produce the original-sized, i.e., bigger version.

Monday, November 20, 2017

Investment in renewables doubles

This chart from BNEF shows how even though nominal investment in renewables has been flat over the last 6 years, in real (volume) terms, it's actually doubled, because price declines have been so rapid.

Source: BNEF

Sunday, November 19, 2017

Trump a christian?

EU grew 53% & cut emissions 23%

Change in real GDP, GHG emissions and GHG emission intensity in the EU, 1990-2016

Between 1990 and 2016 the European Union has cut greenhouse gas emissions by 23% while at the same time growing its economy by 53%, proving again that environmental action need not negatively affect the financial bottom line.

The European Commission published its annual climate action progress report this week, Two years after Paris — Progress towards meeting the EU’s climate commitments, which highlighted the EU’s ability to increase economic growth while at the same time decreasing emissions — so much so that it remains on track to meet its 20% by 2020 greenhouse gas emissions reduction target.

On a large scale, the EU’s greenhouse gas emissions dropped by 23% while the economy grew by 53%. On a shorter scale, the EU economy grew by 1.9% in 2016 while greenhouse gas emissions decreased by 0.7%.

[Read more here; note that this is for all emissions in the whole economy, not just for electricity generation]

This is a remarkable achievement.  But it's not enough.

The world needs to get to zero emissions, or as close as we can, by 2050.  In the EU, the average decline in CO2 emissions since 1990 is about 1% a year.  To cut emissions by 90%  by 2050 from here, emissions need to fall by 7% per annum.  And each year that we delay means the annual rate of decline needs to be larger.  The costs of renewable electricity and transport are likely to drive a switch away from fossil fuels, and this switch is likely to accelerate exponentially as costs decline, so we may well achieve significant annual percentage declines by the mid 2020s.  All the same, the target is too low.  It was a brave goal when renewables were expensive--and all kudos to Europe for doing something despite that--but now renewables are cheaper than coal, it's simply not fast enough.

Tesla's "semi" truck -- and a new roadster

On Friday, Elon Musk presented Tesla's new semi truck:

  • 20% cheaper than diesel
  • faster (smooth underside, greater power, greater acceleration, sustained uphill speeds)
  • recharged in half an hour, using a new network of Tesla megachargers, powered entirely by the sun, with guaranteed fixed price of  7 cents/kWh. 
  • 1 million mile breakdown guarantee
  • unbreakable windscreen.
  • will stop automatically if driver has medical emergency
  • has 500 mile range (twice the distance of the average semi trip distance)
  • recharges in half an hour.
  • starts shipping in 2019 (but we must allow for Elon time)
As for the new roadster .... wow!

Have a look at the short version of the presentation, below.

Thursday, November 16, 2017

3.4 degrees by 2100

Source :NOAA

By approaching 2100, a world set for 3.4˚C will, on present trends, probably be the reality confronting our descendants – slightly less warm than looked likely a year ago, analysts think. That’s the good news, you could say.

But the bad news is twofold. First, this improvement in planetary prospects will still leave the global temperature increase more than twice as high as the internationally agreed target of 1.5˚C. And secondly, it depends largely on the efforts of just two countries – China and India.

They have made significant progress in tackling climate change in the last twelve months. In contrast, a report by the analysts, from the Climate Action Tracker (CAT), says that not only US climate policy has been rolled back under President Trump. Most individual governments’ climate commitments are going in the wrong direction.

The CAT report says the world will – on present trends – still reach 2100 a long way above the 1.5˚C target for the Earth’s maximum tolerable temperature rise, which was endorsed in the Paris Agreement.

[Read more here]

These guys have done the thorough analysis, so I won't argue with their depressing conclusions.  But I will explain how I come to a lower number.

World temperatures are rising by 0.2 degrees C every decade, on average.  So if that rate continues, then by 2100, 8 decades from now, the increase will be 1.6 degrees C added to what we already have experienced (+1.5 C according to Berkeley Earth).  That gives 3.1 degrees, implying that these analysts expect the decadal increase to rise slightly, which would be perfectly consistent with ongoing rises in atmospheric CO2.  (However, BEST's calculation of the increase in global temperatures is higher than other bodies because they go farther back, and the article doesn't say whether they're using BEST or other calculations to estimate how much temps have risen since pre-industrialisation.  But since the 1970s, global temperatures have risen about 1 degree C)

I come to a more optimistic (but still not very happy) forecast based on estimated timetables for the transition of electricity generation to renewables and the electrification of transport. At some point in the mid 2020s, existing coal power stations will start being closed because renewables plus storage will start getting or will already be cheaper than the operating costs of coal power stations.  That shift will prolly take (let's be conservative) 20 years.  This will reduce global CO2 emissions by 30%.  With transport, EVs and PHEVs will likely reach 100% of total car sales by the late 2020s.  It will take another 20 years for the global car fleet to be 100% electric. 

So by 2050 annual emissions could have fallen 60%.  This isn't enough to stop the level of CO2 in the air from rising.  For that to stabilise, we need to cut emissions to below the annual amount which is withdrawn from the atmosphere by natural processes, ignoring any man-made efforts to sequester carbon dioxide safely out of the atmosphere (carbon capture and storage, or CCS), or by at least 80%.  Forest clearing and burning contributes 10%, cement 5-6%, iron and steel 4-5%, air travel 3%.  We could stop destroying forests and even start reforestation--which some scientists estimate might itself move us one quarter of the way needed to limit the temperature rise to 1.5%  Stopping forest clearing and burning will by itself take emission reductions to 70%, starting a global program of reforestation will get us even closer.  Green concrete will help, as will steel production processes which use more renewable energy, but we will prolly need to have (and pay for) CCS for cement and steel.  Air travel will be partially electric or will use fuel created via the Sabatier process.

To sum up, I see net CO2 emissions falling by 80%+ by 2050.  Until 2050, temperatures will keep on rising by 0.2 degrees C per decade, or another 0.6 C.  But after that, as atmospheric CO2 peaks, the decadal  temperature increase will slow.  And none of this will be happening in a vacuum.  As temperatures rise and droughts, floods and storms worsen, the political pressure will increase. Within countries, politicians in the pay of fossil fuel interests will lose office.  Between countries, slow movers will be pressured to up their games.  I don't think we'll see 3.4 C.  But we will almost certainly see 1.8 C (from the 1970s) by 2100.  That will be bad enough: pray we don't see 3.4 C.

Wednesday, November 15, 2017

Wind, solar & gas cheapest

From Lazard's latest LCOE estimates.  To maintain comparability, Lazard hasn't changed the cost of capital used in these calculations.  But if you were to use the interest rates that are currently available for industrial scale wind and solar plants they would be even cheaper, but gas would only be a little cheaper because so much of its cost is fuel.  Note: these are the unsubsidised costs, but the hidden costs of coal, gas and nuclear are not included.

Since 2008, the cost of solar has dropped by 72%, wind by 48%.  Gas is cheaper too, as fracking has grown,  but whereas gas was the cheapest in 2009, now it's clearly wind and solar.  Gas produces half the CO2 emissions of coal per MW.  But methane is 86 times as potent a greenhouse gas as carbon dioxide over 20 years, and 34 times as potent over 100 years, and fracking causes serious environmental damage.  My guess is that while wind and solar will continue to gain market share, gas's share will peak as soon as battery costs fall far enough, which may only be 5 years away.

Tuesday, November 14, 2017

CO2 emissions up 2% in 2017

In this piece, I forecast that world CO2 emissions would rise a little in 2017, and that this would be the peak, with small falls in 2018 and 2019 and accelerating falls thereafter:

There may be a modest spike in global coal demand this year as China force feeds economic activity because of the 19th National Congress  (they do it every time) but growth will taper off in 2018 onwards.

So 2017 will prolly be the peak for CO2 emissions (up a little on 2016), with small falls in 2018 and 2019, but accelerating declines thereafter.

Using only partial data, the Global Carbon Project estimates that emissions rose about 2% this year.


The chart shows different possible pathways to limiting the global temperature rise to 2 degrees C.  The longer we take to start reducing emissions, the faster they'll have to fall to reach zero in time prevent a rise of more than 2 degrees C.

Is such a sharp rate of decline from 2020 onward plausible?  Possibly.

The costs of renewables continue to decline.  In the US, whole-cost renewables are cheaper than new coal, and in some locations cheaper than the operating cost of existing coal.  In China, wind and solar are close to the total cost of new coal.  By 2019, new wind will beat new coal, by 2020,  new solar will beat new coal.  And that's without taking account of the indirect costs of air pollution imposed by coal.  In Japan, solar will beat new coal by 2023, in India solar already beats new coal, though BNEF predicts the crossover in 2020.  (Source: BNEF)

That's a tipping point.  It means no new coal power stations will be built after 2020 or so.  In fact, since everybody is aware that renewables are falling in cost, it means that any coal power stations started now will be financially unviable when they are completed in 5 or 6 or 7 years time, because by then the whole-cost of renewables will be less than the running cost of coal.  No rational person will build new coal power stations.  By the mid 2020s, demand for coal for power stations will be falling by 10% per annum (Coal for iron & steel will still be used, but even there, alternative technologies will likely be cutting demand)  Since burning coal is responsible for 40% of total CO2 emissions, this suggests that emissions will be falling by 3% per annum just from that.

China has mandated that 10% of new car sales in 2019 will be EVs or plug-in hybrids.  And that percentage will rise each year after 2019.  Because of the structure of the mandate, an effective 4% of sales will be EVs/PHEVs in 2019, and 15-20% by 2025.  This rise will likely be mirrored in most car markets because of the rapid decline in the cost of EVs.  So by 2025, oil demand will also be falling 2% per annum, and that rate of decline will only accelerate.  By 2030, oil demand (for petrol and diesel) will be falling by 10% per annum.  This will reduce total emissions by another 3% per annum.

Meanwhile, the world will go on warming.  And politicians everywhere will be introducing or raising carbon taxes, forcing ICEVs off the roads, urging and compelling remaining carbon-emitting sectors such as iron & steel, cement, air travel and sea transport to de-carbonise.

So yes, I think after 2020, the decline in carbon emissions will accelerate and we will reach zero emissions (or as close as) by 2050.

See also:

Have CO2 emissions already peaked?
Global CO2 emissions could be peaking
The 4% club