The Kyoto Protocol In A Nutshell

CO2 Reduction

CO2 Reduction

The Kyoto Protocol is a somewhat dry topic in the curriculum for the Energy Risk Professional exam. It is still important to understand the basics of the Protocol, the different carbon trading units, joint implementation (JI), and the clean development mechanism (CDM). This article will give a brief overview of all.

The Kyoto Protocol is an international treaty outlining and regulating the efforts of its 37 member countries to reduce their greenhouse gas (GHG) emissions by 2012. It is legally binding and was entered into force on 16 February 2005. The Kyoto Protocol is linked to the United Nations Framework Convention on Climate Change (UNFCCC). The major feature of the protocol is that it sets binding targets for its 37 industrialized countries and the European community for reducing greenhouse gas emissions: These should be reduced an average of 5% against 1990 levels over the 5-year period 2008-2012. Each country and its industries are assigned certain targets based on historical emission data that they agreed to meet by the end of the 5-year period. The United States, Japan and Australia (among others) are not member countries of the Kyoto Protocol, but are implementing their own measures to reduce greenhouse gases with less regulations and accountability.

Below a graphic of current Kyoto Protocol member countries:

Kyoto Protocol member countries

The Kyoto Protocol, like the UNFCCC, is also designed to assist countries in adapting to the adverse effects of climate change. It facilitates the development of techniques that can help increase resilience to the impacts of climate change. The Adaptation Fund was established to finance adaptation projects and programmes in developing countries that are Parties to the Kyoto Protocol.

Under the Kyoto Protocol, the following emissions are considered greenhouse gases (GHG): Carbon dioxide (CO2), Methane (CH4), Nitrous oxide (N2O), Hydrofluorocarbons (HFCs), Perfluorocarbons (PFCs), and Sulphur hexafluoride (SF6). It is important to note that Hydrogen Sulfide (H2S) is not considered a GHG. Countries must meet their targets primarily through national measures, such as more efficient combustion or reduction of emissions in general through use of cleaner fuel. However, the Kyoto Protocol offers them an additional means of meeting their targets by way of three market-based mechanisms:

  1. Emissions trading, known as “the carbon market”
  2. The Clean development mechanism (CDM), which involves investment in sustainable development projects that reduce emissions in developing countries.
  3. Joint implementation (JI), which enables industrialized countries to carry out joint implementation projects with other developed countries.

These mechanisms help stimulate green investment and enable parties to meet their emission targets in a cost-effective way. In order to account for progress and make trade possible, there are three standardized instrument units used, each equal to 1t of CO2:

  1. A removal unit (RMU) of GHGs on the basis of land use, land-use change and forestry (LULUCF) activities such as reforestation.
  2. An emission reduction unit (ERU) generated by a joint implementation (JI) project in another country.
  3. A certified emission reduction (CER) generated from a clean development mechanism (CDM) project activity in a developing country.

Transfers and acquisitions of these units are tracked and recorded through the registry systems under the Kyoto Protocol. An international transaction log ensures secure transfer of emission reduction units between countries.

The heart of the Kyoto Protocol is the Clean Development Mechanism (CDM). It allows a country to implement emission-reduction projects in developing  countries. Such projects can earn certified emission reduction (CER) credits that can be re-sold in the carbon market. A CDM project must provide emission reductions that are additional to what would otherwise have occurred. The projects must qualify through a rigorous and public registration and issuance process.

The CDM is the first global, environmental investment and credit scheme of its kind, providing a standardized emissions offset instrument, CERs. A CDM project activity might involve a rural  electrification project using solar panels or the installation of more energy-efficient boilers. The mechanism stimulates sustainable development and emission reductions, while giving industrialized countries some flexibility in how they meet their emission reduction or limitation targets.

Joint implementation (JI) allows a country to earn emission reduction units (ERUs) from an emission-reduction or emission removal project in another country, which offers parties a flexible and cost-efficient means of fulfilling a part of their Kyoto commitments, while the host party benefits from foreign investment and technology transfer.

As with all international treaties, the Kyoto Protocol is not all fun and games. Unfortunately, there are quite severe challenges that are not easy to solve:

  1. Verification. Many countries were late in setting up verification procedures and technologies, slowing CDM implementation.
  2. Controlling sale of “hot air”. The baseline year is 1990, which coincides with the fall of communism. All formerly communist countries are far below their baseline targets, so Kyoto designers feared downward pressure on emissions credits. The 1990 figure is meaningless for those countries, so their baseline under the NAP was set close to their current emissions targets.
  3. Quality and price of carbon credits. Large spread between CERs and EUAs (€ 11-30), largely due to uncertainty with CERs and associated transaction cost. Convergence is expected, as both credits can be applied to the same goal.
  4. Enforcing compliance. Penalty for noncompliance set at €40 per metric ton CO2 above the cap in phase one (2005-07) and €100 in phase two (2008-12).
  5. Integrating various trading platforms.
  6. CDM bottleneck. Lack of personnel, piecemeal approach. Number of new protocols delaying projects in the pipeline.

For the Protocol to be successful, it is important that the efforts of its member countries can be tracked credibly, and that the targets are enforced in an effective way.

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The Book: Renewable Energy In A Nutshell

Renewable energy is a hot topic. Especially since many developed nations have declared to shut down their nuclear plants in favor of renewables. It has long been evident that fossil fuels will not last forever, but in order to compete with them, alternative sources of energy need research and investment to increase their reliability and efficiency.

Despite their increasing popularity, renewables are still largely misunderstood.

There is much more than solar power and hydroelectricity to renewable energy. As renewables are such a large and relatively new topic, it is quite difficult to get an overview. At least that is what I encountered when I studied for the ERP.

With Renewable Energy In a Nutshell I organized the most important concepts of renewables into a comprehensive format by removing the information I found confusing when getting started. On 24 concise pages, in only 90 minutes of reading time you can familiarize yourself with the six forms of renewable energy, or review the subject altogether for your exam prep. I believe it would be difficult to condense the topic more while still maintaining an enjoyable form.

I encourage you to get a free sample chapter of Renewable Energy In A Nutshell from the Renewable Energy Hub. If you have any comments or questions, please let me know!

Renewable Energy In A Nutshell cover

Natural Gas In A Nutshell

Natural gas is a fast growing form of energy with a rapidly developing competitive market. Natural gas is by no means a “green energy”, but also counts as petroleum (together with oil and bitumen). Gas exploration is a hot topic as it involves highly toxic substances and often renders whole regions uninhabitable. It is very important to understand natural gas, with its regulatory dynamics, benefits, and challenges. This article gives an overview about how it is produced, distributed, and sold. All of this is very important knowledge for every Energy Risk Professional.

Natural gas consists of hydrocarbon molecules from one to four carbon atoms in length, but mainly of the hydrocarbon methane (CH4),  which is the smallest occurring hydrocarbon molecule.

The typical composition varies from field to field. The English unit of volume measurement for natural gas is the cubic foot (cf). In the metric  system, cubic metres (m3) are used for volume of gas.

As with crude oil, there is sweet and sour natural gas. Sweet natural gas does not contain any hydrogen sulfide (H2S). Sour natural gas does contain hydrogen sulfide (H2S). Hydrogen sulfide (H2S) does not count as an inert (impurity in natural gas). It is lethal and very corrosive, and it must be removed from the natural gas before it can be delivered to a pipeline.

In the ground, natural gas is often dissolved in crude oil because of high pressure in reservoir. As the pressure of the reservoir increases with depth, the amount of natural gas dissolved in crude oil increases with depth also. When crude oil is lifted to the ground, the pressure is relieved and the natural gas (solution gas) bubbles out. Nonassociated natural gas is not in contact with oil in the subsurface. A  nonassociated gas well produces almost pure methane. Associated natural gas is in contact with oil, occurring in the free gas cap above  the oil and in solution with the crude oil. Associated gas contains butane, propane, and ethane next to methane.

The heat content of natural gas is measured in British thermal units, Btu. One Btu is about the heat given off by burning one wooden match. Btu values of pipeline natural gas range from 900 to 1,200 Btus per cubic foot (cf), while the most common heat content for pipeline natural gas is 1,000 Btu/cf. The heat content varies with the composition.

There are about 179 Tm3 proven reserves of natural gas available which equals about 65 years of production at the present rate. Ultimate  reserves are estimated at about 360 Tm3. Most proven reserves are located in the Middle East and in the former USSR, but the main  markets are in Europe and the United States.

Natural gas extraction by countries in cubic meters per year.

Natural gas reserves remote from markets are called “stranded reserves”. They were viewed as a nuisance in the past, but as options for monetizing some of these stranded reserves (sometimes discovered decades ago) increase, they are being increasingly developed.

The preferred way of transporting natural gas is the pipeline.

Because it is a gas, it is about five times as costly to transport as oil. Natural gas can also be transported in liquid form as liquefied natural gas (LNG) or compressed natural gas (CNG), but both are more costly as they involve further processing. Market centers (hubs) exist near the intersection of several pipelines and provide customers (shippers and marketers) with receipt/delivery access to two or more pipeline systems. The best known, but not the largest, market center in the United Stated and Canada is the Henry Hub located in Erath, Southern Louisiana.

If it is not immediately needed, natural gas is stored in caverns (usually washed salt domes), depleted oil or gas reservoirs, aquifiers (water-bearing rock formations), or steel tanks. Demand for gas fluctuates seasonally and intraday. Operating storage is used by pipeline companies to balance short-term demand swings. It takes four days for natural gas stored on the U.S. Gulf Coast to reach the Northeast of the United States. Seasonal storage is used to accommodate for seasonal swings. Pipeline companies or local distribution companies own seasonal storage. A characteristic of the natural gas market is the alternating injection season (around March) and withdrawal season (around November), which heavily impacts price volatility.

The natural gas market is becoming more and more deregulated, and therefore more competitive. The main regulating agency is FERC (the Federal Energy Regulatory Commission). FERC is an independent agency in the United States that regulates the interstate transmission of natural gas, oil, and electricity. FERC also regulates natural gas and hydropower projects. Since 1993, FERC orders have provided for open-access storage service, the separation of  purchase and transportation services by interstate pipelines (“unbundling”), and deregulation of interstate pipeline sales sources, with only the market constraining rates. All of these actions have made natural gas more competitive compared to oil.

The main acts governing the gas market are:

  1. National Energy Conservation Policy Act. Required utilities to encourage customers to conserve energy.
  2. Power Plant and Industrial Fuel Use Act. Required power plant users to convert to coal, whenever possible.
  3. Public Utility Regulatory Policies Act (PURPA). Federal standards for termination of service, spurred development of cogeneration project  (simultaneous production of electricity and heat, more efficient).
  4. Natural Gas Policy Act. Gradually phased out curtailment measures.
  5. Energy Tax Act. Established tax credits for low-emission dwelling and transportation.

The main advantages of natural gas is its abundance and therefore its low price. Many natural gas reserves are found in the United  States, and are therefore viewed as one of the answers to the dependence on foreign oil.

The main problems with natural gas are:

  • Low energy density. High pressure is required to increase gas density and raise its energy content per unit volume so that the gas can be transported economically.
  • Storage. Large quantities of natural gas cannot be stored easily above ground as oil and coal can.

Natural gas exploration is very controversial as it is very harmful for the local flora and fauna, especially the method of hydraulic fracturing (hydrofracking) involving toxic “frakcing fluids”. Burning gas also still produces CO2, and is by no means an answer to the dependence on fossil fuel and global warming. Natural gas as a form of energy is therefore still only a half-hearted substitute for oil, and it remains to be seen how the unsolved problems of discovering and producing natural gas will impact its future as a form of energy.

LNG In A Nutshell

LNG is short for liquid natural gas. The benefit of LNG is that it is an easily transportable and storable liquid that takes up only 1/600th of the original volume of natural gas in its gaseous state.

The LNG Industry is based largely on a series of virtually self-contained projects made up of interlinking chains of large-scale facilities that are bound together by complex, long-term contracts. The industry is subject to intense oversight by host governments and international organisations at every stage of the process. All the LNG facilities together make up the “LNG chain”, consisting of the following components:

  1. Natural gas production.
  2. Liquefaction. Turning the gas into liquid (LNG) by cooling it down to -163 degree Celsius.
  3. Shipping. Large scale vessels equipped with spherical tanks or membrane tanks.
  4. Regasification terminals. Heating up the LNG and turning it back into gas.
  5. Delivery by pipeline or truck.

Natural gas production will not be discussed here, as it is the same for natural gas, CNG, and LNG.

Liquefaction

The single largest investment in the chain is the liquefaction plant which removes impurities from the gas and cools it down to -163 degrees Celsius. Gas composition, quantity and location have important bearings on the design of the liquefaction plant, but at heart they are simply giant refrigerators. All LNG facilities generally require huge capital investments.

Shipping

Shipping has become the most competitive and therefore transparent part of the LNG chain. Fleet ownership structures are:

  1. Fleet is owned by an independent shipowner and chartered out to seller or buyer under a long-term lease contract.
  2. Fleet is owned directly by the LNG seller or his SPV (indirect ownership through a special purpose vehicle).
  3. Fleet is owned directly by the LNG buyer or his SPV.

Tanker ownership, management and control are often separated. Control is often through the buyer or the seller (disponent owner, or time-chartered owner) since the ship is not registered with the actual owner.

The phases of ship operation are:

  1. Cooldown prior to loading. Often through keeping some LNG in the tanks after discharge (LNG heel).
  2. Boil-off. Used to power the ship’s steam turbines or dual-fuel marine diesel engines. Even today, insulation of the tanks is not perfect, so boil-off is still between 0.1-0.25% of cargo per day.
  3. Cargo loading/discharge, taking each up to 14 hours.

LNG is sold in two ways;

  1. Free on board (FOB). The buyer is responsible for arranging the shipping and title to the cargo transfers on loading. Used when buyer controls shipping.
  2. Delivered ex-ship or CIF (cost, insurance, and freight). Seller arranges the shipping and the title is transferred at the destination or after loading.

Regasification terminals

Regasification terminals are where LNG cargoes are discharged, turned back into gas by heating through vaporizers, and odorized for security purposes. Regasification terminals are also called loading or receiving terminals, which are usually owned by the customer and operated on a proprietary basis. On occasion, there may be leases for third-party access. A terminal consists of:

  1. One or more berths with unloading arms.
  2. LNG storage tanks.
  3. Vaporization equipment to move the regasified LNG into pipelines.

More than 60% of total cost of an LNG receiving terminal is associated with the construction of the storage tanks, marine and off-loading facilities, and safety systems. The final construction cost is determined by the following cost drivers for receiving terminals are:

  1. Local geologic considerations and the need to tailor infrastructure to them.
  2. Cost of real estate. In Japan, facilities are built on made land, which is expensive.
  3. Site layout, regulatory, and safety considerations. Number and type of storage tanks can account for cost variances of up to five times.
  4. Local labour and construction cost.
  5. Vaporization technology. Open-rack or gas-fired.
  6. Use of local power supplies or development of dedicated power generation.
  7. Need for downstream facilities to tie into the pipeline grid, including pipelines and gas treatment and odorization plants.
  8. Marine environment. Berth location, distance to tanks, etc.
  9. Licensing and permitting activities needed to accommodate local residential or environmental concerns.
  10. Upgrading existing infrastructure, roads, etc.

History of LNG

In the early stages of the industry (1960’s), there were only a handful LNG players, known as “the club”, as capital costs were very high with uncertain prospects of ever being profitable. Even a successful LNG project was only marginally profitable then. Today, it is contended that natural gas will be the number one energy source by 2020, surpassing coal. The EIA predicts that the world gas consumption will increase by 70% between 2005 and 2025.

Nuclear Energy In A Nutshell

Just 66 nuclear power plants satisfy the bulk of all the electrical energy need throughout the USA. Together, they produce about 1,000 GW of electricity a year. The complete electricity-generating ability in the world is around 3,500 GW a year. The main dangers from a nuclear reactor are a meltdown of the core and the dispersion of radioactivity when coolant is missing, and the question how to store spent fuel. Nuclear contamination is very dangerous but is actually extremely rare, and when it happens, these accidents are always extremely well publicized.

19.9% of net generation is nuclear. Fission of uranium heats water to produce steam which rotates a turbine. In the nuclear core, material (a moderator, usually water or graphite) can be inserted between the radioactive matter that slows down the fission and cools the reactor. If water is used as that material, the reactor is called a light water reactor. Such a reactor has a 10-mile emergency planning zone. The two types of reactor processes in use are:

  1. Pressurized water reactor (PWR). Heat is removed from the reactor by water flowing in a closed pressurized loop, and then transferred to a second water loop at lower pressure. This loop will boil and produce steam. No radioactivity ever leaves the reactor (unlike in the BWR). PWR is also more thermally efficient than BWR. Most reactors in use today are PWR.
  2. Boiling water reactor (BWR). Water boils in the reactor itself, and the steam goes directly to the turbine generator. Small amounts of radioactivity are introduced into the pipes and turbine.

When nuclear fuel is used up, it can be stored or recycled, which often significantly minimizes the necessity to purchase new uranium and keeps operating cost of the plant down. The fuel that is stored is sealed in glass containers that can be dealt with in the two following ways:

  1. Storage of sealed containers in very deep volcanic seashore ditches where they slowly assimilate again with the core of the earth.
  2. Land storage (granite, volcanic tuff, salt, shale).

Storage of spent fuel poses the following two threats:

  1. Contamination on the surroundings.
  2. Abuse of the material for (illegal) weapons production.

Contrary to public opinion, nuclear fuel used in power plants can never sustain an explosive reaction like a nuclear bomb. This is so because a nuclear reactor contains only a very low concentration of fissionable substance (3.5-5% of U235). In contrast, a nuclear bomb concentrates in excess of 90% of fissionable components which can generate the runaway sequence effect that happens in a nuclear explosion.

Interestingly, nuclear power is a extremely handy and economic form of energy production. It is much cleaner than burning fossil fuel which emits carbon dioxide, along with SOx as well as NOx. A nuclear power plant will create no greenhouse gas. Furthermore, it costs very little to run a nuclear plant (the main cost is building it). In addition to green (totally free) energy, nuclear power plants provide the least expensive source of energy.