Wood PLC

Future Energy Thought Leadership Innovation Series

Webinar #2

1 pm Brisbane (AEST), 20 May, 2021

Policy for Funding a Timely Clean Energy Transition


In this presentation to the staff at Wood PLC, Dr Delton Chen introduces the Global Carbon Reward (GCR) policy. He explains how the policy will create a financial reward for mitigated carbon, on a global basis, and according to a set of generally applicable reward rules. Dr. Chen explains how the reward will be issued as a carbon currency, and why the currency will be bankable, debt-free, and characterised by long-term value appreciation. The main goal of the GCR policy is to manage the anthropogenic carbon balance in order to stabilise the climate system and to limit the climate-related risks. In this presentation, Delton focuses his discussion on the reward rule for cleaner energy, which has yet to be considered by energy experts.


Example: Hydrogen Fuel Reliability

A hypothetical storyline is presented here to describe how the Global Carbon Reward (GCR) will be used to accelerate a transition to cleaner energy. The storyline includes hypothetical charts for the GCR and for the prescribed carbon intensity baseline for hydrogen (H2) fuels. It also includes a hypothetical sequence of events that describe how a stakeholder group for hydrogen fuels is formed to guide the design of new hydrogen infrastructure. Hydrogen fuels were chosen as the subject of the storytelling because hydrogen presents many interesting opportunities and challenges. The storyline should not be taken literally.

Presenter
Dr. Delton Chen

Founder
Global Carbon Reward
Civil Engineer & Geohydrologist
Thought Leader in Climate Policy with CBDCs

Slide deck for the presentation.

Key references for the policy are found here.

Questions and Answers

Thanks to the people at Wood for the great questions. Below are questions that arrived during and after the presentation. Names are withheld for privacy. If you have new questions, please write them in the discussion box below, or email them to info@GlobalCarbonReward.org

 

Q1. What portion of the budget is planned to be set aside for “Carbon Capture” projects? How do we plan to implement these in APAC regions where >90% of the energy demands are met through fossil fuels?

A1. The policy is managed with prices, and the amount of carbon that is mitigated is then ‘discovered’. For this reason the amount of carbon currency that is issued is also ‘discovered’ and there is no fixed financial budget. The proportion of carbon rewards that is given to carbon capture usage and storage (CCUS) is also ‘discovered’.  In other words, it is a market-based policy and it relies on markets to choose the most appropriate technologies at the price point that matches the reward price. APAC regions consume a lot of coal and other fossil fuels, and there is considerable deforestation in South East Asia. For these reasons there are many opportunities to produce cleaner energy for earning the carbon reward. There will also be opportunities to reverse deforestation with the reward for cleaner business and the reward for carbon removal. The carbon reward can be used to retire dirty power plants early.

 

Q2. Carbon currency seems similar to a digital asset (cryptocurrency) which already has a large carbon footprint (currently BTC mining is ~0.55% of the global footprint). How do we sidestep this paradox?

A2. The carbon currency is not a cryptocurrency because it can be managed over a centralised network. It might use blockchains, but it does not need to use blockchains or Proof of Work (PoW). It can be based on a traditional Real-Time Gross Settlement System or a hybrid that does not consume much energy.

 

Q3. Since As per Apac region news and media there International energy agency global watch dog warns yet to curb the fossil fuel by mid century 2050.If no further investments on fossil fuel how this carbon currency will work in furture? Will this carbon currency will improve the investments sectors?

A3. The carbon currency is designed to provide scalable debt-free finance for the decarbonization of all sectors of the economy, and for all countries around the globe. This finance will be highly targeted because the unit of account of the currency is coupled to carbon that is mitigated for the long-term. The carbon currency will have major secondary effects on financial markets and investment patterns.

 

Q4. Mitigated Tonnes per 100 years. Why 100 yrs? Will asset last 100 yrs?

A4. There is about 60-100 year delay before carbon emissions produce most of their short-term global warming effect. Long-term climate effects take place over a few thousands years. A 100-year period is sufficiently long for humanity to restructure the economy and to invent new climate mitigation technologies. A 100-year duration therefore represents the critical planning horizon for human civilisation when responding to climate change. It also corresponds to the standard period for assessing the global warming potential of greenhouse gases.

Assets, such as farms, power plants and factories, might not last 100 years, and indeed most companies only last less than 10-30 years. The service level agreements for all assets requires that the carbon that leaks from the asset is accounted for—so that we can be sure that the global carbon stock take is reliable for the 100-year planning horizon. Therefore, for companies (with assets) that shut-down, there will be a novation clause for these companies that stipulates the hand-over of the asset to a long-lived third party who is required to ensure that there is no long-term carbon leakage. The significance of this novation clause for the handover will depend on the risk of carbon leakage. If the risk is low, then most of the carbon rewards can be paid ex ante to the project owner. If on the other hand, there is a significant risk of carbon leakage, then the third party will be issued a larger portion of the ex post carbon rewards because they have taken the responsibility for the asset and the carbon leakage. In conclusion, the service level agreements will include novation clauses that stipulate the need for a long-lived third party who can adopt the assets and the associated service-level agreements. A new secondary market will emerge, possibly involving insurance companies and re-insurance companies playing the role of the long-lived third parties.

 

Q5. Shouldn’t the carbon intensity baseline be similar to a discounted CF formula so that efforts do not diminish over time?

A5. The methodology for ‘optimising’ the carbon intensity (C.I.) baseline has not been developed however the method should take into account (1) the rate of decarbonisation, and (2) the discounted cash flow for energy companies (i.e. based on the carbon currency revenue). The actual method for evaluating the C.I. baseline will be the responsibility of a future Carbon Exchange Authority.

 

Q6. Part of the argument is evaluating the benefits. Based on the model, it depends on the energy produced/used. How could we predict/estimate the future energy needs, making the evaluation of the policies realistic?

A6. The GCR policy does not involve a traditional cost vs. benefit analysis. There is no requirement to estimate the global benefits of the policy in monetary terms (e.g. in terms of GDP lost or gained). The GCR is a policy for managing systemic risks using rewards, and it does not involve any penalties or austerity. Therefore, to limit the amount of energy to be produced is outside the scope of the policy. The GCR policy also does not predict or define the amount of energy that should be produced/consumed globally or nationally. Only national governments can determine energy plans using command-and-control policies. The GCR policy takes a different approach. It provides a price signal that will influence how energy is produced and consumed. For example, it will incentivise cleaner energy production with the reward rule for cleaner energy production. It will incentivise low-carbon consumption with the reward rule for cleaner business. Finally, the policy will incentivise carbon removal. Effective carbon removal is energy intensive. The policy will shift the pattern of energy consumption from general goods and services, into services that are specifically designed to remove carbon from the atmosphere. This will, in effect, reduce the amount of energy available to the conventional economy. Therefore, in conclusion, the GCR policy is designed to reallocate energy resources. Other policies, such as carbon taxes or strong regulations, would be needed to fix the amount of fossil energy produced to a specific quota, or to fix the amount of renewable energy to be produced to meet a specific target.

The GCR policy addresses co-benefits. Co-benefits are different to benefits. The co-benefits are addressed implicitly through reward weightings and they are guided to a maximum, but it is not possible to set quotas on co-benefits since these are subjective, multi-dimensional, often localised, and complex.

 

Q7. Given the long term look out of the initiative, potential investment and risk, how could we cater for disruptions, such as potential technological development of batteries or improved efficiency of solar panels?

A7. These issues are specifically addressed through the proposal for setting up stakeholder groups for each energy commodity. These stakeholder groups will be able to define the various technological issues  that should be taken into the planning stage (i.e. disruptions from batteries and solar panels) and then incentivise energy companies and investors to address these issues. The influence of the stakeholder groups is based on their capacity to influence the reward weightings. This proposal for stakeholder groups for energy commodities will complement existing institutions that have mandates to address these issues. See the hypothetical example for green hydrogen fuels.

 

Q8. Do you see this initiative displayed to other SDGs? As in a “Biodiversity Currency” or “Ethics/Equity Currency” for people working towards sustainability?

A8. At this stage, no. The GCR policy is a special case because it addresses the physical/chemical/biophysical coupling between carbon and energy. This is a very special situation because it has specific chemistry and it underpins civilisation, the planetary ecosystem, and the climate system. The GCR policy can be used to reverse biodiversity loss through the reward weighting system, and if it works well, then other people in the future will be encouraged to innovate with these reward weightings. They may also be encouraged to develop new currency systems for other specific problems, such as certain of the SDGs. The root problem is that the central banks are required to participate with new mandates, and so a key criteria that a problem (or an SDG) should pose a global systemic risk. If a problem produces a global systemic risk, then it would be reasonable to investigate the need for a new mandate for central banks and a new currency system, like the carbon currency.

 

Q9. Just a quick question — would this reward scheme differ between countries or remain stable? Lots of developing counties who are starting to introduce energy into communities would also then need to consider reducing their carbon offtake, something that wealthy countries have already dealt with. Wouldn’t this carbon coin be a bit bias and how would you mitigate this?

A9. The reward price and the reward rules will be the same for every country that participates in the policy. Businesses that undertake actions to mitigate carbon emissions will have to abide by local laws. The carbon reward (i.e. the carbon currency) is not biased to people living in different countries, but people living in different countries will respond differently based on the available opportunities to reduce emissions and to remove carbon from the atmosphere. For example, people living in rich developed countries will have more opportunities to earn the carbon reward for reducing emissions by producing cleaner energy, and by creating cleaner businesses. This is because people in rich countries are consuming more dirty energy and more resources in absolute terms. People living in poorer developing countries already have a small carbon footprint. These people will need to look for new opportunities to remove carbon from the atmosphere using carbon farming and natural methods that can store carbon in soil and vegetation. For example, with biochar or with new building materials. Given that labour is often cheap in developing countries, the income from carbon farming could significantly increase the per capita income of famers and people living in rural and remote areas. The best way for poor people in developing countries to earn the reward is to make use of land than is only marginally productive. The reward rules include weightings for co-benefits, and so carbon farming and reforestation projects that also improve the quality of life of communities and protect biodiversity will earn relatively more rewards; and so a good strategy will be to undertake carbon farming in ways that can provide food, fibre, and sustainable jobs. This would create a virtuous cycle of investing based on the rewards.

Add Your Comment

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.