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CGEP scholars reflect on some of the standout issues of the day during this year's Climate Week
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Op-eds & Essays by , , • May 07, 2019
Grim environmental news keeps rolling in. Most recently, the International Energy Agency reported that greenhouse gas emissions reached a record level in 2018 and coal use increased once again. At the end of this year, however, a group of nations is set to take one of the greatest steps to protect public health in decades by cleaning up the dirty shipping sector. Concerns about costs at a time of rising oil prices are predictably leading to calls for delay, but that would be misguided.
Through its use of high-sulphur fuel oil, marine shipping is responsible for 5 per cent of world oil demand, but 13 per cent of global sulphur dioxide (SO2) emissions and up to half in major port cities. Sulphur dioxide is a major component of fine particulate matter and is linked to a wide range of acute and chronic negative health effects, such as respiratory and cardiovascular illness and cancer.
Beginning January 1, ships will be required by the International Maritime Organisation to reduce SO2 emissions. Shipowners can respond by installing scrubbers to remove sulphur, switching to existing or new lower-sulphur fuels or moving away from oil-based fuel altogether, such as to liquefied natural gas.
In order to minimise any disruptions in the market from the switch to low-sulphur fuel oil, shippers and refiners need certainty that the regulations are coming into effect in order to begin planning for them.
Forward fuel markets have failed to reflect the forthcoming IMO rules, however, muting the very price signals the market needs to adjust.
In this way, concerns about adverse consumer price impacts that prompt speculation about delay in the rules become a self-fulfilling prophecy, because refiners lack the financial incentives to make the necessary investments now to meet future low-sulphur fuel demand.
The IEA projects that the vast majority of compliance with the regulations will come from burning lower-sulphur fuels, but that it will take several years for the refining sector to develop the components to blend them.
Consequently, that leaves marine gas oil, the existing type of low-sulphur fuel, as the most likely short-term compliance option when the rules take effect in 2020.
Low-sulphur gas oil is the same type of fuel used to power diesel cars and trucks, raising concerns that consumer pump prices will spike as competition for the available barrels increases.
The IEA projects diesel pump prices will rise 20 per cent by the end of next year, even with a high degree of non-compliance.
We estimate that the new IMO regulation will swing more than 1m barrels per day of demand from high-sulphur to lower-sulphur diesel fuel, which would be the largest change in the oil product market in recent history. Oil prices can move wildly on relatively small imbalances in the market.
The prospect of consumers’ paying more at the pump in a US presidential election year has predictably raised concerns and led to speculation that lawmakers will push to delay the rules. The Trump administration has said it wanted an “experience building phase” to give markets more time to adjust before the rules take full effect. Lisa Murkowski, the US Senate Energy Committee chairman, told reporters last month she was concerned about price spikes and that industry was not prepared.
The compliance obligation rests with shippers. Refiners will invest in equipment to produce more diesel only with adequate incentives.
Yet gas oil prices and differentials to crude and other products in the forward market are still below retail prices from just a few months ago. The absence of price differentials in the forward market combined with regulatory uncertainty is leaving the market in a state of flux. Uncertainty about whether certain types of scrubbers, which discharge the sulphur in open water, will be banned further complicates the outlook for refiners trying to ascertain how much low-sulphur fuel will be needed. Calls to delay the IMO rules at this point undermine the very incentives needed to invest and minimise the duration of any consumer price impacts.
Moreover, delay would harm those shippers and refiners that have been ahead of the curve preparing to comply, which disproportionately include American businesses.
Whatever modest and shortlived fuel price impacts may result not only provide exactly the incentives needed for industry to invest but are also outweighed by the tremendous public health benefits of reducing sulphur in marine shipping fuel.
Much stronger efforts are needed to clean up the air across the world, especially in emerging markets. The shipping fuel rules already pending on the books are a good place to start.
CGEP scholars reflect on some of the standout issues of the day during this year's Climate Week
Plug-in electric vehicles (EVs) are reshaping the transportation energy landscape, providing a practical alternative to petroleum fuels for a growing number of applications. EV sales grew 55× in the past decade (2014–2024) and 6× since 2020, driven by technological progress enabled by policies to reduce transportation emissions as well as industrial plans motivated by strategic value of EVs for global competitiveness, jobs and geopolitics. In 2024, 22% of passenger cars sold globally were EVs and opportunities for EVs beyond on-road applications are growing, including solutions to electrify off-road vehicles, maritime and aviation. This Review updates and expands our 2020 assessment of the scientific literature and describes the current status and future projections of EV markets, charging infrastructures, vehicle–grid integration and supply chains in the USA. EV is the lowest-emission motorized on-road transportation option, with life-cycle emissions decreasing as electricity emissions continue to decrease. Charging infrastructure grew in line with EV adoption but providing ubiquitous reliable and convenient charging remains a challenge. EVs are reducing electricity costs in several US markets and coordinated EV charging can improve grid resilience and reduce electricity costs for all consumers. The current trajectory of technology improvement and industrial investments points to continued acceleration of EVs. Electric vehicles are increasingly adopted in the USA, with concurrent expansion of charging infrastructure and electricity demand. This Review details these trends and discusses their drivers and broader implications.
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Full report
Op-eds & Essays by , , • May 07, 2019