Carbon Capture and Sequestration (CCS) – everybody is talking about it!

Practically every session I attended at COP (including the IETA side events) had somebody on the panel talking about Carbon Capture and Sequestration (CCS), particularly in the context of what the Middle East is doing about Climate Change. So, I thought it merited a blog post about what I learned about CCS.

(From Wikipedia), CCS is the process of capturing waste CO2 from large point sources, such as fossil fuel power plans, transporting it to a storage site, and depositing it where it will not enter the atmosphere, normally an underground geological formation.

Injection of CO2 into geological formations has been occurring since the 1970s, as part of a process known as Enhanced Oil Recovery (EOR). So, why then, has it suddenly become such a hot topic at the Climate Change conference? Apparently, in COP17 in Durban, CCS projects were able to receive support through the Clean Development Mechanism (CDM). As one of the panelists commented, the process of adding this language took only 10 years – I guess we can thank the glacial pace of international negotiations for all the glaciers melting away!

Here is an oft-repeated graphic, from the IEA, which shows that CCS has to be an integral part of technological solutions to climate change.

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So, what are the economic factors that could drive CCS adoption? One of the panelists indicated that CCS will add about 18% to the costs of a power plant. Currently, the price on carbon is not high enough to make CCS economically feasible, even though major efforts are underway by companies like Shell and Qatar Petroleum to solve the technological challenges involved, particularly in the area of subsurface monitoring. So, the major business case (in the US and elsewhere) remains Enhanced Oil Recovery (EOR), where the additional crude oil that can be extracted through CO2 injection becomes part of the business case.

Regardless of the current economic implications, what I took away was that CCS is going to be key in the future – and not just in oil and gas. In industries such as cement production, the majority of CO2 that is emitted is not due to the burning of fossil fuels or energy use, but CO2 emissions inherent in chemical processes such as calcining. So, these industries will remain CO2 emitters even if the energy they use comes from cleaner sources, and CCS, therefore, will be a key part of their climate change mitigation/adaptation plans.

The scale of capacity building in CCS is huge – the number of projects have to go from ~10 per year to ~100 per year globally from 2020 to 2050. That industry (in 2050) will be the size of oil and gas sector today. So, to put that in perspective, in 40 years, between now and 2050, we will have to build something that took 160 years for the oil and gas industry to create -talk about a grand challenge!

Here is a link to the Qatar Carbonates and Carbon Storage Research Center (QCCSRC), created jointly by Shell, Qatar Petroleum (QP) and the Imperial College London. One of the IETA panels I attended featured Prof. Geoff Maitland, the Director of QCCSRC and a Professor of Chemical Engineering from Imperial College London. More information on Shell and CCS can be found here – including some cool videos on how CCS works.

The one rather alarming event I learnt about through some digging around online after the sessions – the Lake Nyos disaster in 1986, when a sudden CO2 release (due to natural processes) resulted in the asphyxiation of 1700 people within 16 miles of a lake in Cameroon! Shell assured the audience that safety will be of paramount importance in the design and implementation of future CCS sites and one of the panelists also claimed that these sites will get safer with time due to a combination of geologic factors. I do, however, see plenty of NIMBY (Not In My Back Yard) protest potential with this technology.

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Shipping and Climate Change

As somebody who flew a lot for work prior to Tuck (and will continue to do so afterwards), I was really looking forward to learning about issues surrounding air travel and climate change. Unfortunately, the session I was interested in, which was going to be hosted by ICAO (UN agency regulating global civil aviation), morphed into one hosted solely by IMO (UN agency regulating global maritime shipping). Somewhat of a let down, but I decided to attend to see what I could learn.

The session featured representatives from the IMO, Maersk (a large global shipping conglomerate), ICS (International Chamber of Shipping, a trade group representing ship owners) and a representative from the government of Cyprus (which, along with countries like Panama and the Bahamas, tends to register ships in disproportionate numbers to their size or population).

So, what was the one slide that every single one of them had on their presentation? As you can see below, the shipping industry is practically shouting from the rooftops that they are very carbon efficient on a grams per tonne-km basis.

Transportation Co2

The panelists argue that the shipping industry should only be penalized to the extent of its contribution to global GHG emissions, but fear that shipping might nevertheless be treated as a cash cow in the event of global carbon tax. Perhaps, they are justified, as shipping only accounts for 3% of global GHG emissions, in spite of being responsible for carrying more than 90% of world trade.

The goal of the industry is a 50% CO2 reduction in terms of grams per tonne/km by 2050. They are going to achieve this via a three-pronged approach –

  1. Technical Measures (impacting new ship design, with measures such as Energy Efficiency Design Index (EEDI))
  2. Operational Measures (impacting operations of new and existing ships, with standards such as Ship Energy Efficiency Management Plan (SEEMP))
  3. Market Based Mechanisms (MBM), which place a price on GHG emissions using various approaches such as offsets, Emissions Trading System (ETS), a compensation fund linked to fuel consumption etc.

EEDI and SEEMP are going to become mandatory by 2013, and will be globally applied, regardless of whether ships are registered in the developed or developing world. MBMs are the most controversial, with ship owners preferring a compensation fund vs. ETS and generally preferring that the funds be routed back into the shipping industry for R&D rather than being siphoned off by governments.

All in all, a very interesting session…

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7 Billion, 1 challenge!

Following a morning cultural experience at the museum on Wednesday, we headed over to the COP18 at Qatar’s National Conference Center (QNCC) for our first set of official meetings.

At QNCC, we met with Edward Cameron, the Director of International Climate Initiative at the World Resources Institute (WRI). He has been responsible for the five year strategy program at WRI that aims at reducing the vulnerability of people and communities from the impacts of climate change. His previous experiences included leading climate action and equity programs at the World Bank and designing the Maldives Foreign Affairs Ministry’s climate strategy as their Senior Advisor on climate change.

Edward Cameron had a candid conversation with us on the urgency around climate change, highlighting the implications of the failure to follow the Kyoto protocol. Alarmingly, many countries such as US (responsible for 18% of global emissions) have not taken up their fair share of responsibility. However, the key takeaway was that as much as the current proposed solutions may not be “fair”, not taking any action would result in a greater “injustice” to the world and that everyone should act based on their own capabilities.

One interesting point that was brought up during the conversation centered on a report just released regarding the aviation industry. President Obama signed an aviation act that “enables the country’s transportation secretary to “prohibit” US airlines from participating in the European Union’s (EU) Emissions Trading Scheme (ETS).” See the full report at here. The big question is “Who is actually going to do what?” when it comes to addressing climate change. I guess that is why everyone is here!

Next we met with David Hone, Shell’s group CO2 Senior Advisor on climate change, Giles Dickson, Alstom’s VP of environmental policies and global advocacy, and Timothy Juliani, Director for corporate engagement at the Center for Climate and Energy Solutions (C2ES). Our conversations focused on the pros and cons of the two models for carbon pricing: 1) Carbon Tax and 2) Cap and Trade of Carbon. The general consensus was that a Cap and Trade model would be most effective but that if a choice had to be made between doing nothing versus having a carbon tax in place, the tax at least would help offset some of the externalities created.

As Joya and Sarah worked on their blogs, others grabbed a quick supper and headed over for our panel discussion (jointly hosted by Tuck and C2ES). Stay tuned for a report of the panel by Vijay (who also doubles as the group’s translator from time to time)!

Left to Right: professor Anant Sundaram, David Hone, Timothy Juliani, and Giles Dickson

On Thursday, we headed over to the Diplomatic Club for a day of events organized by the International Emissions Trading Association (IETA). Pat Palmiotto and Professor Sundaram had suggested attending a few of these sessions and it proved to be a rich experience.

We also attended a variety of side event sessions. My favorites of the day were 1) “The business partnerships for market readiness (B-PMR): an open Q&A between IETA and the World Bank PMR Secretariat, 2) “Who is on base? Ensuring access and demand for the CDM and JI with new mechanisms in the ballpark”, and 3) Reaching the $100 Billion-A business Perspective on the Green Climate Fund (GCF).

Left: Timothy Juliani                 Right: Giles Dickson

Finally, the eventful day concluded at the Souq Waqif. Thursday nights here is the equivalent of Saturday night’s back State side as Friday is the weekend in Qatar. We concluded our “official” week with Kiwi juice drinks, “old country style” at a Syrian Restaurant (referral credit goes to a prospective Tuckie as well as Sarah and Joya).

A final slide from one of the European presenters at IETA

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Cultural Adventures in Doha

In addition to solving the climate crisis, we Tuckies have also been using our time in Doha to explore Qatari ex-pat culture. Here are some highlights:

1) Souq Waqif

After registering for the conference, we took a group excursion to Souq Waqif, Doha’s downtown bazaar that has been in existence for over a century (although more recently restored). At the Souq one can purchase a variety of garments, handicrafts, and souvenirs among other things – including falcons!

As the Revers Board Fellow for the Vermont Institute of Natural Science, I was particularly excited to learn more about the Qatari tradition of falconry up close and personal.

2) Nightlife

The Souq is also the main source of nightlife for locals, expats, and tourists alike. As alcohol is banned outside of the western hotels, the nightlife typically consists of a long leisurely dinner followed by delicious fruit juice beverages and (for the more adventurous) shisha – a flavored tobacco smoked from a hookah water pipe. At the end of our first evening excursion, our resident Persian, Betsabeh, was able to find us a relaxing spot atop the Souq offering traditional Persian desserts and tasty juices which we almost got ta’arof (free of charge).

3) Local Cuisine

The Tuck group has generally been very open to trying local cuisine. In fact, several of us have become regulars at Sabah W Masa, a Lebanese restaurant near our hotel which was ranked by TimeOutDoha as one of the city’s top two Arab breakfasts. For 80 Qatari riyals (US$22), two people can enjoy a filling breakfast of hummus, yogurt, falafel, pita, veggies, olives, and Turkish coffee. We’re pretty sure the name roughly translates to “filled morning to night” which has not been an exaggeration.

4) Prospective Students

While in Doha, Joya and I also had a chance to meet with a prospective T15 working in sustainability consulting in the Qatar, Jordan, and Saudi Arabia. In addition to sharing our own experiences around Tuck and sustainability, we were excited to have this unique opportunity outside of COP to not only learn about how companies and governments in the ME are approaching sustainability, but also to learn more about ME culture and customs.

5) The Museum of Islamic Art

Located along Doha’s waterfront is the stunning Museum of Islamic Art. Within its stunning architectural façade, the MIA houses Islamic art and artifacts spanning the 7th to 21st century, from China to Morocco.

The impressive exhibits include calligraphy, ceramics, metals, glass, jewelry, carpets, woodworking, and and astrological tools. Anyone who knows me well knows that I am incredibly into both carpets and Backgammon, and in these regards the museum did not disappoint.

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On Friday we go on a desert safari to the Inland Sea – we will have to update later on this “dune bashing” and desert sunset excursion!

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Exploring the Side Events at COP 18

On Tuesday the main COP 18 events were mostly closed sessions for government delegates, so I had an opportunity to experience some of the wonderful side events that are offered during the conference. 

In addition to delegations from UN member nations, COP attracts NGOs such as Greenpeace, The Rainforest Initiative, and The Sierra Club.  I spent a few hours exploring a giant exhibition hall that was filled with booths staffed by enthusiastic representatives of these organizations who were eager to discuss their latest efforts in promoting sustainability and combatting climate change.  Next, I dropped in on several interesting side events.

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The first side event I attended, presented by the Food and Agriculture Organization of the United Nations (FAO), explored how climate-smart approaches to agriculture can help build resilience in food security for the world’s poorest and most vulnerable people.  Global warming is expected to increase the frequency of extreme weather events and change rainfall patterns – disproportionately impacting the food security and livelihoods of the 870 million people in the world who are already hungry and vulnerable.  The FAO believes that agriculture growth is essential to meet future demand and that agriculture will continue to be the main source of income for people who are food insecure.  The presentation ended with a call for governments and NGOs to increase future food security by incorporating climate-change adaptation strategies into agricultural development programs.

Next, I attended a presentation by the US Center called “Taking the Pulse of the Climate”.  Two researchers from the National Oceanic and Atmospheric Administration (NOAA) discussed the 2011 State of the Climate Report, which is published annually by 300+ scientists.  2011 was marked by higher average surface temperatures, increased melting of sea ice – the second smallest Arctic ice extent of the satellite era – and more tropical cyclones than average. The panelists from NOAA predicted that 2012 will be the warmest year on record in the United States.  While NOAA cannot determine with absolute certainty whether global warming is the cause of some recent extreme weather events, their findings further convinced me that events such as Hurricane Sandy will be increasingly common in the future.

The full NOAA State of the Climate in 2011 Report can be found here.

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The Tuck team checks into COP18 (Doha, Qatar)

The Tuck team (officially designated as Observers by the UN) checked into COP18 this afternoon, at the magnificent Qatar National Convention Center (QNCC). Check-in was very painless this year and we were able to get our badges in just a few minutes, unlike previous years, where Prof. Sundaram said that there was a multi-hour wait just to get badges. On the contrary, attendance seemed to be quite light this afternoon, as you can see in the picture below.

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From Left to Right – Vijai Krishnan, Betsabeh Madani, Sarah Stern, Prof. Anant Sundaram, Joya Zuber and Pat Palmiotto – all checked in and ready to go.

After checking in and clearing security (lots of security around the place), we went into the lobby of the QNCC to meet this strange creature (picture below). It reminded me of Shelob from Lord Of The Rings, and given that I am severely arachnophobic, I tried to ignore it as best as I could while smiling for the picture below!

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The Tuck team and Shelob face off in the lobby of the QNCC

We headed into the center and spent some time becoming familiar with the layout of the absolutely humongous QNCC building. While Dr. Sundaram and Pat went off to find the room where Tuck will host our side event on Wednesday evening, the rest of us went off to attend the plenary session where the Qatari Deputy Prime Minister was presiding. En-route, we saw some eye catching interior design elements in the QNCC (two pictures below) –

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The glass leaves in the ceiling reminded me of the Fiori di Como glass flower sculpture at the Bellagio in Las Vegas, but given that Qatar is an Islamic country, where gambling is strictly forbidden, I am sure any resemblance was strictly coincidental and all in my imagination!

Finally, we made our way into the massive plenary chamber. After trying our luck at entering through the Delegate entrance (Delegates are official representatives of the various UN organizations such as FAO, UNICEF, ILO etc. and member states such as the US or India), we then headed upstairs to the entrance reserved for NGOs/Observers where we were given translators. However, we did not need these, as the Qatari Deputy Prime Minister, HE Abdullah Bin Hamad Al-Attiyah, delivered his presiding remarks in English and declared COP 18 open. There were plenty of empty seats in the Delegates hall, so it was perhaps too early for the real action to start. Nobody objected to anything he had to say, so there was a lot of gavel banging as he went through the administrative motions of outlining the agenda for COP 18.

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After listening to the speeches from a couple of additional members on the panel (one of whom talked about the importance of not letting the Kyoto protocol lapse without securing a second commitment period), we decided to head back to the lobby to catch the bus back to the hotel.

As we headed out, we could not help but notice the massive amount of construction still happening in and around the convention center. Qatar is clearly a country in transition.

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What’s a business school doing in Doha, at COP18? (Professor Anant Sundaram)

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I get asked this question a lot. Read on.

Unlike other major global issues, climate change is one where businesses are front and center, as both the primary cause and as a solution. This is so for at least four important reasons.

First, countries don’t emit: companies and people do. If we are going to address this problem, we are going to have to start impacting behaviors at the point where emissions actually happen.

Second, valuation implications could be enormous. Consider just the firms in the S&P500, that emit between 2 and 3 billion metric tons of greenhouse gases (GHGs) annually. If the costs associated with this are required to be internalized, the impact will be significant. If there were a market price of, say, $30/ton of CO2 the S&P500 would need to sign a collective check for $60 billion to $90 billion annually. The present value of this liability could be as high as one-twelfth of the market capitalization of the S&P500.

Third, there is a potentially vast ‘climate economy’ emerging, in three key areas: one, from achieving greater carbon efficiency in existing operations, two, in obtaining new energy from non-fossil fuel based sources (including nuclear), and three, from capturing the emissions and putting it away for good (‘carbon capture and storage’). Investments, already starting in significant amounts, could run into many trillions of dollars across the globe.

Fourth, as companies have outsourced the upstream parts of their value chain to emerging economies, emissions from developed world consumption have essentially been supplanted with that from massively carbon-inefficient economies. It is these economies that, in turn, will account for a substantial part of global growth in the next few decades. The climate implications – and the larger sustainability implications for the natural environment – of that growth are mind-boggling to contemplate.

So, what does this all this imply for MBAs graduating today?

Careers of MBAs graduating today will unfold in a world in which the climate phenomena that scientists worry about could become reality, and in which there is a carbon price.

What will that mean? It will be a game-changer in the same way that the  internet or the economic ascendance of the BRICs was. Just as we take for granted a ‘digital economy’ or an ‘emerging economy’ today, we will soon be talking about the ‘climate economy.’

Forward-thinking companies – the list runs into the hundreds today – are taking climate change concerns head-on. Many are committing serious amounts of management talent, resources, and capital to address climate change. Over two-thirds of the S&P500 measure their carbon footprints using globally accepted reporting protocols. Many have initiatives in place to manage this footprint, via investments in energy efficiency, renewable energy, and incentive-based, quantitative, time-bound abatement goals.

New career opportunities are emerging. Two-fifths of the large companies today have an E-level officer, with titles such as a ‘Chief Sustainability Officer’ to manage climate change concerns within the company. Over one-fifth now link employee incentives and goals related to climate change.

Many firms in finance, consulting, private equity and venture capital are positioning themselves for the emergence of the climate economy. Every major bank or asset management firm now has climate initiatives, often in partnership with NGOs. Advice on coping with climate change, as well as in related areas such as energy efficiency and renewable energy investments, is emerging as a vital area of practice for leading consulting firms. Investments in renewable energy have already become significant in private equity and venture capital.

There are now numerous climate change- and sustainability-related scorecards and rankings produced by major media outlets and NGOs to which companies are having to pay attention (including one that I developed for CFO magazine, called the ‘Fossil Fuel Beta,’ or FFß).

Link to Business Value

MBAs graduating today should ask – indeed, must be prepared to offer views on – four questions related to their future employers: Should the CEO, CFO, and members of the Board of the company care about climate change? If so, why? How? What they can learn from others that are getting in front of the issue?

My view is that it is crucial to take a hard-nosed view of whether and how something, indeed anything, ‘matters’ for a corporation. In a world of competing priorities and limited resources, an issue will get the serious attention of CEO only if we can articulate that it has a meaningful impact on the value of the business.

Thus, when we attempt to link climate change-related initiatives to value creation, we should be making a link to specific financial metrics – i.e., we should be seeking to anchor our initiatives on answers to the following questions:

  • What is the impact, if any, of the initiative in increasing revenue?
  • What is the impact, if any, of the initiative on decreasing costs?
  • What is the impact, if any, of the initiative on the investment spending practices and processes that the company uses to achieve its future growth – e.g., capital budgeting practices, new product introduction or new market entry, M&A, supply chain configuration?
  • What is the impact, if any, of the initiative in reducing the risks of future cash flows, i.e., on our cost of capital?

These are the questions that today’s MBAs will need to be thinking about in relation to whether and how climate change will affect their careers. This, in turn, is why the Tuck School of Business is in Doha. As a leading business school that trains future global business leaders, we want to not only understand, but be at the center of, this conversation.

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