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Publication - Research Publication

Unconventional oil and gas: compatibility with Scottish greenhouse gas emissions targets

Published: 8 Nov 2016

Research into the compatibility of unconventional oil and gas with Scottish greenhouse gas emissions targets.

92 page PDF

1.8MB

92 page PDF

1.8MB

Contents
Unconventional oil and gas: compatibility with Scottish greenhouse gas emissions targets
Chapter 5: Impact on EU and global emissions

92 page PDF

1.8MB

Chapter 5: Impact on EU and global emissions

In this chapter, we consider the implications of domestic unconventional oil and gas ( UOG) production on emissions elsewhere, both in terms of the global picture and at EU level.

Scottish UOG production should not be allowed to lead to greater unabated fossil fuel combustion within Scotland than would otherwise occur, as this would be inconsistent with meeting domestic emissions targets ( Chapter 4). Any domestic UOG production must therefore displace imports, with the only emissions impact within Scotland being that directly resulting from the production process.

In global terms, the impacts on emissions can be divided into those relating to the supply of fossil fuels and any impacts on the combustion of different fossil fuels.

For supply, lifecycle emissions comparisons can identify the full set of emissions relating to different sources of fossil fuel supply, regardless of where these emissions occur. Therefore while domestic production increases Scottish emissions, these could be offset to a greater or lesser degree by reductions in emissions relating to production and supply elsewhere in the world.

There could also be further knock-on impacts on international emissions resulting from reduced Scottish demand for imported fossil fuels, depending on the extent to which reduced Scottish imports leads to reduced overseas gas production and whether it affects consumption of coal or low-carbon energy.

In this chapter, we consider the impacts in three sections:

1. Comparison of lifecycle emissions from Scottish shale gas with imported liquefied natural gas
2. Impact of domestic fossil fuel production on global emissions
3. Impact of domestic fossil fuel production on EU emissions

1. Comparison of lifecycle emissions from Scottish shale gas with imported liquefied natural gas

Any production of oil or gas is likely to lead to some greenhouse gas emissions. While increasing Scottish production will increase domestic emissions, should this be offset by reduced production elsewhere then the change in overall global emissions depends on the difference between the emissions footprint of domestic production relative to the overseas production displaced.

Current evidence suggests that well regulated domestic production could have an emissions footprint slightly smaller than that of imported liquefied natural gas ( LNG) (Figure 5.1). Furthermore, while the central emissions estimate under the 'minimum necessary regulation' case for domestic production is only slightly below that of LNG, the high end of the range is around 50% higher for LNG. Tightly regulated domestic production would therefore reduce the risk that the greenhouse gas footprint of gas supply is high and would also provide greater control over the level of such emissions.

When taking into account CO 2 emissions from combustion, both Scottish shale gas and imported LNG have a considerably lower greenhouse gas footprint than coal on a GWP100 basis ( Chapter 1).

Figure 5.1. Lifecycle emissions of Scottish shale gas production and liquefied natural gas imports

Figure 5.1. Lifecycle emissions of Scottish shale gas production and liquefied natural gas imports

Source: CCC calculations for shale gas; SGI (2015) for LNG.

Notes: There is a lack of transparency in the literature for LNG, so it is not possible to speculate how reliable the emission estimates are. Further work is required in order to improve our understanding of the emissions relating to LNG supplies. Emissions relating to final combustion of the fuel are not included.

A comparison of domestic shale oil production with other sources is more difficult:

  • In this study we have considered liquids co-produced with gas. While the incremental emissions for liquids production will be small for a given level of gas production ( Chapter 4), the oil-to-gas ratio will vary between wells and in some cases the volume of gas may be insufficient to justify its productive use ( e.g. piping to a processing facility and then injection into the gas grid) on an economic basis. Should the gas co-produced with liquids be flared or vented instead then the emissions footprint attributable to the liquids will be considerably higher. This will vary on a case-by-case basis.
  • Similar issues affect the greenhouse gas footprint of potential sources of import into the UK. Again, in some cases methane will be flared or vented. The carbon intensity of various sources of crude oil in Europe has been estimated at between 0.014 and 0.047 MtCO 2e/ TWh, excluding transportation to the UK. [76]
  • Differences in composition of oil produced will have different implications for how it needs to be refined, with implications for associated emissions. We have not addressed such issues in this study.

On the basis of tight domestic regulation, and on the assumption that co-produced gas is put to productive use, Scottish shale oil production may well have a smaller greenhouse gas footprint than imports, but this could vary widely across domestic and international sources.

Comparisons between the emissions footprint of domestic and imported sources of oil and gas reflect the impact on global emissions in the case that Scottish UOG production directly leads to a commensurate reduction in the production and supply of fossil fuels from elsewhere in the world.

In reality, the complexity of international energy markets means that a range of dynamic effects are likely to ensue, potentially affecting the level and type of fossil fuel consumption in other countries. We turn to the impact on international fossil fuel consumption in the next section.

2. Impact of domestic fossil fuel production on global emissions

As part of this study, the Scottish Government specifically asked that it cover the impacts on global emissions. This is a large and complex question to which there is no simple answer. We have drawn on existing evidence and commissioned some new modelling work in addressing it.

Additional domestic production of fossil fuels would, assuming that domestic consumption is unaffected, increase the availability of these fossil fuels on international markets. This could potentially affect global emissions in three different ways:

  • An increase in fossil fuel supplies could lead to a reduction in coal consumption (due to fuel switching), thereby reducing overall emissions. The switch away from coal is likely to occur primarily in the power sector and therefore be largely towards gas rather than oil.
  • Increases in fossil fuel supplies could displace low-carbon energy (increasing emissions).
  • Increases in fossil fuel supplies internationally could lead to a reduction in their prices, leading to an increase in overall energy consumption (increasing emissions).

The overall impact of Scottish UOG production on global emissions depends on the balance between these three effects. It is likely that the global level of ambition to reduce greenhouse gas emissions would influence how each of these effects plays out. The size, and potentially the direction, of the emissions impact could vary significantly depending on whether the world is headed for temperature change of 2ºC, or levels well below or above this.

We have reviewed the literature in this area (Box 5.1) and commissioned some runs of the TIAM- Grantham model from Imperial College to provide insights into the possible change in global CO 2 emissions that could result from domestic shale gas production (Box 5.2). [77] We make the following observations with regard to shale gas:

  • Global 'Abundant gas' scenarios see gas displacing a mix of coal and low-carbon (renewable and nuclear) energy sources. The net impact on global emissions tends to be small, with some studies suggesting a small upwards impact on global emissions. However, the results depend on strength of climate policy.
  • The TIAM-Grantham model finds that differences in gas availability are unlikely to have a large impact on cost and feasibility of meeting a 2°C goal, excluding the impact of methane leakage. Therefore should Scottish UOG production proceed with tight regulation ( Chapter 3), the overall impact on global emissions is unlikely to be significant.
  • In the TIAM-Grantham and other modelling, estimated supply curves for unconventional gas tend to have higher costs than those for conventional gas, meaning that the modelling has to force in shale gas so as to assess its impacts. This provides an indication that the economics of unconventional gas in general are not favourable, unless local geology happens to be especially productive and units costs commensurately lower ( Chapter 2).

On shale oil, the story may be different, with less scope for switching between oil and other fossil fuels such as gas and coal:

  • We would expect shale oil production to displace high-marginal-cost oil production elsewhere in the world, rather than affecting consumption of coal, gas or low-carbon energy.
  • However, there is a question over the extent to which domestic shale oil production would displace other sources of oil as against increasing total consumption.
  • In world in which warming is limited to below 2ºC, it is likely that consumption would be largely unaffected and that full displacement of other oil production would occur.

Box 5.1. Key findings on literature relating to the impact of shale gas on global emissions

There is limited evidence within the available literature, which generally uses integrated systems models across economy-energy-emissions, to consider the impact of increased gas supplies on global emissions. Our review of this literature is presented in a supporting annex.

There are a few studies that look at the implications of global increased gas supplies. Considering what can be drawn from these of relevance to the implications of Scottish supplies from unconventional sources, demands caution, for a number of reasons including:

  • the assumed supply curve for unconventional gas (how much gas, at what cost) is speculative;
  • results reported here relate, in general, to global increases in supply, and do not differentiate impacts as between specific regional markets;
  • Scottish supplies are likely to be very small relative to the European market;
  • results show significant variation depending on the assumptions and set-up of the specific model employed.

To the extent that a few broad conclusions can be drawn, these are:

  • greater gas supplies lead to some displacement of coal, but also to displacement of low-carbon sources (renewables and nuclear);
  • net impacts on global emissions tend not to be negative ( i.e. emissions down), but are either very small or positive ( i.e. emissions up);
  • net impacts depend on the strength of climate policy;
  • impacts on the overall costs and feasibility of meeting a 2°C target (if methane leakage is controlled) are small.

We provide more detail on the relevant findings of these studies in an Annex to this report.

Box 5.2. TIAM-Grantham modelling on the global emissions impact of shale gas in a decarbonising world

In order to gain insights into the impact of domestic shale gas production on global emissions, we commissioned some runs of the TIAM-Grantham model, which is developed and run at the Grantham Institute, Imperial College London. This is a version of the global, 15-region incarnation of the TIMES model, as developed and maintained by the Energy Technology Systems Analysis Programme ( ETSAP).

  • The model is a linear programming tool representing in rich resource and technological detail all elements of the reference energy system ( RES) for each region represented, mapping energy commodity flows all the way from their extraction and refining to their distribution and end-use.
  • TIAM has the ability to optimise the energy system for given climate constraints through either minimising the total discounted energy system cost over a given time-horizon, or through maximising total producer and consumer welfare when (optionally) accounting for elastic demand responses to energy prices.
  • Energy system data such as technology costs, resource supply curves and annual resource availability are also input into the model. In solving, the model allows trade in energy commodities between regions.

The aim of the modelling was to examine the impact on global emissions of forcing in European shale gas in the context of global action consistent with limiting average warming to 2ºC and 'well below 2ºC' by the end of the century, building on previous TIAM-Grantham modelling for the AVOID 2 programme. [78] We ran the model with two levels of global ambition on limiting climate change: a '2ºC' run, which allowed cumulative greenhouse gas emissions consistent with a median expectation of 2ºC, and a 'well below 2ºC' run with a median temperature increase of 1.75ºC. This is at the limit of the level of climate ambition for which the model is still able to solve. [79]

The modelling focused on gas, as this provides more scope for fuel switching ( e.g. away from coal or renewable electricity) than for oil.

  • Initial runs were performed which constrained emissions to a level consistent with limiting warming by 2100 to 2ºC and 1.75ºC, without any unconventional fossil fuel production in Western Europe (the region including Scotland);
  • Follow-up runs were then performed, which took the shadow carbon prices from the initial runs [80] and forced in shale gas production in Western Europe (at 80% of potential shale production in the region) to understand the impact on consumption of gas, and of other energy sources (both fossil and non-fossil).

In the model results, the overall impact of forcing in shale gas in Western Europe on cumulative CO 2 over the 21st century is extremely small, at an increase of 0.04 GtCO 2 in the 2ºC run and a decrease of 0.16 Gt in the 1.75ºC run, compared to the carbon content of the forced-in shale gas of 1.9 Gt (Figure B5.2a). The upward impact on global CO 2 emissions of increased European gas production was therefore offset by 98% to 108% by avoided emissions elsewhere in the global energy system as a result of reductions in gas, oil and coal supplies:

  • In the 2ºC run, the consumption of natural gas increases as a result of increased European production, although because of reduced gas production elsewhere the net increase in supply is only 5% of forced-in production. This net increase in gas production displaces a mix of oil supplies (26% of net increase in gas supply), low-carbon energy (36%) and a reduction in coal consumption even beyond that in the base 2ºC run (15%), and leads to a slight increase in overall energy consumption (Figure 5.2b).
  • In the 1.75ºC run, the consumption of natural gas increases as a result of increased European production, although because of reduced gas production elsewhere the net increase in supply is only 11% of forced-in production. This net increase in gas production mainly displaces coal even beyond that in the base 1.75ºC run (26% of net increase in gas supply), and leads to a slight increase in overall energy consumption (Figure 5.2c). Overall CO 2 sequestration is higher in the run with forced-in gas, leading to a slight reduction in overall emissions.

In both pairs of runs the impact on global emissions from forcing in European shale gas is close to zero, with one increasing emissions and one decreasing them, so it can be inferred that the effect is negligible.

Figure B5.2a. Net change in global emissions in a scenario with shale gas (2012-2100)

Figure B5.2a. Net change in global emissions in a scenario with shale gas (2012-2100)

Source: Grantham- TIAM modelling for the CCC.

Notes: The red line represents the emissions impact were all the forced-in gas in the follow-up runs to be unabated and additional to fossil fuel consumption in the base run. The blue and green lines show the actual impact on emissions in the 2ºC and 1.75ºC follow-up runs, allowing for the model to respond to this additional supply by reducing energy supplies elsewhere.

Figure B5.2b. Change in fossil and non-fossil energy supply in a 2ºC run as a result of forced-in gas

Figure B5.2b. Change in fossil and non-fossil energy supply in a 2ºC run as a result of forced-in gas

Source: Grantham- TIAM modelling for the CCC.

Notes: Lines reflect change in energy supply from different sources, but not any change in the use of CCS.

Figure B5.2c. Change in fossil and non-fossil energy supply in a 1.75ºC run as a result of forced-in gas

Figure B5.2c. Change in fossil and non-fossil energy supply in a 1.75ºC run as a result of forced-in gas

Source: Grantham- TIAM modelling for the CCC.

Notes: Lines reflect change in energy supply from different sources, but not any change in the use of CCS.

3. Impact of domestic fossil fuel production on EU emissions

As part of this study, the Scottish Government specifically asked that it cover the impacts on emissions in the EU and interactions via pan- EU mechanisms. In this section we therefore consider the knock-on implications of Scottish UOG production for the EU energy system and fossil fuel consumption, as well as specific interactions between Scotland and the rest of Europe via the EU emissions trading system ( EU ETS).

More recently, the recent EU referendum result has raised questions in this area. We have not considered in detail the possible implications of that result for our analysis, but to the extent that the eventual impacts include weakening of the regulatory framework on UOG production in Scotland then domestic regulations will be required to ensure that a strong system of regulation exists in Scotland for UOG exploitation ( Chapter 3).

The Committee will consider the implications of the EU referendum result in more detail over the coming months.

Impacts on the European energy system

The impact on EU emissions of Scottish unconventional oil and gas production equals the impact on Scottish emissions ( i.e. emissions relating to production - Chapter 4) plus the impact on emissions in the EU outside Scotland.

We draw some insights from the global modelling set out in section 2 above, as well as an understanding of the context for Europe's energy system:

  • The quantitative analysis of the impact on global emissions indicates that an increase in production of gas within Europe has a very limited impact on EU energy consumption.
  • The EU is a significant net importer of both oil and gas, a situation on which Scottish production would have little impact. So there would not be a case for fossil fuel consumption to rise as a result of greater local supply.
  • As discussed in Chapter 3, Scottish UOG production is unlikely to have any meaningful impact on fossil fuel prices in Scotland or elsewhere in Europe.
  • It is possible that the initiation of unconventional oil and gas production in one part of Europe could have knock-on impacts, with other countries following suit to exploit their own domestic resources. We have not considered this possibility in detail, as such an effect is speculative.

It is therefore likely that there would be little if any impact on EU emissions outside Scotland from domestic UOG production.

Impacts relating to the EU emissions trading system ( EU ETS)

As discussed in Chapter 4, there are unlikely to be any significant differences in accounting for Scottish emissions under annual targets depending on whether or not they are covered by the EU ETS, especially given the move to territorial (gross) emissions accounting. Therefore should Scotland no longer participate in the EU ETS there would be no significant impacts on meeting domestic emissions targets.

Should Scotland remain in the EU ETS, the impact on emissions across the other countries participating in the trading system is likely to be negligible:

  • In principle extra Scottish emissions covered by the EU ETS could use up allowances, which under a finite cap would lead to emissions reductions elsewhere in the EU.
  • However, in practice the EU ETS has a substantial oversupply, and the Market Stability Reserve mechanism to remove surplus allowances from the system temporarily makes the cap less 'hard'.
  • Similarly, any upward effect on the price of allowances within the system is likely to be negligible.

Consequently, it is questionable whether any additional Scottish emissions under the EU ETS would lead to any emissions reductions elsewhere.

It is unclear what impact there be on emissions across all the countries participating in the EU ETS should Scotland leave the EU ETS, as it is unknown what would happen to the level of system's emissions cap in this situation.


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