Environmental Markets

Environmental Markets

Regardless as to how you feel towards “global warming”, man-made or otherwise, I think we all share the thought that being conscious of our environment and how we treat man-made effluents is critical to our wellbeing as a society in general.  I personally feel “the jury is out” relative to man-made reasons for global warming and we very well may be in a cycle of planetary warming that will work itself out in a few thousand years.  That’s not the point!    You don’t live in a dirty house so why continue polluting a dirty planet?  There is not one state in our union of states that disregards laws governing littering and yet we seemingly overlook many of our major polluters.  Many many companies are now very conscious of their “environmental footprint” and work seriously  towards improving those conditions that provide rigorous compliance with EPA standards and local codes.  I applaud their efforts.    That’s not the reason for this blog.  The technology devoted to improving our environment is really fascinating and, I think as “card-carrying” members of this planet, we need to know more about those efforts.  It’s important that we keep up with the “movers and shakers” behind the very standards being developed and those in place right now.  I would like to present to you a document written by Mr. Greg Jackson.    His write up explains the very basic elements of how environmental markets work.  I have been given his permission to copy and present his document.   That work is presented at this time.  “His words” are in italics and are as follows:

The environmental markets have been actively trading on both compliant and voluntary levels for the last seven (7) years. The Kyoto Protocol was the first compliance driven agreement among 37 countries established by the (UNFCCC) United Nation Framework Convention on Climate Change.   The UNFCCC created benchmark emission reduction goals. Annex I initiated that effort in 2005 will conclude at the end of 2012. The reductions call for 5% annual reductions based on the emissions benchmark established in 1990. There are currently 34 countries that have selected to continue in 2013 with compliance guidelines established at the Durban Conference to insure Climate Change regulations would be in place.  These non-binding guidelines will become mandatory in May 2012. The European Union Trading Scheme will continue with the Clean Development Mechanism and Joint Implementation Programs to reduce total emissions by an additional 20% by 2020. Currently Certified Emissions Reductions from industrialized and non-developed nations are being traded through the aforementioned programs from entities adopting these programs.

The United States signed the Kyoto Protocol however never put in place compliant guidelines enabling emission reduction instruments to be traded within these markets. Therefore, credits originated in the United States would have to be traded within voluntary markets. The Western Climate Initiative is scheduled to begin January 1, 2013 with California and Quebec as the two participating parties in the first North American compliant cap and trade program. The trading platform will adhere to guidelines outlined in Bill AB 32, ratified in 2006 and recently upheld by election in November 2010 via Proposition 23. Prop 23 was overwhelmingly endorsed by 63% of the voters and has cleared the way for a statewide cap and trade program. The California Air Resources Board has cleared the way for the first compliant stateside cap and trade system. Phase I is through 2020 with targeted reductions of 17% overall. The resources board has acknowledged 4 crediting programs whose protocols were adopted from the Climate Action Reserve; Forestry, Urban Forestry, Ozone Depleting Substances, and Livestock. These programs will be eligible for carbon crediting through the abatement or reduction of carbon emissions. California represents 25% of the total U.S. GDP and will allow carbon sequestration projects that can be originated anywhere in the continental U.S., Canada, and some regions in Mexico. The Western Climate Initiative (WCI) will be the established platform that California and Quebec will adhere to for climate protocol. WCI member jurisdictions include 7 US states and 4 Canadian provinces:  Arizona, British Columbia, California, Manitoba, Montana, New Mexico, Ontario, Oregon, Quebec, Utah, and Washington. It is expected that states and provinces within the WCI will follow suit once the program is up and running. There is definitely a political element to cap and trade programs. It is somewhat difficult to predict what federal and state programs will be put in place in future years that could expand the areas of compliance. California Carbon Allowances are currently being traded on the Intercontinental Exchange. Pricing for the allowances began at $17 per allowance for the first transaction and then went as high $23. Point Carbon has forecasted carbon allowance prices to rise as high as $75 by 2020. The offsets are credits that are generated from emission reduction projects that are expected to price at approximately 70% of allowance prices.

The voluntary markets were impacted dramatically when federal cap and trade legislation stalled in the senate in 2009. The economic environment and passing of the health care initiative put a formal cap and trade program on hold.   Voluntary carbon offsetting went from being for the greater good of the public to a luxury line item. The economy has started to slowly correct and voluntary market transactions per Markit have continued to grow. Issuance activity was up to 27.8 million Verified Carbon Standard Credits an increase of 500,000 credits. Credits being traded from 2010 to 2011 were 3.6 million to 9.8 million or an increase of 6.2 million credits. The Gold Standard credits traded at premiums and most transactions were over the counter pricing from $8-$12. Companies such as Whole Foods, Google, Yahoo, and Wal-Mart are forward thinking companies that are either buying voluntary carbon offsets or actually funding projects that directly reduce emissions. The Bonneville Environmental Foundation was set up to offset emissions and list participants such as Chevrolet, The North Face, REI, NHL, MLS, Idaho Power, Silk and Oregon State University.  The Foundation has identified projects that yield certain credits to address the offset needs of these individual entities.

Renewable Portfolio States (RPS) continue to grow as there are now 34 with Renewable Portfolio Standards currently in place. The RPS mechanism generally places an obligation on electricity supply companies to produce a specified fraction of their electricity from renewable energy sources. Certified renewable energy generators earn certificates for every unit of electricity they produce and can sell these along with their electricity to supply companies. Supply companies then pass the certificates to some form of regulatory body to demonstrate their compliance with their regulatory obligations. Because it is a market mandate, the RPS relies almost entirely on the private market for its implementation. Unlike feed-in tariffs which guarantee purchase of all renewable energy regardless of cost, RPS programs tend to allow more price competition between different types of renewable energy, but can be limited in competition through eligibility and multipliers for RPS programs. Those supporting the adoption of RPS mechanisms claim that market implementation will result in competition, efficiency and innovation that will deliver renewable energy at the lowest possible cost, allowing renewable energy to compete with cheaper fossil fuel energy sources. California currently has the largest requirement that is 33%. Credits are traded in the form of Renewable Energy Certificates or Solar Renewable Energy Certificates.

In the early 1990s the United States realized the need for Renewable Fuel Credits to reduce the amount of fossil fuel consumption. Transportation accounts for the majority of fossil fuel use and incentives were put in place to offer renewable/alternative fuel credits. Corporate Average Fuel Economy is a standard that was adopted to improve the average fuel economy of vehicles in the mid 1970’s to try and reduce the fuel consumption after Arab Oil Embargo. Most recently the use of ethanol and various other biofuels have created renewable fuel credits or RINs. RIN is short for Renewable Identification Number and is a renewable fuel credit. A RIN credit is a serial number assigned to each gallon of renewable fuel as it is introduced into U.S. commerce. RIN credits were created by the Environmental Protection Agency (EPA) as part of the Renewable Fuel Standard (RFS) to track our nation’s progress toward reaching the energy independence goals established by the U.S. Congress. RIN credits are the currency used by obligated parties to certify compliance they are meeting mandated renewable fuel volumes. All gasoline produced for U.S. consumption must contain either adequate renewable fuel in the blend or the equivalent in RIN credits. EPA regulations require that the RIN be tracked throughout each link in the supply chain, as title is transferred from one party to the next. RINs are assigned and travel with renewable fuel until the point in time where the biofuel is blended with petroleum products to produce gasoline. Once the renewable fuel is in the gasoline, the RIN is separated and is then eligible to trade as an environmental credit.

 Overall, emission reduction credits are here to stay. The Climate Change initiative is considered to be gaining more traction with the WCI platform being established and is predicted to pick up steam on a national level as states begin to adopt their own regulations regarding greenhouse gas emissions. The Clean Air Act is still in force and additional GGE compliance could be implemented through the EPA.

CLATHRATE HYDRATE

I certainly enjoy reading about and understanding new technologies.  Those technologies that provide “value added” by their very nature.   I just ran across two “new words” that demonstrate old dogs can learn new tricks and seemingly old technology can be new to the uninitiated—in other words me.  Do you know what a clathrate is?  A clathrate hydrate?  OK, neither did I.  Here we go.

Clathrate hydrate technology was first proposed in 1942 by M.E. Benesh as a method of storing natural gas.   An excellent paper entitled “Gas Hydrate Storage Processes for Natural Gas”, written by R.E. Rogers, Yu Zhong, R. Arunkumar, J.A. Etheridge, L.E. Pearson, J. McCowan and K. Hogncamp give basic details as to how this technology would work in a very practical sense.  All gentlemen teach at Mississippi State University and have spent years working to research and perfect a working prototype used to demonstrate that this can be a viable approach to the problem of storage.  I would like to indicate some of the conclusion derived from that study, as follows:

“Formidable problems (forming hydrates rapidly, collecting and packing hydrates, and reacting interstitial water) to make natural gas storage in gas hydrates an economically viable process are overcome by forming the hydrates from a surfactant solution. In the feasibility study, a non-stirred laboratory test cell could be filled with hydrates in less than 3 hours with a capacity of 156 vol/vol. The important attributes of the laboratory process are incorporated in the design for a proof-of concept scale-up. Simplicity and minimum labor requirements are stressed in the design. The process is designed to store 5,000 scf of natural gas in gas hydrates to be formed from surfactant solutions at 550 psig and 35°F. A finned-tube heat exchanger accommodates latent-heat transfer during hydrate formation and decomposition, but the exchanger also serves to collect by adsorption and symmetrically pack hydrate particles as they form.  The proof-of-concept facility is based on experimental results of the laboratory feasibility study; the facility has been constructed, installed and full-scale tests are proceeding. “

As indicated in the first sentence of the paper—“Gas hydrates are clathrates where guest gas molecules are occluded in a lattice of host water molecules.”  Well and good, but for a “gear-head” like me, what does this mean?  A clathrate hydrate is a very special type of hydrate in which a lattice of water molecules encloses molecules of trapped gas.  This gas could be methane, ethane, syngas, etc etc.  You get the picture.  For our purposes, we will discuss methane only.

 Large amounts of methane, naturally frozen in this form, have been discovered in both permafrost formations and sea beds under the ocean’s floor.  Methane hydrates are believed to form by migration of gas from significant depths along geological faults, followed by precipitation or crystallization, upon contact with rising gas streams of cold sea water.   About 6.4 trillion (that is, 6.4×10¹²) tons of methane lie at the bottom of the oceans in the form of clathrate hydrate.  Each kilogram of fully occupied hydrate (actually only about 96% occupancy is found) holds about 187 liters of methane (at atmospheric pressure).  

 One significant fact, ice-core methane clathrate records represent a primary source of data for global warming research, along with oxygen and carbon dioxide.   This is one reason why there is research data available on the huge quantities of entrapped methane gas.   As mentioned above, Mr.  M.E. Benesh first proposed using this technique as a method of storing natural gas as early as 1942. At that time, the methodology of doing so was not available, now it very well may be as demonstrated by Mississippi State.  

There are several classifications of clathrates.  The table below will indicate those classifications with a depiction of the lattice structures given above the table:

Since methane clathrates are stable at higher temperatures than LNG, there is a great interest in converting natural gas into clathrates rather than liquefying it prior to transporting by seagoing vessels.  A significant advantage would be the production of natural gas hydrate from natural gas at the terminal.  This would require a much smaller refrigeration plant and less overall energy as compared to the production of LNG.  The only real issue seems to be the rate of production and the economic viability of production.   Both issues are being addressed at this time by Mississippi State University. 

The real benefits would come from incorporating this storage method for locations in which it is impossible to fabricate transmission piping or transmit the gas in an easy fashion other than tanker or truck.  It is something to be aware of and to think about.  At any rate, it is fascinating.  I hope you agree.

SUSTAINABLE DESIGN

SUSTAINABLE DESIGN

We hear these words and fear these words at the same time—SUSTAINABLE DESIGN.  From the standpoint of manufacturing, sustainable design conjures up visions of added expenses, the inability to compete relative to others in the same or similar industry, longer design times, delays in launching the product, greater product costs, etc.  We also seem to feel that any product that addresses sustainable design methods will appeal to a much smaller segment of our society; i.e. “tree huggers”.   In today’s marketplace, this perspective is proving to be incorrect and outdated at best.  Today, environmentally friendly sustainable designs can substantially increase revenues, significantly lower overall costs and most importantly become the catalyst for innovation and business growth.  Those manufacturers able to respond to increasing consumer demand for “green” products, will find themselves a part of the “wave” that optimizes energy, optimizes material usage, fosters better recycling efforts and produces increased revenues through expansion and organic growth.

QUESTION:  When does a company start the process of incorporating sustainable design into their methodology?  ANSWER:  Product development is the natural place to implement sustainable design because it represents your business at its most embryonic point.   Virtually every issue relative to sustainability emanates from the product design effort.  Overall design, how the product is made, the materials used, possible life cycle, the ability to recycle, how the packaging is designed and what materials are used, how it is ultimately shipped to the distributor, environmental impact, etc:  all follow the engineering and design phases of the product’s life.  Thus, the most logical place to start is the initial product design.  Most complex products follow the schedule given as follows:

• Initial Scope Study
• Design Guidance
• Design Confirmation
• Pre-Pilot Production
• Pilot Production
• Production

During these phases of design, development and testing, the following may be calculated or measured:

• Calculation of carbon footprint
• Total energy consumed by the product
• Total energy required during the manufacture of the product
• Air acidification ( if any )
• Water eutrophication

The greatest challenge resides in implementing a strategy for sustainability; the associated benefits, the long-term payback, supply chain management, etc.  An approach recommended by SKM ( Sinclair Knight Merz ) is as follows:

• Be ingenious—work smarter—innovate
• Expand your spheres of influence
• Breakdown conventional approaches in favor of newer methods of approach
• Seek improvement at the conceptual stage of development
• Take a whole systems approach to design, packaging, shipping
• Strive for engineering excellence

Engineers and scientists have the unique ability to perform tasks necessary to produce and manufacture products that represent the very best relative to sustainability design.  We have the tools now to do so.  I would recommend all design engineers and engineering managers discuss sustainability with corporate management to realize benefits that could propel their company into much better positions relative to the buying public.  The rewards are beginning to become evident.

RESOURCES FOR THIS BLOG ARE AS FOLLOWS:

• NASA Tech Briefs, Vol 35, Number 10
• SKM ( Sinclair Knight Merz ), www.skm.com
• Machine Design Magazine
• Point Carbon

OLD DOGS—-NEW TRICKS

OLD DOGS—NEW TRICKS

I think we all have an educational “half-life”.  Many, if not most, of the things we learn in college become obsolete within ten or fifteen years after graduation.   As you well know, the pace of technology is remarkably fast and continuous learning is the only means by which an engineer, scientist, medical practioner etc. remain relevant in his or her profession.  I look at all of the marvelous technology nonexistent two or three decades ago and wonder where we will be in twenty years.

Three weeks ago, I had the pleasure of attending a two day seminar conducted by Point Carbon, a division of Thomson Reuters.  Thomson Reuters Point Carbon is a world-leading provider of independent news, analysis and consulting services for global power, gas and carbon markets.  Energy and environmental markets are the focus of the Point Carbon business.  Thomson Reuters has a much much broader reach.  They have offices in Oslo (corporate headquarters), Washington D.C., London, Tokyo, Beijing, Kiev, Hamburg, Zurich and Malmo.  In other words, they are very well-connected and have a client base that literally spans the globe.  The individuals conducting the presentation were remarkably knowledgeable and demonstrated a depth of understanding that results only from “doing time” in the field.  “Green technology”, carbon credits, cap and trade, the Kyoto Protocol, Western Climate Initiative, carbon offsets, carbon footprint, etc are “new kids on the block” for me.  We all have read about various energy saving initiatives supported by governments and the private sector but this seminar provided new insights and a great in-depth look at where our country might be going relative to the technology that drives that sector of the economy.

There is the strong feeling that human activity drives greenhouse emissions.  Carbon dioxide (CO2) and methane ( CH4) are two primary constituents relative to GHGs.  The following areas account for the overwhelming percentage of GHGs on a global basis:

• Transportation                  13%
• Electricity & Heat             24.6%
• Other fuel combustion   9.0%
• Fugitive emissions          3.4%

(Pollutants released into the atmosphere from leaks in equipment, pipe lines, seals, valves, etc.)

• Industry                           10.4%
• Industrial processes     3.4%
• Land use changes         18.2%
• Agriculture                     13.5%

We were also introduced to the “Kyoto Six”.  These pollutants are as follows:

• Carbon dioxide
• Methane
• Nitrous  oxide
• Hydrofluorocarbons
• Perfluorocarbons
• Sulfur hexafluoride

These six components comprise the “hit list” for reduction in greenhouse emissions.

 Entities emitting GHGs must purchase carbon allowances to cover their emission under a cap-and-trade program.  This promotes trading of carbon credits and treats them as one would a commodity.  The value of one carbon allowance varies depending upon supply and demand considerations.   Price drivers such as weather, temperature and precipitation affect short-term demand while long-term demand is affected by:

• Economic growth
• Relative fuel and carbon price
• Energy efficiency measures
• Electric vehicles
• Renewable governmental policies
• Nuclear policies
• Long-run marginal costs

OK, all well and good, but how does this technology affect products designed by engineers?  Standards and performance are mandated by the buying public.  Competition is based upon providing a better “mousetrap” and giving the customer MORE than what they expect—including an efficient product.  Already minimum energy standards exist for some appliances and with this being the case, engineers must be aware of energy consumption whenever designs are contemplated.  Where cap-and-trade programs are being created—like California—business consumers will need to know the emissions impact of products they are buying.    Engineers must be mindful of their consumers:  factoring in the cost of carbon will affect the purchasing choices of covered emitters.    This is something engineers should be aware of, particularly in the industry/power generation space.

 I feel it would be wise for every practicing engineer to gain knowledge about methods to reduce energy consumption and mitigate excessive greenhouse gas emissions.  It is also wise to understand the procedures needed to purchase and sell carbon allowances as well as any local, state or federal requirements for doing so.   Better to be ahead of the curve as opposed to behind it.