Rebutting the IMF’s Carbon Arbitrage Scheme – Watts Up With That?

Initially posted on the CO2 Coalition.

Writer: Lars Schernikau | Revealed: IMF | Date: 20 June 2022

The Worldwide Financial Fund (IMF) just lately issued a draft paper referred to as “The Nice Carbon Arbitrage” making numerous factors which might be scientifically flawed or unsupported. Our member Lars Schernikau wrote to the IMF asking for clarification and explaining the scientific points at hand. A reply from the IMF is excellent. The IMF draft paper targets particularly coal and makes numerous grossly deceptive and truly unsupported statements in direct contradiction to scientific information and data obtainable. This comes at a time when Europe and the world wants to extend coal burn to keep away from a worsening power disaster.

RE: IMF Working Paper – The Nice Carbon Arbitrage

On-line paper obtainable HERE.

Attn:

Dr. Tobias Adrian, Dr. Patrick Bolton, Dr. Alissa Kleinnijenhuis
IMF – Financial and Capital Market Division

tadrian@imf.org
pb2208@colombia.edu
amklein@stanford.edu

cc. World Coal Affiliation, IEA, IEEJ, ASEAN Heart for Vitality, Clear Coal Heart, VDKI, and numerous different power and commodity establishments

On-line submission letter obtainable HERE.

Pricey Worldwide Financial Fund,

Thanks for releasing the IMF Working paper “The Nice Carbon Arbitrage” from 31 Might 2022 through which you explicitly search feedback and encourage debate. Lars Schernikau, the initiator and major creator of this reply letter is an impartial power economist, commodity dealer, and entrepreneur educated within the US (NYU), France (INSEAD), and Germany (TU Berlin). This reply is endorsed by quite a few science and power financial consultants within the power, commodity, and atmospheric physics fields who’ve chosen to co-sign this letter.

The prime creator of this reply, Lars Schernikau, has labored within the power and bulk commodity trade with vital however not unique publicity to coal for the previous 20 years. All signatories are additionally carefully related to varied fields of power. The creator and signatories haven’t any monetary or political curiosity in scripting this response and obtained no monetary assist for the statements or work referenced herein.

For the report, we agree that

1. The world has on common warmed throughout the previous 150 years, after a cooling interval of the Little Ice Age, from ~1300 to ~1800 AD, not mentioning earlier climatic shifts.
2. CO2 and CH4 are green-house gases and have contributed, together with different local weather forcings, to the measured international temperature improve throughout the previous 150 years
3. People contribute to this measured warming, together with however not restricted as a result of improve GHG focus within the environment (particularly CO2 and CH4), which look like largely of anthropogenic origin over the previous 150 years.
4. Most significantly, we’re sure that you’ll agree – and if not we ask you to please reply which level you don’t agree with and why – with our view that humankind ought to

• Minimizing the environmental affect of our power techniques alongside your complete worth chain and life-cycle, environmental affect embrace emissions and non-emissions (please see Determine 1)
• Enhance materials effectivity of power techniques (use much less uncooked supplies for every unit of power produced),
• Enhance net-energy effectivity of our power techniques (use much less enter power for every unit of power produced)
• Enhance effectivity of power consumption (get the utmost outcome from the least power consumed)

Determine 1: Environmental affect of power techniques and why “carbon” taxation results in distortions and undesired penalties (Schernikau et al. 2022[1])

The aim of this response is to not focus on the causes of the previous 150-200-years of worldwide warming, nor the affect that international warming could have, although it does play into your working paper’s purpose. For this objective, we refer you to the guide Unsettled[2] by Prof Koonin which offers a good and impartial abstract of the present state of “local weather science”.

Our feedback to your working paper are as follows. Please settle for, for brevity, that (a) we deal with three details with which we don’t agree and (b) that – if included and regarded – our factors would considerably change the result of your evaluation. We can not touch upon each single level/disagreement/inconsistency. We’re of the opinion, that among the key assumptions made in your paper don’t correspond to undisputed scientific data obtainable to us in regard to power economics, physics, and local weather. Sadly, your working paper for obtain didn’t embrace web page numbers, so we discuss with the web page quantity within the PDF doc downloaded from the hyperlink given above.

The next are our details of considerations

Social “value of carbon” isn’t in step with life-cycle evaluation and a macro view to the surroundings

Your statements on the subject of the social value of carbon, an instance:

“As such the SCC is a measure that’s conditional on the extent of CO₂ within the environment.” and “The upper that degree the extra highly effective is the greenhouse impact and due to this fact the upper are the anticipated bodily damages.”, p1

This and comparable statements are deceptive and requires clarification

• Your statements are opposite to the conclusions of NASA and ESA Earth Observing System information from 1982 to 2015, and subsequent measurements. Actual measurements present the planet to be greening due primarily to CO₂. Crops take up CO2 with a view to dwell, develop and reproduce. That data is totally lacking and is the ‘different facet of the equation’.
• Please make clear in your writing on local weather sensitivity, that (a) it’s scientifically accepted that any warming affect from GHGs logarithmically declines with greater GHG concentrations and (b) that there’s vital dispute amongst local weather fashions about local weather sensitivity itself (McKitrick 2021[3] and Dayaratna et al. 2022[4]).
• Please make clear in your writing that bodily injury from local weather associated disasters has been fixed, and on a per capita or per GDP foundation decreased considerably. Consult with the EMDAT database that are referenced in Alimonti et al. 2022[5] and Pielke 2022[6]
• Please make clear in your writing that local weather situations assume, unrealistically, no adaptation to local weather change (Lomborg 2020[7])
• Please make clear, which situation and which local weather mannequin you assume to be right when making your numerous assertion in regard to SCC. Please notice that RCP8.5-SSP5, which is most frequently used (not clarified in your paper), isn’t a projection of the long run however a extremely unrealistic situation the place coal consumption per capita improve 6x by 2100 from at present’s ranges (Pielke Richie 2021[8])

Your option to deal with coal is deceptive and incorrect

The assertion:

“The deal with coal is pure provided that coal emits roughly 2 instances as a lot carbon into the environment per unit of power manufacturing as pure gasoline, and roughly 1.5 instances as a lot as oil”, p1

This and comparable statements and assumptions made in your paper are incorrect and deceptive as a result of it focuses solely on CO2 and disregards different recognized anthropogenic GHGs and different environmental impacts (see 4a) on web page 2 herein). As well as, you don’t contemplate, nor do you point out the undisputed constructive fertilization results of extra CO2 within the environment.

• Carbon is NOT equal to CO2. We assume out of your statements that you simply imply that carbon equals CO2, as a result of in the event you have been to incorporate CH4, your assertion turns into scientifically flawed, Schernikau Smith 2022[9]
• Please embrace in your judgement and assertion that IPCC AR6 (p89) confirms that lower than half, solely “46% [of CO2 emissions] gathered within the environment, [the remainder] was taken up by the ocean and was eliminated by terrestrial ecosystems [in other words was taken up by plant life to create biomass]”.
• Please make clear in your writing that coal and gasoline have primarily the identical local weather affect at GWP20 (World Warming Potential over 20 years). Schernikau Smith 2022⁹ have confirmed that – assuming IPCC’s GWP₂₀, IPCC AR6, and IEA information on methane and CO2 emissions are right – on common LNG is “worse for local weather” than any coal and that the typical gasoline is “worse for the local weather” than floor mined coal
• That being the case and contemplating that coal and gasoline alone account for approx. 50% of major power and 60% of electrical energy, please make clear how sensible it’s to desert each coal and gasoline on the identical time, as logically you appear to counsel.
• McKinsey 2022[10] adopted GWP20, as per the authors data, for the primary time in June 2022 “America’s net-zero frontier: A enterprise information” however appeared to wrongly not alter for pure uptake of CO2 by biosphere and oceans
• Please embrace in your paper the undisputed constructive results of extra CO2 within the biosphere as confirmed by WEF[11], NASA[12], and a lot of peer-reviewed scientific papers, reminiscent of Taylor Schlinker 2021[13], Harverd et al. 2019[14], and Zhu et al. 2016[15]. Increased CO2 permits crops to prosper in drier climates, in hotter climates, and to develop rapidly. Greenhouses routinely elevate CO2 ranges to 2000 ppm or extra to boost progress.
• Please repeat what the assumptions are for “Internet-Zero” in your referenced situations and why you assume that whole power consumption won’t develop, however internet decline per capita despite the fact that the world requires extra power to scale back poverty. Please additionally make clear why you don’t inhabitants alter your “Internet-Zero” situations in terms of future power necessities.

Your assertion that variable “renewables” will carry financial profit over coal is deceptive and incorrect

Your statements:

“Shorting coal and going lengthy substitute renewables might then lead to a internet acquire, or a carbon arbitrage”, p2,

“phasing out coal isn’t just a matter of pressing necessity to restrict international warming to 1.5°C. Additionally it is a supply of appreciable financial and social acquire”, p3

“PV and wind: (1) have obtained probably the most coverage assist in over 130 nations; (2) are presently probably the most aggressive energy technology applied sciences; and (3) expertise a seamless development of falling value suggesting the very best potential to dominate most markets (IEA (2021e)”, p22

These and comparable statements are flawed and deceptive

• Your use of the variable value measure LCOE is scientifically incorrect when evaluating dispatchable with base load energy. If you alter your evaluation for full prices (which you could for a logical financial argument), you’ll get totally different outcomes. Some examples beneath:
  • IEA confirmed in December 2020 (IEA 2020[16], p14): “…the system worth of variable renewables reminiscent of wind and photo voltaic decreases as their share within the energy provide will increase” they usually used VALCOE as a substitute of LCOE
  • OECD NEA 2018, p39 confirms “When VREs [variable “renewable” energy] improve the price of the overall system, … , they impose such technical externalities or social prices by way of elevated balancing prices, extra pricey transport and distribution networks and the necessity for extra pricey residual techniques to supply safety of provide across the clock” (OECD NEA 2018, p39) and “From the viewpoint of financial concept, VREs ought to be taxed for these surplus prices [integration costs above] with a view to obtain their economically optimum deployment.”
  • The mixing value of VRE logarithmically will increase because the VRE share within the power system will increase past a sure level (IEEJ 2020[17], p124ff)
• Schernikau et al. 2022¹ (just lately peer-reviewed) discusses full value of electrical energy FCOE and internet power returns eROI and proves why the swap to variable “renewable” power will all the time improve the price of an power system and have massive adverse financial and environmental impacts
• Please embrace and element the likelihood and prices of power shortages (reminiscent of present power disaster beginning in 2021 prior the Russian/Ukrainian battle) and power hunger (Schernikau et al. 2022¹) which can instantly outcome from shifting away from standard power to variable “renewable” power that’s intermittent, power inefficient, materials inefficient, and requires 100% backup or storage to perform.
• Please point out and make clear that the “inexperienced” power transition will cut back international internet power efficiencies, as a result of they require extra advanced power techniques and elevated storage
  • IEA 2022[18] “Shifting away from centralized thermal energy crops as the principle suppliers of electrical energy makes energy techniques extra advanced. A number of providers are wanted to keep up safe electrical energy provide.” And “Along with supplying sufficient power, these embrace assembly peak capability necessities, holding the facility system secure throughout short-term disturbances, and having sufficient flexibility to ramp up and down in response to modifications in provide or demand.”
• Please make clear that so far no grid-scale environmentally and economically viable lengthy period power storage system exists. When you consider in any other case, please make clear which resolution is at present obtainable for lengthy period power storage. Hydrogen can’t be the answer as a result of
  • Greater than half of power is all the time misplaced in producing hydrogen and this misplaced power will find yourself in high-entropy warmth that warms our biosphere and all the time reduces the power effectivity of your complete power system.
  • Logically, solely extra – in any other case unused – “renewable” power, reminiscent of wind and photo voltaic, ought to be used to provide H2 for the aim of grid-storage as in any other case it’s all the time extra economical to make use of the “inexperienced” or any obtainable power instantly.
  • “the manufacturing of H₂ requires 3-5x extra power than utilizing renewable power instantly” and hydrogen is valuable and ought to be thought of the “Champagne for Vitality Methods” (Kemfert 2021[19])
• Please state and make clear in your paper that “local weather economics” Noble laureate Prof Nordhaus calculated that “going inexperienced” will internet value society because it reduces the GDP obtainable to society within the 12 months 2100 relative to staying “standard” (Nordhaus 2018[20], Lomborg 2022⁷, and numerous others).

We kindly ask in your written response to Lars Schernikau, e-mail and phone particulars are given within the e-mail despatched. A phrase model of this letter is offered on request for straightforward reply.

Yours sincerely,

Signatories

• Lars Schernikau, impartial power economist, commodity dealer, and entrepreneur
• William Hayden Smith, Prof. of Earth & Planetary Sciences, at Washington College, St. Louis, MO, USA.
• Emeritus Rosemary Falcon, retired NRF SARChI Chair of Clear Coal Expertise on the College of the Witwatersrand; presently Director of the FFF Carbon Basis, Johannesburg, South Africa.
• Samson Bada, Senior Analysis Fellow, Affiliate Professor, DSI/NRF SARChI Chair of Clear Coal Expertise, College of the Witwatersrand, Johannesburg, South Africa
• Richard Axelbaum, Vitality, Environmental and Chemical Engineering, The Stifel & Quinette Jens Professor of Environmental Engineering Science, Washington College in St. Louis, USA
• John Droz, jr, physicist, founding father of Alliance for Smart Vitality Selections, web site and community www.wiseenergy.org, USA.
• Dr-Ing. John A. Shanahan, civil engineer. First profession in design and licensing of business nuclear energy in america and Switzerland. Retirement devoted to public training concerning the significance of power from fossil fuels and nuclear energy and their by-products for humanity and the surroundings. Founder-Editor of the web site: www.allaboutenergy.internet, USA.

References

[1] Schernikau et al. 2022, Schernikau, Dr Lars, William Smith, and Rosemary Prof. Falcon, Full Price of Electrical energy ‘FCOE’ and Vitality Returns ‘EROI,’ Might 2022. https://doi.org/10.2139/ssrn.4000800

[2] Koonin, Steve, “Unsettled”, 2021, https://dokumen.pub/qdownload/unsettled-what-climate-science-tells-us-what-it-doesnt-and-why-it-matters-2020952203-9781950665792-9781953295248.html

[3] McKitrick 2021, Checking for Mannequin Consistency in Optimum Fingerprinting: A Remark.” Local weather Dynamics 58, no. 1 (August 2021): 405–11. https://doi.org/10.1007/s00382-021-05913-7.

[4] Dayaratna et al 2020, Local weather Sensitivity, Agricultural Productiveness and the Social Price of Carbon in FUND, Environmental Economics and Coverage Research 22, no. 3 (July 2020): 433–48. https://doi.org/10.1007/s10018-020-00263-w

[5] Alimonti et al 2022: A Crucial Evaluation of Excessive Occasions Traits in Instances of World Warming. The European Bodily Journal Plus 137, no. 1 (January 2022): 112. https://doi.org/10.1140/epjp/s13360-021-02243-9

[6] Pielke 2022a, World Climate and Local weather Disasters 2000 to 2021. Substack e-newsletter, January 2022. https://rogerpielkejr.substack.com/p/global-weather-and-climate-disasters and Pielke 2022b: U.S. Catastrophe Prices 1990 to 2019., Feb 2022, https://rogerpielkejr.substack.com/p/us-disaster-costs-1990-to-2019

[7] Lomborg 2020, Welfare within the twenty first Century: Rising Growth, Lowering Inequality, the Influence of Local weather Change, and the Price of Local weather Insurance policies – ScienceDirect, April 2020. https://www.sciencedirect.com/science/article/pii/S0040162520304157?viapercent3Dihub

[8] Pielke, Roger, and Justin Ritchie 2021: Distorting the View of Our Local weather Future: The Misuse and Abuse of Local weather Pathways and Eventualities.” Vitality Analysis & Social Science 72 (February 2021): 101890. https://doi.org/10.1016/j.erss.2020.101890

[9] Schernikau Smith 2022: Local weather Impacts of Fossil Fuels. SAIMM, Journal of the Southern African Institute of Mining and Metallurgy, vol. 122, no. 3, pp. 133-146, 122, no. 3 (March 2022). http://dx.doi.org/10.17159/24119717/1874/2022

[10] McKinsey: America’s Internet-Zero Frontier: A Enterprise Information | McKinsey,” June 2022. https://www.mckinsey.com/business-functions/sustainability/our-insights/navigating-americas-net-zero-frontier-a-guide-for-business-leaders

[11] WEF on Greening, 2019. https://www.fb.com/worldeconomicforum/movies/a-third-of-the-the-planets-new-green-cover-is-in-china-and-india/568784576928509/

[12] Reiny, Samson. “NASA: CO2 Is Making Earth Greener—for Now.” Local weather Change: Important Indicators of the Planet, 2016. https://local weather.nasa.gov/information/2436/co2-is-making-earth-greenerfor-now

[13] Taylor, Charles A., and Wolfram Schlenker. “Taylor Schlinker 2021: Environmental Drivers of Agricultural Productiveness Development: CO₂ Fertilization of US Discipline Crops.” NBER Working Papers, NBER Working Papers, October 2021. https://concepts.repec.org/p/nbr/nberwo/29320.html.

[14] Haverd, Vanessa, Benjamin Smith, Josep G. Canadell, Matthias Cuntz, Sara Mikaloff-Fletcher, Graham Farquhar, William Woodgate, Peter R. Briggs, and Cathy M. Trudinger. “Haverd et al 2019: Increased than Anticipated CO2 Fertilization Inferred from Leaf to World Observations.” World Change Biology 26, no. 4 (November 2019): 2390–2402. https://doi.org/10.1111/gcb.14950.

[15] Zhu, Zaichun, Shilong Piao, Ranga B. Myneni, Mengtian Huang, Zhenzhong Zeng, Josep G. Canadell, Philippe Ciais, et al. “Zhu et al 2016: Greening of the Earth and Its Drivers.” Nature Local weather Change 6, no. 8 (August 2016): 791–95. https://doi.org/10.1038/nclimate3004.

[16] IEA 2020, Projected Prices of Producing Electrical energy 2020, Dec 2020, https://www.iea.org/stories/projected-costs-of-generating-electricity-2020

[17] IEEJ 2020, Institute of Vitality Economics Japan, IEEJ Vitality Outlook 2020, Jan 2020, https://eneken.ieej.or.jp/information/8644.pdf

[18] IEA 2022, Vitality transitions require innovation in energy system planning, Jan 2022, https://www.iea.org/articles/energy-transitions-require-innovation-in-power-system-planning?utm_source=SendGrid&utm_medium=E-mail&utm_campaign=IEA+newsletters

[19] Kemfert, Claudia 2021, Translated from Prof. Kemfert in RND, Wasserstoff ist nicht das neue Öl, Sep 2021, https://www.rnd.de/wirtschaft/wasserstoff-als-energietrager-wirtschaftsexpertin-claudia-kemfert-warnt-wasserstoff-ist-nicht-das-neue-ol-ZXMSXVSIGVDMTAJAJHFADF4EMU.html

[20] Nordhaus, Ted 2018, Projections and Uncertainties about Local weather Change, American Financial Journal, Vol. 10, No. 3, https://doi.org/10.1257/pol.20170046

Lars Schernikau is a Member of the CO2 Coalition in addition to an an power economist, entrepreneur, commodity dealer and guide creator on power commodities. He presently lives in Europe and Asia. Beforehand, Lars labored on the Boston Consulting Group within the US and Germany.