Tag Archives: economics

If we want carbon capture to work, we urgently need to value putting carbon back in the ground – or crazy stuff like this happens…

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There’s a lot of excitement, a lot of hype, and a lot of money floating around to do interesting things with renewable power, carbon, and especially hydrogen. And I think it’s sending some project developers a little crazy. Here’s an example:

‘HydrogenInsight’ recently published an interview with Thomas Zirngibl of Koppo Energia Oy, a Finnish company (link below). Thomas seems like a nice enough chap, and admittedly, he recognises that what they’re doing is a bit crazy – the headline is, ‘This is why we’re producing e-methane from green hydrogen, even though it’s so inefficient’. Having read what he’s planning, I think someone needs to explain to Thomas the difference between ‘inefficient’ and ‘worse than pointless’. See what you think.

Koppo Energia will build a large green hydrogen production facility on Finland’s west coast, with a 200MW electrolyser powered by 500MW of offshore wind and 100MW of solar. But, they need a market for all that hydrogen, which means moving it. In future, conversion to ammonia would make sense, but there are no buyers yet. So, they’re going to combine it with captured CO2 trucked in from another plant, make e-methane, then liquefy that methane and truck it down to Germany to fuel LNG-powered trucks.

Just think about that for a moment… The starting point is that a plant has captured the CO2 it emits. Energy is then used to truck those carbon atoms to a second plant. More energy is used to purify water, more to electrolyse that water to hydrogen, more still to combine that hydrogen with the carbon, even more to liquefy the resulting methane, and a final amount to truck that methane to Germany, where it is burned in the engine of a truck – turning it back into CO2 which is released to the atmosphere.

The outcome of this whole process in carbon terms is exactly the same as if the CO2 captured at the original plant in Finland was simply injected into an oil well or sequestered in some other way. That sequestration would achieve exactly the same CO2 reduction as using those carbon atoms to replace German truck fuel, and I would be willing to bet at far less cost?

Plus, you could do something else with all that wind and solar power, and the money you invested in the electrolyser. If you want a load of kit, you could invest in another Direct Air Capture plant like the one in Iceland, and use all that power to lock up even more CO2 from the atmosphere directly – OK it’s not very efficient either, but again, probably makes more sense than what Thomas is planning, and would certainly mitigate more CO2 overall.

 On reading about this plan, the question has to be, how did we arrive at a point where anyone would think this is a plan worth spending money on? I assume some pretty detailed financial modelling has been done, and the investors aren’t stupid, so this scheme suggests a couple of things are going on.

Firstly, it seems likely that the current systems of grants and subsidies in Finland and Germany are overly eager to promote hydrogen and/or recycled carbon fuels, and are being ‘gamed’. That sort of market distortion is not uncommon where multiple stakeholders are finding different mechanisms to promote new technologies.

Second, and more importantly to my mind, the Finnish plant at the start of the process is apparently unable to get a decent price to bury its CO2 emissions. With all the talk of carbon sequestration in the context of BECCS and ‘Blue Hydrogen’, it does not bode well to see an example of a plant that has gone to the trouble of capturing its CO2, but isn’t taking the simplest route to put those carbon atoms back in the ground.

BECCS – BioEnergy with Carbon Capture and Storage

https://www.hydrogeninsight.com/transport/interview-this-is-why-were-producing-e-methane-from-green-hydrogen-even-though-its-so-inefficient/2-1-1495170

The ‘where’ approach to sourcing green hydrogen…

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So, can we import lots of green hydrogen from places with abundant renewable electricity potential, but no market within cable-laying distance – what I call the ‘where’ solution? The short answer is much the same as for making hydrogen from curtailed renewables here in the UK, i.e. yes we can but it’s likely to be quite expensive, so its niche will be restricted to those areas with very little other option to decarbonise.

There are various ways that hydrogen could be transported, the main ones being:

  • Pipeline
  • Compression
  • Liquefaction
  • Convert to ammonia or methanol
  • Lock into metal hydrides or liquid organics

Since hydrogen is literally the least dense form of chemical energy in the universe, transporting it is inevitably going to be difficult. The following article does a good job of explaining those difficulties in detail – https://www.linkedin.com/pulse/myth-hydrogen-export-spitfire-research-inc/

I’m not technically qualified to attest to its accuracy, but even if the specifics can be debated, the broad picture is clear – moving hydrogen over long distances entails additional energy losses and significant capital costs. Just to recap the key points in brief:

Pipelines – hydrogen is a very small molecule that will leak through any sort of plastic pipes, and makes most types of metal pipe brittle and thus more likely to crack. Its low energy density means using a lot more energy in pumping a given amount of energy through a pipeline compared to natural gas.

Compression – very high pressures needed, lots of energy used in compression, and hoop stress limits the size of individual cylinders. Simply not practical for large quantities.

Liquefaction – hydrogen liquefies at -249degC (only 24 degrees above absolute zero), and has a reverse Joules Thompson effect, so that it warms when it expands at temperatures above -200degC. It therefore has to be pre-cooled with liquid nitrogen before final cooling via expansion. The whole process is very energy intensive, and boil-off rates are high.

Convert to ammonia – this releases heat at the point of production (which will probably be wasted as that’s where you have cheap energy) and requires high grade heat to convert the ammonia back to hydrogen at the destination. Ammonia is also poisonous in general, and poisonous to the catalysts in hydrogen fuel cells in particular.

Convert to methanol – as with ammonia, methanol is a useful product, or a fuel, itself, and as a liquid at room temperature is relatively easy to store and transport. The major problem is that it requires a supply of CO2 (and that CO2 will be released when the methanol is burned or turned back into hydrogen). If one has a source of non-fossil CO2 available, either from an AD plant, direct air capture or other, the question is whether it would be better to just bury it rather than make and transport the ethanol?

Lock into metal hydrides or liquid organics – this approach may well have a niche, but in both cases (as with ammonia) heat is needed at the destination to release the hydrogen, and the weight of the carrier has to be transported in both directions, so again round-trip efficiency is low.

So, should we conclude that this is just a non-starter? Well, apparently not. At the ITT Hub show last week I visited the Air Products stand, where they were talking up their plans to make green hydrogen, and convert it to ammonia, in Saudi Arabia, then ship it to a terminal in the UK to turn back into hydrogen. Saudi Arabia may have the world’s largest oil reserves, but it also has huge potential for wind and solar power, and a lot of ready capital to invest. I for one will be watching the development of this project closely to see whether it’s just Saudi greenwashing or whether the economics really stack up.

It’s also worth noting that the world’s second largest shipping line, Maersk, has bet on methanol as its route to decarbonising its ships. They will burn the methanol directly though, rather than converting it back into hydrogen. (I’ll write another post in a few weeks about this.)

Ultimately, I would broadly agree with the conclusions of the article I quoted:

  • Firstly, before we start finding other uses for green hydrogen, we need to make sure we replace all the grey hydrogen we use right now.
  • Second, rather than trying to move hydrogen long distances, we should move some of our industries to the hydrogen supply. An obvious example is to use hydrogen in Western Australia to process Australia’s iron ore and make low carbon steel – then export the metal rather than the hydrogen. All our fertiliser should be made in similar places.

The US mandate for ethanol production pushes up corn prices – doesn’t it?

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In a year that saw the worst drought in decades in the US, the ‘food vs. fuel’ debate is highlighted once more. The corn crop has been badly hit, pushing up prices, so farmers are urging the government to drop the requirement to make ethanol from corn. However, the Environmental Protection Agency (EPA) has just refused (again – they also refused in 2008).

© Rdodson | Stock Free Images & Dreamstime Stock Photos

The interesting thing is that the EPA says dropping the ethanol blending mandate wouldn’t make any difference to corn prices. Which seems rather counter-intuitive doesn’t it? In 2007, a little over 10% of US corn was used for ethanol production, whereas now that figure is 40%. Surely that must have an impact on price?
Specifically, the EPA said:

“EPA examined a wide variety of evidence, including modeling of the impact that a waiver would have on ethanol use, corn prices, and food prices. EPA also looked at empirical evidence, such as the current price for renewable fuel credits, called RINs, which are used to demonstrate compliance with the RFS [Renewable Fuel Standard] mandate.

“EPA’s analysis shows that it is highly unlikely that waiving the RFS volume requirements will have a significant impact on ethanol production or use in the relevant time frame that a waiver could apply (the 2012-2013 corn marketing season) and therefore little or no impact on corn, food, or fuel prices. We analyzed 500 scenarios, and in 89% of them we see no impacts from the RFS program at all.”

To my mind, this is just another good example of how hard it is to draw a direct link between food prices and biofuels. That’s not to say I think using food crops for fuel is generally a good idea, just that I think looking at food prices is going to be a tough way to argue against it.

In a 2008 report, the International Energy Agency pointed out that estimates of biofuel impact on food prices can vary somewhat. They cited an estimate by the Council of Economic Advisors, who estimated that biofuels accounted for 3% of that year’s rise in food prices, compared to a World Bank estimate that biofuels accounted for 75%! The CEA had used only data on corn markets, and extrapolated it out to all food crops, while the WB had simply looked at the impact of oil price on food prices, and then assumed that all of the remaining increase was due to biofuels.

So, back to the EPA’s decision – how can they say that using all this corn won’t have an impact on price? Well, there are two broad reasons.

First off, they’re not really saying that using corn for ethanol doesn’t impact on price, they’re just saying that removing the Renewable Fuel Standard for this year won’t help. In fact, there are several other forces that determine how much ethanol is blended into gasoline in the US, such as:
• Ethanol has been cheaper than gasoline for the last few years
• Gasoline sales have been declining in the US, this year down 5% on last year, which means less ethanol is needed to hit the target
• Demand for ethanol is driven just as much by the Clean Air Act, which requires an ‘oxygenate’ to be blended into fuel to lower emissions of carbon monoxide, and ethanol is the cheapest oxygenate

The second reason is that although more corn is being used in ethanol, it’s compensated for in other ways. For one thing, that huge 40% figure doesn’t allow for the fact that the by-product of ethanol production, Dried Distiller’s Grains (DDG), is itself a high grade animal feed. Allowing for this, it’s actually about 27% of corn which is used for ethanol. For another, US corn exports have fallen by over half since the food price spike of 2008 because those high prices caused much more land to be put into corn production elsewhere in the world.

One final piece of the puzzle is the RINs (Renewable Identification Numbers). These are certificates that fuel companies get to show how much ethanol they’ve blended into their fuel. For the last few years, most fuel companies have blended more than they had to, because ethanol was cheaper than gasoline, so now they’ve got spare RINs, which they can use to meet some of this year’s mandate. Which means if the price of corn ethanol goes up, they can use RINs instead, lessening the RFS’s impact on corn prices.

So what do we learn from all this? Well, like I said, drawing a direct link between food price and biofuel policies is never going to be easy – there are a lot of different factors to take account of. But let’s face it, using all that corn for ethanol still sounds like a bad idea, in a year when the US corn crop fried and the European wheat crop was flooded. So what’s the real argument against?

Well, in the US, the RFS could have been challenged on environmental grounds. In fact, the last time the RFS was challenged, by the Republican Texas Governor Rick Perry in 2008, it was also on economic grounds, after Perry considered but rejected the idea of a challenge on environmental grounds. Of course, an environmental challenge would have led to questions about the greenhouse gas emissions associated with corn production, and that would have opened up a can of worms within Perry’s own party.

The thing is, by challenging the RFS on purely economic grounds, the farmers of America have probably let the EPA right off the hook. Because there are some pretty serious questions that need to be asked about what land has been used to increase corn production in the rest of the world, and, within the US, where’s the water going to come from for next year’s crops?

Sources:
Reuters, EPA, EPA Insider, Ethanol Producer, Dairy News, International Energy Agency