The Amazon tipping point theory?

The Amazon tipping point theory postulates that another 2-10% deforestation could make the world’s largest tropical rainforest too dry to sustain itself. Thus the Amazon would turn into a savanna, releasing 80GT of carbon into the atmosphere, single-handedly inflating atmospheric CO2 by 40ppm (to well above the 450ppm limit for 2C warming). This matters as Amazon deforestation rates have already doubled under Jair Bolsonaro’s presidency. This note explores implications, including international tensions, divestments, prioritization in a Biden presidency, and consequences for other transition technologies.

Global deforestation remains the single largest contributor to CO2e-emissions induced by man’s activities, more than the emissions from all passenger cars; and destruction of nature remains the largest overall contributor, more than all of China (chart below). This note is about a particularly worrying feedback loop in the Amazon rainforest, which could single-handedly wipe out the world’s remaining CO2 budget, effectively negating the impact of all other climate policies globally.

What is the Amazon tipping point theory?

The Amazon rainforest currently covers 5.5M square kilometers, comprising the largest, contiguous tropical forest in the world. 50% is in Brazil, and the remainder is spread around Peru, Colombia and half-a-dozen other South American countries. It contains 20% of all the planet’s plant and animal species, including 40,000 plant species alone.

Deforestation of the Amazon has reached 15-17% of its original area overall, and around 19% in Brazil. 800,000 square kilometers has been lost to-date (a land area equivalent to 2x California; or all of France plus Germany). Brazil’s annual deforestation rates have averaged 20,000 square kilometers per year from 1990-2004 (the land area of New Jersey or Slovenia). But the rate slowed to a trough of 5,000 square kilometers in 2014 due to improving environmental policies.

Unfortunately, more recently, Brazil’s deforestation rate has re-doubled (chart below). Jair Bolsonaro’s Presidency began in January-2019, following campaign pledges to ease environmental and land use regulations (which require 80% of legal Amazon land holdings to remain uncleared). Violations of these regulations are now said to be going unpunished. Bans on planting sugarcane in the Amazon have been lifted. Bolsonaro has even repudiated data published by Brazil’s own government agencies showing deforestation rates rising and accused actor and environmentalist, Leonardo DiCaprio of starting wildfires!

This matters because of the hydrology of the Amazon. Water in the basin tends to move from East to West. Each molecule typically falls as rainfall six times. It is repeatedly taken up by trees, transpired back into the atmosphere, and precipitated back down to Earth. Over half of the rain falling in the Amazon has originated from trees in the Amazon. It is a self-sustaining feedback loop.

The Amazon Tipping Point theory predicts that below some critical level of forest cover, this self-sustaining feedback loop will break. Less rainforest means less transpiration. Less transpiration means less rainfall. Less rainfall means less rainforest. Specifically, converting each hectare of forest to cropland reduces regional precipitation by 0.5M liters/year.

After the tipping point it is feared that the basin will transition into a savanna or scrubland. 50-100% of the forest cover would die back.

Unfortunately, this is not a ‘fringe’ theory. Many different technical papers acknowledge and model the risk, although specific climate models are imprecise, and do not always agree on timings and magnitudes. For example, the Western Amazon, closer to the Andes, might retain more forests than the East and Central parts of the basin. Another uncertainty is the moderating impacts of fire, as dryer forests will be more flammable, and thus more susceptible to slash-and-burn clearances, while raging fires will also reach further.

When is the tipping point? Various technical papers have estimated that the Amazon tipping point occurs when 20-25% of the forest has been cleared. This is an additional 2-10% from today’s levels, equivalent to deforesting another 100-600k acres, which could happen within 2-30 years.

What carbon stock is at risk of being released?

A typical forest contains around 300T of carbon per hectare (chart below). Thus 5.5M square kilometers of the Amazon is expected to contain 165GT of carbon. About 40% of the carbon is usually stored in trees (estimated at 60-80GT in the Amazon) and 60% is stored in roots and soils, which degrades more slowly. Hence, if just half of the remaining Amazon disappears, this would slowly release c80GT of carbon into the atmosphere.

Each billion tons (GT) of carbon released into the atmosphere is equivalent to raising atmospheric CO2 by around 0.5ppm. Hence a 80GT carbon release from the Amazon would by itself raise atmospheric CO2 from 415ppm today to around 455ppm. This single change (notwithstanding the continued and unmitigated burning of fossil fuels) would tip the world above the 450ppm threshold needed to keep global warming to an estimated 2-degrees (climate model below).

Can the tipping point be averted?

The solution to Amazon tipping points is technically simple: stop burning down forests and start re-planting them. This does not require electrolysing water molecules into hydrogen, smoothing volatility in renewable-heavy grids, or developing next-generation batteries. It requires something much harder: international diplomacy.

Inflammatory statements? In September-2019, Bolsonaro defended his environmental policies in a speech at the UN General Assembly. International critics were accused of assaulting Brazil’s sovereignty. Brazil considers itself free to prioritize economic development over environment.

Forest for ransom? In the past, Western countries have actually paid Brazil to safeguard its rainforests, although this arrangement has now fallen apart. Specifically, the ‘Amazon Fund’ was created in 2008. It is managed by Brazil’s state-owned development bank, BNDES. $1.3bn has been donated to the fund, from Norway (94%), Germany (5%) and Petrobras (1%). But after taking office, Bolsonaro has packed the fund’s steering committee with members of his inner circle, and in May-2019, he started using the Fund to compensate land developers whose lands were confiscated for environmental violations. Hence Norway and Germany suspended fund payments.

Divestment and trade tensions? As Brazil’s stance on the Amazon has grown more confrontational, it is possible that decision-makers may distance themselves from the country. Global investment funds have threatened to divest. (Could Brazil even surpass the coal industry as the divestment movement’s whipping boy?). Multi-national corporations may also be more cautious around investing in the country (but probably at the margin). Finally, Amazon deforestation is said to endanger future trade deals.

The Biden Factor? President-elect Biden may also seek to influence the Amazon issue. Biden stated the world should collectively offer Brazil $20bn to stop Amazon deforestation and threaten economic consequences for refusing. An executive order re-entering the Paris Climate Agreement would also help the situation (Brazil had actually committed to restoring 12M hectares of native vegetation under the accord). It will be interesting to see how Biden balances climate-focused priorities in the US with this arguably more urgent issue abroad.

Crucial Conclusions? If the Amazon surpasses its tipping point, there would be no chance of limiting atmospheric CO2 to 450ppm or preventing a catastrophic loss of biodiversity. Diplomacy is difficult. But fortunately, decision-makers can take measures into their own hands. Our note below profiles tree-planting charities. This is the lowest-cost decarbonization option we have found in all of our research. It restores nature, including the Amazon. Ultimately, we have argued that restoring nature may the most practical route to achieving climate objectives, while ‘bursting the bubble’ of other transition technologies.

Shale productivity: snakes and ladders?

Unprecedented high-grading is now occurring in the US shale industry, amidst challenging industry conditions. This means 2020-21 production surprising to the upside, and we raise our forecasts +0.7 and +0.9Mbpd respectively. Conversely, when shale activity recovers, productivity may disappoint, and we lower our 2022+ forecasts by 0.2-0.9 Mbpd. This 7-page note explores the causes and consequences of this whipsaw effect.

Biden presidency: our top ten research reports?

Joe Biden’s presidency will prioritize energy transition among its top four focus areas. Below we present our top ten pieces of research that gain increasing importance as the new landscape unfolds. We are cautious that aggressive subsidies may stoke bubbles and supply shortages in the mid-2020s. Decisions-makers will become more discerning of CO2. As usual, we focus on non-obvious opportunities.

(1) Kingmaker? There are two policy routes to accelerate the energy transition. An escalating CO2 tax could decarbonize the entire US by 2050, for a total abatement cost of $75/ton, while unlocking $3.5trn of investment. The other approach is with subsidies. This is likely to be Biden’s preferred approach. However, giving subsidies to a select few technologies tends to crowd out progress elsewhere. Who gets the subsidies is arbitrary, and thus ensues a snake-pit of lobbying. It is also more expensive, with some subsidies today costing $300-600/ton. Finally, subsidies will only achieve limited decarbonization on our models. Our 14-page note outlines these ideas and backs them up with data, to help you understand the policy landscape we are entering.

(2) Bubbles? The most direct risk of aggressive subsidies is that we fear they will stoke bubbles in the energy transition. Specifically, we have argued a frightening resemblance is appearing between prior and notorious investment bubbles (from Dutch tulips to DotCom stocks) and many of the best-known decarbonization themes today. It is driven by an expectation that government policies will grow ever more favorable, thus technical and economic challenges are being overlooked. Our 19-page note evaluates the warning signs, theme by theme, to help you understand where bubbles may be likely to build and later burst.

(3) Overbuilding renewables is a potential bubble. Our sense is that Biden’s policy team prefers to subsidize renewables today and defer the resultant volatility issues for later. But eventually, we model that this will result in power grids becoming more expensive and more volatile, which could end up having negative consequences, both for consumers and industrial competitiveness. More interestingly, we find expensive and volatile grids have historically motivated installations of combined heat and power systems behind the meter, which can also cut CO2 emissions by 6-30% compared to buying power from the grid, at 20-30% IRRs. The reason is that CHPs capture and use waste heat. Thus they achieve c70-80% thermal efficiencies, where simple cycle gas turbines only achieve c40%. The theme and opportunity are therefore explored in our 17-page note below.

(4) Over-building electric vehicles? Subsidies for EVs are also more likely under a Biden presidency. This is widely expected to destroy fossil fuel demand. Indeed a vast scale-up of EVs is present in our oil demand forecasts helping global oil demand to peak in 2023. However, our 13-page note finds this electrical vehicle ramp-up will actually increase net fossil fuel demand by +0.7Mboed from 2020-35, with gains in gas exceeding losses of oil. The reason is that manufacturing each EV battery consumes 3.7x more energy than the EV displaces each year. So there is an energy deficit in early years. But EV sales are growing exponentially, so the energy costs to manufacture ever more EVs each year outweighs the energy savings from running previous years’ EVs until the EV sales rate plateaus.

(5) Under-investment in fossil fuels? A sticking point in the presidential debates was whether President Biden would ban fracking. An impressive understanding of the energy industry was shown by his response that instead “we need a transition”. However, some have commentators continued fearmongering. We think the fearmongering is overdone. Nevertheless, at the margin, Biden’s presidency may reduce investment appetite for oil and gas. In turn, this would exacerbate the shortages we are modelling in the 2020s. A historical analogy is explored in our 8-page note, which looks back at whale oil, a barbaric lighting fuel from the 19th century. Amidst the transition to kerosene and electric lighting, whale oil supply peaked long before whale oil demand, causing strong price performance for whale oil itself, and very strong price performance for by-products such as whale bone.

(6) Under-investment in oil? Our oil market outlook in 2021-25 is published below. New changes include downward revisions to US shale supplies (particularly from 2022), increased chances of production returning in Iran, and increased production from Saudi Arabia and Russia to compensate for lower output in the US. Steep under-supply is seen in 2022, over 1Mbpd, even after OPEC has exited all production cuts. Restoring market balance in 2024-25 requires incentivizing an 8Mbpd shale scale-up. We do not believe Biden’s policies will block this shale ramp, but they may help its incentive costs re-inflate by c$5-15/bbl, particularly if Trump-era tax breaks are reversed.

(7) Under-investment in gas? Where US shale growth slows, there is clearly going to be less associated gas available to feed US LNG facilities. But there may also be a lower investment appetite to construct US LNG facilities. This matters because our 12-page note below finds gas shortages are likely to be a bottleneck on decarbonization in Europe, which compounds our fears that Europe’s own decarbonization objectives could need to be walked back. Specifically, Europe must attract another 85MTpa of global LNG supplies before 2030 to meet the targets shown on the chart. This is one-third of the 240MTpa risked LNG supply growth due to occur in the 2020s, of which 100MTpa is slated to come from the United States. There is no change to our numbers yet.

(8) Lower carbon beats higher carbon? We are not fearmongering that oil and gas investment will stall under a Biden presidency. But we do believe that investment in all carbon-intensive sectors will proceed somewhat more discerningly than it would have under Trump. Low-carbon producers will be more advantaged in attracting capital, while higher-carbon producers will be penalized with higher capital costs and lower multiples. In order to help you rank different operators, we have assembled a data-file covering 13Mboed of production from major US basins, operator-by-operator (below and here) alongside our broader screens of CO2 intensity, which span across 30 different sectors, such as LNG plants, refineries, chemical facilities, cement and biofuels (here).

(9) Mitigating methane? Biden’s presidency will likely re-strengthen the EPA. Our hope is that this will accelerate the industry’s assault on leaking methane, which is a 25-120x more powerful greenhouse gas than CO2. Methane accounts for 25-30% of all man-made warming, of which c25% derives from the oil and gas industry. If 3.5% of gas is leaked across the value chain, then debatably gas is no greener than coal (the number is less than 1% in the US but can be greatly improved). Our 23-page note evaluates the best emerging technology options to mitigate methane. We are excited by replacing high-bleed pneumatics, as profiled in our short follow-up note (also below). We also see shale operators accelerating their quest for ‘CO2-neutral’ production (note below).

(10) The weatherization of 2M homes is a central part of Joe Biden’s proposed energy policy. Hence we created a data-file assessing the costs and benefits of different options. The most cost-effective way to lower home heating bills is smart thermostats. They can cut energy use c18%. Leading providers include Nest (Google), Honeywell, Emerson, Ecobee. Second most cost-effective is sealing air leaks. GE Sealants is #1 by market share in silicone sealants. Advanced plastics would also see a modest boost in demand. More questionable are large and expensive construction projects, which appear to have larger up front costs and abatement costs per ton of CO2.

Paulownia tomentosa: the miracle tree?

The ‘Empress Tree’ has been highlighted as a miracle solution to climate change, with potential to absorb 10x more CO2 than other tree species; while its strong, light-weight timber is prized as the “aluminium of woods”. This note investigates the potential. There is clear room to optimise nature based solutions. But there may be risks for the Empress.

Nature based solutions to climate change represent the largest and lowest cost opportunity in the energy transition. Those who follow our research will know we see potential to offset 15-30bn tons of CO2 emissions per year via this route (summary below).

The costs are incredibly low, at $3-10/ton, when reforestation efforts are well structured through reputable tree-planting charities (note below). Hence we argue that restoring nature will push higher-cost energy technologies off the cost curve.

Broadly, our reforestation numbers assume 3bn acres could be re-planted, absorbing 5T of CO2 per acre per year, which is the average across dozens of technical papers for typical deciduous forests in the Northern hemisphere (data-file below).

There are further optimisation opportunities to capture around 10T of CO2 per acre per year using faster-growing tree species, such as poplar, eucalyptus and mangrove. However, some commentators claim that another tree genus, known as Paulownia, can achieve an incredible 103T of CO2 offsets per acre per year.

If 100T/acre/year were possible, it would be a game-changer for the potential of reforestation. It would, in principle, only require 0.2 acres of Paulownia to offset the 20Tpa CO2 emissions of the average American. For comparison, population density in the Lower 48 is around 6 acres per American.

Paulownia: the miracle tree?

What is Paulownia? Paulownia is a tree genus, named after Princess Anna Pavlovna, daughter of Tsar Paul I of Russia (1754-1801). It has at least 6 species, of which Paulownia tomentosa is the fastest-growing “miracle” variety. This species also goes by the names: Empress Tree, Princess Tree and Kiri (Japanese).

Paulownia tomentosa can grow by a remarkable 6 meters in one year and reach 27m in height. It then adds 3-4cm of diameter to its trunk each year. It is shown below towering over the other plants in a garden (here, at about 1.5 years old).

Reasons for remarkable growth rates include that Paulownia is a C4 plant. This photosynthetic pathway produces more leaf sugar, especially in warm conditions. By contrast, most other trees are C3 plants and fix CO2 using the Rubisco enzyme, which is not saturated (creating inefficiency) and not specific (so it also wastes energy fixing oxygen). Paulownia’s leaves are also very large, helping it to absorb more light. It also simply appears to have a faster metabolism than other species. And finally, its wood is 30-40% less dense than other species, allowing it to accumulate a large size quickly.

Other Advantages?

Paulownia’s timber is highly prized and sometimes termed the “aluminium of woods”. It is light, at 300kg/m3 (oak is 540kg/m3) and 30% stronger than pine. It does not warp, crack or twist. It is naturally water and fire resistant. When used in flooring, it is also less slippery and softer than other woods (which is noted as advantageous for those prone to falling over). The wood is also suited to making furniture and musical instruments.

Pollutants are well absorbed by Paulownia’s large leaves, which can be 40-60cm long. Hence one study that crossed are screens examined planting Paulownia in a Northern Italian city, to reduce particulate concentrations toward recommended limits.

Other advantages are ornamental qualities with shade, “wonderful purple scented flowers” (below), which support honey bees, and the ability to restore degraded soils.

A final remarkable feature of Paulownia is that you can cut it down and it will re-grow, up to seven times, rapidly springing back from its stump.

Source: Wikimedia Commons

Costs of CO2 offsets using Paulownia?

Our usual model for reforestation economics is shown below, assuming a typical planting cost of $360/acre. Paulownia may be modestly more expensive to grow. Our reading suggests a broad range of $2-7/tree multiplied by c250 trees per acre in commercial plantations. The largest costs are cuttings and cultivation of saplings. Thereafter, paulownia requires “minimal management and little investment”. Hence if growth rates are 10x faster than traditional trees, all else equal, we would expect CO2 offset costs to be c10x lower, at $2-5/ton (including land acquisition costs at developed world prices).

Examples of Paulownia?

Over 2M hectares of Empress trees are cultivated in China, often being inter-cropped with wheat. But Paulownia cultivation in the Western world is more niche. As some examples: Jimmy Carter famously grows 15 acres of Paulownia trees on his farm in Georgia. As a commercial investment, WorldTree is an Arizona-based company that manages 2,600 acres of Empress Trees and plans to plant 30,000 acres more. It claims to be the largest grower of non-invasive Paulownia in the world. Furthermore, ECO2 is a privately owned Australian company, headquartered in Queensland. It claims to have cultivated a variety of Paulownia tree, which can reach 20m after 3-5 years and sequester 5-10x more CO2 than other trees, or around 2.5T of CO2 per tree. Finally, oil companies are exploring reforestation initiatives. For example, YPF noted in its 2018 sustainability report plans to test-plant 40 species of Empress Trees in 2019.

Problems with Paulownia?

Invasiveness? One of the largest pushbacks on reforestation is that large-scale planting of single forest varieties may impair biodiversity (a chart of all the pushbacks is below, with some irony that environmentalists call for drastic action to avert the perils of climate change, then often say, no, “not that drastic action”). In the US, Paulownia is categorized as an invasive plant. A single plant can produce 20M seeds in a year. In some States, such as Connecticut, sales of the plant are even banned. Paulownia did in fact exist in North America prior the last Ice Age. It was re-introduced from China in 1834, when seeds were accidentally released from dinnerware packaging materials. Whatever intuitions one might have, some factions are going to protest against Western cultivation of Paulownia.

But the greatest question mark over Paulownia’s CO2 offset credentials is in the numbers. Different studies are tabulated below.

103T of CO2 uptake per acre is the most widely cited number online. But this figure derives from a single study, conducted in 2005. Whose methodology is woefully rough. The study simply assumes a 12’x12′ planting of Paulownia (750/ha, 99.5% survival) and then uses a formula to estimate the CO2 uptake from the trees’ target height and width.

A follow-up study was published in 2019, estimating 38-90T of CO2 uptake per acre per year. But upon review, the upper bound is extrapolating the “maximum growth rate”, which is known to be 2-3x faster than the average growth rate (charts below). The study is also vague on its modelling assumptions. It was funded by a company that commercializes Paulownia plantations. Finally, the study itself notes “additional research is needed in order to quantify the carbon sequestration rates of Paulownia trees under the specific management regime employed by World Tree’s Eco-Tree Program, by continuing to collect DBH values over the 10 to 12 year harvest cycle.”

Achieving monster growth rates will vary with growing conditions. Ideal conditions are warmer climates (the tolerable range is -24 to 45C), flattish, well-drained soil with pH 5-9, <25% clay, <1% salinity, <2,000m altitude, >800mm rainfall and <28kmph wind. But past studies planting the Empress Tree in Eurasia have ranged from 3-15 tons of CO2 per acre per year, which is not so remarkable versus other tree varieties.

Diseases. Finally, dense clusters of trees may fall short of growth targets due to disease. Paulownia, in particular, is susceptible to an affliction known as ‘Witches Broom’, which causes the tips of infected branches to die, leading to a cluster of dead branches. The wood is of poor quality and the growth rate of the plant diminished.

We conclude that there is great potential for nature based solutions, especially for their optimisation to boost CO2 uptake rates. Paulownia may be among the options. However, more data may be needed in the West before it can be heralded as a miracle plant.

Greenhouse gas: use CO2 in agriculture?

Enhancing the concentration of CO2 in greenhouses can improve agricultural yields by c30%. It costs $4-60/ton to supply this CO2, while $100-500/ton of value is unlocked. Shell and ABF have already under-taken projects, while industrial gas and monitoring companies can also benefit. But the challenge is scale. Around 50Tpa of CO2 is supplied to each acre of greenhouses. Only c10% is sequestered. So the total CO2 sequestration opportunity may be limited to around 50MTpa globally.

This 8-page note explains the opportunity, progress to date and our conclusions.

Sea levels: what implications amidst climate change?

Global mean sea levels will rise materially by 2100, irrespective of future emissions pathways. This note contains our top ten facts for decision makers, covering the numbers, the negative consequences and the potential mitigation opportunities.

(1) Sea levels are rising, at an accelerating pace. Global mean sea levels increased by 1.4mmpa from 1901-1990, 2.1mmpa from 1970-2015, 3.2mmpa from 1993-2015 and 3.6mmpa from 2006-2015. We know this from satellite altimetry measurements, which are highly accurate and started in 1992; while older data are derived from tidal gauges and are less accurate. c40% of the recent increase is due to the thermal expansion of water as global temperatures rise, and c60% is mass gain from melting ice caps and glaciers.

(2) Sea levels are expected to rise by 0.84m by 2100 versus the 1986-2005 baseline, if global CO2 emissions keep rising and we fail to achieve an energy transition (i.e., this is the base case expected under the IPCC’s RCP 8.5 Scenario). This is driven by a continued acceleration of annual sea level rises, to 10-15 mm per year by 2100.

(3) Sea level could rise by as much as 2.5m by 2100 in the most pessimistic studies we have seen (chart below). The uncertainty between studies arises because of feedback loops that are difficult to model. For example, rising sea levels deform the Earth’s lithosphere and subtly alter the Earth’s rotation and gravitational field; we also know 90% of global warming ultimately gets stored in the oceans, but the degree of thermal expansion depends on precisely where the heat ends up being distributed.

(4) Sea levels could rise by >10m by 2500. The IPCC states that gross mean sea levels will “continue to rise for centuries” after 2100, due to lag effects in the deep ocean and in ice melt. As historical precedents, gross mean sea levels were 6-9m higher in the Last Interglacial period, 129-116ka ago, when temperatures were 0.5–1.0ºC warmer than today; and up to 6-30m higher during the mid-Pliocene Warm Period, 3.3-3.0Ma, when temperatures were 2–4ºC warmer than today. Total potential sea level rises are much larger again: The Antarctic “ice cap” covers 14M sq km, contains 26.5M cubic kilometers of ice, and would raise sea levels by 58m if it melted entirely. But modelling the long-term future of the Ice Caps remains controversial. In 2015, NASA published data showing the Antarctic Ice sheet was actually still gaining mass, as warmer air was carrying in more moisture and depositing more snowfall on the Continent, which is presently outweighing melt losses at the edge of the Western Antarctic Ice Sheet (here). The IPCC disagree with NASA. The University of California also finds that melt rates on the WAIS are accelerating, from 40GTpa in the 1980s to 250GTpa in the 2010s (here). 

(5) Sea levels will still rise even if we reach ‘Net Zero’. A goal in our research is to find economic opportunities that can help meet the world’s energy needs while reaching ‘net zero’ CO2 by 2050 (models below), while limiting atmospheric CO2 to 450 ppm (also below). But even if we do this, sea levels are still expected to rise by 0.43m by 2100, and continue rising thereafter, due to the same lag effects described above. 0.43m by 2100 is the latest official estimate from the IPCC, but academic estimates range from 0.3-0.7m. This is an important and surprising conclusion. All of the Herculean efforts, policy measures and novel technologies being considered today will not avert sea level rise. They will merely slow it down.

(6) Regional variations. Sea level rises are not the same everywhere. For example, Scandinavia, Northern Europe and the US Great Lakes region are still decompressing from the last Ice Age, 11,000 years ago. With the weight of these former glaciers removed, they are rising between 3-9mm per year through the process of ‘isostatic rebound’. Conversely, the US East Coast is subsiding, by c2mm per year, as it was previously a ‘glacial forebulge’, lifted up by the weight of ice pressing down on lands to the West. The steepest subsidence is in areas of rapid groundwater extraction to irrigate marginal lands. For example, much of the Nile Delta is subsiding at 0.4-3.4mm per year.

(7) Danger zones. Low lying areas are going to be inundated with rising sea levels within our lifetimes, irrespective of how the world’s energy system changes. Some of us run DCFs that go out to 2050 or even 2100. Some of us are also making decisions whose lasting impacts will stretch 30-80 years into the future. If you wish to consider the impacts of rising sea levels, then there are excellent online mapping tools such as Surging Seas showing how coastlines are expected to change over time (examples below).

(8) Negative consequences? To state the obvious, homes are prone to becoming unlivable and industrial assets are prone to becoming inoperable when they are suddenly underwater. High tides will become higher. Storm surges will reach further inland. Thus, annual flood damages are expected to be 2–3 orders of magnitude higher by 2100 (Hurricane Sandy (2012, $19bn of damage) and Typhoon Winnie (1997, $3.2bn damage) are already considered the largest recorded historical flood events for New York and Shanghai, respectively). In low-lying Bangladesh, oilseed, sugarcane and jute cultivation has now stopped as rising salinity levels have impaired growing conditions. Similarly, the Nile supports 40% of Egypt’s population, but large portions are only 1.5m above sea level, subsidence is running at 0.4-3.4mmpa, and salinisation will trouble traditional agriculture. This evokes fears over very large ‘displaced populations’.

(9) Large-scale coastal defences. New York City recently considered spending $119bn on a giant concrete Sea Wall, which would span 6-miles from the Rockaways in Queens, across New York Harbor, to New Jersey (the price tag is equivalent to $15k per New Yorker). Miami is also spending $2M per block to raise its roads by 2-ft. This measure needs to be combined with stormwater pumps, to ensure the roads do not channel flood waters into buildings at lower elevations. One wonders whether a vast new market will emerge for construction materials and aggregates in coastal defences (e.g., Vulcan Materials, Martin Marietta). But there is also something woefully circular about using carbon-emitting building materials (1 ton of cement emits 1 ton of CO2, charts below) to alleviate the negative consequences of CO2 emissions.

(10) Nature based solutions? Blue carbon ecosystems, such as mangroves (13.8-15.2M ha), salt marshes (2.2-40M ha) and sea grasses (17.7-60M ha) make up 2% of the total ocean area, but 50% of the total carbon sequestered in ocean sediments (here). Studies have found that mudflats and interior mangroves can accrete 4-10mm per year of elevation (here), which could help counteract rising sea levels. 30 mangrove trees per square meter can also reduce the maximum flow of surge tides by 90%, studies have found, and areas with dense mangrove cover were less affected by the 2004 Boxing Day tsunami. Those who follow our research will also know we have found nature based solutions, such as planting trees, to be among the most cost-effective ways to offset CO2 emissions. Companies including Danone, Apple, Henkel, Toyota and a French consortium have thus started planting vast numbers of mangroves as part of their environmental protection programs. Charities such as Eden Reforestation, One Tree Planted and Sea Trees offer similar opportunities for individuals.

Sources, Acronyms & Terms

Oppenheimer, M., B.C. Glavovic , J. Hinkel, R. van de Wal, A.K. Magnan, A. Abd-Elgawad, R. Cai, M. Cifuentes-Jara, R.M. DeConto, T. Ghosh, J. Hay, F. Isla, B. Marzeion, B. Meyssignac, and Z. Sebesvari. (2019). Sea Level Rise and Implications for Low-Lying Islands, Coasts and Communities. In: IPCC Special Report on the Ocean and Cryosphere in a Changing Climate.

GMSL = global mean sea level, on average, smoothing waves, surges and tides

RSL = relative sea level rises.

ESL = extreme sea level events

RCP = Representative Concentration Pathway emissions scenario.

RCP2.6 assumes Net Zero in the late 21st century and <2C of warming.

RCP8.5 is a ‘worst case scenario’ where emissions keep rising to 2100.

GIS = the Greenland Ice Sheet

AIS = the Antarctic Ice Sheet

SMB = surface mass balance, the gain or loss of ice from ice sheets

Ice Shelves = the floating extensions of grounded ice flowing into oceans

US shale: our outlook in the energy transition?

This presentation covers our outlook for the US shale industry in the energy transition, and was presented at a recent investor conference. The presentation is free to download for TSE subscription clients.

The importance of shale oil supplies in a fully decarbonized energy system is contextualized on pages 1-7. Production must grow by a vast 2.6Mbpd in 2022-25 to keep oil markets well supplied, even as oil demand plateaus. Otherwise, devastating oil shortages may de-rail the transition.

This requires a 5% CAGR in shale productivity. We argue in favor of future productivity growth, based on the evidence from 950 technical papers, which we have reviewed, on pages 8-12.

But can the industry attract capital? This now hinges upon carbon credentials. Laggards will have >25kg/boe of upstream CO2 while leaders have the opportunity to be CO2-neutral. The division (and the  prize) is outlined on pages 13-19.

Rise of China: the battle is trade, the war is technology?

China’s pace of technology development is now 6x faster than the US, as measured across 40M patent filings, contrasted back to 1920 in this short, 7-page note. The implications are frightening. Questions are raised over the Western world’s long-term competitiveness, especially in manufacturing; and the consequences of decarbonization policies that hurt competitiveness.

Our conclusions are presented in this short note from tabulating 40M patents in the US and China back to 1920.

China first filed more patents than the US in 2007, and filed 6x more in 2019. Our charts compare the US versus China across multiple industrial categories, presenting implications for trade and energy policy.

The long-term history of patent filings is also compared globally, for the US, for China and for Japan. In some countries, the pace of patent filings has been 90% correlated with GDP growth.

The green hydrogen economy: a summary?

Our mission is to find economic opportunities that can drive the energy transition, substantiated by transparent data and modelling. Therefore, we have looked extensively for opportunities in hydrogen, but somewhat failed to find very many.

More pessimistically stated, we fear that the ‘green hydrogen economy’ may fail to be green, fail to deliver hydrogen, and fail to be economical. We see greater opportunities elsewhere in the energy transition.

This short note summarizes half-a-dozen deep-dive research notes, plus over a dozen models and data-files into the commercialization of hydrogen. There may be opportunities in the space, but they must be chosen very carefully.

An overview of different hydrogen pathways?

We start with an overview of hydrogen pathways. In 2019, c70MT of hydrogen was produced globally. 95% of it was grey, meaning it was derived from steam-methane reforming of natural gas. The cost of this process is around $1.3/kg ($11.5/mcf-gas- equivalent) and efficiency is c70%, which means that replacing 1 kWh of gas with 1kWh of hydrogen actually increases both gas demand and CO2 emissions.

Capture 80-100% of the CO2 from SMR using CCS and you have ‘blue hydrogen’, a fuel that costs c$2/kg ($18/mcfe), with a production efficiency of c60%, and a CO2 content that is 75-100% lower CO2 than combusting the natural gas it is derived from.

Finally, use renewable energy to hydrolyse water, and you have ‘green hydrogen’, which is truly zero carbon. But it currently costs $6-8/kg ($55-70/mcfe) and has 60-90% production efficiency, which is far worse than the best batteries we have researched.

Can hydrogen be economic: in heat, power or transportation?

Costs matter for consumers in the energy transition. For example, we estimate that using blue hydrogen to decarbonize heat would raise an average household’s heating bill by c$670 per year, while green hydrogen would increase it by c$2,600. By contrast, our preferred solution of nature based solutions and efficient natural gas decarbonizes home heating at an incremental cost of $50 per household per year.

Green hydrogen in the power sector does not look viable to us. We have modelled the green hydrogen value chain: harnessing renewable energy, electrolysing water, storing the hydrogen, then generating usable power in a fuel cell. Today’s end costs are very high, at 64c/kWh. Even by 2040-2050, our best case scenario is 14c/kWh, which would elevate average household electricity bills by $440-990/year compared with the superior alternative of decarbonizing natural gas.

This is despite heroic assumptions in our 2040s numbers, such as a 1.5x improvement in round trip energy efficiency, 80% cost deflation, c40% “free” renewable energy, in situ hydrogen production and use, and nearby salt caverns for low cost storage (so green H2 retails at $3/kg). All of this analysis is based on transparent data and modelling, as shown below. We welcome pushbacks and challenges if you have different numbers.

Challenges are raised about green hydrogen in our work. First, processes fuelled purely by renewables (i.e., electrolysis reactors) will tend to have 30-40% utilization rates at best (half the US industrial average), which amortizes high capital costs over less generation. Second, storage is complex and could be 4-10x more expensive than we assumed, if salt caverns are not nearby. Finally, beware of ‘magic mystery deflation’ that is baked into the estimates of some commentators.

Economizing comes with trade-offs. This is particularly visible when we look at the cost of electrolysers, where lower capex may come at the cost of lower efficiency, reliability, longevity and even safety. Some forecasters are calling for 80% deflation, but we see 15-25% as more likely, if manufacturers wish to make a margin in the future, and as many of the cost components are technically mature.

Green hydrogen in trucking may offer more promising inroads, particularly in well-chosen niches. Trucking consumes 10Mbpd of diesel globally and emits c1.5bn tons of CO2 per year, which is 3.5% of the global total. Current full-cycle costs of hydrogen trucks are c30% higher than diesels. This is based on $150k higher truck costs, 85% higher maintenance and $7/kg green hydrogen plus $1.5/kg retail margins.

But a full and rapid switch to hydrogen trucks in Europe would cost an incremental $50bn per year (equivalent to a 0.3% off Europe’s GDP, plus multipliers). 2040s green hydrogen truck costs could become competitive with diesel, in Europe, but again, this is incorporating some heroic assumptions. In particular, fuel retail margins for hydrogen may need to be c20x higher than for conventional fuels in remote locations with little traffic.

Immutable midstream issues: an anomalous commodity?

All of the value chains and models above assumed hydrogen was generated in situ, via electrolysis, at its point of use. However, in order for hydrogen to scale up, it would need to be transported, like other commodities.

Transporting hydrogen may be more challenging than any other commodity ever commercialised in the history of global energy. Costs are 2-10x higher than gas value chains. Up to 50% of hydrogen’s embedded energy may be lost in transit. We find these challenges are relatively immutable. They are due to physical and chemical properties of H2, plus the laws of fluid mechanics, which cannot be deflated away through greater scale.

For example a hydrogen pipeline will inherently cost 2-10x more than a comparable gas pipeline. This is down to fluid dynamics, as the hydrogen line, all else equal, will flow 25% less energy (due to the gravity, energy density and compressibility of hydrogen gas), but require c30% more expensive reinforcement and materials (due to hydrogen’s lower molecular mass and proneness to causing embrittlement and stress cracking in high-pressure lines).

Moving hydrogen as ammonia is another option. Air Products recently sanctioned a $7bn project to produce green hydrogen in Saudi Arabia, convert it to ammonia, then ship the ammonia to Europe or Japan. Its guidance implies hydrogen could be imported at $10/kg while earning a 10% IRR. But we needed to assume several cost lines are budgeted at 50% below recent comparison-points to match this guidance. Our sense is that a comparably complex LNG project might warrant a 20% hurdle rate. Thus to be excited by this project, we would want to see a hydrogen sales price closer to $15/kg.

Is Magic Mystery Deflation a Cure All?

The pushback to our hesitations is that deflation will prevail, costs will fall and green hydrogen will ultimately become economic in ways that are hard to model ex-ante. This is possible, but it is not borne out by our work reviewing over 1M patents. The ‘average’ topic in the energy transition is seeing c600 patents filed per year (ex-China) and accelerating at a 5% CAGR. Hydrogen fuel cells saw 222 in 2019 and are declining at a -10% CADR. Hydrogen trucks and fuelling stations saw c300 patents in 2019 which is flat on 2013.

The patents also flag complexities. How do you safely prevent explosions in the event of a crash? How do you keep a fuel cell hydrated in dry climates, cool under thermal loads and starting smoothly in very cold climates? How do you add odorants to hydrogen to lower the risk of undetected leaks, if odorants poison fuel cells? Who is legally liable if a fuel cell is poisoned by inadvertently selling contaminated hydrogen?

We would be wary of companies that have made extensive promises, especially around future economics, but without having developed the underlying technologies being promised. This creates a high degree of risk.

To help identify technology leaders, we have assessed the patents filed in fuel cells, electrolyers, hydrogen vehicles and in fuelling infrastructure.

Conclusion. Policymakers are currently aiming to accelerate the development of green hydrogen. Our own work into the economics and technical challenges make us nervous that these policies may need to be walked back over time. There may be some interesting use cases for hydrogen in the energy transition (especially blue hydrogen). But the history of technology transitions does not suggest to us that a green hydrogen economy could emerge and have any meaningful impact on climate within the required 20-30 year timeframe.

Carbon offsets: ocean iron fertilization?

Nature based solutions to climate change could extend beyond the world’s land (37bn acres) and into the world’s oceans (85 bn acres). This short article explores one option, ocean iron fertilization, based on technical papers. While the best studies indicate a vast opportunity, uncertainty remains high: on CO2 absorption, sequestration, scale, cost and side-effects. Unhelpfully, research has stalled due to legal opposition.

Nature based solutions to climate change are among the largest and lowest cost opportunities to achieve “net zero” and limit atmospheric CO2 to 450ppm, as summarized here. But so far, all of our research has been limited to land based approaches.

The ocean is much larger, covering 85bn acres, compared with 37bn acres of land. Furthermore, compared to the c900bn tons of carbon in the atmosphere, there is c38,000 bn tons of carbon stored in the oceans (chart below). Of this, c1,000bn tons is near the surface and 37,000 bn tons is in deeper waters. The surface and the deep waters exchange c100 bn tons of carbon per year (in both directions), through the “ocean biological pump”, which is c8x higher than total manmade CO2 emissions of c12bn tons of carbon per annum. These numbers are largely derived from the IPCC and our own models.

A vast opportunity to mitigate atmospheric CO2 in oceans is suggested by the figures above. The mechanism would need to increase the primary productivity of oceans (i.e., the amount of CO2 taken up by photosynthetic organisms) and the sinking of that fixed organic material into deep oceans, where it would be remain for around c1,000 years.

Below we will describe the process of ocean iron fertilization, which has been explored to sequester CO2 in the intermediate and deep ocean. First, we will introduce some terms and definitions.

An Ocean In Between the Waves

The mixed layer (ML) captures the surface of the ocean. It is named because this surface layer of water is effectively mixed together by turbulence (e.g., waves) so that its composition is relatively homogenous. The depth of the mixed layer ranges from around 20-80 meters. It tends to be larger in the winter than the summer. This is also the layer of the ocean penetrated by light and capable of supporting photosynthesis.

Phytoplankton in the mixed layer are responsible for 40% of the world’s photosynthesis and oxygen production. They are single celled microorganisms that drift through the water. They comprise micro-algae and cyanobacteria. They make up 1-2% of global biomass. Under optimal conditions, algae can fix an enormous 50T of CO2 per acre per year, which is 10x higher than typical forests (data file here).

However, typical conditions are not optimal conditions. Total primary productivity of marine organisms is around 100 bn tons per year. This implies CO2 is fixed at around 4T/acre/year, on a gross basis, not including the CO2 that is respired back again by other organisms.

Iron is an essential limiting factor for the uptake of macronutrients in phytoplankton. Typically, with iron concentrations below 0.2nM, phytoplankton cannot absorb macronutrients (especially nitrates) for photosynthesis.

The major source for ocean iron is dust inputs to the ocean from land. Indeed, one theory on the cause of the last Ice Age is a vast uptick in desert dusts or volcanic ash blowing into the ocean, enhancing the productivity of phytoplankton, raising the CO2 dissolved in the oceans, and lowering CO2 in the atmosphere (which was measured at 180ppm at the last glacial maximum, 20,000 years ago, compared to 280ppm in pre-industrial times).

The Martin hypothesis suggests, therefore, that Ocean Iron Fertilization (OIF) could increase oceanic carbon, sequestering CO2 in intermediate- and deep-ocean layers for storage over c1,000-years. As Martin famously (hyperbolically) stated it, “give me half a tanker of iron and I will give you another Ice Age”.

High nutrient low-chlorophyll concentrations (HNLC) indicate the areas where OIF is most likely to be effective. HNLC suggests primary productivity is below potential levels, due to a shortage of iron. HNLC regions include the North Pacific, Equatorial Pacific and Southern Ocean.

Ocean Iron Fertilization: Productivity Increases

6 natural and 13 artificial OIF experiments have been performed since 1990 into ocean iron fertilization, denoted as nOIF and aOIF respectively.

All the aOIF experiments were conducted by releasing commercial iron sulphate dissolved in acidified seawater into the propeller wash of a moving ship, over initial areas from 25-300 sq km. By the end of the experiments fertilized areas have spread as far as 2,400 sq km (as evidenced by sulfur hexafluoride tracers). The iron is rapidly dispersed and taken up, dropping from 3.6nM to 0.25nM in 4-days, and often refertilized.

Primary production is significantly enhanced, with potential 100,000:1 ratios of carbon fixation to iron additions. Maximum phytoplankton growth occurs in response to 1.0-2.0nM. For example, in one experiment, denoted as IronEx-2, surface chlorophyll increased 27-fold, peaking at 4 mg/m3 after 7-days, increasing primary productivity by 1.8gC/m2/day. On an annualized basis, this is equivalent to around 10 tons of CO2e per acre per year.

Other studies are shown below. CO2 absorption has been highly variable and does not correlate with the amount of iron that is added. This indicates a complex biophysical system, which requires a deeper understanding.

It’s only a Carbon Sink if the Carbon Sinks.

The largest controversy around the effectiveness of aOIF is whether the carbon will sink into the intermediate and deep oceans. High carbon export has been observed in natural OIF in the Southern Ocean near the Kerguelen Plateau and Crozet Islands, so we know that the process can sequester CO2.

But of the 13 artificial OIF experiments, only one (EIFEX) has conclusively shown additional carbon fixation sinking into the deep ocean. The study saw carbon export down to 3,000m, as phytoplankton blooms aggregated and sank. But others have been less clear cut.

The skeptics argue that across the broader ocean, only 15-20% of CO2 fixed by photosynthesis sinks into the intermediate ocean and just c1-2% sinks into the deep ocean. The remainder is grazed by zooplankton or bacteria, so the fixed carbon is metabolized and respired back into the atmosphere. While CO2 sinking can be higher in nOIF, this is a continuous and slow process, based on the upwelling of iron-rich subsurface waters. Conversely, aOIF will inherently be episodic, with massive short-term iron additions, and thus perhaps struggle to be as effective.

The proponents argue back that past studies have failed to measure carbon sinkage due to limitations in their experimental design. The one clear success, at EIFEX, was a a 39-day study, while others may not have been sufficiently lengthy. In other studies, there were simply no measurements in the deep ocean or outside the fertilized patch for comparison (e.g., IronEx-2). In other studies, the measurement methods over a decade ago may not have been sufficiently — based on tracers (Thorium-234) or physical traps that are meant to collect organic matter, which are known to be disrupted by currents.

Diatom blooms could also enhance future sinkage. Diatoms are a group of unicellular micro-algae that make up nearly half of the organic material in the ocean, forming in colonies that tend to aggregate and sink more readily than other phytoplankton types. Primary productivity has doubled in past aOIF studies where diatoms dominated. The prevalence of diatoms in phytoplankton blooms can be enhanced in areas rich in silicates.

Future experiments can also test the process more effectively, identifying the right conditions for diatoms to dominate the blooms, aggregate and sink; which in tun hinges on abundant silicates and low grazing pressure from mesozooplankton. It is suggested to conduct studies in ocean eddies, which naturally isolate 25-250km diameter areas for 10-100 days. More precise measurement is also possible using satellite data; and unmanned aquatic vehicles equipped with transmissometers, which measure the impedance of light by materials such as sinking organic matter (our screen below finds a rich improvement in autonomy and precision of concepts for the oil and gas industry).

Unintended climate consequences and feedback loops?

The other criticism of OIF is that interfering with nature ecosystems can have unintended consequences, both for biodiversity and for climate.

N2O is a complication. It is a 250x more potent greenhouse gas than CO2. The ocean is already a significant source of N2O, from bacterial mineralization. N2O increased by 8% at 30-50m during on aOIF trial, named SERIES. Models suggest excess N2O after 6-weeks could offset 6-12% of the CO2 fixation benefit. Conversely, other studies suggest OIF acts as a sink for N2O, as it also sinks alongside aggregates.

Dimethyl Sulfide (DMS) is another by-product of aOIF, from the enzymatic cleavage of materials in planktons. DMSs may be a precursor of sulfate aerosols that cause cloud formation. This would counteract global warming. Fertilizing 2% of the Southern Ocean could increase DMS c20% and produce a 2C decrease in air temperatures over the area, one study has estimated. Others disagree and do not find increases in DMS from aOIF.

A commercial hurdle: commercial aOIF is currently illegal

The current legal framework actually prohibits OIF in international waters because of a perceived threat of environment damage by profit-motivated enterprises. Specifically, regulations from 2008 and 2013 categorize OIF as marine geo-engineering and thus it is not allowed at large scale (>300 sq km) or commercially.

This seems unhelpful for unlocking a potentially material solution to climate change. Companies such as GreenSea Venture and Climos, which were set up to harness the opportunity appear to have dissolved. As one recent technical paper stated, “no other marine scientific institutions are willing to take up the challenge of carrying out new experiments due to the fear of negative publicity”.

Others have illegally explored OIF, flouting regulations. For instance, in 2012, Haida Salmon Restoration dumped 100 tons of iron sulphate into international waters off Haida Gwai, British Columbia, in an attempt to raise salmon populations.

Conclusion: large potential, large uncertainty and likely stalled

The costs of OIF are highly uncertain and estimates have ranged from $8/ton of CO2 to $400/ton of CO2. It is currently not clear how a commercial aOIF project would need to be designed in order to calculate precise costs.

Total CO2 uptake potential from ocean iron fertilization is also vastly uncertain and has been estimated between 100M and 5bn tons of CO2 per year globally. The upper end of the range could be conceived as c0.5T of CO2-equivalents sinking per acre per year across a vast c10bn acres of ocean. But again, this is not possible on today’s understanding.

The technique is likely limited to oceans that are deficient in iron but rich enouch in other nutrients (e.g., the North Pacific, Equatorial Pacific and Southern Ocean). Moreover, blooms are limited to c2-months over summer, where nutrients are welling up from subsurface waters, light is available but grazing pressure from zooplankton remains light.

Uncertainty is very high and for now the technique is stalled due to stifling regulation and low research activity. Hence for now, we reflect OIF on our CO2 cost curve, but we have taken the more conservative ranges above as inputs.


Yoon, J-E., Yoo, K-C., MacDonald, A., et al (2018). Reviews and syntheses: Ocean iron fertilization experiments – past, present, and future looking to a future Korean Iron Fertilization Experiment in the Southern Ocean (KIFES) project. Biogeosciences, 15.

Ciais, P., C. Sabine, G. Bala, L. Bopp, V. Brovkin, J. Canadell, A. Chhabra, R. DeFries, J. Galloway, M. Heimann, C. Jones, C. Le Quéré, R.B. Myneni, S. Piao & P. Thornton, (2013). Carbon and Other Biogeochemical Cycles. In: Climate Change 2013: The Physical Science Basis. Contribution of Working Group I to the Fifth Assessment Report of the Intergovernmental Panel on Climate Change. Cambridge University Press, Cambridge, United Kingdom and New York, NY, USA.

Report to Congress (2010). The Potential of Ocean Fertilization for Climate Change Mitigation.