Carbon Capture and Storage (CCS) technologies form a key piece of virtually all roadmaps for global carbon dioxide (CO₂) emissions reductions-many studies predict that CCS will contribute 20-50% of the necessary CO₂ emissions reductions by 2100. To assess actual progress of CCS projects towards fulfilling these expectations, the PESD Carbon Storage Project Database tracks all publicly announced CCS projects worldwide.

Through careful examination of numerous information sources, we grouped all CCS projects into three categories according to the probability of their completion: currently operating (100% likelihood), possible (estimated 50-90% likelihood), and speculative (estimated 0-50% likelihood).

We find that even under the aggressive scenario that all "possible" projects are indeed realized, this will result in about 80 Mt CO₂/yr of reductions worldwide by 2025, far short of the 350 Mt CO₂/yr of reductions that are projected as technologically feasible using CCS by 2030 in the US alone.

Looking worldwide, then, total carbon storage activity might need to be on the order of 1 billion tonnes CO₂/yr just for carbon storage to play a big role as one of a portfolio of technologies deployed so that the overall energy system cuts emissions on a path consistent with 500-550ppm. Our study shows that the actual deployment plans are on track to deliver less than 1% of what's needed.

We've then gone a step further and looked at the design of each carbon storage project in our database. We find that the vast majority of the most likely projects are associated with Enhanced Oil Recovery (EOR), sweetening of natural gas, and the production of synthetic natural gas (SNG). That is, the most interesting niche financially is associated with making more fossil fuels. While that investment pattern is understandable, it has huge implications for carbon storage in the power sector (which is where everyone thinks carbon capture and storage, or "CCS", is very attractive for cutting emissions) for the simple reason that only a tiny fraction of carbon storage investment plans envisions the use of CCS at scale. Our guess is that carbon storage will be developed through niche markets in EOR and SNG and then spread, perhaps, to CCS. But that pathway will be slow to unfold and suggests that visions of large scale near-term CCS will be hard to materialize without much greater investment in developing the technologies.

The second version of the PESD Carbon Storage Project Database, developed by PESD researchers Varun Rai, Ngai-Chi Chung, Mark C. Thurber, and David G. Victor, was released on 12 November 2008. The previous version was released on 30 June 2008.

As oil prices surge through $140/barrel at the time of writing, surely one can at least count on the invisible hand of the market to drive further exploration and production and ultimately bring more supplies on line, right? Or perhaps, more ominously, high oil prices presage a darker future of shortage and conflict as global oil fields pass their geological “peak”? In fact, both positions miss a crucial point about the dynamics of the world oil market — that it is increasingly animated by the counterintuitive behavior of the state-owned oil and gas giants that now control the vast majority of the world’s hydrocarbon resources.

“On average national oil companies (NOCs) extract resources at a far lower rate than international oil companies (IOCs), leaving about 700 billion barrels of oil effectively ‘dead’ to the world market.”So-called “national oil companies,” or NOCs, own about 80 percent of the world’s proven reserves of oil, a percentage that has been on the rise as the persistent high price environment encourages countries to assert even tighter control over the rent streams flowing from their resources. NOCs are curious and variegated beasts, and, contrary to the popular imagination, some are highly capable both technically and organizationally. Brazil’s Petrobras is an acknowledged world leader in deepwater drilling, while Norway’s StatoilHydro is highly regarded for its competence and transparent business practices. Saudi Arabia’s national champion, SaudiAramco, is secretive to the outside world but generally considered to be a well-run, technically capable organization. At the other end of the continuum, government infighting and micromanagement hobble Mexico’s Pemex and Kuwait’s KPC. Once-independent PDVSA in Venezuela has been remade by President Hugo Chávez into a government puppet that spends liberally on social programs but consistently undershoots its production targets. And indeed some national oil companies are hardly oil companies at all — Nigeria’s NNPC, for example, is mostly a rent-seeking bureaucracy.

What NOCs do share in common as distinct from the familiar international oil companies (IOCs) is being answerable to a host government, which inevitably brings with it some focus on objectives other than simple profit maximization. Typically, an NOC arises originally from the desire of resource-rich governments (“principals”) to gain more effective control over resource extractors (“agents”) by creating an oil champion owned by the state. Prior to NOC formation, governments are frequently (and often justifiably) wary of exploitation by the foreign oil operators providing hydrocarbon extraction services. Lacking a deep understanding of the costs of production, states are simply unable to be sure they are taxing their agents appropriately. In addition to enhancing control over the hydrocarbon sector and the revenue it brings, states may hope for other benefits from the NOC: cheap energy to fuel a growing economy, employment and development of local industry to support the hydrocarbon sector, or even foreign policy leverage derived from control of key resources.

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A detailed study of NOC performance and strategy at the Program on Energy and Sustainable Development at FSI suggests a useful way of thinking about the effects of NOC resource domination on world oil and gas markets. Price versus quantity supply curves from classical economics assume that increased price will spur efforts to expand supply. Unfortunately, the counterintuitive reality for NOCs is that, when it comes to expanding supply in the current high-price environment, most either 1) can but don’t want to or 2) want to but can’t. The end result is what one could call a “backward-bending” supply curve — additional price increases do little or nothing to boost supply.

“The world has plentiful hydrocarbons in the ground, but that’s where many of them are going to stay due to the unique organizational and political dynamics of the NOCs.”In the “can but don’t want to” category are resourcerich governments that have decided they cannot assimilate any more money. Already, their investments are running into political resistance around the globe — witness Dubai’s failed attempt to purchase U.S. port management contracts, CNOOC’s failed bid for Unocal, or the increasing calls for curbs on the activities of sovereign wealth funds. Nations may decide they have enough cash and are better off leaving resources in the ground where they safely await monetization at a later date.

In the “want to but can’t” camp are countries and their NOCs that are simply unable to provide the stable political and regulatory climate to support additional build-out of expensive production and transport infrastructure. This situation is particularly common for natural gas, where long investor time horizons are needed to bankroll the multibilliondollar capital costs of pipelines or liquefied natural gas (LNG) terminals.

Meanwhile, international oil companies are left on the sidelines salivating helplessly over the vast reserves in NOC hands. Venezuela’s Orinoco region could yield hundreds of billions of barrels of heavy crude, but the government and a nowpliant PDVSA invite favored countries and their NOCs to explore rather than selecting the operators most capable of extracting the challenging but plentiful resource. Technical expertise and massive investment are required to fully develop vast Russian gas fields including Kovykta, Shtokman, and Yamal, but IOCs already burned by nationalizations and shifting rules in these and other Russian ventures are unlikely to be in a position to supply enough of either. In the face of dwindling resources they can tap, IOCs will need to diversify their business models, perhaps tackling technologically challenging options like oil sands or liquids from coal in conjunction with the carbon storage techniques that could make these palatable from a climate change perspective. Ironically, the only “easy” oil for IOCs has become oil that is geologically and technologically difficult.

While oil price is dependent on many factors (including global economic health) and is impossible to forecast with certainty, one can confidently predict continued tight supply of oil and gas, especially given global demand that will be propped up indefinitely by rising consumption in China and India. The world has plentiful hydrocarbons in the ground, but that’s where many of them are going to stay due to the unique organizational and political dynamics of the NOCs. Leverage over the market is weak; measures to reduce demand for oil and gas (though politically unpopular) or to spur development of alternative fuels and associated infrastructure (though slow to develop at scale) may be all that we have.

Michael Wara and David G. Victor's recent work "A Realistic Policy on International Carbon Offsets" addresses problems with the world's largest offset program, the UN's Clean Development Mechanism. Wara and Victor argue that much of the CDM investment doesn' actually meet the UN's crucial additionality standards, and they outline ways to fix the problem.

David Victor Discusses Climate Policy, Offsets, and Incentives in the Wall Street Journal

In the News: Wall Street Journal on July 23, 2008

Income from carbon offsets has become French chemical manufacturer Rhodia SA's most profitable business. The WSJ estimates payouts to the firm from projects in Brazil and South Korea could total $1 billion over seven years, raising questions about the incentive structure of the CDM. David G. Victor argues that carbon markets are not sending the appropriate signals to the developing world.

• » Wall Street Journal

Michael Wara and David Victor Address the Role of Offsets in California's Cap and Trade Plan

In the News: Science Magazine

California's plan to cut carbon emissions 10% by 2020 relies on offsets as a part of a cap and trade scheme. Michael Wara points out the challenges that face the state as it designs its offset program, and David G. Victor sheds light on difficulties faced by the world's largest offset program, the UN's CDM protocol.

• » Science Magazine

Michael Wara Discusses Coal and the CDM

In the News: Wall Street Journal on July 11, 2008

The CDM Executive Board recently approved several gas-fired power plants under the UN's carbon offset scheme, opening the door for subsidizing coal generation and stoking controversy. Michael Wara questions the additionality of such projects and argues subsidies are better spent on other clean-energy development.

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• » Wall Street Journal

The Clean Development Mechanism (CDM) is a means for industrial nations, known as Annex 1 countries, to meet their greenhouse gas emissions reductions targets by taking credit for reductions from projects they fund in developing countries. The idea is that projects to reduce emissions will cost less to develop and implement in the developing countries where technology is further behind. Industrialized countries can achieve more reductions via investment in the developing countries, achieving greater emissions reductions for less sunk cost. At least this is the idea under the Kyoto Protocol. A researcher at the Program on Energy and Sustainable Development (PESD), Michael Wara says this, in fact, is not how the CDM is working.

Wara lectures at Stanford Law School, teaching the popular class International Environmental Law. A graduate of Stanford Law School, Wara also has a PhD in Ocean Sciences from the University of California, Santa Cruz. His doctoral work on the interaction between climate change and oceanatmosphere dynamics in the tropics echoes in his current research on the CDM. He understands the science of greenhouse gases and how they affect Earth and its climate. One of those greenhouse gases is HFC-23, a byproduct of manufacturing refrigerants. HFC-23 is one of the gases countries targeted to reduce under the CDM; it can be eliminated rather easily and has been seen as the “low hanging fruit” of the CDM. In fact, more than half the greenhouse gas reductions of CDMs to date have been reached via reducing HFC-23 in developing counties. For the reductions, the project sponsor countries receive credits to put toward meeting their own reductions targets. These credits are called Certified Emission Reductions or CERs.

This is where Wara noticed a big discrepancy between what was credited through the CDM and what was actually happening on the ground. The CERs are not just feel-good pieces of paper that countries collect as proof of their doing good but are certifications of equivalent reductions of one metric tonne CO2 emissions. Carbon is the standardizing greenhouse gas and so regardless of what greenhouse gas is reduced with the CDM the sponsoring country is credited with CERs. But these “carbon credits” have a value—carbon is a traded commodity on many global markets. Wara could directly compare the CDM effect versus the credits issued. Since the cost of implementing the reductions was known or could be calculated, and since the credits were standardized to a greenhouse gas being traded on an open market, Wara could quantitatively critique the CDM.

Wara’s finding showed a major flaw in the CDM design. Looking at the large percentage of greenhouse gas reductions met within the CDM by eliminating HFC-23, the value of the credits created by these reductions were more than four times as valuable as the cost of implementing the reductions. This is not small change, as billions of dollars worth of CERs have been credited for the projects. What is more, the credits for eliminating the HFC-23 byproduct of manufacturing refrigerant were far more valuable than the refrigerant itself, creating incentives to build these manufacturing plants in order to cash-in on the CERs. Exposing these loopholes has brought attention to Wara’s work. He has presented his findings at numerous conferences and published his report (Nature 445, 595-596 (8 February 2007) doi:10.1038/445595a) and derivatives broadly. Wara continues to study the CDM and the global market for greenhouse gases and the post-Kyoto regime for reducing their emissions.

PESD has just released an 87-page case study of Petróleos Mexicanos (Pemex), Mexico's national oil company. In "The Void of Governance: An Assessment of Pemex's Performance and Strategy," researcher Ognen Stojanovski examines how the state-owned company functions and details some of the profound challenges faced by reformers.

Mexico's Petróleos Mexicanos, or Pemex, is the world's third-ranked company by oil production. Almost 40% of the Mexican government budget is derived from Pemex revenues, leaving the country highly exposed to a drop in oil prices and the company itself strapped for cash to support much-needed investment. At the same time, the company has been progressively de-skilled over the decades by an exclusive focus on financial returns for the government, constitutional restrictions on foreign participation in the oil sector, and suffocating interference by diverse government agencies and the powerful workers' union.

Democrats voting in Ohio and Texas may well decide the shape of the U.S. presidential election. Regardless of who they choose to run against Sen. John McCain, the all but certain Republican candidate, it is likely that energy issues will figure more prominently in the election than at any time in the last generation. High prices are sapping economic growth, the No. 1 concern across most of the country. Gasoline is now approaching $4 a gallon; natural gas and electricity are also more costly than a few years ago. Global warming has become a bipartisan worry, and solving that problem will require radical new energy technologies as well. All this is good news in the rest of the world, which is hoping that a new regime in Washington will put the United States on a more sustainable energy path.

It may be a vain hope. It is extremely unlikely that Washington will ever supply a coherent energy policy, regardless of who takes the White House in November. That's because serious policies to change energy patterns require a broad effort across many disconnected government agencies and political groups. Higher energy efficiency for buildings and appliances, a major energy use area, requires new federal and state standards. Higher efficiency for vehicles requires federal mandates that always meet stiff opposition in Detroit. A more aggressive program to replace oil with biofuels requires policy decisions that affect farmers and crop patterns-yet another part of Washington's policymaking apparatus, with its own political geometry. New power plants that generate electricity without high emissions of warming gases require reliable subsidies from both federal and state governments, because such plants are much more costly than conventional power sources. Approvals for these new plants require favorable decisions by state regulators, most of whom are not yet focused on the task. Expanded use of nuclear power requires support from still another constellation of administrators and political interests. And so on.

Whenever the public seizes on energy issues, the cabal of Washington energy experts imagines that these problems can be solved with a new comprehensive energy strategy, backed by a grand new political coalition. Security hawks would welcome reduced dependence on volatile oil suppliers, especially in the Persian Gulf. Greens would favor a lighter tread on the planet, and labor would seize on the possibility for "green-collar" jobs in the new energy industries. Farmers would win because they could serve the energy markets. The energy experts dream of a coalition so powerful that it could rewire government and align policy incentives.

This coalition, alas, never lasts long enough to accomplish much. For an energy policy to be effective, it must send credible signals to encourage investment in new equipment not just for the few months needed to craft legislation but for at least two decades-enough time for industry to build and install a new generation of cars, appliances and power plants, and make back the investment. The coalition, though, is politically too diverse to survive the kumbaya moment.

Just two weeks ago the feds canceled "FutureGen," a government-industry project to develop technologies for burning coal without emitting copious greenhouse gases, demonstrating that the government is incapable of making a credible promise to help industry develop these badly needed technologies over the long haul. (The project had severe design flaws, but what matters most is that the federal government was able to pretend to support the venture for as long as it did and then abruptly back off.) Similarly, legislation late last year to increase the fuel economy of U.S. automobiles will have such a small effect on the vehicle fleet that it will barely change the country's dependence on imported oil and will have almost no impact on carbon emissions. Democrats and Republicans alike claim they want to end the country's dependence on foreign oil, but neither party actually does much about it.

The only policies that survive in this political vacuum are those that target narrower political interests with more staying power. Thus America has a highly credible policy to promote corn-based ethanol, because that policy really has nothing to do with energy; it is a chameleon that takes on whatever colors are needed to survive. It is a farm program that masquerades as energy policy; at times, it has been a farm program that masquerades as rural development. As an energy policy it is a very costly and ineffective way to cut dependence on oil. As a global warming policy it is even less cost effective, since large-scale ethanol doesn't help much in cutting CO₂ and other warming gases. Similarly, the United States has a stiff subsidy for renewable electricity-mainly wind and solar plants-because environmentalists are well organized in their support for it. The coal industry periodically gets money for its favored technologies, as in FutureGen, but even that powerful lobby has a hard time getting the government to stay the course.

Europe is in danger of contracting the same affliction. To be sure, most European countries long ago started taxing energy as a convenient way to raise revenues, which fortuitously also makes energy more costly and creates a strong incentive for efficiency. That approach did not originate as an energy policy, but it has emerged as a keystone of Europe's more successful efforts to tame energy consumption. And Europe is in the midst of shifting policymaking from the individual countries to Brussels, which may create a more coherent approach. But despite these advantages, Europe is notable for its inability to be strategic. For example, Brussels is touting a new pipeline called Nabucco that would help Europe cut its dependence on Russia for its natural gas. So far, Brussels is good at talking about the Nabucco dream but can't agree on a route, financing, or even on where to get the gas that would replace Russia's.

The rising powers in Asia are also finding that they, like America, have a hard time developing and applying strategic energy policies. China develops energy policy through its economic planning system, with mixed results. The country doesn't even have an energy ministry, and efforts to create one are being stymied by the bureaucracy and companies that fear they will lose influence. India has four energy ministries and no real central strategy. Like America, India is very good at declaring visions for strategic energy policy but dreadful at putting them into practice. The Japanese public is just as fickle, but the government bureaucracy is entrenched and far-sighted enough to keep its focus long after public interest has waned.

All this means that the underlying forces that are causing high demand for energy (and high prices) and emitting greenhouse gases will be hard to alter. The effort to solve global warming might change this pessimistic iron rule of energy policy, because the environmental community that is the core of the coalition in support of global warming policy is becoming much stronger and has shown staying power. For the moment, however, that is a hypothesis to be proved.