Effectiveness of the Emissions Trading Scheme - Term Paper Example

Running header: EMISSIONS TRADING SCHEME: THE IMPACT OF GAS FLARING ON THE UKCS Emissions Trading Scheme: The Impact of Gas Flaring on the UKCS Your name: Your institution: Course Name: Instructor: Date: Emissions Trading Scheme: The Impact of Gas Flaring on the UKCS It is now an established fact that gas flaring and venting linked with oil plants plays a major part in environmental degradation and greenhouse gas emissions (GHG). This gas emission which is a blend of hydrocarbons occurs during the processes of oil being drilled or tested at oil and gas wells. These emissions similarly occur through natural gas pipelines as result of machinery failure and poor maintenance. The World Bank estimates that over 110 billion cubic meters (bcm) of associated gas is vented to the surface worldwide1. Authorities are now increasingly and progressively upholding measures aimed at controlling these emissions even as industry players have realised the economic benefits of preserving the vented gas (Gerner and Svensson, 8). Countries and organisations have are obliged to adhere to regulations governing emissions and which are based on Kyoto Protocol of 1997. In Europe the European Union (EU) has promoted the EU Emissions Trading Scheme (EU ETS) as variable model for its member countries that especially enhances CO2 preservation and the greenhouse effect. The oil and gas industry faces a number of challenges as it struggled to curb emissions within the United Kingdom Continental Shelf (UKCS) offshore industry. This includes fire, gas explosions, gas venting, and structural infrastructure collapse in its aging structures. Some of these calamities have had some fatalities on human life like the 1988 Piper Alpha disaster. Active legislative measures have been undertaken to curb this episodes within the industry with some noted success, however the nature of the rapid evolving industry and technology mitigate against some of these tactics. In the UKCS, the Health and Safety Executive (HSE) is mandated to regulate the sector2. The HSE has set up an Offshore Division in a Hazardous Installations Directorate who is tasked as preventing major catastrophes and consequences while ensuring more stable working environment for the firms (HSE, 1). 1. World Bank Report estimates that this is adequate fuel to supply all of Germany and France consumption. In Africa the wasted energy can provide 50 percent of the continent’s electricity requirements. 2. The HSE is a UK agency more concerned about the safety of the more than 20,000 employees in the offshore oil and gas industry. The aging infrastructure still pose potential health hazard to the workers and environment. The United Kingdom Emissions Trading Scheme (UK ETS) was the precursor as the first world bid in a trade-wide greenhouse gas emission scheme. It assisted UK firms to gain valuable experience prior to the introduction of the European Union Emissions Trading Scheme (EU ETS) in 2005. The value of the oil and gas industry to the UK economy is of significant magnitude with employment of thousands of people, remittances to the exchequer, technological advancement, and the cushioning of the country’s energy sector requirements of much significance. This has mainly evolved around the development of the offshore North Sea oil drilling. However the development of the sector has been negatively associated with equitable high reductions in carbon dioxide CO2 emissions which are considerably lower than the Kyoto Protocol requirements. U.K. Offshore Operators Association (UKOOA) 2002 Report (2) advocated for a move away from coal towards gas, a more carbon proficient energy source with doubly more efficient pollution of Nitrogen Oxides (NOx) and SOx and the enhancement of technology3(McDonald and Hope, 4). Regular supply management and appropriate environmental policies have been found to be the best form of monitoring the industry operations. These include measures aimed at gas flaring and venting that seek more efficient and effective procedure. The modules are either incorporated in primary legislative regulations or secondary legal guidelines including licences, codes, and other relevant regulations. Flaring accounts for 30 percent carbon dioxide (CO2) offshore emissions that range to over 5.5 million tonnes to the atmosphere. The reduction of these emissions and a move from oil to gas is one of the targets advocated by UKOOA Striking a Balance initiative of 2003. It aims at a target of ten percent by 2010 and a 20 percent aspiration by 2020 with a further evolvement to hydrogen energy consumption rather than fossil carbons. In UK the oil and gas industry sector which is the most productive of the economy in terms of value added per employee initiated a project in conjunction with the DECC that encouraged self regulation in 2001. It employs over 20,000 people in within its offshore oil and gas industry. The industry initiated a self-regulated program to curb emissions in the UKCS. 3. There have been more encouragement by environmental organisations like Greenpeace towards more conservative sustainable forms of energy including hydrogen that emphasise less CO2 emissions. This scheme, Voluntary Flare Transfer Pilot Trading Scheme (FTPTS)4 was regulated by the Department of Trade and Industry (DTI) and traded in greenhouse emission gas flaring on the UKCS while avoiding a return to DECC the administering authority. It was a non-monetary trading program in several pollutants endorsed by EU Emission Trading Scheme. Thirty four companies voluntarily took legally binding obligations to reduce emissions based on the 1998 -2000 levels producing four million tonnes of additional CO2 gas by 2006. This scheme was also opened to over 6000 firms that were members of the Climate Change Agreements. It enabled the companies to either purchase trading allowances, or meet their targets, or sell their surplus on the forum. “STEVE Messner of FTPTS Steering Committee stated “The industry is committed to reducing flaring at offshore installing. Trading provides us with a mechanism for doing this in way that maintains flexibility, essential in a complex operating environment, whilst achieving the overall goal”(FTPTS 1). Another voluntary scheme was the Flare Consents Pilot and the UK Emissions Trading (ACBE-CBI) project which operate within multi-partnered operations of numerous UKOOA technical committees like the Atmospherics Workgroup and Facilities Committees. In the UK Voluntary Flare Consents Pilot workgroup, eleven firms have joined in 63 offshore oilfields that encompass 45 percent of all UKCS production. These firms consented to a ten percent reduction below the normal consents levels. This successful venture was responsible to 12.5 percent shrinkage in emissions in actual flare volumes by 2000 and by 2001 the largest oil companies within the UKCS, BP and Shell joined the scheme hence further reducing emissions. This enabled them to bid in the UK ETS securing agreements with over 30 partners in the industry. This UK ETS trading auction involving four million tonnes of CO2 was launched in 2002 and British companies were therefore well positioned when the EU ETS program was initiated in 2005. The funds remitted by the government led to enhanced technological focus on energy competence (McDonald and Hope, 50). 4. The FTPTS was the precursor of the EU ETS involving British firms in the production and distribution sectors that traded on the greenhouse emissions gas flaring allowances. Another gas emission with far more potential hazard than CO2 is methane. It has 21 times more effect on greenhouse gas (GHG) than CO2. In the UKCS where offshore activity is more paramount, methane emissions account for only six percent. This are mostly from oil and gas venting with some minimal emissions from gas leaks. An EU study in 2002 concluded offshore emissions were not as profound as other emitters in agriculture, marshland and industrial refuse. A number of measures have been taken to counter the emissions within the UKCS. This includes carbon capture and sequestration. One of the methods is involves the separation of carbon dioxide and pumping it into already mature oil and gas tanks which not only preserves the gas, but also improves the recovery of the oil and gas. Another method is moving CO2 into subterranean sectors through highly sophisticated methods. Several firms affiliated to the U.K. Offshore Operators Association (UKOOA) are involved in the North Sea Norwegian project that will sequester the gas into deep geological chambers5. At the Sleipner field, CO2 sequestration has been ongoing since 1996 with the gas been chambered within the Utsira formation field with one million tonnes injected annually. Among the UKOOA affiliated firms involved in the CO2 Capture project (CCP) include BP, ChevronTexaco, Shell, Agip, PanCanadian, and Statoil. They are motivated by the potential benefits of the technological breakthrough in the reduction of CO2 separation, capture and geological stockade through combustion technologies like turbines, heaters and boilers. United Kingdom and European regulations prohibit illegal flaring and venting of associated gas. To obtain permit regulators require environmental impact assessment (EIA) report to be submitted during the field development application process. The issuance of the licence depends on the gas to oil ratio in the oil field. The developer must prove that it is uneconomical to use the gas, unable to re-inject the gas back to the oilfield, or unable to store the gas to obtain approval for gas venting. One of the more veritable emissions is the sour gas which is a natural gas that contains hydrogen sulphide (H2S), a flammable poisonous toxin injurious to both humans and animals alike. 5. The CO2 sequestration is a novel method of conserving the gas within the Norwegian North Sea area with future plans of moving it to the subterranean ocean floor. The including, possibility of fuel usage, whether it can be used to enhance oil recovery, conversion to other fuels treatment before disposal, or sale to other developers rather than wasteful disposal. The UK regulatory authority’s policies on the producers require a production of a spreadsheet termed the "Common Reporting Format" (CRF), that present detailed information on recent oil fields that encompass projections on annual gas flaring/venting. (Gerner and Svensson, 16). The U.K. Offshore Operators Association (UKOOA) in 2001 calculated that CO2 emissions constituted 4.5 percent of waste gases in the U.K. with 71 percent coming from offshore fuel gas and an extra 20 percent emitted from flaring. Under the Kyoto Protocol the United Kingdom was mandated to lessen its greenhouse gases by 12.5 percent below the 1990 levels by 2012. The UK government similarly set a loftier goal of slicing the CO2 emissions by 20 percent by 2010 through comprehensive strategies and techniques. In Europe the Emissions Trading Scheme endorsed by the 25 member countries aims at meeting the Kyoto Protocol targets through the most viable methods in two phases. The initial phase covered only CO2 emissions only and run from 2005 to 2007. The second phase of 2008 to 2012 was to cover the Kyoto Protocol period that aimed at curbing emissions from six greenhouse gases. Other consequent phases were to run for five years duration each. Each member country with emissions has been obliged to strictly cover all the protocols as set by the European parliament. The major segments endorsed by the EU Directive were in the power generation, oil and gas (both upstream and downstream), steel, chemicals, and cement. Power generation accounted for over 60 percent of Unite Kingdom emissions. The EU Emissions Trading Scheme (ETS) is the world largest and enclose over 45 percent of all the European Union member states emissions of COO2 (UKOOA, 1). The EU ETS is based on a technique called cap and trade system which allows free allowances to specific installations based on historic emissions. The industrial investors are given the option of either setting up abatement process or not installing the control technology but obliged to sell the excess allowances back to the E.U. emissions market, or alternatively purchase additional allowances in the market to cover for any deficit. Firms that fail to comply with these EU directives are dealt hefty penalties ranging from 40 Euros per tonne for CO2 emissions in the first phase and rising to 100 Euros per tonne in the second phase. This has been counter-balanced by the relative lower costs in purchasing allowances in the emissions market which peaked at 2 Euros per tonne by June 2005 which served as a deterrent to errant firms. The Department for the Environment, Fisheries and Rural Affairs (DEFRA) in conjunction with DTI and UKOOA collaborate to ensure UK National Allocation Plan works equitably (UKOOA Economic Report, 2). Gas flaring regulations are therefore enhanced by the national and international values that improve on the traditional legislation as they raise the bar in the expected targets in curbing emissions. In the U.K. the Offshore Operators Association (UKOOA) procedure statutes serve nationally while at an international level the Convention for the Protection of the Marine Environment of the North-East Atlantic (OSPAR) Commission provides guidelines for the best available best available techniques (BATs) and best environmental practice (BEP) for the oil and gas flaring and testing techniques. In the same spirit the Oil and Gas Directorate of the Department of Trade and Industry’s which pioneered the Flare Transfer Pilot Trading Scheme (FTPTS) major endeavour as espoused in its objective is to, “maximise the economic benefit to the UK of its oil and gas resources, taking into account the environmental impact of hydrocarbon development and the need to ensure secure, diverse and sustainable supplies of energy at competitive prices." (Pilot, 1). The FTPTS an industry wide voluntary program main objective was to provide an easier framework mechanism runs concurrently with the U.K. Emission Trading Scheme (UKETS) but aiming to integrate with the latter and other international projects. The contemporary regulatory framework erected by United Kingdom oil industry regulators and companies has succeeded in reducing substantial gas flaring and venting, enhanced production capacity, better working conditions, and raised environmental awareness among the industry to higher level. The UK government has also provided incentives to the industry to induce further or better frameworks for reduced emissions.6 These methods include financial incentives in accurate monitoring or measuring of gas flaring to firms installing better technologies. This incorporates ultrasonic gas meters capable of accurately measuring flaring or venting and has had real success in the North Sea among the United Kingdom and Norwegian continental 6. The U.K. government has provided financial and fiscal incentives to the firms adhering to the UK ETS program which involve more than 230 million pounds and some tax exemption among other incentives. shelves. This equipment is however costly to implement particularly for the minor firms. Other These measures include streamlining and liberalising the downstream gas market, availing third-party access (TPA) for the upstream network, and allowing both retail and wholesale competition. This has allowed oil industry producers to market their products directly to the suppliers who access the downstream markets (Gerner and Svensson, 116). The OKOOA 2003 (26) initiative to reducing CO2 emissions also incorporated in the procuring new technology to enhance better control measures. oil industry firms had advanced over eight million pounds to a joint industry project negotiated by the Industry Technology Facilitator, which was more than individual companies research and development (R&D) initiatives. For those producers who enter into an emissions trading scheme, measurement of the gas flaring is a required fiscal guideline. The method of measurement is therefore subject to regulatory observation7. The current flare consent system requires emissions volumes to be accounted for. The process of monitoring calls for enforcement, punishment, an allowance trading permit that verifies these allocations. The monitoring system is done on quarterly basis through electronic reporting for every hourly emission. Due to the low functional pressure of flare gas, supreme pressure quantification is necessary as undetected disparities in the atmospheric pressure will distort the measurement capacity. The flared gas is emitted from either leaking valves, condensation, flushed out gas (e.g. Nitrogen), and occasion of high gas production (DTI, 116). Other initiatives emphasize on enhanced production efficiency in the oil and gas industry that assist in reducing emissions as well as improving operational costs. Other proposals are fiscal whereby an emissions tax is introduced as deterrent by assigning a monetary value to cutbacks in carbon dioxide levels. Some of the techniques include simultaneous injection of gas and water (SWAG) whereby minute quantities of hydrocarbon gas are injected to curb gas flaring. 7. OKOOA and the relevant regulatory authorities have required firms to set up effective equipment that can effectively measure the level of emissions from the industry. Contemporary high-tech machinery are now used for both regulatory purpose as well as enhanced production within the firms. The industry has through Improved Recovery (IOR) programmes enhanced oil recovery above prevailing levels of hydrocarbon gas. These involve the application of chemicals like surfactants, polymers, microbes and the re-injection of gases to improve on production but which require a Chemical Permit under the Offshore Chemicals Regulations 2002 (Jayasekera and Goodyear, 1). Conclusion The Emissions Trading Scheme concept which was pioneered by the United Kingdom has had a profound positive impact on the greenhouse gas emissions especially on the U.K. Continental shelf (UKCS). This initial voluntary program looped in industry producers and distributors as well as the governmental regulatory authorities to economically reduce carbon dioxide (CO2) and other hydrocarbon emissions to manageable levels. The onset of the wider European Union emission trading scheme (EU ETS) has further enhanced the capacity of the oil and gas industry producers’ cross-border transaction in downstream and upstream markets of gas flaring allowances. The oil and gas industry has also embraced the concept wholeheartedly as they have realised the economic benefits of trading in the excess gas rather than wanton venting that was detrimental to the environmental. The industry through its body OKOOA and the Department of Trade (DTI) regulatory sector has integrated enhanced conservation measures in the production lines as well as stringent monitoring techniques that are prerequisite of joining the Emissions Trading Scheme. Companies are encouraged to install better equipment that has modern monitoring technology like laser monitoring to improve on their own efficiency. Similarly the firm are encouraged to change the aged machinery to avoid leaks and occasional breakdowns hence enhance their own production capacities while reducing emissions. The government has also injected capital in the conservation efforts through the Emissions Trading Scheme. Fiscal measures have also been incorporated whereby tax rebates are offered to the compliant firms. It is therefore an irrefutable fact that the Emissions Trading Scheme has helped to curb gas flaring within the UKCS and other parts of the world that have incorporated the scheme as a conservation measure. References [Primary] Bent Svensson, Sascha Djumena, Jacob Broekhuijsen, Calliope Webber. REGULATION OF ASSOCIATED GAS FLARING AND VENTING: A Global Overview and Lessons. Report Number 3 - World Bank Group. New York: The World Bank Group, 2003. Hope, John McDonald and Mark. "UKOOA Sustainability Strategy - "Striking a Balance"- First Report 2002." 2003. UKOOA. 2 April 2009 . UKOOA Economic Report 2005. "UKCS Contributing to Delivering UK Enviromental Targets." 2009. Offshore Oil and Gas Industry Association. 4 April 2009 Secondary Sources DTI. "Petroleum Model Clauses Order." 2003. DEPARTMENT OF TRADE AND INDUSTRY LICENSING AND CONSENTS UNIT GUIDANCE NOTES FOR PETROLEUM MEASUREMENT UNDER THE PETROLEUM (PRODUCTION) REGULATIONS. 4 April 2009 . FTPTS. "UK Emissions Trading Scheme." 2003. PILOT TASK FORCE. 2 April 2009 . GOODYEAR, A. J. JAYASEKERA and S. G. "Improved Hydrocarbon Recovery in the United Kingdom Continental Shelf: Past, Present and Future." 2002. Society of Petroleum Engineers Inc. 4 April 2009 . HSE. "The Offshore Oil and Gas Industry." February 2009. Health and Safety Excutive. 4 April 2009 . PILOT. "PILOT and other Government/Industry initiatives: OIL AND GAS DIRECTORATE." 2001. OIL AND GAS DIRECTORATE: Pilot Taskforce. 4 April 2009 . Read More