Conference and General Assembly of the Inter American

Conference and General Assembly of the Inter. American Network of Academies of Science IDRC, Ottawa, Canada Thursday 24 th August 2010 Energy management problems in a small island economy: the case of Jamaica Professor Anthony Clayton University of the West Indies

Energy and the environment • • Our current way of life depends on reliable, stable, affordable supplies of large quantities of energy, most of which is currently derived from hydrocarbons. Today, we face a combination of pressing energyrelated challenges, including: Sharply rising demand for oil and gas in countries such as China and India, high prices & volatility, resource nationalism, increasing competition (and potential conflict) for resources, concerns about supply constraints and the possible approach of peak oil. Profound concerns about the carbon loading of the atmosphere and climate change.

Volatile prices • Between 1999 and July 2008, the price of oil rose 15 fold, from less than $10/barrel to over $147/barrel. Then the price slumped; oil lost nearly 80% of its value. It was trading at less than $34/barrel in December 2008. • Dramatic shifts are destabilizing; high prices increase costs and slow growth in importing nations, low prices reduce investment in both oil and new energy technologies. • As world oil production starts to decline (after peak oil), we will increasingly depend on high-cost sources. This will cause even more dramatic swings in market price.

Spikes not driven by fundamentals, but by politics

Population dynamics Global population will rise from 6. 8 bn to over 9 bn by 2070, predominantly because of two factors; the continuing rise in world average life expectancy and the relatively high fertility levels in developing countries. Population will then decline again; by 2100, it will be 8. 4 bn. Conclusion: it will be necessary to provide energy, water, food, housing and clothing 2 -2. 2 bn more people, as well as absorb them into labour markets.

Drivers • Burning hydrocarbons (coal, oil, gas) are responsible for about 2/3 rds of the additional carbon loading of the atmosphere. • 30% of world population still don’t have energy services; more energy will be needed in future as a result of population increase. • Energy demand will grow 55% 2005→ 2030; developing countries will represent 74% of increase. • With BAU, demand for oil will increase by 37% by 2030, coal by 73%. This will increase emissions of carbon dioxide, accelerating climate change.

Already largest consumer of energy, largest source of CO 2

Are there limits to growth? Ø Ø Ø China cannot continue to follow a resourceintensive path to industrial development without major global environmental consequences; if paper use/person in China were to reach the US level, China would consume > total world production. This is not a transient problem; India’s economy is growing more slowly than China, but by 2050 India will be the larger of the two nations (1. 6 to 1. 4 bn), so pressure on resources will continue to rise. This is untenable; the productivity of 15 out of 24 key global environmental ‘services’ (water, fisheries etc. ) are already declining as environmental resources are progressively depleted.

Responding to the crises • On the current trajectory, the world may face a bleak future, with failing crops, dwindling supplies of energy, critical shortages of water and conflicts to control resources. • We have to find the solutions for four problems simultaneously: strengthening economic growth, meeting energy needs, mitigating climate change and increasing food & water security. • Failure to resolve these issues is likely to result in conflict; almost 70 countries have combination of high risk factors (including resource scarcity, population growth, predominantly young population).

Energy: investment opportunities • The International Energy Agency estimates energy infrastructure investments of US$1 trillion required over the next 20 years. • The UNCTAD World Investment Report 2010 estimates investment requirement of ~US$440 bn p/a in 2010 -2015 to limit GHG emissions and keep temperature rise under 2°C. • About 2/3 rd of hydro-generating capacity and almost 99% of wind energy remains untapped; most of these resources are in lowincome countries. • The Sahel has sufficient solar potential to supply all Europe’s electricity. East Africa has geothermal potential, which is ideal for providing base load. UNEP estimate that the geothermal potential of the Rift Valley is 14, 000 MW; only 200 MW is currently captured. Geothermal power could supply 10 -25% of the region’s energy by 2030. • Problems? Technology, capital, political stability.

Solve one problem – by creating another • From 1990 -2005 there were 800 -850 m undernourished, but world population grew by 1. 2 bn, so the proportion fell. • In 2009 >1 bn were undernourished; the largest total ever. • But food output was rising at the same time. The 2008 grain crop grew by 5. 4% to 2. 2 bn tons, following a 6% rise in 2007; this was much faster than population growth. • Between July 2007 - July 2008 wheat & maize prices >doubled, rice prices >tripled, due to: Ø Increasing consumption of meat in developing countries such as China (20 → 50 kg/c/a since 1985), and Ø Switch to biofuels, which absorbed >100 million tons of cereals in 2008. • Prices fell after July 2008, but the economic crisis reduced affordability even more rapidly.

Future trade-offs? The projected increase in human population & changes in diet means that it will be necessary to approximately double agricultural production; and the move to replace fossil hydrocarbons with biofuels will create yet more pressure on available land. This is likely to result in rapid losses among the remaining biodiversity unless agricultural production is made much more efficient and intensive, so that greater volumes of output can be generated on smaller areas. Conclusion: need to solve more than one problem simultaneously

Biofuels G 1: cane/corn derived ethanol. Energy balance ratio for corn = 1. 3/1, sugar = 8/1. G 2: cellulosic ethanol. EBR for cellulose = 12/1 to 16/1 But – G 1 and G 2 biofuels cannot solve our energy problems; if the US converted all its available biomass into ethanol, it could only displace 30% of its current gasoline demand. G 3: Algae can produce 10 -20, 000 gallons of fuel per acre per year, so 85 billion gallons (sufficient for all US transport) could be produced on 15, 000 square miles (4. 5 million acres), about the size of the State of Maryland. The US farms 938 million acres; fuel would take 0. 47%. G 4: Synthetic biology/genomics: turn organisms into bioreactors to make fuel.

Algae in high-density vertical bioreactors Picture from Vertigro Global Green Solutions

Recent projections Trials suggest that it will be possible to develop GM algae that produce long-chain hydrocarbons which can be refined into synthetic high-octane gasoline. This would be compatible with refineries, filling stations and cars, would not contain contaminants such as sulphur, nitrogen and benzene, would have higher energy density and offer more complete combustion than gasoline and diesel. Algae production: use non-arable land, non-potable water, deliver *10 -100 more energy/acre than cropland biofuels. GM algae may grow faster (*2 mass in 1 hour), fix atmospheric nitrogen and carbon. Production costs still high; cost-effective algae-based biofuels perhaps by 2012 -2015, replace gasoline by 2020?

http: //www. abc. net. au/science/news/stories/2007/2064607. htm GM prototype bioreactor

UK announces world's largest algal biofuel project Thursday October 23 2008 The UK wants algal biofuels to make a significant contribution by 2020, and has made an initial investment of £ 26 m to allow scientists to develop better strains. At present, it is possible to make algae with a high oil content, or algae that grows quickly. The goal is to combine these qualities. Research will also develop the optimal designs for culture and production. Plants will then be scaled up. Most of the UK’s investment will be located in countries with yearround sunshine to maximize production.

Investment flows Ø Ø FDI in renewable electricity generation, recycling and products such as wind turbines, solar panels and biofuels was US$90 bn in 2009, plus more in other environmental sectors. About 40% of low-carbon FDI (2003 – 2009) were by TNCS in developing countries. Flows of FDI into SIDS fell by 35% in 2009. Half of the SIDS total FDI inflow went to Jamaica, Trinidad and the Bahamas. The FDI into Jamaica was predominantly tourismrelated. Conclusion: capital is there, but in wrong areas

Case study: biofuels in Jamaica

The Great Sugar Disaster Jamaica was the world’s largest sugar producer in the period 17 th - early 19 th centuries. Today, Jamaica’s share of world production is just 0. 1%, the tonnage of sugar slumped from 514, 450 tonnes in 1965 to 124, 206 in 2005, the contribution to export earnings has fallen from 49% in 1952 to 1. 8% in 2006, the contribution to GDP has fallen from 9% in 1953 to 0. 8% in 2006. The industry still occupies 53, 294 ha (of which 46, 000 ha producing, for quota) = 30% of agricultural land in Jamaica; 41% of permanent crop land. It became uncompetitive, in part because it was protected from competition by EU trade preferences, so was profoundly threatened by phasing-out of trade preferences.

Jamaica: energy Jamaica is a heavily-indebted middle-income country. Domestic demand (not including bauxite sector) is ~800 megawatts, will increase by 210 megawatts by 2012. 93% energy demand met with imported crude oil. Import bill peaked at nearly US$2 bn. This was equivalent to entire value of exports. Developed countries have become less sensitive to price of oil as GDP/oil ratio has risen. Jamaica’s energy productivity in mid-1980’s was ~3. 5 barrels of oil per US$100 of GDP, in real terms; it now takes ~5 barrels of oil to generate the same output. Reasons: low growth, plus increases in energy-intensive consumption (cars, air-conditioning).

The government’s plan (part 1) Ø Jamaica was dependent on imported oil for about 93% of energy demand. Ø Jamaica had a sugar industry that needed complete re-engineering. Ø Solution to both problems: convert moribund sugar industry into dynamic ethanol industry, thereby: üSaving jobs üGenerating revenue üReducing dependence on imported oil üReducing carbon emissions

The government’s plan (part 2) But the Government did not have the cash to convert the industry. The Sugar Corporation of Jamaica was losing J$1 billion p. a. , had accumulated J$20 billion in financial losses. Jamaica had a debt to GDP ratio of 130%, the bauxite/alumina industry was being mothballed, the national airline was failing, the tourist industry was demanding subsidies. So the main priority was to stem further financial losses.

The government’s plan (part 3) • Sell industry to Brazilian firm Bio. Infinity, manufacture ethanol for domestic market, but most for export to USA under CBI. • Government mandates E 10, creating demand for 70 million litres ethanol. This requires ~16, 000/46, 000 ha of cane to be switched into ethanol production + 13, 000 additional ha of cane. Output would need to double (150, 000 to 300, 000 tonnes), productivity increase by 35% (5. 92 to 8. 0 tonnes/ha), production costs fall by 30%, all over three years. In the interim, wet ethanol would be imported from Brazil. The total cost would be € 555. 7 million over 2006 to 2015. • Environmental impact: depends on quality of plant, probably positive.

Analysis of the plan The real plan: the US has a tariff of US$0. 54/gallon on ethanol from Brazil. Ethanol from Jamaica can enter the US at a zero tariff under the CBI system, up to 7% of US demand. So Brazil can supply wet ethanol to Jamaica, blend it, dewater it, then export anhydrous ethanol to the US. This plan depended on 3 variables (price of oil, CBI renewal, US tariff on Brazilian ethanol). So policy had (½ * ½ *½) = 1/8 chance of working.

Consequences Price of oil fell – between July and December 2008 oil lost nearly 80% of its value. Ethanol was then more expensive than gasoline. CBI was renewed, via an earmark by Congressman Charlie Rangel (subsequently charged with 13 ethics violations) Tariff on Brazilian ethanol remains – for now. Brazilian investors withdrew. Greater part of Jamaica’s sugar industry now sold off to Complant, an investment arm of the People's Republic of China.

Conclusions Even if there is a viable transition strategy. . And the technology is available, or in development… And the capital is available… Short-term political considerations and constraints can still preclude best available outcomes. Cannot afford to be naïve about these problems.

Thank you !