Tag Archives: climate-change
Investors Call For Stronger Climate Investment Policies
28 Jun 2013 GLOBAL – The Institutional Investors Group on Climate Change (IIGCC) has called on European policymakers to create an investable low-carbon energy market by urgently tabling proposals for detailed policy. The group of investors, worth a combined €7.5trn, signalled its support for the EU’s proposed target of a 40% reduction in greenhouse gas emissions by 2030. But in its response to the European Commission’s 2030 Climate and Energy Green Paper, investors have said they would like to see draft legislation in place before the replacement of the current Commission and EU parliamentary elections next year. The longer investors have to wait for policy certainty, the stronger the economic pressure to defer investment decisions, the group said. U-turns on support for renewables and the collapse of the carbon price have meant that investors are losing confidence in Europe as a place to invest in energy. The IIGCC also emphasised the need for strong and reliable carbon price signals. While the compromise backloading vote on the Emissions Trading Scheme last week was welcome, investors believe the permanent removal of the structural surplus of carbon allowances is required. Investors would also welcome the introduction of a mechanism to reduce the risk of surpluses emerging in the future and have urged the Commission to review how other cap-and-trade schemes around the world – such as South Korea and California, or even China – have addressed this issue. Stephanie Pfeifer, chief executive at the IIGCC, which represents more than 80 of Europe’s largest investors, told IPE: “It is probably still possible to reach the 40% reduction in greenhouse gas emissions target by 2030. “But it is only possible with a lot more investment, and this will only come with the right policy in place. The longer we wait, the harder it will be, and the more investment is needed.” She pointed out that transitioning to a low-carbon economy require investment of €1trn by 2020, increasing to perhaps €7trn in the next 40 years, according to the Commission’s own projections. “New capital requirement rules mean institutional investors will need to provide more of this capital, but, to do so, they will need clear policy signals,” she said. “Without clear policy signals, allocations to infrastructure, especially low-carbon infrastructure, will be limited. Investors are therefore calling on the EU to put in place stable, long-term climate and energy policies to make its vision of a low-carbon future investable.” In their response, institutional investors have also expressed concern that policy drivers of both energy efficiency and renewable technologies in Europe are unnecessarily fragmented. Investors would therefore like to see more emphasis on pan-European instruments that work in tandem with the ETS. In addition, they have called for the Commission to consider how it might take steps to block further retroactive changes by EU member states to their renewables support packages and called for Europe to increase the ability of institutional investors to provide capital to energy infrastructure by allowing it to be included in tax efficient and liquid investment vehicles such as real estate investment trusts and master limited partnerships. The full response can be found here. In other news, the world’s 1,000 largest asset owners, including about 800 pension funds, have been challenged to disclose more detail of how each is managing climate risk. The Asset Owners’ Disclosure Project (AODP) has distributed its second global independent survey to the 1,000 funds responsible for more than $60trn (€46trn) in retirement savings across 63 countries. Fifty questions seek disclosure on how each is avoiding the looming carbon bubble in their fund portfolios. Responses will be researched, collated and scored, with the 2013 index being published for all funds later this year. Julian Poulter , AODP executive director, said: “Pension funds are long-term investors facilitating hundreds of millions of peoples’ plans for their later life. Fund trustees have the basic obligation to look after these nest eggs by managing all the known risks. “Smart fund trustees know the risks inherent in fossil fuel-related assets and are getting ahead of the curve when it comes to disclosing how they manage climate risk, including by investing in low-carbon assets to rebalance those risks. “Indeed – this is not about moral responsibility anymore but fundamental investment methodology. It seems highly likely that it is also a legal responsibility.” The AODP survey focuses on five core categories – transparency, risk management, investment-chain alignment, active ownership and low-carbon investment. It includes asset owners in all regions of the world. Last year’s survey and index are available here . Author: Nina Röhrbein Continue reading
European Biomass Demand Continues to Grow Domestic Markets Face Uncertainty
Legislation and funding uncertainty loom over the domestic market while a boom in the European market soaks up North American supply. What is the future for both markets when it comes to wood pellets and biomass for energy? By DeAnna Stephens Baker Date Posted: 7/1/2013 Wood-based energy markets have seen significant growth over the past decade – a trend which is expected to continue, driven by renewable energy policy in the U.S. and abroad. However, unless some significant changes are made in Washington, foreign policies, which are currently larger market drivers than domestic policy, will continue to hold the place of the major cause of demand for U.S. woody biomass. The North American wood pellet export industry has grown exponentially in a relatively short period of time with the export value increasing from an estimated $40 million in 2004 to almost $400 million in 2012, according to the Wood Resource Quarterly (WRQ). Most of these exports have gone to Europe where aggressive renewable energy policies in many countries are fueling the demand, pushing pellet prices close to, or at, record-high levels in all the major markets in the first quarter of 2013. European Policies and Demand Last yeat saw a record volume of 3.2 million tons of pellets exported from North America to Europe, according to the North American Wood Fiber Review. Much of this has been due to the European Union’s 20-20-20 targets of reducing greenhouse gas (GHG) emissions by 20%, increasing consumption of energy from renewable sources to 20%, and improving energy efficiency by 20% by 2020. “One of the cheapest ways to go about meeting these targets was to take existing coal capacity and either co-fire with wood pellets or convert it to burn wood pellets,” said Seth Walker, an associate bioenergy economist at RISI. However, the incentive to burn wood pellets has decreased over the past year in Europe due to a glut in carbon credits. This glut was caused by the emissions trading scheme that was set up in Europe prior to the recession. When overall energy usage dropped during the recession, the use of carbon credits did as well, creating an oversupply of credits. “Within the past year or so, the carbon market absolutely tanked,” said Walker. “So right now the price of carbon is extremely low throughout Europe…and there isn’t a ton of incentive for most power companies to burn wood pellets right now.” This does not mean that the demand from Europe is dropping off; but it may be shifting to the United Kingdom where analysts expect that the majority of future development will be centered. In July 2012 the UK released new rules for its renewables obligation certificates (ROC) which are issued to power generators for producing renewable energy, with different categories of generation receiving a different number of ROCs per megawatt hours generated. The 2012 rules are favorable to dedicated biomass power generation, awarding two ROCs for dedicated biomass electricity generation with combined heat and power and 1.5 ROCs for dedicated biomass electricity generation, but only 0.5 ROC for co-firing. Several UK power plants have already been converted from coal to biomass and more are in the process of doing so, including Drax Power Station, the largest coal-fired power station in the country. Drax plans to transform itself into a predominantly biomass-fueled generator, initially converting three of its six generating units to run on biomass. The first unit came online in April and the next unit is scheduled for conversion next year. About 70% of U.S. pellet exports are already going to the UK and with almost all of the biomass used by large-scale power plants being imported due to a limited supply of domestic raw material, demand is expected to rise. “Each of those facilities is a huge source of demand,” said Walker. “Drax would use about 7.5 billion tons of pellets, which is more than double the entire consumption for one U.S. power plant.” Demand has already started to ramp up and is expected to increase quickly in the next five years, likely over one million tons annually. Many of the new biomass facilities that have been announced in western Europe will be coming online by 2016, after which demand will probably start leveling out. “The question is what will be the level of attrition among those projects, given how the carbon trade pans out,” said William Perritt, executive editor of RISI’s Wood Biomass Market Report. Unlike many European countries, the United States does not have a national renewable energy standard (RES). Congress has considered a RES in the past, but never gotten real traction on one. Many industry analysts expect that the United States will eventually pass a federal RES, but that it will not happen within the next few years due to the current political landscape. Farm Bill At present, the inclusion of funding for the Biomass Crop Assistance Program (BCAP) in the farm bill is one of the biggest legislative issues that the biomass industry is watching. The farm bill is a bundle of legislation that Congress usually passes every five years to set national agriculture, nutrition, conservation and forestry policy. The last farm bill expired in December and a partial extension of several programs was passed as part of the fiscal cliff deal after the House failed to bring a five-year bill to the floor. The Senate passed its version of the farm bill in early June, and as of press time the House had scheduled floor debate on its version. However, the two versions have significant funding differences. The Senate’s $955 billion bill calls for over $1 billion in mandatory funding of renewable and clean energy programs over 10 years, including $38 million annually to BCAP for five years as well as $26 million in annual mandatory funding and $30 million in annual discretionary funding for biomass research and development. In contrast, the House version eliminates mandatory funding and reauthorizes programs at reduced discretionary funding levels. It completely eliminates BCAP’s collection, harvest, storage, and transportation (CHST) payments – a move the agriculture committee said was done to prioritize funding for the establishment of dedicated energy crops. Many in the biomass industry prefer the Senate version due to the mandatory BCAP funding. However, other industry groups, such as the American Forest & Paper Association (AF&PA), oppose mandated funding, preferring the discretionary funding of the House bill. “AF&PA believes that the free market should determine the highest and best use of biomass,” said Donna Harman, president and chief executive officer. Reconciling these differences could cause a delay in final passage of a farm bill. However, with the temporary program extensions set to expire in September, there is a lot of pressure for Congress to pass a five year farm bill, and it is expected to be completed by the end of summer. The leaders from the Senate agricultural committee may be in a good position when it comes to negotiating a compromise of the two versions, due to the passage of their version with a filibuster proof majority. Tax Parity Members of the biomass industry are also continuing to lobby for the biomass sector to receive tax parity with other types of renewable energy. In 2009, under the American Recovery and Reinvestment Act, wood-fired biomass power plants were given only half the production tax credit that other renewable energy sources received and for only five years – half the time period that the other sources were given. According to the Biomass Thermal Energy Council (BTEC), there are currently about 80 different energy-related tax provisions in federal law. “Unfortunately, none of these incentives extends to high efficiency biomass thermal energy, despite the fact that biomass thermal energy fulfills all the same public policy objectives as other renewable energy sources, and despite the fact that the Internal Revenue Code recognizes other thermal technologies such as solar and geothermal,” said Joseph Seymor, executive director of BTEC in a letter to the Energy Tax Reform Working Group. “The end result is an unlevel energy landscape that promotes certain technologies over others, both limiting consumers’ energy choices and their ability to utilize local fuels from landowners and farmers.” Not only does this disparity in tax incentives put biomass at a competitive disadvantage compared to other types of renewable energy, but it can also discourage development in an industry that already has tight profit margins. The effort has received some attention recently from both President Obama’s budget proposal and a piece of Senate legislation. In his proposed 2014 fiscal year budget, President Obama included a permanent extension of the production tax credit for renewable energy sources. The credit is currently scheduled to expire at the end of the year. If a permanent extension is passed, it could go a long way toward helping new biomass facilities secure needed investments for construction by providing the stability and continuity that would help attract private investment. The Biomass Thermal Utilization Act of 2013 would amend the federal tax code to incentivize biomass energy, as it already does for several other forms of renewable energy. Currently, a number of renewable energy technologies qualify for investment tax credits for capital costs incurred in residential and commercial installations. This legislation seeks to achieve equal treatment between those renewable systems and thermal biomass systems. One provision of the bill would include high-efficiency biomass heating technology in the 30% residential renewable energy investment tax credit. The second provision is a tiered tax credit for 15% or 30% of the installed cost of biomass-fueled heating systems for commercial or industrial applications. Because biomass thermal technologies have comparatively high up front capital costs, these investment credits can help overcome the investment hurdle and help build the market. Tailoring Rule A close eye is also being kept on the Environmental Protection Agency’s (EPA) progress on the decision of whether or not to require GHG permits for biomass-fired sources under the Clean Air Act’s Prevention of Significant Discharge (PSD) Tailoring rule. Currently, EPA has no standards for the regulation of GHG emissions from biomass-to-electricity facilities. However, that could change when EPA makes the decision that it deferred in 2011 for up to three years to provide time to study the science and policy of regulating biomass emissions and determine whether a Clean Air Act permit is required. A decision is expected soon and the outcome of the decision could have a significant impact on the biomass industry. “The prudent course for EPA to take, and one with real potential for climate change mitigation, is to pursue amendments to the Tailoring Rule that incorporate the carbon benefits of forest bioenergy in the broadest and simplest terms,” said Dave Tenney, president and chief executive officer of the National Alliance of Forest Owners (NAFO). Wood-based energy has had a difficult time being accepted as a renewable energy option in the United States largely due to the aggressive campaigns that have been mounted against it by many environmental and competing industry groups. “There’s a dilemma in people’s minds about using wood-based energy,” said Dr. Burton English, professor of agricultural economics at the University of Tennessee. “The demand for energy is so large that we could do this wrong and hurt the environment and people are afraid of that. So we’ve been spending a great deal of effort to make sure that the systems we plan for are indeed sustainable. And that’s the key: bioenergy is bearing a cross that other fuels don’t have on them.” That burden is made worse by policies and regulations that create uncertainty for the entire biomass supply chain. And until that uncertainty is dealt with, it will continue to inhibit the growth of domestic demand. “We’ve seen what happens in the last three or four years when uncertainty is there,” said English. “We have uncertainty in policy; we have uncertainty in fuel prices; we have uncertainty in the whole area of energy and we need some policies that reduce that uncertainty.” Wood Pellet Logistics Expand The rising and expected demand from Europe for wood pellets is driving developments in infrastructure and logistics – especially in the Southeast United States where a number of new pellet plants and port facilities are currently in various building and planning stages. “Investment in pellet mills and port infrastructure is in the tens to hundreds of millions of dollars,” said Pete Madden, vice president of renewable energy and supply chain at Plum Creek. According to Madden, states are actively trying to attract that investment capital with a variety of incentives for companies that locate their mills in their states, along with investments in the port infrastructure. “There currently are only a handful of U.S. ports that are capable of handling wood pellets,” said Madden. “These ports require pellet storage and handling facilities that are capable of keeping the pellets dry with fire protection and dust abatement systems. This infrastructure will take time to develop along with the added complexity of keeping the ports properly dredged (if necessary).” Some of the most recently announced pellet-related port projects include: • the Port of Wilmington’s agreement with Enviva for a $35 million wood-pellet storage and shipping facility; • a potential agreement between International WoodFuels and the Port of Morehead City for a project costing up to $15 million to build pellet storage domes and update an existing rail unloading station; • the $28 million to $30 million facility ($10 million is being funded by the state of Mississippi) being built at the Port of Pascagoula that will include a system, storage silos and a ship loader for receiving and shipping wood pellets; • a plan by Drax Biomass plans to build a port-side storage and loading facility, capable of accommodating delivery of pellets by rail and truck, at the Port of Greater Baton Rouge, with the capacity to store approximately 80,000 metric tons of biomass pellets. The planned biomass production facilities in the region are even more numerous. Some of the most notable ones include the facilities planned by European countries. German Pellets is planning a 500,000 metric ton pellet manufacturing plant in Woodville, Tx. and a 1 million metric ton plant in Urania, La. Drax Biomass also has plans for two pellet manufacturing facilities – one each in Gloster, Miss. and Morehouse Parish, La. Full operations at both are expected to start next year with a combined capacity to produce 900,000 metric tons of biomass pellets. Even with the planned port facilities, the planned pellet capacity is growing faster than the port capacity, which could make port infrastructure an even larger problem for pellet exporters in the near term. But with new facilities being announced often, the logistical efficiency of the industry could increase. “Without additional port capacity (some of which is planned) pellet capacity announcements in the south could outstrip port capacity development, exacerbating the problem,” said Madden. “The industrial pellet industry is still emerging and one could expect as other projects come online the costs of supplying pellets in the global marketplace should trend lower as supply chain efficiencies increase.” Continue reading
Europe: Draining Energy
by Steve Kingshott 27 Jun 2013 Europe was fast out of the blocks with its carbon emissions schemes but the financial downturn and the emergence of Asia and Latin America is threatening its future, Steve Kingshott writes. The number of countries and regions proposing cap-and-trade carbon emissions schemes is growing. Australia, India, the US and China are among those who have established or proposed plans to rival Europe. Yet while the EU Emissions Trading Scheme was the first to be established, its long-term future is in jeopardy. The start of the financial crisis has lowered industrial production, resulting in a significant oversupply of carbon allowances. This has caused the price of carbon to plummet and served to question the viability of the trading scheme. This uncertainty is threatening Europe’s ambition to become a world leader in renewable energy. Falling prices From a high point of €30 a tonne, the carbon price fell to the all-time low of €2.75 the day after the European Parliament voted to reject a plan to “backload” allowances. This would have involved withholding 900 million allowances from the market over the next two years in an attempt to boost the carbon price. Since that setback, energy and environment ministers from nine EU states – including the UK, France and Germany – have published a joint statement calling for a new timetable for ETS reform. These calls need urgently to be heeded. The EU should work quickly to address the surplus of ETS allowances and send a clear signal that Europe is committed to a low-carbon economy. “This uncertainty is threatening Europe’s ambition to become a world leader in renewable energy.” The EU’s vision for the ETS extends as far as 2020 but not beyond. Without a defined carbon incentive, investors are understandably wary of making appropriate commitments. Large-scale projects such as offshore wind farms can take up to ten years from planning to operation and so are dependent upon long-term stability. For the insurance industry, this uncertainty and lack of investment will mean lower insurance premium revenues from the renewable energy sector. An increase in carbon emissions is also likely to mean insurers will more frequently have to take account of climate change risk factors such as major weather events and flooding. Significant investment Focused properly, the ETS has the potential to drive significant investment in low-carbon energy and renewables. This would help to stimulate economic growth as well as enable Europe to achieve security of supply and meet its carbon-reduction targets. Extending the scheme beyond 2020 would send positive market signals while a strategic Europe-wide approach to support energy-intensive industries will prevent carbon leakage to less regulated parts of the world. However, as long as the glut of carbon permits continues to depress the price and while MEPs stall on the issue of backloading, the viability of many projects will be in doubt. With the European Commission estimating the renewables sector could create five million jobs across the region by 2020, it is clear that action is needed now to ensure we do not miss out on opportunities for green growth. Investment in renewables can have significant economic impacts, both directly and indirectly through the supply chain. For example, it is estimated that the UK onshore-wind sector alone could contribute £1.2bn through the supply chain by 2020. “For the insurance industry, this uncertainty and lack of investment will mean lower insurance premium revenues from the renewable energy sector.” New jobs are being created in the insurance industry itself, and firms are recruiting and training underwriters specialised in renewable energy. By taking the initiative to insure renewables in the early stages of development, the industry can build a cluster of expertise and established market-leading positions across the globe including in offshore wind. However, continued job creation and growth will only be realised if there is a stable regulatory and policy environment to support investment in the transition to a low-carbon economy. If we don’t keep up with the rest of the world, then competitors will grow in emerging markets and capitalise on this opportunity. Not enough The UK Government, for its part, has introduced a carbon floor price. This move is very welcome, but unilateral action is not enough. We need politicians across Europe to see the opportunities that exist and realise that any further delay and uncertainty is bad news for business, investors and most of all for consumers. With rapid reform, the ETS can return to being a flagship scheme for carbon trading around the world and help put more economies on a shared low-carbon pathway. Ministers need to work quickly to address existing problems with the ETS while also setting out a vision for the scheme beyond 2020. That is the right way to go and UK Energy Secretary Ed Davey should be supported in this ambition. “UK Energy Secretary Ed Davey should be supported in this ambition.” Ministers need to work quickly to address existing problems with the ETS while also setting out a vision for the scheme beyond 2020. If they do not, investment in renewables will increasingly flow to other territories, including Asia and Latin America, and the UK and Europe will miss out on the significant benefits this can bring. Steve Kingshott, global director for renewables, RSA Continue reading
