Tag Archives: development
Carbon Supply Crunch Set to Extend Longest Rally: Energy Markets
By Alessandro Vitelli July 18, 2013 The longest-ever rally in United Nations carbon prices shows little sign of easing as traders bet companies running emission-reduction projects will stop creating credits because it’s no longer profitable to do so. UN-approved Certified Emission Reductions, or CERs, for December have more than doubled to 49 cents (64 U.S. cents) from a record low in April on the ICE Futures Europe exchange. It costs a combined 50 to 80 cents a ton to have emission cuts at clean-technology projects verified and the corresponding certificates issued by the UN, said Luca Bertali, an emissions broker in London at TFS Green, a unit of Cie. Financiere Tradition SA, one of the largest inter-dealer brokers. Prices for the credits used by 34 of the richest nations from Germany to Australia to offset domestic emissions by investing in greenhouse-gas-reduction projects elsewhere tumbled 98 percent since peaking at 23.38 euros in 2008 as the global economic slowdown cut demand. The number of CERs being issued by the UN in 2014 may drop 23 percent from this year, according to Bloomberg New Energy Finance. “Unless the price of CERs covers the costs of verification and the UN share of proceeds, people aren’t going to deliver them,” Bertali said in a telephone interview. “We’ll see the result a year from now.” UN contracts climbed to a seven-month high of 56 euro cents a ton on July 3, when the European Parliament approved a plan to reduce the region’s record surplus of permits and buoy prices that had dropped to all-time record lows. They closed at 49 cents on the ICE Futures Europe exchange in London after seven weeks of gains, the longest streak since they were first offered in March 2008. CDM Support The UN’s Clean Development Mechanism, set up by the 1997 Kyoto Protocol, has supported the development of more than 6,900 projects in 87 countries and was worth 6.6 billion euros last year, according to New Energy Finance. Falling UN and European Union carbon prices shrank the value of emissions traded worldwide by 36 percent to 61 billion euros last year, New Energy Finance said in a January report. Investors in CDM projects get CERs that they can sell to companies and governments with pollution caps. The EU allows emitters to use UN offsets to comply with obligations in its cap-and-trade program, the largest in the world. One credit is equivalent to a one-ton reduction of carbon dioxide. One such investor is the Climate Cent Foundation, a group formed by the Swiss Petroleum Federation, the Swiss Trade & Industry Federation and the Swiss Road Traffic Federation, which buys CERs from a 15 megawatt hydroelectric plant in Peru, according to the United Nations Framework Convention on Climate Change, or UNFCCC. The facility is designed to generate 42,000 CERs a year for as many as 21 years from July 2009, which can be used to meet emission caps. Unbuilt Projects The low UN carbon offset price may mean new emission-reduction projects won’t be built or existing facilities are dismantled, according to Renat Heuberger, chief executive officer of project developer South Pole Carbon Asset Management in Zurich. “It’s going to be a significant amount,” he said July 12 in an e-mailed response to questions. “For example, in the landfill and biogas space there is no point keeping the collection systems in place if CER prices are so low.” CER supply in 2014 will total 260 million tons, down from the record 339 million supplied in 2012, according to New Energy Finance. July issuance of CERs will be 12.5 million tons, the fourth consecutive month of declines and the lowest since February, according to UNFCCC data. The UN regulator has issued 202 million credits this year. Limited Gains UN credit price gains may be limited because of caps on demand for existing and future certificates together with oversupply. Market rules will restrict European demand for CERs from 2013 through 2020 to 578 million tons, compared with an immediately available supply of about 500 million tons, according to New Energy Finance. Any shortfall will be met by future issuance, which may be as much as 1.3 billion tons through 2020. “There’s a total of about 500 million tons of offset supply in the market at the moment that hasn’t been submitted as part of compliance,” Richard Chatterton, an analyst at New Energy Finance in London, said by phone on June 19. “That’s a huge overhang, which could push the price back below the cost of issuance.” Trading volume in CER futures has dwindled this year to 10 million tons a week on average, a 67 percent slump from 2012, according to ICE Futures data. This decline in activity is contributing to price volatility as there are fewer parties available to buy or sell at a given time, said Fred Payne, a carbon trader at CF Partners (U.K.) LLP, a risk advisory and investment firm specializing in renewables and commodities. “If you want volume, you’re going to have to pay the offer price, and that’s squeezed prices higher,” Payne said in a July 3 phone interview. Price Recovery Project owners and investors may still be generating CERs on expectations that prices will recover, according to Trevor Sikorski, a London-based analyst at Energy Aspects Ltd. By issuing credits now, they can profit from an increase in price, he said July 12 by e-mail. “It’s hard to understand why issuance occurs at prices below 0.50 euros, which either suggests enough projects have issuance costs below that or you have some project developers that are happy to punt on the CER price going higher,” said Sikorski, a former head of carbon analysis at Barclays Plc. “I think that this would be relatively odd behavior unless you had very deep pockets and a high risk threshold.” To contact the reporter on this story: Alessandro Vitelli in London at avitelli1@bloomberg.net To contact the editor responsible for this story: Rob Verdonck at rverdonck@bloomberg.net Continue reading
Farm Bill 2013: Is This Big Agriculture’s Last Gasp?
Sean McElwee in Politics Farm Bill 2013: Is This Big Agriculture’s Last Gasp? The farm bill’s original failure to pass Congress ( it has since been approved by the House without food-stamp aid ) has largely been viewed in light of immigration reform and congressional dysfunction, but it also underlies another specter: the weakening farm lobby. Since our nation’s founding, farmers (originally slave-owners) have had an unequal voice. The Senate, for instance, is made up of two representatives from every state, no matter how large or small. The Electoral College was designed to give small states a voice, and with the development of primaries, farm states like Iowa have become more and more important. Even Republicans, the so-called party against government waste, have traditionally been afraid to touch farm subsidies (just food stamps!). Since Reagan, the Republican Party has been the party of wealth. Reagan happily doled out tax cuts along with spending cuts, but suspiciously, the tax cuts only went to rich people and the spending cuts only hurt poor people. Similarly, Bush’s tax cuts for the rich turned a projected $5 trillion surplus to a $5 trillion deficit, which Republicans like Paul Ryan argue should be paid for by, you guessed it: cutting Medicaid. So here’s a quiz. If the farm bill contains huge subsidies for rich farmers (like Bon Jovi) and food stamps to protect poor people, which half will the Republicans cut? Answer: One of the most effective anti-poverty programs in history. Seriously. Now that I’m done trolling the PolicyMic conservatives, let’s address the real meat of the story here — the farm lobby. The failure of the farm bill indicates that the great hydra agriculture lobby may have only a few ugly heads left to rear. What’s the problem with the farm lobby? Don’t farmers need representation too? Don’t farm subsidies help keep the food market stable? Yes and yes. But, American farm policy may be one of the most incoherently developed and rigidly path-dependent systems in the world. P.J. O’Rourke once noted, “Farm policy can be explained. What it can’t be is believed.” Many of us don’t remember when farming was a killer lobby, able to fight off any representative who questioned the billions funnelled to them. In a supposedly “free-market” country, our ag policy is run like Russia during central planning. Huge tariffs protect the American sugar manufactures from Brazilian competition, to the tune of $3.5 billion a year. That also drives up the demand for high-fructose corn syrup, giving us something to do with the corn we massively overproduce . The big story for the farm bill is that the U.S. government is trimming direct payments and replacing them with an expanded crop insurance program. Crop insurance protects farmers from dramatic drops in the price of crops, but the premiums rarely add up to the payouts. Last year, the crop insurance program paid out $17 billion, three-quarters of which was paid for by Uncle Sam. As any economist knows, such programs (private gain with public risk) encourage moral hazard, and the result is that farmers have taken more risk “by farming on flood plains or steep hills.” The crop insurance program overwhelmingly helps wealthier farmers, but that fact that the lobby couldn’t keep direct payments indicates a level of atrophy. There are other indications of the weakening farm lobby. For instance, last year, the U.S. was hit by its worst drought in 50 years, which was likely exacerbated by climate change . Farmers’ groups sought a bill that would provide relief, but while the bill made it out of committee, it was never brought to a vote on the House floor . Of course, the grand narrative of the bill (i.e. that the Republicans in the House are insane) is also accurate. They’re clearly crazy-level congresso-terrorists, something data showed us long ago and that other conservatives have been hammering them for. The chaos surrounding the farm bill is certainly a reminder that this is the most polarized Congress in a long time , and a harbinger of more inaction (immigration, student loans, tax reform). But it’s also a reminder that while we consume more food, few, if any of us remain attached to nature and very few of us farm. It’s an indication that what used to be a broadly bipartisan issue has now become an area for savage political fighting . That will have increasing political implications in the years to come. Picture Credit: ThinkProgress Continue reading
Hopeful Signs For U.S. And Chinese Cooperation On Climate Change
Derek Walker / Published July 10, 2013 yunheisapunk/ Flickr Last month offered a thrilling glimpse into the future for the millions of people around the U.S. and across the world who are yearning for real solutions to climate change. On June 18, Shenzhen, an economically-vibrant city of 15 million on the South China Sea, launched the first of seven Chinese regional pilot carbon market systems slated to begin by the end of 2014. The Shenzhen market is set to include at least 635 local companies that contribute approximately 40% of the city’s CO2 emissions, and is expected to result in a 21% decrease in the carbon intensity of the economy in just two years. Shenzhen is one of seven carbon trading pilots that represent about 25% of China’s GDP and may include thousands of companies emitting hundreds of millions of tons of CO2. Inspiration, encouragement and support for Shenzhen’s maiden market launch came from a familiar place: California . Both Shenzhen and California have well-established reputations as trailblazers on innovative solutions that match economic growth with environmental gains. Perhaps it will be little surprise, then, that none other than the state’s top climate change official, California Air Resources Board (CARB) Chair Mary Nichols and Governor Brown’s personal representative, Wade Crowfoot, stood with senior officials from Shenzhen and from the National Development and Reform Commission (NDRC) at the Shenzen launch. Nichols has presided over the development of California’s groundbreaking climate change effort and oversaw the Fall 2013 launch of California’s carbon market, the first comprehensive state-level system in the U.S. The California market is a promising model for Shenzhen and the other Chinese pilots. California has held three allowance auctions to date, with strong participation by companies and a modest increase in the price of allowances with each auction. Ultimately, California’s carbon market will be a key element driving the state back to 1990 levels of greenhouse gas pollution by 2020, accompanied by dramatic improvements in air quality and significant incentives to carbon-cutting entrepreneurs. Nichols formalized the partnership between California and Shenzhen by signing a Memorandum of Understanding (MOU) paving the way for technical cooperation between officials and other stakeholders engaged in the respective carbon market programs. The California-Shenzhen partnership is just the tip of the iceberg in the crescendo of cooperation between the U.S. and China. Earlier in June in California, President Obama and Chinese President Xi signed an agreement to collectively fight dangerous hydrofluorocarbons (HFCs) that are used in air conditioning and refrigeration. HFCs are pound-for-pound some of the most potent greenhouse gases, and controlling them will be an essential short-term piece of solving the climate change puzzle. As California and Shenzhen roll up their sleeves to support one another’s ambitious climate change programs, they will provide demonstrable proof of the promise of cooperation between their nations and will deliver results and momentum towards national action. In her remarks at the Shenzhen launch, Mary Nichols called the leadership of California, Shenzhen, and other provinces, states and cities around the world “a foundation that national and international action can spring from.” The Chinese carbon trading pilots are strong signals that climate change is an issue to be taken seriously and to be acted on expeditiously. In the U.S., President Barack Obama recently took the stage in Washington and laid out his Administration’s vision for bold national action to fight climate change, an eagerly-anticipated outline of how progress will be achieved towards Obama’s 2009 commitment to slash greenhouse gas pollution 17% by 2020. While 2020 will be an important milestone in charting progress, it is but the beginning of a long journey. Climate change science couldn’t be clearer about the need to achieve dramatic greenhouse gas reductions by mid-century. And no long-term solution to the environmental challenge of our lifetime will be found without the leadership of the world’s top greenhouse gas polluters. That leadership is now coalescing into national and bilateral action and, for the first time in some time, offers hope that we are headed in the right direction. Continue reading
