Tag Archives: energy
OECD-FAO Agricultural Outlook 2013-2022: Higher Energy Inputs Mean Higher Agricultural Commodity Prices
June 11th, 2013 This post concerns a 120-page PDF report combining efforts from the OECD and the FAO, from which I’ve excerpted some key projections on food commodity prices and how they are expected to be impacted by rising input costs, especially crude oil and fertilizer costs. Note that I’ve zeroed in on these subjects by choice, as there are many other subjects covered in the report. I’ve highlighted a few sentences in red, but there are many additional nuggets in the paragraphs below, beginning with the report description and overview. OECD-FAO Agricultural Outlook 2013-2022: The nineteenth edition of the Agricultural Outlook, and the ninth prepared jointly with the Food and Agriculture Organization of the United Nations (FAO), provides projections to 2022 for major agricultural commodities, biofuels and fish. Notable in the 2013 report is the inclusion of cotton for the first time and a special feature on China. Higher costs and strong demand are expected to keep commodity prices well above historical averages with a high risk of price volatility given tight stocks, a changeable policy environment and increasing weather-related production risks. China is projected to maintain its self-sufficiency in certain key food commodities while increasing its trade and integration in world agricultural markets. Overview: Market tightening in recent years has been accompanied not only by an increase in the level of agricultural prices but also by a resurgence of commodity and food price volatility, reminiscent of the situation of the 1970s. In these circumstances, prolonged periods of low agricultural product prices driven by ever increasing productivity improvements in a context of low oil and energy prices seem now a feature of a bygone era. Instead, with energy prices high and rising and production growth declining across the board, strong demand for food, feed, fibre and industrial uses of agricultural products is leading to structurally higher prices and with significant upside price risks. The frequency of short term price surges and bouts of high volatility, accentuated in some cases by policy choices, have catapulted agriculture and its future prospects into renewed prominence. The factors external to agriculture that will shape global demand and supply for agricultural commodities include slowing population growth and changing population demographics, macroeconomic shocks and the speed of recovery to sustained global economic growth, the increasing co-movement of agriculture with energy and financial markets, and enhanced climatic uncertainties. Overall, the increasing scarcity of arable land, water constraints and rising input and energy costs in agriculture all serve to highlight the critical importance of achieving higher agricultural productivity in a more sustainable manner both at the farm level and upstream and downstream sectors of the food supply chain. As a result of rising energy, higher operational expenses, and rising input constraints of land and water necessary for expansion, global livestock inventories and livestock product supplies of meats and dairy products expand less rapidly over the projection period than in the past decade. Oil and energy prices are assumed to increase over the coming decade and to remain historically high reflecting steady global economic growth. By the end of the projection period in 2022, the price of crude oil is assumed to be around USD 145 per barrel, with an average growth over the period of 2.6% p.a. and slightly above that for consumer price inflation. High energy and oil prices will have effects on both demand and supply of agricultural products, through higher agricultural supply costs and increased demand for agricultural feedstocks used for biofuels production. With prices of fertilisers and other farm chemicals and machinery costs closely related to oil prices, any rise in oil prices is expected to quickly translate into increasing production costs. In addition, some inputs such as water are becoming increasing constrained in availability to agriculture and more costly to procure needed supplies. Higher energy and oil prices and rising costs of other inputs are factored into the commodity price projections through higher agricultural supply costs. Higher production and supply costs will reduce the profitability of capital and input intensive agriculture and this development can be expected to further slow the growth in production. At the same time it will likely encourage production growth in countries with less intensive farming practices due to higher net returns, such as pasture-based dairy and meat operations. An exception will be countries such as the United States and Brazil, in which exchange rate depreciation will help to offset some of these cost disadvantages to preserve the competitiveness of their agricultural production on world markets. Overall, the increasing scarcity of arable land, water constraints and rising input and energy costs in agriculture all serve to highlight the critical importance of achieving higher agricultural productivity in a more sustainable manner both at the farm level and upstream and downstream sectors of the food supply chain. This will be required to ensure the increasing food supplies needed by an expanding global population and to reduce upside price pressures over the longer term. Slower output growth is expected to be a feature of agricultural production in both the developed and developing countries’ agriculture sectors in the coming decade. Developed and the large emerging economies in particular are projected to enter a period of lower yield and production growth for most crops. This will also apply to livestock sectors of meats and dairy, but with the downward adjustments perhaps less pronounced in some cases than for crops. For livestock production, these developments reflect a combination of moderately rising feed costs, higher energy costs and a growing scarcity of inputs such as water and suitable land. However, the projected growth in global agricultural production will still be sufficient to outpace the increase in global population with output per person estimated at 0.5% p.a. Short term supply response to changing prices has been faster in the past in the developed countries with their highly capital and input intensive farming practices and capacity to adjust variable input usage rapidly. Nonetheless, agricultural production over the longer term is projected to continue to grow more rapidly in the developing countries and this will further increase their share of global agricultural output to 2022. China: Budgetary transfers for producers have been growing constantly since the end of the 1990s and are provided mostly through direct payments for grain producers, payments compensating increase in prices of agricultural inputs, in particular fertilisers and fuels, payments enhancing use of improved seeds and through subsidies for purchases of agricultural machinery. A positive feature of these transfers is that to an increasing extent they are provided through direct payments at a flat rate per unit of land which is effective in supporting farmers’ income and have limited influence on production and trade. Ethanol production is expected to increase 67% over the next ten years with biodiesel increasing even faster but from a smaller base. By 2022, biofuel production is projected to consume a significant amount of the total world production of sugar cane (28%), vegetable oils (15%) and coarse grains (12%). There is much more of interest in the report. Continue reading
Turning Waste Into Energy
Aug. 8, 2013, 1:32 p.m. A new direction in fuel? Image source: www.gizmodo.com.au New Forests and the Clean Energy Finance Corporation (“CEFC”) have announced they have jointly executed a collaboration agreement to finance new bioenergy and biofuel developments. The new investments could include combined heat and power projects or renewable fuels projects featuring biodiesel or syngas associated with forestry investments in regional Australia. New Forests has invested in extensive forestry plantations in Australia, and the agreement may support establishment of new domestic markets for hardwood and softwood timber as well as traditional forestry and sawmill waste products. Under the collaboration agreement, New Forests will seek to develop commercially-oriented investment opportunities in renewable energy that complement regional forest sectors. New Forests’ managing director, David Brand, said, “This is an opportunity to diversify Australian markets for timber, turn waste material into energy, and create new jobs and investment in rural Australia. We see biomass based energy and liquid fuels as an area of substantial potential for growth, and an opportunity that could rival the size of traditional timber markets in the next ten or 20 years.” CEFC CEO, Oliver Yates, said “This is an excellent demonstration of how the CEFC can work with the forestry industry to enable bioenergy projects that will fulfil the potential for the industry to convert its waste products into a valuable renewable energy source. Investment in bioenergy can help reduce carbon emissions, lessen the reliance on traditional electricity and has the potential to boost productivity through reduced energy and operating costs.” Bioenergy presently provides 0.9 per cent of Australia’s electricity generation, but the Clean Energy Council estimates that this has the potential to increase six-fold by 2020 with the right support in place. “Linking Australia’s very significant forestry resources and skills and enhancing these through new clean energy technologies utilising cellulosic biomass will build a new industry of national value”, Mr Yates added. New Forests’ investments already include 375,000 hectares of land and timber plantation assets in Queensland, New South Wales, Victoria, South Australia, Tasmania, and Western Australia and Timberlink Australia, with two softwood sawmills located in Tasmania and South Australia. Many of these plantations were established under managed investment schemes and now need concerted effort to develop markets and infrastructure. “Market development is a key part of the work that needs to be done to reposition Australia’s plantation forestry sector for the future,” Mr Brand said. “As an Australian business we seek to achieve excellent returns for investors, and innovation is a key part of that work,” he said. The collaboration agreement is open to any projects brought forward by New Forests that meet the CEFC investment criteria. New Forests has identified a bioenergy plant in the Green Triangle alongside the Tarpeena sawmill as an immediate priority, as well as an assessment of the potential to use hardwood plantations for bioenergy and biofuel production at other locations. www.cleanenergyfinancecorp.com.au Continue reading
Carbon Pricing Mechanism – Moving To An ETS: Next Steps
Norton Rose Fulbright LLP Elisa de Wit , Noni Shannon , Edward Campbell and Hannah Gould Australia August 6 2013 Author page » Author page » Author page » Introduction As we head towards the September Federal election, the Labor Government has sought to lock in its policy of an Australian emissions trading scheme. On 16 July 2013, the Government officially announced that it will transition from a fixed carbon price to a flexible carbon price a year earlier than planned and that Australian businesses will have “ earlier access to international permits from the European Union Emissions Trading Scheme (EU ETS) and credible Kyoto units from international markets .” Under the existing arrangements, the carbon price was set to be fixed at $25.40 per tonne for the financial year starting on 1 July 2014 and was not set to move to the flexible price period (which included a “one-way” indirect link with the EU ETS) until 1 July 2015. The Department of Industry, Innovation, Climate Change, Science, Research and Tertiary Education (DIICCSRTE) has now released the Starting Emissions Trading on 1 July 2014: Policy Summary and two draft Bills to give effect to the changes required to bring forward the move to the flexible price period and one-way indirect link with the EU ETS by one year. Submissions may be made to DIICCSRTE up to 5pm on 15 August 2013. Clean Energy Legislation Amendments The draft Clean Energy Legislation Amendment (Emissions Trading Scheme) Bill 2013 ( Amendment Bill ) sets out amendments to the Clean Energy Act 2011 (Cth) ( Clean Energy Act ), the Australian National Registry of Emissions Units Act 2011 (Cth) and the Fuel Tax Act 2006 (Cth) to start emissions trading on 1 July 2014. The key changes set out in the Amendment Bill are the following: Start of the flexible price period – The amendments provide for the start of emissions trading on 1 July 2014 by amending the definitions of ‘fixed price year’ and ‘flexible price year’ Price ceiling – The price ceiling will apply from 2014-15. Regulations to set the amount of the fixed charge (starting level of the price ceiling and the escalation rate) and the duration of the price ceiling must be made before 1 July 2014 Surrender limits on eligible international emissions units – Liable entities will be able to surrender eligible international emissions units (including European Union Allowances ( EUAs ) and eligible Kyoto units) from 1 July 2014. The 50% general limit on the use of eligible international emissions units by liable entities will be brought forward to apply from 1 July 2014. The surrender limit for access to Kyoto units will be decreased to facilitate the convergence of the price of EUAs and Australian carbon units. The sub-limit on Kyoto units will be 6.25% of an entity’s liability in 2014-15, increasing to 12.5% for liabilities that accrue from 1 July 2015 Energy Security Fund – Assistance provided to eligible emissions-intensive coal-fired generators under the Energy Security Fund will be revised. The allocation of free carbon units to eligible generators in the 2016-17 financial year will not proceed and the allocation of free units to eligible generators in the 2015-16 year has been brought forward to the 2014-15 financial year Equivalent carbon pricing for liquid fuels and synthetic greenhouse gases – The per-tonne carbon price equivalent will also apply from 1 July 2014. It is applied to some uses of liquid and gaseous fuels and to synthetic greenhouse gases through fuel tax, excise and tariff legislation. The Excise Tariff Amendment (Emissions Trading Scheme ) Bill 2013 sets out amendments to the Excise Tariff Act 1921 (Cth) which are also required to start emissions trading on 1 July 2014. This Bill is required to ensure compliance with section 55 of the Constitution, which requires that laws imposing duties of excise deal with the subject of excise only. Given that the Government has now entered caretaker mode, the Amendment Bill will not be put before the Parliament before the election. Whether it is placed before Parliament after the election will depend upon the election result. It is worth noting that at the moment it appears that the Greens would not support the amendments. The Coalition remain firm in their opposition to the Labor Government’s scheme as a whole. Emissions Cap The “carbon pollution emissions cap” ( Emissions Cap ) dictates how many carbon units the Clean Energy Regulator ( Regulator ) can issue for each year of the flexible price period. The Emissions Cap has not yet been set. In order to set the Emissions Cap, regulations are required to be made and passed by both Houses of Parliament. Before regulations can be tabled in Parliament, however, the Climate Change Authority ( CCA ) must provide the Minister with a report which sets out a review of the level of carbon pollution caps and recommends an appropriate Emissions Cap (known as the ‘Caps and Targets Review’). Previously, this review would only have recommended an Emissions Cap commencing on 1 July 2015. The current deadline for the CCA to provide its final report to the Minister is 28 February 2014. However, as 2014-15 is now proposed to be a flexible price year, the Government must set an emissions cap for that year. The legislation requires that the Minister must consider a report by the CCA that recommends the level of the pollution cap for 2014-15 when setting the cap for 2014-15. Accordingly, the Minister wrote to the Chair of the CCA, on 19 July 2013, requesting a “special review” under section 59 of the Climate Change Authority Act 2011 which will require the CCA to provide a recommendation on an Emissions Cap for 2014-15 in its review. Additionally, the Amendment Bill provides for a pollution cap to be in place by 1 July 2014, either as set in regulations (in accordance with the process set out above) or as a default cap. The default cap, which protects against the possibility of the Government not being able to legislate a suitable Emissions Cap, will be 25 million tonnes below total covered emissions for 2012-13. Auctions The Clean Energy (Auction of Carbon Units) Determination 2013 ( Auction Determination ) has already come into force and provides a mechanism for the auctioning of carbon units. The Auction Determination, however, specifically refers to carbon units with a vintage year beginning 1 July 2015 or later. Although the Government has not prepared amendments to the broad range of existing secondary legislation to give effect to starting emissions trading on 1 July 2014, DIICCSTRE has indicated that the following provisions of the Auction Determination will be amended: sections 6 and 13(2) (concerning the auction schedule and the number of units to be auctioned in 2013-14) to add additional auctions for the 2014-15 carbon unit vintage, including advance auctions to be conducted in 2013-14. We note it is possible the Emissions Cap may not be set by the time these auctions are due to commence, therefore the volume of carbon units available at these auctions in 2013-2014 is proposed to be set at 40 million; and section 19, to make additional provision for the setting of an opening price for carbon unit auctions including advance auctions at 80% of the EUA price for the duration of the interim link. Although we understand that it will take another couple of months for the Regulator to technically design the auctioning software, even prior to the Government’s announcement to move the ETS forward a year, auctions had been scheduled to commence in the first quarter of next year, so there should be no timing issues in relation to this aspect. Linking with the EU ETS Amendments have already been made to the Clean Energy Act and the Australian National Registry of Emissions Units Regulations 2011 which will enable the linking of the carbon pricing mechanism with the EU ETS. There are no additional legislative steps which need to occur in order to make the one-way link operational. It appears the EU is supportive of the early move to an ETS with the EU’s climate commissioner, Connie Hedegaard, tweeting that it is “great” to see Prime Minister Rudd’s decision to seek a move to trading from mid-2014, and adding that the EU is “Speeding up #ETS linking discussions”. Nevertheless, there remain a number of technical developments which need to be implemented in order to harmonise the Australian and European registries. This is necessary because under the linking system, allowances are issued under both the Australian ETS and EU ETS and are solely represented by electronic entries in a registry. It is therefore necessary for the registries to be linked or ‘harmonised’ before linking can occur. The Government has officially said that the interim link will be in place by 1 July 2015 (that is when it was originally planned) and specifically states that this is “seven months before the 2014-15 compliance date of 1 February 2016” and that “in the meantime, liable entities and other market participants are able to open accounts in the EU Registry and trade in EU allowances”. Not linking with the Californian ETS In a cautious move towards a global carbon market, the Clean Energy Regulator ( CER ) has entered into a Memorandum of Understanding with the California Air Resources Board ( CARB ) which will run until 1 January 2016 ( MOU ). The purpose of the MOU is to establish the framework for the CER and the CARB to collaborate and share information on: the implementation of their respective market-based programs; opportunities for complementary actions (including the harmonisation of reporting and technical standards) to expand carbon markets, lower costs and preserve the environmental integrity of the programs, and the development and implementation of complementary programs to reduce greenhouse gas emissions. The MOU also provides for each party to build the capacity of their respective experts in the area with the option of temporarily exchanging personnel. It appears, however, that this collaborative process is not intended as the groundwork for linking the Australian and Californian schemes, at least not yet. In her public addresses last week, Mary Nichols, the chair of CARB, made it clear that the philosophy behind the Australian and Californian programs (for example, the different approach to offset credits) and the politics and current uncertainty surrounding the future of Australia’s programs, meant full linkage would be very difficult. How far the parties will be able to move along this collaborative path will be clearer in a matter of months, once the result of the Federal election is known and the policy of the winning party is able to be put into practice. Market expectations on price Given the decision to link Australia’s ETS to the EU ETS and given that the EU ETS is a much larger market than our own (Europe’s covered emissions are more than 6 times those of Australia) it is more likely than not that the price of Australia’s carbon units will match that of European Union Allowances, which as at July 2013 are trading at around A$6-$7.50. However, Europe is currently trying to make changes to its ETS which are aimed at pushing the carbon price up. A recent vote in the European Parliament has taken the first step towards implementing these changes. Accordingly, it is possible that these changes could be in place prior to 1 July 2014, in which case the European carbon price is likely to be higher than its current level and this will flow through to the price of Australia’s carbon units. Next steps Subject, of course, to the outcome of the Federal election, liable entities may wish to start considering a compliance strategy which includes the purchase of EUAs and Kyoto units (the latter of which are currently at record low prices). Our extensive experience in advising on transactions within the EU ETS means we are extremely well placed to advise you on the different options available. Liable entities will also wish to ensure that they have put in place appropriate internal arrangements to enable participation in the forthcoming auctions. In the meantime, it will be important for liable entities and others associated with the emerging Australian carbon market to keep a close eye on developments within Europe, and in particular the progression of the backloading proposal and longer term structural reforms. We can assist with a tailored updating service to keep you linked in to these developments. Please contact a member of our climate change team if you would like to investigate this opportunity. Continue reading
