Tag Archives: energy
EU Urges Energy Market as U.S. Shale Gas Widens Price Gap (1)
European Union leaders are set to urge faster integration of the bloc’s power and natural-gas markets to lower energy prices as the U.S. shale-gas revolution widens the EU’s cost gap with its largest trading partner. The 27-nation EU must accelerate efforts to implement energy legislation aimed at breaking down national barriers by 2014 and develop interconnections to end the isolation of some member states from networks by 2015, according to a new draft of conclusions for a leaders’ summit in Brussels today. The summit initiative comes after a record drop in private investment in Europe and the biggest-ever slump in the EU carbon market, designed to cut pollution and stimulate a shift to cleaner fuels. “The EU’s energy policy must ensure security of supply for households and companies at affordable and competitive prices and costs, in a safe and sustainable manner,” according to the conclusions obtained by Bloomberg News. “This is particularly important for Europe’s competitiveness in the light of increasing energy demand from major economies and high energy prices and costs.” At stake is an EU campaign to win energy-policy authority from national officials that compares with existing European powers over monetary, antitrust, trade and agriculture matters. Some governments, including the U.K., are lagging behind in introducing rules in line with EU legislation more than two years after a deadline passed. Price Gap If the EU becomes a fully integrated market, it could save as much as 35 billion euros ($45 billion) a year in electricity costs in 2015 compared with 2012, according to the European Commission, the bloc’s regulatory arm. Shale-gas production has contributed to a widening gap between U.S. and EU industrial prices for energy, according to a commission report prepared for the summit. “In 2012, industry gas prices were more than four times lower in the U.S. than in Europe,” the report said. As the EU’s oil and gas import dependency is set to increase to more than 80 percent until 2035, the U.S. is on its way to become a net exporter, according to the International Energy Agency. The increase in European energy prices is linked to the inconsistency of EU policies to boost the share of renewable energy, increase energy efficiency and cut greenhouse gases, as well as to national policies that distort the internal market, according to a study commissioned by BusinessEurope, a Brussels-based employers’ federation. ‘Cost Burdens’ “The U.S. industry already has a head start on global markets — this means that any additional cost burdens on European industry should be avoided if competitiveness is to be ensured,” Frontier Economics Ltd. said in the study. While companies such as Chevron Corp. (CVX) have begun drilling exploration wells in countries including Poland, shale-gas production in Europe won’t make the region self-sufficient in natural gas, according to a 2012 study by the EU Joint Research Centre. Under the best-case scenario declining conventional production could be replaced and import dependence maintained at a level around 60 percent, it said. Indigenous Resources As some member states and environmental groups are seeking stricter controls on shale gas exploration, EU leaders will say it’s crucial to “further intensify the diversification of Europe’s energy supply and develop indigenous energy resources,” according to the draft conclusions. Poland’s Prime Minister Donald Tusktold reporters today he was satisfied with the proposed wording as it treats shale gas as an opportunity and lets countries explore it as an option in national energy mixes. Europe needs to diversify its energy sources, boost efficiency, modernize infrastructure and complete the internal market, although shale gas development in Europe may not be a “silver bullet,” according to lobby group Shale Gas Europe, which is supported by companies including Royal Dutch Shell Plc. (RDSA), Halliburton and Statoil. Energy costs in the EU will remain above the U.S. because of differences related to infrastructure, rock structure and legislation, Iain Conn, head of BP Plc (BP/)’s refining and marketing unit, said March 16. ‘Cheap Coal’ “Europe is more dependent on imported energy and although Europe is benefiting — if I can call it that — from cheap coal coming from the U.S. as a result of this, Europe’s cost of energy for the economy is going to be higher than in the U.S. for the foreseeable future,” he said. As a net importer, Europe can boost energy efficiency, create a market based on smart infrastructure, exploit conventional and unconventional energy sources and bet on innovation in order to ensure secure and competitive prices, according to the commission. By 2020, the region needs to invest 1 trillion euros to reach its goal, the commission said. Financing investment in “new and intelligent infrastructure” should primarily come from the market, according to the draft summit conclusions. Private investment in Europe tumbled by a record 350 billion euros in 2007-2011, 20 times the drop in private consumption and four times the decline in real gross domestic product, according to a report by the McKinsey Global Institute published last year. Carbon Market “This makes it all more important to have a well-functioning carbon market and a predictable climate and energy policy framework post-2020 which is conducive to mobilizing private capital and to bringing down costs for energy investment,” according to the draft conclusions. EU leaders will return to the issue of 2030 energy and climate rules in March 2014, after the commission comes forward with a “more concrete proposals,” they said in the draft document. By then ministers will have discussed policy options in that regard, taking into account objectives set for a global climate deal sought in 2015, the document showed. Prices in the European emissions trading system tumbled to a record low of 2.46 euros a metric ton last month amid a surplus of allowances and concerns that lawmakers may fail to reduce the glut. That compares with 25-30 euros expected by policy makers when the cap-and-trade system was created in 2005. EU leaders will call on the commission to study how energy prices are affecting Europe’s competitiveness and what response is needed. The EU will need to look at innovative financing methods, improved liquidity in the energy market and the issue of the contractual linkage of gas and oil prices, they said in the draft statement. To contact the reporter on this story: Ewa Krukowska in Brussels at ekrukowska@bloomberg.net To contact the editor responsible for this story: Lars Paulsson at lpaulsson@bloomberg.net Continue reading
Taking Stock of Climate Change Efforts: As European Carbon Market Falters, CA Expands Cap and Trade to Canada
May 20, 2013 Unlike many environmental problems, which can be addressed at a local or regional scale, climate change is inherently global in nature: greenhouse gas (“GHG”) emissions from any source join with historic and contemporary GHG emissions from other sources globally to contribute to the total store of GHGs in the atmosphere. The global nature of the issue is a key reason why, from the onset of climate change efforts, policymakers and environmentalists have attempted to address GHG emissions at an international scale. Failure of Kyoto Protocol Leaves Void in International Climate Change Efforts The primary effort to address climate change at an international scale is the Kyoto Protocol, adopted in 1997 in connection with the United Nations Framework Convention on Climate Change. Unfortunately, through the first “commitment period” (which ended in 2012), the Kyoto Protocol has not achieved expectations, as the two largest GHG emitting countries—China and the United States—never signed the Protocol. The sense that the Kyoto Protocol will ultimately fail as a climate program was compounded by the inability of negotiators at the 2009 Copenhagen Summit to agree on a framework for climate change mitigation for the period following the end of the first commitment period in 2012. Since Copenhagen, climate policymakers have looked for a regional model to lead the way to a new international climate framework. European Trading System in Disarray With the Kyoto Protocol faltering, hopes have been pinned on the European Union’s climate change program—the Emissions Trading Scheme (“ETS”). These hopes are rapidly fading. In the past few months, the ETS has experience significant growing pains, with the price of carbon allowances having dropped from about € 25 per ton in 2008 to below € 3 per ton in April. Although reductions in GHG emissions in the EU are still on pace to meet the target of the Europe 2020 Strategy (20% lower than 1990 emissions), most analysts believe that carbon prices at this level are too low to spur investment. The severe drop in carbon allowance prices has led many, including The Economist , to question whether the ETS has any future. California Expanding its Cap and Trade Program to Canadian Province of Quebec In the midst of Europe’s difficulties, California has moved forward to link its cap and trade system with that of the Canadian Province of Quebec. On April 19, 2013, the California Air Resources Board (“CARB”) approved a plan to formally link with Quebec beginning on January 1, 2014. Linkage will create a relatively seamless cap and trade market, with compliance instruments—carbon allowances and offset credits—being interchangeable in the two systems. California and Quebec will also hold joint auctions of carbon allowances. The linkage of the California and Quebec cap and trade systems is a modest first step towards a robust North American cap and trade system. Although Quebec is Canada’s largest province by size and has a population of about eight million people (second only to Ontario among provinces), its economy is not nearly as large as that of California: Quebec has a GDP of about $300 billion compared to California’s GDP of about $1.9 trillion. About 80 entities (referred to as “establishments” in Quebec’s program) are subject to Quebec’s cap and trade regulations. In comparison, California’s cap and trade program covers about 350 entities representing 600 facilities. Also, Quebec’s allowable GHG emissions are substantially lower than those of California: Quebec’s cap starts at about 23.2 million tons of GHG emissions (CO 2 e) in 2013 and ends at about 54.7 million tons in 2020, while California’s cap starts at about 162 million tons of GHG emissions (CO 2 e) in 2013 and ends at about 334 million tons in 2020. (Note that the increase reflects the addition of transportation fuels and natural gas in 2015; over time, the cap will go down — become more stringent —for all covered sectors.) Testing the New Model CARB recognizes that a key aspect of linkage with Quebec is that it may establish a new template for climate change efforts globally. As stated by CARB in its response to comments: “[T]he experience gained now in demonstrating that two separate governments, in two separate countries, with two separate economies, can effectively partner to put a price on carbon and reduce greenhouse gas emissions is invaluable to accelerating national and international efforts to address climate change.” However, California’s cap and trade program is less than a year old and already several lawsuits have been filed challenging various aspects of the program. So the jury is still out as to whether California’s program will succeed. Moreover, the addition of Quebec will make the cap and trade program more complicated (and mistake prone) without offering a meaningful test run that could be expected of a larger, more complex regional program. Nonetheless, given the problems with the Kyoto Protocol and the ETS, the need for a successful model is certainly there, and California and Quebec may be the start of such a model. In the interim, California and Quebec will undoubtedly have to iron out a number of issues (ranging from the integrity of offsets to the logistics of operating a linked market in two languages). In the event that the California-Quebec market sets the tone for a revamped European system or a new Kyoto, monitoring the developments of the North American effort will be a key task for businesses and governments (not only within California and Quebec, but in other states and provinces as well), as they may be incorporated into the system at some point in the future. Marc Luesebrink is of counsel in the Los Angeles office of Manatt, Phelps & Phillips. He has extensive experience advising both private industry and public sector clients on environmental and land use matters. Earlier in his career, he served as a Senior Attorney at Southern California Edison and Deputy Attorney General in the Office of the California Attorney General. Mr. Luesebrink can be reached at (310) 312-4261 or mluesebrink@manatt.com . This column is part of a series of articles by law firm Manatt, Phelps & Phillips, LLP’s Energy, Environment & Natural Resources practice. The first column in the third edition of this series discussed What the Sequester Means for Environmental Regulation . Continue reading
Ethanol: Logic Of Circular Biofuel Trade Comes Into Question
http://www.ft.com/cms/s/0/e4baefbe-b0d6-11e2-9f24-00144feabdc0.html#ixzz2TSTQBQ4m By Greg Meyer Despite having the world’s biggest ethanol industry, the US imported 9.6m barrels of the biofuel from Brazil last year. Brazil, the ethanol pioneer, imported 2m barrels from the US. The US and Brazil, the giants of the market, together produce 87 per cent of the world’s output, according to analysts FO Licht. The US product is largely distilled from corn, while Brazil makes ethanol from its sugar cane crop. For the engine of a car, the two vintages are virtually identical. Yet in the eyes of the law they are quite distinct. This helps explain why the US and Brazil are shipping one another ethanol at great expense rather than simply using it at home. Washington is weaning its domestic ethanol industry off subsidies. In 2011 a tax credit for ethanol blenders expired, as did a corresponding import tariff. But the industry still has the support of a government mandate requiring domestic ethanol consumption to grow each year. The mandate is indirectly helping to drive imports from Brazil. The mandate, known as the renewable fuel standard, is split between volumes for traditional corn-based ethanol and “advanced biofuels” whose production releases less greenhouse gas impacts than ploughing fields for grain. Corn ethanol has the biggest share, but the advanced biofuel requirement is growing more rapidly. US production of advanced biofuels has not matched government expectations. To meet the mandate, fuel companies are allowed to import sugar cane ethanol, mainly from Brazil. The US Environmental Protection Agency estimates about 15.9m barrels of sugar ethanol imports will be needed this year. “As the mandate grows, ethanol imports rise accordingly,” say economists at the University of Missouri’s Food and Agricultural Policy Research Institute. Another US policy encouraging Brazil to export ethanol is set by California. The state, known for standard-setting vehicular pollution controls, welcomes the use of sugar cane ethanol to satisfy its low carbon fuel standard programme. In the reverse direction, US ethanol exports to Brazil are well below a peak of 9.4m barrels reached in 2011 when the South American country suffered poor sugar harvests. The Brazilian ethanol industry has also been hurt by domestic government policies that have kept petrol prices artificially low to fight inflation. This year, Brasilia raised the required ethanol blending rate to 25 per cent from 20 per cent of motor fuel in a bid to help the domestic biofuel industry. But imports from the US are expected to continue nonetheless. The US corn-based ethanol industry has more capacity than needed for a domestic fuel market where demand is weak and most fuel companies refuse to blend more than 10 per cent ethanol with petrol. Brazilian imports arriving under the advanced biofuels mandate further add to supplies. So a portion of the relatively cheap, unwanted corn ethanol barrels flows back to Brazil. The Energy Information Administration, in a note last year, called it a “complex environment” where blenders and ethanol producers “not only have to produce enough corn ethanol to meet the overall renewable fuels mandate, but … must also import significant volumes of sugar cane ethanol to meet the advanced biofuel mandate, all in the face of demand constraints”. The American and Brazilian ethanol industries are squaring off as regulators consider how to apportion this year’s US ethanol mandate. The Renewable Fuels Association, the main US corn-based ethanol lobby, argues the EPA should lower the advanced biofuels mandate to insure against unreliable supplies from Brazil. Furthermore, tight corn stocks and slowing output suggest the US may not be able to export as much ethanol as in years past, the association says. The circular trade between the companies is “economically absurd”, the RFA added. Unica, the Brazilian sugar cane industry group, contends that the US should uphold its advanced biofuel targets, which would support ethanol imports from Brazil. “The fact that there is two-way trade in ethanol between the US and Brazil demonstrates both the complexity and success of government intervention into fuel markets,” Unica wrote to the EPA in April. There is nonetheless an irony in the fact that biofuels promoted to reduce greenhouse gases are being ferried between the US and Brazil in ships belching petroleum exhaust. As the EPA notes: “This two-way trade of ethanol engenders additional transport-related emissions.” Continue reading
