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Carbon Market Glut-Fix Plan Wins Backing in EU Parliament
By Ewa Krukowska – Jul 3, 2013 European Parliament approved a plan intended to reduce a record glut of permits and increase prices in the world’s biggest carbon market after they slumped to an all-time low. European Union carbon allowances rose the most in two months after lawmakers in Strasbourg, France , endorsed a revised version of a plan known as backloading advanced by the European Commission, the region’s regulatory arm. That was the parliament’s second verdict on the measure, which would delay the sale of some permits to support prices after it blocked the plan in April, triggering a 45 percent slump in permits. Enlarge image European Union carbon allowances rose as much as 9.8 percent after lawmakers in Strasbourg, France today endorsed a watered-down version of a plan known as backloading and advanced by the European Commission. Photographer: Fred Tanneau/AFP via Getty Images “It’s a good signal that parliament voted this through today,” Oeystein Loeseth, chief executive officer of Vattenfall AB, Europe’s biggest emitter after RWE AG (RWE) , said by telephone. “When you take volumes out of the market, prices will increase.” Emissions prices in the $72 billion cap-and-trade program have lost more than 70 percent in the past four years. The euro area’s record-long recession reduced demand for pollution rights and worsened a glut that swelled to about 2 billion tons in 2012, according to the EU. That’s almost equal to the region’s annual limit imposed on 12,000 power plants and factories. The caps were set before the financial crisis. EU allowances for delivery in December gained as much as 12 percent, the biggest jump since May 3, to 4.79 euros a metric ton on the ICE Futures Europe exchange and were at 4.76 euros at 2 p.m. in London . The contract slumped to a record 2.46 euros on April 17, the day after the parliament blocked the emergency fix in its first plenary vote. ‘Largest Hurdle’ Lawmakers endorsed the plan 344 to 311, with 46 abstentions, according to the voting result. “The backloading plan has passed its largest hurdle so far, but auction curbs are still far from certain and unlikely to start before mid-2014,” Itamar Orlandi, an analyst at Bloomberg New Energy Finance in London said today by e-mail. “The focus will now shift from Strasbourg to Berlin, as Germany ’s decision on the plan will determine whether it can go ahead.” Traders will now focus on positions of national governments, whose consent is also needed to enact the plan, according to Ingo Ramming, co-head of commodity solutions at Commerzbank AG in London. “Markets are hoping on a fast-track decision to regain confidence in the EU emissions trading scheme,” he said today by e-mail. “We would expect that prices are capped in the mid-term around 6 euros on the back of uncertainties on the European economy, supply from industrials and auctioning.” Rejected Amendments Permits may rise to 5.20 euros after the approval, according to the median forecast of nine analysts and traders surveyed by Bloomberg News before the vote. The assembly rejected amendments seeking an earlier return of the delayed permits to the market and earmarking 600 million allowances for a special fund to promote low-emissions technology. It backed a proposal to cap backloading at 900 million permits and limit the planned intervention in the carbon market to an exceptional, one-time move. The delay in sales of permits may be enacted under the condition that it has “no significant impact” on companies prone to relocating production to regions without emission curbs, lawmakers decided. “This is more bullish than the market had anticipated,” Konrad Hanschmidt, an analyst at BNEF, said today by e-mail. Energy Costs The backloading strategy has divided policy makers and industry. Opponents of the fix, ranging from Poland to steelmaker ArcelorMittal (MT) , say it pushes up energy costs during an economic slump. The EU commission and companies including Royal Dutch Shell Plc (RDSA) say intervention is needed to bolster prices that are too low to stimulate investment in clean technology. “Yes!” EU Climate Commissioner Connie Hedegaard said on her Twitter Inc. account. “Despite heavy-handed lobbying, and after very substantial debate, the European Parliament supports the backloading proposal.” The decision in favor of backloading today authorizes Matthias Groote, the lawmaker overseeing the measure in the Parliament, to start talks with representatives of national governments on the final wording of the legislation in a fast-track procedure. The outcome of the talks will need official approval by the parliament and EU ministers. Lithuania, which holds the EU rotating presidency and will represent member states in the negotiations, is ready for a “constructive dialog” on the carbon fix, the Baltic country’s Environment Minister Valentinas Mazuronis said in an emailed statement. He said he was confident the measure can be dealt with “effectively and expeditiously.” German Elections The Parliament’s decision to block the faster return of permits to the market and the creation of the innovation fund will make talks with member states easier, Peter Liese, a German Christian Democrat member of the Parliament, said after the vote. “It’ll go very fast after the German elections,” he said in an interview. Member states may decide about their position by “early fall,” according to Arunas Vinciunas, Lithuania’s Deputy Permanent Representative to the EU. While most EU countries favor backloading, they are short of the qualified majority needed to approve the proposal because several nations, including Germany, remain undecided. Chancellor Angela Merkel said in May she hoped Europe’s biggest economy would be able to tackle the plan soon after elections on Sept. 22. 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
Will EU Backloading Vote Rescue The Carbon Market?
MEP Matthias Groote predicts reworked carbon market proposals will be approved by MEPs in Strasbourg today By Jessica Shankleman, in Strasbourg 03 Jul 2013 The European Parliament is poised to back reforms to the carbon market today, that could push up the price of carbon and drive billions of euros of investment in industrial energy efficiency measures through to 2020. At least that is the view of Matthias Groote, the German MEP responsible for the “backloading” proposals that would temporarily withhold 900 million carbon allowances from the EU Emissions Trading System (ETS), in a bid to tackle the glut of carbon credits in the market that has pushed the price of carbon to record lows. Speaking to BusinessGreen ahead of the vote in Strasbourg, Groote, who is chairman of the Parliament’s environment committee, said he was optimistic MEPs will back the measure today, even though a similar proposal was narrowly rejected by 334 votes to 315 back in April . Groote insists the reworked proposals offer a better deal for energy intensive businesses as it would provide new funds for them to invest in energy saving technology before the end of this decade. “We have another approach in this proposal and we have another majority and it’s more innovative,” he said. Under the new plans, 600 million of the withheld CO2 allowances would be channelled through the European Commission and European Investment Bank’s (EIB) NER300 fund, which provides financial support to renewable energy and low carbon projects. However, the additional funding forms part of a compromise between three of the main political parties, which some environmentalists fear will water down the backloading plans to the point that they will fail to drive new investment. Speaking to reporters yesterday, Rebecca Harms MEP, co-chair of the Greens and European Free Alliance Party, questioned the effectiveness of the backloading proposals in the long term, arguing that they merely mask weaknesses in the system. “Backloading 900 million allowances is not going to help the trading system operate properly and help to reduce pollution,” she said. “We have got all these [surplus] certificates on the market… and our ambition is too weak. We need to raise the objective and keep ensuring we have the right price for CO2 so we can stimulate investment.” But some of the Greens also appear to have accepted that backloading will be a crucial first step towards delivering longer term reforms to the market. The group is now calling for the Commission to permanently retire at least 1.4 billion of allowances to address the oversupply issue. The Commission is due to publish its proposals for structural reforms later this year. Many businesses are also keen to see the backloading proposals approved. Earlier this week, 42 companies and trade associations backed a letter from 12 European energy and environment ministers, calling for the latest backloading proposals to be approved. However, other firms and trade associations, including Europe’s biggest business lobby group BusinessEurope, remain opposed to the measure amid fears it could push up the cost of energy. If backloading is approved, it has also warned against the permanent withdrawal of allowances, arguing that such a move would represent unacceptable interference in the market. Groote remains optimistic there is sufficient support in the parliament to pass the backloading plan at the second time of asking and is equally confident the European Council of member states will support the move if it is passed in Strasbourg. But he admitted that if backloading is rejected the current attempt to drive up the price of carbon would be “dead”, and serious questions would be raised about the Parliament’s ability to deliver wider ranging reforms to the EU ETS later this year. “It’s not clear,” he said, when asked what would happen if the backloading plan is rejected. “I don’t know what would happen. But… it will not happen. At least I hope not.” Continue reading
G8 Leaders ‘Need To Go Further’ On Food Security In Africa
G8 leaders ‘need to go further’ on food security in Africa by Jonathan M. White 14 June 2013 When they meet at Lough Erne, G8 leaders will have to reconcile two competing visions of the New Alliance initiative started last year to lift millions of people out of poverty, says think-tank The New Alliance for Food Security and Nutrition – a joint initiative of African leaders, the private sector, and G8 governments – was launched at last year’s G8 Summit with the ambitious goal of lifting 50 million people out of poverty by 2022. Over the past 12 months, 91 per cent of G8 government commitments have been disbursed on time, and more than half of the private sector investments, worth a total of over $3bn, have commenced. From creating an electronic customs clearance system for agriculture commodities in Burkina Faso to a new seed law in Ghana, New Alliance policy actions could prove to be transformational and strengthen food security in participating countries, which also include Ethiopia, Tanzania, Côte d’Ivoire, and Mozambique. During a pre-G8 Summit event on nutrition last week, Nigeria, Benin and Malawi signed up as well. When they meet at Lough Erne, the G8 leaders will have to reconcile two competing visions of the New Alliance. Some argue that, although well intended, it will not result in sustainable or responsible investments. Big global companies only understand large-scale intensive single crop production models, which are often highly destructive to biodiversity and the social fabric of smallholder farming communities. While the flow of corporate investment and the adoption of modern farm management, skills, and technology will increase agricultural production, these benefits would come at a high cost. Investments will also go toward exportable products and not the local market, making smallholder farmers increasingly dependent on volatile international markets. Others contend that the New Alliance aligns public and private resources with country-led strategies that are consistent with host-country priorities and needs. The initiative is also supportive of multinational guidelines on the governance of land, fisheries, and forests, designed to guard against land grabs and social disruption. Proponents argue that corporate investors, non-governmental organisations, and development partners will assist smallholder farmers integrate into agriculture value chains by helping them organise into cooperatives and engage in contract farming Public-private partnerships and innovative business models will ensure both development and commercial goals are achieved. Which narrative is right? Each holds some merit. In at least four New Alliance countries, there is evidence that local communities have not been sufficiently consulted by investors or governments in land transactions. In two countries, the compensation to households affected by these land investments has been determined to be inadequate. While public-private partnerships are promising, it is clear that some companies simply do not understand how to engage with smallholder farmers. At the same time, the Grow Africa initiative, which is supporting the New Alliance, has reported that more than $60 million invested so far has incorporated smallholder farmers into market-based activities. Approximately 270,000 metric tonnes of commodities were sourced, generating $300m in sales for farmers. Nearly 800,000 smallholders have benefited from a mix of training, service provisions, and market access. While land grabs are a concern, the New Alliance is not dominated by large global corporations. Many sizeable investments are, in fact, driven by African firms and small and medium-sized enterprises. Grow Africa data covers New Alliance countries minus Côte d’Ivoire and plus Kenya and Rwanda. At the heart of the debate over these competing visions is the role of the private sector. Business and trade are often viewed as sources of plunder in Africa – the depletion of oil, gas, and natural resources through shadowy networks of business and government officials. Africa’s economic growth and rising middle class are promising, and African leaders have clearly committed to private sector development. Yet, this has not completely tipped the balance in local perceptions about the private sector. Weak governance and corruption further undermine trust in both governments and business. As the host of the upcoming G8 Summit, British Prime Minister David Cameron will have to navigate this thicket of issues. He is off to a good start, forming a ‘coalition of the willing’ to publish guidelines for land transactions and making progress on nutrition through the Global Nutrition for Growth compact and commitments . Transparency through the release of the 2013 New Alliance progress report will build confidence behind the initiative. But global leaders will need to go further. New Alliance dialogues must be embedded in local contexts, opening them more broadly to public debate through formal platforms or institutions. This means local public and private sector leaders will have to step up. Others can help, but it is these local actors who must ultimately build the mechanisms that will strengthen governance and reveal which investment models succeed or fail, so that we may learn along the way to enabling agricultural transformational in Africa. Jonathan M. White is a transatlantic fellow with the German Marshall Fund of the United States, which first published this article in its Transatlantic Take series as Can the G8 Navigate Competing Visions for Food Security in Africa? Read more: http://www.publicser…a#ixzz2WrP1lKzS Continue reading
