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EU Vote Shows Carbon Pricing Not Dead Yet
Yesterday the European Union’s parliament voted in favour of a proposal aimed at reviving the flagging EU carbon market (For: 344, Against: 311), after previously rejecting a similar proposal in April. It led the price of EU carbon allowances to rise in yesterday’s trading by 9 per cent to €4.67 or $A6.67. This was on top of earlier rises in the lead-up to the vote as the market priced-in an expectation of a ‘yes’ vote. This proposal, commonly referred to as ‘backloading’, will involve withholding the sale of 900 million emission allowances over the next few years, and then returning them into the market towards the latter years of 2020. However, for the measure to be implemented, it still needs to receive approval from the European Council (the government ministers for each member country of the EU). The EU’s emissions trading scheme is currently suffering from a very large oversupply of emissions allowances, thanks to Europe’s deep recession. This has led to carbon prices slumping to such low levels that they become almost irrelevant to investment decisions in carbon intensive sectors such as power supply. In a normal physical commodity market like metals or grains, when there is a large oversupply and prices plummet, firms curtail production. However government-designers of the EU carbon market, as well as the Australian scheme, failed to incorporate in-built features that would act to automatically mimic these self-adjusting features of normal commodity markets. The end result is prices can plummet in quite a volatile manner once an oversupply is reached, and then become stuck. This backloading proposal, by reducing the level of new allowance supply in the short-term, aims to temporarily address this shortcoming. However because the issuance of allowances has merely been delayed, rather than permanently withdrawn, the carbon market is still stuck with a large, long-term oversupply. Consequently carbon prices are still not expected to rise to levels that would provide a strong incentive for investment in low carbon technology. For the backloading proposal to be implemented it still needs at least 255 of the 345 votes held by member countries (votes per country are listed at bottom) in the European Council. Energy ministers of countries representing 180 votes issued a joint statement a few days ago strongly supportive of the EU ETS and backloading (Denmark, Estonia, Finland, France, Germany, Italy, The Netherlands, Portugal, Slovenia, Slovakia, Sweden and the UK were signatories). The statement argued the EU carbon price is too low, stating: “We remain deeply concerned that the ETS as currently designed cannot provide the price signals needed to stimulate the low carbon investment needed now, because the supply of allowances substantially outstrips demand, leading to a very low carbon price. This also threatens the credibility of carbon markets as the most flexible, cost-effective way to achieve emissions reductions.” Importantly it argued in favour of more permanent solutions beyond backloading to address the oversupply of allowances and low carbon prices, “Targeted interventions may be necessary and we are convinced that only through proper structural reform and by giving investors a clear signal on Europe’s low carbon ambition beyond 2020 can the EU ETS be restored to its original purpose of driving down carbon emissions and stimulating low carbon investments.” However there is resistance to reform of the EU ETS, from Poland in particular. This parliamentary vote, on top of Obama’s recent commitments and China commencing its pilot emissions trading schemes represents a very positive development. But hurdles still remain before the European and therefore the Australian carbon price outlook materially improves. Read more: http://www.businesss…t#ixzz2Y4jMgsWK Continue reading
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
China & Sudan Sign Agricultural Agreement
June 29, 2013, (KHARTOUM) – Sudan’s minister of agriculture Abdel Halim al-Mutafi, announced that his government signed an agricultural cooperation agreement with Beijing which gives Chinese companies several options to operate in Sudan. A Sudanese farmer stands in a field of sorghum in Gezira state (AFP) According to the agreement Chinese companies could directly invest in Sudan, engage in partnerships with local partners, or fund agro-processing and food production projects. The accord aims at promoting Sudan self-sufficiency and exporting surpluses to China and the rest of the world to contribute to solving the world’s food shortage, the minister said. Al-Mutafi added in statements to Chinese media on the sidelines of the second session of the strategic dialogue between China and Sudan on Saturday that Sudan seeks to transfer the Chinese experience and advanced technologies to boost agricultural production. He said that the visit also aimed at attending the fourth forum on Small and Medium Enterprises (SMEs) cooperation between China, West Asia, and North Africa countries. The Sudanese delegation currently visiting Beijing is led by presidential assistant Nafie Ali Nafie and several ministers from Sudan’s economic sector as well as a group of businessmen. Al-Mutafi, disclosed that both countries have agreed on the major strategic issues and regional and international relations as well as Sudan’s internal issues. He underscored the importance of the dialogue and said that it offered a good opportunity to discuss the recent problems between Sudan and South Sudan, mentioning the positive role which China could play to promote peace between the two countries. The Sudanese official further said that his country’s relation with China is progressing slowly but in a deliberate and calculated manner, pointing to the joint investment in oil industry as well as minerals and agriculture. He added that China’s increasing food consumption and Sudan’s large fertile land enhance opportunities for agricultural cooperation between the two countries. Last year Sudan granted China permission to set up a free-trade zone for agricultural products and livestock to boost bilateral transactions. Once hoped to be the breadbasket of the Arab world, Sudan’s agricultural sector has continued to deteriorate over the years mainly as a result of negligence, drought, mismanagement, high taxes and the overall economic climate. Sudanese farmers often complain about the high costs of imported materials such as fertilizers. Many of them were sent to jail as their debt piled up. Several ambitious plans enacted to bring life to the sector have failed to materialize and critics say the government forfeited a golden opportunity during the oil boom to boost agriculture. Foreign investors also complain about lack of infrastructure and unfriendly laws which they say deters them from putting money in Sudan’s vast farmlands. (ST) Continue reading
