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Renewable Energy: Burning US Trees In UK Power Stations

By Roger Harrabin Environment analyst, Georgia, US How American trees end up being burned in UK power stations Swamp forests in the US are being felled to help keep the lights on in the UK. Is this really the best way to combat climate change? Environmentalists are trying to block the expansion of a transatlantic trade bringing American wood to burn in European power stations. The trade is driven by EU rules promoting renewable energy to combat climate change. Many millions of tonnes of wood pellets will soon be shipped annually to help keep the lights on in the UK. Other EU nations may follow. Critics say subsidising wood burning wastes money, does nothing to tackle climate change in the short term, and is wrecking some of the finest forests in the US. I have tracked the controversial trade from the swamp forests of North Carolina to the towering chimneys of the UK’s biggest power station, Drax in Yorkshire, which is converting half its boilers from coal to wood. The implications are complicated and disputed, but it is clear that EU leaders did not have burning American wood in mind when they mandated that 20% of Europe’s energy should come from “renewable” sources. Trees rejected by plantations had found a new market in power stations Environmentalists are preoccupied with the potential effects of the trade on climate change and wildlife. So I travelled with Drax representatives to a timber operation in southern Georgia run by their main supplier, the timber firm Plum Creek. It is the biggest private landowner in the US. Its operations are impressive, from the large-scale nurseries selectively breeding seedlings for vigour and disease-resistance, through to immensely productive plantations. This is among the most effective tree farming in the world. Competition from weeds is eliminated in dark monocrop tree stands where wildlife is scanty. How clean is wood-burning? Drax will burn seven million tonnes of plant material a year. It will have to import 90% of its biomass, mostly from the US. From 2013, the UK Government mandates that biomass burning for power will need to emit no more than 70g CO2/kJ, including emissions from transport and cutting. Drax says it averages 20-75g CO2/kJ. That compares 280g for the average UK coal power station; 122g for North Sea gas; and 193g for Russian piped gas. The government expects subsidy for biomass to be £442m-£736m in 2016/17. Sources: Environment Agency and Friends of the Earth The plantations are thinned and harvested by mechanical giants which cut and throw whole trees as if they were twigs. The trees are planted close to each other to encourage tall straight specimens to reach for the light. These will have most value for planks. As the plantation grows, some trees are removed to make space. The thinned-out trees are of low value. They are traditionally sold to the pulp and paper industry but now there’s a new market – power stations in the UK. The industry contends there is plenty of low-grade material to source pulp and power, but some studies suggest that this may be wishful thinking. Critics fear that increasing demand from power generators will encourage foresters to take land that is currently growing food. Their other fear is that plantation forests will replace even more of the natural forests of the southern US, which are already dwindling fast. Environmentalist Derb Carter shows Roger Harrabin swamp trees in Georgia I drove with environmentalists at dawn to a gorgeous swamp forest in North Carolina. The birdsong was entrancing, and a scarce prothonatory warbler – known as the swamp canary – danced before our TV lens. The wood fuel industry has not advertised that it also takes trees from natural forests like this to boil kettles in Britain – but that’s what happens. Most of the swamp forests in south-east US are in the hands of small private landowners and they face few restrictions on what they do with their assets. It is said that local landowners cut their forest twice; once when their daughter gets married and once when they retire. Cutting typically means clear-cutting, and that leaves some left-over, low-value trees for pulp or power. A mountain of wood chips will end up burning in a UK power station So is the environmentalist argument really against the power industry? Or against America’s laws on forest biodiversity? It depends, of course, on how much the power industry expands. But the best way of protecting the forests may be for benefactors to buy them, because those wedding dresses will still need to be paid for. The other big environmental issue is climate change. When the EU set its 2020 target of sourcing 20% of energy from renewables, some leaders thought the deal referred to electricity. (I know because I spoke to Downing Street on the day of the decision). In fact, it included energy for transport and heating too, so the bar was set much higher than anticipated. Policies create opportunities and entrepreneurs were quick to exploit the potential of wood power, which will soon create more renewable energy in the UK than wind and solar combined. Roger Harrabin visited Drax power station in December 2012 as it prepares to burn more wood and other biomass instead of coal But will this achieve the stated goal of cutting carbon emissions? The British government will shortly announce its rules for the sustainability of “biomass” burning for power. It will set a standard for emissions created from the cutting, drying and shipping and timber but it will make a working assumption that burning the wood has nil CO2 emissions as new trees will suck up the CO2 emitted by wood burning. Critics say this is simplistic as it fails to recognise that it will take maybe 50 years for new trees to absorb the CO2, whilst politicians agree that emissions need to be cut immediately to prevent carbon over-heating the planet. It also fails to account for the fact that in the US the forest stock has been increasing and this process offsets the growth in carbon emissions from homes and industry. Burning American trees in the UK reduces America’s “carbon sink”. Foresters argue that this doesn’t matter much as long as the total biomass sent for export is no greater than the wood used in a single large pulp mill. But these numbers will grow fast. Liberal Democrat MP Nick Harvey has tabled an amendment to the UK Energy Bill insisting that long-term subsidies for biomass burning should only be agreed for plants that capture and store CO2 emissions, or use the waste heat for other purposes. (Drax alone expects subsidies of more than £1bn in coming years from people’s electricity bills.) But the amendment is not supported by any of the major parties. It looks as though UK Government policy is being driven by the need to hit mandatory targets and keep electrons flowing, rather than by a deep desire to cut CO2 emissions right now. Continue reading →

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Luxembourg: The EU’s Top Tax Haven

Switzerland is a well-known hideaway for assets from around the world, but the country does not belong to the European Union. Within the EU, Luxembourg is the largest tax haven – and operates fully within the law. What do investors want? Plenty of security for their money, high returns and the lowest tax rates possible. These conditions aren’t just found along the white beaches of the Caribbean. Tax havens are also thriving in Europe, says Reinhard Kilmer, a German tax fraud investigator. “We don’t have to look to the Caribbean. We can also step outside our own front door,” Kilmer said in a television interview, adding that Great Britain protects the Channel Islands and the Isle of Man, France has Monaco, and Europe still has issues with Luxembourg, Switzerland and Austria. The yields are perhaps not as high in such places as on the Virgin Islands, but the security cannot be beat, Kilmer concluded. The leading haven within the European Union is the tiny Grand Duchy of Luxembourg, a founding member of the EU. But the country’s finance minister, Luc Frieden, rejects the notion of it being a tax haven. Deutsche Bank is one of 141 banks in the tiny country “We are a European center of finance, and we don’t encourage anyone to engage in tax evasion,” Frieden has said repeatedly, most recently over the weekend in an interview with the Sunday edition of the Frankfurter Allgemeine daily. Luxembourg’s government says that 141 banks from 26 countries have settled there. More transparency? For decades, Luxembourg has cultivated its reputation as an investor’s safe haven. Around 2.1 trillion euros ($2.73 trillion) are held by Luxembourg’s investment funds, according to an estimate by the financial consulting firm Ogier. Taxes are very low on these funds, leading many international companies to open subsidiaries in Luxembourg in order to have their profits taxed cheaply by the miniature country. That is entirely legal in Europe. Money from abroad provides Luxembourgers with the highest per capita income in the EU, so it’s no wonder that residents defend their business model. Finance Minister Luc Frieden also does not want to shake things up by threatening the sense of security felt among companies and investors there. Sven Giegold, a member of the European Parliament and a finance expert within the Green Party, has called for more transparency when it comes to companies’ tax models. “A company should have to make clear in its balance sheets how many subsidiaries it has, how much in profits it is earning and where as well as how much it’s paying in taxes,” Giegold said, arguing that such a move would allow journalists and voters to determine whether the relationship between earnings and taxes paid is appropriate. “Then this whole tax shuffle would be transparent,” the parliamentarian said. Luc Frieden – finance minister in tax paradise? Luc Frieden told the Frankfurter Allgemeine that he is prepared to think about whether records of interest earned by private investors should in the future be automatically forwarded to the tax authorities in the investors’ home countries. He was sharply criticized in Luxembourg for saying so, and the youth wing of center-right Democratic Party in Luxembourg issued a statement demanding that bank secrecy be maintained. Until now, Luxembourg and Austria, the tax haven in the Alps, have blocked automatic sharing of data on investment returns and taxes in the European Union. European Commissioner for Taxation Algirdas Semeta described that practice last year as “completely unfair.” Small states need ‘large capital reserves’ The EU is not really responsible for taxation policy, which is largely left to the member states. The idea is that it’s desirable for there to be competition among the various tax models. Malta, for example, does not tax companies at all, while Cyprus taxes them at ten percent and Ireland at 12.5 percent. For years, finance ministers have sought to agree to a shared basis model when it comes to what types of wealth and income should be subject to taxation. Guntram Wolff supports policies of tax transparency In terms of financial politics, it’s not necessary for tax models to be uniform, said Guntram Wolff, an economist with the think tank Bruegel in Brussels. What’s essential, he said, is that the rules are clear: “I think tax transparency is crucial. Tax havens in the European bloc are in no way desirable. That cannot be the case because then one country is really operating its tax policy and banks at the cost of the others.” When a storm emerges over a tax haven, as recently happened in Cyprus, then other European countries may get called in to foot the bill. Government spokespeople in Luxembourg and Malta reject comparisons with Cyprus. But the banks – even in Luxembourg or Malta – could one day fall into trouble, believes Thomas Meyer, chief economist at Deutsche Bank. In an interview with online portal EU Observer, he said: “Even with the best oversight, banks can get into trouble. And when a state is too small in comparison with its banking sector, then it will go bankrupt.” In the case of Cyprus, however, EU members are rescuing it with ten billion euros. In Cyprus, the banks were worth seven times as much as the country’s GDP. In Luxembourg, they’re worth 22 times more. Meyer believes small states should maintain larger reserves of their own capital, citing Switzerland as an example that is paving the way here. In Luxembourg, Austria and other financial tax havens, Meyer says, there’s a preference for using the EU as a form of insurance. Defining tax havens Tax havens can be found well beyond the Caribbean A speaker for the EU Commission has noted that the member states have until now been unable to agree as to what constitutes a tax haven. If one applies the standards of the Organization for Economic Cooperation and Development (OECD) in Paris, then no European country can be called a tax haven. Low tax rates in one country that can lead to avoiding higher taxes elsewhere is not an illegal practice – at most just an affront to some people’s sense of justice. Finance ministers from Luxembourg, Latvia or Slovakia, where rates are lower for companies than they are in Germany or France, argue in response that high tax countries could always lower their rates in order to attract investors and new companies. The British NGO Tax Justice Network publishes a list of tax havens that weights the size of the financial marketplace as well as the level of bank secrecy. Using this index, Switzerland is tax haven number one, followed by the Cayman Islands and Luxembourg. Germany comes in at number nine. Billions owned by foreign investors are housed in Germany, as well, and the reticence of German banks toward tax authorities in Russia or Arabic states makes the country attractive to many, notes the Tax Justice Network. Continue reading →

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Carbon Credits Surge to Six-Month High as EU Refines Eligibility

By Mathew Carr – Jul 18, 2013 United Nations Emission Reduction Units surged 39 percent after Europe specified which credits are ineligible for use in its carbon market, the world’s biggest. ERUs for December jumped as high as 25 euro cents ($0.33) a metric ton, the highest since Jan. 31, on the ICE Futures Europe exchange in London . The European Commission, the bloc’s regulatory arm, upgraded its carbon registry yesterday to clarify which offsets can be used to meet emissions obligations. ERUs fell to a record low in May after the European Union said it may restrict the use of some offsets from countries including Russia and Ukraine should they fail to adopt new carbon goals as of this year. The credits, created from carbon-reducing projects in developed nations and emerging countries, may now narrow the price gap with more expensive Certified Emission Reductions from developing countries, according to Bloomberg New Energy Finance. The majority of ERUs issued since the start of the year are “likely to be confirmed as eligible” because they have been certified by an audit firm, Richard Chatterton, a London-based analyst for New Energy Finance, said in an e-mailed note. ERUs were trading at 22 euro cents a ton at 1:55 p.m. in London, while CERs fell 1.9 percent to 52 euro cents. Factories, power stations and airlines in the EU market can use either CERs or ERUs to match a limited portion of their emissions obligations. “The difference between the CER and ERU price will continue to narrow as the market gains confidence that ERUs will ultimately be able to be exchanged for EU allowances,” Chatterton said. Price Plunge ERUs plunged to a record 6 cents on May 1 amid a surplus of carbon permits in Europe, where slowing economic growth has damped demand for the credits. EU lawmakers are still debating a plan to temporarily reduce supply and boost prices. EU carbon allowances rose 1 percent to 4.17 euros a ton. The UN 1997 Kyoto Protocol supports the development of carbon-cutting projects by awarding investors with ERUs or CERs that can be sold to companies and governments with pollution caps. One credit is equivalent to a one-ton reduction of carbon dioxide. To contact the reporter on this story: Mathew Carr in London at m.carr@bloomberg.net To contact the editor responsible for this story: Lars Paulsson at lpaulsson@bloomberg.net Continue reading →

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