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EU’s Carbon Pricing Strategy Takes A Potentially Fatal Hit
Posted by Anthony Harrington , July 29, 2013 If you believe that global warming is the biggest catastrophe and economic disaster coming our way, then attempts to retrofit measures to contain CO2 emissions onto a global industrial base that has evolved largely without regard to emissions (other than as pollution) is a hugely important task. Finding a way of putting a price on carbon is the obvious route to go. The EU set itself up to be the global leader in creating mechanisms for carbon pricing but its emissions trading scheme, which has been copied by a number of countries, including Australia, South Korea and some Chinese provinces, is now in disarray. A vote by the European Parliament in April effectively holed the EU’s carbon pricing scheme below the waterline, to quote a recent article in The Economist . There are basically two ways to get industry to reduce its carbon emissions . You can mandate it by law, in a command-and-control manner, using the power of the state to force compliance, with massive fines and even prison as the ultimate sanctions for non compliance. Or you can set a cap-and-trade policy and leave it to the market, which is what the EU has done. Under a cap-and-trade approach you set limits to the emissions of the heaviest producers and then allocates or auctions carbon credits to cover production up to the limit. Firms that manage to reduce their emissions below the limit will have surplus credits that they can sell to other companies. By lowering the limit over time, the government can bear down on emissions, gradually reducing them over time, while trading in carbon credits creates a true, market based per-tonne price for carbon. That, at least, is the theory. What the EU did not count on when it set up the scheme back in 2005 was that advanced markets would suffer a global financial crash which would lead to years of no-to-very-low growth. This resulted naturally in falling emissions and so to surplus numbers of credits washing about in what was supposed to be a limited-supply market. It is now obvious that the EU handed out far too many carbon allowances from day one, back in 2005, and every year since, to the point where, according to The Economist , there is now a surplus of about 1.5 to 2 billion tonnes of carbon allowances in the system, causing the price per tonne to drop from twenty euros in 2011 to just five euros a tonne in 2013. The EU’s solution to this was a plan to withdraw some 900 million tonnes of carbon allowances off the market, with the idea of reintroducing them at some unspecified point in the future when the price per tonne of carbon had firmed up. The idea was dubbed “backloading” by the EU. Constraining supply has always been a good way of driving up price and since the whole market is artificially created there is probably no logical reason why the EU shouldn’t be able to tinker with the scheme to firm up prices. But the EU needed the European Parliament’s approval to put this scheme into action and on 13 April 2013 the European Parliament rejected the idea. The price of carbon sank like a stone, bottoming at under 3 euros. Since the International Energy Agency is warning that the price of carbon needs to be at least fifty euros to be effective in moving power generation companies away from coal to gas and renewable sources, this does not look hopeful for the EU’s best lever against global warming. There is now a serious question mark over the future of emissions trading schemes generally, which is not particularly helpful for California, which introduced its cap-and-trade scheme in January 2013 . The Californian scheme raised far less, by way of auctioning of carbon credits, than State authorities had anticipated and the tribulations of the EU scheme will not go unnoticed. Australia had been planning to link its cap-and-trade scheme to the EU’s scheme, creating an international trading market in carbon allowances, but that too, now looks rather unappealing. Right now the EU’s ETS scheme looks like no more than a rather useless additional “green” tax which the power companies simply pass on to the consumer. As a behaviour changing mechanism, it is dead in the water until and unless the EU finds a way of shoring up the price. Unfortunately for the EU no one actually wants carbon in the way that they want gold. The market is entirely artificial and carbon allowances, as a tradable asset class have just given a graphic illustration of what is meant by “political risk”. Continue reading
Farmland Price Growth Slows; Bankers Cautiously Optimistic State-By-State Outlook
Jul. 25, 2013 Burt Rutherford While growth for the rural mainstreet economy remains healthy, it slowed a bit in July. What a difference a year makes, for some at least. While drought continues to grip some regions in cattle country, ample and sometimes more-than-ample moisture has returned to others. “Last year at this time, the drought was having a significant negative impact on the rural mainstreet economy. This year, ample moisture has boosted the rural economy and the banker’s economic outlook,” says Ernie Goss , the Jack A. MacAllister Chair in Regional Economics at Creighton University in Omaha, NE. For the future, bankers’ eyes are on Washington . “More than three-fourths, or 77.9%, of bankers think that congressional passage of a new farm bill is important or crucial to the rural mainstreet economy,” he adds. Additionally, energy production has become increasingly important in the rural economy. According to Jim Stanosheck, CEO of State Bank of Odell in Odell, NE, “The area has about 45 wind generators being built in the next six months. This activity should spur the rural economy for the next 6-7 months.” According to a monthly survey of 200 rural bankers in a 10-state region, conditions in rural America are generally good, despite slowing growth in farmland values and predictions for lower farm income this year. Here are the results of the July survey, with 50 indicating growth-neutral. Farming: The farmland-price index (FPI) declined for the seventh time in eight months, falling to 58.2 in July from June’s 58.4. “FPI has been above growth neutral since February 2010. However, lower farm commodity prices and expected declines in farm income are slowing growth in farmland prices. I expect farmland price growth to continue to weaken as a stronger U.S. dollar weighs on agriculture commodity prices,” Goss says. This month, bankers were asked to project farm income for 2013. On average, bankers expect farm income to be down 3% from 2012. Among bank CEOs, 59.6% expect farm income to be down from 2012, while 19.5% anticipate an increase in farm income and the remaining 20.9% expected no change. Farm equipment sales also softened for July, indexing at 50.0, down from June’s 53.2. “Farmers are getting increasingly cautious regarding economic conditions. This has been reflected in declines in our equipment-sales index and in the stock prices of agriculture equipment producers,” Goss reports. Banking: The loan-volume index moved above growth neutral for July, soaring to 75.7 from June’s 66.7. The checking-deposit index advanced to 53.7 from June’s 48.5, while the index for certificates of deposit and other savings instruments increased to a very weak 42.0 from 33.6 in June. Community bankers are more upbeat that Congress will address the increasing concentration of U.S. banking. As reported by Pete Haddeland, CEO of the First National Bank in Mahnomen, MN, “TBTF (too big to fail) is gaining some traction (in D.C.).” Enjoy what you are reading? Subscribe now to BEEF Cow-Calf Weekly for more practical commentary from beef industry blogger Troy Marshall. Bankers were also asked about the impact of the f ederal spending sequester . Only 1.5% reported significant impact, while 34.3% indicated moderate impact; the remaining 64.2% reported no impact from the spending sequestration. Hiring : July’s new hiring index (NHI) declined to a strong 60.7 from June’s 61.4. “Readings over the past several months are consistent with an annualized growth rate in jobs of 1%. Businesses linked to agriculture and energy continue to add jobs at this slow, but positive pace,” Goss says. Confidence: The confidence index, which reflects expectations for the economy six months out, fell to 56.6 from 60.0 in June. “While healthy crop conditions have fortified the economic outlook, recent weaker-than-expected agriculture commodity prices have lowered that outlook,” Goss says. Home and retail sales : The July home-sales index slipped to 76.6 from June’s record high of 78.1. The July retail-sales index slipped to 53.1 from 53.9 in June. “Slightly higher mortgage rates failed to slow the rapidly improving rural mainstreet housing sector,” Goss says. State-by-state outlook Here’s a state-by-state rundown of rural mainstreet economic conditions: Colorado: For a 10th straight month, Colorado’s rural mainstreet index (RMI) remained above 50.0, as July RMI declined to a still robust 70.5 from June’s 81.2. FPI declined to a strong 75.5 from June’s 80.3. Colorado’s NHI for July slipped to 73.0 from June’s 75.7. Bankers reported problems for certain segments of the rural economy. According to Fred Bauer, CEO of Farmers Bank in Ault, “Dairies are still struggling with (high) f eed costs .” Illinois: While RMI declined in July to 57.6 from June’s 61.6, it’s remained above growth neutral for 10 straight months. FPI sank to 49.1 from 49.4 in June, while NHI dipped to 54.3 from 55.2. Iowa: July RMI expanded slightly to 62.3 from June’s 62.2, and FPI advanced to 54.6 from 49.6 in June. July NHI improved to 58.0 from June’s 55.3. As reported by Steven Lane, CEO of Security Savings Bank in Farnhamville, “Most of the crops in our area were planted late. It’s now up to Mother Nature to see if it amounts to much.” Kansas: RMI decreased to 59.2 from June’s 60.5, while FPI sank to 46.6 from June’s 49.6, and NHI decreased to 52.7 from June’s 56.7. Kansas bankers remain hopeful but cautious on the farm economy. Minnesota: RMI tumbled to a 53.4 from June’s 59.7. FPI fell to 51.3 from 58.5 in June, while NHI declined to 55.8 from last month’s 61.2. Pete Haddeland, CEO of the First National Bank in Mahnomen, says the crops look great. Missouri: RMI rocketed to a regional high of 81.2 from June’s 59.2, while FPI remained strong at 78.9, but down from June’s 81.5. NHI rose to 84.2 from June’s 76.7. Nebraska: After moving below growth neutral for January, RMI has moved above growth neutral for six straight months. RMI climbed to 58.0 from 56.5 in June, while FPI fell to 48.5 from June’s 59.2. NHI dipped to 53.9 from June’s 53.7. Weather remains a problem for some parts of the state. Bill McQuillan, president of CNB Community Bank of Greeley, says, “Pasture conditions continue to deteriorate because of the lack of moisture in the last 30 days.” North Dakota: RMI dipped to a 78.4 from June’s 81.8, and FPI declined to 82.4 from June’s 87.6. NHI declined to a still very strong 76.5 from June’s 80.6. South Dakota: RMI slipped to 59.9 from 60.5 in June, while FPI slumped to 50.8 from June’s 51.5, and NHI decreased to 55.5 from June’s 56.5. As in other areas of the region, farm conditions are up significantly from last year. David Callies, CEO of Miner County Bank in Howard, reports that crops are doing very well. Wyoming: RMI rose to 53.0 from June’s 52.6, while FPI grew to 41.9 from June’s 40.8, and NHI to 49.6 from June’s 49.4. Continue reading
Voluntary CO2 Trading Grew In 2012, Albeit At Lower Prices
Jul 26, 2013 By Wayne Barber, Chief News Analyst, GenerationHub A recent report from Forest Trends Ecosystem Marketplace and Bloomberg New Energy Finance (BNEF) finds that voluntary carbon markets worldwide grew in 2012, topping 100 million metric tons. In 2012, voluntary actors contracted 101 million tonnes (metric tons) of carbon offsets (MtCO 2 e) for immediate or future delivery. That’s 4% more than in 2011. Market value, however, decreased 11% to $523m as offset prices fell slightly for several popular project types. Suppliers predict the CO 2 market value could reach $1.6bn to $2.3bn in 2020, according to the report: “Maneuvering the Mosaic: State of the Voluntary Carbon Markets 2013.” The 126-page study was made public July 23 on the BNEF website. Molly Peters-Stanley and Daphne Yin are listed as the primary authors of the document. The study defines “voluntary” as all purchases of carbon offsets not driven by an existing regulatory compliance obligation. Transactions are deemed to occur at the point that offsets are contracted. The report also indicated 90% of the offset volume was contracted by the private sector. Also most forward contracts, spanning multiple years, were negotiated between project developers and offset end users. The report notes that voluntary offsets run the gamut from parties that distribute clean cook-stoves and water filtration devices to more traditional projects like wind energy and fuel switching. Demand surged for carbon offsets from certified forestry projects. In 2012, offsets from renewable energy projects were the most popular among voluntary offset buyers, as the source of 26 MtCO 2 e or 34% of transacted offsets that were associated with a project type. Wind energy was behind 15.3 MtCO 2 e of transacted offsets – 35% less than in 2011, as some buyers turned their attention to other inexpensive offsets sourced from large hydropower projects. Offset buyers in Europe and North America expanded their offset programs in order to “demonstrate climate leadership,” according to the report. Where governments have included offset provisions within their broader climate regulations, demand ranged from steady (in California) to growing (in Australia) as companies prepared for compliance, according to the report. “Because of the market’s lack of liquidity and predictability, historical trends presented in this report should be viewed only as a starting point for understanding demand in the current year – which continues to evolve as both offset buyers and suppliers innovate new ways to mitigate GHGs [greenhouse gases], influence policy, and communicate their purchases and successes,” according to the report. Read more environmental business news Continue reading
