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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
OECD Sees West Africa Agriculture Investment Boost on Population
By Isis Almeida – Jun 27, 2013 Agricultural investment in West Africa , the world’s largest cocoa-producing region, will grow “very significantly” by 2050 as the population expands and people move from rural areas to cities, according to the Organization for Economic Cooperation and Development. West African urbanization is increasing at the fastest rate in the world, Karim Dahou, an executive manager at the OECD’s directorate for financial and enterprise affairs, said today in an interview at a conference in London. Population in West Africa has doubled every 20 years since 1960 and in cities the number of people has tripled, he said. “In West Africa, the natural resources are conducive to huge agricultural output, there’s water, there are a lot of hydro-resources,” Dahou said at the Agriculture Investment Summit. “Our agricultural outlook by 2050 is very optimistic in terms of the growth of the sector globally, and including in Africa.” Investment in West African agriculture will expand as the world tries to meet growing local and global demand, he said. The amount of capital invested per farmer in Africa is “very low,” one sixth of that in Asia and one fourth of that in Latin America , according to Dahou. That’s the reason why yields for many crops in the region are stagnant, he said. Ghana and Nigeria are leading investments in agriculture in the region, he said. Nigeria, which spends $10 billion a year importing wheat, sugar, rice and fish, plans to boost domestic food production by 20 million metric tons by 2015, according to Akinwunmi Adesina, the country’s agriculture minister. Cash crops such as cocoa and coffee in West Africa won’t be under threat as the region tackles food security and may even facilitate access to food as they bring in revenue, Dahou said. There’s enough land available to expand and improve yields for both food and cash crops, he said. “The issue is not really space, it’s intensification,” Dahou said. “That’s what African agriculture, especially West African agriculture, needs.” To contact the reporter on this story: Isis Almeida in London at ialmeida3@bloomberg.net To contact the editor responsible for this story: Claudia Carpenter at ccarpenter2@bloomberg.net Continue reading
COLUMN-US Climate Plan May Boost Cap And Trade: Wynn
Source: Reuters – Wed, 26 Jun 2013 05:11 PM Author: Reuters (The author is a Reuters market analyst. The views expressed are his own.) By Gerard Wynn LONDON, June 26 (Reuters) – President Barack Obama’s climate plan, unveiled this week, may boost regional schemes to cut greenhouse gas emissions, known as cap and trade, four years after the United States failed to pass legislation for a nationwide programme. Unlike Europe, the United States has no national cap and trade scheme to combat carbon emissions. The U.S. Congress considered but ultimately failed to bring in a national scheme in a climate bill which stalled in the Senate in 2009. After this failure, there is no hope of a repeated attempt any time soon. But Obama’s new climate plan could enhance the regional cap and trade markets and cement their future. Such schemes allocate a fixed quota of carbon emissions permits to industry and these can be traded between the participants. The present U.S. schemes are the Regional Greenhouse Gas Initiative (RGGI) of nine northeast states, which caps power sector carbon emissions, and California’s economy-wide programme. Obama, facing Republican opposition, is by-passing Congress and turning instead to the Environmental Protection Agency (EPA) to bring in carbon curbs on existing power plants. He has directed the agency to finalise such emissions standards by June 2015 under the existing Clean Air Act (CAA). If the agency can fend off litigation, a new EPA proposal could link and boost existing regional cap and trade schemes and possibly even expand these to neighbouring states. But such a by-passing of Congress will face legal challenges, on the basis that the Clean Air Act was not originally intended to combat climate change. There is little precedent, for example, to implement emissions trading through the Act. DETAIL It is too early to judge the cost or ambition of Obama’s climate plan, given its low level of detail. “What follows is a blueprint for steady, responsible national and international action to slow the effects of climate change so we leave a cleaner, more stable environment for future generations,” Obama’s “Climate Action Plan” stated. The plan did include goals to cut cumulative carbon emissions from running appliances and government buildings and a target for federal agencies to source their energy from renewable sources. But its most interesting aspect is the plan to curb carbon dioxide emissions from existing power plants, where it is clear that emissions markets will be one model for implementation. Obama entitled the new carbon emissions standards, “Flexible Carbon Pollution Standards for Power Plants”, in a memo directing the EPA administrator. “You shall ensure, to the greatest extent possible, that you develop approaches that allow the use of market-based instruments, performance standards, and other regulatory flexibilities; (and) ensure that the standards enable continued reliance on a range of energy sources and technologies,” he said in the memo. In international climate policy, “flexible” and “market-based” are jargon for emissions trading. NO CONSENSUS The Clean Air Act has few precedents for enacting emissions trading. One is the sulphur dioxide (SO2) allowance trading system, intended to address the threat of acid rain. That market was introduced through amendments to the Act in 1990, which passed both the House of Representatives (401-21) and the Senate (89-11) by wide margins. No such political consensus exists now, ruling out new amendments to accommodate carbon. Instead Obama is using direct action through existing clauses in the Act, in sections 111( and 111(d). These make no direct mention of carbon or emissions trading. Section 111(d) sets guidelines for state regulation of existing sources of pollutants, such as power plants, where in the past EPA has issued model plans for adoption by the states. EPA has made one ill-fated attempt to interpret section 111(d) as allowing an emissions trading program, according to the Washington-based think-tank “Resources for the Future”. (“Greenhouse gas regulation under the Clean Air Act”, April 2010) That unsuccessful regulation in 2005 would have established a trading program for mercury emissions from power plants. “Although the D.C. Circuit rejected EPA’s mercury rule, it did so on other grounds – the court gave no indication that emissions trading under the New Source Performance Standards program was itself problematic (though it is of course possible that the court simply did not reach the issue),” the report said. CAP AND TRADE Despite such legal hurdles, emissions trading and other market approaches may offer the most flexibility for states to interpret an emissions standard, and so minimise costs. The U.S. environmental group the Natural Resources Defense Council gave an example of how it could work at the end of last year. (“Closing the Power Plant Carbon Pollution Loophole”, December 2012) EPA would set state-specific performance standards for power plants, based on the energy mix in each state. “NRDC’s proposal is designed to give power plant owners freedom to choose how they would achieve the required emission reductions, giving credit for increases in energy efficiency and electricity generation using renewable sources and allowing emission-rate averaging among fossil fuelfired power plants,” it said. The plan sounds much like Obama’s memo to the EPA. States could meet the emissions standards either through their own crediting schemes, which give utilities flexibility in how they reached a target across a number of power plants, or they could tap into existing cap and trade schemes. If EPA introduced an average limit on carbon emissions in the power sector, utilities already operating within a regional cap and trade scheme could meet such limits by buying carbon allowances. The effect would be to push up carbon prices and probably trading volumes and liquidity in such regional cap and trade schemes by increasing demand. (Reporting by Gerard Wynn. Editing by Jane Merriman) Continue reading
