Best way to help a warming planet is to tax carbon and let the market decide

WITH the country slipping into recession and the Government falling into deficit, political priorities have been shifting. As the Government now looks to introduce legislation for an emissions trading system, it is worth considering other ways forward for climate change policy that will protect jobs and support the economy.

Climate change is an important political issue. In 2007 the International Panel on Climate Change said they are more than 90 per cent certain that humans are contributing to global warming. Computer models suggest a temperature increase of between 2 and 4 degrees over the next 100 years.

Many people are worried about the possible impact and are demanding political action.

At the moment, both major parties and most minor parties are pushing for a carbon trading system and billions of dollars of subsidies towards alternative energy. This looks good, but it is bad policy.

If something needs to be done, Australia would be better served by a revenue-neutral carbon tax.

Governments are notoriously bad at picking winners in any industry, and there is no reason to believe that politicians will correctly predict the future of the various alternative energy options.

I don't know which option is better between solar, wind, hydro, nuclear, "clean" coal, hot rock, bio-fuels, or any other option, and neither do Kevin Rudd, Malcolm Turnbull or Bob Brown.

If we want to shift away from "dirty" coal then the best option is to put a price on carbon emissions and let the market decide.

We can get a price on carbon in two ways — carbon trading or a carbon tax.

There are several reasons for preferring the tax option. A tax is more transparent, provides certainty in the carbon price, and allows greater flexibility during changing economic circumstances. In trade theory it is well understood that tariffs are better than traded quotas.

Similarly, a carbon tax is actually more flexible and efficient than the trading system. Other costs of a trading system include compliance costs, administration costs, wasteful rent-seeking behaviour and the cost of picking winners if carbon credits are allocated.

One benefit of a carbon tax is that it raises a consistent and guaranteed amount of revenue for the government, which can be used to cut other taxes, and therefore reduce the potential economic costs of climate change policy. Indeed, depending on the details, a modest carbon tax and matching tax cuts may have no net negative economic effect.

A tax of $15 per tonne of CO2-e (carbon dioxide or equivalent) would raise enough money to increase the tax-free threshold (TFT) from $6000 to $10,000. Alternatively, the revenue could be used to cut the top marginal tax rate down to 30 per cent. If we increased the carbon tax to $30 per tonne, then the Government could afford to increase the TFT and cut the top marginal tax rate, or they could increase the TFT to $15,000.

There is another, more controversial, option that deserves consideration. Australia already has an environment tax on fuel and diesel. The transport sector emits 94 tonnes of CO2-e per year and pays a high tax rate (petrol tax is 38.143 cents per litre, excluding GST), while the non-transport energy sector emits 306m tonnes of CO2-e and pays no environment tax. A $30-per-tonne carbon tax could be introduced as a replacement of the fuel tax — in effect reforming our environment tax to achieve a lower level on a broader base. Such a policy could be seen as good tax policy, irrespective of the environmental arguments.

The real-world consequence of this would be more expensive electricity, offset by cheaper petrol prices.

The impact on the budget would be roughly neutral. The impact on economic efficiency would be roughly neutral, as both taxes create a similar level of behavioural response. The impact on equality would be roughly neutral, as the policy replaces one regressive tax with another regressive tax.

One complaint against a switch from a fuel tax to a carbon tax is that the lower emissions from electricity generation will be offset by higher emissions in the transport sector. While this is true, it confuses the means with the ends. The goal of a climate policy should not be to reduce the use of electricity or transport but to create an incentive for people to research and invest in alternative energies so that we become less reliant on coal. A switch from a fuel tax to a carbon tax provides that incentive in a way that is relatively harmless to equity, efficiency or the budget.

Climate change is becoming an increasingly important part of Australia's political debates. But if we are serious about tackling the challenges of climate change in an intelligent way, we need to get past the easy promises of just "doing something" and work out which policy approaches provide the most benefits and least costs to Australian society.

John Humphreys, a research fellow at the Centre for Independent Studies is the author of Exploring a Carbon Tax for Australia.

Recession threatens carbon trading

A crucial scheme to control greenhouse gases is under threat due to the recession.

Under the Kyoto Protocol adopted in 1997, since ratified by 183 countries, industrialised nations agreed to reduce their emissions of gases such as carbon dioxide (C02) which cause global warming.

Among the measures introduced was the European Carbon Trading System, whereby governments put a price on the amount of greenhouse gases that can be emitted by any company.

By forcing companies to pay for the right to pollute, it was hoped they would be more inclined to clean up their act.

Trading permits

Companies are issued emission permits and are required to hold an equivalent number of allowances (credits) which represent the right to emit a specific amount.

Selling allowances would not be happening if they'd had to pay for them in the first place

Mark Lewis, carbon analyst, Deutschebank

The total amount of allowances and credits cannot exceed the cap, limiting total emissions to that level.

Companies that need to increase their emission allowance must buy credits from those who are willing to sell.

In effect, the buyer is paying a charge for polluting, while the seller is being rewarded for having reduced emissions by more than needed.

Three-quarters of the main polluting greenhouse gas, carbon dioxide, comes from burning fossil fuels - oil, gas and coal.

The environmental group Carbon Trade Watch complains about imbalances in the sources of the burning of fossil fuels, as the world's richest countries consume more per capita than countries with larger populations.

For instance the USA produces 24% of the world's CO2 emissions yet has only 4.5% of the world's population. Conversely India has 16.7% of the world's population yet only produces 4% of the CO2 emissions.

Price freefall

It seemed like a market solution to global warming in Europe, but initially many of these permits were given away for nothing.

Now, as recession bites, industries like steel, cement and glass may be polluting less, but only because they're producing less.

So companies are desperately selling off the carbon credits they no longer need to bolster their faltering balance sheets

That has led to a big drop in the market value of carbon permits, and as the right to pollute becomes cheaper, there is less incentive for companies to stop polluting.

Mark Lewis, a carbon analyst at Deutschebank, told World Business News that the recession has cast a spotlight on the frailties of emissions trading.

"Selling allowances would not be happening if they'd had to pay for them in the first place," he says.

"Getting them free allows them to be sold on a risk-free basis and that is exacerbating the fall in the price of credits," he adds.

Tougher caps
Alternative renewable energy sources are being developed

Each year the cap on emissions gets tougher, but the price of the credits would have come down anyway as a result of the financial downturn.

"If everybody had to pay for the allowances on a pay-as-you-go basis, like other commodities they consume, the price for carbon allowances would have fallen anyway as a result of this recession," he says.

In the past, Russia has managed to achieve its Kyoto targets without any pain because its industrial output has declined so sharply.

Critics of carbon trading maintain this proves the inherent weakness of such systems, but Mr Lewis does not think a straight tax on fossil fuels would provide a better solution.

"It might be simpler on one level," he says, "you would know in advance what the price was but you wouldn't get any certainty on the level of emissions reduction."

Bubble fears

Another measure introduced under the Kyoto Protocol to curb greenhouse gases is also coming into question.

This is the clean development mechanism (CDM), which allows industrialised countries to invest in projects that reduce emissions in developing countries - as an alternative to what would undoubtedly be more expensive emission reduction programmes in their own country.

However, in recent years, criticism against the mechanism has increased.

Offset projects under Kyoto are only supposed to qualify for carbon financing if they represent emissions reductions above and beyond what would have happened anyway.

In practice, large numbers of projects that were already well under way, are presenting themselves as CDM projects in order to gain an extra revenue stream, and these projects do not represent additional emissions reductions, Carbon Trade Watch maintains. Controversial CDM projects
Western Panama: the Naso and Ngobe peoples are fighting against the construction of hydroelectric dams being built on the land of indigenous peoples
India: large numbers of the Okhla community have been turning up to protest against the construction of a waste incinerator in a residential area
Indonesia: small farmers are being driven from their land to expand palm oil plantations
Source: Transnational Institute

David Victor, head of Stanford University's Energy and Sustainable Development Program, says that between a third and two-thirds of CDM offsets do not represent actual emission cuts.

If an offset project does not represent reductions and is being used to justify increased emissions at some other point, it actually represents a net increase in emissions.

If a high number of CDM projects are not additional, there is a real danger of a "carbon bubble".

Scientists are adamant that CO2 emissions must be sharply cut in the next 10 years otherwise there will be irreversible damage to the planet.

Otherwise, it might be too late to repair the damage the planet has already suffered.

Environmentally Friendly Printer Primer Increases Print Quality

DigiPrime is an environmentally friendly digital printing primer designed specifically for use with HP Indigo presses. It enhances the quality of ink transfer, ink adhesion and rub resistance on paper, film and foil substrates, is available worldwide, and is recommended by Hewlett-Packard.

The eco-friendly primer is a very low VOC, low odor, water-based formulation. It is non-flammable and can be applied using traditional coating equipment, including flexo, gravure, rod or roll systems.

With an extremely long shelf life, DigiPrime reduces environmental and financial waste. Optimized substrates can be used with confidence many months later, unlike other primers which can lose their ink adhesion rapidly in high humidity or temperature storage conditions, and must be discarded.

DigiPrime is the primer of choice by paper mills around the world for their sustainable paper substrates because it is repulpable, allowing them to get the most from their valuable renewable wood fibers while providing reliable products for the HP Indigo market.

Environmentally Friendly Hard Drive Launched With 2TB Capacity

WD (NYSE: WDC) today announced the first 2 terabyte (TB) hard drive - the world's highest capacity drive and the latest addition to WD's popular, environmentally friendly, cool and quiet, WD Caviar Green hard drive family.

This new 3.5-inch platform is based on WD's industry-leading 500 GB/platter technology (with 400 Gb/in2 areal density) with 32 MB cache, producing drives with capacities of up to 2 TB.

"While some in the industry wondered if the end consumer would buy a 1 TB drive, already some 10 percent of 3.5-inch hard drive sales are at the 1 TB level or higher, serving demand from video applications and expanding consumer media libraries," said Mark Geenen, President of Trend Focus. "The 2 TB hard drives will continue to satisfy end user's insatiable desire to store more data on ever larger hard drives."

WD Caviar Green is one of the most successful product lines in the company's recent history with its third-generation GreenPower™ technology, now providing 2 TB of proven reliable storage for today's high-resolution files and graphics. WD Caviar Green drives are designed for use in USB/FireWire®/eSATA external hard drives, desktop computers, workstations, and desktop RAID environments.

"Saving power without sacrificing storage capacity is what consumers want, and what many businesses are requiring today. With the launch of the new WD Caviar Green 2 TB hard drive, customers receive the additional capacities needed to operate today's highly advanced programs and high-resolution digital files while using less power than typical drives with similar performance and capacities," said Jim Morris, WD senior vice president and general manager of client systems.

Rock Solid Mechanical Architecture, Cool, Quiet Hard Drives
A number of advanced technologies enable the speed, capacity and performance of WD's Caviar Green 1.5 TB and 2 TB hard drives. Those include: StableTrac™, which secures the motor shaft at both ends to reduce system-induced vibration and stabilize platters for accurate tracking during read and write operations1; IntelliPower™, which fine-tunes the balance of spin speed, transfer rate and caching algorithms designed to deliver both significant power savings and solid performance; IntelliSeek™, which calculates optimum seek speeds to lower power consumption, noise, and vibration; and NoTouch™ ramp load technology, which is designed to ensure the recording head never touches the disk media resulting in significantly less wear to the recording head and media, as well as better drive protection while in transit.

Propel Fuels Brings Renewable Fuel and Green Jobs to California

Propel Fuels a leading retailer of clean, renewable fuels, officially launches the first of a state-wide network of low-carbon fueling stations today. The green-built station platform makes it convenient for consumers and fleets to fuel their vehicles with environmentally friendly, American-made fuels. Propel stations now sell E85 Flex Fuel and Biodiesel, with Hydrogen and Electric Chargers soon to come. The company aims to deploy hundreds of stations across the state within the next five years.

This new fuel infrastructure strengthens California’s economy by keeping dollars, otherwise spent on foreign oil, within the state while creating hundreds of new green-collar jobs. The total five year economic output from deploying the new statewide renewable fuel infrastructure is estimated to be more than $200 million. Additionally, Propel is committed to acquiring renewable fuels from California producers, which will offset the import of more than 100 million gallons of petroleum per year, and is estimated to generate over $400 million of direct and indirect economic activity within California.

“With transportation fuels making up 40 percent of the state’s greenhouse gas emissions, these alternative fueling stations are exactly what I envisioned when I called for California to establish the world’s first Low Carbon Fuel Standard,” Governor Schwarzenegger said. “By providing drivers with a choice of fuel options, today’s announcement illustrates how the private sector is joining the public sector to help lower the Golden State’s carbon footprint. This is the kind of leadership that will lead to the creation of a booming low carbon fuel market and help us meet our aggressive climate change goals.”

In order to help meet California’s growing demand for clean, renewable, low carbon fuels, Propel has recently moved their headquarters from Seattle to Sacramento, which will create dozens of headquarters jobs in California. California’s greenhouse gas laws, alternative fuel programs, the Low Carbon Fuel Standard, and Governor Schwarzenegger’s environmental and economic leadership are the drivers that led Propel to California.

“Right now, more than 70,000 drivers in the Sacramento-area have the ability to put low carbon, American made fuels in their tanks – but there are few locations that offer them,” said Rob Elam, CEO of Propel. “Our network of stations will change that by making it convenient to use domestically produced, environmentally friendly fuels. For the first time, Sacramento-area individuals and businesses have true choice at the pump, giving them the ability to reduce their carbon footprint as well as our reliance on imported fossil fuels.”

The first Propel stations will be co-located at gas stations in Elk Grove, Rocklin, Citrus Heights and Sacramento. Propel stations will be open 24-7 and accept all major credit, debit and fleet cards. A map of current Propel locations is available at www.propelfuels.com.

Propel’s stations are already frequented by California’s greenest fleets. "We're greener than you think," said Rosemarie Fernandez, Sacramento District Manager of the U.S. Postal Service who currently fills a fleet of Flex Fuel delivery vehicles with Propel. "Green packaging. Green Post Offices. Green roofs. Green website, and 'Going Green' in fuel efficiency isn’t just a catchphrase. It’s our way of leading by example, meeting the needs of the present without compromising the future."

A Grand Opening Event, which is open to the public, will take place from 10:00 a.m. – 1:00 p.m. at the CFP located at the 76 station at 6700 Five Star Boulevard in Rocklin. The program begins at 10:00 a.m., and will include brief remarks from public officials and clean technology entrepreneurs. Also on display will be the latest eco-friendly vehicles from leading FlexFuel and diesel vehicle manufacturers, including General Motors, Volkswagen and others. Attendees at the event can enjoy free food and prizes.

Air Liquide Invests Millions in Recovering Carbon Dioxide

The European market in industrial applications for carbon dioxide, essentially food processing and water treatment, represents 3 million tonnes per year and has been growing steadily by 3% annually. To support this growth, Air Liquide, the European leader in this market, is investing in two new carbon dioxide recovery units, one in Bazancourt, France and one in Rozenburg, the Netherlands, for an overall investment of nearly €20 million.

The Bazancourt unit will recover 120,000 tonnes of carbon dioxide per year and will be commissioned at the end of 2009. This investment will include rail links to the site, reducing road transport. The Rozenburg unit, scheduled for commissioning in the first half of 2010, will recover 50,000 tonnes of carbon dioxide per year, in particular to respond to demand created by strong growth in the greenhouse cultivation market in the Netherlands.

These investments come in addition to the carbon dioxide liquefaction unit in Geleen in the Netherlands, where a third extension was commissioned in October 2008, representing an additional production capacity of 80,000 tonnes per year. In all, Air Liquide’s total European carbon dioxide production capacity will be increased by more than 250,000 tonnes from 2008 to 2010. Thanks to these new production units, carbon dioxide will be purified and liquefied for reuse instead of being released into the atmosphere.

Guy Salzgeber, Vice-President for European Industrial Operations and a member of the Group’s Executive Committee, commented: “These new investments in Europe, in addition to those at Geleen, will enable us to increase our carbon dioxide recycling capacity by 25%. This will allow us not only to meet the needs of our customers in this market; it will also significantly improve supply-side stability as the Group continues its policy of targeted investments in growth markets.”

Carbon Prices Follow Global Economic Downturn

The global carbon market has not remained unshaken after the world financial crisis and gloomy economic outlook. Over the past two months, prices of emissions permits have fallen, with risks of a negative downward effect on investment in carbon reducing projects.

Driven by weak energy prices, increased selling of credits by cash-strapped firms and an anticipated drop in emissions from lower industrial production, the fall in carbon prices is hitting the UN mandatory market for Certified Emissions Reductions (CERs) harder than the voluntary offsets market for Verified Emission Reductions (VERs).

In the US, buyers anticipating a carbon cap-and-trade under the Obama administration contributed to the fall in price of VERs – tradable carbon offset credits for emission reductions – at levels still higher than mid-2008. The voluntary Carbon Index of market analyst New Carbon Finance for November-December 2008 has the average VER price at US$7.50 - down 15 percent from US$8.70 in the previous two months, but still up nearly 20 percent from July-August prices.

In contrast, the prices for CER – carbon credit generated under Kyoto Ptotocol’s Clean Development Mechanism (CDM) for industrialized countries to reduce their emissions of greenhouse gases through a primary market of projects undertaken in developing countries – have continued to fall away, with falling prices of European carbon permits amid lower energy prices and looming recession. Benchmark CERs in December 2008 closed at €11.75 (US$15.50) on the European Climate Exchange on January 15 - down 42 percent over the last three months.

Low Prices Could Limit CDM Effectiveness

There is now fear that the low prices for issued credits in secondary markets leads to downward pressure on the primary market and discourages project developers from generating new credits. This may significantly hamper prospects from the UN CDM’s to contribute to emissions reduction and clean technology transfer in the developing world over the next year or two.

Carbon offsets traded under the Kyoto Protocol represented a $32 billion market in 2008, of the US$120 billion global carbon market. At the UN climate change conference in December 2008 in Poznan, Poland, delegates adopted decisions aimed at streamlining and speeding up the CDM .

In China, the largest recipient of CDM projects, one project developer noted that the number of developers looking to secure forward credit sales in the primary market has halved from a year ago. The Chinese government imposed a primary market CERs price floor to above €8 in 2008. Some developers are hoping the government will consider the depressed market and bring minimum prices back down to €6, but others are skeptical that the government will act unless there is a sustained period of depression in prices.

Nonetheless, Reuters reports that many established project developers with projects underway have already locked in prices at levels above €10. According to equity analysts, the three largest publicly-traded developers, Camco, EcoSecurities and Trading Emissions, are well positioned to weather a prolonged downturn in CER prices. So developers not pressed by debts or urgent cash flow are holding off selling their credits, and waiting for prices to return to truer values, knowing that CERs are expected to range from €18-21 in the period to 2012.

ICTSD reporting; “Depressed Carbon Prices To Have Ripple Effects,” REUTERS, 16 January 2009; “Global downturn hits carbon credits,” CARBONPOSITIVE, 16 January 2009.

Forget the credit crunch, it's time to prepare for the energy crunch

For much of the past two years one of the most compelling drivers behind green business investments has been the soaring cost of energy. So what happens when those energy costs begin to fall?

As the UK today has its recessionary status officially confirmed, businesses are facing a new energy landscape where bills are falling for the first time in years.

The price of oil has slumped, and even green energy providers such as Good Energy are now lowering their tariffs alongside conventional players such as British Gas. Moreover, the fall in industrial output has pushed the price of carbon to record lows, putting still more downward pressure on energy prices.

For business leaders falling energy bills mean the temptation to push energy efficiency issues back to the bottom of the corporate in-tray will become ever more beguiling. Many will understandably ask why they should fork out for more efficient technologies or buildings when their bills are already falling and capital is unbelievably hard to come by.

And yet there are compelling reasons for businesses to continue to curb energy use that go far beyond the obvious truism that during a recession you should look to control all operational costs as tightly as possible, even if they are already falling.

The fact is that those firms that don't address their energy use now could recover from the credit crunch and find themselves thrown right into an energy crunch characterised by soaring power bills.

There are already signs that a perfect storm is brewing that could well break just as we'd hope to see the economy surging forward again.

The most obvious basis for this prediction is the simple reality of supply and demand. The price of oil may have fallen over a $100 from its peak of around $140 last year, but that collapse in price is the result almost entirely of falling demand, not an increase in capacity.

When demand recovers to pre-recession levels or above - and while it might seem hard to believe at the moment the history of recessions tells us this will happen - then the oil price will soar again. In fact, with many of the oil giants scaling back investments in new capacity as the recession bites the situation will likely be even worse than it was in mid-2008 as supply inevitably struggles to keep pace with rising demand.

Rising oil prices would not only lead to increased transport fuel costs they would also have a knock on impact on wholesale electricity prices that will already be being forced upwards again as a result of the raft of green regulations that are scheduled to converge upon the energy sector between 2010 and 2013.

As a leaked Whitehall memo revealed this week, the UK government is concerned new EU legislation designed to limit air pollution from power stations could add as much as 20 per cent to energy bills. And that is before you even begin to consider that EU targets requiring the UK to cut emissions and generate 15 per cent of energy from renewables by 2020 mean that by the early 2010's work on a huge expansion in renewable and nuclear capacity will be well underway, leading to a predictable impact on energy bills.

Meanwhile, the current low price of carbon in the EU's emissions trading scheme is subject to much the same rules of supply and demand that will impact the oil market once the recovery materialises.

Prices have dropped in recent months because heavy industries are producing less, releasing less carbon into the atmosphere and therefore require fewer emission allowances. The number of carbon credits issued between now and 2013 however remains constant, so as the recovery materialises and production and emissions increase again the price of carbon will also rise placing further cost pressures on energy producers. Again, these pressures will become more pronounced from 2013 when the EU moves to impose still tighter emission caps on heavy polluters.

The net result is that companies that fail to address their energy use could find themselves climbing out of the credit crunch only to find themselves locked into an energy crunch characterised by 100 per cent plus increases in energy costs and fuel bills.

That is why businesses such as Tesco and Sainsbury's this week announced new stores and initiatives that display a continued commitment to addressing energy issues despite tough trading conditions, and why those companies that really want to position themselves to fully exploit the inevitable economic recovery would do well to follow their lead.

EU carbon price hits all-time 2008-12 low

LONDON, Jan 19 (Reuters) - The price of permits to emit carbon dioxide CFI2Z9 in the European Union hit a record low on Monday for the second trading period of the bloc's emissions trading scheme from 2008-12.

European Union allowances (EUAs) hit 11.78 euros a tonne at 1440 GMT, falling below 11.80 euros for the first time for the 2008-12 period.

The price of the benchmark 2009 contract hit an all-time low last week below the previous record of 12.80 euros. EUAs fell to near-zero in the first trading phase of the scheme from 2005-07, since dubbed a trial period.

The scheme limits emissions of heat-trapping CO2 from industrial installations including steel and power plants.

The price of permits has fallen on dwindling industrial carbon emissions as a result of recession and lower output, as well as falling energy demand and lower oil and gas prices.

African carbon trading advisory firm launched

LONDON (Reuters) - A new advisory firm launched on Monday seeks to boost carbon emissions trading in sub-Saharan Africa and raise the continent's lagging profile in the $120 billion global carbon market.

CarbonStream Africa, a joint venture between South African state-owned CEF Carbon SA (Pty) and Nordic company GreenStream Network Plc, offers advisory services for firms seeking to trade greenhouse gas offsets in Africa under the Kyoto Protocol.

"Africa is really lagging behind, but I really believe it has the strongest potential," said Deven Pillay, CEO of CEF's carbon trading arm and chairman of CarbonStream Africa.

"It's where we need investment...the ingredients are there."

Under the United Nations' Clean Development Mechanism, companies can invest in clean energy projects in poorer countries like South Africa, and in return get offset credits which can be used toward emissions goals or sold for profit.

But with only 28 of the more than 1,300 projects registered so far by the U.N., Africa accounts for a little more than two percent of the global CDM market.

"Africa is the most politically correct region in which to develop CDM projects and we want to be there," said GreenStream's Arne Jakobsen at CarbonStream Africa's London launch.

The CDM market has been hit hard by the global recession, with offset prices trading below 10 euros ($12.98) a metric ton for the first time ever on Monday.

Pillay said CarbonStream Africa has a team of five CDM experts, who can also advise on the voluntary emissions markets.

"I'd like to see projects in Africa, by Africans, for Africans," he added.

To see an interactive table of CDM data by host country and by region, go to here

(Reporting by Michael Szabo; Editing by James Jukwey)

Sell-off forces EU carbon to record lows

The price of carbon credits in the EU's emissions trading scheme reached a record low for the current phase of the scheme of just €11.60 as many of the large scale emitters covered by the scheme continued to offload their EUA carbon credits.

The price of EUAs has been on a steady slide since the start of the year when they stood just shy of €16 a tonne and market watchers are concerned that the price of carbon is no longer tracking oil prices.

Rising oil prices typically lead to an increase in the price of carbon, as they tend to result in energy producers switching from gas to more carbon intensive coal – a scenario that leads to increased demand for carbon credits.

However, the price of carbon has failed to track recent fluctuations in the oil price, prompting fears that any increase in demand for credits from energy companies arising from changes in the oil price is being outweighed by the on-going sell off of credits amongst heavy industries fearful that the recession will lead to reduced production levels.

"The carbon and oil price has become to some extent detached, just because of the sheer scale of the selling pressure," said Henrik Hasselknippe, head of carbon analysis at research firm Point Carbon. "Companies used to sell off credits if they saw that production levels had been down in the previous quarter, but now they are selling based on predictions that production levels will be down for the coming quarters."

He added that there were also early signs that the low price of EUAs was impacting investment in the UN-backed Clean Development Mechanism offsetting scheme.

"If you want to buy CDM credits [CERs] from a good emission reduction project in China it can now cost more than EUAs," he explained. "As a result we are already seeing reduced demands for CERs and are hearing rumours of people renegotiating prices with CDM projects."

The bearish market will undermine recent predictions that the outlook for the carbon market during 2009 remains largely positive.

However, Hasselknippe insisted that the long term outlook for the market remaioned good and predicted that prices of both EUAs and CERs could recover very rapidly once production levels amongst heavy industries begin to rise again.

"If we see people begin to hold off of CDM projects then once production levels rise the increase in demand for credits will be far quicker than the rise in the supply of credits, as you can't just turn these projects on and off overnight" he explained. "Prices could well triple by the end of the 2008 to 2012 [ETS] period."

The net result is that with the supply of CERs likely to remain constrained and carbon caps within the ETS to be lowered from 2013 there are opportunities for investors to buy credits at the currently low price and make good returns over the next two to five years.

However, Hasselknippe said that while all traders were aware that the three to five year outlook for the market remained bullish there were relatively few with the "deep pockets" necessary to make long term bets.

Exxon may pump up assets as valuations fall

AMSTERDAM: ExxoN Mobil, the world’s largest oil company, may embark upon an acquisition spree this year and snap up assets at “extremely cheap prices” to boost production growth, Sanford C Bernstein & Co said.

“Such a scenario could be on the game-changing scale last seen with the wave of mergers in the late 1990s, when the low oil price also put a lot of oil companies under duress,” Neil McMahon, a London-based Bernstein analyst, said in a note on Friday.

The Irving, Texas-based company expects to spend as much as $30 billion in 2009, or 20% more than last year, to lease drilling rigs and expand fuel plants, CEO Rex Tillerson said December 11. The budget may decline by $1 billion or $2 billion from this estimate should falling prices for steel and other materials reduce project costs, he said.

Oil majors including Royal Dutch Shell, Europe’s biggest oil company, BP and Norway’s StatoilHydro are scaling back budgets or delaying projects amid a slump in oil prices. Oil fell 54% last year, the first annual drop since 2001 and the biggest loss since trading started. Prices reached a five-year low of $32.40 a barrel on Dec 19.

Exxon Mobil, which refines about 7% of the world’s oil into fuels such as gasoline and diesel, has ample cash and untapped credit lines to expand in any of its three main businesses, petroleum production, refining and chemicals, Tillerson said last month. “Exxon Mobil is in a relatively unique position, as it might be able to change the industry structure forever and gap away from competitors in 2009,” McMahon said.

It would be the “ideal time” to form a joint venture with Petroleo Brasileiro SA as the Brazilian company appears to be struggling with financing and Exxon wants a bigger role in Brazil, McMahon said. Berstein has an “outperform” rating on the stock.

Petrobras, whose shares fell 48% last year, needs money to pay off $3 billion of maturing debt and fund development of the Tupi field. Its borrowing costs are rising after oil prices tumbled and the credit crisis curbed demand for emerging-market debt.

Petrobras became a darling of investors after its discovery in November 2007 of the Tupi oil field, the largest find in the Americas since Mexico’s 1976 discovery of Cantarell.

Tupi contains an estimated 5 billion to 8 billion barrels of oil. It may be at the center of a new offshore oil province that Haroldo Lima, head of Brazil’s oil regulator, said could contain 80 billion barrels of oil, enough for more than 10 years of US consumption.

“At present, Exxon Mobil looks like the only major with negligible production growth in the long term,” McMahon said. “Although this has not hampered the company’s performance in the past, all the same, some investors may prefer to see actual production growth on the cards.”

Carbon Offset Daily

Dr Peter Martin of the Centre for Excellence in Outdoor and Environmental Education at La Trobe University, writes:

The science and economics behind a carbon trading scheme are complex, but the basic ideas are not.

As the Government moves to convince Australians it has taken appropriate action on climate change, it’s tricky to unravel the facts from the political spin - where facts can get twisted.

Fortunately, knowledge of the impact of atmospheric pollutants on climate is rapidly advancing throughout the world, due to unprecedented concern and funding for research.

The dominant scientific view worldwide is that carbon and other human-produced gases are polluting our world and causing our climate to change.

Eleven of the past 12 years have yielded the hottest global mean temperatures ever recorded.

Australia is one of the hottest and driest continents on Earth, so we stand to be severely affected by climate change.

Governments worldwide are acting to curb climate change.

The United Kingdom and European Union have already instituted a carbon trading scheme.

Roughly 200 years after industrialisation in the Western world, countries such as Australia are now conceding that the price of prosperity may well be irrevocable environmental damage.

Australia is a nation that has grown rich from resource exploitation and, like other countries, has until now dumped industrial pollutants cost-free into the atmosphere.

The Government’s carbon pollution reduction scheme, to be phased in from July 2010, will start to put a price on that pollution.

How does the carbon pollution reduction scheme work, and why is there so much argument about the targets to be reached?

The Government’s pollution reduction scheme includes investment in renewable energy, carbon capture technology, and strategies for increasing energy efficiency. However, the core of the scheme is a cap and trade on greenhouse gas emissions, often expressed as tonnes of carbon equivalent gases.

The cap means that the Government establishes an upper total limit on how much pollution is dumped into the atmosphere on a yearly basis.

The amount of pollution firms produce will be monitored, reported and audited.

Having set a total limit on atmospheric pollutants, permits allow industry to pollute provided they have sufficient pollution permits to do so.

The permits are either sold or given to industries as a subsidy - the details of which are yet to be fully determined.

Permits will initially cost $25 per tonne of carbon equivalent pollutants.

An enterprise can then decide what it does with its pollution permits.

If an industry can reduce its pollution for less than $25 per tonne, it will no doubt sell its permits to those who can’t contain their pollution emissions.

If there are many companies that emit more than they have permits to cover, then permits to pollute will become hot property and supply and demand forces will drive up the price of the permits.

Initially, the Government has set a maximum tradeable price of $40 per tonne.

Ultimately, how valued the permits become is a function of the cap placed on pollution emissions.

In light of the global financial meltdown, the Government fears the cost of a strict pollution level will be financially crippling, forcing industry to pass on higher costs to consumers and squeezing economic health.

This is why the Government’s white paper released on December 15, and the press that followed, was so intent on ensuring Australians understood that for many sectors of the population, any increased costs would be compensated.

The money for such compensation comes from the sale of the carbon permits in the first place.

Pensioners, seniors, carers and people with disabilities will receive additional support, with even Government analysts suggesting such support will overshoot any real cost increases of a lower carbon future.

The Government has pledged to protect motorists from higher fuel costs by “cent for cent” reductions in fuel tax for at least the first three years of carbon trading. Vehicle emissions make up eight to 10 of all carbon emissions in Australia.

By ensuring fuel prices are unaffected by the scheme, the Government has effectively removed any incentives for motorists to consume less fuel.

Central to the scheme is the Government’s belief that in a lower carbon future, consumer behaviour will change.

Goods and services that are emissions intensive will cost more, ultimately shifting consumer sentiment to lower more sustainably produced goods and services.

Green groups and many eminent scientists, such as Australia’s Tim Flannery, argue that a lower cap and minimal subsidies are essential.

A low cap simply limits the quantity of greenhouse gases dumped into the air but, a low cap also provides a demand for permits and so carries added incentives for enterprises to seek new ways to minimise emissions.

There is some evidence from existing international schemes that pollution abatement effectiveness has been limited due to over allocation of permits.

It’s the argument over the pollution cap that has this week attracted the most attention from industry, politicians and green groups.

The Government has proposed a 5 per cent cut in carbon equivalent emissions below 2000 levels by 2020.

Australia will only make further cuts to emissions - another 10 per cent - if other developed countries agree to similar measures. It’s in fixing a figure that opinions diverge - largely for two reasons.

We all agree that dangerous climate change should be avoided, but what constitutes dangerous change is contestable.

Is it okay if most of Victoria’s western district wetlands are dry now?

Does it matter that the days of boating on Eppalock are largely gone, or we are arguing among ourselves about who gets to use the limited water from our northern catchments? Is it a general concern that in the past few years the Grampians and Alpine national parks have been razed, that building in lower lying coastal areas is now prohibited, or that storms are increasingly wreaking havoc, fuelling insurance hikes?

The Australian Government’s Department of Climate Change reports that a one degree rise in temperature in Australia by 2030 will generate: Up to 20 per cent more drought-months; Up to a 25 per cent increase in the number of days of very high or extreme fire danger; and Increases in storm surges and severe weather events.

A two degree rise will certainly mean the end of the Great Barrier Reef, Kakadu wetlands, 80 per cent of current habitat, and will reduce our agricultural productivity by 40 per cent.

The second reason fixing an emissions cap is difficult is that we are entering new territory.

Scientists are finding it hard to predict warming rates, and hard to accurately predict how much atmospheric greenhouse gases will increase warming.

To date the science has tended to underestimate the rate of warming, and underestimate the environmental influences. This makes the setting of a modest cap all the more contestable and ultimately risky.

There is a 50/50 chance that without serious intervention we will experience a plus two degree warming in the next 50 to 100 years, a level of warming that would be catastrophic for Australia’s environment. However, this uncertainty gives governments wriggle room.

The challenge for the Rudd Government on climate change is more than political: get it wrong and we risk reaching what scientists call the tipping point - a level of global warming that sets up a series of ecological changes that irreversibly speed up the rate of warming.

The Rudd Government’s commissioned Garnaut report on climate change preferences a 25 per cent reduction in pollution emissions from 2000 levels. Many scientists agree this is a minimum level needed to stabilise our climate.

The Government has chosen to soften the reduction target is as a consequence of the financial crisis.

It has chosen to pay attention more to the acute pain bought on by a credit-addicted economy.

In so doing it has ignored the chronic illness of a society running on ecological credit and nearing a point of environmental foreclosure.

What remains to address this is the power of individuals and communities, such as local sustainability groups, to reshape a way of living more within the carrying capacity of the planet - and it seems it is this mechanism of climate change abatement that will now be most sorely tested.

Energy audits aim to save money for Haverhill taxpayers

HAVERHILL — The city will undertake a major energy audit of its public buildings in an effort to save taxpayers money, Mayor James Fiorentini said.

Everything from drafty windows to water heaters will be inspected by teams of energy experts from National Grid and the state's Department of Energy Resources — at no cost to Haverhill, he said.

Fiorentini said new, comprehensive energy audits were a recommendation of the city's Energy Task Force. He said it cost more than $5 million this year to heat and power Haverhill's public buildings, and that the upcoming audit is expected to point out areas where energy can be conserved.

City Hall will undergo the most extensive survey, the mayor said, and that study will be conducted at no cost to the city. The cost to inspect other public buildings in the city will be paid for though a state energy efficiency grant that state Rep. Brian Dempsey lobbied for.

"If you own a home, you might have taken some steps to conserve energy, such as insulating leaky doors or windows, turning off lights when you leave a room or keeping the heat a few degrees lower than you'd like it," Fiorentini said.

The city launched an energy initiative in 2003 that resulted in annual savings of more than $60,000 through the installation of energy efficient lighting in City Hall, areas of Haverhill High, and Consentino, Whittier and Hunking middle schools.

Maintenance Director Jeff Dill said the cost of the lighting replacement project was partly paid for with National Grid energy rebates and the balance was paid off with two to three years of energy savings.

"The new audits will be far more comprehensive and instead of targeting certain projects as we've done in the past," Dill said. "They'll come in with a team of engineers who will review everything, including windows, roofs, heating systems and controls, lighting, water heaters and more. Then tell us what we can do to reduce costs by making some capital improvements. If we wanted to do this kind of audit before, we would have had to pay for it."

Fiorentini said the audit should outline what fixes or upgrades are needed to save energy and any associated costs might be paid for through a stimulus package that has been proposed by President-elect Barak Obama.

State honors Wales and Holland for energy audits

By JOHN APPLETON
jappleton@repub.com

The state director of energy efficiency commended Wales and Holland Wednesday for steps the towns are taking to make municipal buildings more energy efficient and said the state hopes to guide all 351 Massachusetts communities in this direction.

"There is a whole lot of activity in this area. There are a lot of tools in the toolbox, specifically for cities and towns," said Frank J. Gorke, director of the Department of Energy Resources efficiency division.

Wales has had a preliminary energy audit conducted on its few municipal buildings and this month is requesting proposals for a more detailed audit that would be followed up with building renovations to improve efficiency and cut energy costs.

Gorke said performance contracting and energy management services are the common names for the effort Wales is pursuing.

The company that successfully bids for Wales' detailed audit will recommend renovations such as windows, newer lighting and better insulation and will then hire contractors for the renovations.

The energy audit company will be paid for this work over a 10-year period from guaranteed savings on the town's energy bills.

Gorke said that through this system, which is overseen by his division, the town will wind up with significantly improved buildings and equipment but does not have to come up with the renovation money up front.

Wales Selectman Michael J. Valanzola became aware of this program and started the process for the town a little over a year ago.

In Holland, Selectmen Chairman James E. Wettlaufer was one of just 13 municipal officials in the state to apply for a free state energy audit early last year.

When the state sold carbon emission credits to businesses a few months ago, the recently enacted Green Communities Act required that proceeds be used for energy efficiency measures, and the 13 audited cities and towns were given grants to undertake the renovations recommended in the energy audits.

With its $112,475 grant, Holland will replace the windows at Holland Elementary School and do work at the fire station and library.

"If you make a town building more efficient and do it in the right way, your energy bill will go down and you will pay for the investment in anywhere from a handful of months to a handful of years," Gorke said.

Carbon Credit Trading

Posted on | December 19, 2008 |

In the wake of a year-long historic election season and chaotic global financial markets, one of the most highly anticipated cleantech sectors has been ignored and all but forgotten.

Predicted to be a $1 trillion market by 2020 in the U.S. alone, carbon credit trading has fallen off the radar of most analysts and investors.

To be fair, the lack of attention is partly justified.

If you remember, a few years ago, a man by the name of Albert Gore won an Oscar for telling the entire world, $10 at a time, about global warming.

That, combined with the Kyoto Protocol making headlines, put polar bears and carbon trading close to all of our hearts.

Then came a little something that typically reduces interest in things that cost extra: a global recession.

Cap-and-Trade, Invest and Profit

I probably don’t need to tell you that the man running this country for the past eight years opposed limiting greenhouse gas emissions. He opposed it staunchly and remorselessly.

Even when the rest of the world joined hands, including China and India, Mr. Bush refused to sign onto Kyoto or to voluntarily agree to reduce his country’s carbon emissions.

And so the world went on without us, regulating their emissions and developing numerous financial instruments for buying and selling carbon credits, which is now a very lucrative industry.

It works like this: Companies are given a limit on the amount of carbon the can emit. Call it 20 tons to keep it simple. This means the company owns 20 carbon credits.

If they emit less than 20 tons of carbon for the year, they can sell the excess credits at market price. If they go over the limit, the have to buy a credit for every ton they’re over.

That’s really all you need to know about how cap-and-trade works.

Now you need to know how to profit from it…

How to Profit From Carbon Credit Trading

While it’s possible to buy and sell carbon credit futures, like any other commodity, I would advise against doing so. It gets pricey, you need to be a big player, and the market is nascent and complex.

Still, there are a few ways to profit.

Two funds have been created that track the price of carbon credits from the two major sources of the Kyoto Protocol: the European Union Emission Trading Scheme (EUETS) and the Clean Development Mechanism.

The be honest, the floor completely fell out of this market over the past few months. Increasing financial difficulty put climate initiatives on the back burner, and there was limited credit and capital to fund new carbon credit generation projects.

Now, the tide is changing.

The European Union recent committed to a binding target of reducing emissions 20% by 2020.

And Barack Obama has said he wants a cap-and-trade system here in the U.S. as well. His appointment of Lisa Jackson to head the EPA underscores this notion. Jackson also helped establish the Regional Greenhouse Gas Initiative (RGGI), the first mandatory, cap-and-trade CO2 emissions reduction program in the United States.

With the U.S. about to join the party, you can bet carbon credits will be in high demand. And that, of course, is when commodity prices rise.

Carbon Funds

Earlier I mentioned that two funds already exist that track the price of carbon credits.

• The first, called the AirShares EU Carbon Allowances Fund (NYSE: ASO), is a carbon exchange traded fund (ETF).
• The second, called the iPath Global Carbon ETN (NYSE: GRN) is, obviously, an exchange traded note.

Both of these seem like good long-term investments since the price of carbon credits is currently low, but will rise again when the U.S. enacts a cap-and-trade system and more interest in general returns to global warming mitigation post-recession.

There are also a handful of companies that specialize in carbon credit exchange, brokering, and verification that can be possible investment vehicles.

In addition, companies in certain sectors of the cleantech industry, like waste heat recovery and waste-to-energy, can also benefit from aggregating and selling carbon credits.

We’ll cover those in future issues.

To green energy and green profits,