Speech by Minister for the Environment and Water Resources at Committee of Supply Debate 2009

The Minister for the Environment and Water Resources, Dr Yaacob Ibrahim, gave his speech at the annual Committee of Supply Debate yesterday in Parliament. He covered the following topics:

• Sustainable Development & Resource Efficiency
• Climate Change, Energy Efficiency & Solar Energy
• Managing Water Demand
• Recycling
• Enhancing Capabilities and Building Long-Term Competitiveness
• Air Quality
• Noise
• Dengue & Chikungunya
• Public Cleanliness and Littering
• Hawker Centres
• Cleanliness of Food Outlets, Toilets and Waste Collection
• ABC Waters Programme & Marina Barrage

Summary of Key Issues

Given the global downturn, the ability to grow the economy in a sustainable way has become more, not less, relevant. Continuing to achieve good growth while maintaining a good environment will require first, the prudent use of natural resources, second, building capability in the environmental sector, and third, protecting our environment to ensure environmental standards do not slip, and even improve.

The Inter-Ministerial Committee on Sustainable Development (IMCSD) will release its report in March, including the $1 billion budget for sustainable development.

The preliminary results of the 2-year study by NEA to understand the long-term effects of climate change, indicate that Singapore’s existing infrastructure is sufficient to address the risks in the short to medium term.

Companies are already implementing energy efficiency measures with funding such as the Design for Efficiency scheme to co-fund workshops to design energy efficient facilities, and the Grant for Energy Efficient Technologies to co-fund up to 50% of the cost of energy efficient equipment or technology.

The government is taking the lead on energy efficiency and is on track to meet its goal of conducting energy audits for all government buildings with more than 15,000 square metres of air-conditioned floor area by March 2010.

NEA will implement Minimum Energy Performance Standards (MEPS) for household air-conditioners and refrigerators by 2011 to remove the least efficient models (1-tick and 2-tick range) from the market.

Solar energy is still more costly than conventional grid electricity generated from fossil fuels, but prices are expected to come down as the technology matures. To build up our capabilities for future adoption when it is cost-effective to do so, we will continue to research and test-bed such new technologies.

The Four National Taps strategy provides Singapore with NEWater and desalinated water options during dry weather, thus improving the drought resilience of the water supply system. But it is still important for Singaporeans to conserve water and use it efficiently.

Taps, urinals and dual-flush low capacity flushing cisterns (LCFCs) installed in new developments and existing premises undergoing renovation from July 2009 must have at least a one-tick water efficiency rating. In addition, all new domestic premises and existing ones undergoing renovation have to use dual-flush LCFCs from July 2009.

For water efficiency projects under the Water Efficiency Fund, PUB has increased the co-funding for SMEs from 50% to 80% of the cost of qualifying projects. PUB will also help SMEs to defray part of the retrofitting costs involved in switching to NEWater, and help them reduce their water bills by providing free constant flow regulators and spray nozzles.

The participation rate in the National Recycling Programme (NRP) has increased from 15% in 2001 to 63% in 2008.

Since 2007, there are 1,600 centralized recycling bins at HDB estates and one for every five blocks of HDB flats. The average amount of recyclables collected from each set of bins increased from 65 kg per month in 2007 to 103 kg per month for 2008.

NEA targets to achieve full implementation for the mandatory provision of recycling receptacles in condominium and private apartments by the end of 2009.

Singapore’s recycling rate has improved from 40% in 2000 to 56% in 2008 and we are on track to meet the Singapore Green Plan 2012 target of 60%.

NEA will be launching a $8 million 3R Fund to co-fund new waste minimisation and recycling projects. The fund will co-fund up to 80% of qualifying costs and subject to a cap of $1 million per project.

We are aware that some developed countries have used legislation to mandate recycling. In view of the current economic downturn, we are not looking at introducing legislation in the near future as it would likely increase costs for businesses and households. However, in the longer term, we will study the use of legislation to further improve our recycling rate.

The Ministry is developing a plan to turn Semakau landfill into an Eco Park, where companies can conduct field testing of renewable and clean technologies.

The Green Vehicle Rebate (GVR) Scheme will be extended by another 2 years till 31 December 2011. Through the GVR scheme, the number of green vehicles such as CNG and hybrid vehicles has increased to more than 5,400 as at end 2008. This is about 1% of the total car population.

There are now 3 CNG refuelling stations and this is expected to increase to 5 by the end of this year with the opening of stations at Serangoon North and Toh Tuck.

Under the ABC Waters Programme, 27 projects will be carried out across Singapore by 2012 to transform our drains, canals and reservoirs into beautiful and clean streams, rivers and lakes integrated into our neighbourhoods.

We have a shared responsibility to ensure sustainable development. Companies can develop and deploy technologies and products that are more environmentally- friendly than today, and incorporate environmental considerations into their operations and procedures. Citizens must embrace a lifestyle that considers the environment and limits resource consumption in their daily lives. Government will promote sustainability by setting an example, demonstrating our commitment, and involving people.

Sustainable development is a long-term process with long-term objectives. It means focusing on the horizon, rather than quick fixes; targeting prevention now, rather than putting right later; caring for the environment as part of our choices today, rather than dealing with the consequences of neglect down the line.

Voluntary Carbon Markets: A Business Guide to What They Are and How They Work

by Murray Ward, GtripleC
Scores of companies voluntarily reduce their carbon footprints by sponsoring climate-friendly projects at home and abroad without governments telling them they have to do so. Murray Ward of GtripleC says that failure to reward voluntary efforts within a compliance regime could stifle social entrepreneurship and domestic action for decades to come.

Adapted from a series of more detailed analytical policy papers on this subject by Murray Ward and Sean Weaver available at www.GtripleC.co.nz.


3 February 2009 | It seems only a matter of time before a mandatory cap-and-trade regime covers significant portions of emissions currently generated in the United States, either at a national or regional level. That's good news, of course – but it could signal the end of innovative new voluntary offset projects contributing to reductions close to home if emerging international standards apply.

That's because standard-setting bodies, in a well-intentioned effort to ensure the credibility of voluntary projects and prevent the dilution of compliance markets, have raised the cost of executing a recognized voluntary project above the cost of simply meeting basic compliance requirements. As we will see in a moment, this means that companies operating in regulated sectors and aiming for true carbon neutrality are penalized rather than rewarded for their voluntary efforts.

This has already led to a sharp decline in new voluntary projects within regulated industries in Europe, and is the focus of intense debate in countries like Australia, New Zealand and Japan.

Volunteers Not Wanted

The problem flows from the basic premise among standards writers (primarily based in Europe) that domestic mitigation actions seeking voluntary offset credits are no longer credible if all they do is help a country or some other firm meet the commitments they have under a compliance cap-and-trade scheme. To make sure this doesn't happen, the standards require that for every ton of voluntary credits issued, one ton of compliance units be "cancelled" (meaning making them null and void). The effect is to tighten the compliance cap by one ton.

Think about this carefully.

What greater disincentive to voluntary mitigation action could exist than saying "we will make your country's (or region's) or someone else's compliance task harder by one ton for every ton you reduce through voluntary actions"?

Contrast this with the current pre-compliance situation, where US firms seek the market advantage of a carbon-neutral branding by purchasing offsets from, say, energy efficiency projects in their own community. These companies are proactively helping the community reduce its emissions. They presumably have made the judgment that the costs incurred buying these local offsets are more than recouped by the value to them of the carbon neutral brand.

But, following the international standards, in jurisdictions where compliance cap-and-trade schemes have been implemented, the costs don't stop with just buying such local offsets. Here, they additionally would have to include the cost of having to cancel a valuable compliance carbon unit. The alternative is to not support domestic mitigation by buying offsets locally but, rather, to buy offsets from projects overseas in developing countries.

The Underutilized Toolkit

To seriously tackle climate change, we need every policy tool that helps reduce emissions. This is particularly true in countries that have taken on legally-binding obligations to do so. Why then throw away the use of the voluntary carbon market in developed countries?

That's what we will be doing if this "cancellation" idea takes hold.

It's simply fanciful to believe that governments or firms 'upstream' that are obligated to hold sufficient compliance units to cover their emissions will agree to rip up these valuable units on the basis of claims of reductions being made in the voluntary market. The nail in the voluntary coffin, then, is the alternative provided in the standards that project proponents, in addition to their full project costs, also have to purchase compliance units in the market and cancel them.

Domestic mitigation, especially through voluntary action by leaders in our communities, should be lauded and incentivized, not discouraged through such punitive rules. It seems even more incredible that these rules are emerging in the policy space holding sway over voluntary actions.

"Either-Or" Thinking

The genesis of this thinking seems to have come out of the United Kingdom, where the government was reacting to concerns and high-profile media stories about "carbon cowboys" in the voluntary carbon market who, through shonky business practices, were ripping off unsuspecting British consumers worried about their carbon footprints and prepared to pay for offsets.

This situation, in turn, translated into a vaguely-defined (but widely accepted) concern about "double counting" and a view that this had to be stopped.

Good Intentions, Bad Practices

Then, as part of the process that the British government undertook to develop a code of best practice for voluntary carbon offsets, it also surveyed consumers on whether they thought "offsets should have an absolute benefit to the atmosphere or just help the government or some firm in the EU ETS to meet their compliance obligations".

Needless to say, with the question posed in this "either-or" way, the answer came back "help the atmosphere".

As a result, the Code of Best Practice for Carbon Offset Providers put out by the UK Department for Environment, Food and Rural Affairs (DEFRA) early in 2008 rejects voluntary offset projects altogether and says the only way for UK consumers to credibly offset their emissions is to purchase compliance emission units and then cancel them.

While this Code is voluntary in its application (and focused on the UK), the debate around it has influenced the Voluntary Carbon Standard and other standards emerging in the voluntary space.

In particular, this notion of the need to have an absolute benefit to the atmosphere seems to have carried over to all these standards. It is this in particular that, in practice, kills the viability of doing voluntary projects (i.e. the supply side of the voluntary carbon market) in countries and jurisdictions under a compliance cap.

The Big Picture

Seemingly, it was this narrow focus on offsets that led to the bigger-picture logic of voluntary action in general being overlooked. The DEFRA Code and these standards have got this issue wrong, but you only see this when you step back from offsets and look at the bigger picture of voluntary action, and carbon neutrality (the major 'buy-side' driver in the voluntary market) in particular.

Any carbon neutrality initiative worth its salt will involve three main steps:

Step 1, measure your current (and expected 'business-as-usual') carbon footprint;

Step 2, initiate an emissions reduction plan and calculate (and measure) how your footprint will be reduced;

Step 3, purchase carbon offsets that match your residual unavoidable (or only avoidable at high cost) emissions.

The second step is the one most encouraged and lauded, so let's focus on this for a moment.

No matter how you slice it, you're usually talking about reducing emission from the energy sector, which is usually (and rightfully) also the target of any mandatory cap-and-trade regime.

This means that voluntary Step 2 reductions also have the effect of helping other emitters with commitments under the cap-and-trade law to meet their commitments. The effect of this is that these emitters can now do one of two things: either purchase fewer emission units on the market to be in compliance or sell additional surplus units into the market.

A critical point is that nothing about this has changed the overall compliance cap, hence there is no absolute effect on the atmosphere associated with the voluntary Step 2 reductions of the carbon neutrality actor. But no one calls into question the credibility of these 'local' reductions or the mitigation actions that resulted in them. So what is the logic behind saying that the mitigation actions that underlie Step 3 offsets must provide an absolute benefit to the atmosphere or otherwise it constitutes "double counting"?

Reduce Real Double-Counting

This is the essential key to understanding the argument that, provided real double counting is avoided (see below), simple logic dictates that it is just as credible to purchase (Step 3) offsets from actions undertaken within your community and your country as it is to directly make reductions in these same sectors as part of your Step 2 voluntary actions.

This is depicted in the following diagrams, which show that the voluntary carbon market can just be seen as a business means to organize a program of aggregated, and hence cost-effective, domestic mitigation that would not otherwise happen.

What is 'Double Counting'?

The term "double counting" referred to above generally means different things to different people. Some examples are:

● where attempts are made to sell voluntary credits from the same project activity to two different buyers

● where those undertaking the offset projects are also direct "points of obligation" in a cap-and-trade scheme (e.g. Kyoto country governments or entities with legal commitments in a domestic ETS) who will already get the benefit of the emissions reduction in their compliance program

● where a project is already receiving an incentive for the reduction in emissions (e.g. compliance units in a government-run domestic offsets scheme)

There are solutions to prevent these problems. For example, the first can be addressed with robust and transparent registry systems and the other two through rules that enquire whether these situations occur and reject these as therefore failing to meet the additionality principle.

Beyond Double-Counting

There are also issues beyond double counting that need to be addressed to maintain credibility. A key one is the correct matching of offset types to the emissions they are supposed to offset. For example international aviation emissions are not covered by Kyoto accounting, i.e. are outside the cap, so it is not proper to match these with offsets in sectors that are covered and under the cap. This can also be expected to be true of US compliance cap-and-trade schemes.

Finally, a key issue about credibility is whether things are perceived as being credible in the eyes of the consumer. This suggests that a public information campaign is needed to get the 'public' (faced with buying offsets or 'buying' the carbon neutrality claims of firms that have bought them) to better understand what compliance caps mean in practice, so what is credible and what is not.

Going back to the public opinion survey done by UK DEFRA, a question such as "Do you want offsets to come from projects of a similar type to your own reduction actions and help your local community to further reduce its emissions?" would likely have also had a majority "Yes" response – but result in the opposite policy outcome to the one that DEFRA took away.

Green Energy Not Cutting Europe's Carbon

Germany's renewable energy companies are a tremendous success story. Roughly 15 percent of the country's electricity comes from solar, wind or biomass facilities, almost 250,000 jobs have been created and the net worth of the business is €35 billion per year.

But there's a catch: The climate hasn't in fact profited from these developments. As astonishing as it may sound, the new wind turbines and solar cells haven't prohibited the emission of even a single gram of CO2.

Even more surprising, the European Union's own climate change policies, touted as the most progressive in the world, are to blame. The EU-wide emissions trading system determines the total amount of CO2 that can be emitted by power companies and industries. And this amount doesn't change – no matter how many wind turbines are erected.

Experts have known about this situation for some time, but it still isn't widely known to the public. Even Germany's government officials mention it only under their breath. No one wants to discuss the political ramifications.

It's a sensitive subject: Germany is recognized worldwide as a leader in all things related to renewable energy. The environmental energy sector doesn't want this image to be tarnished. Under no circumstances does Berlin want the Renewable Energy Law (EEG) – which mandates the prices at which energy companies have to buy green power – to fall into disrepute.

At the same time, big energy companies have an interest in maintaining the status quo. As a result, no one is pushing for change. Everyone involved is remaining silent.

Not an Instrument against Climate Change

In truth, however, even the Green Party has recognized the problem, as evidenced by an e-mail exchange last year between party energy experts and obtained by SPIEGEL ONLINE. One wrote the following message to a colleague: "Dear Daniel, sorry, but the EEG won't do anything for the climate anyway." Ever since the introduction of the emissions trading system, the Renewable Energy Law had become "an instrument of structural change, but not an instrument to combat climate change."

That means: wind turbines and solar energy plants are revolutionizing Germany's mix of power sources, creating jobs and making the country more independent from imports. But they aren't helping in the fight against climate change.

In the worst case scenario, sustainable energy plants might even have a detrimental effect on the climate. As more wind turbines go online, coal plants will be able to reduce their output. This in itself is desirable – but the problem is that the total number of available CO2 emission certificates remains the same. In other words, there will suddenly be more certificates per kilowatt of coal energy. That means the price per ton of CO2 emitted will fall.

That is exactly what happened in recent trading. A certificate to emit a ton of CO2 cost almost nothing. As a result, there was very little incentive for big energy companies to invest in climate friendly technologies.

On the contrary. Germany was able to sell unused certificates across Europe – to coal companies in countries like Poland or Slovakia, for example. Thanks to Germany's wind turbines, these companies were then able to emit more greenhouse gases than originally planned. Given the often lower efficiency of Eastern European power plants, this is anything but environmentally beneficial.

This phenomenon is especially apparent whenever the sustainable energy industry grows more quickly than anticipated – as in recent years when growth in the renewable energy branch quickly rendered the EU Commission's CO2 plans obsolete.

Building Renovations Are Better than Windmills

Experts from the Green Party are taking the problem very seriously: "We are in a veritable crisis situation, and that means we must reconsider and alter things we once took for granted," writes one contributor, adding that it's important to re-examine "whether we have set the right priorities."

Another expert begins his e-mail with a general clarification: "Dear People, I'm not fundamentally against the EEG.

I only emphasize this because Manfred has repeatedly and erroneously described me as an opponent of the EEG." But here comes the big "but": "When reduction of CO2 emissions is more cheaply achieved through insulating a building than using a wind turbine, that is where we should concentrate our support." When it comes to climate change, everything else is secondary to reducing CO2 emissions.

Indeed, when it comes to climage change, investments in wind and solar energy are not very efficient. Preventing one ton of CO2 emissions requires a relatively large amount of money. Other measures, especially building renovations, cost much less – and have the same effect.

The e-mail exchange ends with a conciliatory "What do you think?" But it is quickly followed by a bitter PS: "Do the Greens think that this problem (of climate change) will solve itself if we just screw solar panels onto our rooftops?"

Environmental Groups Admit to the Problem

The German Renewable Energy Federation is clearly not thrilled about the debate. The lobbying group's official line is: "By implementing renewable energy, there will by a reduction in 2008 of 120 million tons of CO2." When pressed, however, representatives of the federation will admit that this only applies to Germany. But the reality is that the freely traded CO2 certificates can be sold and used abroad.

Likewise, one federation employee openly said that there is "a certain degree of inconsistency" between the EEG and emissions trading.

But does it really have to be like this? Is it really so impossible to reconcile both of these instruments for protecting the climate?

In theoretical terms, of course it's possible. To do so, however, currently existing laws designed to prevent CO2 emissions would have to be reconciled. In real terms, for example, that means that every time a new wind turbine is built, the state would be forced to take certificates off the market. It is only in this way that you can achieve real positive effects on the climate.

Politicians Buckle to Business

There were discussions about such a system under Chancellor Gerhard Schröder, who governed in a coalition with the Green Party. At the time, Minister of the Environment Jürgen Tritten wanted to exclude the amounts of energy covered by the EEG from the calculations used in the carbon-trading scheme. Instead, the industry-friendly regulations currently in effect were pushed through. Major energy corporations, which had claimed as many CO2 certificates as they possibly could, lobbied heavily.

So why has nothing changed? According to experts, one reason has to do with technical problems. In the course of an ongoing trading period, they claim, adjusting the volume of CO2 certificates is no easy task.

Still, an SPD insider provides yet another explanation: "Politicians just have to resign themselves to certain things." As he sees it, if the state went back to the companies and took away the certificates they had been allotted, the result would be an uproar. "What do you think the companies would say to us?" he asks. "As a politician, there are certain storms that you simply can't weather."

Climate Exchange PLC - Monthly Trading Update

Press release

06 February 2009


CLIMATE EXCHANGE PLC


Monthly Trading Update for the European Climate Exchange,

the Chicago Climate Exchange and the Chicago Climate Futures Exchange



Climate Exchange plc, below outlines the trading volumes for the
month of January 2009 for the European Climate Exchange, the Chicago
Climate Exchange and the Chicago Climate Futures Exchange.


ECX = European Climate Exchange

CCX = Chicago Climate Exchange

CCFE = Chicago Climate Futures Exchange



Market Highlights


- Trading volumes on ECX during January were just short of 288Mt, up
68% year on year, with an Average Daily Volume for the month of
13.7Mt.

- The month saw a marked increase in activity in the March 2009
contract, with over 1,500 contracts traded.

- Open Interest in all contracts surpassed 400,000 contracts during
January - equal to over 400 million tonnes of EUAs and CERs.

- The price of EUAs fell by 25% in January: the benchmark December
2009 contract opened the year at EUR15.90 and closed the month at
EUR11.85 - see chart below.

- ICE Futures Europe & ECX welcome its 95th and 96th members: Galp
Energia and Triland USA Inc.

- Continued growth in CCX carbon volumes.

- Continued growth in CCFE traded volumes, especially in the "other
products" category which includes RGGI and CCX carbon futures and
IFEX.



Total ECX Products


2009 2008 Change %


January 287,977 171,163 68.2

YTD 287,977 171,163 68.2

Open Interest 405,007 201,370 100.3




ECX EUAs (Contracts*)


ECX EUA Futures Contract


2009 2008 Change %


January 209,118 126,593 65.2

YTD 209,118 126,593 65.2

Open Interest 171,176 152,175 12.5




ECX EUA Options Contract


2009 2008 Change%


January 25,551 44,570 - 42.7

YTD 25,551 44,570 - 42.7

Open Interest 62,352 49,195 24.6



*1 contract equal to 1,000 EUAs


ECX CERs (Contracts**)


ECX CER Futures Contract (launched 14 March 2008)


2009 2008 Change%


January 44,008 - -

YTD 44,008 - -

Open Interest 111,629 - -



ECX CER Options Contract (launched 16 May 2008)


2009 2008 Change%


January 9,300 - -

YTD 9,300 - -

Open Interest 59,850 - -



**1 contract equal to 1,000 CERs


CCX CFI (Contracts)


2009 2008 Change%


January 33,494 13,428 150%

YTD 33,494 13,428 150%



CCFE (Contracts)


Total CCFE Products


2009 2008 Change%


January 51,599 55,350 -7%

YTD 51,599 55,350 -7%

Open Interest 64,675 52,770 23%

CCFE SFI Futures & Options Contracts


2009 2008 Change%


January 30,229 52,395 -42%

YTD 30,229 52,395 -42%

Open Interest 30,696 47,517 -35%



CCFE CFI Futures & Options Contracts


2009 2008 Change%


January 3,128 798 292%

YTD 3,128 798 292%

Open Interest 8,920 2,039 337%



Other CCFE Products


2009 2008 Change%


January 18,242 2,157 745%

YTD 18,242 2,157 745%

Open Interest 25,059 3,214 679%

For breakdown of daily trades, please refer to websites as follows:


ECX www.ecx.eu

CCX www.chicagoclimateexchange.com

CCFE www.ccfe.com



Richard Sandor, Chairman of Climate Exchange PLC, said: "January has
been another good month for our exchanges and the inauguration of the
new President has highlighted that climate change legislation will be
at the top of the agenda for the new Administration in 2009".

Neil Eckert, CEO of Climate Exchange PLC, said: "January was another
month of strong volumes and further year on year growth. We look
forward to the launch of our T+1 contract giving us a presence in the
European spot market".

Carbon price falls to new low

The price of carbon has hit new lows as power generators and industrial companies continue to cash in credits under the emissions trading scheme (ETS) to bolster their balance sheets.

The price of European Union allowances under the second phase of the ETS has plunged to €10.15 (£8.8) per tonne compared with highs of more than €30 in July last year.

Analysts at Barclays Capital warned the price could fall further to €9 while Utilyx, the carbon information provider, said: "There seems to be no bottom to carbon prices at the moment."

Market experts blame the decline on profit taking and a collapse in manufacturing, which has reached its lowest levels since 1981 in Britain.

Power generators and industrial firms are selling their credits to raise cash during the credit crunch but also because they are confident they will not need as many pollution permits at a time of falling demand for their products.

The decline in emissions is good for global warming. But it also means reductions are being made in "offset" projects, where western companies can invest in green schemes in places such as China to counter the impact of their carbon production at home.

The slump in the price of credits under the ETS will revive criticisms that the cap and trade scheme has just turned carbon into another volatile market commodity used by speculators to make money.

Vincent de Rivaz, the chief executive of EDF Energy, told the Guardian last week that the operations of the ETS needed to be reviewed by Brussels before carbon was turned into a "sub-prime tool" by unscrupulous companies, instead of doing the job it was set up for: reducing CO2 emissions as a way of tackling global warming.

EDF, the power company 85% owned by the French state, admitted it had sold some of its own carbon credits on the market – in very small numbers – with the rest being transferred for use around the group's other overseas businesses.

A research paper published by the environmental group WWF in collaboration with the Point Carbon consultancy last spring claimed windfall profits of up to $70bn could be made by the power groups in the course of phase two of the ETS, which runs from 2008 to 2012. They pointed out that there would have to be a high carbon price to achieve those particular financial gains.

Sanjeev Kumar, the emissions trading scheme coordinator at the WWF, said: "The way the national allocations plans are set up is a disaster. Handing free permits to power companies is like handing them a cash bonus. Cheap profits for doing nothing is scandalous."

Deutsche Bank and others predict carbon prices will rise again as industrial production picks up and the EU tightens the regulation on allowances, especially for phase three of the scheme, which will run until 2020.

But analysts have been consistently wrong about the direction of carbon prices; 12 months ago they predicted they would double from €22 per tonne to more than €40.

The new US administration of Barack Obama is considering whether or not to set up its own federal carbon emissions trading scheme. Such a move would help push the world towards a global trading scheme, but critics say all these projects should be halted.

Can energy efficiency brighten a dark economy?

After a decade working in the lighting industry in Singapore and the United States, Govi Rao decided to strike out on his own. His idea? To turn LEDs, those funny glowing lights in video games and digital watches, into a mainstream, environmentally friendly alternative to traditional lighting.

In 2007, he bought four LED (light-emitting diode) manufacturers in quick succession and set up his new outfit, Lighting Science, with the help of California investors. But with the economy tumbling since, his timing looked awful.

So why is Mr. Rao smiling? Because he expects the energy-efficiency parts of the $819 billion stimulus package the House passed Wednesday to jump-start sales, which would bring down his costs and, he hopes, make Lighting Science a world leader in an emerging, energy-saving technology.

It may be a pipe dream. Of all the long-term, “new economy” investments envisioned in the House legislation, such as Internet modernization and renewable energy, the roughly $30 billion set aside for energy efficiency is the least likely to generate the kinds of secure high-tech jobs that President Obama has talked about. Manufacturing of lights and other energy-saving devices is likely to move offshore, analysts say.

But that’s not an argument for excluding energy-efficiency efforts from the stimulus plan. Efficiency, it turns out, could boost the American economy in a big way.

“Energy efficiency itself creates jobs, simply because of the household spending it takes out of the carbon-supply chain and puts into espresso drinks and haircuts,” says David Roland-Holst, a resource economist at the University of California at Berkeley. “Service jobs are bedrock jobs.”

How many jobs is hard to tell. California’s energy-reduction programs generated 1.5 million jobs, worth $45 billion in payroll, between 1972 and 2006, according to a study by Mr. Roland-Holst. That’s not a big yearly average, but Roland-Holst says the new federal investment, if followed through on, would create many more jobs over time.

Efficiency would also be a boon to taxpayers. The House legislation aims to retrofit 75 percent of all federal buildings with better insulation and energy-efficient lighting. It costs about $6 billion a year to heat, cool, and light federal buildings, says the US Government Accountability Office. The current plan is to cut that bill by 30 percent – a savings to taxpayers of almost $1.5 billion a year.

“Retrofitting a government building puts money into domestic construction,” says Ed Young, an associate at Cambridge Energy Research Associates, a consulting firm in Cambridge, Mass. “It’s not the [jobs] equivalent of building a rocket ship … but it has lots of positive effects. The biggest thing to do for energy in the US is to save energy.”

Savings for homeowners could be even bigger. The House plan calls for subsidized loans or grants to help retrofit 2 million American homes. If those houses were brought in line with the most widely used efficiency standard in the US – the Leadership in Energy and Environmental Design (LEED) – they would use 30 percent less energy. With the average household spending about $3,500 a year on heating and electricity, the savings would translate into about $2.1 billion a year.

Because 2 million homes represent only about 2 percent of US households, many activists hope the effort will be expanded, perhaps as an antipoverty program.

“With all the foreclosure stuff that’s going on, anything you can do to help reduce month-to-month operating costs for homeowners is a big plus,” says Dan Karan, director of construction for Neighborhood Housing Services, a nonprofit group that builds and finances low-income housing in New York City. But few lower-income Americans have the up-front cash to make the switch, particularly in these tough times.

“Money is much tighter for us now,” he adds, “so we’ll certainly be looking to Washington” for energy-conservation programs.

The prospect that green building standards will be one of the few growth areas for the next few years has convinced Jay Gajjar, owner of Brooklyn-based Horizon Construction, to bring all of his work in line with LEED standards.

“I’m very optimistic that this is where the future of my business lies,” he says. Some 90 percent of his work is in subsidized and low-cost housing, and regulations increasingly require contractors to build energy-efficient homes.

“Once you know how to do it, you can build homes that use 33 percent less power but only cost about 8 percent more to build,” he adds. “The economics are there, and every indication is our business is going to keep growing.”

He’s currently gutting a building in Harlem using government money channeled through Mr. Karan to provide low-cost housing. How it’s done is pretty simple: An energy-saving boiler will be installed on the roof, extra care will be taken with caulking and sealing, and energy-saving windows will be installed.

Those projects generate construction jobs but not the long-term, high-tech positions envisioned in the stimulus package. Is that kind of job creation possible?

Lighting Science’s Rao thinks so.

“The stimulus package makes so much sense for companies like ours,” says the native of India, who has 70 patents. “It’s going to create a lot of infrastructure demand in general, and I’m also hoping it will help people like me bring innovation and manufacturing back to the US.”

For now, his business is tiny, with about $45 million in sales last year – including, most prominently, a contract to help build the new, high-tech ball that dropped over Times Square on New Year’s Eve. He’s also working on a $1 million pilot program for New York City to replace high-pressure sodium street lamps with his LEDs, which consume about 40 percent less electricity and last about three times longer then the existing lights.

LEDs save about as much energy as carbon fluorescent lights (CFLs), don’t use dangerous chemicals like mercury, and last for about 15 years, twice as long as CFLs, Rao says. But at $40 a bulb, compared with about $4 for a CFL, his product is out of reach for everybody but mall owners and municipalities, who have to factor in labor and maintenance costs.

“This is where the stimulus package can help significantly, because if it boosts my volume that will help me get to a price level where we can reach consumers,” he says. His market research shows that if he can get the price to about $25 a bulb, his product will start making financial sense for homeowners.

Even if Rao manages to get down to that price point, many analysts are skeptical that technologies like LEDs will create a domestic manufacturing boom.

“It’s nice to talk about reindustrialization, taking these old Rust Belt factories and turning them into green industries,” says Roland-Holst of the University of California. “But, I’m sorry, most of these jobs are going to go to China.”

Carbon price fall bad for green investment

http://www.ft.com/cms/s/0/3d80d790-f091-11dd-972c-0000779fd2ac.html

The price of carbon dioxide in the European Union has fallen so low it no longer provides an incentive to low-carbon development, and seems unlikely to do so in the near future.

Permits to emit the gas, issued by the EU’s emissions trading scheme (Euets), have tested record lows in the past two weeks and now trade at about €11.80 ($15.12, £10.42), according to analyst Point Carbon.

That is barely a third of their peak of more than €30 last summer, and well below the level at which they tip the economic balance for companies in favour of making investments in efficiency and “clean” technologies, analysts and traders say.

“The current carbon price has little impact on green investment decisions,” said Dean Cooper, head of renewable energy at Ambrian. “A price nearer to €25 a tonne is necessary for carbon to play a role.”

Paul Newman, managing director at brokerage Icap, puts the desired level higher, at €35 to €45, to make a real impact on investments. But he is more optimistic about the scheme’s future: “It makes people more conscious of the subject than four years ago, and that alone has some merit.”

The effect of the low price is already felt by industry. Paul Golby, chief executive of Eon UK, told the Financial Times: “As the cost of carbon permits has crashed in recent months, funding low-carbon investments has become more difficult.”

The trading scheme intends to cut greenhouse gas output by heavy industry by issuing companies with a quota of permits to emit carbon dioxide.

If businesses need to emit more, they must buy permits from companies with spares. That should make efficiency and investment in modern equipment and renewable energy more attractive.

But the carbon price has been volatile, and its recent falls have demonstrated the difficulty for the European Commission and member states to set carbon quotas at levels industry finds acceptable, while providing a reliable incentive to low-carbon investment.

Since the scheme began in 2005, the carbon price has correlated closely to energy prices, and is seen by some traders as a hedge against high oil prices. As the oil price has fallen drastically, so has the carbon price.

That has been compounded by the recession. As companies produce less, they will need fewer permits.

The price fall of permits is also bad news for EU governments. Several, including the UK, intended to raise substantial sums, in the billions, by auctioning carbon permits, as permitted under EU rules.