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Europe’s Carbon Market Is Sputtering as Prices Dive

April 21, 2013 by Leave a Comment

That is pretty small change — $3.90, or only about 10 percent of what the price was in 2008. But to the traders it came as a relief after the market had gone into free fall to record lows two days earlier, after the European Parliament spurned an effort to shore up prices by shrinking the number of allowances.

“The market still stands,” said Thomas Rassmuson, a native of Sweden who founded the company with Jonathan Navon, a Briton, in 2006.

Still, Europe’s carbon market, a pioneering effort to use markets to regulate greenhouse gases, is having a hard time staying upright. This year has been stomach-churning for the people who make their living in the arcane world of trading emissions permits. The most recent volatility comes on top of years of uncertainty during which prices have fluctuated from $40 to nearly zero for the right to emit one ton of carbon dioxide.

More important, though, than lost jobs and diminished payouts for traders and bankers, the penny ante price of carbon credits means the market is not doing its job: pushing polluters to reduce carbon emissions, which most climate scientists believe contribute to global warming.

The market for these credits, officially called European Union Allowances, or E.U.A.’s, has been both unstable and under sharp downward pressure this year because of a huge oversupply and a stream of bad political and economic news. On April 16, for instance, after the European Parliament voted down the proposed reduction in the number of credits, prices dropped about 50 percent, to 2.63 euros from nearly 5, in 10 minutes.

“No one was going to buy” on the way down, said Fred Payne, a trader with CF Partners.

Europe’s troubled experience with carbon trading has also discouraged efforts to establish large-scale carbon trading systems in other countries, including the United States, although California and a group of Northeastern states have set up smaller regional markets.

Traders do not mind big price swings in any market — in fact, they can make a lot of money if they play them right.

But over time, the declining prices for the credits have sapped the European market of value, legitimacy and liquidity — the ease with which the allowances can be traded — making it less attractive for financial professionals.

A few years ago, analysts thought world carbon markets were heading for the $2 trillion mark by the end of this decade.

Today, the reality looks much more modest. Total trading last year was 62 billion euros, down from 96 billion in 2011, according to Thomson Reuters Point Carbon, a market research firm based in Oslo. Close to 90 percent of that activity was in Europe, while North American trading represented less than 1 percent of worldwide market value.

Financial institutions that had rushed to increase staff have shrunk their carbon desks. Companies have also laid off other professionals who helped set up greenhouse gas reduction projects in developing countries like China and India.

When the emissions trading system was started in 2005, the goal was to create a global model for raising the costs of emitting greenhouse gases and for prodding industrial polluters to switch from burning fossil fuels to using clean-energy alternatives like wind and solar.

When carbon prices hit their highs of more than 30 euros in 2008 and companies spent billions to invest in renewables, policy makers hailed the market as a success. But then prices began to fall. And at current levels, they are far too low to change companies’ behaviors, analysts say. Emitting a ton of carbon dioxide costs about the same as a hamburger.

“At the moment, the carbon price does not give any signal for investment,” said Hans Bünting, chief executive of RWE, one of the largest utilities in Germany and Europe.

This cap-and-trade system in Europe places a ceiling on emissions. At the end of each year, companies like electric utilities or steel manufacturers must hand over to the national authorities the permits equivalent to the amount gases emitted.

Article source: http://www.nytimes.com/2013/04/22/business/energy-environment/europes-carbon-market-is-sputtering-as-prices-dive.html?partner=rss&emc=rss

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Britain Revives Regulation in a Push for Renewable Energy

November 24, 2012 by Leave a Comment

LONDON — The British government announced on Friday far-reaching changes in energy regulation intended to encourage development of renewable energy and nuclear power while ensuring that the country can still meet its electricity needs.

The changes will gradually quadruple the charges levied on consumers and businesses to help support electricity generation from low-carbon sources, to a total of about £9.8 billion, or $15.7 billion, in the 2020-21 fiscal year, from £2.35 billion now.

The government forecasts that the new price supports will add 7 percent, or about £95 a year, to the average household electricity bill. Such charges add 2 percent to energy bills, or £20 a year.

The effort shows that Britain, despite an ailing economy, is sticking to the ambitious goals for renewable energy and emissions reductions set in 2008 under the Labour government of Gordon Brown.

Britain is also shifting its approach toward energy. In the 1990s, Britain led Europe in deregulation of its energy markets. Now it is returning to a system of greater market intervention to fulfill what the government considers to be an imperative to reduce greenhouse gases.

Electricity generated from cleaner sources like nuclear and offshore wind is much more expensive than power generated by coal- or gas-fired plants. Companies will invest in clean energy only if given substantial incentives. The government hopes to attract £110 billion in energy investment through 2020.

The proposed regulatory changes will be incorporated in an energy bill that is to be approved next year, with the new rules phased in starting in 2014.

“In the 1990s there was a real move to make the U.K. power market a kind of liberalized, supply-demand, price-driven market,” said Howard V. Rogers, director of the gas program at the Oxford Institute for Energy Studies, a research group. “As soon as you introduce subsidies for wind, you undermine that principle.”

The proposed changes come after months of debate within the Conservative-Liberal Democrat coalition government. The Liberal Democrats favor tough goals to reduce emissions. The Conservatives, led by Prime Minister David Cameron, lean more toward promoting the use of natural gas. They also worry that wind farms will spoil the countryside, where many Conservative voters reside.

The government proposal “will allow us to meet our legally binding carbon reduction and renewable energy obligations and bring on the investment required to keep the lights on and bills affordable for consumers,” Edward Davey, the energy and climate change secretary, said in a statement.

Mr. Davey added that the proportion of electricity coming from renewable sources would increase to 30 percent by 2020, from 11 percent today.

Businesses are likely to welcome the bill because, if nothing else, it reduces the uncertainty that has made big investment decisions difficult.

“This package will send a strong signal to investors that the government is serious about providing firms with the certainty they need to invest in affordable, secure, low-carbon energy,” John Cridland, director general of the Confederation of British Industry, the country’s main business group, said in a statement.

The renewable energy industry said it would welcome increased government support. “This is a crucial announcement for the renewable energy sector,” said Maria McCaffery, chief executive of RenewableUK, a trade association. “This blows the last few months of political infighting completely out of the water.”

Some environmental groups, however, said that the government should set stricter emission targets for power companies.

“By failing to agree to any carbon target for the power sector until after the next election, David Cameron has allowed a militant tendency within his own ranks to derail the energy bill,” John Sauven, executive director of Greenpeace, said in a statement. “It’s a blatant assault on the greening of the U.K. economy that leaves consumers vulnerable to rising gas prices, and sends billions of pounds of clean-tech investment to our economic rivals.”

Others said they were appalled by support for new nuclear installations. While nuclear plants are low carbon emitters, they bring risks of accidents as well as the unresolved problem of what to do with spent fuel.

Stephan Singer, head of energy policy in Brussels for the World Wildlife Fund, said his organization was “fundamentally opposed” to price supports for nuclear power.

With energy costs already a major source of complaint, consumers are unlikely to be happy with the government plan.

“These higher energy costs are likely to hit low-income consumers hard,” said Ann Robinson, director of consumer policy at uSwitch.com, which sells consumers electricity online at favorable rates.

Article source: http://www.nytimes.com/2012/11/24/business/britain-revives-regulation-in-a-push-for-renewable-energy.html?partner=rss&emc=rss

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Green Column: Electric Cars Remain Tough Sell in China

July 4, 2011 by Leave a Comment

The pilot project, which could be replicated in other cities, underpins China’s ambitious plans to put at least half a million electric vehicles and plug-in hybrids on the road by 2015.

The country is the world’s biggest emitter of greenhouse gases — which scientists say are causing global warming — from the burning of fossil fuels and other human activities. With the largest and fastest-growing auto market in the world, China’s carbon footprint can only grow.

To bolster China’s energy security, Beijing has pronounced electric vehicles a top priority. It has earmarked $1.5 billion annually for the industry for the next 10 years in the hope that it can transform the country into one of the leading producers of clean vehicles.

But even with government support and the enthusiasm of electric-taxi customers, challenges remain if electric vehicles are to gain broader acceptance and widespread use.

Charging stations are few and far between, repair shops are hard to find and the cars are costly. Even after generous government support, a Shenzhen electric taxi costs 80 percent more than the Volkswagen Santana that ordinarily cruises the streets of Shenzhen.

“The electric car is still too expensive, and we ended up paying a lot more than for a Santana, even with government subsidies,” said Du Jun, general manager of Pengcheng E-taxi, the operator participating in the pilot project.

Local automakers like SAIC Motor and Dongfeng Motor Group have pledged large investments in greener vehicles. Global automakers, including BMW and Nissan Motor, are also working with local governments to roll out such vehicles — in these two cases the Mini E and the Leaf, respectively.

China’s investment in the electric-vehicle industry has no comparable counterpart in the United States, although the U.S. Congress is considering a bill that would allocate $2.9 billion for a program to help develop the infrastructure for widespread use of electric cars.

Germany’s cabinet agreed on plans in May to encourage the country’s electric auto sector with billions of euros in subsidies, aiming to have one million of the cars on the road by 2020. The subsidies will double state support for research and development to €2 billion, or $2.9 billion, through 2013.

For China, however, hitting its electric-vehicle targets will mean quickly winning market acceptance for an untested technology.

“I think it’s going to be a very, very long time, because the Chinese consumer, at the end of the day, is very pragmatic and wants a reliable car with a gasoline engine,” said Michael Dunne, president of the industry consulting firm Dunne Co. in Hong Kong. “They don’t want to be the ones experimenting.”

But he said that government fleets and bus companies were more likely to buy electric vehicles.

The Chinese government picked Shenzhen, along with 12 other cities, in 2009 to lead the migration to green vehicles. Shenzhen and Hangzhou are the only ones attempting to establish e-taxi fleets.

The state-controlled Pengcheng E-Taxi, partly owned by BYD, a major domestic manufacturer of green vehicles that is backed by Warren E. Buffett, was incorporated in March 2010. Fifty e6 cabs made by BYD hit the roads in the city three months later.

“People are really interested in the car,” said Zeng Xiweng, one of the top drivers in the company. “Over 90 percent of customers start asking questions, once they get in.”

“And it’s not just me,” he added. “All my colleagues have similar experiences as well.”

Daniel Li, a Shenzhen resident, recently took a ride in an electric taxi, one of the red cars with a wavy white band around the body that have been operating in the city for more than a year.

Article source: http://www.nytimes.com/2011/07/04/business/energy-environment/04green.html?partner=rss&emc=rss

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Green Column: European Pollution Regulations Face Challenge

April 10, 2011 by Leave a Comment

So does that give the European Union the right to regulate the emissions from airlines and shippers using its ports and airports?

The answer may partly rest on a lawsuit brought by the industry group Air Transport Association of America and by three major airlines — United and Continental, which merged last year, and American.

The airlines filed their case in late 2009, at the High Court in London against the extension of the E.U. Emissions Trading System to most international flights landing in and taking off from European airports.

The British court then referred the case nearly a year ago to the European Court of Justice in Luxembourg for a preliminary ruling.

Any verdict in favor of the airlines, which claim that the move by the E.U. breaches international conventions and laws, has the potential to undermine the initiative because E.U. regulators and European airlines say participation by foreign carriers is critical.

The U.S. airlines still are waiting for a hearing date. Even so, a verdict could come before the end of this year — and before the regulation takes effect, on Jan. 1, 2012.

Air China, China Southern and China Eastern have also threatened to file a lawsuit against the system, according to a report on Chinese state television.

In an emission trading system, the authorities set limits on greenhouse gases and then allow companies to buy and sell permits corresponding to their emissions. Advocates say such systems are the cheapest and most effective ways to control the gases in advanced economies and the best way to encourage innovative technologies, like cleaner engines and alternative fuels.

The European system already applies to about 11,000 power plants and factories. But the system has had a rocky ride since trading began six years ago, including extreme volatility, tax fraud, the recycling of used credits and suspicions of profiteering. The European Commission, the E.U. executive, had to shut down part of the system in January after a series of online attacks resulting in the theft of permits worth millions of euros. Since then, more security measures have been introduced.

A more fundamental problem for the E.U. system is that other parts of the world are adopting formal limits on greenhouse gases far more slowly than Europe would like.

That has prompted European companies to complain about stiffer international competition from foreign-based manufacturers that face fewer environmental constraints. That has also increased the pressure on the Union to find ways to share the burden of cutting emissions more widely, by making other significant polluters like airlines and shippers participate.

But according to Brian Havel, the director of the International Aviation Law Institute at DePaul University in Chicago, “the E.U. regulation is an overreach” that “could set a troubling precedent where other states could begin imposing new taxes and charges on foreign airlines for activities which occur beyond their airspace.”

Mr. Havel said the verdict still could go in favor of the Union because the court “has been quite supportive of E.U. initiatives that impose economic costs on the airlines and are pro-consumer.”

The European Commission declined to comment directly on the case.

But it has said the policy is justified on environmental grounds, and there is enough flexibility in the legislation so that foreign airlines could be exempted, at least in part, if countries where those airlines are based take additional measures to reduce greenhouse gases.

Within Europe, the airlines that could be affected the most are low-cost carriers, according to a report last month by the rating agency Standard Poor’s.

Standard Poor’s said airlines like British Airways and Lufthansa that charge premium fares should find it easier than the low-cost carriers, where price is a more sensitive factor, to pass on extra costs onto passengers in the form of slightly higher ticket prices.

The rating agency also said that airlines flying short-haul routes are less fuel-efficient than long-haul carriers because of more frequent takeoffs, when a large amount of fuel is burned, generating more emissions and demand for permits.

The European Low Fares Airline Association, which represents low-cost airlines like Ryanair and Easyjet, has been among the groups pressing hardest for the system to apply to international carriers. John Hanlon, the association’s secretary general, said that 80 percent of emissions from aviation in the Union were generated by long-distance flights, and so not including them would render the law environmentally ineffective.

In some respects, international shipping raises even more vexing questions for regulators contemplating emissions trading. Ship owners could easily swap the nationalities of their vessels, potentially making it complicated to keep track of some ships, like chartered vessels, that have used E.U. ports. Shippers also could make the process of determining how much to charge more challenging by using polluting vessels to deposit cargoes just outside E.U. waters and then using much cleaner vessels or alternative modes of transport to make the journey into the Union.

Another issue bedeviling shipping regulation is that developing countries like Liberia and Panama, where many vessels are registered, oppose some of the measures that would raise costs on what they regard as an important industry.

Even so, the European Commission reiterated last month a longstanding threat to impose rules unilaterally if shippers and the International Maritime Organization, a U.N. agency, failed to strike an international deal on reducing the industry’s carbon footprint this year.

But the E.U. transport commissioner, Siim Kallas, also suggested that the commission could extend that deadline beyond 2011 if there were real signs of progress in related areas, like ship design.

“Right now, it looks like the E.U. hasn’t got the stomach for a war on two fronts,” said Bill Hemmings, a specialist in aviation and shipping at the environmental group Transport Environment in Brussels. “It wants to get its system for airlines to buy CO2 permits off the ground before it gets its hands dirty with shipping.”

Article source: http://www.nytimes.com/2011/04/11/business/energy-environment/11green.html?partner=rss&emc=rss

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