Friday, 12 September 2008

Eco trader plunges on slowdown

By Fiona Harvey, Environment Correspondent
Published: September 12 2008 03:20

Shares in EcoSecurities plunged 14 per cent on Thursday in the latest sign of trouble in the carbon market.
It has been a torrid year for the carbon trader. In September 2007, its shares stood at more than 300p. On Thursday they closed at 66p.

EcoSecurities, which deals in carbon credits issued under the Kyoto protocol, said revenues for the six months to June 30 had more than doubled from €5.59m ($7.82m) to €13.4m and it had narrowed its pre-tax loss from €12m to €9.95m. The loss per share was 9.79 cents (14.16 cents).
However, investors were more concerned by the downbeat outlook for the company’s portfolio of carbon credits.
EcoSecurities suffered last year from having to write off a chunk of its carbon credit portfolio and there have been lengthy delays in the issue of some of its credits.
The company said that it was still experiencing serious delays and a slowdown in the number of new projects generating carbon credits.
Bruce Usher, chief executive, said: “The results are a mixed bag.” On the plus side, the appetite for carbon credits from buyers – mainly in Europe and Japan – was “stable and strong”. The price fetched by credits in the market was high, compared with historical prices, at about €20 each.
But on the negative side, Mr Usher admitted: “The portfolio has not grown much, and there are a lot of delays.”
Carbon credits are issued by the UN to operations that reduce carbon in the developing world, and the process for the issuance of credits is complex.
Projects must be independently verified and then the UN must certify that each one has passed its stringent standards before the credits can be issued.
Mr Usher said a shortage of verifiers meant his company had to wait as much as a year to have projects verified, and the cost of verification had doubled. The UN’s issuance process added further delays.
Copyright The Financial Times Limited 2008

Carbon credit market reaching plateau

By Fiona Harvey, Environment Correspondent
Published: September 12 2008 03:14

Investors have twin concerns regarding the fledgling market in carbon credits – its complexity and the fact that much of today’s trading could peter out in three years’ time.
The market was launched in 2005 thanks to 1997’s Kyoto protocol. However, the provisions of the treaty are set to expire in 2012 and in spite of years of fraught negotiations, there is nothing to replace them.

Carbon traders such as EcoSecurities and Camco make their money by generating and selling carbon credits issued by the UN under a provision of the Kyoto protocol called the clean development mechanism.
The idea is that rich countries, which are obliged under the treaty to cut their emissions, can do so, in part, by funding projects that reduce emissions in poor countries. These projects, such as wind turbines or solar panels, are awarded carbon credits and these can be bought by wealthier governments to count towards their emissions-cutting targets.
In this way, emissions should come down and developing countries gain access to technology they could not otherwise afford.
Governments are not the only buyers. Europe has a separate carbon trading scheme under which certain heavy industries are handed a quota of carbon dioxide emissions each year. They receive permits for each tonne they are allowed to emit. If they want to emit more, they can buy permits from one another, or buy UN carbon credits.
However, the market has been hit by a series of mishaps. The EU trading market suffered a serious blow in 2006 when it was discovered that more permits had been issued than companies needed. As the market only has a meaning if there is a scarcity of permits, trading collapsed.
This problem appears to have been solved and the market in EU permits is “getting stronger and stronger”, says Paul Newman, managing director at Icap Energy, which is trading 2.5m EU permits a day, up a third on last year.
But the market for UN credits is a different story. Having carbon credits issued by the UN is a lengthy process, often taking more than a year. As there may be no UN market after 2012, developers are coming under increasing pressure as they can only count on making money from their credits for another three years – a limited window of opportunity.
As a result, traders and analysts are reporting the number of projects is drying up.
Bruce Usher, chief executive of EcoSecurities, says: “It’s slowing down because of what happens in 2012. There isn’t a lot of runway left for projects.”
Alexander Ivanovitch, analyst at Kaupthing, agrees: “The pace at which new projects are coming forward is being reduced as we’re getting closer to 2012.”
“We’re hitting a plateau,” says Lucy Mortimer, a carbon trading manager at TFS, formerly Tradition. She is hopeful that the market will continue but investors will need reassurance.
Negotiators from around the world are at work on crafting a new treaty by the end of 2009, in time for national governments to ratify it before 2012. But the work is progressing slowly and there is much disagreement.
However, there are hopeful signs: the EU has pledged to keep its carbon trading system going at least till 2020, which will give carbon credit sellers a market for their wares.
However, the key will be the US. Both US presidential candidates have plans for a federal carbon trading system. If they fulfil their pledges, that will breathe new life into the market.
Copyright The Financial Times Limited 2008

EU legislators call for more modest biofuels goal

By James Kanter
Published: September 11, 2008

PARIS: European legislators said Thursday that ambitious targets for using crop-based biofuels should be pared back dramatically, prompting the fledgling industry to fire back with a campaign warning that alternatives might be no cleaner.
European Union governments pledged last year to increase the use of biofuels in transport to 10 percent by 2020, from a negligible amount currently, amid optimism that energy derived from crops would provide a low-carbon way to power vehicles.
On Thursday, the European Parliament's influential Industry Committee endorsed the general 10 percent target but added a number of modifications meant to move away from traditional biofuels made from grains or other crops toward other, renewable energy sources.
It called for having 5 percent of transport fuels be from renewable sources by 2015, with at least a fifth of that amount from "new alternatives that do not compete with food production." That could include sources like hydrogen or electricity from renewable sources, or biofuels made from waste, algae or nonfood vegetation.
The lawmakers stuck to the 10 percent target for 2020, but said at least 40 percent of that should be made up of such "second-generation" renewables. But that target would have to be reviewed in 2014.

The lawmakers were reacting to waning enthusiasm for biofuels. Over the past year, scientists and environmentalists have warned that some biofuels may be more polluting than fossil fuels and that the diversion of crops to fuel production may be a factor in rising food prices.
The full Parliament and EU governments still must reach an agreement on any targets before they become law.
But biofuels manufacturers, worried that their industry is coming under threat, now are seeking to ensure they have a future.
They are stepping up a publicity campaign, warning that alternatives to biofuels like hydrogen and electricity - while they might help to reduce tailpipe pollution - still would require burning of fossil fuels to manufacture.
"Renewable electric cars do not exist," said Raffaello Garofalo, the secretary general of the European Biodiesel Board. "People are going to charge the batteries of their cars at home with normal electricity that is predominately of a fossil fuel base. So there is no incentive given to renewables that way - instead you are just increasing the use of electricity full stop."
Cars running on hydrogen produced from renewable sources are not yet commercially available, said Garofalo.
Other representatives from the biofuels industry called on lawmakers to maintain a higher target for biofuel use of up to 10 percent by 2020.
"We should be supporting the original target," said Simo Honkanen, vice president at the renewable fuels division of Neste Oil, a Finnish company that sells biodiesel produced from palm oil, rapeseed and animal fat.
"It's important for the European biodiesel industry as a whole to have stability over one or two decades so that the industry can grow," Honkanen said.
Biofuels producers in Europe already feel under threat from subsidized U.S. exports. EU trade officials complained in June about a tax credit that is granted to American exporters, and they launched a formal investigation that could lead to the imposition of punitive tariffs.
Garofalo said the industry already had built substantial capacity based on an earlier, voluntary target of 5.75 percent biofuels by 2010, and he accused legislators of showing bad faith by calling for even weaker targets.
Analysts agree that Europe may have little hope of reducing emissions by using electricity, hydrogen or biofuels in the near term.
"Probably the best option is encouraging fuel efficiency and developing engines that consume less fuel," said Juan Delgado, a research fellow specializing in energy and climate change at Bruegel, a research organization in Brussels. "In fact it may be more efficient to try and reduce more emissions in other sectors of the economy besides transport, like electricity," said Delgado.
But environmentalists praised lawmakers for reducing the target.
"The vote by the European Parliament recognizes the serious problems associated with the large-scale use of biofuels," said Adrian Bebb, the agrofuels campaign coordinator for Friends of the Earth Europe.
European legislators started backpedaling on biofuels in July, when the Parliament's Environment Committee called for a slightly lower medium-term target - 4 percent rather than 10 percent - and also said the measures should be reviewed in 2015 before any decision to ratchet further upward.
The legislators also stressed the importance of using transport fuels that come from feedstocks that do not compete with food for cropland.

US raises heat in biofuels clash

By Alan Beattie in London
Published: September 11 2008 23:36

A transatlantic trade dispute over biofuels has escalated, with the US biodiesel industry accusing European companies of hypocrisy for protesting against subsidised fuel that they are themselves importing.
The European Commission launched an “anti-dumping” investigation earlier this year after European Union producers complained that they were being undercut by imports subsidised by the US government and priced unfairly low.

But the US National Biodiesel Board rejects the allegations. In a submission to the Commission, seen by the FT, the board says that rather than unfair competition from the US, the European industry is suffering from overinvestment in capacity, rising prices of feedstocks such as rapeseed oil, and the removal of a tax exemption for biodiesel in Germany, one of its main markets. The board also says several signatories to the complaint are importing fuel from the US.
Manning Feraci, vice-president of federal affairs for the US National Biodiesel Board, said: “Not only does the European Biodiesel Board’s case lack merit, it is disingenuous and hypocritical that several of the European biodiesel companies involved in filing the complaints are the very entities actively involved in the trade of US biodiesel.”
The European Biodiesel Board did not return calls. But Xavier Beulin, president of Sofiproteol, the financial wing of the French oil-seed industry, rejected the accusations of hypocrisy. “That European companies may be benefiting from the subsidy has no legal bearing at all,” he said. “The US biodiesel industry, under the cover of policies for energy security and independence, is creating an export industry dependent on subsidies.”
Europe is the world’s largest market for biodiesel, consuming nearly 7m tonnes a year. But some European biodiesel companies have shown poor returns recently.
On Thursday, the European parliament’s industry committee threatened the industry further by voting to modify the EU’s target that 10 per cent of road transport fuel should come from renewable sources by 2010. The committee said that 4 per cent of the total should come from electricity or hydrogen for renewable sources, or from newer biofuels produced from low-value crops or waste, rather than from biofuels that might compete with food production.
The European industry says the US’s $1 a gallon subsidy to biodiesel producers is abused by a procedure known as “splash-and-dash”, where biodiesel from Latin America and elsewhere is shipped to the US, blended with a tiny amount of mineral oil and re-exported to the EU. The US biodiesel board says it is working to eliminate the practice.
The US industry is also pressing the US trade representative’s office to file a case at the World Trade Organisation against the EU for writing its technical specifications for biodiesel to favour its own producers. The EU rejects the accusation.
“Let them file a case,” Mr Beulin said. “The [technical] standards were not written in a vacuum; they were produced in consultation with the industry. There is no single global standard for biodiesel.”
Copyright The Financial Times Limited 2008
Going nuclear – cheap and beneficial for Scotland?

Published Date: 12 September 2008
By Peter Jones

SOARING energy prices are big news once again this week, with Gordon Brown's announcement of £910 million being squeezed out of the energy companies to help poor folk deal with their bills. Poor old Gordon was promptly met with a blast of complaint that his proposals were rubbish. An energy economist might conclude from this that big gas and electricity bills are a hot political topic because the public is highly sensitive to high prices.
What might this mean for the Scottish Government's plans to ramp up the amount of electricity generated from renewable sources? The question is worth asking because conventional political and public wisdom appears to be that more renewables are good because they mean less environmentally damaging greenhouse gas emissions. But what if renewables also mean electricity prices go even higher than they do now? What would we think about them then?Earlier this week, Jim Mather, the energy minister, was boasting of a "renewables surge" that would see Scotland easily surpass its target of having 31 per cent of electricity coming from renewable sources by 2011. Of course, he added, this means Scotland need not make the "costly, harmful, and damaging mistake" of new nuclear generating plants.In the debate around future energy needs, the price of electricity that might come from various technologies is rarely discussed. That's because hard data is difficult to come by and, I suspect, the supporters of various technologies don't like to talk about them. But we do need to talk about prices, otherwise we are at risk of winding up with the biggest electricity bills in Europe.A reasonably impartial source for figures is the Royal Academy of Engineering (RAE). In 2004, it published a study examining the costs of competing technologies. Gas-fuelled electricity worked out at around 2.2-3p per kilowatt hour (p/kWh), coal at about 2.5-3.2p/kWh, Since 2004, rising gas and coal prices have raised costs by just under 1p/kWh. Nuclear, including decommissioning costs and not so affected by fuel cost hikes, comes out at about 2.3p/kWh.Among renewables, hydro is cheapest at about 1.5p/kWh. It would be good to have lots of it, but as the Scottish Government has recently told us, the maximum hydro generating capacity that can be built would only meet about 3 per cent of Scottish electricity needs.Other forms of renewables are much more expensive. Biomass, says the RAE, is estimated to be about 6.8p/kWh, onshore wind is about 3.7p/kWh, offshore wind about 5.5p/kWh and wave and marine technologies work out at about 6.6p/kWh. No figure is provided for coal-fired stations equipped with carbon capture and storage, but the RAE says the technology could add between 1-3p/kWh to existing coal costs.It might be argued that, as the technology involved in renewable generation matures, the costs should fall. But various studies suggest that most of the maturing technology cost reduction has already taken place. And there are a lot of unknowns involved with offshore wind and wave, such as the effects of salt corrosion, which may increase costs. The fact remains that, at current costs and with the exception of hydro, renewables are not economic. Nobody would build them because gas, coal, and nuclear produce cheaper electricity.But, of course, many wind farms have been built because they get a subsidy. Under the government's renewable obligation scheme, all electricity generators are obliged to supply a percentage (9.1 per cent this year rising to 15.4 per cent by 2015-6) from renewable sources. Most cannot, so they buy renewable obligation certificates from green generators to fill the gap. Generally speaking, wind farms get about half their income from selling their electricity and about half from selling certificates. In turn, we all pay for the cost of the certificates by a bit extra on our bills – about £10 a year now rising to £20 by 2015.This is not the end of the environmental levies that we all pay. There are schemes aimed at cutting the amount of carbon emissions. One is the British government's carbon emissions reduction target, which is aimed at increasing the energy efficiency of homes and now costs the average gas and electricity customer about £38 a year. Another is the European Union's Carbon Trading Scheme, which penalises companies producing lots of carbon and is now reckoned to add about £31 to average bills. In total, the green extra on the average household bill is now about £80.This cost will steadily increase as the restrictions on carbon production get progressively tighter. It will also rise as more and more renewables come on stream. At the moment, they supply a relatively small percentage of our electricity and so the overall subsidy needed to make them economic is relatively small. But as the renewable sector enlarges, so the subsidy required will also get bigger and that will be reflected in our electricity bills.Will we happily pay it? The furore over government help to the fuel poverty-afflicted this week suggests that we might not. Especially as there is an alternative – nuclear power.Let me say that I am no great fan of the atom-smashers and I am generally willing to pay to see windmills and wave generators sprouting around the country. I am not so sure, however, that all Scots will take the same view once they become aware of the costs and what it means for electricity bills. The Scottish Government is confident that it has public opinion behind it in opposing nuclear. But the economic facts are that it is cheap, compared to wind and wave. Moreover, it will not be subject to the carbon taxes levied on coal and gas because it does not produce much greenhouse gas. Already there are divides opening in the green movement with some activists, such as George Monbiot, beginning to think that using nuclear to cut carbon emissions might be a more important environmental objective than stopping further increases in the radioactive waste pile.There are lots of other arguments to consider here, such as the fact that higher electricity bills might encourage everyone to be more energy efficient. But I also worry that ruling out nuclear might be a costly, damaging and harmful mistake.• Constructive, cogent comments welcomed at:

LG joins Conergy in solar energy venture

By Song Jung-a in Seoul
Published: September 12 2008 02:02

LG Electronics will buy a 75 per cent stake in Conergy’s solar module plant in Germany, the South Korean company said on Thursday, its first overseas foray into the lucrative sector.
The group sees the deal, which is expected to cost LG at least Won200bn ($180m), as a potential driver of future growth as it tries to become one of the world’s top three electronics makers. Germany is a world leader in solar power generation, largely because of generous government incentives.
“The joint venture with Conergy provides LG a unique opportunity to make a swift and effective entry into the solar industry, with a leading downstream company as its partner,” the company said.
LG’s chief executive, Nam Yong, said in May that the company wanted to enter the solar energy business and was reviewing possible options including an acquisition.
Conergy, one of the largest European solar energy businesses, is downsizing non-core businesses to focus on photovoltaic activities.
This week the company said it had sold its wind turbine generator business to Warburg Pincus, a US private equity fund.
“This strategic alliance will help us further develop into a leading provider within the photovoltaic market,” said Dieter Ammer, CEO of Conergy.
“This would also mean moving significantly further in our realignment programme with a clear focus on downstream activities.”
The German company will retain a 25 per cent stake in the solar module plant in Frankfurt, which is in the ramp-up phase.
Analysts said the investment was positive for LG, citing the solar energy industry’s high growth potential. Samsung Economic Research Institute forecast recently that the global market for electricity produced by solar generation would grow from $15bn in 2005 to $36bn in 2010.
The move could herald more active cross-border acquisitions by the South Korean electronics maker, analysts said. After being burnt by bad overseas investments in the 1980s and 1990s – LG bought the ill-fated US television maker Zenith in 1995 – Korean companies have been conservative with their expansion plans.
But with strong cash reserves and a rising global profile, they are beginning to look offshore again.
Germany boasts more than 50 per cent of the world’s installed solar power capacity, thanks to subsidies, known as feed-in tariffs, that give households with solar panels a fixed income for 20 years from electricity sold to the national grid.
The resulting industry, with about 60,000 employees, has a turnover that could rise to €13bn ($20.4bn) a year by 2010, compared with about €7bn in 2007, according to industry estimates.
The country is the third- largest producer of solar cells, with a 20 per cent market share, compared with China with 28 per cent.
Experts predict that in the long term solar energy may provide up to 30 per cent of Germany’s power needs for electricity and hot water, compared with less than 1 per cent today.
Copyright The Financial Times Limited 2008

Siemens Increases Its Windmill Push

By ALEXANDER BECKERSeptember 12, 2008

HUSUM, Germany -- Siemens AG plans to expand its international wind-power operations, including producing more wind-turbine parts in the U.S., as part of a move to increase its share of the market, a company official said.
The German industrial conglomerate plans to manufacture nacelles for wind turbines in the U.S., in addition to the rotor blades it already makes at a plant in Iowa, Andreas Nauen, chief executive of Siemens's wind-power unit, said in an interview. In a wind turbine, the nacelle houses the generating components.

Siemens is looking at three to five locations in the U.S. for a plant to manufacture nacelles for 2.3-megawatt turbines, Mr. Nauen said, speaking on the sidelines of a wind-energy industry fair here in Husum, Germany. Siemens currently manufactures the nacelles in Denmark, where its wind-power unit is based.
Mr. Nauen said the company, which already has a booming wind-power business, has set a target to lift its market share in the sector to at least 15% in 2011 from 8% to 9%.
The company's targeted increase of installed capacity to 4.5 gigawatts by 2011 is "on the right track," Mr. Nauen said. This year, Siemens expects installed capacity of 2 to 2.1 gigawatts. A gigawatt is equivalent to one billion watts, enough to power about 300,000 U.S. households.
The company plans to build a factory in China and also sees India as an expansion target, Mr. Nauen said. By boosting its manufacturing capacity, Siemens is getting in gear for the expected long-term growth of the world-wide wind-power market.
In the sector, Siemens competes with companies such as India's Suzlon Energy Ltd., Spain's Gamesa SA, Denmark's Vestas Wind Systems AS and the U.S.'s General Electric Co. This week, Siemens struck a deal with German utility E.On AG to build 500 wind turbines for projects in Europe and the U.S. The deal is valued at more than €1 billion ($1.4 billion), according to Siemens Energy's renewable-energy division chief executive, Rene Umlauft.
Write to Alexander Becker at

The City and keeping the rainforests alive

Friday, 12 September 2008

Can the climate change agenda survive the credit crunch? One person hoping that the environment doesn't become a forgotten victim of the economic slowdown is His Royal Highness The Prince of Wales. He's been in the City this week to host a dinner at The Mansion House in aid of his Rainforests Project.
The turnout was an impressive one, but the reality behind fawning lip-service is that saving the financial system from collapse has become a more urgent priority than saving the planet. Environmental concerns, it seems, are a luxury born of more prosperous times. Both among ordinary shoppers, and at the top of corporations and financial institutions, environmental considerations are taking second place to the battle for survival.
This is unfortunate, not just in terms of the future of the planet, but, as Stanley Fink, former chief executive of Man Group and one of the speakers at Wednesday night's bash, pointed out, also because "greenery" is a huge business opportunity for Britain and the City. In time, it may even be part of Britain's economic salvation. The two things that have in recent years sustained the UK's economic boom more than anything else – financial services and the housing market – have for the time being gone. Something has to take their place, and perhaps it's the green revolution.
Prince Charles's particular contribution to the climate change agenda is rainforests. Stopping, and reversing, the process of deforestation, he rightly points out, would do more good for the cause of climate change than any amount of carbon sequestration projects, wind farms, electric cars, and so on. Like giant utilities, the rainforests provide a vital service to the world in delivering clean air and fresh water. It's time we started paying an economic rate for them, the Prince declared.
With the clinical precision of the accountant's mind, Mr Fink had some startling statistics to give to his audience. Cleared rainforest land tends to be poor in quality, worth on average $200 to $500 a hectare.
On the European markets, permits to emit a tonne of CO2 already trade at around $30. Every hectare of rainforest stores the equivalent of 500 tonnes of CO2, so logically that means every hectare of rainforest left alive is potentially a $15,000 asset. Rainforest is worth 75 times more alive than dead. Round it all up, and an $18 trillion business opportunity awaits.
Regrettably, there is as yet no mechanism by which richer countries can be made to pay for the utility of the rainforest nations. Yet to do so may in fact be a more cost-effective way of stemming climate change than to provide economic incentives for carbon reduction in our own backyards.
Actually, we may need to do both. Mr Fink's message was that, if governments can provide the framework, markets will do the rest. Then again, after what the financiers did to the mortgage markets, you have to wonder...

Mutant worms could clean up polluted landsites

Jessica Salter
Last Updated: 12:01pm BST 11/09/2008

Worms that have mutated to survive toxic environments could be used to clean up heavy metals that have polluted soils.

Earthworms: Mutated worms might be able to help clean up contaminated sites
Scientists believe earthworms that have undergone rapid evolutionary changes after surviving in abandoned mines could help clean up sites contaminated by industries such as mining, engineering works and lead smelting operations.
The worms, which can consume 30 times their own body weight each day, may be bred and distributed so new homes can be built on former brownfield areas.
Mark Hodson from the University of Reading said: "As a surgeon can examine your vital organs to gain an understanding of how your body is functioning, we can now look inside an earthworm and see what is happening to the metals that have been ingested along with the soil."
He told a the BA science festival in Liverpool that the size of the metal samples scientists used were one thousand times smaller than a grain of salt.
He said: "Earthworms are the biggest beasts in the soil and the best way to establish if the soil is healthy is to ask the animals that live there.
"If, with the help of modern synchrotron science, we can learn enough about what the earthworms are capable of doing to the soil, they could also become 21st century eco-warriors by helping to tackle soil pollution more efficiently than man has been able to up until this point in history."

Tie auto industry loans to fuel standards

The Associated Press
Published: September 12, 2008

WASHINGTON: Environmental and consumer groups said Thursday that funding for a federal loan program to help the U.S. auto industry should have some strings attached — in the form of higher fuel efficiency standards.
Consumer watchdog Public Citizen and several environmental groups called the support a "bailout" and in exchange for the loans, urged Congress to push the industry to meet higher fuel economy standards beyond requirements approved last year of at least 35 miles per gallon by 2020.
"The industry created the mess it's in now, and did it while laughing all the way to the bank. It's time for these companies to give back to the American people," said Joan Claybrook, president of Public Citizen.
"Are we getting the oil savings and global warming pollution reductions that we need? Those are critical issues," said Ann Mesnikoff, director of the Sierra Club's clean cars campaign.
The auto industry wants to secure up to $50 billion in government loans over three years to help it modernize its plants and develop more fuel-efficient vehicles. Congress authorized $25 billion in loans in last year's energy bill but hasn't funded the program.

General Motors Corp., Ford Motor Co. and Chrysler LLC have been working to secure funding for the loans after months of tight credit markets, tepid sales and high gasoline prices. Industry leaders say the loans are not a government bailout because it would speed up production of fuel-efficient vehicles and reduce dependence on imported oil.
GM spokesman Greg Martin said the loan program was "explicitly tied to getting more fuel efficient vehicles on the road quicker."
Members of Michigan's congressional delegation discussed the loans Thursday with industry officials and auto executives who participated by conference call, including GM Chairman and CEO Rick Wagoner, who was testifying Friday at a Senate energy summit. Ron Gettelfinger, president of the United Auto Workers, also participated on the call.
"There's a concerted bipartisan effort to make this happen," said Republican Rep. Dave Camp.

So much hot air

The PM trumpets his energy deal, yet power firms have escaped a windfall tax for a piffling investment in low-carbon homes

Oliver Tickell,
Thursday September 11 2008 21:39 BST

Gordon Brown has finally got something right. His initiative to make energy companies invest more in improving the efficiency of their customers' homes reflects all the attributes that once made him such a respected chancellor: prudence; thinking for the long term; and putting an end to the economics of boom and bust – in this case, by generating new employment in the UK's collapsing construction industry. It will also help the UK to meet its mandatory carbon emissions cuts to be set in the Climate Change Act.
So how many cheers? Just the one. His £910m home efficiency programme is a move in the right direction, but its scale is hopelessly inadequate. To bring the UK's housing stock up to a high standard of energy efficiency by 2050 will need an investment over 600 times greater than the new money announced this week – this figure thanks to Brenda Boardman of Oxford's Environmental Change Institute. In her detailed 2007 report Home Truths, Boardman calculates that, for every household, in the UK to qualify as low carbon by 2050, £12.9bn must be spent every year in a package of grants, loans and tax incentives. This would produce an 80% cut in carbon emissions from the UK homes, and a £12.3bn cut in fuel costs as average bills fall from £725 per year to £250 per year (based on 2007 fuel prices). With average bills now £1,300 a year, and set to rise above £1,400 in 2009, the benefits look certain to be far greater.
By contrast, the government's new scheme is a drop in an ocean of need, representing just over £300m per year of new cash. Energy companies will have targets to reduce customers' carbon emissions under CERT (the Carbon Emissions Reduction Target) increased by 20% from the current 154m tonnes of CO2, and they will have to provide a further £350m to a Community Energy Saving Programme. This will cost them £910m over and above the £2.8bn cost of the existing CERT programme. But these costs are spread over three years, so the total annual cost will be about £1.2bn.
This is less than one tenth of the £12.9bn annual investment need identified by Boardman. Or to look at it another way, at this rate of spending, all the UK's homes will be low carbon after four and a half centuries – just in time for the 2472 Olympics.
Do we really want to wait that long? Indeed, can we wait that long? The Climate Change Act will require the government to cut carbon emissions by 60% by 2050, and to meet this target our housing must contribute its share of savings. By 2050, we will probably have 23% more housing in the UK than at present, according to Boardman. And some people will take some of their energy efficiency gain in increased warmth and comfort, rather than lower bills. Combining these two factors, our housing will need to meet the low-carbon standard by 2050, if the UK is to comply with the legal obligations created in the Climate Change Act.
And it's not as if the energy companies can't afford to stump up a great deal more. Thanks to energy price increases, windfalls from the deeply flawed Renewables Obligation and the extraordinary give-away of emissions allowances under the EU's emissions trading scheme, estimated by Ofgem to be worth £9bn between 2008 and 2012, they are literally awash with cash. In 2007, they paid out dividends of over £1.6bn to shareholders – and that was before the latest round of price increases.
For all his talk of a "real and lasting change", Gordon Brown has won a poor deal. The energy companies can even pass the extra £910m cost onto their customers; and, on past form, they probably will. They must be laughing into their sleeves.

Splendid insulation

Published: September 11 2008 19:46

Energy efficiency is the antithesis of what we have come to expect from government initiatives: it is long-term, dull – and effective. Yet it was the core of the energy aid package that Gordon Brown unveiled on Thursday. Together with the refusal to bow to populist pressure for a windfall tax on energy companies, it is welcome progress.
As with last week’s package for the housing market, the government had recklessly let expectations run ahead of reality. So a sensible long-term approach was booed for not being a one-off cash payment. Ministers have also been overly concerned to slap a “£1bn” price tag on the policies, even where the doubtful justification for this reduced the credibility of the announcement. But in other respects this week’s initiative was more competent. At the political level, energy efficiency should enable Labour to reclaim some ground on green issues.
The main aim is to insulate every home in Britain by 2020. Pensioners and poorer households will receive free loft and cavity wall insulation. Other households will get a 50 per cent discount. Energy companies will pick up the bill, adding the subsidies to what they already spend encouraging customers to improve their use of energy.
The goal is serious and worthwhile, even though we do not yet know how successfully the scheme will be taken up. The UK’s housing stock is among the least fuel- efficient in Europe, and reducing waste is critical to cutting emission of greenhouse gases.
But even awareness that spending on energy-saving may pay for itself within three or four years in the form of lower fuel bills has failed to prompt enough householders and landlords to adopt energy-saving measures. The upfront cost will have deterred some. Others may simply not have got round to it. In both instances, the subsidies and the impetus given to energy efficiency will help.
Despite its merits, Thursday’s package did not silence the clamour from some trade union leaders and Labour MPs for a windfall tax on energy companies. This is a shame.
Windfall taxes, which target so-called “excess” profits, are egregious. They undermine investment in two ways. First, there is the immediate effect of reducing post-tax returns. Second, they erode confidence that the fiscal structure is stable, and raise the prospect of a further levy the next time the government is desperate for cash.
In recent months, the government has often changed its tax plans under pressure. Not this time. It has been right to resist a windfall levy so far. It should continue to do so.
Copyright The Financial Times Limited 2008