Julian Borger, diplomatic editor
guardian.co.uk, Sunday 17 May 2009 21.42 BST
David Miliband today described China as the 21st century's "indispensable power" with a decisive say on the future of the global economy, climate change and world trade.
The foreign secretary predicted that over the next few decades China would become one of the two "powers that count", along with the US, and Europe could emerge as a third only if it learned to speak with one voice.
The remarks, in a Guardian interview, represented the most direct acknowledgement to date from a senior minister, or arguably from any western leader, of China's ascendant position in the global pecking order.
Miliband said a pivotal moment in China's rise came at the G20 summit last month in London. Hu Jintao, China's president, arrived at the head of the only major power still enjoying strong growth (expected to be 8% this year), backed by substantial financial reserves.
"The G20 was a very significant coming of economic age in an international forum for China. If you looked around the 20 people sitting at the table … what was striking was that when China spoke everybody listened," Miliband said.
"China's indispensability in part comes from size, but a second part is that it wants to play a role."
Hu helped bolster Gordon Brown's position against protectionism, and China's economic stimulus package (equivalent to 16% of its GDP over two years) is widely seen as among the world's best hopes for a recovery.
"Historians will look back at 2009 and see that China played an incredibly important role in stabilising global capitalism. That is very significant and sort of ironic," Miliband said. "There's a joke that goes: 'After 1989, capitalism saved China. After 2009, China saved capitalism.'"
Signals from Beijing since the London summit that it is considering tough concerted action to reduce CO2 emissions, have raised hopes of reaching a workable international pact to contain climate change.
Miliband compared China's potential role in the coming years to the role the US claimed for itself in the 20th century, recalling a 1998 boast by Madeleine Albright, then US secretary of state.
"China is becoming an indispensable power in the 21st century in the way Madeleine Albright said the US was an indispensable power at the end of the last century," Miliband said. "It has become an indispensable power economically, and China will become an indispensable power across a wider range of issues."
But in contrast to America's 20th-century ascent, which eclipsed Britain, Miliband said China would not displace the US but rather join it at "the new top table", and because of its low per capita income, it would not rival the US as the world's leading superpower for at least a generation.
At the G20 summit, some commentators argued that the most important axis was a "G2" of the US and China. Whether that could be expanded to a "G3", Milband argued, would be up to Europe.
"I think that there is a scenario where America and China are the powers that count," the foreign secretary said. "It is massively in our interests to make sure that we have a stake in that debate, and the most effective way of doing so is … to ensure we do it with a European voice."
A report by the European Council on Foreign Relations argued that China was exploiting the EU's divisions and treating it with "diplomatic contempt". The report, published in advance of Wednesday's EU-China summit in Prague, said that European states, dealing with China individually, lacked leverage on issues such as trade, human rights and Tibet.
"Europe has not been sufficiently strategic in its relationship with China," Miliband said. "I think a significant part of that is institutional. The EU-China relationship is a good case for the Lisbon treaty. At the moment, at every EU-China summit, the EU side is led by a different presidency and every year there's a different set of priorities.
"Miliband denied Britain had allowed human rights to slide down the agenda with China, saying there was a constant dialogue between the two countries on the issue. "It's a mature relationship that does take these issues seriously," he said.
Monday, 18 May 2009
Challenges ahead for China as it looks to get growth back on track
Political reform, energy needs and bridging the wealth gap are among the pressing issues for Beijing
Larry Elliott, economics editor
guardian.co.uk, Sunday 17 May 2009 22.17 BST
During the winter, the closed factories in the Pearl river delta and the drift back from the towns to the countryside told their own story. China, the country that has based its development strategy on becoming the low-cost workshop for the world, was feeling the impact of an implosion in global trade caused by the financial crisis.
Across Asia, empty container ships lay idly at anchor as consumer demand collapsed and stocks of manufactured products were run down. China had always expected – indeed, had planned – a slowdown in its economy once the 2008 Beijing Olympics finished, but it was not ready for the global collapse that followed the bankruptcy of Lehman Brothers last September.
Suggestions that China might be able to decouple itself from the problems that originated in the US housing market proved fanciful. Having caught the flood tide of globalisation for a decade and a half, the world's most populous country was inevitably affected as the tide went out.
Yet everything is relative. Beijing expects China's economy to expand by 8% this year – down on the explosive double-digit pace since the turn of the millennium, but a growth rate to die for if you are Gordon Brown, Barack Obama or Angela Merkel.
Already there are signs that the government's fiscal boost – worth 16% of gross domestic product over two years – is having an impact. A country that for three decades has been a curious mix of Karl Marx and Adam Smith has now turned to John Maynard Keynes to speed its way out of the global downturn.
"Because of China's structure, the government has direct levers to spend money quickly," said Prof Peter Williamson, of the Judge Institute of Management in Cambridge. "Whereas in Britain it can take years to get an infrastructure project going, in China things can happen immediately."
Much of the stimulus package is planned investment that has been fast-tracked rather than new money, but Gerard Lyons, the chief economist at Standard Chartered Bank, says it will make a difference. "The reality is that Beijing has announced a lot of new measures and they have started to push these measures through. They have pulled out all the stops."
Political structure
The real issue for China, however, is not whether the state can push the growth rate back above 10% next year; the consensus among economists is that it certainly can. Periods of rapid growth are by no means exceptional in Asia: Taiwan grew at 9.4% a year for more than a quarter of a century after 1962; Singapore expanded at much the same pace between 1967 and 1993; Japan's purple patch was the period between 1960 and 1973, when its average growth rate was 10%-plus. But China faces three sets of challenges that will shape the way it – and the global economy – evolves over the next half century.
At the root of everything lies the question of whether the country's political structure is conducive to sustained growth. In the west, the classic pattern of development has been for economic change to stimulate demands for political reform and greater democracy. Despite the arrival of designer labels to the glitzy shopping malls of Shanghai, China remains a one-party state and there is little evidence that the ruling Communist party has any intention of loosening its grip.
Anxiety that rapidly rising unemployment, particularly among disaffected graduates, might put millions on the streets this summer demanding change, helps explain both the scale and the speed of China's economic stimulus. Memories of Tiananmen Square are still vivid for the policy elite in Beijing.
But some economists believe the fear of political change will hold China back. Prof Andrew Tylecote, of Sheffield University, believes the top-down fiscal package exacerbated the fundamental weakness of the economy – its lack of a thriving private sector. "You tell state-owned banks to lend more money and they will do so. You tell state-owned enterprises to take on more staff and borrow more money and they will do so. If you throw money at anything remotely shovel-ready in terms of infrastructure, you will have an impact.
"But what they are not doing is beefing up the private sector. The dynamism ought to be coming from the private sector, which has been hammered by the crisis yet is not being looked after by the stimulus or by the boosting of credit. The stimulus is going to produce a more top heavy, muscle-bound economy full of rather expensive, poorly-utilised equipment."
China, though, is the country that pioneered paper, the compass, steel, the wheelbarrow, gunpowder, canals and a host of other innovations while western Europe was still struggling to emerge from the Dark Ages.
New challenges
In more recent years, Chinese expats have taken their entrepreneurial skills around the world, and in the domestic market Chinese companies are about to overhaul western multinationals in patent filing for the first time.
"There is a lot of innovation," says Williamson. "The really interesting companies are hybrids, which are 30% state owned and which get the best of both worlds – autonomy but support from the state. The idea that there is a Soviet Russia-style state sector is completely incorrect."
Every bit of that innovation will be needed as China grapples with its next set of challenges, all of which – according to Lyons – relate to significant imbalances.
These are the gap between living standards in the cities and in the countryside; the comparison between the wealth of the coastal strip and the poverty of the inland regions; the mismatch between the country's projected growth rate and its energy needs; the rudimentary social safety net which encourages the population to save rather than spend; and the way that lack of domestic consumption exacerbates tensions in the global economy between those countries that export too much and those that export too little.
None of these challenges will be solved quickly or easily. China's energy needs are enormous, and it has started to channel part of its export earnings into sovereign wealth funds, which are now taking advantage of the global recession to buy up assets at knockdown prices.
"Cash-rich Chinese concerns are taking advantage of depressed asset prices and debt deleveraging in the resources sector to lock in future energy and resources needed for continued growth", said Jan Randolph, of IHS Global Insight. Recent coups have been "loan-for-oil" deals with Russia, Brazil and Kazakhstan; in Africa, China has helped build roads, railways and ports to secure access to the raw materials it needs to sustain its high growth rate.
These needs are – and will remain – substantial. China is undergoing the most rapid urbanisation the world has ever seen and has 221 cities with a population of more than 1 million. To put that in perspective, Europe has 35. The gap in living standards between those living in the cities and the rural population is large and growing: China's development has been accompanied by a widening of income inequality.
Welfare state costs
Yet because it is unusual in experiencing the problems of both a developing and developed country – high growth and an ageing population – the government is worried about the cost of a western European-style welfare state. Rudimentary healthcare and the cost of a decent education means that families save far more heavily than in the west, leaving them with less money left over at the end of the month to spend in the shops. Unless that changes, the imbalances in the global economy that were at the root of the crisis will remain a threat.
In the longer term, Beijing has to decide how to use China's growing economic clout on the global stage. China has allowed Americans to live beyond their means for years by using its export earnings to buy US Treasury bonds; the fear in Washington is that Beijing will pull the plug once it is ready to challenge US hegemony.
According to Tylecote, China's geopolitical objectives are far more limited. "Taiwan is clearly a massive issue and China does not want to be told it cannot reclaim the motherland because an American fleet is sitting in the Taiwan Strait. It wants to challenge US hegemony in its own sea lanes. But I don't think policy makers have a 30-40 year time horizon; they are much more focused on short-term issues."
One of these issues – which runs through decision making in the short, medium and long term – is how to make China's growth environmentally sustainable. Jeffrey Sachs, the US economist, believes that by 2050 China and America will have economies of a similar size, yet if China operated at the same level of resource use and energy intensity as the US it would require four planets to support its 1.5 billion people.
"Pollution is a really serious issue," said Williamson. "But it is only partially being addressed. The government is looking at nuclear power, solar power, and renewables in an attempt to improve efficiency but in some cities there is a dash for growth and the environment is low on the priority list."
China's stance at December's climate change summit in Copenhagen is seen as crucial in piecing together a successor to the 1997 Kyoto agreement. Western diplomats say they detect a softening in Beijing's approach, but China will not be pushed around. Its growth rate means it will get the one thing its policymakers want more than anything else: respect.
Larry Elliott, economics editor
guardian.co.uk, Sunday 17 May 2009 22.17 BST
During the winter, the closed factories in the Pearl river delta and the drift back from the towns to the countryside told their own story. China, the country that has based its development strategy on becoming the low-cost workshop for the world, was feeling the impact of an implosion in global trade caused by the financial crisis.
Across Asia, empty container ships lay idly at anchor as consumer demand collapsed and stocks of manufactured products were run down. China had always expected – indeed, had planned – a slowdown in its economy once the 2008 Beijing Olympics finished, but it was not ready for the global collapse that followed the bankruptcy of Lehman Brothers last September.
Suggestions that China might be able to decouple itself from the problems that originated in the US housing market proved fanciful. Having caught the flood tide of globalisation for a decade and a half, the world's most populous country was inevitably affected as the tide went out.
Yet everything is relative. Beijing expects China's economy to expand by 8% this year – down on the explosive double-digit pace since the turn of the millennium, but a growth rate to die for if you are Gordon Brown, Barack Obama or Angela Merkel.
Already there are signs that the government's fiscal boost – worth 16% of gross domestic product over two years – is having an impact. A country that for three decades has been a curious mix of Karl Marx and Adam Smith has now turned to John Maynard Keynes to speed its way out of the global downturn.
"Because of China's structure, the government has direct levers to spend money quickly," said Prof Peter Williamson, of the Judge Institute of Management in Cambridge. "Whereas in Britain it can take years to get an infrastructure project going, in China things can happen immediately."
Much of the stimulus package is planned investment that has been fast-tracked rather than new money, but Gerard Lyons, the chief economist at Standard Chartered Bank, says it will make a difference. "The reality is that Beijing has announced a lot of new measures and they have started to push these measures through. They have pulled out all the stops."
Political structure
The real issue for China, however, is not whether the state can push the growth rate back above 10% next year; the consensus among economists is that it certainly can. Periods of rapid growth are by no means exceptional in Asia: Taiwan grew at 9.4% a year for more than a quarter of a century after 1962; Singapore expanded at much the same pace between 1967 and 1993; Japan's purple patch was the period between 1960 and 1973, when its average growth rate was 10%-plus. But China faces three sets of challenges that will shape the way it – and the global economy – evolves over the next half century.
At the root of everything lies the question of whether the country's political structure is conducive to sustained growth. In the west, the classic pattern of development has been for economic change to stimulate demands for political reform and greater democracy. Despite the arrival of designer labels to the glitzy shopping malls of Shanghai, China remains a one-party state and there is little evidence that the ruling Communist party has any intention of loosening its grip.
Anxiety that rapidly rising unemployment, particularly among disaffected graduates, might put millions on the streets this summer demanding change, helps explain both the scale and the speed of China's economic stimulus. Memories of Tiananmen Square are still vivid for the policy elite in Beijing.
But some economists believe the fear of political change will hold China back. Prof Andrew Tylecote, of Sheffield University, believes the top-down fiscal package exacerbated the fundamental weakness of the economy – its lack of a thriving private sector. "You tell state-owned banks to lend more money and they will do so. You tell state-owned enterprises to take on more staff and borrow more money and they will do so. If you throw money at anything remotely shovel-ready in terms of infrastructure, you will have an impact.
"But what they are not doing is beefing up the private sector. The dynamism ought to be coming from the private sector, which has been hammered by the crisis yet is not being looked after by the stimulus or by the boosting of credit. The stimulus is going to produce a more top heavy, muscle-bound economy full of rather expensive, poorly-utilised equipment."
China, though, is the country that pioneered paper, the compass, steel, the wheelbarrow, gunpowder, canals and a host of other innovations while western Europe was still struggling to emerge from the Dark Ages.
New challenges
In more recent years, Chinese expats have taken their entrepreneurial skills around the world, and in the domestic market Chinese companies are about to overhaul western multinationals in patent filing for the first time.
"There is a lot of innovation," says Williamson. "The really interesting companies are hybrids, which are 30% state owned and which get the best of both worlds – autonomy but support from the state. The idea that there is a Soviet Russia-style state sector is completely incorrect."
Every bit of that innovation will be needed as China grapples with its next set of challenges, all of which – according to Lyons – relate to significant imbalances.
These are the gap between living standards in the cities and in the countryside; the comparison between the wealth of the coastal strip and the poverty of the inland regions; the mismatch between the country's projected growth rate and its energy needs; the rudimentary social safety net which encourages the population to save rather than spend; and the way that lack of domestic consumption exacerbates tensions in the global economy between those countries that export too much and those that export too little.
None of these challenges will be solved quickly or easily. China's energy needs are enormous, and it has started to channel part of its export earnings into sovereign wealth funds, which are now taking advantage of the global recession to buy up assets at knockdown prices.
"Cash-rich Chinese concerns are taking advantage of depressed asset prices and debt deleveraging in the resources sector to lock in future energy and resources needed for continued growth", said Jan Randolph, of IHS Global Insight. Recent coups have been "loan-for-oil" deals with Russia, Brazil and Kazakhstan; in Africa, China has helped build roads, railways and ports to secure access to the raw materials it needs to sustain its high growth rate.
These needs are – and will remain – substantial. China is undergoing the most rapid urbanisation the world has ever seen and has 221 cities with a population of more than 1 million. To put that in perspective, Europe has 35. The gap in living standards between those living in the cities and the rural population is large and growing: China's development has been accompanied by a widening of income inequality.
Welfare state costs
Yet because it is unusual in experiencing the problems of both a developing and developed country – high growth and an ageing population – the government is worried about the cost of a western European-style welfare state. Rudimentary healthcare and the cost of a decent education means that families save far more heavily than in the west, leaving them with less money left over at the end of the month to spend in the shops. Unless that changes, the imbalances in the global economy that were at the root of the crisis will remain a threat.
In the longer term, Beijing has to decide how to use China's growing economic clout on the global stage. China has allowed Americans to live beyond their means for years by using its export earnings to buy US Treasury bonds; the fear in Washington is that Beijing will pull the plug once it is ready to challenge US hegemony.
According to Tylecote, China's geopolitical objectives are far more limited. "Taiwan is clearly a massive issue and China does not want to be told it cannot reclaim the motherland because an American fleet is sitting in the Taiwan Strait. It wants to challenge US hegemony in its own sea lanes. But I don't think policy makers have a 30-40 year time horizon; they are much more focused on short-term issues."
One of these issues – which runs through decision making in the short, medium and long term – is how to make China's growth environmentally sustainable. Jeffrey Sachs, the US economist, believes that by 2050 China and America will have economies of a similar size, yet if China operated at the same level of resource use and energy intensity as the US it would require four planets to support its 1.5 billion people.
"Pollution is a really serious issue," said Williamson. "But it is only partially being addressed. The government is looking at nuclear power, solar power, and renewables in an attempt to improve efficiency but in some cities there is a dash for growth and the environment is low on the priority list."
China's stance at December's climate change summit in Copenhagen is seen as crucial in piecing together a successor to the 1997 Kyoto agreement. Western diplomats say they detect a softening in Beijing's approach, but China will not be pushed around. Its growth rate means it will get the one thing its policymakers want more than anything else: respect.
Economy and the environment: growing pains
Editorial
guardian.co.uk, Sunday 17 May 2009 20.04 BST
The next few days will bring yet more grim economic news. Figures are likely to show that Japan is in even deeper recession; that the UK's public finances continue to deteriorate; more companies will go bust and more workers will lose their jobs. Against that backdrop, the question that follows may seem so obtuse and ill-timed that to raise it at all may appear bone-headed. Still, here goes: should we – governments, economists, businesses and voters – stop worrying so much about economic growth?
That is the big and controversial question posed in an excellent new report from one of the government's own advisory groups, the Sustainable Development Commission. For a bunch of Whitehall insiders even to title a report Prosperity Without Growth? is brave and possibly foolhardy – especially amid a bitter recession when growth is sorely needed. But by the same token, a crash this big must make us reflect on how we ended up in this mess – or else run the risk of repeating it. And in the UK, the obsession with growth shares the blame. As chancellor, Gordon Brown was proud of his economic record. In budget speeches he would rattle off GDP numbers, sounding like a rather smug road drill. Yet the sources of this British growth were dangerously narrow. In the dying days of the great boom, in early 2007, finance and business services accounted for almost half of it. The headline numbers were indeed splendid; but there was to be a terrible twist in the tale.
To be fair, Mr Brown was only giving the voters what they apparently wanted. For decades, GDP growth has been associated with prosperity and national success. Yet GDP is merely a calculation of all the marketable goods and services an economy produces. It takes no account of where the income comes from or how it is shared out, rendering it a flawed yardstick of progress or wellbeing. Cleaning up another Exxon Valdez would increase GDP – but it is a boost we would be better off without.
The environment is often the biggest casualty of our reckless pursuit of growth. Industrialising countries swap agrarian poverty for congestion, pollution and natural degradation so that, as the economist Jayati Ghosh notes, soil quality in India has dropped 30% in the last 10 years. Over in the rich world, we fret over carbon emissions and global warming. The solution, say optimists, is green growth; but that appears ever more optimistic. Rather than use this crisis to shift towards a low-carbon economy, politicians prefer safety-pin solutions: an auto bailout here, a VAT cut there.
In any case, placing all our chips on decarbonisation is risky. To be in with a fighting chance of keeping global warming down to 2C – while still growing both population and GDP at current rates – there would need to be a 21-fold drop in the carbon content of a unit of economic output by 2050. To achieve that at the same time as allowing developing countries to get out of poverty would require a 130-fold improvement in carbon use. Technology and emissions trading on their own cannot pull that off in time.
All of which could leave Europeans and Americans with little option but to ease off the economic accelerator, even while Africans and Asians keep developing. Instead of working feverishly while accumulating and consuming ever more, we could live at a slower pace and have more time for socialising and interests. Economists have touched on these ideas before, but never developed them. When greens talk approvingly about a "steady-state economy" they are swiping a phrase from John Stuart Mill. Even Keynes, back in fashion as the godfather of consumption policies, talked beguilingly of a go-slow future in which "we shall once more value ends above means". Such debates must be revisited while there is still time; or we may find ourselves staging them in the shadow of an ecological cataclysm.
guardian.co.uk, Sunday 17 May 2009 20.04 BST
The next few days will bring yet more grim economic news. Figures are likely to show that Japan is in even deeper recession; that the UK's public finances continue to deteriorate; more companies will go bust and more workers will lose their jobs. Against that backdrop, the question that follows may seem so obtuse and ill-timed that to raise it at all may appear bone-headed. Still, here goes: should we – governments, economists, businesses and voters – stop worrying so much about economic growth?
That is the big and controversial question posed in an excellent new report from one of the government's own advisory groups, the Sustainable Development Commission. For a bunch of Whitehall insiders even to title a report Prosperity Without Growth? is brave and possibly foolhardy – especially amid a bitter recession when growth is sorely needed. But by the same token, a crash this big must make us reflect on how we ended up in this mess – or else run the risk of repeating it. And in the UK, the obsession with growth shares the blame. As chancellor, Gordon Brown was proud of his economic record. In budget speeches he would rattle off GDP numbers, sounding like a rather smug road drill. Yet the sources of this British growth were dangerously narrow. In the dying days of the great boom, in early 2007, finance and business services accounted for almost half of it. The headline numbers were indeed splendid; but there was to be a terrible twist in the tale.
To be fair, Mr Brown was only giving the voters what they apparently wanted. For decades, GDP growth has been associated with prosperity and national success. Yet GDP is merely a calculation of all the marketable goods and services an economy produces. It takes no account of where the income comes from or how it is shared out, rendering it a flawed yardstick of progress or wellbeing. Cleaning up another Exxon Valdez would increase GDP – but it is a boost we would be better off without.
The environment is often the biggest casualty of our reckless pursuit of growth. Industrialising countries swap agrarian poverty for congestion, pollution and natural degradation so that, as the economist Jayati Ghosh notes, soil quality in India has dropped 30% in the last 10 years. Over in the rich world, we fret over carbon emissions and global warming. The solution, say optimists, is green growth; but that appears ever more optimistic. Rather than use this crisis to shift towards a low-carbon economy, politicians prefer safety-pin solutions: an auto bailout here, a VAT cut there.
In any case, placing all our chips on decarbonisation is risky. To be in with a fighting chance of keeping global warming down to 2C – while still growing both population and GDP at current rates – there would need to be a 21-fold drop in the carbon content of a unit of economic output by 2050. To achieve that at the same time as allowing developing countries to get out of poverty would require a 130-fold improvement in carbon use. Technology and emissions trading on their own cannot pull that off in time.
All of which could leave Europeans and Americans with little option but to ease off the economic accelerator, even while Africans and Asians keep developing. Instead of working feverishly while accumulating and consuming ever more, we could live at a slower pace and have more time for socialising and interests. Economists have touched on these ideas before, but never developed them. When greens talk approvingly about a "steady-state economy" they are swiping a phrase from John Stuart Mill. Even Keynes, back in fashion as the godfather of consumption policies, talked beguilingly of a go-slow future in which "we shall once more value ends above means". Such debates must be revisited while there is still time; or we may find ourselves staging them in the shadow of an ecological cataclysm.
Governments turn focus to ‘Coral Triangle’
By John Aglionby in Manado
Published: May 17 2009 08:16
The dark brown sponge nestling about four metres underwater in a glorious coral garden in the Bunaken marine national park off the northern tip of Indonesia’s Sulawesi island looked remarkably ordinary.
But Ove Hoegh-Guldberg, a marine biologist at the University of Queensland, became extremely excited when he saw it. “That sponge [species] is about a billion years old,” he said, dipping his head down to take another look. “It was around before there was oxygen on earth. That’s the sort of thing this project is all about.”
“This project” is the Coral Triangle Initiative, an unprecedented collaboration between six nations in the 5.7m square kilometre region: Indonesia, Malaysia, Papua New Guinea, the Philippines, the Solomon Islands and East Timor.
Environmentalists say the importance of the Coral Triangle, dubbed the cradle of marine evolution, cannot be overstated. Covering only 2 per cent of the world’s oceans, it is home to 75 per cent of its corals and more than 35 per cent of its reef fish.
They say the impact of failing to protect the region, including not tackling climate change decisively, would be felt globally since the Coral Triangle is the genetic source for numerous fish species that live around the world.
“There is nowhere like this on earth,” Mr Hoegh-Guldberg said. “If you were going to protect only one place on planet ocean, this would be it.”
The governments appear to have got the message, thanks to environmental groups WWF, Conservation International and The Nature Conservancy putting aside their usual rivalries to cooperate on the CTI.
That was demonstrated on Friday when the nations’ leaders met for a half-day summit in Manado to formally launch the scheme.
“Leaders don’t gather for low-priority issues,” said Lawrence Greenwood, Asian Development Bank vice president. “This is very much a high-priority issue.”
Peter Seligmann, Conservation International’s chairman and chief executive, appeared almost in a dream at the summit. “I’ve been in conservation for 30 years and I’ve never seen a movement like this,” he said. “It’s recognition that the environment is not a nature issue, it’s a human issue.”
Mr Greenwood said more than $350m has been pledged from around the world to the CTI.
Susilo Bambamg Yudhoyono, Indonesian president, said in his summit opening remarks the CTI’s main priorities would be combating overfishing, destructive fishing, coastal degradation, pollution and climate change.
“Let us take care of the oceans so they take care of us,” he said.
Some 120m people live in the Coral Triangle, with many of them eking out a subsistence livelihood. More than half would be significantly affected by either a sea level rise of half a metre or a continue depletion of fish stocks at current rates.
Copyright The Financial Times Limited 2009
Published: May 17 2009 08:16
The dark brown sponge nestling about four metres underwater in a glorious coral garden in the Bunaken marine national park off the northern tip of Indonesia’s Sulawesi island looked remarkably ordinary.
But Ove Hoegh-Guldberg, a marine biologist at the University of Queensland, became extremely excited when he saw it. “That sponge [species] is about a billion years old,” he said, dipping his head down to take another look. “It was around before there was oxygen on earth. That’s the sort of thing this project is all about.”
“This project” is the Coral Triangle Initiative, an unprecedented collaboration between six nations in the 5.7m square kilometre region: Indonesia, Malaysia, Papua New Guinea, the Philippines, the Solomon Islands and East Timor.
Environmentalists say the importance of the Coral Triangle, dubbed the cradle of marine evolution, cannot be overstated. Covering only 2 per cent of the world’s oceans, it is home to 75 per cent of its corals and more than 35 per cent of its reef fish.
They say the impact of failing to protect the region, including not tackling climate change decisively, would be felt globally since the Coral Triangle is the genetic source for numerous fish species that live around the world.
“There is nowhere like this on earth,” Mr Hoegh-Guldberg said. “If you were going to protect only one place on planet ocean, this would be it.”
The governments appear to have got the message, thanks to environmental groups WWF, Conservation International and The Nature Conservancy putting aside their usual rivalries to cooperate on the CTI.
That was demonstrated on Friday when the nations’ leaders met for a half-day summit in Manado to formally launch the scheme.
“Leaders don’t gather for low-priority issues,” said Lawrence Greenwood, Asian Development Bank vice president. “This is very much a high-priority issue.”
Peter Seligmann, Conservation International’s chairman and chief executive, appeared almost in a dream at the summit. “I’ve been in conservation for 30 years and I’ve never seen a movement like this,” he said. “It’s recognition that the environment is not a nature issue, it’s a human issue.”
Mr Greenwood said more than $350m has been pledged from around the world to the CTI.
Susilo Bambamg Yudhoyono, Indonesian president, said in his summit opening remarks the CTI’s main priorities would be combating overfishing, destructive fishing, coastal degradation, pollution and climate change.
“Let us take care of the oceans so they take care of us,” he said.
Some 120m people live in the Coral Triangle, with many of them eking out a subsistence livelihood. More than half would be significantly affected by either a sea level rise of half a metre or a continue depletion of fish stocks at current rates.
Copyright The Financial Times Limited 2009
Thinktanks seek funds to back green technologies in poor countries
Tackling climate change hinges on rich countries paying for the transfer of low carbon schemes to emerging economies
Nick Mathiason
guardian.co.uk, Sunday 17 May 2009 16.26 BST
New financial mechanisms to ensure the transfer of low-carbon technology to emerging economies will help achieve a meaningful breakthrough at the Copenhagen climate change conference in December, according to a report by an alliance of some of the world's leading thinktanks.
The recently formed Global Climate Network, which includes the UK's Institute for Public Policy Research, the Center for American Progress led by John Podesta, head of Barack Obama's presidential transition team, and the influential Research Centre for Sustainable Development from China, is gathering in London this week to establish a policy to fund action to fight global warming using solar power, wind, carbon capture and energy efficiency.
These include harnessing the cheap borrowing facilities available in rich countries to be targeted at low-carbon energy in poorer countries. Encouraging pension funds to finance schemes and adopting proposals that would see a proportion of countries' carbon permits auctioned off with the proceeds specifically going to developing countries are other measures being considered.
The US is unlikely to fund poor countries' efforts to introduce low-carbon technologies so financial innovation will be required, argues the network.
Podesta said: "Reaching an agreement on the transfer of low-carbon technology will be critical to the success of the global climate talks in Copenhagen later this year. Developing countries are right to call for more help with it. However... the absence of strong national policy frameworks, standards and incentives is the single greatest obstacle to the creation of markets for low-carbon technologies in developing countries.
"That situation needs to be reversed for real progress to be made in reducing emissions there. In exchange, developed countries need to do far more to help developing ones, who are still struggling to lift millions out of extreme poverty, to meet the cost of low-carbon technology policies. That's the sort of deal we need to see."
Nick Mathiason
guardian.co.uk, Sunday 17 May 2009 16.26 BST
New financial mechanisms to ensure the transfer of low-carbon technology to emerging economies will help achieve a meaningful breakthrough at the Copenhagen climate change conference in December, according to a report by an alliance of some of the world's leading thinktanks.
The recently formed Global Climate Network, which includes the UK's Institute for Public Policy Research, the Center for American Progress led by John Podesta, head of Barack Obama's presidential transition team, and the influential Research Centre for Sustainable Development from China, is gathering in London this week to establish a policy to fund action to fight global warming using solar power, wind, carbon capture and energy efficiency.
These include harnessing the cheap borrowing facilities available in rich countries to be targeted at low-carbon energy in poorer countries. Encouraging pension funds to finance schemes and adopting proposals that would see a proportion of countries' carbon permits auctioned off with the proceeds specifically going to developing countries are other measures being considered.
The US is unlikely to fund poor countries' efforts to introduce low-carbon technologies so financial innovation will be required, argues the network.
Podesta said: "Reaching an agreement on the transfer of low-carbon technology will be critical to the success of the global climate talks in Copenhagen later this year. Developing countries are right to call for more help with it. However... the absence of strong national policy frameworks, standards and incentives is the single greatest obstacle to the creation of markets for low-carbon technologies in developing countries.
"That situation needs to be reversed for real progress to be made in reducing emissions there. In exchange, developed countries need to do far more to help developing ones, who are still struggling to lift millions out of extreme poverty, to meet the cost of low-carbon technology policies. That's the sort of deal we need to see."
Green the new black for car buyers
The Sunday Times
May 17, 2009
Tax incentives drive consumers towards cars with lower emissions
Colin Gleeson
Henry Ford famously sold them in black but Irish car buyers are going for green. More than four out of five cars bought in the past nine months are ranked as among the least polluting in the country.
Under changes introduced in July last year, the amount that car owners pay in vehicle registration tax (VRT) and road tax now depends on CO2 ratings instead of engine size.
New statistics show that buyers are voting with their wallets and avoiding cars that do not perform well in environmental terms. Some 83% of cars purchased since the change are in grades A, B and C, those with the lowest emissions.
Almost 55% of the cars bought fell into the A and B bands. Most of those (47%) were in the B category where the choice of cars available includes diesel-fuelled, family and medium-sized models which produce low emissions.
The new system rates vehicles in seven bands, ranging from A to G. The A band is the lowest, emitting less than 120g of CO2 per km, while G is the highest, emitting more than 225g per km.
Under the new system, the three old rates of VRT, a tax applied to the purchase of new cars, changed from 22.5%, 25% and 30% depending on engine-size to a range of 14% to 36% based on carbon emissions.
The motor tax charges for the three lowest bands range from €100 to €290, while the levy on G-rated cars is €2,000.
The figures show sales of cars in the G category are much lower than others. Almost 5,700 cars with engines of between 1901cc and 2000cc fell into the A and B bands while just eight were in the higher G category.
This suggests that buyers faced with a choice of two otherwise similar cars of the same size and engine power are opting for the one that produces less emissions because of the lower purchase price and running costs.
John Gormley, the minister for the environment, said that the figures “clearly show” that there has been a “fundamental shift” in car-buying behaviour.
He said: “The overwhelming majority of people are now opting for lower emission vehicles because they are cheaper to buy, cheaper to run, and better for the environment. It clearly shows that the changes to VRT have not put people off buying cars, they are just buying different types.”
Alan Nolan, the director general of the Society of the Irish Motor Industry, disagreed. He said the government’s tax incentive was “a waste of time” and renewed calls for a scrappage scheme to be introduced.
“Incentivising people to buy environmentally-friendly cars is a waste of time without a scrappage scheme,” Nolan said. “The vast majority of new cars being bought are environmentally-friendly and have low CO2 outputs, but people are not being encouraged to replace older vehicles with environmentally-friendly ones.
“If you do this, you can deliver a substantial difference on CO2 emissions. All that the government has done is devalue used cars. No replacing means no change. We are moving backwards. This has been a missed opportunity.”
Conor Twomey, the editor of Car Buyers Guide, said that the increase in the sale of eco-friendly cars was due to government incentives.
“I don’t know that it has too much to do with the environment,” he said. “Nothing was happening until the government decided to incentivise people to drive cars with low emissions. CO2 has always been there as a problem.”
Conor Faughnan, a spokesman for the Automobile Association, said: “I hope that when the economy recovers. . .we will keep buying green. In a few years’ time, the CO2 being produced by Irish cars will be way down on what it has been.”
Prices driven up and down
Small car manufacturers stood to gain significantly when the changes were introduced. Toyota’s entry-level Aygo range, for example, qualifies as band A, as does the Yaris range. A 1.4-litre D-4D diesel Yaris, previously ranked as a medium-engine car, dropped in price by €1,745 last July because it emits just 119g/km.
Large-engine diesel cars also benefited because they generally produce fewer emissions than petrol equivalents. Ford’s Mondeo diesel range went down by €3,600 because it fell into the B category with VRT of 16%. Previously it would have attracted VRT of 30%.
Cars with large engines and high emissions shot up in price under the new regime. Toyota’s Land Cruiser increased by €5,450-€6,810 because its emissions of about 240g/km made it a category G car, attracting the top VRT rate of 36%. A buyer of this car would also have to pay €2,000 a year in motor tax.
The news was bad for some sports cars too. The price of the Mazda MX-5 Roadster, in band G, jumped by €1,100-€1,400.
May 17, 2009
Tax incentives drive consumers towards cars with lower emissions
Colin Gleeson
Henry Ford famously sold them in black but Irish car buyers are going for green. More than four out of five cars bought in the past nine months are ranked as among the least polluting in the country.
Under changes introduced in July last year, the amount that car owners pay in vehicle registration tax (VRT) and road tax now depends on CO2 ratings instead of engine size.
New statistics show that buyers are voting with their wallets and avoiding cars that do not perform well in environmental terms. Some 83% of cars purchased since the change are in grades A, B and C, those with the lowest emissions.
Almost 55% of the cars bought fell into the A and B bands. Most of those (47%) were in the B category where the choice of cars available includes diesel-fuelled, family and medium-sized models which produce low emissions.
The new system rates vehicles in seven bands, ranging from A to G. The A band is the lowest, emitting less than 120g of CO2 per km, while G is the highest, emitting more than 225g per km.
Under the new system, the three old rates of VRT, a tax applied to the purchase of new cars, changed from 22.5%, 25% and 30% depending on engine-size to a range of 14% to 36% based on carbon emissions.
The motor tax charges for the three lowest bands range from €100 to €290, while the levy on G-rated cars is €2,000.
The figures show sales of cars in the G category are much lower than others. Almost 5,700 cars with engines of between 1901cc and 2000cc fell into the A and B bands while just eight were in the higher G category.
This suggests that buyers faced with a choice of two otherwise similar cars of the same size and engine power are opting for the one that produces less emissions because of the lower purchase price and running costs.
John Gormley, the minister for the environment, said that the figures “clearly show” that there has been a “fundamental shift” in car-buying behaviour.
He said: “The overwhelming majority of people are now opting for lower emission vehicles because they are cheaper to buy, cheaper to run, and better for the environment. It clearly shows that the changes to VRT have not put people off buying cars, they are just buying different types.”
Alan Nolan, the director general of the Society of the Irish Motor Industry, disagreed. He said the government’s tax incentive was “a waste of time” and renewed calls for a scrappage scheme to be introduced.
“Incentivising people to buy environmentally-friendly cars is a waste of time without a scrappage scheme,” Nolan said. “The vast majority of new cars being bought are environmentally-friendly and have low CO2 outputs, but people are not being encouraged to replace older vehicles with environmentally-friendly ones.
“If you do this, you can deliver a substantial difference on CO2 emissions. All that the government has done is devalue used cars. No replacing means no change. We are moving backwards. This has been a missed opportunity.”
Conor Twomey, the editor of Car Buyers Guide, said that the increase in the sale of eco-friendly cars was due to government incentives.
“I don’t know that it has too much to do with the environment,” he said. “Nothing was happening until the government decided to incentivise people to drive cars with low emissions. CO2 has always been there as a problem.”
Conor Faughnan, a spokesman for the Automobile Association, said: “I hope that when the economy recovers. . .we will keep buying green. In a few years’ time, the CO2 being produced by Irish cars will be way down on what it has been.”
Prices driven up and down
Small car manufacturers stood to gain significantly when the changes were introduced. Toyota’s entry-level Aygo range, for example, qualifies as band A, as does the Yaris range. A 1.4-litre D-4D diesel Yaris, previously ranked as a medium-engine car, dropped in price by €1,745 last July because it emits just 119g/km.
Large-engine diesel cars also benefited because they generally produce fewer emissions than petrol equivalents. Ford’s Mondeo diesel range went down by €3,600 because it fell into the B category with VRT of 16%. Previously it would have attracted VRT of 30%.
Cars with large engines and high emissions shot up in price under the new regime. Toyota’s Land Cruiser increased by €5,450-€6,810 because its emissions of about 240g/km made it a category G car, attracting the top VRT rate of 36%. A buyer of this car would also have to pay €2,000 a year in motor tax.
The news was bad for some sports cars too. The price of the Mazda MX-5 Roadster, in band G, jumped by €1,100-€1,400.
Markit launches carbon indices
By Sophia Grene
Published: May 17 2009 10:14
A new range of carbon indices should speed the development of financial markets for the environmental sector.
Index provider Markit has joined forces with BlueNext, the Paris-based environmental exchange, to launch a family of indices covering European and global carbon markets.
“It’s quite clear that politically it’s top of the agenda,” said Niall Cameron, who looks after commodities and indices at Markit. “There’s a lot of money in subsidies going into these products.”
Although he ultimately envisages a broad range of products, the initial offering consists of just two spot price indices, covering European Allowance Units and Certified emissions Reductions.
Once these are off the ground, Markit and Blue Next will consult with a governance panel drawn from the industry to work out what exactly will be most useful. “You have to take account of the types of index the clients want,” said Mr Cameron. Markit expects the indices to be used as a basis for products such as exchange traded funds.
Copyright The Financial Times Limited 2009
Published: May 17 2009 10:14
A new range of carbon indices should speed the development of financial markets for the environmental sector.
Index provider Markit has joined forces with BlueNext, the Paris-based environmental exchange, to launch a family of indices covering European and global carbon markets.
“It’s quite clear that politically it’s top of the agenda,” said Niall Cameron, who looks after commodities and indices at Markit. “There’s a lot of money in subsidies going into these products.”
Although he ultimately envisages a broad range of products, the initial offering consists of just two spot price indices, covering European Allowance Units and Certified emissions Reductions.
Once these are off the ground, Markit and Blue Next will consult with a governance panel drawn from the industry to work out what exactly will be most useful. “You have to take account of the types of index the clients want,” said Mr Cameron. Markit expects the indices to be used as a basis for products such as exchange traded funds.
Copyright The Financial Times Limited 2009
Wind farm off the radar and powering ahead
After 10 years of planning and three of construction, Whitelee is about to become fully operational.
By Garry WhiteLast Updated: 7:50PM BST 17 May 2009
White heat of technology: the last of Whitelee wind farm turbines are to be connected to the National Grid this week
The tips of the blades on a wind turbine can move at more than 160 miles per hour, making them a major hazard to aircraft in flight. It's not the height of the turbines that causes the problem, although they tower 110m above the landscape, but the fact that this movement can interfere with radar from local airports – causing blind spots for air traffic controllers trying to land a plane.
This means that the biggest challenge facing the construction of Europe's largest onshore wind farm at Whitelee near Glasgow was not distance to the national grid or local opposition but radar "clouding" at Glasgow Airport.
Whitelee was built by the now Iberdrola-owned Scottish Power and is expected to have its final turbines connected to the national grid later this week, marking the end of 10 years of planning and three years of construction.
Many solutions were looked at to overcome the radar problem - including software algorithms to reduce clouding on radar screens and even something called "stealth paint".
Alan Mortimer, head of renewable policy at Scottish Power, explains: "Stealth paint has a molecular structure that absorbs radar frequencies, which means the waves do not bounce back to radar stations and cause interference for air traffic controllers. The problem is that it is not 100pc reliable, so we had to find another solution that was completely effective."
This involved building a new radar station at a cost of £5m. The transmitter was sited where a hill kept the wind farm out of the radar's sweep.
This demonstrates the difficulties of siting onshore wind farms in the UK. Not only is there the radar issue to contend with but there are also environmental and local concerns.
Whitelee is one of the few areas in the UK that fits the bill perfectly as a wind farm. It is only 10 miles from Glasgow, so it is easy to connect to the national grid, and it is located in desolate moor land. Because of its isolated location there were only 32 letters of opposition during the public consultation, despite it being right next door to Scotland's largest city. And it is certainly very windy. Your correspondent had earache within 15 minutes of stepping out of the car.
The Whitelee area, which is about the size of the city of Glasgow itself, consists of peat bogs and areas of commercial conifer planting. In order to construct the turbines, 90 kilometres of road were built floating on top of the peat. This consists of layers of mesh which had stone from quarries on the site compacted on top. The alternative would have involved digging up the peat – and all the environmental damage that would incur.
Areas of commercially planted conifers are now being removed to allow the area to return to bog land. This has a dual environmental effect, says David MacArthur , Whitelee's ecologist.
"Removing the conifers and returning the area around the site to bog land is not only good for wildlife, such as birds, but blanket bogs are the world's third best store of carbon, keeping it out of the atmosphere," he says.
About 20pc of the world's terrestrial carbon is stored in bogs in the northern hemisphere, according to Earthwatch.
A visitor centre will be opened later this year, when the road network is expected to be made available to hikers, cyclists and horse riders so they can move around the peat bogs and take in the impressive views, which not only encompass Glasgow but also the Isle of Arran on a clear day.
The surprisingly-quiet Siemens turbines are also impressive to behold. When the final array is connected to the grid later this week, there will be 140 turbines generating 322 megawatts of electricity. This is enough to power 180,000 homes.
The total area covers 55 square kilometres making it one of the largest construction sites in the world. A total of 940 kilometres of cable have been laid connecting the turbines, which each weigh about 100 tonnes.
There are plans to increase the generation capacity of Whitelee, with planning applications for a further 81 turbines submitted.
Britain is facing an unprecedented energy crunch over the next 10 years as older power stations come to the end of their natural lives and output at existing capacity is restricted due to European emissions rules. This is happening at the same time as oil and gas production in the North Sea is in rapid decline. Britain became a net oil importer in 2004.
The UK needs an economic and clean solution to its energy problem before it becomes an energy crisis. Wind energy, along with nuclear, clean coal and even tidal power will all play their part in bridging this gap. Whitelee is one bold step in solving this problem but the UK needs to continue with a diverse and integrated energy policy if we really are going to stop the lights from eventually going out
Brain power can meet the energy crisis
Our reservoir of clever people must be channelled into solving problems
Larry Elliot, economics editor
guardian.co.uk, Sunday 17 May 2009 22.04 BST
Back in the 1970s, North Sea oil was seen as the saviour of the British economy. The money would be spent modernising industry so that it could play in the big league with the Germans, the Japanese and the Americans. Instead, we spent the money on unemployment benefit and tax cuts. The industrial renaissance never happened.
By the time the oil started to run out, financial services were the next big thing. The City would be Britain's unique selling point, we would pay our way in the world through banking, insurance, arranging bids and deals and by being better speculators than our rivals. With the banks bust and the financial sector in a state of petrification, we are now going to find out what life is like without artificial stimulants.
Dreamland
It won't be nearly as much fun as the years of living in a dreamland, but stripping away the pretence that there is some easy, painless solution to Britain's long-standing problems represents the first stage to recovery.
Britain has no shortage of talented people. There is plenty of creativity and always has been; the problem is that it has not always been channelled in the right directions. If ever there was a moment to remedy that systemic failure, it is now, because this crisis has only just begun. The first phase involved banks; the second phase will be energy.
Oil prices nudged above $60 a barrel briefly last week before falling back on news that inventories are high and that demand for crude is set for its biggest fall this year since 1981. An oil price at these levels looks suspiciously high amid the first fall in global gross domestic product since the second world war, although there are possible explanations. One is that commodity traders believe there will be a more rapid recovery in the global economy than anybody is expecting. A second is that the money central banks are pumping into financial markets through quantitative easing is spilling over into speculation. Third, and most worrying, the days of cheap oil may be a thing of the past. If this is the true explanation, there will be serious consequences.
In the post-war years, there has been a clear link between oil prices and global growth: the long boom of the 1950s and 1960s was an era when crude was dirt cheap; all four major recessions (1974-75, 1980-82, 1990-92 and 2007 to now) followed a spike in oil prices.
The last trough in oil prices occurred at the end of the 1990s, coinciding with the dotcom bubble and talk in the US of the new paradigm economy. Since then, the trend has been inexorably up, with supply struggling to keep up with strong demand from the mature markets of the developed world and the big emerging economies such as China and India.
Chris Sanders, of Sanders Research Associates, traces the origins of the current crisis back to the turn of the millennium, when the fall in production from the big finds of the late 1970s – Alaska, deepwater Mexico and the North Sea – ended the era of cheap oil.
A serious recession in the wake of the dotcom bubble was only averted because policymakers – Alan Greenspan in particular – manipulated interest rates to create another unsustainable boom. This did not mean the problem had been solved; indeed, putting it off for another day simply meant the problem grew bigger. Seen from this perspective, what we are witnessing is not the early stages of a new bull market, but a temporary lull in a much longer crisis that will see recovery hampered by high and volatile energy prices. Indeed, the volatility of crude over the coming years is likely to be as damaging as the fact that fuel will be becoming steadily more expensive.
To envisage this scenario, you don't have to accept that we are at – or close to – peak oil. There are many oil experts who have deep reservations about the notion that the moment of maximum petroleum extraction is at hand; they argue that rising prices will encourage exploration and make it viable for oil companies to extract crude from parts of the globe that were uneconomic at a price of $20-$30 a barrel. New and better technologies will be deployed to keep oil supply in tandem with demand.
Price signals
There is no doubting the economic validity of this case. Price signals do matter, and oil companies are far more likely to beef up their spending on exploration and new refineries if the oil price is $100 a barrel than if it is $10 a barrel. That's the good news.
The bad news is that even if the peak oil sceptics are right and there is plenty of untapped crude in the South Atlantic, Canada's tar sands or Central Asia, it is going to be more expensive to extract it. Oil has been critical to the development of industrial societies but energy firms, unsurprisingly, went for the oil that was easiest to get at and of the highest quality, since that meant low extraction costs and high profits.
In other words, the energy required to get fuel out of the ground was small; the energy return on energy investment (EROI) was high. But as companies have moved to tougher environments, the EROI on oil and gas production has fallen – one estimate is from 33:1 in 1999 to 19:1 in 2005. This global trend mirrors what happened in the US, where oil is still produced in large quantities but much less efficiently than it was 75 years ago. From an estimated 100:1 in 1939, the EROI for American oil production dropped to 30:1 by 1970 and 11:1 in 2000.
As Sanders puts it: "Today we are attempting to extract oil and gas in commercially viable quantities from offshore deposits that lie under more than 25,000 feet of water, rock and hot salt. It may well be possible to do so, but what is highly unlikely is that it will be possible to do so in sufficiently large flows to make a material difference to general prosperity. Another way of putting this is that economic growth rates are going to have to slow."
On the basis of what has happened in the recent past, we are likely to see oil prices on an upward trend but with wild gyrations. Frequent oil spikes when the global economy appears to be on the mend will be followed by a crash in prices as the impact of dearer energy raises business costs and bites into consumer spending power.
There is a silver lining to this cloud. Another half century of global growth at 5% a year powered by cheap fossil fuels would almost certainly be the death of the planet as we know it. But we are as ill prepared for the post-fossil fuel age as we were for war in 1939.
But we are at our best when we have our backs to the wall: let's establish a Bletchley Park for renewable energy schemes, where the best scientists work out how Britain will survive when the oil runs out. And let's do it now.
larry.elliott@guardian.co.uk
Larry Elliot, economics editor
guardian.co.uk, Sunday 17 May 2009 22.04 BST
Back in the 1970s, North Sea oil was seen as the saviour of the British economy. The money would be spent modernising industry so that it could play in the big league with the Germans, the Japanese and the Americans. Instead, we spent the money on unemployment benefit and tax cuts. The industrial renaissance never happened.
By the time the oil started to run out, financial services were the next big thing. The City would be Britain's unique selling point, we would pay our way in the world through banking, insurance, arranging bids and deals and by being better speculators than our rivals. With the banks bust and the financial sector in a state of petrification, we are now going to find out what life is like without artificial stimulants.
Dreamland
It won't be nearly as much fun as the years of living in a dreamland, but stripping away the pretence that there is some easy, painless solution to Britain's long-standing problems represents the first stage to recovery.
Britain has no shortage of talented people. There is plenty of creativity and always has been; the problem is that it has not always been channelled in the right directions. If ever there was a moment to remedy that systemic failure, it is now, because this crisis has only just begun. The first phase involved banks; the second phase will be energy.
Oil prices nudged above $60 a barrel briefly last week before falling back on news that inventories are high and that demand for crude is set for its biggest fall this year since 1981. An oil price at these levels looks suspiciously high amid the first fall in global gross domestic product since the second world war, although there are possible explanations. One is that commodity traders believe there will be a more rapid recovery in the global economy than anybody is expecting. A second is that the money central banks are pumping into financial markets through quantitative easing is spilling over into speculation. Third, and most worrying, the days of cheap oil may be a thing of the past. If this is the true explanation, there will be serious consequences.
In the post-war years, there has been a clear link between oil prices and global growth: the long boom of the 1950s and 1960s was an era when crude was dirt cheap; all four major recessions (1974-75, 1980-82, 1990-92 and 2007 to now) followed a spike in oil prices.
The last trough in oil prices occurred at the end of the 1990s, coinciding with the dotcom bubble and talk in the US of the new paradigm economy. Since then, the trend has been inexorably up, with supply struggling to keep up with strong demand from the mature markets of the developed world and the big emerging economies such as China and India.
Chris Sanders, of Sanders Research Associates, traces the origins of the current crisis back to the turn of the millennium, when the fall in production from the big finds of the late 1970s – Alaska, deepwater Mexico and the North Sea – ended the era of cheap oil.
A serious recession in the wake of the dotcom bubble was only averted because policymakers – Alan Greenspan in particular – manipulated interest rates to create another unsustainable boom. This did not mean the problem had been solved; indeed, putting it off for another day simply meant the problem grew bigger. Seen from this perspective, what we are witnessing is not the early stages of a new bull market, but a temporary lull in a much longer crisis that will see recovery hampered by high and volatile energy prices. Indeed, the volatility of crude over the coming years is likely to be as damaging as the fact that fuel will be becoming steadily more expensive.
To envisage this scenario, you don't have to accept that we are at – or close to – peak oil. There are many oil experts who have deep reservations about the notion that the moment of maximum petroleum extraction is at hand; they argue that rising prices will encourage exploration and make it viable for oil companies to extract crude from parts of the globe that were uneconomic at a price of $20-$30 a barrel. New and better technologies will be deployed to keep oil supply in tandem with demand.
Price signals
There is no doubting the economic validity of this case. Price signals do matter, and oil companies are far more likely to beef up their spending on exploration and new refineries if the oil price is $100 a barrel than if it is $10 a barrel. That's the good news.
The bad news is that even if the peak oil sceptics are right and there is plenty of untapped crude in the South Atlantic, Canada's tar sands or Central Asia, it is going to be more expensive to extract it. Oil has been critical to the development of industrial societies but energy firms, unsurprisingly, went for the oil that was easiest to get at and of the highest quality, since that meant low extraction costs and high profits.
In other words, the energy required to get fuel out of the ground was small; the energy return on energy investment (EROI) was high. But as companies have moved to tougher environments, the EROI on oil and gas production has fallen – one estimate is from 33:1 in 1999 to 19:1 in 2005. This global trend mirrors what happened in the US, where oil is still produced in large quantities but much less efficiently than it was 75 years ago. From an estimated 100:1 in 1939, the EROI for American oil production dropped to 30:1 by 1970 and 11:1 in 2000.
As Sanders puts it: "Today we are attempting to extract oil and gas in commercially viable quantities from offshore deposits that lie under more than 25,000 feet of water, rock and hot salt. It may well be possible to do so, but what is highly unlikely is that it will be possible to do so in sufficiently large flows to make a material difference to general prosperity. Another way of putting this is that economic growth rates are going to have to slow."
On the basis of what has happened in the recent past, we are likely to see oil prices on an upward trend but with wild gyrations. Frequent oil spikes when the global economy appears to be on the mend will be followed by a crash in prices as the impact of dearer energy raises business costs and bites into consumer spending power.
There is a silver lining to this cloud. Another half century of global growth at 5% a year powered by cheap fossil fuels would almost certainly be the death of the planet as we know it. But we are as ill prepared for the post-fossil fuel age as we were for war in 1939.
But we are at our best when we have our backs to the wall: let's establish a Bletchley Park for renewable energy schemes, where the best scientists work out how Britain will survive when the oil runs out. And let's do it now.
larry.elliott@guardian.co.uk
Nuclear powers agree on treaty agenda
By Harvey Morris at the United Nations
Published: May 17 2009 16:13 Last updated: May 17 2009 16:13
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The big five nuclear powers have issued a joint statement welcoming progress towards worldwide nuclear disarmament, although their optimism remains overshadowed by the prospect of a nuclear-armed Iran.
The US, Russia, China, the UK and France reiterated their “enduring and unequivocal commitment to work towards nuclear disarmament”. The statement came on Friday at the end of two weeks of talks at the United Nations to prepare for next year’s scheduled review of the 39-year-old nuclear non-proliferation treaty (NPT).
EDITOR’S CHOICE
US takes human rights seat at UN - May-13
UN adopts racism document - Apr-22
UN launches global digital library - Apr-21
Safety and security fears anger UN staff - Apr-19
US joins boycott of anti-racism conference - Apr-19
Washington dilemma on race conference - Apr-18
Delegates of the 189-member NPT credited the “Obama factor” with having changed the tone of the international debate on nuclear arms. Boniface Chidyausiku, the meeting’s Zimbabwean chairman, spoke of “the goodwill of the new administration in the US and the willingness of the US administration to engage with the international community”.
For the first time in 15 years the meeting succeeded in coming up with an agenda for an NPT review that was acceptable to both the nuclear powers and to states that resent the manner in which they exercise their monopoly.
It failed, however, to agree on recommendations to send forward to the review conference that will also be held in New York. Delegates nevertheless said the talks had broken a long-standing deadlock. “We have 12 months in which to deepen discussion of what really matters – how to elaborate a shared vision of the steps needed to achieve a world free of nuclear weapons,” said John Duncan, UK representative.
During the meeting, delegates who included Rose Gottemoeller, US assistant secretary of state, urged the four nuclear-armed states outside the NPT – India, Pakistan, Israel and North Korea – to join the treaty.
Iran is a member but is accused of using its nuclear power programme to hide efforts to build a bomb. Under the NPT, all member states have the right to adopt nuclear power for peaceful purposes.
Mohamed el-Baradei, the UN’s chief nuclear watchdog as head of the International Atomic Energy Agency, urged Tehran to negotiate with the US on its nuclear programme.
He told the German magazine Der Spiegel at the weekend: “I advise my Iranian negotiating partners: grasp the hand that Obama is extending to you.”
Urging Iran to accept a so-called “freeze for freeze” formula, he said: “The Iranians would install no more [uranium enrichment] centrifuges, the west would forgo further sanction measures. During this time, there would be intensive negotiations.”
The UN Security Council has imposed three sets of sanctions on Iran for failing to halt enrichment. The US administration has said further measures will be implemented if Tehran fails to co-operate.
Diplomats said the more positive mood on disarmament was in part due to better relations between Washington and Moscow. The statement by the five nuclear-armed powers welcomed the decision by the US and Russia to negotiate an agreement to replace the strategic arms reduction treaty, and their moves towards enforcing a nuclear test ban treaty.
Copyright The Financial Times Limited 2009
By Harvey Morris at the United Nations
Published: May 17 2009 16:13 Last updated: May 17 2009 16:13
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The big five nuclear powers have issued a joint statement welcoming progress towards worldwide nuclear disarmament, although their optimism remains overshadowed by the prospect of a nuclear-armed Iran.
The US, Russia, China, the UK and France reiterated their “enduring and unequivocal commitment to work towards nuclear disarmament”. The statement came on Friday at the end of two weeks of talks at the United Nations to prepare for next year’s scheduled review of the 39-year-old nuclear non-proliferation treaty (NPT).
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Delegates of the 189-member NPT credited the “Obama factor” with having changed the tone of the international debate on nuclear arms. Boniface Chidyausiku, the meeting’s Zimbabwean chairman, spoke of “the goodwill of the new administration in the US and the willingness of the US administration to engage with the international community”.
For the first time in 15 years the meeting succeeded in coming up with an agenda for an NPT review that was acceptable to both the nuclear powers and to states that resent the manner in which they exercise their monopoly.
It failed, however, to agree on recommendations to send forward to the review conference that will also be held in New York. Delegates nevertheless said the talks had broken a long-standing deadlock. “We have 12 months in which to deepen discussion of what really matters – how to elaborate a shared vision of the steps needed to achieve a world free of nuclear weapons,” said John Duncan, UK representative.
During the meeting, delegates who included Rose Gottemoeller, US assistant secretary of state, urged the four nuclear-armed states outside the NPT – India, Pakistan, Israel and North Korea – to join the treaty.
Iran is a member but is accused of using its nuclear power programme to hide efforts to build a bomb. Under the NPT, all member states have the right to adopt nuclear power for peaceful purposes.
Mohamed el-Baradei, the UN’s chief nuclear watchdog as head of the International Atomic Energy Agency, urged Tehran to negotiate with the US on its nuclear programme.
He told the German magazine Der Spiegel at the weekend: “I advise my Iranian negotiating partners: grasp the hand that Obama is extending to you.”
Urging Iran to accept a so-called “freeze for freeze” formula, he said: “The Iranians would install no more [uranium enrichment] centrifuges, the west would forgo further sanction measures. During this time, there would be intensive negotiations.”
The UN Security Council has imposed three sets of sanctions on Iran for failing to halt enrichment. The US administration has said further measures will be implemented if Tehran fails to co-operate.
Diplomats said the more positive mood on disarmament was in part due to better relations between Washington and Moscow. The statement by the five nuclear-armed powers welcomed the decision by the US and Russia to negotiate an agreement to replace the strategic arms reduction treaty, and their moves towards enforcing a nuclear test ban treaty.
Copyright The Financial Times Limited 2009
The Times
May 18, 2009
Government's smart-meter estimate falls short by £6bn, expert claims
Robin Pagnamenta, Energy and Environment Editor
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The Government has underestimated the cost of a nationwide rollout of smart meters by as much as £6.4 billion, according to Ernst & Young.
Last week ministers gave a green light to install 47 million new gas and electricity meters, which can monitor energy use in real time, in every household in Britain. They said that the project could be completed at a cost of between £7 billion to £9 billion, or an average of £269 to £346 per household.
Ernst & Young, the audit firm, has rejected that estimate, arguing that the true cost would be at least 49 per cent higher, at about £13.4 billion, or £515 per household. Consumers are expected to shoulder the bulk of the extra cost in the form of higher bills, although the industry claims there will be offsetting savings. Tony Ward, power and utilities partner in Ernst & Young, said that the Government’s figures appeared to underestimate the scale of the additional technology and infrastructure required to support the smart meters, which it is hoped will help to cut carbon emissions by promoting energy efficiency.
“Very big and complex projects of this sort always cost more than anticipated,” Mr Ward said. He cited problems of gaining access to all 26 million UK properties to install the meters and big upfront costs for purchasing equipment and software, as well as hidden costs, such as providing finance for the project. “We very rarely see one that comes in at the original estimate,” he said.
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UK homes to have smart energy meters by 2020
Smart meters to cost each household £150
Mr Ward said that there were big questions about how the rollout would take place and the technology to be used. He added that the Government’s figures appeared to rely “on an assumption of absolute efficiency”.
A spokesman for the Department of Energy and Climate Change said: “We are confident in our cost estimates. They were arrived at after work with industry experts and external economists and clearly show the benefits of smart meters more than outweigh the costs.”
The Energy Retail Association, an industry lobby group, said that consumers would pay for the rollout through their energy bills, but claimed that the overall impact would be “cost neutral” because the smart meters would be introduced over a period of up to a decade and would allow for significant cost savings by the industry.
The phasing out of traditional meters is set to trigger thousands of job losses for meter readers, engineers, call centre staff and middle managers.
The new meters will enable power companies to introduce off-peak deals similar to those offered by telephone operators. Consumers could be rewarded for using energy-hungry appliances at off-peak times, such as between 1am and 5am, allowing for a reduction in the total number of power stations needed to power the UK. Inaccurate billing should end because suppliers would receive precise data.
Ian Parrett, of Inenco, the energy consultancy, said that the new meters would force prices up. He said: “Energy companies will face two new costs that they will inevitably have to pass on to consumers, either directly or indirectly. There is the additional cost of installing these meters across the whole of the UK. Then there is the additional resourcing and personnel required to deal with the large increase in customer inquiries.”
To help to oversee the project, which could start next year, the Government has approved the creation of a body to manage the meters and the relaying of information to energy suppliers.
The project will be highly lucrative for the manufacturers of smart meters, such as General Electric, IBM and Itron, of the United States, and Landis+Gyr, a privately owned Swiss group.
May 18, 2009
Government's smart-meter estimate falls short by £6bn, expert claims
Robin Pagnamenta, Energy and Environment Editor
div#related-article-links p a, div#related-article-links p a:visited {
color:#06c;
}
The Government has underestimated the cost of a nationwide rollout of smart meters by as much as £6.4 billion, according to Ernst & Young.
Last week ministers gave a green light to install 47 million new gas and electricity meters, which can monitor energy use in real time, in every household in Britain. They said that the project could be completed at a cost of between £7 billion to £9 billion, or an average of £269 to £346 per household.
Ernst & Young, the audit firm, has rejected that estimate, arguing that the true cost would be at least 49 per cent higher, at about £13.4 billion, or £515 per household. Consumers are expected to shoulder the bulk of the extra cost in the form of higher bills, although the industry claims there will be offsetting savings. Tony Ward, power and utilities partner in Ernst & Young, said that the Government’s figures appeared to underestimate the scale of the additional technology and infrastructure required to support the smart meters, which it is hoped will help to cut carbon emissions by promoting energy efficiency.
“Very big and complex projects of this sort always cost more than anticipated,” Mr Ward said. He cited problems of gaining access to all 26 million UK properties to install the meters and big upfront costs for purchasing equipment and software, as well as hidden costs, such as providing finance for the project. “We very rarely see one that comes in at the original estimate,” he said.
Related Links
UK homes to have smart energy meters by 2020
Smart meters to cost each household £150
Mr Ward said that there were big questions about how the rollout would take place and the technology to be used. He added that the Government’s figures appeared to rely “on an assumption of absolute efficiency”.
A spokesman for the Department of Energy and Climate Change said: “We are confident in our cost estimates. They were arrived at after work with industry experts and external economists and clearly show the benefits of smart meters more than outweigh the costs.”
The Energy Retail Association, an industry lobby group, said that consumers would pay for the rollout through their energy bills, but claimed that the overall impact would be “cost neutral” because the smart meters would be introduced over a period of up to a decade and would allow for significant cost savings by the industry.
The phasing out of traditional meters is set to trigger thousands of job losses for meter readers, engineers, call centre staff and middle managers.
The new meters will enable power companies to introduce off-peak deals similar to those offered by telephone operators. Consumers could be rewarded for using energy-hungry appliances at off-peak times, such as between 1am and 5am, allowing for a reduction in the total number of power stations needed to power the UK. Inaccurate billing should end because suppliers would receive precise data.
Ian Parrett, of Inenco, the energy consultancy, said that the new meters would force prices up. He said: “Energy companies will face two new costs that they will inevitably have to pass on to consumers, either directly or indirectly. There is the additional cost of installing these meters across the whole of the UK. Then there is the additional resourcing and personnel required to deal with the large increase in customer inquiries.”
To help to oversee the project, which could start next year, the Government has approved the creation of a body to manage the meters and the relaying of information to energy suppliers.
The project will be highly lucrative for the manufacturers of smart meters, such as General Electric, IBM and Itron, of the United States, and Landis+Gyr, a privately owned Swiss group.
Battery makers vie for US aid
By Richard Waters in San Francisco
Published: May 17 2009 18:53
A handful of US battery makers is scrambling for government support ahead of a deadline this week as the US struggles to win back lost ground from Asian competitors in one of the world’s next important technologies.
The race is also the first test of how the administration will use the near-$190bn in stimulus money earmarked this year to support “green” technologies, from alternative fuels to energy-efficient building materials.
Advanced batteries are seen as a strategic technology, given their importance to electric and hybrid vehicles, and their military applications.
As with the chip industry two decades ago, the US has lost the lead to manufacturers in Asia that have invested in high-volume manufacturing.
“The US and the Europeans have been asleep at the switch,” said Paul Beach, head of business development at Quallion, a battery maker that hopes to raise up to $200m with support from the stimulus funds.
“This industry probably couldn’t get kick-started without this,” he added.
“US companies are already well behind in process manufacturing technology,” added Jim Greenberger, head of a consortium of small battery makers that is looking for $600m to build a joint manufacturing plant. “As bad a state as our auto industry is in right now, it will be much worse if we don’t start building [battery] cells in the US.”
Many of the breakthroughs in the lithium-ion technology used in advanced batteries were made in Japan, and most manufacturing is centred in Japan, South Korea and China.
With finance hard to come by, how the US uses the $2bn of stimulus money set aside for advanced battery makers could shape the industry.
Applications are due on Tuesday, with a decision on how to use the money expected as early as July. That is months ahead of decisions about how to apply the rest of the stimulus money, which are expected to play a similarly critical part in structuring other parts of the “green tech” industries.
“There’s absolutely no question the government will be picking winners and losers” in the environmental technologies, said Brian Fan, head of research at the Cleantech Group.
Among the choices the US energy department faces is whether to support a range of competing technologies, or whether to focus investment in a small number of potential “champions”.
Among the most ambitious US start-ups, A123 Systems has indicated it wants to raise about $1.8bn.
Copyright The Financial Times Limited 2009
Published: May 17 2009 18:53
A handful of US battery makers is scrambling for government support ahead of a deadline this week as the US struggles to win back lost ground from Asian competitors in one of the world’s next important technologies.
The race is also the first test of how the administration will use the near-$190bn in stimulus money earmarked this year to support “green” technologies, from alternative fuels to energy-efficient building materials.
Advanced batteries are seen as a strategic technology, given their importance to electric and hybrid vehicles, and their military applications.
As with the chip industry two decades ago, the US has lost the lead to manufacturers in Asia that have invested in high-volume manufacturing.
“The US and the Europeans have been asleep at the switch,” said Paul Beach, head of business development at Quallion, a battery maker that hopes to raise up to $200m with support from the stimulus funds.
“This industry probably couldn’t get kick-started without this,” he added.
“US companies are already well behind in process manufacturing technology,” added Jim Greenberger, head of a consortium of small battery makers that is looking for $600m to build a joint manufacturing plant. “As bad a state as our auto industry is in right now, it will be much worse if we don’t start building [battery] cells in the US.”
Many of the breakthroughs in the lithium-ion technology used in advanced batteries were made in Japan, and most manufacturing is centred in Japan, South Korea and China.
With finance hard to come by, how the US uses the $2bn of stimulus money set aside for advanced battery makers could shape the industry.
Applications are due on Tuesday, with a decision on how to use the money expected as early as July. That is months ahead of decisions about how to apply the rest of the stimulus money, which are expected to play a similarly critical part in structuring other parts of the “green tech” industries.
“There’s absolutely no question the government will be picking winners and losers” in the environmental technologies, said Brian Fan, head of research at the Cleantech Group.
Among the choices the US energy department faces is whether to support a range of competing technologies, or whether to focus investment in a small number of potential “champions”.
Among the most ambitious US start-ups, A123 Systems has indicated it wants to raise about $1.8bn.
Copyright The Financial Times Limited 2009
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