Monday, 21 December 2009

Investors eye climate debate

As world leaders squabbled at the United Nations climate summit in Copenhagen, investors continued to hunt for companies that could benefit by expected new rules and regulations stemming from the climate debate.
Even if no big, far-reaching agreements are reached, which seems likely in the near term, there still are a large number of companies that already provide climate-related technologies.
"Initiatives are going ahead," said Terry Coles, co-fund manager of F&C Asset Management's Global Climate Opportunities Fund, which has $80 million under management. (Mr. Coles also helps oversee other F&C funds with more than $1 billion in assets.) "It's no longer about the environment. It's a political issue; it's about national security."
Indeed, much of climate change chatter reflects notions of energy security. Mr. Coles points out that "the U.S. wants to be less dependent on Middle East oil, and China wants to reduce their dependence as well."
More practically, many governments used recent stimulus programs to direct money toward domestic alternative energy initiatives such as wind, solar and biomass. "Governments realize there is a need to change fossil fuel-based energy," said Stuart Connell, co-fund manager of the Natural Resources Fund at J.P. Morgan Asset Management with around $5 billion in assets.
Mr. Connell said many governments believe coal-fired energy isn't sustainable, given the environmental issues associated with burning coal. So while coal is abundant, and abundantly used, in China and the U.S., alternative energy sources are being rapidly developed, often with government financial backing. Technology focused on efficiency also is becoming more important to climate-centric investors.
"The smartest way to reduce the need for additional coal-fired energy is to use the energy we're already producing more efficiently," said Mr. Coles, in London.
Europe's climate plays go deeper than makers of wind turbines and solar panels. Mr. Coles of F&C likes Nexans, a French copper-cable maker. Nexans helps transmit energy from producers such as wind farms or oil rigs to the energy grid. The company constitutes more than 2% of Mr. Coles' portfolio, and he believes the company should strongly benefit from any new climate-change rules.
At the same time, Nexans main business—providing copper cables to various industries— remains highly tied to the global economy. If the economic recovery stalls, Nexans will face a challenging 2010.
Shares of Nexans, which has a market capitalization of €1.49 billion ($2.14 billion), are up 26% this year.
German electrical-component maker SMA Solar Technology AG, with a market value of €818.8 million, also is about 2% of Mr. Coles' fund. It produces inverters that convert solar energy into usable AC current in residential homes. "I want a company that has little competition, and at this stage, there are no significant competitors" to SMA Solar. Mr. Coles said he expects the company to continue increasing its dominant position in home solar-power conversion. The stock has more than doubled this year, closing at €91.81 on Friday, up from €37.50 at the end of 2008.
One of the main risks to alternative energy and climate-related companies is the sluggish global economy. If growth doesn't pick up, alternatives begin to look increasingly expensive compared with standard fuels such as oil or coal.

Time For Plan B - Nigel Lawson

The world's political leaders, not least President Barack Obama and Prime Minister Gordon Brown, are in a state of severe, almost clinical, denial. While acknowledging that the outcome of the United Nations climate-change conference in Copenhagen fell somewhat short of their demand for a legally binding, enforceable and verifiable global agreement on emissions reductions by developed and developing countries alike, they insist that what has been achieved is a breakthrough and a decisive step forward.
Just one more heave, just one more venue for the great climate-change traveling circus—Mexico City next year—and the job will be done.
Or so we are told. It is, of course, the purest nonsense. The only breakthrough was the political coup for China and India in concluding the anodyne communiqué with the United States behind closed doors, with Brazil and South Africa allowed in the room and Europe left to languish in the cold outside.
Far from achieving a major step forward, Copenhagen—predictably—achieved precisely nothing. The nearest thing to a commitment was the promise by the developed world to pay the developing world $30 billion of "climate aid" over the next three years, rising to $100 billion a year from 2020. Not only is that (perhaps fortunately) not legally binding, but there is no agreement whatsoever about which countries it will go to, in which amounts, and on what conditions.
The reasons for the complete and utter failure of Copenhagen are both fundamental and irresolvable. The first is that the economic cost of decarbonizing the world's economies is massive, and of at least the same order of magnitude as any benefits it may conceivably bring in terms of a cooler world in the next century. After all, the reason we use carbon-based energy is not the political power of the oil lobby or the coal industry. It is because it is far and away the cheapest source of energy at the present time and is likely to remain so, not forever, but for the foreseeable future.
Switching to much more expensive energy may be acceptable to us in the developed world (although I see no present evidence of this). But in the developing world, including the rapidly developing nations such as China and India, there are still tens if not hundreds of millions of people suffering from acute poverty, and from the consequences of such poverty, in the shape of malnutrition, preventable disease and premature death.
So for the developing world, the overriding priority has to be the fastest feasible rate of economic development, which means, inter alia, using the cheapest available source of energy: carbon energy.
Moreover, the argument that they should make this economic and human sacrifice to benefit future generations 100 years and more hence is all the less compelling given that these future generations will, despite any problems caused by warming, be many times better off than the people of the developing world are today.
Or, at least, that is the assumption on which the climate scientists' warming projections are based. It is projected growth that determines projected carbon emissions, and projected carbon emissions that (according to the somewhat conjectural computer models on which they rely) determine projected warming (according to the same models).
All this overlaps with the second of the two fundamental reasons why Copenhagen failed, and why Mexico City (if our leaders insist on continuing this futile charade) will fail, too. That is the problem of burden sharing, and in particular how much of the economic cost of decarbonization should be borne by the developed world, which accounts for the bulk of past emissions, and how much by the faster-growing developing world, which will account for the bulk of future emissions.
The Stern Review, quite the shoddiest pseudo-scientific and pseudo-economic document any British Government has ever produced, claims the overall burden is very small. But of course if that were so, the problem of how to share the burden would be readily overcome—as indeed occurred with the phasing out of chorofluorocarbons (CFCs) under the 1987 Montreal Protocol. But the true cost of decarbonization is massive, and the distribution of the burden an insoluble problem.
Moreover, any assessment of the impact of any future warming that may occur is inevitably highly conjectural, depending as it does not only on the uncertainties of climate science but also on the uncertainties of future technological development. So what we are talking about is risk.
Not that the risk is all one way. The risk of a 1930s-style outbreak of protectionism, if the developed world were to abjure cheap energy and faced enhanced competition from China and other rapidly industrializing countries that declined to do so, is probably greater than any risk from warming.
But even without that, there is not even a theoretical (let alone a practical) basis for a global agreement on burden-sharing, since, so far as the risk of global warming is concerned (and probably in other areas too) risk aversion is not uniform throughout the world. Not only do different cultures embody very different degrees of risk aversion, but in general the richer countries will tend to be more risk-averse than the poorer countries, if only because we have more to lose.
The time has come to abandon the Kyoto-style folly that reached its apotheosis in Copenhagen last week, and move to plan B.
And the outlines of a credible plan B are clear. First and foremost, we must do what mankind has always done, and adapt to whatever changes in temperature may in future arise. This enables us to pocket the benefits of any warming (and there are many), while reducing the costs. And since none of the projected costs are new phenomena, but the possible exacerbation of the problems our climate already throws at us, addressing these problems directly is many times more cost-effective than anything discussed at Copenhagen. Nor does adaptation require a global agreement, although we may well need to help the very poorest countries (not China) to adapt.
And beyond adaptation, plan B should involve a relatively modest increased government investment in technological research and development—in energy, in adaptation and in geoengineering.
Despite the overwhelming evidence of the Copenhagen debacle, it is not going to be easy to get our leaders to move to Plan B. There is no doubt that calling a halt to the high-profile climate-change traveling circus risks causing a severe conference-deprivation trauma among the participants. If there has to be a small public investment in counseling, it would be money well spent. —Lord Lawson was U.K. chancellor of the exchequer in the Thatcher government from 1983 to 1989. He is the author of "An Appeal to Reason: A Cool Look at Global Warming" (Overlook Duckworth, paperback 2009), and is chairman of the recently formed Global Warming Policy Foundation (

Copenhagen: don't blame the Chinese – they may be part of the solution

By Tim Collard Last updated: December 20th, 2009

So the Copenhagen conference has provided endless opportunities for cynics like myself to say “I told you so”. But does the lack of a heavyweight deal mean that we have missed out on genuine substance, or just on some good headlines? And can we blame it all on China?
Certainly the Chinese leadership have done nothing to improve their image, with the usual classic communist obscurantist stuff about any internationally validated monitoring being an “infringement of sovereignty”. In other words, take our word for it or sod off. And who, exactly, trusts the Chinese government to provide accurate information? But, leaving that aside, are the Chinese necessarily so wrong in preferring a fairly toothless “declaration of intent” to a set of “binding” commitments?
Let’s look at the commitments that were so tragically missed out on. A strange mixture of means and ends; should the main emphasis have been on a percentage figure for a reduction in emissions, or on a target figure for increase in global temperature? (You may notice that I am keeping well out of the fundamental Anthropogenic-Global-Warming debate, or La Grande Delingpolerie: I am simply assuming that it may be as well to cut carbon emissions in any case, and that alternative energy sources, less dependent on dodgy parts of the world, are obviously a good idea.) Target figures are of course fine, but what would actually happen as limits were approached? Any volunteers to shut down the whole of industry for a year or so? Don’t all shout at once. Even with “binding” targets, the best we could expect is that everybody does the best they can, and if the targets can’t be met they’ll just be ignored or recalculated. So they’re no better than a vague declaration of intent in any case.
But restrictive commitments would have had one great benefit in certain eyes, namely those of the hair-shirt brigade. There are those for whom Western self-denial is not so much a necessary means, as an end in itself: the sacrifice, not the desirable result, is everything. The trouble is that this line really cannot be sold to the developing world: you can’t sell hair shirts to those who grew up in Mao suits. And no deal on the basis of “these restrictions only apply to whitey and not to the dear little coloured chaps” is going to pass muster anywhere west of Suez.
So we’re left cast up on the sharp-edged shingly shores of realism. What realism says is that the problems, whatever they may be, caused by carbon emissions will either be solved by human ingenuity and technological progress or they won’t. On the whole, human ingenuity is where the smart money is. And it so happens that the real fieldwork on alternative, low-carbon energy sources is being done more in China than anywhere else. Because they’re prepared to put the money into it. In the West no one’s got any money, no-one’s prepared to lend anyone any money, and no-one is prepared to invest any money except for the certainty of a large guaranteed income stream. But the Chinese government is prepared to keep the money taps flowing, for the time being at least.
So the Chinese are bound to stop a few brickbats for being part of the problem. But they may be a bigger part of the solution.

Ed Miliband: China tried to hijack Copenhagen climate deal

Climate secretary accuses China, Sudan, Bolivia and other leftwing Latin American countries of trying to hijack Copenhagen

John Vidal, environment editor, Sunday 20 December 2009 20.30 GMT
The climate secretary, Ed Miliband, today accuses China, Sudan, Bolivia and other leftwing Latin American countries of trying to hijack the UN climate summit and "hold the world to ransom" to prevent a deal being reached.
In an article in the Guardian, Miliband says the UK will make clear to those countries holding out against a binding legal treaty that "we will not allow them to block global progress".
"We cannot again allow negotiations on real points of substance to be hijacked in this way," he writes in the aftermath of the UN summit in Copenhagen, which climaxed with what was widely seen as a weak accord, with no binding emissions targets, despite an unprecedented meeting of leaders.
Miliband said there must be "major reform" of the UN body overseeing the talks – the UN Framework Convention on Climate Change (UNFCCC) – and on the way negotiations are conducted. He is said to be outraged that UN procedure allowed a few countries to nearly block a deal.
The prime minister, Gordon Brown, will repeat some of the UK's accusations in a webcast tomorrow when he says: "Never again should we face the deadlock that threatened to pull down [those] talks. Never again should we let a global deal to move towards a greener future be held to ransom by only a handful of countries."
Only China is mentioned specifically in Miliband's article but aides tonight made it clear that he included Sudan, Venezuela, Bolivia, Nicaragua and Cuba, which also tried to resist a deal being signed.
But in what threatened to become an international incident, diplomats and environment groups hit back by saying Britain and other countries, including the US and Australia, had dictated the terms of the weak Copenhagen agreement, imposing it on the world's poor "at the peril of the millions of common masses".
Muhammed Chowdhury, a lead negotiator of G77 group of 132 developing countries and the 47 least developed countries, said: "The hopes of millions of people from Fiji to Grenada, Bangladesh to Barbados, Sudan to Somalia have been buried. The summit failed to deliver beyond taking note of a watered-down Copenhagen accord reached by some 25 friends of the Danish chair, head of states and governments. They dictated the terms at the peril of the common masses."
Developing countries were joined in their criticism of the developed nations by international environment groups.
Nnimmo Bassey, chair of Friends of the Earth International, said: "Instead of committing to deep cuts in emissions and putting new, public money on the table to help solve the climate crisis, rich countries have bullied developing nations to accept far less.
"Those most responsible for putting the planet in this mess have not shown the guts required to fix it and have instead acted to protect short-term political interests.".
In a separate development, senior scientists said tonight that rich countries needed to put up three times as much money and cut emissions more if they were to avoid serious climate change.
Professor Martin Parry of Imperial College London, a former chair of the UN's Nobel prize-winning Intergovernmental Panel on Climate Change, said: "Even if non-binding pledges made at Copenhagen are completely fulfilled, there is a 1.5C 'gap' leading to unavoided impacts. The funding for adaptation covers impacts up to about 1.5C, and the mitigation pledges to cut climate change down to 3C at most ... leaving 1.5C of impacts not avoided because of the failure of adaptation and mitigation to close the gap."
The UN climate chief, Yvo de Boer, said: "The opportunity to actually make it into the scientific window of opportunity is getting smaller and smaller."

A great step forward: Obama's verdict on climate change pact

President's intervention was failure, say critics
Ed Pilkington in New York, Sunday 20 December 2009 20.49 GMT
Barack Obama returned to a snowbound Washington at the weekend clutching a deal that was cast as a step forward by his administration but decried as a waste of paper by critics on both sides of the climate change debate.
At the end of another of his interventions on the world stage that are becoming a hallmark of his presidency, Obama said the Copenhagen talks amounted to an "important breakthrough" and they had laid the foundation for international action "in the years to come".
But he also accepted it was a partial victory, saying the pact was "not enough", the road ahead would be hard and there was a long way still to go.
David Axelrod, his chief adviser, took to the airwaves this morning to defend the outcome of the 31-hour negotiations in similar vein: it was not perfect but it was a start. "Nobody says that this is the end of the road," Axelrod told CNN. "The end of the road would have been the complete collapse of those talks. This is a great step forward."
Politico, a Washington-based political news website, said the agreement was "more notable for what it doesn't accomplish than what it does, an inconvenient truth Obama ruefully acknowledged".
The last time Obama imposed himself into a gathering of world leaders in Copenhagen in October, when he lent his weight to Chicago's bid for the 2016 Olympics, it ended in humiliation. This time the outcome was not so ignominious, and the administration could and did claim credit for some, albeit non-binding, results.
Critics were quick to disparage Obama's achievement as a meaningless compromise. Friends of the Earth US dismissed the agreement as a sham. "This is not a strong deal or a just one – it isn't even a real one," said the group's president Erich Pica. He blamed the US for the absence of concrete results saying it was the main polluter behind the climate crisis yet it had failed to put enough money on the table to help poor countries cope with its consequences.
On the other side of the debate, Club for Growth, a campaign for small government and low taxes, hailed the agreement as an ironic triumph. Its head, Chris Chocola, said a binding deal would have destroyed 30 million American jobs, but he was relieved when Obama described it as a meaningful pact. "When politicians call something 'meaningful', that means it isn't," Chocola said.
The question for the White House now is how the Copenhagen agreement will affect its ambitions to present Congress with a wide ranging energy bill that would enshrine a cap-and-trade system for reducing emissions through bartering. Opponents of cap-and-trade, such as the Club for Growth, are likely to be emboldened in their efforts to frustrate the administration, pointing to the absence of a firm commitment internationally to set emissions reduction targets. Against that, the White House will argue there is enough of a global mandate to merit pressing ahead with its legislative plans.
The New York Times columnist Thomas Friedman said it was time for America to move quickly to develop a unilateral strategy in which the Senate would pass an energy bill setting a long-term price on carbon "that will really stimulate America to become the world leader in clean-tech. If we lead by example, more people will follow us by emulation than by compulsion of some UN treaty."
In an editorial, the Washington Post saw grounds for limited optimism that the Senate would act. It said that the Copenhagen agreement was weak and inadequate, but "this outcome, however imperfect, should prod the US Senate to take up climate-change legislation. Even if China hadn't moved, reducing America's dependence on foreign sources of energy and tacking domestic pollution are strong enough reasons to pass a bill."
The Post also noted that Copenhagen had given a glimpse of a new world order in which the US and China would increasingly shape international diplomacy. This so-called G2 of the world's two biggest emitters of greenhouse gases had the fate of any climate change treaty in its hands.

The road from Copenhagen - Ed Miliband

The talks were chaotic, at times farcical. But in the accord there were real gains we can build upon

Ed Miliband, Sunday 20 December 2009 20.30 GMT
Where do we go from here? That is the question we are all asking ourselves after Copenhagen. We have to begin by understanding the lessons of what went wrong but also recognise the achievements that it secured.
This was a chaotic process dogged by procedural games. Thirty leaders left their negotiators at 3am on Friday, the last night to haggle over the short Danish text that became the accord. To get a deal we needed urgent progress because time was running out. Five hours later, we had got to the third paragraph.
The procedural wrangling was, in fact, a cover for points of serious, substantive disagreement. The vast majority of countries, developed and developing, believe that we will only construct a lasting accord that protects the planet if all countries' commitments or actions are legally binding. But some leading developing countries currently refuse to countenance this. That is why we did not secure an agreement that the political accord struck in Copenhagen should lead to a legally binding outcome.
We did not get an agreement on 50% reductions in global emissions by 2050 or on 80% reductions by developed countries. Both were vetoed by China, despite the support of a coalition of developed and the vast majority of developing countries. Indeed, this is one of the straws in the wind for the future: the old order of developed versus developing has been replaced by more interesting alliances.
Would it have been better to refuse to sign and walk away? No. Of course it was right to consider whether we should sign. But to have vetoed the agreement would have meant walking away from the progress made in the last year and the real outcomes that are part of this accord, including finance for poor countries. Some of the strongest voices urging that we agree the accord were countries like the Maldives and Ethiopia.
Countries signing the accord have endorsed the science that says we must prevent warming of more than 2C. For the first time developing countries, including China, as well as developed countries have agreed emissions commitments for the next decade. If countries deliver on the most ambitious targets, we will be within striking distance of what is needed to prevent warming of more than 2C. These commitments will also for the first time be listed and independently scrutinised, with reports to the UN required every two years.
We have also established an unprecedented commitment among rich countries to finance the response to climate change: $10bn a year over the next three years – starting to flow now – rising to $100bn a year by 2020, the goal first set out by the prime minister in June.
In the months ahead, these concrete achievements must be secured and extended. We must work to ensure that developed nations in particular, such as Australia, Japan and the EU nations, deliver on the highest possible emissions cuts. And as the US Senate considers its legislation, it is important it delivers not just the 17% reductions offered so far but the deepest possible.
Finance for poor countries must flow straight away, which the decision agreed last Saturday enables us to do. We must also agree new ways to raise revenue to meet these commitments, which the working group established by the accord will propose.
We should also mobilise all the countries that want a legal treaty to campaign for it. The voice of small island states and African countries were the most resonant at these talks. For their people, most vulnerable to climate change, they know we must have a legal framework. Together we will make clear to those countries holding out against a binding legal treaty that we will not allow them to block global progress.
There is a wider question, too, about the structures and nature of the negotiations. The last two weeks at times have presented a farcical picture to the public. We cannot again allow negotiations on real points of substance to be hijacked in this way. We will need to have major reform of the UN body overseeing the negotiations and of the way the negotiations are conducted.
The challenge for all of us is not to lose heart and momentum. The truth is that the global campaign, co-ordinated by green NGOs, backed by business and supported by a wider cross section of the public, has achieved a lot. We would never have had targets from so many countries, the engagement of leaders, and the agreement on finance without this sort of mobilisation.
My fear that Copenhagen would pass people by without comment turned out to be unfounded. But the lesson of Make Poverty History is that we must keep this campaign going and build on it. It needs to be more of a genuinely global mobilisation, taking in all countries.
Today many people will be feeling gloomy about the results of their efforts. But no campaign ever wholly succeeds at the first time of asking. We should take heart from the achievements and step up our efforts. The road from Copenhagen will have as many obstacles as the road to it. But this year has proved what can be done, as well as the scale of the challenge we face.

New York challenge for City carbon market crown

Robin Pagnamenta

London’s position as the dominant world financial centre for the £75 billion carbon market could be lost to New York after the adoption of the US-brokered Copenhagen Accord at UN climate talks last week.
Despite criticism that an agreement struck by the US, China, India, South Africa and Brazil was too weak to tackle climate change, it is still expected to pave the way for the introduction of proposed US cap-and-trade legislation next year, which will accelerate huge growth in the global carbon market.
The value of trading in the market is worth more than £75 billion at present but so far has been dominated by activity in the EU Emissions Trading System (EU-ETS), launched in 2005.
London has emerged as the leading financial centre for the carbon markets.

But the US cap-and-trade scheme, proposed in draft legislation before Congress, would dwarf present activity levels in Europe.
Speaking from Copenhagen, Richard Gledhill, head of climate change and carbon market services at PricewaterhouseCoopers, said: “The big question now for the City is whether London will lose its leadership in carbon markets to the US.
“So far, London has been at the hub of carbon markets, traders, finance and professional services. If the US legislation goes through, there’s a real prospect of those skills shifting to New York and Chicago.”
Banks, brokers and investors have been gearing up in the US since the new Administration took over. President Obama gave a clear message in his speech to the conference in Copenhagen that America was going to act on the climate now. If passed by Congress, the climate scheme could create a carbon market three times the size of the EU-ETS. That would be a huge boost to the global carbon market, but would also move the focus of it from London to New York.
The EU has capped the use of international offsets as part of the EU-ETS, increasing the risk of a shift to the US.
The Clean Development Mechanism (CDM) offset scheme has leveraged investment of $95 billion (£59 billion) in developing markets over the past five years, with London building a robust position in this area.

Wind-farm investment boost for Aberdeen firm

Peter Jones

A rapidly-growing Aberdeen company specialising in the construction of offshore wind farms has secured £42 million of investment to fund more growth, a sign of emerging confidence that they are on the threshold of a boom.
The investment has been secured by Subocean Group, which was formed in 2005 to win work on laying seabed cables between offshore turbines and to the shore.
The company now plans to double its size in two years, adding 45 staff to its permanent workforce of 90 and its 100 offshore contracted employees.
The investment is notable for being the first made in Scotland by LDC, the private equity arm of the Lloyds Banking Group. LDC opened offices in Edinburgh and Aberdeen last year.

Subocean is currently working on two major new offshore wind farms — the 140-turbine Greater Gabbard farm off Suffolk, being built by Scottish and Southern Energy, and the 100-turbine Thanet farm in the Thames estuary being built by Vattenfall of Sweden.John Sinclair, managing director of Subocean, said: “LDC’s investment demonstrates fantastic confidence in the business and its potential, particularly within marine renewables where we are now working on over 50 per cent of offshore wind farm projects currently under construction in UK waters. With an order book standing at £150 million, we have strong foundations for our ambitious growth which the new equity will help us pursue.”
James Rodger, Scottish director of LDC, will now be joining the board of Subocean. Mr Rodger said: “Following a series of major contract wins, the company has become a leading player in a sector which is poised for major capital investment over the next ten years.”
“The private equity market this year has generally been quiet throughout the UK and particularly in Scotland. However, LDC’s philosophy is to support first class management.”
Mr Sinclair added: “To date, Subocean has only been addressing the UK market requirements, but we see an even bigger opportunity to capture a significant share of business.”

China to support clean energy, biomed sectors -minister

Reuters, Monday December 21 2009
BEIJING, Dec 21 (Reuters) - China's government will list alternative energy, advanced materials and biomedical sectors as key industries to be supported in the next five-year plan for economic development, the industry minister said on Monday.
Li Yizhong, Minister of Industry and Information Technology, made the comments at a work conference broadcast on the ministry's website.
The current five-year plan runs from 2006 to 2010. The government is expected to publish the plan for 2011-2015 sometime next year. (Reporting by Langi Chiang and Jason Subler; Editing by Ken Wills)

Ethanol Recovery Faces Oversupply Repeat

With ethanol margins staging a recovery this year, it was only a matter of time before producers were encouraged to restart idled facilities and expand output to join the bonanza.
The latest addition to the supply flow—Valero Energy, which announced last week that it will bring three facilities back online—adds to concerns that if too many people come to the party some of them will find the punch bowl emptying out fast.

"There are significant volumes of both idled and under-construction assets, and if operators are emboldened by the recent ethanol margins, we could see less-than-optimal assets begin to be reintroduced to production," Ian Horowitz, an analyst at New York-based securities brokerage firm Rafferty Capital Markets, said in a recent report. "Bottom line: we are concerned that we could possibly see oversupply of ethanol in the second half of 2010."
Steady ethanol prices and relatively low corn and natural-gas prices are putting producers in the black for the first time since mid-2008. The fact that various producers in financial distress suspended production since then has supported ethanol prices even as demand for gasoline, in which ethanol is blended at a 10% rate in the U.S., dropped during the economic slowdown.
However, some analysts are wary of a repeat of the excess supplies that decimated profit margins in 2008 and put at least a dozen producers into bankruptcy.
In recent weeks, producers announced intentions to restart plants with about 400 million gallons in production capacity. Corn ethanol installed capacity is roughly 13.1 billion gallons a year, with about 1.2 billion gallons of capacity idled, according to the Renewable Fuels Association, or RFA, a trade group. Expansion projects point to an additional 1.4 billion gallons of supply on the way.

"Margins have been good, but how long will it last … unless demand picks up?," asked Jinming Liu, analyst at New York-based research firm Ardour Capital Partners.
Another factor underpinning expansion is the Renewable Fuel Standard program, which requires that refiners blend 12 billion gallons of corn ethanol in 2010, up from 10.5 billion gallons this year. In addition, there is a potential increase in the blend rate to 15%, which the Environment Protection Agency is considering at the request of producers.
The largest in the parade of new production is Valero. Its subsidiary, Valero Renewable Fuels, agreed to purchase three plants with a combined 330 million gallons of capacity that had been idled. This adds to Valero's ethanol portfolio and makes it one of the largest producers in the country, with an installed capacity of 1.1 billion gallons. Valero's growth in ethanol started in March, when it acquired seven facilities from bankrupt VeraSun Energy.
Archer Daniels Midland, another large ethanol producer with 1.1 billion gallons of capacity, is starting a new 275-million-gallon plant in Columbus, Neb. An ADM spokesman said the company's other 275-million-gallon plant, in Cedar Rapids, Iowa, will start operations later in 2010. He said the company doesn't discuss details of operational capacity
Another producer considering firing a facility back up is Pacific Ethanol, whose four operating subsidiaries have been under bankruptcy protection since May. The company last week received court approval to get its 60-million-gallon Magic Valley plant, in Burley, Idaho, back on line. The facility was shut in February as poor ethanol production margins took their toll.
If excess supplies materialize, one potential outcome will be that the most efficient producers waddle through depressed margins until the smaller producers are flushed out, which will help keep production output close to the mandated levels, Rafferty Capital's Mr. Horowitz said in his report.
Write to Mara Lemos Stein at

Has peak theory reached its tipping point?

We have all heard of peak oil? But now there is peak wood. And peak gold. And even peak rock music . . .

David Adam
The Guardian, Monday 21 December 2009
First there was peak oil. Then came peak wood and peak gas. What is it with all these peaks ? Is the world really running out of the raw materials it needs to make it tick, move and communicate? Or should the next peak be in stories about peaks?
Attributed to American geophysicist M King Hubbert, peak theory assumes that resource production follows a bell-shaped curve. Early on, the production rate increases as discoveries are made and infrastructure built. Later in the curve, after the eponymous Hubbert's peak, production declines as reserves run dry. US oil production reached its Hubbert's peak in the early 70s and has declined since. But what about the rest?
Peak coal Coal started the whole peak theory craze when Hubbert used records of how its production levelled off to forecast future peaks in US oil supply. Conventional thinking says there are hundreds of years of coal supplies left, but are the figures accurate? Predictions are complicated by there being several types of coal, with much of the high-grade stuff already burnt. Although production keeps rising, the total energy obtained may peak sooner.
Peak oil and gas Every schoolchild is taught that world supplies will eventually run out. But when? Supporters and critics of global peak oil theory argue about the timing of the peak, with some insisting it has already been reached. Reliable, independent estimates of discoveries and production are rare, and most governments rely on statistics from the International Energy Agency, which has long been accused of painting too rosy a picture.
Peak gold Earlier this month, Aaron Regent, president of the Canadian gold company Barrick Gold, reportedly warned there was a strong case that the world was already at peak gold. Global output has fallen steadily since 2000 and, Regent said, it was becoming harder and harder to find ore.
Peak water There is a serious academic school of thought that says the Earth's water was delivered from outer space on the back of wet asteroids and comets. But there is growing concern that the water is running dry. As Alex Bell describes in his book Peak Water, we are using more water than is available in the places where we live. For some, in the wet regions, peak water will never occur, but for the people of the US, Africa, southern Europe, India, Middle East and China, he says, it is already here.
Peak wood At an energy conference in Abu Dhabi earlier this year, the Dutch Crown Prince Willem-Alexander warned that we should learn a lesson from history. When the Roman empire collapsed, he said, large parts of Europe had been deforested for farmland and to provide firewood. "Wood and food were essential to maintain the Roman empire," he said. "So the demise of a seemingly invincible civilisation was partially due to the unsustainable use of their prime energy resource. What the Romans were experiencing, we would now describe as peak wood."
Peak rock music Most of the good musical ideas really have been used up. Last year, popular culture blog Overthinking It analysed Rolling Stone magazine's top 500 songs of all time, and found that rock music peaked in the late 1960s. "It would seem that, like oil, the supply of great musical ideas is finite. The Beatles, Led Zeppelin, Black Sabbath, the Motown greats and other genre innovators quickly extracted the best their respective genres had to offer, leaving little supply for future musicians."