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Climate Change Initiative Newsletter
April 2003 (34)

Table of Contents

U.s. Climate Change Activity

  1. Power Sector Could Cut CO2 Emissions 60 Percent
  2. Volatile gasoline prices. The future for ethanol

International Cliamte Change News

  1. The cheapest way to reduce emissions save your energy!
  2. Germany will introduce power regulatory body
  3. Green energy export council for Europe
  4. Eus emissions trading scheme new steps
  5. Bringing climate change case to court?
  6. CO2 emissions decrease as diesel use increases
  7. Downsides of the UK emissions trading scheme
  8. European Energy Demand Law
  9. Accession states and the EU emissions trading

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U.s. Climate Change Activity

1. Power Sector Could Cut CO2 Emissions 60 Percent

WASHINGTON, DC, April 2, 2003 (ENS) - A new report from WWF finds that the U.s. power sector can cut carbon dioxide emissions nearly 60 percent by 2020 and reduce its dependency on fossil fuels by using available energy technologies and supporting innovative polices.

The new peer reviewed analysis, released by WWF, provides the basis for new initiative by the worldwide environmental organization. This initiative, called "Powerswitch!" challenges electric utilities to make specific policy and performance commitments that begin the transition to CO2 free power sector.

"U.S. electricity companies have the power to play major role in solving the global warming problem, if they choose to take responsible steps to meet this risk", said Katherine Silverthorne, director of Wwfs Climate Change Program. "To ensure that power companies take action while we still have time to avoid dangerous levels of global warming, WWF is challenging them to commit now to clean energy future."

The report, entitled "The Path Towards Carbon Dioxide-free Power: Switching to Clean Energy", notes that electricity production is responsible for some 40 percent of U.s. CO2 emissions, which are key cause of global warming. WWF contends that its analysis outlines opportunities for the U.s. electricity sector to cost-effectively cut its CO2 emissions by increasing energy efficiency and using renewable energy. The measures suggested include the use of diversified energy generation portfolio, which could reduce CO2 emissions by 59 percent by 2020.

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2. Volatile gasoline prices. The future for ethanol

California is seen as bellwether as it this year began to transition to the use of gasoline mixed with ethanol, an alcohol made from grain, to help cut smog-forming vehicle emissions. But in the past month, wholesale prices for Californias gasoline-ethanol blend shot up as much as 30 cents gallon as refiners reported problems in their gasoline production systems, leading traders to fear shortage. "The ultimate swing of prices for consumers could be quite drastic", said Dave Pavlich, health, safety and environment manager for Giant Industries (GI.N) during panel discussion at refining conference in San Antonio.

Beyond the volatility seen now in U.s. gasoline prices due to swings in crude oil markets worldwide, ethanol prices will also be subject to the whims of the agricultural markets. "Wed be putting another layer of risk on weather patterns for grain supply", Pavlich said.

Sixteen states in addition to California are making ethanol the pollution-reducing additive to replace the widely-used methyl tertiary butyl ether (MTBE), which is blamed for groundwater contamination.

Legislation proposed over the past two years in Congress, with heavy backing from agricultural lobbies, would require all states to use ethanol. It has yet to be adopted, but the executives said they expect it to become law in the next few years. "The ethanol mandate really creates winners and losers in our industry", said Dan Riley, vice president of government relations for Tesoro Petroleum Corp (TSO.N). "It really is function of where you are located, whether you have access to ethanol."

One of the primary problems that California is suffering is that most of the grain required for ethanol is grown in the U.s Midwest, adding additional transportation costs and potential for supply disruption for many states.

Federal legislation would require use of 5 billion gallons of ethanol year, while current production is closer to 2 billion. At current levels, that is just enough satisfy the demand mandated by ethanol laws in 17 states. The proposed legislation would require the switch to ethanol be completed over 10 years. Even without federal legislation, ethanol will likely become the national gasoline additive as more states require its use, the executives said.

(by Erwin Seba, REUTERS, March 26)

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INTERNATIONAL CLIMATE CHANGE NEWS

3. The cheapest way to reduce emissions save your energy !

LONDON - It is 10 in the evening at Liverpool Street in the heart of Londons financial district. The work day is over and office blocks are deserted but every window in row upon row of office buildings is ablaze with light. A peep through ground floor window reveals rows of flickering computers, left on by users. It is the same in every business district across Britain, throughout Europe and indeed, the world - waste of electricity that is adding billions of tonnes of harmful greenhouse gases every year to Earths atmosphere.

Each year Britain wastes 12 billion pounds ($18 billion) worth of energy, amounting to third of total consumption, according to Action Energy, government-backed initiative. "The cheapest, cleanest and safest way (of cutting emissions) is to use less electricity", it said in the white paper that set out energy goals for the next 50 years. But activists say that over the past few years consumer incentives to save energy have been eroded by more competitive electricity trading market which has brought lower prices. Prices have fallen 40 percent since 1998.

But cutting energy use can be relatively easy way of bolstering the bottom line. Action Energy says it has helped firms save 800 million pounds year since 1989. Corporations are not the only culprits. Households use third of Britains power and cause 45 percent of its carbon emissions. The average home produces six tonnes of carbon dioxide year, the same as 34 buses. Population growth, rising incomes and the desire for bigger homes and more electrical appliances exacerbate the problem, says the Energy Savings Trust (EST). But poor planning and housing regulations are much to blame. For instance the amount of heat lost in British houses through poor insulation can heat five million homes year, the EST says.

On average, British homes need 10 times the energy consumed by new houses built elsewhere in Europe, studies show. Analysts say Britains energy system is wasteful from start to finish and needs radical overhaul. For instance, most power demand is in the south and east of Britain while most generation is in the north near traditional supply sources such as coal.

"Cutting energy waste is clearly win-win situation for the country", "It reduces costs, it boosts security of supply and it makes all our targets on emissions achievable."

(by Sujata Rao, REUTERS, March 25)

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4. Germany will introduce power regulatory body

FRANKFURT - Germany will regulate its power market by July 2004 as part of deal between ministries to cap renewable energy subsidies paid by energy-intensive firms, government sources told.

The decision follows talks between the economy and environment ministries about the reform of the renewable energy law that is encouraging the use of green energy, but which intensive-energy industries have blamed for their high power costs. The sources said both ministries agreed to set up new regulatory authority to cover the electricity and gas sector, but it was unclear if it would be attached to the Federal Cartel Office or be an independent body. The authority would have the power to examine and rule on grid access fees before they are put in place by network operators, said the sources.

Grid operators have so far had voluntary code setting out the rules for access to their networks, but firms wishing to use parts of the network have complained that tariffs are often complicated and too high. Germanys federal cartel office has said it would be prepared to take on the role of regulator. All other European Union members have independent regulators to oversee competition in their gas and power sectors. The German government decided to beef up the powers of the competition authority, giving immediate effect to cartel office rulings on grid access fees. Companies have in the past been able to challenge the cartel authority in the courts and to delay the implementation of its decisions for months.

The sources said the government also decided to allow energy-intensive industries, such as aluminium and copper producers and parts of the chemicals sector, to pay lower fee for their electricity than other users.

Energy-intensive industries had blamed the governments green energy policy for their high electricity costs, which they said made them less globally competitive.

German electricity consumers pay above-market rates for power from renewable energy producers under the renewable energy laws promoting the sector. Their total contribution is expected to amount to around two billion euros ($2.19 billion) this year.

(REUTERS, 26 )

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5. Green energy export council for Europe

Europe needs new council to boost its market in renewable energy exports, says an industry group. Globally, the annual growth rate for the renewables market is expected to be 27% by 2009, rising to 34% between 2010 and 2020. But if Europe doesnt act now, it could lose its lead position in technologies such as wind power and lose out on billion euro market.

In its latest strategy report, the European Renewable Energy Council is urging the European Commission to help finance new Renewable Energy Export Council to ensure firms tap into the 17 billion annual export business projected for 2010.

Major European advances in technology and production capacity have driven down the cost of green energy, with wind power costs one-fifth of what they were 20 years ago. Targets to double renewable energy use by 2010 combined with programmes to develop the European market have also strengthened the industry, which could see another 350,000 jobs created by the end of the decade.

But despite their success at home, European renewable firms will need more support to compete on the international market, Jolanda Crettaz of EREC told. Because most of the industry is made up of small and medium sized enterprises (Smes), European programme is essential to help them meet the costs of penetrating overseas markets.

The US has set up renewables taskforce to encourage the transfer of renewable energy technologies. A similar European body informing Export Credit Agencies on renewable energy projects would be powerful instrument and could also broker partnerships between companies and their overseas clients. Profile-raising actions such as trade missions, study tours and trade fairs are vital to establish the Eus renewable energy profile in the global market.

(Edie, March 28)

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6. Eus emissions trading scheme new steps

The EU has issued preliminary guidance to member states on how to dole out greenhouse gas allowances to firms covered by the Eus emission trading scheme when it gets underway from 2005.

The first round of permit allocation is seen as crucial to the schemes success. The number governments make available and the way they distribute them will affect the market price of emissions and possibly the relative competitive position of participating companies.

Under the directive member states are given considerable freedom to allocate permits as they wish. However, the European Commission will have the power to reject or require amendments to national allocation plans. Its competition arm will also scrutinise them to ensure firms do not receive unfair state aid.

The Commission is obliged to issue formal guidance on permit allocation by December. Observers say it has come under pressure to help authorities before the end of the year because the directive requires national allocation plans to be ready in early 2004.

In detailed "non-paper" distributed yesterday to working party formed under the directive, the Commissions environment directorate outlines possible six-step plan for issuing allowances. As the first step, it, governments should create "Preliminary range" for the total number of emission allowances to be distributed. This is likely to be derived from combination of historical emissions, business-as-usual forecast emissions or levels of emissions expected with "least-cost" abatement. Several further steps are suggested to finalise the total number of permits. The paper acknowledges that these will involve some measure of political decision making.
It goes on deal with how to divide emission allowances between sectors and then to individual installations within sectors. Methods to deal with later entrants to the scheme are also covered.

(ENDS Environment Daily, April 3)

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7. Bringing climate change case to court?

The vast numbers affected by the effects of climate change, such as flooding, drought and forest fires, mean that potentially people, organisations and even countries could be seeking compensation for the damage caused.

"Its not question we could stand up and survive in court of law at the moment, but its the sort of question we should be working towards scientifically", Myles Allen, physicist at Oxford University, UK, told the BBC World Services Discovery programme.

"Some of it might be down to things youd have trouble suing - like the Sun - so you obviously need to work how particularly human influence has contributed to the overall change in risk", the scientist, who has worked with the Uns Intergovernmental Panel on Climate Change (IPCC), said. "But once youve done that, then we as scientists can essentially hand the problem over to the lawyers, for them to assess whether the change in risk is enough for the courts to decide that settlement could be made."

In 2001, the Ipccs third climate change assessment report stated that it was "likely" - meaning better than two in three chance - that human activities were forcing the global climate to warm up. Some environmental lawyers believe this was hugely significant step in paving the way to compensation claims against those responsible for climate change.

"Civil courts usually require 51% proof of certainty, which is an interesting issue in terms of scientific levels of proof - and legal levels of proof", stated Peter Roderick, lawyer who works with Friends Of The Earth International.

Many, however, remain highly sceptical that, even if cases were brought, much could be proved. Julian Morris, an environmental policy specialist with the International Policy Network is questioning: "Who is responsible? You face the problem of identifying the extent to which humanity has caused change in the first place. Dr Morris added that it would also be difficult to assess who would deserve to benefit from any legal action.

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8. CO2 emissions decrease as diesel use increases

A new SMMT (Society of Motor Manufacturers and Traders) report shows that average CO2 emissions from new UK cars have fallen for the sixth successive year. CO2 emissions for new cars fell by an average of 1.9% in 2002 to 174.2g/km, down from 177.6g/km in 2001.

Top 10 lowest CO2 emitting vehicles on UK sale in 2002. Figures are in CO2 g/km

Honda Insight - petrol/electric - 80
Renault Clio diesel - 110
Citroen C3 - diesel - 110
Peugeot 206 - 113
Smart - petrol - 113
Toyota Yaris - diesel 113
Ford Fiesta - diesel - 114
Toyota Prius - petrol electric - 114
Ford Fusion - diesel - 116
Audi A2 - diesel - 116

Note: electric cars have zero CO2 levels, but are not on general sale

(Autowired, April 4)

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9. Downsides of the UK emissions trading scheme

The five-year pilot emissions trading scheme (UKETS) set up by the government is little more than hot air, according to an environmental news service. What weve discovered raises questions about the legitimacy of the whole UKETS set up", Keith Allott of ENDS told an audience at the et2003 show in Birmingham NEC.

Of the 34 companies that signed up for the scheme, the top six, including Dupont and Ineos Fluor, will collectively receive 150 million of the 215 million set aside to reward successful emissions reductions. But what is the money going to? According to Allotts calculations, companies appear to have been set targets fixed to emissions baselines they are already well below, while some targets are concurrent with regulations requiring them to reduce emissions anyway.

This means that the taxpayer is paying for companies to do what they have to do by law, says Allot. It also means some companies now have generous allowance of emissions which will accumulate over the next three years, and will enable them to trade million of tonnes in carbon dioxide equivalents that could have been prevented with more sensible targets, says Allott.

For example, Ienos Fluors hydrofluorocarbon-23 emissions have dropped from 45 to 31 to 28 tonnes per year between 2000 and 2002. But the Department of the Environment, Food and Rural Affairs set the Hfc23 baseline at 149 tonnes, based on 1998 and 1999 values before the company fitted 6m incinerator in 1999 that reduced emissions by 95%, says Allot.

This means that Ineos will accumulate total surplus of 3.6 million tonnes of carbon dioxide equivalent, which it can then sell on the market. A similar scenario is envisaged for Dupont and other companies, resulting in future market that will be filled with hot air, argues Allot.

ENDS wrote to Secretary of State Margaret Beckett, who responded by saying that the scheme had not paid for emissions reductions already required under regulations. ENDS has continued to correspond with the government, but has yet to receive satisfactory response to its concerns, says Allott.

(Edie, April 10)

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10. European Energy Demand Law

BRUSSELS, Belgium - Managing the demand for energy is emerging as European strategy for meeting the targets set by the Kyoto Protocol for the reduction of greenhouse gas emissions. The European Commission will propose an EU law on energy demand management by the summer, according to sources.

Initial proposals by the Commissions Energy Directorate are said to envision range of actions designed to influence energy users. Among these will be first ever European Union push to encourage the development of an energy services market in which services involving the use of energy are sold, rather than the energy itself.

In the past, efforts to promote the provision of energy services by power companies stalled for reasons ranging from low consumer interest to poor incentives for suppliers, since electricity prices started falling as result of liberalization.

The new law, known as directive, appears likely to endorse "Market orientated" approach that would enjoy the support of the electricity industry. The directive would set indicative targets for countries that are members of the European Union to achieve one percent annual savings in energy efficiency. Each country would then decide how to distribute this target among sectors.

The Commission envisages covering all distribution sectors, from electricity and gas to district heating and transport fuel. An estimated 40 to 45 million metric tons of carbon dioxide emissions could be saved every year once the directive comes into effect, according to study carried out for the Eus climate change program.

The public sector would have special responsibilities through additional green procurement requirements. Financial instruments would be put in place to facilitate the buying and selling of energy services, and to support the setting up of specialist energy services companies.

(ENS, April 9)

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11. Accession states and the EU emissions trading

In May 2004, eight Central and Eastern European countries (Ceecs) may join the European Union. The participation of these states in the EU emissions trading scheme (ETS) has been the object of much speculation, as decisions about involvement and allocation in Ceecs will substantially influence liquidity and prices in the market.

In theory, Ceecs have every reason to participate fully in EU ETS. They are not bound by the EU burden sharing agreement, leaving just their own Kyoto targets. With the exception of Slovenia, these targets should be easily achievable through 2012. One recent study estimates that the Kyoto commitment period surplus in the eight countries will total 228-244 Mtco2e annually. In addition, the accession states high carbon intensity signals the availability of low-cost reduction measures that will put Ceecs in net selling position regardless of their allocation targets.

However, capacity deficits in both government and private industry may lead some Ceecs to request transition periods even though their interests are best served by immediate engagement. Slovakia, the Czech Republic and Poland have taken significant steps in terms of system design, while Slovenia is focused on preparing the legal basis for participation in the scheme.

Most Ceecs are just beginning to determine the principles that will drive allocation. Slovakia has been leader in this field, identifying early the potential economic benefits of soft allocation.

The EU ETS may have negative impact, however, on liquidity in the JI market. Most of the large JI projects favoured by carbon credit buyers are hosted by facilities regulated under the ETS. Many significant GHG abatement measures undertaken after 2004 will fall under the ETS umbrella, thereby reducing JI deal flow from Ceecs.

The table below shows ranking of accession countries according to their attractiveness as host for JI projects. The ranking was done in the report Where to do JI? by Point Carbon and Vertis Environmental Finance in November 2002.

Rank

Country

GHG emissions in

1990* (Mtco2e)

GHG emissions in

2000 (Mtco2e)

1

Poland

564,4

386,2

2

Slovakia

72,9

49,1

3

Czech Republic

192,0

147,7

4

Hungary

101,6

84,3

5

Estonia

43,5

19,7

6

Latvia

31,0

11,2

7

Lithuania

51,5

23,9

8

Slovenia

19,2

NA

*Base year is shown in lieu of 1990 for Hungary (1985-87) and Poland (1988). NA: Not available (Source: UNFCCC).

(By Paul Bodnar, Partner, Vertis Environmental Finance, Pointcarbon, March 14)