LOW CARBON REGULATION IN THE US - NOW COMING!

The US Environmental Protection Agency (EPA) has determined that it should regulate green house gas emissions from industry and from transportation and is now engaged in the process of consulting on these regulations and their consequences. The EPA action was prompted by a Supreme Court ruling two years ago that said greenhouse gases are pollutants under the US Clean Air Act and must be regulated if found to be a danger to human health or public welfare. The US law specifically states that EPA "shall" (i.e. must, not may) regulate dangerous pollutants once they are found to endanger public health or welfare.

As part of their thinking, the EPA has concluded that the science pointing to man-made pollution as a cause of global warming is "compelling and overwhelming." Notice that they did not say “the cause”, it is one factor. Nonetheless, they will start the process of dismantling a carbon driven economy and moving the US to a low carbon economy during the next few years of the Obama administration.

The EPA’s move is independent of the discussion in the US Congress on the establishment of a cap and trade system. While the EPA may have an involvement in the design of the cap and trade regulations – such a scheme begins with a measurement of how much green house gas emissions are occurring and from where and also requires the setting of targets for emissions – their actions may go much further. For example, they could determine what kind of domestic emissions are permissible and what kind of exhaust emissions are permissible from vehicles of various kinds.

This is a profound shift from the position taken by the previous US administration and signals a sea change in US strategy with respect to the low carbon economy. It also positions the US as a serious combatant – for it will be a battle – at the December climate change treaty talks in Copenhagen, when 170 countries will meet to negotiate a successor treaty to Kyoto.

But it not all plain sailing for Obama’s climate change strategy. The Senate firmly rejected Obama's plan to try to push through a carbon emissions cap-and-trade program through fast-track procedures, making clear that getting any bill done this year will be a struggle. The Senate voted 67-31 to pass an amendment that says Congress should not try to force cap-and-trade through under the budget "reconciliation" process, now that both houses have passed the budget (without any Republican support). While not binding on the final House-Senate agreement, the strong statement on a Republican-sponsored amendment does go a long way toward tying Congress' hands.

And the EPA are just starting the process of entering into greenhouse gas regulation. It will be a long and contentious journey, with lobbyists and large firms calling “foul” at every turn. Nonetheless, the US is now aligning itself with the EU and is working to reduce emissions. Unlike the EU, however, Obama is setting modest goals. The EU has indicated that it is seeking a 20% reduction on CO2 emissions by 2020 and 80% by 2050. All Obama has committed to is getting CO2 emissions back to the 1998 levels by 2020 – modest in comparison to the EU but still quite a stretch.

Will this do what many in Europe still mindlessly talk about: “stop climate change”. No. And the good news is that the EPA does not claim that any regulations they may enact will do so. What they do say is that emitting more greenhouses gasses than are necessary for effective production is not a good thing and we can stimulate the use of appropriate technologies to reduce them through regulation. The minute they connect regulatory activity with “stopping” climate change you will know that they are no longer doing the job, but are engaged in polemical Pollyanna politics.

Canada's Cap and Trade - Lessons from Europe

Canada’s National Round Table on the Environment and the Economy has proposed that Canada adopt a national climate change strategy and that it uses a national cap and trade as the cornerstone of this strategy, doing away with a patchwork quilt of Provincial regulations and law.

In the cap-and-trade system, all businesses would have to buy credits to cover the emissions they produce. If a company's emissions exceed the cap set by government, they would have to buy more credits from companies that came in under the cap. Such a system creates financial incentives for companies to reduce their emissions because they can then avoid having to buy more credits and also be in a position to sell their unused emission credits, creating a new revenue stream. Doing this the Canadian government simply oversees the activities and the companies pass on the net costs of this buying and selling of credits to consumers. No new taxes.

The underlying intention is to lower greenhouse gas emissions, which some believe cause climate change. The current Canadian government has committed to:

• Impose mandatory targets on industry to achieve a goal of an absolute reduction of 150 megatonnes in greenhouse gas emissions by 2020. This despite the fact that Canada signed up to Kyoto and is expected to reduce emissions by 20% - much more than the target of
• Impose targets on industry so that air pollution from industry is cut in half by 2015.
• Regulate the fuel efficiency of cars and light duty trucks, beginning with the 2011 model year.
• Strengthen energy efficiency standards for a number of energy-using products, including light bulbs.

Cap and Trade would go beyond these targets, according to the panel, and seek to take us nearer to a 20% reduction in emissions by 2020, achieved in part through the trading mechanism but also through a deliberate slowing of economic growth. This proposal may also align Canada with the US, where Barrack Obama would like to see emissions reductions back to 1990 levels by 2020 – an 11% reduction on current emissions (1.5% per year). Obama set aside $80 billion in his economic stimulus package for green energy, promised $150 billion for research over 10 years, and has started to tighten regulations on auto emissions. However, the Senate recently voted to exclude cap and trade from the budget reconciliation talks now taking place in congress.

The problem is that cap and trade will increase energy costs. One estimate is that, to achieve any more aggressive targets than the modest goals set by Harper and Obama, it is likely that carbon will need to trade at app., $100 - $125 per tonne - having a major impact on oil supply, food supplies and social infrastructure. The low carbon economy will be very damaging to communities. When carbon starts to trade about $40 a tone, then real change in the nature of the economy will begin to take place.

What is key to all of this is to get the cap and trade system right the first time. The European Union introduced cap and trade scheme in 2005. In the first phase, 10,000 large emitters were allocated credits representing some 40% of CO2 emissions. If CO2 permitted emissions were exceeded, the EU imposed a fine of €100 per tonne unless a carbon certificate could be produced (1 tonne = 1 certificate). These certificates could be bought on the trading market for between €8-€30 a tonne.

Companies will only invest in new technology aimed at reducing emissions if they are confident that carbon prices will be high enough to justify the cost. At their late-March 2009 level of €12 per tonne, prices for carbon certificates within the EU are too low to make such investment worthwhile. Indeed, the current state of the carbon market poses a bigger risk to the future of the cap and trade scheme in Europe than the previous collapse of carbon prices. Prices fell to around €1 in 2007 because too many allowances were distributed for the first phase of the scheme (from 2005 to 2007) and companies were not permitted to hold on to surplus permits for use in the subsequent phases (2008-12 and 2013- 20). However, the price of carbon for use in phase two remained above €18 per tonne during 2007 (and hence well above current levels), because investors were confident that emissions caps in the latter phases would be tighter. In terms of encouraging investment, it is the future price that matters.

The ferocity of the economic downturn has also highlighted two structural weaknesses in Europe’s carbon market. First, the EU fixed the supply of carbon allowances until 2020. This was done for sound economic and policy driven reasons. Investors needed to be convinced that the cap on emissions would be sufficiently tight to ensure consistently high carbon prices. However, the lack of a mechanism to amend the emissions allocations in the light of changed economic circumstances is now leading to the volatility in prices that the Commission sought to avoid.

Second, the method of distributing the allowances is exacerbating the weakness of carbon prices. In phase two of the ETS (2008 to 2012), the vast majority of allowances will be allocated for free. In phase three (2013 to 2020) energy generators will have to purchase them through auctions. But auctioning will only be introduced gradually for the other industries covered by the market. The upshot is that very few businesses are actually paying to emit carbon dioxide at present. And as it becomes apparent that emissions will remain weaker than projected for a number of years due to the recession and its impacts, they will be able to put off buying allowances until well into phase three. If all businesses had to pay to emit carbon dioxide now (or at least from 2013), prices would have declined by much less. It is worth noting that the EU economy is likely to shrink by more than 3 per cent this year and that the release of CO2 by industries covered by the carbon market could decline by as much as 10 per cent.

Cap and trade may happen in the US, though not as quickly as Obama would like. A US-Canada scheme makes sense if it is going to happen, but the compromises and trade-off’s required to get this law on the books will probably limit its impact on CO2 emissions. It will become more about appearances than reality. What it will not do is have real impact on the climate.

The Coming British Budget - Be Afraid, Be Very Afraid!

Britain’s finance Minister, Alistair Darling, will present Britain’s budget on Wednesday 22nd April. It is likely to be very tough, since Britain is in real financial trouble – deficits, debts and a reluctance of markets to buy Government bonds. This budget, because it is likely to be a major green budget, may also be a template for many other European countries and other nations in terms of the implications of “the green stimulus” for growing an economy.

First, the bad news. According to independent forecasters, the British government budget deficit in 2009/10 will likely be £160bn ($287 billion). This will lead to higher taxes – lower personal allowances, higher tax rates for “big” earners and reduction in tax credits. It may also lead to a reduction in government supported services, probably achieved through a five year freeze of spending at current levels, which is effectively a 15% - 18% reduction. Public sector pay may also be frozen. Stimulus indeed, but this is what happens when, in the name of “stimulus”, the government mortgages its future.

Then there will be the other news. The Government, which has made significant commitments to environmental stewardship and climate change mitigation, will announce in this budget how it plans to green Britain’s economy and create green jobs. Several interesting things are likely to happen here. Like Germany, Britain is likely to announce financial incentives for trading in an old car and buying a new, lower emissions, vehicle – figures of £2,000 ($3,600) per car are being proposed by the Society for Motors and Manufacturers. The British government has already said it will provide £5,000 ($9.000) for each person wishing to buy an electric car – there are currently 180 electric cars on the road in Britain amidst the 2.12 million cars driving those narrow lanes and byways.

The more significant commitments will come in the Governments regulation of greenhouse gas emissions and in its support for renewable energy. Britain has committed to fifteen percent of its distributed energy coming from renewable sources by 2020, with a very strong commitment to offshore wind power. This despite the fact that the wind industry in Britain currently employs just 700 people and that the contribution of the wind power system to energy supplies in Britain during the recent cold periods was between .04% and .06% of distributed energy - coal kept people warm this past winter. To get to 15% by 2020, according to a recent report by the Institute for Public Policy Research, the industry needs subsidies and incentives. A total of £650 million a year for the next ten years is being sought by the rent-seeking wind power industry – financial and tax incentives for constructing offshore wind farms, a guaranteed feed in price for the energy produced and the use of “allowed” protectionist measures to ensure a high degree of local content in the manufacture and construction of these facilities. Under these heavily subsidized conditions, the study claims, some 23,000 jobs could be created.

One of the examples used to justify this kind of subsidy is Spain. It is claimed that Spain has successfully used wind power to create jobs and reduce CO2 emissions – app. 10% of distributed energy in Spain comes from wind power. While wind power jobs have increased in Spain, it is at a net loss of jobs in the economy directly linked to higher energy prices and the displacement of energy jobs in other sectors. One estimate is that, when subsidies and total economic costs are accounted for, each “green job” has cost Spain some €570 million and lead to the loss of 2.2 jobs for every green job created. What is more, green energy has had a major impact on energy prices in Spain – they have increased by 31%, though remain subsidized to protect consumers and slow the growth of energy poverty. Renewable energy accounts for some 5.6% of all corporate taxes collected in Spain.

Well, you may say, it’s a small price to pay for reducing CO2 emissions. If only this were the case. Greenhouse gas emissions in Spain increased by 50 per cent between 1990 and 2007, the last year for which data is available. The government of Spain now calculates that it needs to buy emission rights to at least 159 million tons of CO2 to make up for its excess. So the real benefit of wind power in Spain will be the several eastern European countries, who will sell them the credits.

Britain is also planning to offer subsidy to households wishing to install solar and wind turbines, especially if they wish to sell surplus power to the electricity grid. The Conservative Party, in its bid to be greener than its traditional Tory blue, suggests that each home wishing to convert should be given £6,500 ($11,700) to support them and should receive a guaranteed price for selling spare power to the grid.

Green means more debt, subsidized industry and job loss with little or no impact on greenhouse gas emissions – some strategy. But it will be a big feature of the 2009 Labour Party budget – potentially their last - and is likely to create expectations for budget provisions in Canada and elsewhere in the future. We should keep an eye not just on what happens next Wednesday but what the reaction it – we may be looking at our own future too.

The Green Jobs Scam

“Green jobs” is the new vernacular of governments in the developed world. This is how it works. Government sets itself arbitrary goals to change the basis of energy use in a jurisdiction. For example, Britain has decided to commit itself to a policy of having 15% of its energy from renewable sources – wind, solar, water – by 2020. It then usually offers incentives – subsidy, tax relief (subsidy), matching funds (subsidy) – to rent seekers who will build wind or solar facilities and connect these to the grid. The grid has to be modified to become smart so as to accept these unreliable sources of energy, which creates more green jobs. Consumers are then given price guarantees, since green energy is more expensive than coal or gas powered energy, since it is less reliable and expensive to construct (especially to do so quickly). Prices are sometimes subsidized.

Britain wanted the private sector to act, but the recession plus a lack of interest from investors has made this difficult to do. In fact several, including Iberdrola Renewables and Shell, have pulled out of wind schemes, giving excessive import costs and an uncertain regulatory environment (lack of subsidy) as causes.
A part of the problem here is simple. In Britain, there is no wind power industry. Only 700 people work in the industry at present, while the UK is home to just one company that makes parts for wind turbines. So to go from basically nothing to a 70,000 person industry in six years is, well, silly. It can only happen if government pays.

Since most governments are pursuing this same strategy, wind turbine components are in short supply, making it more expensive to construct a wind farm than hitherto. This is especially the case for “offshore” wind farms – needed since no one want a wind farm in their back yard (and the wind is more reliable offshore than on).
So once again the private sector is being smart. It cannot see the upside of wind farms financially. If Governments want it they will have to pay for it, which means more debt and more taxes and fewer other government services to pay for the new grammar.

Ah well, back to the drawing board.

Nature's Light Surprise

 

And another picture from Friday night - showcasing just what nature can do in a few short seconds...transform a view..within five minutes, the downpour, thunder and lightening started...

Nature's Light Show

 

The first spring storm was foreshadowed by some amazing light, as this pictire shows.

Dealing with Cap and Trade in the US

Earlier this month the US Senate firmly rejected President Obama's plan to try to push through a carbon emissions cap-and-trade program through fast-track procedures, making clear that getting any bill done this year will be a struggle. The Senate voted 67-31 to pass an amendment that says Congress should not try to force cap-and-trade through under the budget "reconciliation" process, now that both houses have passed the budget (without any Republican support). While not binding on the final House-Senate agreement, the strong statement on a Republican-sponsored amendment does go a long way toward tying Congress' hands.

Quite right too. Cap and trade will net the Obama administration $665 billion over his first term and lead to a realignment of energy strategy, create energy poverty and slow the development of alternative energy. While many suggest that it will lead to lower carbon emissions, there is no evidence that it will, at least if the ETS scheme in Europe is anything to go by.

What is really needed is a balanced approach to energy and the environment, one that begins with the fact that fossil based fuels will account for 80-85% of North American energy and fuel supplies and that there is no magic bullet. One that also accepts that energy poverty is unaccaptable and that recognizes that wind and solar, while nice to have, are socialist responses with a heavy tax implication. One that recognizes that we cannot "stop" climate change. Wouldn't that be refreshing!

Cap and Trade

Scientific Integrity

A few weeks ago, President Obama signed an executive order which contained these statements:

Science and the scientific process must inform and guide decisions of my Administration on a wide range of issues, including improvement of public health, protection of the environment, increased efficiency in the use of energy and other resources, mitigation of the threat of climate change, and protection of national security.

The public must be able to trust the science and scientific process informing public policy decisions. Political officials should not suppress or alter scientific or technological findings and conclusions. If scientific and technological information is developed and used by the Federal Government, it should ordinarily be made available to the public. To the extent permitted by law, there should be transparency in the preparation, identification, and use of scientific and technological information in policymaking. The selection of scientists and technology professionals for positions in the executive branch should be based on their scientific and technological knowledge, credentials, experience, and integrity.

More specifically, Obama directs all in Government to (amongst other things):

(b) Each agency should have appropriate rules and procedures to ensure the integrity of the scientific process within the agency;

(c) When scientific or technological information is considered in policy decisions, the information should be subject to well-established scientific processes, including peer review where appropriate, and each agency should appropriately and accurately reflect that information in complying with and applying relevant statutory standards;

(d) Except for information that is properly restricted from disclosure under procedures established in accordance with statute, regulation, Executive Order, or Presidential Memorandum, each agency should make available to the public the scientific or technological findings or conclusions considered or relied on in policy decisions;

(e) Each agency should have in place procedures to identify and address instances in which the scientific process or the integrity of scientific and technological information may be compromised; and

(f) Each agency should adopt such additional procedures, including any appropriate whistleblower protections, as are necessary to ensure the integrity of scientific and technological information and processes on which the agency relies in its decisionmaking or otherwise uses or prepares.

This should be welcomed, but it has consequences. For example, the findings of the IPCC do not adhere to these standards for integrity – their process and reports are overtly political and are required to reach a certain conclusion on the basis of the mandate of the IPCC. Their peer review process is flawed. There is bias in the selection of science.

Presumably, the US government must now reveal the extent to which it discounts the “science” of climate change alarmism on the grounds that it does not meet the standards set out here. It will be interesting to watch the explanation for why climate change science was “before” the executive order…

G20 and The Green Agenda

As predicted here, the G20 basically ignored the climate change issue - putting this off until Copenhagen meeting of the UN members in December.

There are two paragraphs in the G20 communique which commit to reaching agreement at Copenhagen and to leverage stimulus resources in support of a low carbon economy. Many climate alarmists are pessimistic as a result of this and the rent-seeking and grant-farmers are especially upset that no clear emission reduction targets set and no specific green allocations from the stimulus funds - they were hoping for 20-25% of global stimulus resources to be earmarked. They were also hoping to ensure that none of the available stimulus would be spent in a way that may lead to increased emissions - e.g. bailouts of the car industry, new coal fired power plants etc.

We can expect to see a lot more of this rhetoric as we head towards the Battle of Copenhagen in December. The alarmists are concerned that the economic conditions will inhibit the rush to "green|. The rent-seekers are worried that funds will not be allocated to subsidize industries which are otheriwse not vailable - wind and solar. The grant farmers are worried that their work may be reduced if the green agenda fades away. There is a lot at stake.

What the alarmists do not recognize is that green jobs cost jobs in other sectors of the economy. The Spanish study of this suggests that for each green job created, 2.5 - 3 jobs are lost elsewhere in the economy. When energy prices increase to pay for the subsidies and when government price guarantees and subsidy are fully costed, each green jobs costs over one half a billion euro's. A staggering number.

The alarmists also do not fully understand the true costs of reducing emissions on the oil industry, To achieve targets, it is likely that carbon will need to be taxed at app., $100 - $125 per tonne - having a major impact on oil supply, food supplies and social infrastructure. The low carbon economy will be very damaging to communities.

So Copenhagen will be a battle and it will be faught not on evidence or data but on the post-modern politics of the narrative - the compelling story which, whether true or not, will attract emotional support. The fact that the planet is cooling at the same time that CO2 emissions are increasing will go unmentioned, Also, just as the G20 failed to name and shame their own 17 members who had enacted protectionist measures, so too will Copenhagen ignore the inconvenient truth that the Kyoto agreement is a science fiction - CO2 emissions increase despite commitments to reduce them. It will be an interesting few months.

G20 Photoshoot

The G20 photograph had to be taken several times. They couldn’t even organize a simple thing like getting twenty people in the same room at the same time. First time, Stephen Harper was in the toilet. Second time they realized that Berlusconi wasn’t there. It has taken some time to take the photograph. They could use Photoshop, but would probably need a G20 meeting to work out the rules.

G20 Summit Almost Done

We're close to the end of the summit and are awaiting the communique with respect to financial regulation. But we already know that the G20 have agreed to tripple the IMF budget and name and shame tax havens. What they are likely to also do is come up with a number that reflects just how much the G20 countries are pumping into their own economies - it will be a big number, meant as a proxy for stimulus. This is exactly what I said would happen in my radio interview last night.

For me, the biggest news is that Michelle Obama hugged the Queen.

It's Not All About CO2

An important study, published last December, has received little attention. Entitled Reanalysis of Historical Climate Data for Key Atmospheric Features authored by Randall Dole, Martin Hoerling, and Siegfried Schubert and others of the National Oceanic and Atmospheric Administration (NOAA), the report is one of the first from NOAA to break with the alarmist party line and look at a more complex understanding of climate patterns. Its conclusions moderate the claims of Hansen and others with respect to anthropomorphic global warming.

The study, which stresses that we don't understand climate as well as we like to think, because scientists only have good data from about 1948 onward, found:

• The 56-year trend of annual surface temperature showed a rise of 0.9C, plus or minus one-tenth of a degree.
• The greatest warming -- up two degrees -- has taken place across Alberta, Saskatchewan, Yukon and Alaska. Quebec and Atlantic Canada stayed cool.
• That East-West difference "is not what we would expect from the effect of greenhouse gases alone," Mr. Hoerling said. Greenhouses gases should have influenced both. However, NOAA believes Western Canada is receiving more warm air due to shifting patterns of the Pacific Ocean currents.
• Variations within North America "are very likely influenced by variations in global sea surface temperatures through the effects of the latter on atmospheric circulation, especially during winter." The term "very likely" is defined as a chance of 90% or more.
• It's "unlikely" that patterns of drought have changed due to global warming caused by human pollution. Rather, natural shifts in ocean currents are probably to blame. For instance, the current drought in Texas and the southwest are due to La Nina, a Pacific Ocean current that starts and stops periodically (such as El Nino), and cuts off the movement of moist air inland. Warmer temperatures from greenhouse gases, however, would worsen the basic drought.
• Seven of the warmest 10 years since 1951 occurred in the decade from 1997 to 2006. The data in the study cover only to the end of 2007.
• More than half of the warming averaged over all of North America is likely (more than 66 percent likelihood) the result of human activity.

The key to all of this is the move away from talk of “average global temperature” and the focus on regional differences and understanding their underlying cause. It is important for another reason too: it is the first time that NOAA has fully described ocean current impacts on regional climate.

What they need now to do is to look more critically at the greenhouse gas theory and the role of the sun and we may be getting nearer to an understanding of the dynamics of climate change, at least for North America.

Political Rhetoric versus Reality

Another example of how the political narrative is disconnected from independently verified reality emerges today in the discussion of carbon pricing regimes.

Most current greenhouse gas emissions reduction targets set by Governments like the US and the EU cannot be hit by any existing carbon pricing system. Supporters of emissions reductions of 20 per cent by 2020 or 80 per cent by 2050 are not willing to pay the minimum $100 to $300 per tonne of carbon estimated to be needed to achieve these goals. They blithely ignore the impact such policies will have on energy pricing and energy poverty, but keep mouthing the rhetoric anyway.

It’s no wonder public trust in politicians is so low.

What Sea Level Rise? Britain Sees the Light

After a six year study, the Environment Agency in the UK has decided to postpone plans to develop a new Thames barrier to replace the one that already exists.The reason: their judgment is that the sea level rise will be nowehere near as severe as was previously thought. They have delayed any new development for forty years, when the data will be reviewed again.

Key to this was new data made available over the last few weeks in preparation for Copenhagen summit in December.

This is welcome news and also very sensible. Here are real investment decisions being made on the basis of the best evidence available and the conclusion: sea level will not rise above a level at which current systems are unable to cope.