Britain ahead of game as ministers approve Energy Efficiency Directive

After lengthy, extremely complicated negotiations, a target of 20% energy savings for the EU as a whole by 2020 has been set, as European ministers formally adopted the Energy Efficiency Directive yesterday.

Member states now have to propose, by April next year, their national indicative targets and how they will achieve them. The Commission then has to calculate whether, together, they will total 20% for the continent as a whole by 2020.

Britain does not currently have any target for reducing energy use, but DECC has said that one will be published by April.

Under the legislation, energy companies will have to reduce their sales to industrial and household customers by 1.5% every year, meaning that they will have to recalibrate their business plans so that selling energy efficiency advice becomes increasingly a part of the services they offer.

The Directive also stipulates that 3% of public buildings that are owned and occupied by central government must be renovated every year, and each member state must draw up a roadmap on how it will make the entire building sector more energy-efficient by 2050.

Britain is already way ahead on this compared to its European counterparts with the establishment of the Green Deal, Zero Carbon Homes and the Green Investment Bank.

There are also requirements for energy audits and energy management by large firms, which are already encouraged here under mandatory carbon reporting.

A formal assessment of the potential for district heating and combined heat and power generation (CHP) throughout the EU must be made by 2015.

The final vote in the Council saw Portugal and Spain opposing and Finland abstaining. The directive enters into force in November. The European Commission will undertake reviews of progress in 2014 and 2016.

Energy Commissioner Günther Oettinger welcomed the news, and said: “I call upon member states and stakeholders for extra efforts to bring its provisions into life. The Commission also remains dedicated and committed to continue its support to the process".

Carbon pricing

The Government's policy for zero carbon new homes by 2016 will help to contribute to energy efficiency targets.

Construction companies have been researching the most cost-efficient means of attaining the target, and this week published a set of ‘Allowable Solutions’ that may be taken by home builders.

E.ON's Marco Marijewycz, who is the utility's Strategic Lead in the discussions, commented that "the most striking insight which emerges from this process is the consensus amongst key stakeholders that Allowable Solutions has the potential to catalyse both cross sector innovation and the economic rejuvenation of our communities via a low carbon trajectory."

This boost for jobs and innovation will be found across the board of all sectors affected by the Directive.

But Marijewycz goes on to point out that the price of carbon would be a crucial factor in attaining any targets. "What is emphatically clear is the desire for clarity now on the mechanisms for pricing carbon within any such framework. This clarity is essential so as to enable key market actors to strategically plan now ahead of 2016.”

Certainty about the price of carbon, however, is not going to come soon. Yesterday, the EU Parliament announced in its legislative timetable on its website that it won't be until February that it will vote on whether the Commission has the legal power to intervene in Europe's $148-billion carbon market.

This delays even further a decision on whether it will press ahead with its controversial plan to prop up the moribund carbon trading prices.

The six Allowable Solutions are certainly in line with the Directive, including investing in social housing retrofitting initiatives and district heating, as well as low carbon lighting, particularly LEDs.

Embodied carbon, which is the fossil-fuelled energy cost of manufacturing products, also figures, and this is covered by the Directive's pressure on energy utility companies.

UK coal generation, emissions, up due to low carbon price

Burning coal to generate electricity in the UK increased by over a third in the first half of 2012, compared with a year earlier, as it became more profitable.

This has caused analysts at Thomson Reuters Point Carbon to forecast that the country's greenhouse gas emissions from the energy sector will hit 158.7 million tonnes in 2012, up 14% on the previous year.

Figures released yesterday by the Department of Energy and Climate Change show that coal-fired generation increased by over a third in the first half of 2012, compared with a year earlier. Coal-fired plants produced 67.2 terawatt-hours (TWh), compared to 49.56 TWh the year before.

This trend was helped by a drop of 50% in the price of carbon permits over the year, which meant that it became, and continues to be, at times, almost cheaper to burn coal than gas.

At the same time, the output of nuclear power fell by 5%, or 2.6TWh, due partly to the retirement of plants at Oldbury and Wylfa, Anglesey.

But output from renewable sources increased over this period, with wind power rising 28.3% to 7.17TWh.

The whole of the UK's energy sector emitted 139.8 million tonnes of CO2 in 2011, according to EU data, cuasing it to leap 28 million tonnes above its permitted cap in the EU Emissions Trading Scheme, meaning it will have to purchase emission credits.

The high profitability of coal means the UK is becoming more reliant on the dirtiest form of energy production, a trend that has been ongoing for the last few years.

The EC must urgently tackle the low price for carbon

We're burning more fossil fuels and greenhouse gas emissions are increasing. It's all down to one thing: the low price of carbon.

Here is a statistic we should not be reading at this point in history: the amount of electricity produced from coal in the UK rose by 19.3% in the first quarter of the year, compared with a year earlier.

Coal use hasn't been this high since the winter of 2007, and is attractive to generators due to the record low CO2 prices in the EU-ETS (Emissions Trading Scheme) helping to boost profits from burning coal.

It means that UK greenhouse gas emissions will continue to rise, following an increase in 2010-2011, which was the pattern throughout the EU.

What about renewable energy? Renewables supplied just 4.7% of fuel for Britain's electricity in the first quarter of 2012, compared to 3.3% a year earlier, according to new figures from the Department for Energy and Climate Change (DECC).

Renewables' position did improve, with a 46.8% rise in wind output. Other renewable sources, which include waste and biomass were also up, by 31.5%, partly due to the conversion of Tilbury power station to 100% biomass, despite Tilbury being offline in March due to a fire. This shows the importance of biomass, but since most of the timber is imported, its actual, global effect on carbon-emission reductions is unclear.

Low-carbon nuclear use fell by 11.6%, following a rise of 11.1% in 2011, with gas (which has a lower global warming potential than coal) use down a whopping 30.4%.

Needless to say, none of this is good for the UK's greenhouse gas emissions.

The same is true in Germany. The increase in the burning of coal in that country cannot wholly be attributed to the closure of nuclear plants: it’s partly due to the low price of carbon.

Overall, the amount of fuel used in the UK for generation in the first quarter of 2012 fell by 2.9% on the same period a year earlier, due to a milder winter, which will have slightly reduced emissions, but it does follow a rise of primary electricity output in 2011 of 14.6%.

The contribution of renewable energy is improving, but not fast enough. Between 2010 and 2011, according to the latest energy production figures, there was a rise of 70.5% for hydro and PV, 59.4% for wind and 24.8% for biomass and waste.

However, combined, they still only provided 4% of all fuel for electricity production in 2011, according to the provisional figures. This compares to 37% provided by coal, 35% by gas, 23% by nuclear and 1% by oil in 2011.

What all this means is that there is a long, long way to go for renewables to reach the magic 20% point.

The root of the problem: low carbon prices

If EU carbon allowance prices are low, it makes burning coal cheaper. These permits to pollute have lost 60% of their value over the last year. There is currently a glut of over 900 million of them.

Last month saw yet more calls from business leaders for action in the European Commission to boost their price. Representatives from Spanish company Acciona, Royal Dutch Shell, Unilever, Philips, Deutsche Telekom and Vodafone met European Commission President Jose Manuel Barroso to demand ambitious future targets on renewable energy and carbon emissions reduction, as well as urgent action to bolster carbon prices.

There have been many such calls since the end of last year, but so far the European Commission has done absolutely nothing.

Two days ago, a survey by PwC found that 80% of respondents were in favour of cutting the supply of permits in order to boost carbon prices from their current €7 level. Of these, two thirds called for regulators to cut supply by taking on deeper 2020 emissions targets rather than just by temporarily withdrawing some allowances from the market.

This would mean increasing the target to a 30% emissions cut below 1990 levels rather than the current one of 20%, a move supported by the UK Government.

The European Commission is taking ages to decide whether to delay the sale of allowances from the early years of the EU Emissions Trading Scheme's third phase (2013-2020) to combat the glut. Its dithering is having a dire effect on emissions.

Other options for intervention proposed by those surveyed included setting a target of 50% cut in emissions for 2030, and the creation of a central carbon bank to monitor prices and regulate supply of permits. Neither of these seem likely at the moment.

But if supply were to be cut and Europe's economy were to recover, the report finds that the price of allowances could rise to €38 by 2030, which would provide a much more powerful price signal to generators to cut the use of burning fossil fuels.

Participants in the survey also doubted that the ICAO, the membership organisation for airlines, will launch a global-and-trade market for airlines before 2015 but were more optimistic that the International Maritime Organisation will take action by that year to curb emissions from shipping. Most survey participants thought that airline carriers would, despite protests, comply with the requirements of the EU-ETS.

The Commission is expected to outline what action it will take to improve the situation before it takes a recess in August. The sooner it does so the better.

Noises from inside the Commission say that a legal decision on reform of the trading system is possible by the end of the year. It could be 2013 before the structural reforms necessary to improve the effects of the Emissions Trading Scheme are in place.

With the pace being so slow, it looks very much from the outside as if they are fiddling while Rome burns. Almost literally.

European climate policy in disarray as carbon crashes

An ineffective record low price for carbon, the dilution of energy efficiency targets, and failure to agree on which nations should have seats at a UN meeting are contributing to an impression that Europe can no longer lead the world on climate change policy.

1. Carbon price collapse

On Monday, the price of carbon fell to an all-time low following the release of new figures showing lower than expected greenhouse gas emissions last year from the 12,000-plus facilities registered under the EU Emissions Trading Scheme.

1.7 billion tonnes were emitted in 2011, down 2.45% on the previous year, compared with a total allocation of 1.63 billion tons. Combined with a surplus the previous year due to over-allocation, there is now an accrued total surplus above the current ETS carbon budget of 355 million allowances, including auctions.

The highest emitting manufacturing sectors, steel and cement, have amassed the largest of these surpluses, amounting to 279 million and 195 million credits each.

In the UK, the largest single emitter is still the Drax coal-fired power station, at over 21.47 million tonnes, well over its allocation of 9.5 million tonnes.

As a result of the market glut, allowances are currently trading at €6.39, which represents a 61% fall in the price over the last year. Most analysts now agree that the European carbon market will be oversupplied up to at least 2020, without intervention.

Observers renewed their calls for urgent action by European lawmakers to set aside a number of permits to bolster the market, but this was still seen as unlikely.

“Unless EU governments come up with a surprise decision to strongly support the set-aside or ambitious mid-term emission- reduction targets, I don’t see prices moving up much over the coming months,” Tuomas Rautanen, head of regulatory affairs and consulting at carbon asset management company First Climate.

Damien Morris, Senior Policy Adviser from the climate campaign group Sandbag said: "The window is rapidly closing to fix the ETS before the next trading period commences in 2013". He said it was therefore "imperative that the European Council move swiftly ... to withdraw ETS allowances.”

But Per Lekander, UBS’ global head of utilities research, said that prices would probably have to fall about €3 before European legislators would act.

2. Compromised energy efficiency targets

The latest proposed draft from Denmark on the Energy Efficiency Directive contains further weaknesses following previous drafts which failed to attract universal approval.

As a result, the Coalition for Energy Savings estimates that it would close as little as one third of the gap to Europe's 20% energy saving target for 2020.

The new draft rejects MEP's requests for binding national targets and weakens nearly all the binding measures in previous drafts, including:

• requirements to renovate public buildings
• long-term targets for cutting energy use of the European building stock
• national end-use saving targets, which would result in no genuine improvement or even standards lower than those in the Energy Services Directive which the EED will replace
• targets for the public procurement of more efficient combined heat and power generation.

Ambassadors are meeting today to try and agree on a negotiating position in preparation for discussions in the European Parliament on 11th of April.

Stefan Scheuer, Secretary General of the Coalition, accused the Council of "a lack of responsibility in light of the energy challenges Europe is facing".

"Exploding energy costs, high unemployment and a slow economic recovery call for urgent investment in energy efficiency within Europe rather than spending money on energy imports", he said.

"Member States need to focus less on finding ways to wriggle out of taking action and more on how to agree on effective legislation."

3. Squabbling over Climate Fund

Finally, at the end of last week, European ambassadors failed to agree on who should have a seat on a committee which will negotiate directly with developed countries about the allocation of funds to help them fight climate change, which meant that now none of them will take part.

They had until 31 March to reach agreement on the allocation of seats between member states on the UN Framework Convention on Climate Change’s Green Climate Fund (GCF), but couldn't do so.

Thirteen of the 27 member states wanted a seat to ensure they had a say in the funding decisions of the $100 billion Green Climate Fund, that was agreed at Cancun in 2010.

Britain, France, and Germany were lobbying for a permanent seat in addition to an alternating seat that each would share with another country. But this idea was apparently stonewalled by Germany and Poland, who both demanded exclusively non-rotational seats, according to an anonymous source.

“(The Commission) has tried to rob us so many times before,” a Polish government source told Reuters. “This time around we want to wear a second jacket - just in case - and let nothing we are eligible for miss us.”

Members of the European bloc will now have to negotiate directly with other developed countries to determine the makeup of the governing board.

“Despite willingness to compromise and adequately share board seats, it has, unfortunately, not been possible to come to an agreement within the EU,” said Danish presidency spokesman Jakob Alvi.

“It shows that the EU unity we had in Durban has been eroded and that could damage Europe’s image in global climate change talks.”

Coal-addicted Poland is particularly to blame for Europe's collective failure to agree both on the energy efficiency standards and this issue. It also recently succeeded in vetoing Brussels’ carbon reduction roadmap.

All these developments give an impression elsewhere of a waning of Europe's confidence in leading the world on fighting climate change.

This corresponds to an increased assertiveness in climate change discussions amongst the richer developing countries, especially Brazil, India and China, and to a lesser extent other South American and African nations. But that is far from a guarantee of effective action.

Germany and UK have greatest deficit of EU carbon allowances

UK carbon Emissions and allowances by sector

Figures show that the UK and Germany have the largest deficit of allowances to pollute under the EU Emissions Trading Scheme (EU-ETS), meaning they have to purchase more to meet their obligations.

The deficit arises exclusively from their power sectors' burning of more fossil fuels than originally estimated.

Individual Member States implement the trading scheme in different ways and have mixed fortunes.

Each are given allowances, distributed amongst their industrial sectors by arrangement, in anticipation of how they will be "spent".

The summary below, using up-to-date figures collected by Sandbag shows that Germany and Britain have the greatest deficit, and Romania and France the greatest surplus of allowances.

The figures represent the balance among many EU nations between the total of free allowances (EUAs) given in the current Phase II of the EU-ETS, minus the actual carbon emissions up to date, by country, ranked from the winners to the losers.

Romania: +60.3m
France: +43.7m
Spain: +33.3m
Czech Republic: +27.9m
Italy: +26.4m
Belgium: +19.4m
Poland: +13.3m
Portugal: +12.0m
Bulgaria: +10.3m
Sweden: +5.24m
Austria: +4.4m
Luxembourg: +927,553
Finland: -222,813
Slovenia: -414,803
Greece: -1.9m
Denmark: -5.47m
United Kingdom: -81.9m*
Germany: -174.6m*

* exclusively due to the power sector, which has a considerable shortage of allowances.

This means that, assuming, say, a price of €9 per EUA, Romania's surplus is worth €542.7m, and Germany's deficit will cost it €1,571.4m while the UK's costs it €737.1m.

The UK’s industrial sectors, that is, the heavy energy users which have been complaining that the EU-ETS adds to the cost of their energy use, actually currently have a combined surplus of permits of 46 million EUAs, worth €414m, at the €9 rate, which they were given for free.

Across Europe, some energy intensive sectors still oppose reform despite the fact that they, so far, are not affected by it.

Germany's severe deficit contributes substantially to an overall shortfall among the above nations of 7.34 million credits.

The UK and Germany's position has arisen from the need to burn more coal, and to a lesser extent gas, to compensate for closing nuclear power stations (in Germany's case) and a closed nuclear power station and cold winter, in the UK's case.

EU may act to boost carbon price

More top businesses have been joined by European Parliamentarians in calling for reform of the EU ETS in order to prevent a new generation of investments being made in fossil fuel intensive technologies.

The danger of this happening was made clear in a leaked Commission document last month, as a low price for carbon makes polluting technology more economically attractive than most renewables and provides less incentive to invest in saving energy.

The business names include: Shell, Alstom, Doosen and Philips, as well as a growing number of power companies, such as E.ON, SSE, ENECO and DONG Energy.

A vote yesterday by EU parliamentarians to withdraw an unspecified number carbon allowances in order to prop up EUA prices, which have reached record lows, means that a move to cut the glut of EUAs on the ETS market looks more certain to happen.

Carbon prices perked up at the news, with the benchmark contract price rising nearly 4% to €8.68 per tonne within hours.

After the meeting, Dutch Green MEP Bas Eickhout reported that negotiators from all parties supported the compromise and there was "a good chance" it would get voted through at a crucial meeting of the European Commission on 28 February.

UK Allowance sales

A sale by DECC of 3.5 million EU Allowances on 9 February showed a healthy demand, with 5.89 times the demand of the supply, such that bidders were only able to obtain 62% of what they bid for.

The EUAs went for €8.11 each, down from €9.72 fetched at the last auction three months earlier.

The price has halved from a peak last summer, as the figures below show:

Nov '11: €10.38
Sept '11: €12.31
July '11: €13.17
June '11: €16.34
March '11: €15.59
Feb '11: €14.36

The price drop underscores the call by the big companies and Parliamentarians for action.

Last month, think-tank Civitas criticised the EU-ETS for being expensive and ineffective.

Sandbag's research points to the opposite conclusion: that emissions trading delivers carbon reductions at lowest cost, minimises the burden on consumers and businesses, and that the electricity sector has consistently shouldered the greatest effort under the scheme.

The design of the next trading period (2013-2020) is being deliberated now.

It is already determined that the electricity sector will buy all of its pollution permits at auction, and that heavy energy using industrial companies will continue to receive up to 100% of their permits for free, depending on their exposure to international competition and their carbon efficiency compared with their European competitors.

The latter are affected by indirect carbon costs, but the Directive allows member states to compensate them if required, and this is exactly what George Osborne announced in his autumn statement.

Will UK will exceed its carbon reduction targets? Post 1

This is the first of two posts about the UK's climate emissions and its plans to reduce them.


This first one represents the Government's current view:

David Cameron and Nick Clegg last week launched a Carbon Plan setting out the Coalition Government's policies to meet its long term commitments to cut carbon emissions.

These must, by law, be cut by at least 80% of 1990 levels by 2050. They have already been cut by more than 25%.

The Carbon Plan states that with the policies already in place the economy will significantly exceed the 34% target set for the first 15 years under the Climate Change Act, and would have done so even if the recession had not occurred.

The plan looks to the future in the light of the carbon budgets set by the Committee for Climate Change running from 2008-2012, 2013-2017 and 2018-2022.

However, the Environmental Audit Committee has warned that any loosening of the budget following the 2014 review urged by the Treasury could jeopardise the 2050 goal.

And an independent assessment says that the UK's greenhouse gas emissions are actually increasing by 3.5%; more than double the 1.3% growth in the economy, according to a recent report from PricewaterhouseCoopers' Low Carbon Economy Index.

Decade by decade

The Carbon Plan says that in the next decade the focus will be on energy efficiency, utilising the Green Deal, EU ETS, Climate Change Agreements and the CRC Energy Efficiency Scheme, as well as the benefits of the smart grid, which will help to reduce and manage peak and overall demands.
The average emissions of motor vehicles are expected to fall by a third, mostly due to more efficient combustion engines and sustainable biofuels.

Emerging low carbon technologies will be piloted, examined and deployed as they reach commercial levels.

During the 2020s, the successful technologies will move towards mass rollout, and this will include cheaper electric cars. The plan hopes that this will help the UK to "gain a long-term competitive advantage" in these technologies.

In the following decade, after the quick wins have been achieved, then emissions from the “hard to treat sectors, such as industry, shipping and agriculture will have to be tackled", Energy Secretary Chris Huhne says in his ministerial statement accompanying the plan.

Negotiating advantage

He says that its publication is timed to coincide with the United Nations climate negotiations taking place in Durban, “to show that the UK is walking the walk, demonstrating that even in tough times it can be done".

Mr. Huhne is on his way to attend the talks next week.

The UK's 2020 target to reduce emissions by 34% is much less than the EU's 20% below 1990 levels by 2020 (rising to 30% if other nations commit to comparable efforts under a broader climate pact).

"Our national economic interest is to be found in a cost-effective transition to low carbon, to an economy that is more resilient, innovative and efficient,” Mr. Huhne added.

The picture in 2050

The plan envisages that by 2050, emissions from heating and powering buildings will be virtually zero, and the roads will be filled with ultra-low emission vehicles.

In a closed-loop society, waste will be a thing of the past, and materials will either be reused or become an energy source.

However, we will need much more electricity, perhaps as much as twice the amount, to deal with peak demand and power vehicles and provide heating, despite a projected reduction in demand per head of population due to energy efficiency measures by up to 50%.

The government says it does not wish to pick particular technology winners, instead helping academia, industry and the market to work together to do this.

But the plan does outline different possible scenarios: a “higher renewables, more energy efficiency" scenario; “higher carbon capture and storage, more bioenergy" scenario; and a “higher nuclear, less energy efficiency" scenario.

Nuclear power

Nuclear power is currently projected to be the cheapest low carbon technology in the future, and the most cost-effective power mix using traditional cost analysis (based on the 'MARKAL' model, which has certain disadvantages that work against renewable energy) is anticipated to be 33 gigawatts (GW) of nuclear, 45GW of renewables and 29GW of fossil fuels with CCS.

The Government says that this would result in energy costs to consumers being reduced by £84/person/year.

This would involve tripling the amount of nuclear power currently installed. But this week, EDF Energy, currently expected to build the U.K.'s first new plant in three decades, at Hinckley, Somerset, said that its schedule was being put backwards due to extra safety checks.

Energy Minister Charles Hendry also revealed yesterday that the Government wants to build a new plant for processing nuclear waste, four months after a similar plant costing the taxpayer £1.4 billion was closed.

It will convert the UK’s giant stockpile of used plutonium into a form of nuclear fuel.

He said: “converting the plutonium into mixed oxide fuel is the most credible and technologically mature option,” and “any remaining plutonium whose condition is such that it cannot be converted into MOX, will be immobilised and treated as a waste for disposal".

Investment shortfall

In the next 10 years decisions have to be taken which will affect the picture 30 years later: switching from coal to gas powered generation and renewable electricity, which will also help reduce exposure to volatile fossil fuel prices.

In the following decade, carbon capture and storage and nuclear power are expected to be deployed alongside more renewables. Around 60 to 80 GW of new capacity will need to be built by 2030.

The main barrier to this is lack of investment. The current electricity prices driven mainly by gas power stations. The reform of the electricity market is partly designed to address this problem.

The Green Investment Bank is expected to be lending money from 2015, when most funding for the construction of Round 3 offshore wind is required.

A calculator, based on the 'MARKAL' model, has been made available on DECC's website which attempts to explain the total costs associated with powering the entire economy, averaged over the four decades up to 2050.

It includes the costs of the infrastructure and technologies required across all sectors (everything from family cars, to gas boilers to power stations), the costs of financing that infrastructure investment over time, and the costs of fuel and maintenance to keep those infrastructure and technologies running.

A revised online 2050 calculator also allows users to compare the cost of their chosen future energy system compared to doing nothing, or to other low carbon pathways.

UK seeks legally binding climate agreement by 2015

The UK would like to see a legally binding "Treaty framework" on measures to combat global climate change "covering everyone now", but hopes it will be complete by 2015, Chris Huhne said yesterday.

However, at the same time, carbon prices reached a new all-time low in Europe, raising fresh doubts over the ability of the markets to finance the technical solutions needed to fight climate chaos.

Speaking to Imperial College's Grantham Institute, with the COP17 United Nations Climate Change Conference in Durban just a few days away, the Energy Secretary called climate change "the biggest market failure the world has ever seen".

He said that at Durban, "we need major economies to commit to a global legally binding framework – building on what Kyoto started, but going much broader.

"And we need negotiations on this new agreement to complete as soon as possible, and by 2015 at the latest."

Expressing hope that this can be achieved despite major differences among nations, he emphasised that the UK has always backed a legally binding agreement under the United Nations, because "no pressing international problem has been solved without one".

He cited a recent survey which found that 83% of business leaders want such an agreement.

Mr. Huhne said he remains hopeful that a deal can be reached because "compared to world trade agreements, or non-proliferation talks, we are actually making good progress".

A successful deal, he said, would "move to a system that reflects the genuine diversity of responsibility and capacity", which recognises current sticking points such as mis-definitions of what makes a ″developing″ or ″developed″ nation by labelling richer Singapore as "developing" yet poorer Bulgaria "developed".

He said that the UK would also push for Europe to agree to a 30% cut in emissions by 2020 "early next year".

"We already have the solutions" - UNEP

On Wednesday the United Nations Environment Program (UNEP) warned that greenhouse gas emissions in 2020 could rise more than had been forecasted, to between 6 billion and 11 billion tons above what is needed to limit global warming to within the 2 degrees Celsius limit that is considered ″safe″.

"To stay within the 2 degree limit, global emissions will have to peak soon (and) total greenhouse gas emissions in 2050 must be about 46% lower than their 1990 level, or about 53% lower than their 2005 level," its report, Bridging the Gap says.

It emphasises that renewable energy and energy efficiency technologies are the way out of the problem. "The world already has the solutions to avert damaging climate change" it says.

Half of these measures, that are described in the report, "can deliver net cost savings over their lifetime; for example, from reduced fuel consumption or the use of recovered gas".

It continues, "Other measures to cut short-lived climate forcers would incur higher costs over a short-term basis, but can achieve major savings in other areas, such as the health improvements and reduced damage to ecosystems and crops associated with cleaner air".

Carbon price fall

But the prospect of delivering these, at least in Europe, took a blow yesterday when the value of carbon permits fell to their lowest level since 2007, partly as a function of reduced industrial production due to the Eurozone's sovereign-debt crisis.

The December 2011 energy contract fell 13.8% in two days, the biggest price decline in five months, on a fall in industrial orders of 6.4% in September, itself the biggest drop in almost three years.

This has reduced energy demand from Europe's 11,000 factories and their supply by fossil-fuel-burning power stations, which have to buy carbon allowances and credits in order to meet demand.

This has added to an existing oversupply of carbon permits in Europe thereby reducing the price further. The reduced demand for energy is also suppressing its projected future price.

In turn, this is affecting the business plans of renewable energy developers like SSE, who hope to double their renewable electricity capacity by 2015 by spending ￡1bn on new wind farms and hydro-electric plants.

The worry is that this may make companies and utilities continue to favour cheaper, more-polluting forms of energy, such as coal and gas.

The market is bracing itself for further falls in the carbon price as 300 million further carbon permits from the EU's post-2012 new entrants' reserve will be put on sale at the end of this month.

Speculators are wondering just how low the price can go.

UK measures

In more positive news, earlier yesterday, DECC had indicated that Tuesday's Autumn Budget Statement. by the Chancellor George Osborne, will contain ￡200m of new and additional Government funding to provide a ″special time-limited ‘introductory’ offer″ to increase the early take-up of the Green Deal energy efficiency scheme.

Furthermore, Energy Minister Charles Hendry issued a statement at the EU Energy Council, along with other coastal European countries, in support of the potential of the marine energy industry and asking for European-level leadership to maintain the region's competitive advantage.

Amidst this, back at Imperial College yesterday, Mr. Huhne tried to remain upbeat. He reminded delegates of the financial measures already allocated by the UK to developing countries to tackle climate change:

• giving more than half of its Fast Start finance, and much of its ￡1.5bn pledge
• budgeting for climate finance beyond the Fast Start period
• backing the Green Climate Fund
• setting up the International Climate Fund, which will account for 7.5% of UK Official Development Assistance (ODA) by the April 2015

.
At the end of his speech, Mr. Huhne quoted a South African tribal saying: "the elephant’s trunk doesn’t weigh it down".

Translated, he said this means: "we must all carry our own burden".

He said this referred to all nations as they approach the Durban negotiating table.

Or perhaps he was referring to himself. The Energy Secretary certainly has his work cut out for him.

Carbon market in a slump as climate talks continue in Bonn

As world environment ministers and representatives meet in Bonn for climate talks this week, investors in the carbon market are hoping, probably in vain, for some kind of certainty as to what will happen after 2012.

After five consecutive years of robust growth, the total value of the global carbon market has stalled at $142 billion due to uncertainty as to what will replace the Kyoto Protocol's Clean Development Mechanism (CDM) after next year. The recession has also had an effect on the market.

A report from the World Bank, The State and Trends of the Carbon Market 2011, covering the last five years up to 2010 and issued last week, shows that the value of the primary CDM market fell by double digits for the third year in a row, ending lower than it was in 2005, the first year of the Kyoto Protocol.

The Assigned Amount Unit (AAU) market, which grew in 2009 with strong governmental support, shrank as well in 2010. Finally, the market that had grown most in 2009 allowances under the U.S. Regional Greenhouse Gas Initiative (RGGI) saw that year's gains erased in 2010.

This meant that the European Union's Allowances (EUAs) market became especially important. EUAs accounted for 84% of global carbon market value last year.

If you take into account the value of secondary CDM transactions, their share, driven by the EU Emissions Trading Scheme rose to 97%, dwarfing the remaining sections of the market. If it was not for Europe's commitment, virtually nothing would be happening elsewhere in the world.

Voluntary carbon market

There is good news, however, in another report released last week about the state of the voluntary carbon market, which posted a 34% gain in 2010, trading a record 131 million tons of carbon dioxide equivalent (MtC02e).

This is an annual report by Ecosystem Marketplace and Bloomberg New Energy Finance which gathers data from almost 300 market participants.

While the US accounted for the majority of trading activity, worth $424 million in total, market growth was strongest in developing countries.

Voluntary offsetting is due to businesses' CSR (Corporate Social Responsibility) commitments. These markets are investing particularly in renewable energy and forests.

The need for political commitment

Loss of political momentum on setting up new cap and trade schemes in several developed economies such as the United States and in the Far East, is a further reason for the decline in the non-voluntary sector.

Last week, California's proposed cap and trade scheme was challenged in the courts and is likely to be delayed by a year.

Christiana Figueres, executive secretary for the UN Convention on Climate Change, lambasted the US for inaction on climate change at the Carbon Expo in Barcelona last week.

Andrew Steer, World Bank Special Envoy for Climate Change, summed up the message of the report at the Expo. "The global carbon market is at a crossroads. If we take the wrong turn we risk losing billions of lower cost private investment and new technology solutions in developing countries. This report sends a message of the need to ensure a stronger, more robust carbon market with clear signals.”

The report's authors predict that in the next two years the difference between the gross demand for the cumulative supply of carbon credits generated under the Kyoto mechanisms will be below $140 million, and virtually all of this demand will be from Europe.

Looking beyond 2012, although potentially the demand for emission reductions could reach 3 billion tons or more, so far the only certain demand is from Europe estimated at just 1.7 billion tonnes.

This means there is little incentive for project developers to invest further and create a future supply of emissions reductions.

This is the effect that political uncertainty is having on political and business efforts to combat climate change at a time when its threat is reported to be even greater than previously assumed.

"Carbon market growth halted at a particularly inopportune time: 2010 proved to be the hottest year on record, while global emission levels continued to rise relentlessly,observes Alexandre Kossoy, World Bank Senior Financial Specialist.

“At the same time, other national and local low-carbon initiatives have picked up noticeably in both developed and developing economies. Collectively, they offer the possibility overcome regulatory uncertainty and signal that, one way or another, solutions that address the climate challenge will emerge."

Eight countries receive $2.8m

The World Bank's response is centred around the $100 million Partnership for Market Readiness, launched in Cancun in December 2010, which aims to support mitigation activities.

Last week it dispersed its first funding to eight countries: Chile, China, Columbia, Costa Rica, Indonesia, Mexico, Thailand, and Turkey. Each received an initial grant of $350,000 to help design, pilot, and eventually implement market-based instruments for greenhouse gas mitigation. They will now develop a "Market Readiness Proposal" to detail their plans. Another seven countries will receive grants shortly.

The fund is supported by ten contributors Australia, the European Commission, Germany, Japan, the Netherlands, Norway, Spain, Switzerland, the United Kingdom and the United States which together have pledged nearly US $70 million.

A number of the World Bank's carbon funds and facilities, such as the Carbon Partnership Facility, the second tranche of the Umbrella Carbon Facility, and a new facility for low-income countries currently under development, also respond to future needs by supporting scaled up mitigation and purchasing carbon credits beyond 2012.

Furthermore, the Forest Carbon Partnership Facility is supporting REDD+ initiatives which, to date, have not been included under the CDM. The Bank sees carbon markets as an important and versatile tool to provide incentives for a shift to lower carbon development paths.

Treasury told carbon floor price would subsidise nuclear

Green groups have said Treasury plans to impose a floor price on carbon used in electricity generation amounts to giving billions of pounds to the nuclear industry – something the coalition government said it would not do.

They said that it was a secret way of subsidising the nuclear industry, which could benefit by up to £3.4 billion.

The Treasury's consultation on the “carbon price floor" closed at the end of last week.

Greenpeace and WWF said this would breach the coalition's agreement not to subsidise nuclear power.

The £3.4 billion figure is based on a minimum carbon price of £40 per tonne. However, sources suggest it is more likely to be lower, perhaps half that figure. Nevertheless the resultant amount going to the nuclear industry, of £1.7 billion, which would be over 13 years, is still a considerable amount.

These figures are based on the existing amount of nuclear capacity and do not take into account any new nuclear plants, which would increase the amount.

WWF and Greenpeace are calling for a windfall tax on existing nuclear generators alongside the carbon floor price mechanism, that would be used to support energy efficiency and emerging renewable technologies through the Green Investment Bank.

They have issued scenarios which describe how the world could power itself by up to 95% renewable energy by 2050, and regard nuclear power as unnecessarily risky and harmful.

Dr Douglas Parr, Chief Scientific Adviser and Policy Director, Greenpeace UK said: “This is yet another taxpayer handout to a failing nuclear industry. The economics of nuclear power have never added up and it has been continually propped up with money from hard-working families."

The eventual policy is to be determined in concert with the ongoing Electricity Market Reform (EMR) consultation.

Carbon tax to hit electricity generators

A second effective 'carbon tax' is to be levied - in addition to the Carbon Reduction Commitment for large electricity users - this time targeting all companies that import fossil fuels into the economy.

The proposal, together with various ideas as to the level of the tax, comes in two linked consultations being conducted by the Treasury and DECC in a search for policies that will stimulate the investment necessary to meet the targets set by the Climate Change Committee (CCC) and others for de-carbonising the economy and reducing overall greenhouse gas emissions.

The specific CCC target is a reduction in carbon-intensity of power generation to below 100gCO2/kWh by 2030. In 2009 this figure was around 490gCO2/kWh.

Ofgem has estimated that to achieve such a drastic reduction in nineteen years implies the investment of around £200bn in new generation, electricity networks and gas infrastructure.

Only reform of the electricity market can deliver this, DECC says. The consultation argues that such reform must include support for the price of carbon - the creation of a floor price - to provide long-term certainty for investors around the additional cost of running polluting plant.

This is an admission of the failure of the EU-ETS (Emissions Trading Scheme) to deliver this support so far. Currently the price of carbon is remaining stubbornly below 15 Euros, and needs to be at least double this to stimulate investment. It is also volatile and unpredictable.

Supporting the price of carbon

The proposals state that from 1 April 2013 a 'carbon price support mechanism' will be introduced by applying the climate change levy (CCL) to all fossil fuels used in electricity generation and taxing their use and, in the case of oil, removing rebates.

According to HM Revenue and Customs, there are 255 of these companies, which break down as follows:

Energy product No. of registered suppliers
Electricity: 117
Gas: 71
Solid fuels: 36
LPG: 31

The Treasury says that the exact rates for the tax will take account of the commodities’ average carbon content and will be known as the ‘CCL carbon price support rates’. The consultations discuss different levels - from £20/tCO2 to £50/tCO2, with the preferred rate being £30/tCO2.

According to the Treasury's own reckoning, the only scenario that leads to the required carbon-intensity of power generation by 2030 is a carbon price support starting at £3/tCO2 on top of the prevailing EU ETS price in 2013, rising to target a combined carbon price (support plus EU ETS) of £40/tCO2 in 2020 and £70/tCO2 in 2030.

However this scenario also results in the highest rise in domestic energy bills. A single pensioner's bill would rise by 35% in 2020, compared to 16% if the starting support price was £1/tCO2, rising to £30/tCO2 in 2020. Adopting that scenario, however, leads to a carbon-intensity drop to only about 120gmCO2/kWh.

Other policies

DECC, in a linked consultation about the best policy context for the tax, offers four scenarios, of which it prefers a combined set of policy tools that include contracts for difference and carbon price support plus Emissions Performance Standards and a capacity mechanism. One reason for this is that "the [cash] flows from government to generators would be lower than without carbon price support."

An Emissions Performance Standard (EPS) would limit how much carbon the most carbon intensive power stations - coal - can emit, and encourage carbon capture and storage.

Long-term contracts for feed-in tariffs, a revised Renewables Obligation, much more low-carbon generation, and demand-management strategies also figure in the consultation as collectively being necessary to secure the targets.

Capacity payments would be introduced to encourage security of supply through the construction of flexible reserve plants, a policy which acknowledges the intermittent and inflexible nature of much low-carbon generation.

"The key factor in the effectiveness of the policy is the reaction of potential investors, and whether the mechanism is “bankable” for the purposes of raising finance for new low-carbon generation investments," says DECC.