Archive for December, 2009

Senate Climate Change Fight Looks as Tough as Healthcare Reform Bill

Posted on December 31, 2009. Filed under: cap-and-trade | Tags: , , |

Senate Climate Change Fight Looks as Tough as Healthcare Reform Bill
By Ben Geman
The Hill
December 29, 2009

Senate Democrats will face a problem when they return in January every bit as tough as crafting the healthcare bill: Assembling a climate and energy package that can be shoehorned into the election-year calendar.

Imposing limits on greenhouse gases is a White House and Democratic priority, but it’s stuck in line behind healthcare, Wall Street reform and jobs legislation.

It’s also become increasingly apparent since the Copenhagen climate summit that the Senate will go forward in a dramatically different direction than the House, which approved its own climate bill last summer.

Environmentalists familiar with Democratic plans say party leaders remain committed to bringing up a bill next year. They are looking to Sen. John Kerry’s (D-Mass.) effort to craft a compromise plan with Sens. Lindsey Graham (R-S.C.) and Joe Lieberman (I-Conn.).

But in a sign of how difficult it will be to cobble together 60 votes, Kerry and Graham have provided few details about what their plan will contain.

They hope to blend emissions limits with wider offshore oil-and-gas drilling, expanded federal financing for nuclear power and a lot of support for low-emissions coal projects, among other measures aimed a navigating a thicket of regional and partisan interests.

Graham noted that different senators are proposing a variety of plans for limiting carbon emissions, and he said he’s open-minded to what is included in a bill, as long as it is a “meaningful control” on pollution.

Some Democratic centrists including Sens. Blanche Lincoln (Ark.) and Byron Dorgan (N.D.), who are both up for reelection next year, want the Senate to take up a broad energy measure that the Senate Energy and Natural Resources Committee approved in June as a standalone bill, rather than grafting it to a cap-and-trade plan.

That’s led to speculation that Democrats might seek to move an energy bill but put off the fight over climate change.

The problem with that logic is that dozens of Democrats want to move a climate change bill, including centrists such as Sen. Arlen Specter (Pa.), who faces a tough primary fight and then a difficult general election battle.

“I think it [climate legislation] is important. I think we ought to take it up,” Specter said in a brief interview last week. He’s also said any final bill must protect manufacturers and provide a major boost for low-emissions coal.

White House officials also are calling for a combined energy and climate package, including an economy-wide cap-and-trade plan.

White House climate czar Carol Browner in November warned against “slicing and dicing,” and a White House aide said Monday that a combined energy policy and cap-and-trade package remains what the White House wants from Congress in 2010.

Linda Stuntz, an electricity industry lawyer who was an Energy Department official under President George H.W. Bush, believes the Senate will bring up a combined climate and energy bill, though she said it will face rough sledding.

“I am in the camp of those who think it is going to be very difficult after the really bruising fight over heathcare,” she said.

Stuntz does not see room in the Senate for a bill that mirrors the House plan. 

“I don’t see an economy-wide cap-and-trade bill happening in 2010,” she said, adding that a narrower emissions plan, perhaps covering only power plants, could be more viable.

Sen. Mary Landrieu (D-La.) said she has been discussing the shape of an energy and climate package with lawmakers including Sens. Bob Corker (R-Tenn.) and Graham.

“It is not off the radar screen,” Landrieu said Wednesday. “There have been quite a few informal meetings that have been going on through the fog of this healthcare bill.”

Reid hopes to bring legislation to the floor in the spring, but that will be difficult given the Senate’s schedule.

A former official in the Clinton White House familiar with the climate change efforts said key negotiations need to start next month on the difficult task of assembling a compromise bill.

“At some point before the end of January several new moderates from both parties have to be brought into the process if we are going to create a bill that can gain 60 votes in the Senate. What it will take to bring those votes into the process is unclear, but those conversations have got to start to happen in mid- to late January,” the former official said.

An aide to Kerry said he was not planning to conduct negotiations on the climate measure over the Senate’s holiday recess.

The sour economy could also complicate plans to impose mandatory emissions limits amid assertions by GOP leaders and many in the Republican caucus that such plans would stifle growth.

But Kevin Book, an analyst with the consulting firm ClearView Energy Partners, argues the reverse is true.

He said that with states hurting financially, the billions of dollars that House and Senate cap-and-trade plans would provide to states through emissions allowances will help boost the chances for legislation that greatly expands federal environmental regulation.

“A weak economy is the only time you can have this incursion into the state regulatory franchise,” he said.

And, he notes, supporters of climate legislation have another card to play: The Environmental Protection Agency’s plan to move ahead with emissions regulations if Congress does not act.

“It is going to be very hard for Democrats to come up with nothing,” he said. “The only really politically viable option for them, thanks to the White House choice to move ahead [with EPA regulations], is to pass something.”

Nonetheless, energy lobbyists are hedging their bets, looking to the jobs bill as well as the hoped-for comprehensive energy-climate package for their preferred provisions. On Monday, the American Wind Energy Association released a list of 10 trends to watch, including the fate of the renewable electricity standard (RES) that requires utilities to supply more renewable power, which the group has been seeking for years.

“Whether it is in job legislation or in comprehensive energy and climate legislation … a strong RES is urgently needed to create hard targets that will fortify our manufacturing base and create tens of thousands of jobs,” the group said.

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Carbon Capitalists Warming to Climate Market Using Derivatives

Posted on December 19, 2009. Filed under: Advanced Biofuel | Tags: , , , |

Carbon Capitalists Warming to Climate Market Using Derivatives
By Lisa Kassenaar
December 4, 2009

Across Uganda, thousands of women warm supper over new, $8 orange-painted stoves. The clay-and- metal pots burn about two-thirds the charcoal of the open-fire cooking typical of East Africa, where forests are being chopped down in the struggle to feed the region’s 125 million people.

Four thousand miles away, at the Charles Hurst Land Rover dealership in southwest London, a Range Rover Vogue sells for 90,000 pounds ($151,000). A blue windshield sticker proclaims that the gasoline-powered truck’s first 45,000 miles (72,421 kilometers) will be carbon neutral.

That’s because Land Rover, official purveyor of 4x4s to Queen Elizabeth II, is helping Ugandans cut their greenhouse gas emissions with those new stoves.

These two worlds came together in the offices of Blythe Masters at JPMorgan Chase & Co. Masters, 40, oversees the New York bank’s environmental businesses as the firm’s global head of commodities. JPMorgan brokered a deal in 2007 for Land Rover to buy carbon credits from ClimateCare, an Oxford, England-based group that develops energy-efficiency projects around the world. Land Rover, now owned by Mumbai-based Tata Motors Ltd., is using the credits to offset some of the CO2 emissions produced by its vehicles.

For Wall Street, these kinds of voluntary carbon deals are just a dress rehearsal for the day when the U.S. develops a mandatory trading program for greenhouse gas emissions. JPMorgan, Goldman Sachs Group Inc. and Morgan Stanley will be watching closely as 192 nations gather in Copenhagen next week to try to forge a new climate-change treaty that would, for the first time, include the U.S. and China.

U.S. Cap and Trade
Those two economies are the biggest emitters of CO2, the most ubiquitous of the gases found to cause global warming. The Kyoto Protocol, whose emissions targets will expire in 2012, spawned a carbon-trading system in Europe that the banks hope will be replicated in the U.S.

The U.S. Senate is debating a clean-energy bill that would introduce cap and trade for U.S. emissions. A similar bill passed the House of Representatives in June. The plan would transform U.S. industry by forcing the biggest companies — such as utilities, oil and gas drillers and cement makers — to calculate the amounts of carbon dioxide and other greenhouse gases they emit and then pay for them.

Estimates of the potential size of the U.S. cap-and-trade market range from $300 billion to $2 trillion.

Banks Moving In
Banks intend to become the intermediaries in this fledgling market. Although U.S. carbon legislation may not pass for a year or more, Wall Street has already spent hundreds of millions of dollars hiring lobbyists and making deals with companies that can supply them with “carbon offsets” to sell to clients.

JPMorgan, for instance, purchased ClimateCare in early 2008 for an undisclosed sum. This month, it paid $210 million for Eco-Securities Group Plc, the biggest developer of projects used to generate credits offsetting government-regulated carbon emissions. Financial institutions have also been investing in alternative energy, such as wind and solar power, and lending to clean-technology entrepreneurs.

The banks are preparing to do with carbon what they’ve done before: design and market derivatives contracts that will help client companies hedge their price risk over the long term. They’re also ready to sell carbon-related financial products to outside investors.

Masters says banks must be allowed to lead the way if a mandatory carbon-trading system is going to help save the planet at the lowest possible cost. And derivatives related to carbon must be part of the mix, she says. Derivatives are securities whose value is derived from the value of an underlying commodity — in this case, CO2 and other greenhouse gases.

‘Heavy Involvement’
“This requires a massive redirection of capital,” Masters says. “You can’t have a successful climate policy without the heavy, heavy involvement of financial institutions.”

As a young London banker in the early 1990s, Masters was part of JPMorgan’s team developing ideas for transferring risk to third parties. She went on to manage credit risk for JPMorgan’s investment bank.

Among the credit derivatives that grew from the bank’s early efforts was the credit-default swap. A CDS is a contract that functions like insurance by protecting debt holders against default. In 2008, after U.S. home prices plunged, the cost of protection against subprime-mortgage bond defaults jumped. Insurer American International Group Inc., which had sold billions in CDSs, was forced into government ownership, roiling markets and helping trigger the worst global recession since the 1930s.

Lawmakers Leery
Now, that story — and the entire role the banks played in the credit crisis — has become central to the U.S. carbon debate. Washington lawmakers are leery of handing Wall Street anything new to trade because the bitter taste of the credit debacle lingers. And their focus is on derivatives. Along with CDSs, the most-notorious derivatives are the collateralized-debt obligations they often insured. CDOs are bundles of subprime mortgages and other debt that were sliced into tranches and sold to investors.

“People are going to be cutting up carbon futures, and we’ll be in trouble,” says Maria Cantwell, a Democratic senator from Washington state. “You can’t stay ahead of the next tool they’re going to create.”

Cantwell, 51, proposed in November that U.S. state governments be given the right to ban unregulated financial products. “The derivatives market has done so much damage to our economy and is nothing more than a very-high-stakes casino — except that casinos have to abide by regulations,” she wrote in a press release.

Jet Fuel, Wheat
In carbon markets, many of the derivatives would be futures, options and swaps that would allow a company to lock in a price for carbon like it would for any other commodity related to its business, Masters says. Such derivatives are negotiated every day by airlines trying to guarantee future prices for jet fuel and farmers setting a future price for their wheat crop. A large, liquid market in carbon credits would serve to keep their price low, JPMorgan says.

“The reason why this is important is not because it’s going to create a new forum for us to buy and sell; it’s because the scale of what’s being contemplated here is absolutely enormous,” Masters says. “It’s going to affect your kids and my kids. The worst thing would be to introduce legislation that doesn’t achieve the environmental goal; that would be a crime of epic proportions.”

Not Convinced
Michelle Chan, a senior policy analyst in San Francisco for Friends of the Earth, isn’t convinced.

“Should we really create a new $2 trillion market when we haven’t yet finished the job of revamping and testing new financial regulation?” she asks. Chan says that, given their recent history, the banks’ ability to turn climate change into a new commodities market should be curbed.

“What we have just been woken up to in the credit crisis — to a jarring and shocking degree — is what happens in the real world,” she says.

Even George Soros, the billionaire hedge fund operator, says money managers would find ways to manipulate cap-and-trade markets. “The system can be gamed,” Soros, 79, remarked at a London School of Economics seminar in July. “That’s why financial types like me like it — because there are financial opportunities.”

Masters says U.S. carbon markets should be transparent and regulated by the Commodity Futures Trading Commission. Standardized derivatives contracts — securities that can be bought and sold by anyone — should be traded on exchanges or centrally cleared, she says. The British-born Masters, who has an economics degree from Cambridge University, took over JPMorgan’s commodities business in 2007.

Allowances, Offsets
In a U.S. cap-and-trade market, the government would allot tradable pollution permits, called allowances, to emitters of CO2 and other greenhouse gases. The market would also likely include offsets — credits generated by companies such as Eco-Securities that would have to demonstrate to U.S. agencies running the program that the offsets mitigate carbon pollution.

Point Carbon, an Oslo-based firm that analyzes environmental markets, estimates that by 2020 the U.S. carbon market could surge to more than $300 billion. That’s based on an assumption that the allowances, each representing a ton of carbon dioxide taken out of the atmosphere, would trade for $15. Bart Chilton, a commissioner of the CFTC, which would likely be one of the regulators of the carbon market, says it could grow as large as $2 trillion.

Goldman Building
As they wait for a U.S. cap-and-trade system to be introduced, the big banks are busy building, not trading. Goldman Sachs, for example, has fewer than 10 traders dedicated to carbon around the world.

“Carbon right now is not about sitting in front of a screen and clicking,” says Gerrit Nicholas, Goldman’s head of North American environmental commodities. “It’s all about running around talking to clients about what they can expect, how big it can be and what their risk is.”

Abyd Karmali, who heads global carbon emissions at Bank of America Merrill Lynch in London, says companies, banks and investors are all watching Congress.

“A lot of people are focused on Copenhagen, but what happens in Washington on federal cap and trade is, arguably, more important,” says Karmali, who’s president of the Carbon Markets and Investors Association, an international trade group. “This market is still in its very early stages. U.S. cap and trade would make an order of magnitude of difference.”

‘Ruinous Course’
Although U.S. President Barack Obama and his economic team support cap and trade, Washington politics could defeat it. The House bill passed in June by just seven votes, and senators on both sides of the aisle worry that imposing pollution caps on industry will result in higher energy bills for consumers at a time when U.S. unemployment tops 10 percent. Karl Rove, former president George W. Bush’s deputy chief of staff, wrote in Newsweek magazine in November that cap and trade “would put America on a ruinous course.”

Republican Senator James Inhofe of Oklahoma, who in 2006 called Nobel Prize winner and former Vice President Al Gore “full of crap” on global warming, boycotted committee meetings on the Senate bill in November.

Senate Majority Leader Harry Reid said on Nov. 18 that climate-change legislation may not be discussed until the spring, prompting speculation among others in the Senate that the bill won’t be passed before Congressional elections in 2010. The Obama administration is also driving to overhaul U.S. health care and develop proposals to push down unemployment.

House, Senate Bills
U.S. cap and trade, as currently configured in both the House and Senate bills, would mean the government sets an upper limit on emissions of seven greenhouse gases, including CO2, methane and nitrous oxide, for thousands of power plants, refineries and factories. Over time, the caps would fall, pushing emitters to adopt clean-air technology.

The government would give some pollution allowances to companies free to help them meet their caps during the first years of the program. Emitters who invest in cutting their pollution would have allowances to sell; those that don’t would have to buy.

The allowances — similar to those that sold in Europe in mid-November for 13.5 euros ($20) — would be tradable on an exchange or, if Congress allows it, between parties in an over- the-counter market. The credits garnered through offset projects such as the stoves in Uganda are distinct from allowances in that they may be generated on the other side of the world.

Accounting for Carbon
U.S. companies would account for carbon in long-term strategic plans, bankers say. For instance, utilities such as American Electric Power Co., which produces power from coal, would hedge the price of carbon over periods as long as a decade or more. Columbus, Ohio-based AEP is the biggest U.S. greenhouse gas emitter in the Standard & Poor’s 500, according to the London-based Carbon Disclosure Project, which collects such data. Companies like AEP would retain financial institutions to come up with customized derivatives contracts to help them manage their risk.

Derivatives contracts designed for a particular company or transaction, known as over-the-counter derivatives, are a hot- button issue in the larger debate over how the U.S. banking system should be regulated. Most CDSs and CDOs are OTC derivatives. They are created and traded privately — not on any exchange — and can be illiquid and opaque, says Andy Stevenson, a financial analyst for the Natural Resources Defense Council, an environmental group that supports the Senate legislation. The House cap-and-trade bill bans OTC derivatives, requiring that all carbon trading be done on exchanges.

OTC Derivatives
The bankers say such a ban would be a mistake. OTC derivatives are a $600 trillion market, much of which consists of interest-rate swaps designed to hedge risks for individual companies. “It’s a concern of ours if they limit the market,” says Pat Hemlepp, a spokesman for AEP. “It reduces the options when it comes to cap and trade, and we have told people that on the Hill. We do feel it’s best to have banks and other parties able to participate.”

The banks and companies may get their way on carbon derivatives in separate legislation now being worked out in Congress. In October, the House Financial Services Committee, headed by Representative Barney Frank, a Democrat from Massachusetts, approved a bill that would require collateral for all derivatives trading between financial institutions. And broker-dealers such as JPMorgan and Goldman Sachs would be forced to clear most derivatives contracts on regulated exchanges or through so-called swap-execution facilities. However, the new rules would not apply to end-users — companies such as AEP that use derivatives to hedge operational risks.

Price Collar
The Senate environment bill, dubbed Kerry-Boxer for Senators John Kerry of Massachusetts and Barbara Boxer of California, the two Democrats who introduced it, contains little detail on how the cap-and-trade market would work. It sets a price floor of $11 per ton on carbon. The bill also creates a strategic reserve of allowances that the government could use to flood the market if the price of carbon shoots up.

“It will be the best-regulated market in the country,” Stevenson says. “The effort is to make all of the trading known to the regulator. That wasn’t the case in the mortgage market.”

Wall Street sees profits at every stage of the carbon- trading process. Banks would make money by helping clients manage their carbon risk, by trading carbon for their own accounts and by making loans to companies that invest to cut greenhouse gas emissions.

Chicago Climate Exchange
A clear U.S. price on carbon, determined in a large market, would help drive billions of dollars into investments to clean the air, says Richard Sandor, founder and chairman of the Chicago Climate Exchange and the Chicago Climate Futures Exchange. He is also the principal architect of the interest- rate futures market.

“What’s important is the price signal,” Sandor says. “It will stimulate inventive activity and cause behavior to change.” The Chicago Climate Exchange, the biggest U.S. voluntary greenhouse-gas-emissions trading system, trades 180,000 tons of carbon a day, up from 40,000 tons in 2006.

Over time, carbon, like other commodities, needs markets linked around the world, Goldman’s Nicholas says.

“If you believe the science and that something needs to be done about this, the market probably needs to be big,” he says. “Carbon could become an important commodity. I’m not saying it will be bigger than others, but it will be another important business for us.”

Polluters Only
Critics, including Senator Cantwell, espouse a smaller, less complex market in which pollution permits would be publicly exchanged only among fossil-fuel producers. Such a system may block progress on the environmental goals, says JPMorgan’s Masters.

“We say, ‘Let’s incentivize people to have the lowest-cost opportunities to avoid carbon emissions,’” she says.

Masters has been dealing with complex securities since she did a summer internship on JPMorgan’s London derivatives desk while she was at Cambridge. She joined the desk full time soon after graduating in 1991. The derivatives group’s task was to find ways to spread the risk of JPMorgan’s loans, partly to reduce the amount of capital it was required to hold in reserve against them.

Offloading Risk
In 1994, Exxon Corp. needed a credit line after it was threatened with a $5 billion fine for spilling 10.8 million gallons (40.9 million liters) of oil into the ocean off Alaska in 1989. Masters asked the London-based European Bank for Reconstruction and Development to take on the Exxon risk in exchange for an annual fee paid by JPMorgan, according to “Fool’s Gold,” a book by Gillian Tett (Free Press, 2009) that chronicles the history of credit derivatives at JPMorgan. The loan would remain on JPMorgan’s books and be insured by the EBRD, an international bank owned by 61 countries that supports development projects in Central Europe.

The bankers called the contract a credit-default swap.

Masters left the credit derivatives unit in 2001 to do other jobs at the bank. From 2004 to 2007, she served as chief financial officer of the investment bank. Since she took over the commodities division in 2007, its staff has almost doubled to 400 employees. The firm added Bear Energy to the division when it acquired Bear Stearns Cos. in the March 2008 heat of the credit crisis.

In December 2008, Masters led the purchase of UBS AG’s agriculture business and Canadian commodities operations. She now sits in a corner office in Bear’s former Madison Avenue tower. Outside her glass door are rows of traders making markets in metals and oil futures.

Subprime Carbon
Friends of the Earth’s Chan is working hard to prevent the banks from adding carbon to their repertoire. She titled a March FOE report “Subprime Carbon?” In testimony on Capitol Hill, she warned, “Wall Street won’t just be brokering in plain carbon derivatives — they’ll get creative.”

Sitting in Cafe Madeleine, a small sandwich shop on a hilly stretch of California Street in San Francisco, Chan, 37, talks over coffee about her campaign. She’s brought her own ceramic mug from her crammed office across the street.

Chan started at FOE — the biggest network of environmental groups in the world, with offices in 77 countries — on a six- month fellowship after she graduated from the University of California, Los Angeles in 1994. Her first job was to pin responsibility for what FOE regarded as environmentally damaging projects on the banks that loaned the enterprises money.

Three Gorges Dam
In 1997, Chan uncovered and helped publicize loans to China’s Three Gorges Dam by banks including Morgan Stanley and Merrill Lynch. Since then, Wall Street banks have sought Friends of the Earth’s help in burnishing their environmental image.

In 2005, Chan worked with Goldman Sachs to write an environmental policy statement for the firm, she says.

Carbon isn’t like other commodities, Chan says. The government’s goal to reduce pollution means it will gradually diminish the number of allowances it issues, and that will be a powerful incentive for speculators to try to corner the market and drive up the price, she says.

While banks say they’re a long way from packaging securities from environmental credits now, Chan points to two deals that Zurich-based Credit Suisse Group AG completed in 2007 and 2008 that each combined more than 20 different offset projects, then sliced them into tranches and sold them to investors. The securities were the equivalent of carbon CDOs, Chan says.

Boom and Bust
Chan has an ally in hedge fund manager Michael Masters, founder of Masters Capital Management LLC, based in St. Croix, U.S. Virgin Islands. He says speculators will end up controlling U.S. carbon prices, and their participation could trigger the same type of boom-and-bust cycles that have buffeted other commodities.

In February 2009 House testimony, Masters — who is no relation to Blythe Masters — estimated that the early 2008 price bubbles in crude oil, corn and other commodities cost U.S. consumers more than $110 billion.

The hedge fund manager says that banks will attempt to inflate the carbon market by recruiting investors from hedge funds and pension funds.

“Wall Street is going to sell it as an investment product to people that have nothing to do with carbon,” he says. “Then suddenly investment managers are dominating the asset class, and nothing is related to actual supply and demand. We have seen this movie before.”

Companies Need Banks
Still, companies need the financial markets to help them drive down their greenhouse gas emissions at a reasonable price, says the NRDC’s Stevenson. “There are trillions of dollars needed to make this transition, and companies need the banks,” says Stevenson, a former trader for London-based hedge fund firm Brevan Howard Asset Management LLP.

Stevenson dismisses as overblown the concern that banks will soon be packaging greenhouse gas allowances into securities that look like CDOs. The banks stand to make more money, he says, as lenders to companies that need to invest in new power plants and factories to reduce their emissions. “I would argue that this is only a bonanza for the banks in that they get to go back to their day jobs — which is lending money,” Stevenson says. “I’m suspect of them generating a lot from carbon trading itself in the early years.”

Northeast Test Case
A relatively small-scale cap-and-trade effort called the Regional Greenhouse Gas Initiative tells a cautionary tale. RGGI is a CO2 reduction program established by a group of northeastern and mid-Atlantic states in 2003 with a goal of cutting CO2 emissions from power plants in the region 10 percent by 2018. Ten states are now members. Trading in the companies’ pollution permits began in September 2008 — in the middle of the financial crisis. As of mid-November 2009, prices of the pollution permits were down 50 percent, according to data compiled by Bloomberg.

Meanwhile, the 10 best-performing investment funds with climate change or clean energy as a central goal all plunged 40 percent or more in 2008, according to data compiled by London- based New Energy Finance. The shrinking global economy sapped momentum for developing new environmental projects.

“To mobilize capital now and begin a transformation to new energy technologies is a very risky business,” says Ken Newcombe, founder of C-Quest Capital, a Washington-based carbon finance business that invests in offsets. “Returns have to be reasonable to take on those risks.”

Risk Capital Vital
Newcombe is the former head of Goldman’s U.S. carbon market origination and sales department and one of the world’s first carbon traders. He holds a Ph.D. in energy and natural resource development from the Australian National University. Private money, including capital from banks, hedge funds and other investors, must keep flowing into the system to realize global environmental goals that the Copenhagen meetings will try to hash out, he says.

“The ultimate objective is economic efficiency,” Newcombe says. “How can we reduce the cost of implementing important public policy? Having a pool of risk capital is absolutely vital to the smooth introduction of a cap-and-trade regime in the U.S.”

As Washington debates climate policy in the shadow of the recent financial meltdown, lawmakers have a right to be wary, Newcombe says.

“There’s legitimate concern that there may be unseemly profits or untenable risks,” he says. “But a problem now is that the critical objective of stabilizing the financial system could lead to an overregulation of the carbon market.”

‘Such a Fog’
Meanwhile, the industrial firms that would be affected by cap and trade are eager for the game to begin, says Lew Nash, a Morgan Stanley executive director and the firm’s U.S. point person on the carbon markets.

“There is such a fog right now in terms of how the legislation is going to work,” Nash says. “There is a real economic desire here for price signals that will permit the market to properly price carbon. Our customers have little choice but to participate in this evolving market.”

Nash says his clients aren’t just looking for help figuring out how to use carbon trading to manage their emissions caps. Pricing carbon will also set the tone for strategic investments. If a company wants to build a new factory, for instance, it’s going to need to factor prospective carbon emissions into its construction and operational plans, Nash says.

Supporters of cap and trade see, over many years, a remaking of the U.S. industrial landscape and a sharp reduction in the gases that cause global warming. Little will happen, though, until the debate is resolved between the bankers who want more liquidity and the lawmakers who demand more regulation.

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Soros urges IMF to create $100bn ‘green’ fund

Posted on December 11, 2009. Filed under: Advanced Biofuel | Tags: , , , , , |

Soros urges IMF to create $100bn ‘green’ fund

By Fiona Harvey in Copenhagen

The Financial Times

December 10, 2009

George Soros, the billionaire financier, unveiled a plan on Thursday to give poor countries access to $100bn in financial assistance to deal with the threat of climate change.

The money would come from the International Monetary Fund, from financial instruments known as special drawing rights, or SDRs.

These instruments are used to create liquidity. The IMF has distributed hundreds of billions of dollars worth of SDRs to its members, which lie in the reserve accounts of the countries concerned.

Speaking at the United Nations climate summit in Copenhagen, Mr Soros argued that these reserves are unnecessary, and that the SDRs could be lent to developing countries, through a “green fund” set up for the purpose.

“It is possible to substantially increase the amount available to fight global warming in the developing world by using the existing allocations of SDRs,” he said. “All that is lacking is the political will… Yet it could make the difference between success and failure at Copenhagen.”

Listen to Fiona Harvey’s audio dispatch on the latest discussions at Copenhagen

The talks in Copenhagen have become stalled on the question of financing. Poor countries are demanding $100bn a year by 2020 from rich countries, in order to deal with climate change, and $10bn a year for the next three years to tide them over before the long-term funding begins.

Rich countries have come up with some financing commitments, but they do not come near the scale of funding being asked for.

Mr Soros’s green fund would finance projects that reduced emissions in developing countries, such as forestry and agricultural projects.

In Mr Soros’ vision, the fund would become self-financing as the projects would turn a profit.

SDRs can be used only by converting them into one of four currencies, at which point they carry interest at the combined treasury bill rate of those currencies.

At present, the rate of such interest is about 0.5 per cent.

Mr Soros suggests that the IMF should also pay the interest on the SDRs, by using its gold reserves.

The IMF has more than 100m ounces of gold. Owing to the rise in bullion prices, this gold is now worth about $100bn more than its book value, Mr Soros estimates.

He said this money, which has already been designated for the use of the poorest countries, could best be spent in this way.

But Mr Soros explicitly ruled out China benefitting from the new green fund he proposes. China has called for funding from developed countries to help cut its emissions, but the US on Wednesday rebuffed the idea in strong terms.

Mr Soros appeared to lean towards the US point of view: “I see China more as a contributor than a recipient. This would be for the poorest countries. Fortunately China is no longer [one].”

There are several obstacles to Mr Soros’ plan, however, One is that for the US to participate it would require Congressional approval, which will be hard to achieve.

Other developed countries gave a lukewarm response to the plan. Artur Runge-Metzger, the chief negotiator for the European Union, said: “Sometimes these very interesting proposals sound like perpetual movement – how you can create money and dish it out very quickly.”

He added: “There is no way we can just print money to makes sure finance is on the table.”

But the plan was welcomed by the G77 of developing countries.

Mr Soros’ ideas are unlikely to be decided upon at the Copenhagen conference, but they could receive more attention in the coming months as rich countries struggle to work out in detail how they can finance any pledges they make in the coming days.

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Greenhouse Gases Threaten Public Health and the Environment

Posted on December 7, 2009. Filed under: Field-to-Pump, Hydrous Ethanol | Tags: , , , |

EPA: Science overwhelmingly shows greenhouse gas concentrations at unprecedented levels due to human activity

WASHINGTON – After a thorough examination of the scientific evidence and careful consideration of public comments, the U.S. Environmental Protection Agency (EPA) announced today that greenhouse gases (GHGs) threaten the public health and welfare of the American people. EPA also finds that GHG emissions from on-road vehicles contribute to that threat.

GHGs are the primary driver of climate change, which can lead to hotter, longer heat waves that threaten the health of the sick, poor or elderly; increases in ground-level ozone pollution linked to asthma and other respiratory illnesses; as well as other threats to the health and welfare of Americans.

These long-overdue findings cement 2009’s place in history as the year when the United States Government began addressing the challenge of greenhouse-gas pollution and seizing the opportunity of clean-energy reform,” said EPA Administrator Lisa P. Jackson. “Business leaders, security experts, government officials, concerned citizens and the United States Supreme Court have called for enduring, pragmatic solutions to reduce the greenhouse gas pollution that is causing climate change. This continues our work towards clean energy reform that will cut GHGs and reduce the dependence on foreign oil that threatens our national security and our economy.”

EPA’s final findings respond to the 2007 U.S. Supreme Court decision that GHGs fit within the Clean Air Act definition of air pollutants. The findingsdo not in and of themselves impose any emission reduction requirements but rather allow EPA to finalize the GHG standards proposed earlier this year for new light-duty vehicles as part of the joint rulemaking with the Department of Transportation.

On-road vehicles contribute more than 23 percent of total U.S. GHG emissions. EPA’s proposed GHG standards for light-duty vehicles, a subset of on-road vehicles, would reduce GHG emissions by nearly 950 million metric tons and conserve 1.8 billion barrels of oil over the lifetime of model year 2012-2016 vehicles.

EPA’s endangerment finding covers emissions of six key greenhouse gases – carbon dioxide, methane, nitrous oxide, hydrofluorocarbons, perfluorocarbons and sulfur hexafluoride – that have been the subject of scrutiny and intense analysis for decades by scientists in the United States and around the world.

Scientific consensus shows that as a result of human activities, GHG concentrations in the atmosphere are at record high levels and data shows that the Earth has been warming over the past 100 years, with the steepest increase in warming in recent decades. The evidence of human-induced climate change goes beyond observed increases in average surface temperatures; it includes melting ice in the Arctic, melting glaciers around the world, increasing ocean temperatures, rising sea levels, acidification of the oceans due to excess carbon dioxide, changing precipitation patterns, and changing patterns of ecosystems and wildlife.

President Obama and Administrator Jackson have publicly stated that they support a legislative solution to the problem of climate change and Congress’ efforts to pass comprehensive climate legislation. However, climate change is threatening public health and welfare, and it is critical that EPA fulfill its obligation to respond to the 2007 U.S. Supreme Court ruling that determined that greenhouse gases fit within the Clean Air Act definition of air pollutants.

EPA issued the proposed findings in April 2009 and held a 60-day public comment period. The agency received more than 380,000 comments, which were carefully reviewed and considered during the development of the final findings.

Information on EPA’s findings:

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EPA is Expected to Announce Greenhouse Gases Endanger Public Health and Welfare

Posted on December 7, 2009. Filed under: Advanced Biofuel | Tags: , , |

Business Fumes Over Carbon Dioxide Rule

By Jeffrey Ball and Charles Forelle

The Wall Street Journal

December 7, 2009

Officials gather in Copenhagen this week for an international climate summit, but business leaders are focusing even more on Washington, where the Obama administration is expected as early as Monday to formally declare carbon dioxide a dangerous pollutant.

An “endangerment” finding by the Environmental Protection Agency could pave the way for the government to require businesses that emit carbon dioxide and five other greenhouse gases to make costly changes in machinery to reduce emissions — even if Congress doesn’t pass pending climate-change legislation. EPA action to regulate emissions could affect the U.S. economy more directly, and more quickly, than any global deal inked in the Danish capital, where no binding agreement is expected.

Many business groups are opposed to EPA efforts to curb a gas as ubiquitous as carbon dioxide.

An EPA endangerment finding “could result in a top-down command-and-control regime that will choke off growth by adding new mandates to virtually every major construction and renovation project,” U.S. Chamber of Commerce President Thomas Donohue said in a statement. “The devil will be in the details, and we look forward to working with the government to ensure we don’t stifle our economic recovery,” he said, noting that the group supports federal legislation.

Advancing Emissions

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EPA action won’t do much to combat climate change, and “is certain to come at a huge cost to the economy,” said the National Association of Manufacturers, a trade group that stands as a proxy for U.S. industry.

Dan Riedinger, spokesman for the Edison Electric Institute, a power-industry trade group, said the EPA would be less likely than Congress to come up with an “economywide approach” to regulating emissions. The power industry prefers such an approach because it would spread the burden of emission cuts to other industries as well.

Electricity generation, transportation and industry represent the three largest sources of U.S. greenhouse-gas emissions.

An EPA spokeswoman declined to comment Sunday on when the agency might finalize its proposed endangerment finding. Congressional Republicans have called on the EPA to withdraw it, saying recently disclosed emails written by scientists at the Climatic Research Unit of the U.K.’s University of East Anglia and their peers call into question the scientific rationale for regulation.

The spokeswoman said that the EPA is confident the basis for its decision will be “very strong,” and that when it is published, “we invite the public to review the extensive scientific analysis informing” the decision.

EPA action would give President Barack Obama something to show leaders from other nations when he attends the Copenhagen conference on Dec. 18 and tries to persuade them that the U.S. is serious about cutting its contribution to global greenhouse-gas emissions.


The vast majority of increased greenhouse-gas emissions is expected to come from developing countries such as China and India, not from rich countries like the U.S. But developing countries have made it clear that their willingness to reduce growth in emissions will depend on what rich countries do first. That puts a geopolitical spotlight on the U.S.

At the heart of the fight over whether U.S. emission constraints should come from the EPA or Congress is a high-stakes issue: which industries will have to foot the bill for a climate cleanup. A similar theme will play out in Copenhagen as rich countries wrangle over how much they should have to pay to help the developing world shift to cleaner technologies.

“There is no agreement without money,” says Rosário Bento Pais, a top climate negotiator for the European Commission, the European Union’s executive arm. “That is clear.”

An endangerment finding would allow the EPA to use the federal Clean Air Act to regulate carbon-dioxide emissions, which are produced whenever fossil fuel is burned. Under that law, the EPA could require emitters of as little as 250 tons of carbon dioxide per year to install new technology to curb their emissions starting as soon as 2012.

Pawel Kopczynski/ReutersA man climbed on a globe that is part of an installation in downtown Copenhagen.

The EPA has said it will only require permits from big emitters — facilities that put out 25,000 tons of carbon dioxide a year. But that effort to tailor the regulations to avoid slamming small businesses with new costs is expected to be challenged in court.

Legislators are aware that polls show the public appetite for action that would raise energy prices to protect the environment has fallen precipitously amid the recession.

Congressional legislation also faces plenty of U.S. industry opposition. Under the legislation, which has been passed by the House but is now stuck in the Senate, the federal government would set a cap on the amount of greenhouse gas the economy could emit every year. The government would distribute a set number of emission permits to various industries. Companies that wanted to be able to emit more than their quota could buy extra permits from those that had figured out how to emit less.

Proponents of the cap-and-trade approach say emission-permit trading will encourage industries to find the least-expensive ways to curb greenhouse-gas output. But opponents say it will saddle key industries with high costs not borne by rivals in China or India, and potentially cost the U.S. jobs.

AFP/Getty ImagesAn official prepares the Danish flag in the large Copenhagen meeting hall that will host the United Nation’s summit on climate change beginning Monday. The conference ends Dec. 18.



The oil industry has warned that climate legislation could force some U.S. refineries to shut down, because importing gasoline from countries without emission caps could be cheaper than making the gasoline on domestic soil.

Legislators “have decided that coal and electric users don’t bear the burden” of emissions constraints for many years, said John Felmy, chief economist for the American Petroleum Institute, an industry group. “Early in the program, oil users are the ones who are hammered.”

The Iron and Steel Institute, which represents more than 75% of steel made in the U.S., said that successful climate policy — whether through the EPA or Congress — must “reduce emissions without altering the competitiveness of American steelmakers.”

The issue of how curbing emissions would affect jobs in developed countries is likely to erupt in Copenhagen in the battle over how much rich countries should pony up for cleaner technologies in developing nations.

Estimates of the cost for reducing emissions in developing countries vary widely, but the European Commission said in September that the bill could reach $150 billion annually by 2020. Leaders of the EU’s 27 nations have said only that the EU would pay its “fair share” of the total, without committing to an amount.

Yet EU industry lobbies are weighing in against that proposal. It is “not realistic,” said Axel Eggert, spokesman for Eurofer, the trade group for European steelmakers. Steelmakers want to “make sure that the financing is not a subsidy for our competitors,” he said.

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    Renergie created “field-to-pump," a unique strategy to locally produce and market advanced biofuel (“non-corn fuel ethanol”) via a network of small advanced biofuel manufacturing facilities. The purpose of “field-to-pump” is to maximize rural development and job creation while minimizing feedstock supply risk and the burden on local water supplies.


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