Advanced Biofuel

Advanced Biofuels Deliver Substantially Greater Pollution Reductions Than Corn-Based Ethanol

Posted on February 4, 2010. Filed under: Advanced Biofuel, Hydrous Ethanol, Rural Development | Tags: , , , |

New Renewable Fuel Standard, Which Sets First Heat Trapping Emissions Requirements for Biofuels, Gets Favorable Review From UCS

EPA Analysis Demonstrated That Without Additional Support, Cleanest Biofuels Will Fail to Meet Targets
By Union of Concerned Scientists
February 3, 2010

The Environmental Protection Agency’s (EPA) new rules for the Renewable Fuel Standard, the nation’s primary biofuels program, got a favorable review from the Union of Concerned Scientists (UCS). The science group praised the agency for a transparent process that accurately accounted for biofuels’ lifecycle heat-trapping emissions by including so-called “indirect-land-use emissions.” The new rules reflect the fact that advanced and cellulosic biofuels deliver substantially greater pollution reductions than today’s biofuels, such as corn ethanol. 

“We now have a yardstick to measure the global warming pollution from different biofuels,” said Jeremy Martin, a senior scientist in UCS’s Clean Vehicles Program. “EPA should be congratulated for having an open process on this rule that involved scientists, farmers and the ethanol industry.”

Despite intense pressure from the corn ethanol industry to exclude emissions from indirect-land-use change, the EPA found that such emissions are a major source of heat-trapping pollution from corn ethanol and other food-based biofuels. This finding affirms the view of 200 scientists and economists with relevant expertise who sent a letter to the EPA in September 2009 arguing that “grappling with the technical uncertainty and developing a regulation based on the best available science is preferable to ignoring a major source of emissions.” The EPA also issued an analysis examining the scientific uncertainty involved in calculating emissions from indirect-land-use change and plans to ask the National Academy of Sciences to look at the issue.

Indirect-land-use-change emissions also have been the focus of recent analysis by the California Air Resources Board, as well as peer-review scientific articles, which concluded that using food crops to produce fuel increases worldwide demand for those crops, prompting farmers to clear previously untouched land to grow new crops. Clearing land, especially tropical forests, releases massive amounts of heat-trapping gases into the atmosphere.

The Renewable Fuel Standard, enacted in 2005, requires fuel suppliers to blend a higher percentage of renewable fuels, such as ethanol and biodiesel, into motor vehicle fuels over time. In 2007, Congress passed the “Energy Independence and Security Act,” which expanded the standard’s overall volume requirement from 7.5 million gallons by 2012 to 36 billion gallons by 2022, and significantly increased the requirement for low-carbon cellulosic biofuels. It also required the EPA to establish independent volume mandates for different fuel categories. Each category was to be defined by its lifecycle heat-trapping emissions compared with conventional gasoline. The categories include: renewable fuel (20 percent less emissions than gasoline), biomass-based diesel (50 percent less), advanced biofuels (50 percent less), and cellulosic biofuels (60 percent less).

Corn ethanol facilities that were operating or under construction in 2007 are exempt from meeting the emissions-reduction requirements. The EPA projects that new corn ethanol facilities coming on line in 2022 could meet the 20 percent heat-trapping emissions reduction threshold for renewable fuels. However, this analysis is based on projected increases in crop yields and improvements in ethanol production technology and is not an analysis of the performance of today’s corn ethanol facilities.  

UCS experts say cellulosic ethanol, derived from grass, wood chips and other waste material, is a better option. According to EPA analysis, ethanol made from corn residue, or stalks and cobs, could reduce emissions by more than 90 percent compared with gasoline, in part because it would not necessarily displace land used to grow food crops and therefore would not trigger significant indirect land use emissions. 

Cellulosic fuel production, however, has fallen short of the EPA target. The 2007 energy law required suppliers to produce 100 million gallons of cellulosic fuel in 2010. But current cellulosic ethanol production stands at only 6.5 million gallons. Therefore, the EPA announced today that it is waiving 93.5 million gallons of the 100 million gallon requirement.

“Achieving energy security and tackling climate change will require a big contribution from cellulosic fuels,” said Martin. “Just setting a goal isn’t good enough in this economy. We need investment policies that help this industry get off the ground.”

According to UCS, the most important thing federal legislators could do to meet the Renewable Fuel Standard’s goals would be to support investment in building commercial-scale cellulosic biofuel facilities across the country. An investment in this essential clean energy technology would jumpstart rural economies and expand the economic benefits of biofuels production.

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EPA Concludes Corn-Based Ethanol Will Meet GHG Reduction Requirement

Posted on February 4, 2010. Filed under: Advanced Biofuel, Field-to-Pump | Tags: , , , |

EPA ruling boosts ethanol after fierce lobbying effort for corn-based fuels
By Ben Geman
February 3, 2010

The Environmental Protection Agency (EPA) handed a victory to ethanol producers Wednesday by issuing final regulations that conclude corn-based fuels will meet greenhouse gas standards imposed under a 2007 energy law.

The release of the final regulations follows a fierce campaign by ethanol companies that alleged 2009 draft rules unfairly found that large volumes of ethanol production would not meet targets in the statute for reducing greenhouse gases.

The new rules state that corn-based ethanol will meet a requirement of the 2007 law that they must emit at least 20 percent less in “lifecycle” greenhouse gas emissions than gasoline.

The statute expanded the national biofuels use mandate to reach 36 billion gallons annually by 2022. If the EPA had ruled that corn-based fuels did not meet their emissions target, the fuels could have been frozen out of the market.

The issue has been vital to the ethanol lobby, which feared that an adverse finding could stymie investment and tarnish the fuel’s image.

However, the nation’s current ethanol production — about 12 billion gallons annually — was exempted from the law’s emissions mandate.

EPA Administrator Lisa Jackson on Monday denied the agency had bent to pressure, instead arguing that EPA employed better modeling when crafting the final regulations.

“We have followed the science,” she told reporters on a conference call. “Our models have become more sophisticated. We have accrued better data.”

The new rules, which implement the expanded fuels mandate, are not a complete victory for ethanol lobbyists, who along with several farm-state lawmakers object to the way EPA measures the carbon footprint of biofuels.

Specifically, they’re upset that EPA didn’t give up on weighing “international indirect land use changes” as part of emissions calculations. The phrase refers to emissions from clearing grasslands and forests in other countries for croplands, in order to compensate for increasing use of U.S. corn and soybeans for making fuels.

“We will always be concerned about indirect land use,” said Gen. Wesley Clark, a former presidential candidate who now leads the ethanol industry trade group Growth Energy.

“Why should American farmers be penalized for the problems in the Brazilian rainforest? That’s the Brazilian government’s issue and maybe the United Nations’,” he said in an interview before EPA’s rules were released. “It is so farfetched. I know it comes out of an academic model, but it is just an academic model, and the model is not even based on current facts.”

The industry alleges the science behind the land-use emissions measurements is immature and inaccurate, while environmentalists say such calculations are vital to ensuring federal support for ethanol doesn’t actually worsen climate change.

Nathanael Greene of the Natural Resources Defense Council also praised the measure because EPA did not back away from considering the land-use emissions, even though it came up with numbers friendlier to the industry with the final rule.

“We finally have a tool that we can use to hold the industry accountable, to reward the people that are doing a better job and keep the folks that are doing a really bad job out,” said Greene, the group’s director of renewable energy policy.

EPA said several factors went into the revised emissions calculations. For instance, the agency said that better satellite data allowed more precise assessments of the types of land converted internationally.

The battle over the land use emissions is hardly over. Two senior House Democrats — Agriculture Committee Chairman Collin Peterson (Minn.) and Armed Services Committee Chairman Ike Skelton (Mo.) — introduced a bill this week that would block EPA from considering the land-use changes.

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How Does a Cap-and-Trade Program Work?

Posted on February 3, 2010. Filed under: Advanced Biofuel, cap-and-trade, Hydrous Ethanol | Tags: , , |

U.S. Energy Information Administration
February 1, 2010

What is a cap-and-trade program and how does it work?
A cap-and-trade program is designed to reduce emissions of a pollutant by placing a limit (or cap) on the total amount of emissions. The cap is implemented through a system of allowances that can be traded to minimize costs to affected sources. Cap-and-trade programs for greenhouse gas emissions would increase the costs of using fossil fuels.

A cap-and-trade program is different from an emissions tax. An emissions tax is a fee on each unit of emissions released. A tax sets a price on emissions, which provides an incentive for emissions reduction, but allows the actual amount of reduction that occurs to vary.

A cap-and-trade program sets the quantity of emissions, letting the price of allowances be set in the marketplace. However, both programs ultimately place a value on emissions and provide incentives for emission reductions.

What Is a Cap-and-Trade Program?
A cap-and-trade program is an environmental policy tool designed to reduce emissions of a pollutant by placing a limit (or cap) on the total amount of emissions that can be released by sources covered by the program during a fixed time period.

The overall cap on emissions is implemented through a system of allowances. Each allowance represents the right to emit a specific amount of emissions, and each emissions source covered by the program must submit enough allowances to cover its actual emissions. These allowances, sometimes called permits, are initially allocated to affected sources or auctioned off by the agency implementing the program.

Allowances can be traded, which creates an incentive for those who can reduce emissions most cheaply to sell their allowances to those who face higher emission reduction costs. The incentive to trade allowances persists as long as one or more sources can reduce emissions by an additional unit at a lower cost than some other source faces to achieve its last unit of emissions reduction. Therefore, allowances will be traded until the marginal cost of emission reduction is equal across all covered sources. At this point, the pollution level required by the cap is achieved – theoretically at the lowest possible cost to society – regardless of how the allowances were initially allocated.

How Does a Cap-and-Trade Program Work?
Not all cap-and-trade programs are identical. Below is a list of four characteristics shared by all cap-and-trade programs, with some possible variations shown. These variations could affect how a particular program works.

1. A limit or cap on emissions of a pollutant is established.

Variations:
Who is required to limit their emissions. Is it all sources of emissions or just some sources of emissions?
What area the cap covers. Is it a region or State, the whole United States, or a group of nations?
When emission limits take effect. Will the cap be in place in the near term or at a later date?
Whether the cap will become tighter, meaning the total allowable level of emissions drops over time. If so, how quickly will this decrease happen?
When the cap is in place. Will it be in effect for a season – such as just for the summer months – or is it applied for the whole year?

2. An allowance must be surrendered for every unit (often a ton) of emissions generated.

Variations:
Who must submit allowances. While this depends on the specific cap-and-trade program, some examples include producers of the polluting substance, distributors of a product whose production or consumption generates emissions, States, or even nations.
How allowances are initially distributed. Allowances could be auctioned, distributed for free based on current or historical emissions, or given out using some combination of an auction and a free distribution. In an auction, allowances are sold to the highest bidders. Uses of auction revenue depend on the specific cap-and-trade program, and could include the distribution of a portion of the revenue to consumers.
Whether the program allows for the purchase of offsets in lieu of allowances. Offsets are certified reductions in emissions from sources that are not required by the cap-and-trade program to restrict their emissions.

3. Allowances can be traded.

Here’s an example of how the trade could work. Emitter ABC found it really easy and cheap to reduce its emissions below the level covered by its allowances, while Emitter XYZ had a tougher time. ABC was able to make larger reductions in its emissions and offered to sell its extra allowances to XYZ. This transaction was a good deal for XYZ because the cost of allowances it bought was lower than the cost of equipment needed to reduce its own emissions to a level that matched the number of allowances it held before buying more allowances from ABC.
 
Variations:
How much an allowance costs. In general, the allowance price depends on the options available to reduce emissions and the demand for allowances. If there are relatively low-cost options to reduce emissions, the price of allowances would be lower.
Whether emitters are allowed to save – or “bank” – allowances, either for their own future use or to sell to someone else later. Some proposals might also allow the current use of a future period’s allowances.

4. Actual emissions are measured and penalties are assessed if targets are missed.

Variation:
Depending on the program, these tasks could be the responsibility of one or more governmental agencies.

How Do Cap-and-Trade Programs Affect Our Use of Energy?
The burning of fossil fuels, including coal, oil, and natural gas, is the main source of carbon dioxide – the most important greenhouse gas produced by human activity – and a major source of other emissions. A cap-and-trade program for greenhouse gas emissions would increase the cost of using fossil fuels, making them less competitive with non-fossil energy resources and increasing the overall cost of energy to consumers. The cost of using coal, which has the highest carbon dioxide content and the lowest price per unit of energy among the fossil fuels, would be most affected by a cap-and-trade program for greenhouse gases.

Why Might a Cap-and-Trade Program Be Considered?
A cap-and-trade program allows emitters to have flexibility in their approach to reducing emissions. An alternative environmental policy might require each regulated source to use a specific emission control technology. With a cap-and-trade program, the overall cap on emissions is fixed, but the compliance approach by any individual source need not be specified. This flexibility allows parties to choose the least costly option and should reduce the cost of reaching the overall emissions cap.

The implementation of the U.S. cap-and-trade program for sulfur dioxide beginning in 1995 is an example of the benefits of flexibility in reducing environmental compliance costs in the energy sector. Allowances for sulfur dioxide emissions were actively traded as coal-fired electricity generating units covered by the program chose a variety of compliance strategies. These strategies included installing scrubbers, switching to lower sulfur coal, and buying allowances.

Where Has Cap-and-Trade Been Used?
Cap-and-trade programs have been used to limit several different types of emissions in State, U.S., and international contexts. 

As noted above, a cap-and-trade program limiting sulfur dioxide emissions has been operating in the United States since 1995. The European Union established its Emissions Trading System for greenhouse gas emissions in 2005. In 2009, the Regional Greenhouse Gas Initiative established an interstate cap-and-trade system for greenhouse gas emissions covering electric power plants in 10 northeastern States. Recently, there has been a lot of discussion about the Federal Government establishing a nationwide cap-and-trade program for greenhouse gas emissions.

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U.S. Department of Defense Addresses the Issue of Climate Change

Posted on February 2, 2010. Filed under: Advanced Biofuel, Field-to-Pump, Hydrous Ethanol | Tags: , , , |

Excerpts from the U.S. DoD 2010 Quadrennial Defense Review
February 1, 2010

Climate change and energy are two key issues that will play a significant role in shaping the future security environment. Although they produce distinct types of challenges, climate change, energy security, and economic stability are inextricably linked. The actions that the Department takes now can prepare us to respond effectively to these challenges in the near term and in the future.

Climate change will affect DoD in two broad ways. First, climate change will shape the operating environment, roles, and missions that we undertake. The U.S. Global Change Research Program, composed of 13 federal agencies, reported in 2009 that climate-related changes are already being observed in every region of the world, including the United States and its coastal waters. Among these physical changes are increases in heavy downpours, rising temperature and sea level, rapidly retreating glaciers, thawing permafrost, lengthening growing seasons, lengthening ice-free seasons in the oceans and on lakes and rivers, earlier snowmelt, and alterations in river flows.

Assessments conducted by the intelligence community indicate that climate change could have significant geopolitical impacts around the world, contributing to poverty, environmental degradation, and the further weakening of fragile governments. Climate change will contribute to food and water scarcity, will increase the spread of disease, and may spur or exacerbate mass migration.

While climate change alone does not cause conflict, it may act as an accelerant of instability or conflict, placing a burden to respond on civilian institutions and militaries around the world. In addition, extreme weather events may lead to increased demands for defense support to civil authorities for humanitarian assistance or disaster response both within the United States and overseas. In some nations, the military is the only institution with the capacity to respond to a large-scale natural disaster. Proactive engagement with these countries can help build their capability to respond to such events. Working closely with relevant U.S. departments and agencies, DoD has undertaken environmental security cooperative initiatives with foreign militaries that represent a nonthreatening way of building trust, sharing best practices on installations management and operations, and developing response capacity.

Second, DoD will need to adjust to the impacts of climate change on our facilities and military capabilities. The Department already provides environmental stewardship at hundreds of DoD installations throughout the United States and around the world, working diligently to meet resource efficiency and sustainability goals as set by relevant laws and executive orders. Although the United States has significant capacity to adapt to climate change, it will pose challenges for civil society and DoD alike, particularly in light of the nation’s extensive coastal infrastructure. In 2008, the National Intelligence Council judged that more than 30 U.S. military installations were already facing elevated levels of risk from rising sea levels. DoD’s operational readiness hinges on continued access to land, air, and sea training and test space. Consequently, the Department must complete a comprehensive assessment of all installations to assess the potential impacts of climate change on its missions and adapt as required.

In this regard, DoD will work to foster efforts to assess, adapt to, and mitigate the impacts of climate change. Domestically, the Department will leverage the Strategic Environmental Research and Development Program, a joint effort among DoD, the Department of Energy, and the Environmental Protection Agency, to develop climate change assessment tools. Abroad, the Department will increase its investment in the Defense Environmental International Cooperation Program not only to promote cooperation on environmental security issues, but also to augment international adaptation efforts. The Department will also speed innovative energy and conservation technologies from laboratories to military end users. The Environmental Security and Technology Certification Program uses military installations as a test bed to demonstrate and create a market for innovative energy efficiency and renewable energy technologies coming out of the private sector and DoD and Department of Energy laboratories.

Finally, the Department is improving small-scale energy efficiency and renewable energy projects at military installations through our Energy Conservation Investment Program.

The effect of changing climate on the Department’s operating environment is evident in the maritime commons of the Arctic. The opening of the Arctic waters in the decades ahead which will permit seasonal commerce and transit presents a unique opportunity to work collaboratively in multilateral forums to promote a balanced approach to improving human and environmental security in the region. In that effort, DoD must work with the Coast Guard and the Department of Homeland Security to address gaps in Arctic communications, domain awareness, search and rescue, and environmental observation and forecasting capabilities to support both current and future planning and operations. To support cooperative engagement in the Arctic, DoD strongly supports accession to the United Nations Convention on the Law of the Sea.

As climate science advances, the Department will regularly reevaluate climate change risks and opportunities in order to develop policies and plans to manage its effects on the Department’s operating environment, missions, and facilities. Managing the national security effects of climate change will require DoD to work collaboratively, through a whole-of-government approach, with both traditional allies and new partners.

Energy security for the Department means having assured access to reliable supplies of energy and the ability to protect and deliver sufficient energy to meet operational needs. Energy efficiency can serve as a force multiplier, because it increases the range and endurance of forces in the field and can reduce the number of combat forces diverted to protect energy supply lines, which are vulnerable to both asymmetric and conventional attacks and disruptions. DoD must incorporate geostrategic and operational energy considerations into force planning, requirements development, and acquisition processes. To address these challenges, DoD will fully implement the statutory requirement for the energy efficiency Key Performance Parameter and fully burdened cost of fuel set forth in the 2009 National Defense Authorization Act. The Department will also investigate alternative concepts for improving operational energy use, including the creation of an innovation fund administered by the new Director of Operational Energy to enable components to compete for funding on projects that advance integrated energy solutions.

The Department is increasing its use of renewable energy supplies and reducing energy demand to improve operational effectiveness, reduce greenhouse gas emissions in support of U.S. climate change initiatives, and protect the Department from energy price fluctuations. The Military Departments have invested in noncarbon power sources such as solar, wind, geothermal, and biomass energy at domestic installations and in vehicles powered by alternative fuels, including hybrid power, electricity, hydrogen, and compressed national gas. Solving military challenges—through such innovations as more efficient generators, better batteries, lighter materials, and tactically deployed energy sources—has the potential to yield spin-off technologies that benefit the civilian community as well. DoD will partner with academia, other U.S. agencies, and international partners to research, develop, test, and evaluate new sustainable energy technologies.

Indeed, the following examples demonstrate the broad range of Service energy innovations. By 2016, the Air Force will be postured to cost-competitively acquire 50 percent of its domestic aviation fuel via an alternative fuel blend that is greener than conventional petroleum fuel. Further, Air Force testing and standard-setting in this arena paves the way for the much larger commercial aviation sector to follow. The Army is in the midst of a significant transformation of its fleet of 70,000 non-tactical vehicles (NTVs), including the current deployment of more than 500 hybrids and the acquisition of 4,000 low-speed electric vehicles at domestic installations to help cut fossil fuel usage. The Army is also exploring ways to exploit the opportunities for renewable power generation to support operational needs: for instance, the Rucksack Enhanced Portable Power System (REPPS). The Navy commissioned the USS Makin Island, its first electric-drive surface combatant, and tested an F/A-18 engine on camelina-based biofuel in 2009—two key steps toward the vision of deploying a “green” carrier strike group using biofuel and nuclear power by 2016. The Marine Corps has created an Expeditionary Energy Office to address operational energy risk, and its Energy Assessment Team has identified ways to achieve efficiencies in today’s highly energy-intensive operations in Afghanistan and Iraq in order to reduce logistics and related force protection requirements.

To address energy security while simultaneously enhancing mission assurance at domestic facilities, the Department is focusing on making them more resilient. U.S. forces at home and abroad rely on support from installations in the United States. DoD will conduct a coordinated energy assessment, prioritize critical assets, and promote investments in energy efficiency to ensure that critical installations are adequately prepared for prolonged outages caused by natural disasters, accidents, or attacks. At the same time, the Department will also take steps to balance energy production and transmission with the requirement to preserve the test and training ranges and the operating areas that are needed to maintain readiness.

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Shell is Taking Aim at U.S. Ethanol Market

Posted on February 2, 2010. Filed under: Advanced Biofuel, Blender's Tax Credit | Tags: , , |

By Steve Gelsi
MarketWatch
February 1, 2010

While a weak sugar harvest this year in Brazil may put a damper on ethanol exports, Royal Dutch Shell is taking aim both at the U.S. and European markets in its new joint venture with sugar giant Cosan.

Royal Dutch Shell executive Mike Williams said the oil major hopes to increase output from its Cosan joint venture to more than a billion gallons of ethanol a year, from about 500 million gallons now.

The sugar-based fuel could then be shipped to the U.S. or Europe, Williams said.

The new joint venture announced Monday would also target 792 million gallons of ethanol to the domestic Brazilian market.

“Our intention is to grow this business into a worldwide opportunity,” Williams said, according to a report by Dow Jones Newswires.

The prospects of more Brazilian ethanol in the U.S. hit a sore point with lobbying groups that support domestic supplies, already suffering from slack demand for car fuels.

Any imports into the U.S. would face an import tariff of 54 cents a gallon. Taking the sting out the cost, however, is a blenders tax credit of 45 cents a gallon offered to distributors who mix gasoline with ethanol.

Christopher Thorne, a spokesman with pro-U.S. ethanol group Growth Energy, said Brazil has been pushing to get the country’s sugar-based ethanol reclassified as an advanced biofuel to help circumvent the existing tariff.

Sugar futures touched a 29-year high of 30.4 cents a pound on Monday, before falling back, on expectations of a weak harvest after heavy rains.

Plinio Nastari, president of Brazilian consultancy Datagro, told Reuters that fungal disease is expected to hurt sugar output.

“This is the perfect illustration of why it makes no sense to become dependent on any foreign source of energy — whether it’s Middle East oil or Brazilian sugarcane ethanol,” the group said. “Between high sugar prices and a sugarcane crop shortage, Brazil can’t meet its own ethanol needs — let alone the ethanol needs of the United States.”

The U.S. imported about 12 million gallons of Brazilian ethanol in November, according to the Renewable Fuels Association,

“Brazil is having a supply issue themselves, and may be ready to import U.S. ethanol despite the 25% tariff Brazil puts on imports of ethanol,” said Matt Hartwig, a spokesman for the Renewable Fuels Association.

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Royal Dutch Shell and Cosan S.A. Sign US$12 billion Joint Venture in Brazil

Posted on February 2, 2010. Filed under: Advanced Biofuel | Tags: , , , |

RTTNews
February 1, 2010

Integrated petroleum company Royal Dutch Shell plc. (RDS-A: News ,RDS-B: News ,RDSA.L: News ,RDSB.L: News ) announced Monday that its unit, Shell International Petroleum Co. Ltd., has signed a non-binding memorandum of understanding or MoU with Brazilian sugar and ethanol company Cosan S.A. (CZZ: News ) in order to form an about US$12 billion joint venture in Brazil. The proposed joint venture will create one of the world’s largest ethanol producers, which will produce ethanol, sugar and power, as well as supply, distribute and retail transportation fuels.

The proposed biofuel joint venture would see both the companies consolidating certain of their existing assets in Brazil, which could dominate Brazil’s ethanol market. Brazil is a leader in biofuel production and consumption because of its abundant land and sugarcane production. The deal would enhance both companies’ growth prospects and market position in the retail and commercial fuels businesses in Brazil.

Both the companies will now engage in exclusive negotiations towards evolving a binding joint venture agreement. The transaction is subject to the creation of a final transactional documentation, due diligence, regulatory approvals and respective corporate approvals.

In a statement, Royal Dutch Shell’s downstream director, Mark Williams said, “Today’s announcement demonstrates the continued importance of Brazil to Shell. We’re looking forward to joining with a leading company in Brazil to meet the needs of retail and commercial fuels customers in that growing market.”

As part of the proposed 50:50 joint venture, Shell will contribute its 2,740 petrol stations and other fuel-distribution assets in Brazil as well as US$1.625 billion in cash, payable over two years, while Sao Paulo, Brazil-based Cosan will contribute 1,730 retail sites as well as supply and distribution assets.
 
Additionally, Cosan will contribute its sugar cane crushing capacity of about 60 million tonnes per year from 23 mills, as well as its ethanol production capacity of about 2 billion liters per year. Cosan will also bring in US$2.5 billion of net debt into the joint venture balance sheet. Further, Shell would contribute its 50% stake in Codexis and 14.7% stake in Iogen, two ventures exploring next-generation biofuels technologies.

With annual production capacity of about 2 billion liters, the joint venture would enhance both companies’ growth prospects and market position in the retail and commercial fuels businesses in Brazil. The joint venture would have a network of about 4,500 retail sites and a total annual throughput of about 17 billion liters, with further prospects of growth and synergies.

“Cosan’s vision is to become a global leader in clean and renewable energy. Our size, degree of sophistication and stage of development means we need a partner that not only shares our vision, but also has access to international markets to help us deliver our growth potential,” Cosan’s chairman, Rubens Ometto Silveira Mello added.

RDS-B closed Monday’s regular trading session at $54.53, up $1.15 or 2.15% on a volume of 0.67 million shares, higher than the three-month average volume of 0.63 million shares. CZZ closed at $8.60, up $0.80 or 10.26% on a volume of 2.11 million shares, higher than the three-month average volume of 1.80 million shares.

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Brazil Temporarily Reduces Ethanol Content in Gasoline from 25% to 20%

Posted on January 14, 2010. Filed under: Advanced Biofuel, Hydrous Ethanol | Tags: , |

Brazil Temporarily Reduces Ethanol Content in Gasoline from 25% to 20%
Green Car Congress
January 13, 2010

The Brazilian government has rolled back the anhydrous ethanol blend level in gasoline from 25% to 20% for a period of 90 days, effective 1 February. The decision to roll back the blend level was announced following a meeting attended by executives from the Brazilian Sugarcane Industry Association (UNICA).

Blend reductions are not new in Brazil, UNICA said; the last reduction occurred in March of 2006, when the percentage fell from 25% to 20%. The blend level was raised to 23% in November of that year, and fully reinstated at 25% in July of 2007.

Under Brazilian federal law, the anhydrous ethanol content of all gasoline sold in the country must be between 20% and 25%. The blend range is set by an interagency board (Conselho Interministerial de Acucar e do Alcool, or CIMA). The 5% reduction in the blend is expected to result in an additional 100 million liters (26.4 million gallons) of hydrous ethanol available per month, or around 7% of the current monthly demand.

Hydrous ethanol is pure ethanol (E100) used in flex-fuel vehicles, which run on any mix of ethanol and gasoline. The blend reduction involves anhydrous ethanol, which is the type of ethanol that is mixed with gasoline. While hydrous ethanol contains about 5% water content, anhydrous ethanol is virtually water-free. Hydrous ethanol is the more popular fuel in Brazil.

“The government’s reasons for the temporary reduction are understandable, but the move must be limited to the 90-day period only. Because of high prices, consumers who own flex-fuel vehicles are already shifting from hydrous ethanol back to gasoline, so there is no risk of pumps going dry.

Dropping the blend requirement is unlikely to change the dynamics of the cane industry, which will continue to produce more ethanol and more sugar year after year. All that changed this year was the pace of that increase because of unseasonable rains that affected the harvest.”

—UNICA’s Technical Director, Antonio de Padua Rodrigues

Padua noted that the government should be praised for its open dialogue with the industry and for setting a timeframe for the measure, with reinstatement of the 25% blend happening as the sugarcane industry launches what will be the largest sugarcane harvest in Brazil’s history.

The Brazilian Sugarcane Industry Association (UNICA) represents the top producers of sugar and ethanol in the country’s South-Central region, especially the state of Sao Paulo, which accounts for about 50% of the country’s sugarcane harvest and 60% of total ethanol production. In 2008, Brazil produced an estimated 565 million metric tons of sugarcane, which yielded 31.3 million tons of sugar and 25.7 billion liters (6.8 billion gallons) of ethanol.

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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
Bloomberg.com
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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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

Track the rise of carbon dioxide emissions.

Countdown to Copenhagen

Take a look at events leading up to the climate conference.

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.

[Climate]

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.

Climate

Climate

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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