FT Energy Source is posting a daily question for our panel of expert commentators. Below are responses from panel members Kyoto carbon markets architect Graciela Chichilnisky, Mindy Lubber of the Investor Network on Climate Risk, Jeremy Leggett of Solarcentury and Julian Morris of The International Policy Network.
Are derivatives and other financial instruments a good way to address
the political issues around financing carbon reduction in developing countries? What are the risks and how can they be avoided? This refers not only to institutional proposals such as those offered by George Soros, but also market-based instruments.
Derivatives and other financial instruments can be an excellent way to address the political issues around financing – among OECD nations or between the Organisation for Economic Co-operation and Development and developing nations. Transparency, appropriate regulation and accountability are important of course.
Examples are the Clean Development Mechanism of the Kyoto Protocol, a financial mechanism that was explicitly endorsed by 100 nations at an April 27-28 2009 meeting in the Palais des Nations, Geneva, convened to evaluate it. The CDM is not perfect and needs improvements – but the consensus from the 100 nations that were present was that it was working. The carbon market itself – which I have designed and drafted into the protocol in 1997 – is a financial mechanism that has been successful in financial and environmental terms as well. It is now trading $120bn in the European Union trading system and has helped decrease the equivalent of 20 per cent of EU’s emissions.
Valero Energy, the US’s biggest independent refiner, has signed a five-year deal to buy biodiesel from Mission NewEnergy, an Australian-listed biodiesel refiner. The agreement, worth up to $3.5bn, also gives Valero the right to buy up to 25 per cent of Mission at A$0.45 per common share, representing a 61 per cent premium to the current 30-day price. Mission’s share price closed at A$0.33 on December 8.
The biodiesel sector has been among the big victims of the credit crisis, with companies unwilling to lend to or buy into a new and unproven fuel given the uncertainty of returns. That Valero is making this investment could signal renewed interest in this segment. Particularly after the US government said it had picked 19 biorefinery projects to receive up to $564m to accelerate the construction and operation of pilot, demonstration and commercial scale biorefinery facilities.
An official draft text of a possible agreement on climate change has now been published by the United Nations at the Copenhagen climate change summit.
As usual, it’s a text that will not please anyone in its entirety.
The European Union is vexed that the text does not require developing countries to make their commitments to curb their emissions legally binding. This is a big stumbling block.
Rich countries also do not want the current emissions targets in the text – 25 to 40 per cent reductions on 1990 levels by 2020 – to remain in. At present, they are in square brackets, which denotes they could be removed.
Well, it’s Denmark and not Sweden, but a bit of Abba rarely goes amiss.
The developing nations at the Copenhagen talks are constantly wondering aloud what it must be like to live in a rich man’s world. They – at least, most of them – have put forward very convincing arguments as to why they need aid to both cope with the effects of climate change and to take actions to curb their emissions.
But although developed countries freely profess to be convinced, so far they have done little to act on this. Few have come up with any money for the poor world so far.
What developing countries need most is “fast start” financing of $10bn a year for the next three years.
At last, though, Europe has answered their calls. The European Union agreed on Friday to offer €2.4bn a year to developing countries, about a third of the money needed.
- China vs Tuvalu
- Non-Opec supply outlook not so bad; but demand also rises
- Climate change and sceptics’ arguments, upsummed
- Jackup rig costs: holding up?
- Copenhagen catch-up: Soros’ $100bn and developing countries rift
- Iraqi oil auctions and gigantic GE wind farms in Spot news
- America’s greener trend
- Copenhagen diary, December 10: The voice of youth
- Copenhagen panel: Are NGOs in danger of sabotaging the talks?
- What would a wise and omnipresent planner do at Copenhagen?
- It’s all about Obama
- Stable oil prices and more SUVs in America’s future
- More reasons to worry about peak uranium
- IEA signals a subtle shift by policymakers – towards peak oil
- Oil price over $70 – $80 ‘risky for recovery’
- Climate change, peak oil, and belief systems
- What’s next for the EPA?
- Big energy versus small
- Nitrous oxide clouds future of biofuels
Get The Source by email (free registration required)
Tuvalu made waves when the country’s representative at Copenhagen caused one of the discussion tracks to be suspended by walking out in protest. Tuvalu wanted a stronger agreement that would also cut some developing country emissions, and is proposing a new treaty that be much stricter than Kyoto and limit CO2 concentrations to 350ppm.
China and India reacted strongly to the proposal, which they said would constrain their economies too much. Even some of Tuvalu’s fellow small-island nations have backed away from its tough stance.
Tuvalu is a tiny Pacific island nation with a population of about 12,000 and GDP somewhere in the region of $15m. Its main sources of income are remittances, aid, fishing rights and the .tv domain extension. As a low-lying nation, it has a lot of lose from rising sea levels associated with climate change.
What a difference a quarter makes. The IEA has updated its forecasts for oil demand and supply to 2014, and a big change is that non-Opec supply now increases by 0.7m barrels per day during the five-year period, rather than decreasing by 0.4m b/d. Furthermore, decline rates of production capacity remain unchanged:
No across‐the‐board changes are made to future decline rates, since there is little
evidence that lower spending in 2009 versus 2008 has so far exacerbated these compared with our original expectation.
An 0.7m increase is fairly small, but not long ago the IEA was predicting non-Opec production capacity would peak around 2010.
Blogger Andrew Sullivan has opened an interesting discussion of climate change scepticism.
It begins with Sullivan quoting The Washington Post’s Ezra Klein, quoting the From the Archives blog. Here are a couple of highlights from that original post:
But here’s the thing I wonder. How do people who deny climate change reconcile that with guys like this, who are spending entire careers on teasing out really non-dramatic aspects of climate change? This guy is not measuring carbon concentrations in oyster shells for the glory. There are thousands of these people, dorkily and steadily piecing out the causes and predicting effects.
It soon will be. The UK’s Met Office forecast on Thursday that next year would be the warmest on record.
Or, rather, not quite. In a great example of hedging, the Met Office actually said it was “more likely than not” to be the warmest since records began in the 1850s, surpassing the previous warmest year, 1998.
The reason the meteorologists think next year is going to be warmer is similar to what made 1998 so hot around the world – an El Nino event. This is a moderate warming of the tropical Pacific Ocean, which has repercussions around the world.
Rigzone has looked at the state of jackup rigs in 2009, and put together a nifty chart comparing it to the previous year (in the second column):