News September 2006

The following are summaries of news stories from the September 2006 print edition of Environmental Finance magazine

Non-Kyoto trading schemes advance, uncertainly

Proposals for greenhouse gas (GHG) emissions trading schemes have been tabled, or further elaborated, on both coasts of the US and in Australia. The schemes – sponsored by states, or coalitions of states – challenge national government opposition in both countries to mandatory controls on carbon emissions and to the Kyoto Protocol on climate change. However, they face considerable hurdles to implementation.

Australia’s Labor Party-run states and territories became the latest group to propose an emissions trading scheme, announcing proposals for a national cap-and-trade system on 15 August. The scheme would set emissions targets from 2010, initially covering electricity generators responsible for 35% of the country’s GHG emissions, with rolling 10-year caps, plus a further 10 years of indicative targets.

Meanwhile, amendments to a bill moving through the California legislature that cap GHGs have diluted its earlier endorsement of market mechanisms. The Global Warming Solutions Act was introduced in April to advance the goals of Governor Arnold Schwarzenegger, who wants California to cut GHG emissions to 2000 levels by 2010 and to 1990 levels by 2020.

Commission must cut ETS targets by 7% – Deutsche Bank

Research from Deutsche Bank suggests that the European Commission must slash the number of allowances awarded to industry in the second phase of the EU Emissions Trading Scheme (ETS) by 7%, if the scheme is to make its expected contribution towards the bloc’s Kyoto Protocol targets.

After analysing the 19 national allocation plans (NAPs) published as of late July – in which member states propose caps on carbon dioxide (CO2) emissions from industrial installations from 2008–12 – the bank called for the Commission to slash the number of proposed allowances from 1.939 billion tonnes of CO2 to 1.8 billion.

By 17 August, 21 of the 25 member states had published at least a draft version of their plan, with Estonia, Germany, Ireland, Lithuania, Luxembourg and Poland having submitted theirs to the Commission. From the time each plan is handed in, the Commission has three months to evaluate it and make changes.

Cleantech funds close as investment climbs

Two ‘clean technology’ venture capital (VC) funds have closed in recent weeks, as investment in the sector resumes its climb. Chrysalix Energy, a Vancouver- based VC fund manager, has raised $70 million into its second clean energy fund, while Expansion Capital Partners has raised $55 million into its Clean Technology Fund II.

The closings come as research from the Cleantech Venture Network finds that cleantech was the third largest VC sector in North America in the second quarter of this year, behind only biotech and software, and accounting for 13.4% – or $843 million – of VC investment. That figure was up 64% on the previous quarter, and 129% year on year.

London Asia raising $500m China environmental fund

London Asia, a UK-based merchant bank, is aiming to raise a $500 million energy and environment private equity fund, focused primarily on tapping rocketing Chinese demand for environmental technologies.

“China is very aware of its environmental problems, and there’s substantial demand for environmental technology and expertise, whether in renewable energy, water treatment, or in coal mine safety and methane capture,” Christoph Loeslein, director of the firm’s energy and environmental division, told Environmental Finance. “The fund would bring Western environmental companies into Asia – providing them with capital, and with a way to get into China.”

Investors clash with TXU over emissions plan

TXU has announced novel plans to submit to voluntary emissions reductions to help it gain approval for 9,079MW of new coal plants – but the lack of proposed carbon controls has led to confrontations with investors.

In April, the Dallas-based utility announced plans to build 11 plants by 2010, at a cost of $10 billion. On 27 July, it asked the Texas Commission on Environmental Quality (TCEQ) to impose caps on its overall emissions of sulphur dioxide, nitrogen oxide and mercury.

But on 15 May, five pension fund managers – including the treasurer of California and the comptroller of New York – wrote to CEO John Wilder to express their concern. “The future cost of carbon could alter the prudence of this large investment because the plants do not control CO2 emissions,” wrote the managers, who are part of the Investor Network on Climate Risk.

World Bank mulls new carbon fund tranches

The World Bank is considering raising additional tranches of its groundbreaking Umbrella Carbon Facility (UCF) carbon fund, according to the head of the Bank’s Carbon Finance Business.

The plans are in their early stages, said Joelle Chassard, but they could see the Bank approaching government and private sector participants to add to the $920 million raised for the UCF’s first tranche. The UCF is designed to buy greenhouse gas (GHG) emission reduction credits from projects which qualify under the Kyoto Protocol’s Clean Development Mechanism (CDM).

Carbon Trust to cash in on recycled heat

The Carbon Trust, Mitsui Babcock Energy and Triodos Renewables are entering into business together with the aim of creating a market for recycled heat in the UK.

The Carbon Trust, an independent company set up by the UK government to encourage a shift to a low-carbon economy, set up the subsidiary through its new business arm, Carbon Trust Enterprises.

China to boost biodiesel production

China is building its largest biodiesel plant, with an annual capacity of 750,000 tonnes, and is also planning to recycle much of the 5 million tonnes of vegetable oil consumed by its restaurants into diesel.

The first phase of the 300 million yuan ($37.5 million) vegetable oil recycling plant in the eastern city of Nanjing is due to open in October, and is aimed at relieving the acute fuel shortages affecting the highly industrialised province of Jiangsu.

Plans ‘this year’ for Hong Kong/ Guangdong emissions trading

The governments of Hong Kong and Guangdong will brief industry this year on a proposed emissions trading scheme for power stations in Hong Kong and the Pearl River Delta, although it will be left to individual power companies to decide whether to participate.

Hong Kong chief executive Donald Tsang discussed the proposals at a Hong Kong/ Guangdong joint conference in August at which completion of an “implementation framework” for the scheme – to address emissions of sulphur dioxide, nitrogen oxides and particulate matter – was announced.

UK renewables plans meet guarded welcome

Renewable energy specialists have broadly welcomed the UK’s plan to restructure the policy tool it uses to support the industry to incentivise a broader range of technologies. However, some have raised concerns that it may deter investment.

In its Energy Review, published on 11 July, the UK government shored up its support for the Renewables Obligation, which requires all electricity suppliers to source an increasing percentage of their power from renewables, by promising to extend the target from 15% to 20% “when justified by growth in renewables”.

Europe reviews e-waste laws, UK lags

A review of the implementation of European legislation on the recycling of waste electrical and electronic equipment (WEEE) has begun, even though two member countries are yet to implement the new law.

The European Commission review, to report in 2008, will examine future targets and whether the directive can be improved.The first phase – gathering information from stakeholders – is complete. A draft report was published on 14 August on a Commission website.

European states were due to transpose the WEEE directive into national law by August 2004, but the UK and Malta are still deciding how best to proceed.

World counts cost of extreme weather

Europe and North America are reeling from the human and financial cost of this summer’s record-breaking temperatures, while East Asia is suffering from the harshest typhoon season in 50 years.

As temperatures soared in July, heat-related deaths were reported on both sides of the Atlantic, raising the political temperature of the climate change debate.

France raises incentives for renewables

The French government has revised its renewable power support regime, doubling the prices electricity suppliers must pay for solar power and extending the eligibility period for wind farms.

The new feed-in tariffs, introduced on 26 July, bring France into line with its neighbours Germany and Spain. Wholesale electricity buyers are required to pay the tariffs up-front, but will be reimbursed by the French government.

World Bank raises spending, exceeds target, on renewables

The World Bank is spending $680 million on renewable energy and energy efficiency projects in the 2006 fiscal year. This is an increase of 48% over last year’s commitments, the Bank announced in mid-August, and double the growth rate it promised two years ago.

From July 2005 to June 2006, the Bank and its associated organisations – the International Finance Corporation, the Multilateral Investment Guarantee Agency, its carbon finance operations and the Global Environment Facility – have committed $490 million to energy efficiency and $190 million for new renewable energy projects.

US NOx rebounds after drop, but no surge seen

After sinking to a record low price in July, prices for US nitrogen oxide allowances rebounded in August, but market players do not expect further significant moves upward.

At several points in July, NOx traded at $1,725/ton. This was an historical low price for the SIP Call market, which refers to the “state implementation plans” required in the second phase of the Environmental Protection Agency’s NOx ‘cap-and-trade’ programme, involving electricity generators and industrial boilers in eastern states.

Ilisu dam to go ahead, says Turkey

Work has begun on the Ilisu dam in Turkey, a project so controversial that construction firm Balfour Beatty pulled out in 2001 and the World Bank has refused to finance it.

An Austrian firm, VA Tech Hydro, is now in charge of construction work on the 1,200MW dam but, according to NGOs, it has yet to secure financing, and it is unclear whether anyone other than the Turkish government will underwrite the project.

go to Features September 2006