News December 2006-January 2007

The following are summaries of news stories from the December 2006-January 2007 print edition of Environmental Finance magazine

Commission to the rescue of EU ETS

Doubts over the future of the EU Emissions Trading Scheme have eased, after the European Commission slashed proposed carbon dioxide (CO2) caps for its second phase.

The Commission made its first round of decisions on how many allowances member states can allocate to factories and power plants in Phase II of the scheme, which runs from 2008–12, reducing the proposals of 10 member states by a total of 7%.

If the Commission is just as tough on the remaining member states, analyst New Energy Finance estimates business-as-usual emissions will be 1.5 billion tonnes of CO2 above the allocation of allowances. Consultancy ICF International puts this figure at between 1.1 billion and 1.3 billion.

Supreme Court mulls GHGs

The US Supreme Court heard arguments on 29 November in a case that addresses vehicle emissions, but which could determine whether the government should regulate greenhouse gases (GHGs).

The 1999 case, brought by Massachusetts, asks the Environmental Protection Agency (EPA) to set GHG standards for vehicles. In 2003, the agency said it had no authority to do so, since GHGs are not “pollutants” requiring regulation under the Clean Air Act (CAA). A federal appeals court backed the EPA, so in early 2006, Massachusetts and 11 other states went to the Supreme Court.

A ruling is expected in July.

Australia’s Howard u-turns on emissions trading

The Australian government is to form a taskforce to investigate greenhouse gas emissions trading at the national and international level, Prime Minister John Howard has announced. Although the terms of reference have yet to be released, he indicated the review will include an assessment of possible changes or alternatives to existing international carbon markets.

“The government will establish a joint government/business task group to examine in some detail the form that an emissions trading system, both here in Australia and globally, might take in the years ahead,” he said in a 13 November speech to the Business Council of Australia.

Deal struck on EU chemicals law

Landmark European laws on chemicals safety are likely to be approved in mid-December following a last-minute compromise between the European Parliament and EU governments.

The law on the registration, evaluation and authorisation of chemicals (REACH) is due to come into force during 2007, and will affect chemicals companies and manufacturers around the world. The European Commission estimates that 30,000 substances will be registered, and many tested for the first time, as the law is phased in over the next 11 years. It will cost up to €5.2 billion ($6.9 billion) over an 11–15-year period, according to a Commission impact assessment.

Expansion on the cards for EU ETS

A review of the future of the EU Emissions Trading Scheme (ETS) is to consider expanding the scheme to include additional sectors and greenhouse gases. It is also considering replacing the current system of country-by-country caps on emissions with a single, Europe-wide cap.

The European Commission issued a statement in November, setting the agenda for its forthcoming review, saying it will concentrate on four key areas: expanding the scope of the scheme; further harmonisation between member states and more predictability in the allocation of allowances; robust enforcement of the rules; and how to link the EU ETS with similar schemes in different countries.

Cat bond holders profit from quiet hurricane season

The 2006 Atlantic hurricane season has ended without a major hurricane reaching land, spelling good news for investors in catastrophe bonds.

"The results tell us that anyone holding cat bond risk has done very well this year," said Warren Isom, senior vice-president at insurance broker Willis Re, based in Philadelphia. “This year is likely to give new investors confidence in the market,” he added.

Renewable energy standards on the rise

The European Commission is to create a global risk capital fund worth €100 million to boost energy efficiency and renewable energy projects in developing countries.

Brussels hopes that the Global Energy Efficiency and Renewable Energy Fund will encourage private investment in such projects.

Renewable energy projects in these countries are struggling to attract private capital, because of relatively high levels of perceived risk.The Commission hopes that the fund will allay these concerns by offering risk-sharing financing options to encourage investments. It intends to kick-start the fund with a contribution of €15 million next year and a total of around €80 million over the next four years.

Wachovia’s environmental policy falls short – RAN

Wachovia has become the latest US bank to set out an environmental policy – but it has been severely criticised by the Rainforest Action Network (RAN).

The North Carolina-based bank – the fourth largest bank in the US by assets – published a set of environmental principles at the end of October, mostly focusing on reducing the environmental impact of its own operations, although it did establish a policy on lending to the forestry sector.

But RAN corporate commitments campaigner Dana Clark said that the policy fails to match the commitments made recently by other banks.

France proposes carbon import tax

The EU should impose an additional tax on goods imported from countries that fail to join a post-2012 climate agreement, according to French prime minister Dominique de Villepin.

De Villepin said a ‘carbon tax’ on imports of industrial goods is necessary to avoid environmental ‘dumping’, where carbon-intensive products are manufactured in countries that have no targets to reduce greenhouse gas emissions.

Coal mine should have looked at GHGs, says Australian court

An Australian state environment court has ruled that the environmental assessment of a coal mining project was inadequate because it did not take account of the carbon emissions from burning the coal.

No one should under-rate the importance of the decision, Australia’s environment minister Ian Campbell said the following day. It means backers of the proposed Anvil Hill coal mine north of Sydney “can’t proceed at this stage because they didn’t take into account the greenhouse gas emissions that a potential customer for that coal, potentially on the other side of the planet, would create from it,” he said.

However, environmental law specialist Chris McGrath was more circumspect, telling Environmental Finance the decision did not deal with actual project approval, but simply demonstrated coal mine assessments must cover downstream emissions.

Banks lag on sustainability – Sarasin

Most international banks are making middling efforts on sustainability, according to a Bank Sarasin study, with only HBOS making the highest grade.

JPMorgan Chase, Citigroup and Deutsche Bank were among the stragglers identified by the Switzerland-based bank, which rated them as below average.

TXU prepares for CO2 capture

TXU has updated its proposal to build 9,079MW of coal plants in Texas, planning to make the 11 plants “carbon capture ready”.

In April, Dallas-based TXU announced the $10 billion plan for “super critical” coal plants, which burn coal more efficiently than older plants.

TXU said it would control 100% of sulphur dioxide, nitrogen oxides and mercury emissions from these plans with equipment or offsets from existing plants.

US Supreme Court takes on NSR

The US Supreme Court took up a case in November that pits environmentalists against utilities on ‘New Source Review’, which determines when generators must add emissions controls to plants.

In Environmental Defense v Duke Energy, the court will decide whether plants face an hourly or annual emissions test. Utilities favour the hourly standard, but green groups say that would allow plants to run for more hours in a year, increasing total pollution.

UK turns again on environmental reporting

UK businesses will have to report on their environmental impacts after a second government u-turn.

The Companies Act received royal assent at the end of November, with a requirement added at the eleventh hour for companies to produce a ‘business review’ including information about their environmental impact.

The act will be phased in by October 2008. However, the business review provisions do not go as far as the proposed Operating and Financial Review, which it replaced.

US states move further on mercury than EPA

More than 20 states plan to reduce mercury emissions more deeply than required by the US Environmental Protection Agency (EPA), and many will prohibit trading of mercury allowances.

The EPA required states, territories and Indian tribes to file plans by 17 November, to comply with the Clean Air Mercury Rule. The rule is scheduled to take effect in 2010, requiring reductions of the toxin by 21% by 2010 and 70% by 2015, predominantly from coal-fired power plants.The rule allows trading of mercury allowances.

But the Clean Air Act allows states to impose more stringent standards, and a number propose to do so.

Carbon Trust rethinking low-carbon VC fund

The UK’s Carbon Trust has gone back to the drawing board with its plans for a venture capital fund to invest in the low carbon and clean energy technology sectors. The trust had hoped to raise up to £75 million ($147 million) into its Carbon Trust Investments Clean Energy Fund, which it planned to list on the London Stock Exchange’s Alternative Investment Market (AIM), but the listing was pulled in late October.

According to a source close to the Carbon Trust, potential investors were concerned by the “cash drag” that a listed fund could suffer from. Initially, most of the fund’s assets would have been held in cash, as it sought investments in technologies including renewables, solar generation, fuel cells, biofuels and synthetic fuels.

OECD warns China on environment

China’s “comprehensive and modern” set of environmental laws has been unable to keep pace with the pressures generated by the extremely rapid growth of the country’s economy, according to a new OECD report.

Between 1990 and 2005, when annual GDP growth averaged 10.1%, China managed partially to decouple pollution from economic growth, particularly in municipal waste and emissions of sulphur dioxide and nitrous oxide. In addition, energy intensity per unit of production improved by about 50% during the period, the report notes.

Nonetheless, air pollution in some Chinese cities is among the worst in the world, one in three water courses are severely polluted, energy intensity remains some 20% above the OECD average and the country is the second largest emitter of greenhouse gases and the biggest producer of ozone-depleting substances.

International Power breezes into renewables

Electricity generator International Power is to acquire wind farms with total generating capacity of 436MW from UK-based money manager Christofferson Robb & Company.

The portfolio, named ‘Lenova’, includes 286MW of wind power capacity in operation, 126MW in construction and 24MW due to begin construction. The assets are valued at €567 million ($744 million), which includes the funding required to complete those wind farms under construction.

go to Features December 2006-January 2007