Tuesday 27 January 2015

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Waiting for expectations – how will the oil supercycle end?

Posted by on 26/01/15

The oil price slump has come as a huge surprise for the market. The very scale of the phenomenon is astounding, of course, but what is really interesting is that although everyone knew about the spectacular upsurge in oil supply in the US, which lay at the root of the declining prices, it did not feature as a material factor in any price projections or scenario analyses prepared by prominent think tanks, including the International Energy Agency. Naturally, the impact of America’s growing oil production on prices was mitigated by generally proportionate slumps in North Africa and Middle East, but what has fallen will eventually rise back again. At the same time, however, the prospect of low oil prices, which the consumers readily welcome, is a substantial challenge not only to the upstream sector, but also to renewable energy and nuclear power industries. Oil prices were expected to remain high due to prolonged geopolitical turmoil in oil-producing regions and the belief that OPEC, loath to see prices dip for budget reasons, would take action to prevent any excessive slumps. And because projections released by international organisations are tool for managing expectations, everyone would rather let sleeping dogs lie. Waiting was a preferable course of action. Maybe the dogs will not wake up?

But the dogs did wake up after all, causing all sorts of trouble. Most importantly, expectations that oil prices would remain high were crushed (including short-term and two-year projections) and we currently have nothing to put in their place. As OPEC has stopped intervening, the market is looking to the marginal costs of production to support oil prices. These, however, are not easy to determine, so the process might take a while. The obvious course of action is to turn to the American tight oil sector, which is suspected to be behind this state of confusion. The price pressure which has already become to affect the sector (which is much more sensitive to price changes than conventional production) brings to light a number of facts about it, such as that marginal costs tend to differ considerably between individual wells, some forty thousand of which are drilled each year. The discrepancy stems from the fact that the cost of a well is more or less the same in each case, but the output can fluctuate hugely. Some wells flow less than a hundred barrels a day, while other can yield more than a thousand. Falling prices hit risky undertakings first, including low-efficiency projects. Wells close down, yet no proportional changes in production follow. Instead, the consolidation within the sector gathers pace, driving marginal costs down. A similar thing happened when the price of shale gas on the US market forced out a large number of independent producers, which caused the number of wells to decline sharply. Despite that, gas production went up. OPEC, which is a material source of uncertainty, has not had its last word yet, and it is hard to say when the cartel is going to step in again. The country which can tip the scales is Saudi Arabia, which not only sits on top of the lion’s share of global unconventional oil reserves with low marginal costs, but also has financial reserves to keep it floating until the marginal barrel is found.

From a long-term perspective, the oil price slumps seen since mid-2014 mark the last stage of the oil supercycle, which IHS believes to have begun in 2000 with a demand boom and supply bottlenecks. At that time, oil demand was driven by rapid economic growth in China, which joined the International Trade Organisation at the end of 2001, becoming an appealing destination for transferring production. Supply bottlenecks, on the other hand, were a consequence of the prolonged period of low oil prices after the 1980 Iranian revolution. In the following years, the oil price continued to go down, and once oil became an exchange-traded commodity in 1988, its price hovered around USD 18/b in 1990–1999. The first stage of the supercycle came to an end in 2007, gradually progressing into the second phase (2005–2011), which was about breaking the supply barrier. At that time, the price of oil grew rapidly – from USD 55/b in 2005 to over USD 111/b in 2011. While oil prices fuelled fears that the fast-growing demand will outstrip supply, the brisk pace at which the prices rose opened the way for new and expensive deepwater drilling, horizontal drilling and fracturing technologies. The oil rush also inspired exploration efforts in geopolitically unstable areas, such as Central Africa. As a result, 2012–2014 saw an upsurge in oil and natural gas production from new sources outside OPEC, which marked the third phase of the cycle. The 10 years of uninterrupted price growth – from USD 38/b in 2004 to USD 109/b in the first half of 2014 (over USD 5 a year) – resulted in substantial and lasting reductions in demand in developed economies. Oil prices remained high throughout that stage of the cycle, reaching USD 112/b in 2012 and USD 109/b in 2013, and were further cemented in the first half of 2014 on the back of geopolitical developments and production slumps in North Africa and Middle East. The third stage of the supercycle took place at a time when the global economy oscillated between stagnation and weak recovery, and oil demand was additionally undermined by China’s protracted business cycle (bracing for the hard landing after government-sponsored stimulation of investment in infrastructure). This situation triggered, in mid-2014, the ongoing oil price slump.

The price slump ushered in the fourth phase of the cycle, which brought still lower prices as the oversupply of oil was being absorbed by the market and the search for the marginal barrel continued. The price decline will erode production potential, which will have to be adjusted to new pricing conditions. The adjustment process will not be a smooth transition for several reasons. Having lost the compass that OPEC’s strategy was, the market is now groping in the dark. The search for the marginal barrel has begun on the American market, progressing from the physical market (OPEC) to the paper market (NYMEX), which is much more volatile. Price projections on the latter market have a bearing on the capital market and affect the availability of financing for American upstream companies and their CAPEX as well as future production figures, which in turn shape future oil prices. The duration of the current phase of the cycle is uncertain. Taking into account the oil market’s structure (paper and capital market transactions are prevalent in the US) and technological considerations (production sector reacts quickly to changes in price expectations), experts estimate that it may last for one to three years. However, looking at past events, we will remember that the price decline and the subsequent stagnation of prices at low levels which followed the second oil shock in the wake of the Iranian revolution persisted for nearly two decades.

It is hard to say today what the price of oil will be in two or three years, but following the line of thought presented above we can expect that the future price trajectory will be lower than we had anticipated just half a year ago. At the same time, oil prices can be expected to be much more volatile than in the last three years. During adjustment periods, such as the one we are currently going through, price expectations are not unlike self-defeating prophecies. The greater the expected strength and duration of the price slump anticipated by the market, the quicker and stronger the future supply reductions will be (more and more production projects become unprofitable, financing becomes difficult to obtain). As a result, future supply shrinks even more, driving future prices beyond today’s expectations. Given the existence of such a mechanism, the market prefers to adjust its price expectations in small increments. In consequence, rather than portend a rapid increase, the steep contango seen in futures price graphs points to oversupply as the reason behind the current oil price dip.


Governments must hurry and tax ultra-cheap oil

Posted by on 25/01/15

International oil prices have declined to $ 50/barrel, levels not seen for years; but governments fail to neutralise these ultra-low prices by raising excise taxes. They seem to be much more interested in pleasing consumers than in seizing the opportunity for reducing their budget deficits and fighting climate change.

This is irresponsible! Have governments completely stopped being guided by long-term concerns. Are they no longer able to be flexible?

Why have we not heard calls from IEA or OCDE to resort to higher oil taxation?

Why does the UN in charge of the December Climate Conference in Paris remain silent? Should a rise or the introduction of excise taxes on gasoline, diesel and heating fuels not a be a simple “contribution” against climate change which it has invited all governments to submit before the Paris Climate Conference ?

Why has the EU Commission not recommended member states to raise their taxes ?

If it takes so long to decide on a simple excise tax, how long will it take governments to take more complex action against climate change?

In a rapidly changing world, governments must learn to act much faster than last century!

Brussels 25.01.2015 Eberhard Rhein

EU Energy Future: What Role for Nuclear?

Posted by on 20/01/15
Guest blogpost by Hans Korteweg, Communications & Government Affairs Manager at Westinghouse Europe, Middle East & Africa 2015 promises to be an exciting and crucial year in which European Union (EU) energy policy-makers will play a particularly important role. Over the next months, members of the European Parliament’s Industry and Environment committees will be shaping the [...]

Boeing and Embraer deepen sustainable biofuel collaboration

Posted by on 20/01/15

Boeing and Brazilian aerospace firm Embraer announced the opening of a joint centre for sustainable biofuel research in Sao Jose dos Campos, Brazil. Through this centre, the companies will coordinate and jointly fund research at Brazilian universities and other institutions, with a special focus on how to develop a sustainable aviation biofuel industry in Brazil.

The collaboration will be led by Boeing Research & Technology-Brazil (BR&T-Brazil), one of Boeing’s six international advanced research centers. Boeing also has active biofuel-development projects in the United States, Middle East, Africa, Europe, East and Southeast Asia, and Australia. Globally, more than 1,600 passenger flights using sustainable aviation biofuel have been conducted since it was first approved for use in 2011.

“Boeing and Embraer, two of the world’s leading aircraft manufacturers, are partnering in an unprecedented way to make more progress on sustainable aviation biofuel than one company can do alone,” says Donna Hrinak, president of Boeing Brazil and Boeing Latin America.

When produced sustainably, aviation biofuels can reduce CO2 emissions by as much as 80 per cent compared to conventional jet fuel. On the EU policy side, Boeing urges the new Commission and European Parliament to focus on policy measures that can support aviation biofuels development and commercialisation.


The Real Value of Arctic Resources

Posted by on 18/01/15

By Nina Jensen, Secretary General of WWF-Norway

As the annual Arctic Frontiers meeting starts in Tromso Norway, much of the talk and media coverage will once again be centred on Arctic resources. This is usually code for oil and gas development in the Arctic, and the potential geopolitical conflict over the exploitation of these resources. This focus is entirely misguided.

The Arctic’s most significant renewable resources are ice and snow. The ice and snow in the Arctic reflect significant amounts of the sun’s energy. As we lose that reflective shield, the Arctic absorbs more solar energy. A warming Arctic warms the entire planet, causing billions of dollars’ worth of avoidable damage, displacing millions of people, and throwing natural systems into disarray. We continually undervalue the critical role of the Arctic is shielding us from wrenching change. Instead, we ironically look to it as a source of the very hydrocarbons that are melting away the Arctic shield.

Apart from the question of whether we should be developing hydrocarbon resources anywhere in the world, let us look at the question of specifically developing them in the Arctic, which in many cases means the offshore Arctic, under the ocean.

We know there are no proven effective methods of cleaning up oil spills in ice, especially in mobile ice. Even without ice, the effects of a spill in Arctic conditions will linger for decades. Oil from the Exxon Valdez spill in Alaska still pollutes beaches, more than 25 years later. We know that drilling for oil in the offshore Arctic is extremely risky – just look at the mishaps that Shell has encountered in the last couple of years in its attempts to drill off the Alaskan Coast. So there is a high risk of mishap, and no proven effective method of cleaning up after such a mishap. No matter what the price of oil, $50 or $200 a barrel, is it worth the risk?

We do not need to make the same mistakes in the Arctic as we have made elsewhere. We can instead use the Arctic as a proving ground for greener, cleaner technologies. Tidal power, wind power, hydro power, all have potential in the Arctic. The Arctic, with its smaller population centres is ideal for smaller scale technologies to produce such renewable power.  Such local power generation can create local jobs, and make Arctic communities more self-sufficient, able to withstand the fluctuations in price of petroleum-based fuels that will eventually bankrupt them.

This message is not just coming from WWF. If you look at the US government plans for its chair of the Arctic Council starting later this year, it also recognizes the value of replacing fossil fuels with community-based renewable power sources – it also just put the valuable fishery of Bristol Bay off limits to oil and gas development. So it’s not just NGOs and Arctic peoples who are questioning the value of fossil fuels in the Arctic, versus the real value of the Arctic to the world – as a regulator of our global climate.



What’s up with the oil market?

Posted by on 15/01/15

The summer of 2008 saw the price of Brent crude rise to its record high, reaching more than $144 per barrel on July 3rd, and some speculated it would continue growing. However, the price fell to below $40 in late 2008, having shrank 77 per cent over just six months. Last year on June 19th, a barrel of Brent crude cost $115. This year on January 13th, it traded on the London commodity exchange for little more than $45 – the price had sunk 60 per cent over seven months. What is happening on the oil market?

Adjustment of expectations

Demand and supply in the oil industry are characteristically slow to react to price signals, lagging one or more quarters behind. As a result, anticipated demand and supply are more important than current prices, as it is these expectations that shape future prices, which can be secured using forward transactions.

Early last year, the global demand for crude oil in 2014 was projected to climb to 1.6 million barrels a day (mbd) and supply to 1.7 mbd. Prices were expected to decline marginally in these conditions. As it turned out half a year later, the echoes of the economic sanctions imposed on Russia reverberated more strongly across the Eurozone than originally anticipated. Worrying economic signs could also be seen in China, resulting in global growth forecasts being cut in the second half of the year and oil demand projections being revised downward as well. According to the most recent estimates, the demand for crude was up by a mere 0.7 mbd in 2014.

A different kind of surprise came mid-year, when Libya-sourced oil returned to the market and Iraq’s production prospects improved, prompting oil supply projections to be adjusted upward. As a result, there was 1.9 mbd more oil on the market than a year earlier, instead of the 1.7 mbd anticipated in early 2014.

With oil supply suddenly outstripping demand by 1 mbd, projections had to be revised and prices cut. There can be no doubt about the unexpected oversupply and the price slump. The question we should answer, however, is whether the low prices are a temporary phenomenon or maybe we are seeing a structural change bringing a permanent reduction of oil prices in the future.

I believe that the upstream sector’s technological revolution behind the US shale boom has caused a material adjustment of the oil pricing mechanism so that oil prices will now be more dependent on production costs rather than the budget needs of OPEC members. Since the marginal cost of producing a barrel of oil for which there is demand on the market is below the price needed to balance the budgets of most OPEC members (and Russia), the current market developments are a downward revision of future price trajectories in respect of projections made half a year earlier. In other words, the change looks permanent. We must bear in mind, however, that neither the technological revolution nor the shale boom will protect the world against geopolitical upheaval, which may drive up the price of oil. That being said, in the present circumstances the effects of any such events on the oil market will be less profound.

Flexible production

The OPEC cartel adheres to a policy of limited oil production (maintaining substantial reserves), which aims to keep oil prices at a level balancing the budget needs of key OPEC members (USD 100 per barrel on average). This level is substantially higher than the marginal cost of producing oil or tapping oil reserves in Saudi Arabia. It is also higher than the cost of tight oil production in the US, allowing the production to grow dynamically.

The process of extracting oil from unconventional deposits is characterised by a significantly diffused production potential. Several dozen thousand new wells are drilled in the US each year by thousands of small and large companies. Drilling enough new wells is critical to sustaining production, as 80% of oil will come within the first two years of production from a well. It should also be remembered that the cost of individual wells may differ, as may their productivity. Some yield below 100 barrels a day, others 800 and more. It is estimated that more than 70% of a typical well’s cost is financed using credit facilities, which is why future production has to be insured against the risk of falling oil prices. Because of this diverse structure and organisation of unconventional oil production in the US, the cost of producing a barrel of oil oscillates widely and the production business is highly sensitive to changes in crude oil prices (the process of change is virtually unbroken). When the price of oil slumps significantly, oil producers are not only pushed up against the profitability barrier, but they also face the limits of their ability to obtain external financing. As a result, fewer wells are drilled and production falters.

When on February 27th OPEC resolved not to slash production in order to buoy prices, the decision was taken with the specific character of the American oil production market, where production potential reacts rapidly to changing oil prices, in mind. What stood in the way was the divergence of interests within OPEC – the countries making a comeback to the market (Libya, Iraq and Iran) want to sell their growing output for an appropriately high price, while Saudi Arabia, sitting on top of crude oil reserves, hopes that low oil prices, which are bound to rise one day, will only do so after killing costly production projects (including some of American production), which gives an advantage to Saudi Arabia, affording it a larger share of the global oil supply pie.

Although the low oil prices (less than $50 per barrel) we are seeing today are not sustainable over the medium term, they may last for some time (one or two years), because the current oversupply (which has overtaken the anticipated annual demand growth) will not be absorbed immediately and the negative consequences of limiting investment in production will likely not become apparent earlier than after a year. Therefore, it is difficult to predict today how the prices will change over the long term, but they can be expected to be lower than we thought just six months before.



3 lessons learned from an 8-year battle for cleaner fuels in Europe

Posted by on 12/01/15

By Nusa Urbancic, Transport & Environment‘s energy programme manager.

We live in a world where governments struggle to address climate change. Scientific advice on what needs to be done to stop warming our planet is very clear: stop burning fossil fuels. Even the rather conservative International Energy Agency (IEA) agrees: we need to leave more than two-thirds of proven oil reserves in the ground to avoid catastrophic climate change. It would seem logical that we start with the dirtiest and costliest oil, euphemistically dubbed ‘unconventional oil’. But logic does not always guide political decisions – they are often more about power, influence and how many bucks someone has to oil the lobbying machine. The Fuel Quality Directive (FQD) – a EU law devised to reduce the carbon footprint of transport fuels – is the latest victim of the power of vested interests over science and the common good.

We have worked on the FQD from the start and have always seen it as a smart piece of legislation. This is a law that could have been a technology-neutral way of bringing cleaner fuels to market without picking winners. Policymakers would only have to ensure that the carbon footprint of different fuels was aligned with the best available evidence and then let the market decide which fuels are worth investing in and which ones should be left in the ground. The scientific advice was unquestionable: the knowledge available was robust enough to label the significant variations in the carbon intensity of different fossil fuel sources, including higher values for fuels such as coal-to-liquid, tar sands, oil shale and gas-to-liquid.

Once again, the call of the scientific community fell on deaf ears: following almost eight years of heavy-handed lobbying by Canadathe US and oil majors, in October 2014 the Commission re-tabled a diluted proposal that fails to discourage oil companies from using and investing in the world’s dirtiest oil.

The European Parliament tried hard but failed to veto the watered-down proposal. Now EU countries can finally implement a law that was enacted in 2009 – it’s noteworthy that this was the last unimplemented law of the 2008 Climate and Energy package proposed by the first Barroso Commission. The result is rather poor: emissions from ‘unconventional’ fuels will not be properly accounted for, while the other critical part of the law – how we account for indirect emissions from biofuels – is still being discussed by the Parliament and the Council. In a perfect world, the FQD would follow the best available science and enable fuel suppliers to make their choices based on the true environmental impacts of fuels. In practice, we will probably see some ‘unconventionals’ coming to Europe and loads of unsustainable biofuels to meet the FQD’s 6% reduction target.

We take three key lessons from the lobbying battle:

1. The technology-neutral approach failed due to the massive amount of lobbying

First and foremost, the passing of this law marks the failure of the technology-neutral approach, which used to be quite a holy grail for the Commission. The technology-neutral approach looks great in theory: politicians just set targets, do not pick winners, all that needs to happen is for the science to get the numbers right and the market will do the right thing. But real life works with imperfections. It was impressive to see the amount of ‘evidence’ that was fabricated by businesses and third countries, chiefly Canada, to muddy the scientific waters. In a nutshell, they argued that either unconventional oil values or ILUC values were not the “right ones” or that there are other sectors that are equally bad or, in some cases, worse (for example, Russian oil). The Commission, who should have been the guardian of science, failed to defend its own research and impact assessment and caved in to special interests. This makes it very difficult for the Commission to publicly defend its technology neutrality. We think that the Commission should learn from the oil industry’s utter refusal to clean up their products. Much more emphasis should be placed on electrification of transport in combination with renewable electricity sources, which are truly domestic and truly sustainable – a no-regret option.

2. Trade deals threaten environmental legislation

The FQD is the first casualty of negotiations of free trade agreements with Canada (CETA) and with the US (TTIP). These negotiations have given these countries and their respective oil industries additional venues to influence the outcome of the FQD. While Canada was very candid about its intentions, stating publicly that it will not hesitate to defend its interests in front of the WTO, US officials were much more subtle. They publicly said that they were only concerned about the transparency of the process, but we have the evidence that they played a much dirtier game behind the scenes, pushing for the FQD to be weakened. The Commission dropped the ball because of this pressure, and not because the original proposal would have been too costly or too difficult to implement. It clearly shows that much more public scrutiny is needed on how trade negotiations impact on the democratic right of countries to regulate.

3. More democratic decision-making is needed

The peculiarity of the comitology procedure and the immense power that it gives to the Commission made it very difficult for progressive member states and the Parliament to improve the proposal. Once the Commission decided to weaken the FQD, the only thing the other two institutions could do was to veto it – with the risk of never getting anything better out of the Commission. There is a case to make this process more democratic – after all we are deciding on the future of the planet and not just a small technical issue, as is often the case in comitology. The same conclusion could apply to the process that led the Commission to unilaterally scrap the decarbonisation target for fuels post-2020 in its communication on 2030 climate and energy framework. They first got rid of the target and then used this decision to argue for weaker implementing measures until 2020.

How to move ahead

Perhaps it is too early to proclaim technology neutrality as dead. It is now up to the new Commission to decide whether they will revive the FQD after 2020 or not. In any case, there are some no-regrets measures that they can and should take. These are: an aggressive push for the electrification of transport; tougher efficiency standards for all vehicles; and finalisation of the reform of the biofuels policy including the phase-out of high-ILUC biodiesel. On oil it is clear that demand should be curtailed – transport is Europe’s biggest client for oil companies – and that the most polluting unconventional oil should stay in the ground. Reporting trade names in the FQD is the first step in this direction, but it should be strengthened and made mandatory in a way that oil companies are accountable for what they place on the market. With the commitment of at least a 40% domestic greenhouse gas (GHG) reduction by 2030, transport will have to cut its GHG emissions aggressively and there is no space for ever-dirtier fossil fuels in this equation.

Energy independence for Ukraine?

Posted by on 04/01/15
By Kaj Embrén Issues of energy efficiency and sustainable energy production may present the greatest opportunity for Kiev to seize control of its own fortunes. European investment can play a crucial role.

What progress did the UK make tackling climate change in 2014?

Posted by on 18/12/14

It’s been more than four years since David Cameron famously claimed his would be the ‘greenest government ever’ when the Conservative party came to power in 2010.

But his path to green greatness has not been an easy one; our air is illegally polluted, our renewable industry smarting from hit after hit and our government littered with climate change sceptics.

This year alone year alone has been filled with multiple public protests, threats ranging from malaria to mass immigration and missed job growth and economy recovery opportunities due to reluctance to invest in renewable energy.

But let’s break it down and take a look back at the year that was:

Q1 2014


Well, it’s hardly like 2014 kicked off to a great start; just a few weeks into January a newspaper investigation discovered the government had slashed its spend on preparing the UK for adverse climate change effects by almost a half.

Under the then Environment Secretary, Owen Paterson, government spending dropped from £29.1m in 2012-13 to £17.2m in 2013-14.

The timing couldn’t have been worse; the nation was in the midst of the wettest winter on record and 5,800 homes and businesses were damaged by flooding as a result of the extreme weather.

The move was, unsurprisingly, widely condemned by critics; not least of all by the Committee on Climate Change who threatened the cuts could lead to an extra £3 billion in avoidable future flood damages.

By March warnings of potential threats to the UK as a result of climate change were coming in thick and fast.

Firstly the Intergovernmental Panel on Climate Change (IPCC) warned the UK would soon be hit by a wave of mass immigration as millions of climate change refugees were made homeless by extreme weather, food shortages and consequential war, disease and famine.

Then came a report from consultancy firm PWC which showed food prices in Britain looked set to rise dramatically in the next few years as extreme weather in other countries damaged crops and the other food imports we rely on.

We only have to look a few years back to see the actualisation of the above warning, when the heat waves of 2010 damaged crops in Eastern Europe causing food prices in the UK to rise by 5%.

Despite the above evidence, the government took eight months to recognise and respond to the pressing need for the UK to not just reduce its own carbon footprint, but to also help developing countries battle climate change.

Q2 2014


April brought with it more bad news as Oxford University announced that manmade climate change would lead to many more extreme flooding events in the UK.

Previously the UK had only seen flooding like winter 2013’s every 100 years, but the study suggested similar events would occur in the South of England every eight years as a direct result of climate change.

The Met Office then issued a warning that climate change was also likely to cause more flash flooding in the UK as heavy rainfall reacted with the arid land caused by drier than average summers.

Though it wasn’t all bad news; April also brought with it some progress as the UK government finally agreed to back eight major renewable energy projects.

The three biomass plants and five windfarms planned came with a promise of 8,500 jobs and the ability to power millions of homes in the UK with clean energy.

Fast forward to June and the government’s top science adviser and UK chief scientist Sir Mark Walport pleased environmentalists by calling for urgent debate on climate change mitigation.

He requested a stop to debates on whether or not climate change exists and the relating energy and resources instead to be used for creating policies on how best tackle it.

He made clear his belief that ‘climate change is happening and humans are significant contributors’ and said there needed to be more roles for scientists and engineers to research and establish the pros and cons of new energy sources and technologies designed to combat climate change.

He also backed fracking, which he said was safe and environmentally sound when done properly.

June was also the month that China’s head of government visited the UK and a joint statement was released from both nations agreeing on the urgency and importance of action against climate change and the need for renewable energy.

However, it was noted that while China was putting a cap on its coal use, the UK government was refusing to regulate the UK’s ageing coal plants and was still not doing enough to encourage greater renewable energy production and use in the UK.

Q3 2014


But still it seemed the government was not doing enough and in September 40,000 people including Vivienne Westwood, Emma Thompson and Peter Gabriel, took to the streets demanding greater action against climate change.

Unperturbed, David Cameron announced that he believed he had kept his pledge to run the UK’s greenest government yet when speaking at the UN summit on climate change.

At the meeting of world leaders in New York on September 23rd he said: Climate change is one of the most serious threats facing our world. And it is not just a threat to the environment. It is also a threat to our national security, to global security, to poverty eradication and to economic prosperity.”

He said his party had doubled the UK’s renewable energy capacity in the last four years, created the world’s first green bank and the UK was well on its way to cutting carbon emissions by 80% by 2050.

But it seems his words may have rung a little hollow; his speech came days after a poll revealed nearly three quarters of Conservative MPs didn’t  believe climate change was caused by human activity, with 18% of Tory MPs admitting they thought the notion of man-made climate change was ‘environmentalist propaganda’.

Q4 2014

It took until almost the end of the year for the government to assert some authority and not only agree to spend £600m on helping poor countries tackle climate but to also quash the critics who questioned it.

After a year filled with scientifically backed reports on the negative effects climate change in other countries could have on the UK, Climate Change Secretary Ed Davey was correct in saying in November: “People recognise that we live in a global economy where when something happens in another part of the world it can impact on our lives here. The idea we should be isolationist Little Englanders is absolute nonsense.

However, this one spot of good government action could not prevent more bad news emerging; a report issued by London’s Imperial College in November showed the UK would fail to meet its carbon emissions target set for 2030 unless significant policy changes were made.

There was also a warning from the UK’s Royal Society in December who found future heat waves caused by global climate change would have catastrophic results on the UK’s elderly population, who are less able to look after themselves in extreme conditions.

All this was followed by a scathing letter written by Leader of the Opposition Ed Miliband who slammed chancellor George Osborne’s failure to mention climate change or carbon emission targets in the Autumn Statement and accused David Cameron of making a ‘long retreat from the principles in which he once claimed to believe [in]’.

However, it is possible the year may end on a high (of sorts) with the reintroduction of the Green Deal Home Improvement Fund.

The financial package aimed at helping residents improve the energy efficiency of their homes was closed a few weeks after launching earlier on in the year due to a lack of preparation.

But now it is back, and as of December 10, householders can apply for free cash to pay for home improvements such as solid wall insulation and double glazing to help them reduce their energy use and carbon production.

Round Up

2014 has certainly been a mixed bag, key politicians were certainly keen to be quoted saying they thought climate change was an important topic to be addressed, but while there was some progress made in 2014 there was certainly much more that could have been done.

With a hotly contested election due in May next year who knows what 2015 will bring.

Link Credit: Image 1, Image 2, Image 3, Image 4

Energy Union: a (long) way towards employment?

Posted by on 14/12/14
Ana Luísa Correia for FutureLab Europe Out of Juncker´s €300bn investment package, €21bn will be directed to building an effective Energy Union for secure, affordable, and environmentally-sensitive energy. But what does this mean for unemployed Europeans?

Der Ölpreisverfall

Posted by on 14/12/14

Der historische Rutsch des Ölpreises unter sechzig Dollar ist beides gleichzeitig – ein Weihnachtsgeschenk und ein Warnsignal… Der tiefe Fall des schwarzen Goldes birgt aber auch erhebliche Gefahren, zunächst wirtschaftspolitische. Denn klar erkennbar geraten diejenigen Staaten, deren Volkswirtschaft vor allem vom Ölexport abhängt, in erhebliche Turbulenzen…

Wirklich gefährlich wird der niedrige Ölpreis durch die massiven Auswirkungen auf Russland. Präsident Putin hat in all den Jahren seiner Macht nicht dafür gesorgt, dass die russische Ökonomie effektiv umgestellt wird: weg vom bloßen Öl- und Gasexport, hin zu einer breiter aufgestellten Wirtschaftstätigkeit. Russland, ohnehin gebeutelt von den Sanktionen des Westens infolge der Ukraine-Krise, gerät als Wirtschaftsmacht ins Schlingern. 2015 könnte der Crash kommen.

Besonders aber muss der Ölpreisverfall ein Alarmsignal für die Europäische Zentralbank sein. Denn die billige Energie schickt die Preise noch stärker auf Talfahrt, als sie es ohnehin schon sind – in Deutschland auf den tiefsten Stand seit fast fünf Jahren. Irgendwann könnten sie nicht mehr beherrschbar sein. Das Gespenst der Deflation, der gefährlichen Spirale von sinkenden Preisen, zurückhaltender Nachfrage und einbrechender Produktion, steht schon vor der Tür. Der Eurozone könnte eine lange Rezession, eine dahinsiechende Ökonomie nach dem Muster Japans drohen. Vor allem für die Währungshüter im neuen Frankfurter EZB-Turm ist der Absturz des Ölpreises alles andere als ein Weihnachtsgeschenk.

Effective climate policy requires action by governments and people

Posted by on 09/12/14

COP 20, the 20th annual climate conference, has started in Lima in a mood of increasing realism. Those who still believe in containing global warming within two degrees Celsius target are becoming rarer. The issue becomes more and more if Humanity will get away with acceptable conditions of survival or succumb to famine, non-ending natural disasters, tens or even hundreds(?) of millions of climate refugees and conflicts for water and fertile land.

The 20-year history of “combating” climate change has been a succession of “too little, too late”, starting with the Kyoto Protocol that turned into a failure because of its late entry into force and the non-participation of the biggest emitter countries.

For the last 20 years, we have continued to live as if climate change did not exist. The political elites in major emitter countries like Australia, Russia or, until most recently, even USA have continued to simply ignore it, whatever the rising numbers of natural catastrophes across the planet.

No political leader has dared to impose hardship on potential voters, say gasoline prices of €3/litre or electricity rates of €0.15/kWh. Our life has remained as comfortable as ever, with no restrictions on heating, cooling and lightening our homes and using planes or cars as before the climate challenge.

The global “climate policy elite” seems satisfied with the few “positive” developments in 2014, from the bilateral China-USA“deal” with the Chinese promise to peak its emissions latest until 2030 and generate 20 per cent of its energy from non-fossil sources and the US commitment to lower emissions by close to 30 per cent until 2025.

It puts a lot of faith in the bottom-up/top-down approach for the Paris Climate Summit in December 2015, under which each of the 190-odd participant countries is expected to present a strategic road-map for reducing green house gas emissions.

Judging by the response given by China to start reducing emissions latest by 2030 and the more than wary reactions from India,which will become the biggest emitter country in a few decades the outcome from Paris will not have a a positive impact on the global climate in the first half of the21st century. After all, it will have taken the EU from 1990 to 2030 to reduce its emissions by 40 per cent and, if everything works to schedule, 60 years to reduce them by 80 per cent until 2050. And the rest of the world is far behind the EU in terms of preparedness.

Climate scientists have not stopped warning policy makers about the need to go fast. But their calls have gone unnoticed because policy makers have constantly been engaged in more pressing day-to-day issues and have not dared to confront their citizens with painful measures to be taken.

Let us therefore hope that the international community will finally get serious and step up its joint efforts, focusing on mitigation and considering adaptation as the secondary issue. Indeed, if humanity fails to mitigate emissions dramatically financing adaptation will no longer help. We must prevent the natural glaciers storage of the Himalayas from melting instead of financing artificial dams for storing water.

On December 15th, at the end of the Lima Conference, which so far has not been very successful in solving the well-known technical details, we should be better able to assess the chances of success of the crucial meeting in Paris at the end of 2015.

Eberhard Rhein, Brussels, 6/12/2014

EcoDemonstrator completes first green diesel flight

Posted by on 08/12/14

Boeing’s specially outfitted 787 ecoDemonstrator flight test aircraft has completed its first flight using “green diesel,” a sustainable biofuel blended 15 per cent with 85 per cent conventional petroleum.

Green diesel is made from vegetable oil, cooking oil waste and animal fat waste, which eliminate indirect land-use consequences associated with biofuels made from feedstocks. The fuel was found to be similar to the HEFA (hydro-processed esters and fatty acids) aviation biofuel approved for use in 2011. The United States, Europe and Asia together have capacity to produce 3 billion litres of green diesel, with the potential to supply up to 1 per cent of global fuel demand near price parity for conventional fuel.

“Green diesel offers a tremendous opportunity to make sustainable aviation biofuel more available and more affordable for our customers,” says Boeing  managing director of environmental strategy and integration Julie Felgar. “We will provide data from several ecoDemonstrator flights to support efforts to approve this fuel for commercial aviation and help meet our industry’s environmental goals.”

Sustainably produced green diesel reduces carbon emissions by 50 to 90 percent compared to fossil fuel, according to Finland-based Neste Oil, which supplied green diesel for the ecoDemonstrator 787. On the EU policy side, Boeing continues to advocate for policy measures that can support aviation biofuels development and commercialisation.

Energy security for Europe or profit for Lukoil?

Posted by on 04/12/14

Despite the Russian invasion in Ukraine leading to EU and US sanctions against Moscow and major Russian energy companies, public banks supported by EU countries are just gearing up to offer a one billion dollar loan to Russian company Lukoil for gas extraction in Azerbaijan.

by Fidanka Bacheva McGrath, cross-posted from the Bankwatch blog

Half a billion dollars from the European Bank for Reconstruction and Development (EBRD) and another half billion from the Asian Development Bank (ADB) are to be invested in Lukoil’s 10 percent share in the Shas Deniz offshore gas field in Azerbaijan (a final decision by the banks is expected in early 2015 but seems certain). (A little reminder: the EBRD is a public bank of both the EU and the US, with EU countries holding over half of voting rights. The Europeans also hold 15 percent of voting shares at ADB.)

The two banks will finance two bridge-linked offshore gas platforms, 26 subsea wells, 500km of subsea pipelines, the expansion of the gas plant at Sangachal Terminal and the South Caucasus Gas Pipeline expansion.

The Shah Deniz oil and gas field is envisaged to be the main provider for one of Europe’s pet energy projects, the Southern Gas Corridor, a set of planned pipelines meant to bring gas into Europe from the Caspian region. The transportation infrastructure included in the Southern Corridor includes three major pipelines — South Caucasus, Trans Anatolian and Trans Adriatic — and all the Corridor is expected to require a total investment of more that 35 billion euros (45 billion US dollars).

The Southern Gas Corridor has been on Europeans’ minds for years but support for it gained even more momentum since the crisis in Ukraine, with advocates arguing that it is necessary to ensure the EU’s energy security in the face of an ever more aggressive Russia. Various components for the Corridor are now deemed priority energy projects for the EU and are being fast-tracked for financing by European public banks.

The first announcement for European public money support for the Southern Gas Corridor was made by the EBRD President Suma Chakrabarti at a press conference in Baku in July 2013. This July, the bank’s Director for Energy and Natural Resources, Riccardo Puliti, said that the EBRD is considering financing of up to 700 million US dollars for the Trans-Adriatic Gas Pipeline (TAP) and the Trans-Anatolian Gas Pipeline (TANAP) projects.

Yet the promise of the Southern Gas Corridor as a guarantor of EU energy security and independence from Russia is questionable for more than one reason. For one, Azerbaijan is in no way a more secure country of supply than Ukraine or Russia. The unresolved conflict between Azerbaijan and Armenia over Nagorno Karabakh, Russia-backed separatist regions like Abkhazia and South Ossetia claiming independence from Georgia, the threat of Maidan-style social unrest provoked by increasingly oppressive and corrupt elites in the region all pose a threat to the stability of Azerbaijan and neighbouring countries on the route of pipelines.

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Azerbaijan – Land of fire and repression. A Bankwatch photo story.

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The EBRD justifies its loans by claiming they have a positive „transition impact” on the countries where the projects are located. Yet gas infrastructure is rarely a guarantee of peace and security as the example of Ukraine shows very well. On the contrary, energy politics undoubtedly contributed to the civil war in the country which delivered the final blow to Ukraine’s unstable economy.

And perhaps the most obvious irony in all of this is the willingness of international financing institutions backed up by Western governments to work with Russian company Lukoil on this project deemed crucial to the EU’s energy security from Russia. And this despite countless bombastic political statements from the West blaming Russia as an aggressor and calling for independence from it.

As a matter of fact, Lukoil is a long term client of the EBRD. The company has already received five EBRD loans since 2000, amounting to 840 million US dollars, of which 310 millions went for the Shah Deniz field development in Azerbaijan. The currently proposed half a billion loan follows an earlier investment of 200 million US dollars for Shah Deniz stage 1 extension of field development, which was approved by the EBRD in January this year. At the time, the EBRD stated that ‘this project has a high level of transparency and is adhering to strict international and national standards’.

The EBRD claims that its experience with the Shah Deniz development is positive and that the lead operator, British Petroleum, ‘has demonstrated a responsible approach to environmental and social issues’. But such assessments are hard to confirm, due to the crackdown on independent critics of the Ilham Aliyev dictatorship, the threats to freedom of expression and the persecution of human right defenders in Azerbaijan.

And if Lukoil company practices back in home country Russia are anything to go by, then we have only reasons for concern. In 2007, the EBRD invested 300 million US dollars in Lukoil’s strategic environmental programme in Russia which included, among others environmental remediation investments, pollution clean-up, pipeline replacement and gas flaring reduction.

At the end of 2013, shortly before the latest EBRD loan to Lukoil was approved, Lukoil was fined 614 million rubles (18.5 million US dollars) for nine oil spills since 2011 in Russia’s northern republic of Komi, which covered an area estimated between 20.5 and 21 hectares of land in the province. Reportedly Lukoil-Komi spent 15 million rubles on recultivating the polluted land, but the court ruled it to be an insufficient measure.

Greenpeace Russia produced a shocking video and reported accounts of indigenous Komi people who failed to note the ‘environmental benefits’ that the EBRD financed, but instead complained about lack of consultation on well construction in their backyard and a cover-up attempt of a leaking oil pipeline. In April the municipal council of Izhma district supported claims of local community and voted to stop oil company Lukoil operations in the area. A rally on Sunday, Nov. 16 [ru] was only the last protest by indigenous people from Komi against the damage from Lukoil operations.

Lukoil is a company with a poor environmental and safety record, in Russia and abroad. This should be enough reason for the EBRD to halt loans to it. Since the Ukrainian crisis, support for Russian energy companies from European public finance is hardly excusable. Finally, the deal is being justified by energy security needs of Europe, though Azerbaijan is far from a secure country of supply and Europe’s energy security would be much better ensured through domestic renewables and energy efficiency than through mega-pipelines bringing fossil fuels from countries with authoritarian regimes.

The way the Sourthern Gas Corridor and the political situation in the EU neighbourghood look today, one has to wonder whether the only ones to surely win from these loans are not the oil and gas companies involved in the development of these oil and gas fields and pipelines. The likes of British Petroleum, Turkish TPAO, Azeri SOCAR, Russian Lukoil and Iran’s Nico, members of the consortium in charge of the Shah Deniz field. Should we really use scarce European public resources to prop up the profits of such companies?


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Azerbaijan – Land of fire and repression
A Bankwatch photo story.

Read and watch >>

Germany to EU: if your climate policies aren’t up to the job, we’ll have to solve it ourselves

Posted by on 04/12/14

By Jason Anderson, Head of European Climate and Energy Policy at WWF European Policy Office

Yesterday Germany announced that it will continue its national commitment to achieve a cut of 40% in its greenhouse gas emissions by 2020, despite EU policy that is insufficient to support that aim. It will put in place measures to cut energy use and emissions, including from sectors covered by the ailing EU Emissions Trading Scheme. Germany’s announcement is important and ambitious, considering the reduction achieved up to 2013 was only 24%. It also makes the national commitment for 2020 more binding and concrete.

When the European Council endorsed a 2030 framework that would allow the EU to continue its weak approach, pressure mounted in Germany to drop or delay its 40% 2020 target. The government has countered by reinforcing its resolve instead. This this a clear signal to the EU: if your policies aren’t up to the job, we’ll have to solve it ourselves.

On the one side it’s a challenge to the system. On the other, it is exactly the spirit that the EU and others are explicitly encouraging in the UN climate talks, now underway in Peru: countries should strive to do more than they have put on the table, and seek diverse ways to achieve those reductions.

The reaction in Europe should be for those countries that are serious about fighting climate change to push for more ambitious legislation – starting with reform of the EU ETS through what is called the ‘market stability reserve’ (MSR). It will take tonnes out of the oversupplied ETS, but only starting in 2021, and only to store them for later return – an insufficient approach. The MSR should start sooner, and include mechanisms to retire excess tonnes that world otherwise continue to drag the system down.

See WWF Germany’s reaction to Germany’s announcement of its climate action programme