Conventional wisdom among climate policymakers holds to the idea that greenhouse gas mitigation, energy efficiency, and renewable energy targets will combine to deliver the EU’s 20% emissions reduction goal for 2020 relative to 1990, with a higher 30% target still on the table.

But the reality is that there is a long-standing and unresolved tension at the heart of the EU’s 2008 20/20/20 energy and climate package. And the bloc’s roadmap for 2050 (ENDS Report, March 2011), aimed at cutting emissions by at least 80% relative to 1990, has brought matters to a head. It’s not just about whether to go for 30% or a near offer, but about how the three elements work together, or do not.

The European Commission is deeply concerned that a renewed drive for energy efficiency, together with a continuing surge in renewable energy investment across the EU, will undermine carbon price signals in phase III of the EU emissions trading scheme (ETS) from 2013. Already in Germany, the power sector is battling low profitability from its conventional power plants which must now power down inefficiently when renewable electricity is available. These utilities are struggling to find the cash to invest in the vast amount of new low-carbon plant needed to decarbonise its grid, not least in back-up and baseload plants. (more…)

2010 has been a bad year for the climate.

Not just for climate treaty negotiations – few expect a deal in Cancún in Mexico this December after the failure in Copenhagen last December. But also for the carbon markets that ultimately depend on strong policies.

Huge interests are at stake. Pioneering investors feel let down and are warning they could go to the wall. The uncertainty could go on until Cancún, or even longer.

This is on top of uncertainty over the post-2012 status of the UN clean development mechanism. The CDM’s future is further clouded by European Union proposals to stop many types of UN offsets from entering the EU Emissions Trading Scheme after 2012.

Why should we worry? There are several reasons. (more…)

The latest inter-sessional climate talks at Bonn revealed just how much the future of global climate and energy action still hangs by a thread – and a badly frayed one at that.

Until now, the international offset market has limped along despite the looming threat of a gap between the first Kyoto Protocol commitment period, which ends in 2012, and the beginning of a new global agreement. There had been signs of a recovery in momentum at the June talks in Bonn (ENDS Report July 2010), with progress on rationalising negotiating texts. (more…)

The air has been thick ahead of the summer parliamentary recess with talk of a fundamental review of the Carbon Reduction Commitment (CRC) Energy Efficiency Scheme. Some are even calling for it to be scrapped altogether.

The smart money, though, is on simplification, mooted as a possibility by energy and climate secretary Chris Huhne in his July annual energy statement. That is something most businesses would welcome wholeheartedly in principle. There is much less agreement on how. (more…)

The chances of even an outline global climate deal at Cancun in December 2010 look slim after America’s Democrats failed to garner the 60 votes needed for a cap and trade bill in the dying days of July. Short of a miracle, President Obama will in effect go naked into that conference chamber.

The passage of the House of Representatives bill in 2009 was a high watermark (ENDS Report, May 2009). Since then, the US Senate, which must also get a version through before a unified bill can pass into law, has struggled against strong fossil fuel interests (ENDS Report, June 2010). (more…)

During the count-down to George Osborne’s emergency budget of June 22 (ENDS Report, June 2010) a real sense of expectation grew that the chancellor would announce concrete new policies on energy and climate change. In the event, nothing of the sort happened.

Yes there were fleeting references to new policies. But in each case there was no advance on details already set out in the coalition’s sketchy programme for government (ENDS Report May, 2010). The further delays are doing little for investor confidence.

Especially frustrating is the lack of progress on the most radical policy – replacement of the electricity component of the Climate Change Levy (CCL) by a “top-up” carbon tax on power generators.

The tax would kick in whenever emission allowances in the EU Emissions Trading Scheme drop below an as yet unspecified threshold. This would effectively set a carbon floor price, providing a more consistent signal in favour of low carbon investment.

The plan remains on the table, but now looks set to be seriously delayed. (more…)

Ever since the European Union introduced the world’s first mandatory greenhouse gas cap-and-trade scheme in 2005 it has faced complaints that by setting a price on carbon it would drive heavy industries away.

The financial crisis and recession, plus the failure of the Copenhagen climate summit to agree a post-2012 global climate policy framework have pushed this issue of ‘carbon leakage’ way up the political agenda.

I explore the rights and wrongs of the whole issue at length in a new feature article, which will appear in the June edition of the ENDS Report.

The critical context is the decision facing Europe of whether it should increase its 2020 climate targets from a 20% reduction relative to 1990 to 30%. And the burning question is whether raising the target would add to carbon leakage. (more…)

The latest World Bank annual assessment of global carbon markets contains a striking statistic.

Sales of international carbon offset credits under the clean development mechanism of the Kyoto Protocol fell by a staggering 59% in 2009 compared with 2008.

Put this together with indications from key investment funds such as Ecosecurities that they are to pare back their offset teams and the CDM’s retreat looks in danger of turning into a rout.

CDM carbon credits are needed to reduce compliance costs in the EU emissions trading scheme (EU ETS), and are popular with the voluntary offset market. So why have things gone so badly for CDM just as new, large-scale programmatic schemes are at last coming onstream in India and Latin America? (more…)