Decoding Durban: Deal or no Deal? Deal, for a Deal Later (Part 3)

What shapes the Durban outcome

In a conference held for 36 hours longer than scheduled, the round-the-clock marathon-style negotiations culminated this agreement which is somewhat amphibolous after a close examination. Interesting is that we can see a ‘swap of roles’ between developed and developing countries in carbon emissions compared with the situation in 1997 when the Kyoto Protocol was passed. Today, ironically the reasons for developed countries asking developing ones to accept the Durban agreement is exactly what the former US President, George W. Bush, said when he refused to ratify the Protocol in 2001. After all, what are the factors shaping the Durban Package this year?

Decoding Durban: Deal or no Deal? Deal, for a Deal Later (Part 2)

Implications to the world’s transition to low-carbon economy

The economics of climate change or ‘climate economics’ is about how we price the world’s climate and the disasters induced by climate change in order to fit into the mainstream decision-making models. As climate change is attributable to anthropogenic carbon emissions, we have to look for ways to reduce and absorb excessive carbon dioxide on the planet. Before the technology of carbon capture and storage becomes mature, we need to attach a price to the emissions from economic activities through the creation of carbon permits for trading and to our carbon-sinking forests through financial incentives for stopping deforestation such as the UN’s REDD (Reduced Emissions from Deforestation and Degradation) programme. The implications of climate deals reached in annual summits to these two ‘commodities’ do matter because they currently form the twin pillars supporting the global transition to low-carbon economy. Let us take a look at forest protection financing and carbon market development.

Decoding Durban: Deal or no Deal? Deal, for a Deal Later (Part 1)

In Durban the stunning landscape did not bless the United Nations climate change conference (COP 17) with a beautiful ending but did make again spurning escape for polluters. After an overnight’s wrangle on the very last day of ‘extra time’, it came up with a ‘compromised’ deal which was based upon a proposal by Brazil. The last-minute deal commits the European Union and a few wealthy countries to a second commitment period after the main provisions of the Kyoto Protocol expires in 2012; all countries to negotiating a new “[global] protocol… or outcome with legal force” effective by 2020; and developed nations to financing the Green Climate Fund (GCF) that helps developing ones with climate change adaptation and is slated to be operational by the same year. Only transitional in nature, it is a solution that seeks to fill the vacuum period before Kyoto II. But given the poor track record of previous summits, would this deal again be another ‘dud cheque’ as are the Kyoto Protocol and the Bali Roadmap? What are the implications to driving the world to a period of low-carbon growth? A closer look at this deal can tell us how many critical questions remain unanswered. It is indeed a deal studded with uncertainties.

How much is the devastation of climate change worth? Can traditional economics tell?

In July, the UN Secretary-General Ban Ki-moon said climate change was a real threat to international peace and security urging developed countries to lead concerted efforts to mitigate and adapt to its detrimental effects, with emerging economies shouldering their fair share of the responsibility, when he spoke to the journalists after a Security Council meeting. Climate scientists have warned the world that our addiction to fossil fuels is triggering a global warming catastrophe that could end up costing the Earth dearly.

Significant reductions in anthropogenic greenhouse gas output are expected of rational people and governments worldwide, but the latest emissions figures appear to prove the problem is exacerbating. Are they telling us there is limited appeal in taking short-term costly action to counteract a long-term threat - particularly one by its nature being hard to calibrate? Convincing businesses to take necessary action to combat economic activity-driven climate change does require an economic argument. The matter at issue here is how we price the world’s climate and the disasters which are induced by global warming.

Briefing: The arrival of renewables era

Fossil fuels being the main source of climate-changing emissions are known to many. Over the first decade of the 21^st century, the world has seen an exponential increase in the use of renewable energy resources, which means the era of renewables has arrived. Renewable energy refers to replenishable or inexhaustible power source, namely solar energy, wind energy, geothermal energy, biofuels, tidal and hydro-power.  As science has confirmed that the increase of greenhouse gases that causes global climate change is in proportion of fossil fuel consumption, different countries have to deliver carbon-reduction promises in the international framework.  Emissions reduction can be achieved through increasing energy efficiency and using more renewable energy resources.  Recently, Greenpeace International has released a report on global electricity market development that shows renewables have become the world’s new favourite.  In 2010, the market share of renewables was the largest in history.  Since the end of 1990s, the development pace of wind and solar power has surpassed that of all the other power-generating technologies.  The world has added the total installed capacity of renewables by 430 million kilowatts, equivalent of 45% of China’s current installation power capacity.  Last year, globally the use of renewables grew by 87 million kilowatts, surpassing the development of coal-fired power for the first time. 

In fact, unlike fossil fuels and nuclear energy, most of the renewables are not that controversial. It is only the availability of appropriate technologies which is a matter of wider discussions. The following sections will briefly introduce and evaluate major types of renewables.

New nuclear plants not ‘democratic’, at least for the time being

In the aftermath of Fukushima nuclear disaster, the word ‘nuclear’ has become so sensitive that it touches the nerves of ordinary people. This week, groups of battling protesters clashed with police in France and Germany over a Germany-boundtrainload of nuclear waste. In a poll released by GlobeScan today, there is little public appetite across the world for building new nuclear reactors. Over 70% of respondents believe their country “could almost entirely replace coal and nuclear energy within 20 years by becoming highly energy-efficient and focusing on generating energy from the Sun and wind”. Running counter to public opinion and opposed to German and Swiss governments, the UK has embarked on one of the most ambitious nuclear programmes in Europe, with plans for up to 12 new reactors by 2025. Personally, I do not recommend any expansion of nuclear power until scientists celebrate the birth of nuclear fusion technique which pro-nuclear countries are desperate for. The government’s decision to give a go-ahead to a number of nuclear projects across Britain may be based more on political than environmental considerations.

A simplified Carbon Reduction Commitment, can it become a commitment for both business and the environment?

Manchester United and some 20 top energy performers are shined whereas interesting high-street brands such as Virgin Atlantic and Sheraton Hotels are shamed on the first ever CRC Energy Efficiency Performance League Table, published by the Environment Agency last Tuesday (8 Nov). The league table, however, is being criticised by major retailers as not being reflective of the true and whole picture of organisations’ efforts to reduce their environmental impact primarily because they are not compared like with like. Ricocheting in the minds of many entrepreneurs are the carbon reduction compliance procedures which have also been blamed to be overly complex and bureaucratic.

In June, the Energy & Climate Change Secretary, Chris Huhne, listened to this view and announced details of simplification to the CRC Energy Efficiency Scheme to make it more “business-friendly”. The policy document principally reviews the private sector organisational rules, CRC supply rules, qualification criteria, overlapping between similar carbon reduction schemes and timing and frequency of allowances sales from 2012 onwards. DECC will publish a green paper to consult the public on all areas where simplifications could be discussed early next year. When our carbon emissions still rose by 3% during a recession-sodden year – 2010, would this ‘pure’ simplification exercise for the CRC that is to accomplish the sacred mission of facilitating businesses to meet the UK’s stringent carbon budgets be the right thing to do? Would this become a commitment to businesses rather than to our environment? Can we turn it to be a commitment for both?

The state of green built environment in Britain

Hard on the heels of its confirmation that non-domestic new builds must be ‘zero-carbon’ by 2019 before last Christmas, Whitehall has this spring launched a Carbon Plan to tackle climate change. The latest plan highlights, among other things, the required changes in the way electricity is generated, in the way people travel as well as in the way homes and businesses are heated. Coupled with a hierarchy of national Acts, regulations and codes and guidance on built environment, Her Majesty’s Government are adopting a multi-pillar approach to meet the UK’s carbon reduction targets in punctuality. This chapter aims to introduce and briefly discuss the latest green build policies, regulations and assessment systems in the United Kingdom, which have a major part to play in driving the economy to an era of low-carbon growth.

The State of Carbon Finance in Europe: a ‘SWOT’ Analysis of the EU’s Emissions Trading Scheme

As Phase 3 of the European Union’s Emissions Trading Scheme (EU ETS) will begin in January 2012 when airlines operating flights to or from Europe will have to buy carbon permits to help offset their emissions under EU legislation, carbon finance and trading in Europe is set to proceed to a new horizon. Launched in January 2005, EU ETS is one of the established multilateral measures in the broader climate deals which are tackling the vertiginous growth of carbon emissions in the region on its way to attain its “20-20-20” targets. Illustrating the background of and the relevant operational aspects of the EU ETS, this article will investigate the efficacy, potential problems, business opportunities and uncertainties of the ETS by taking a SWOT analysis. It will lead to a discussion on the system’s usefulness in mitigating the ‘common’ problem of climate change.


Click here to access a recent video - "The European Emissions Trading Scheme: 2020 & beyond" - produced by Comment Visions.

Renewable Heat Incentive challenges Ofgem

Around this time last month, Ofgem advised on its homepage that the Renewable Heat Incentive (RHI) scheme was going to be delayed as the European Commission has expressed reservations over the over the large biomass tariff. (It was supposed to be open by the end of September.) This morning, I received an email notification from Ofgem that the scheme will ‘finally’ be open for applications by the end of November 2011, subject to state aid approval by the parliament. Even so, a parliamentary approval does not necessarily mean a comfortable road ahead for Ofgem.

The prospect of the United Nations’ climate change negotiating framework: implications from Copenhagen and Cancun

Concluded with a piece of “Copenhagen Accord” that is not legally binding, thirteen days of seesaw battles on Denmark’s negotiation table did not yield any substantial results. Neither did the end of another twelve days of climate change conference in Mexico a year later in 2010, marked with a "Cancun Agreement" that achieved nothing but money – the Green Climate Fund. For years, state leaders have gone home almost empty-handed. The international community, hitherto, have not accomplished the mission to complete the negotiations on the international climate change regime for periods from 2012 by late 2009 as enshrined in Bali Roadmap. Copenhagen and Cancun summits all proceeded within the UN’s framework agreed in 1992, but a comprehensive, all-encompassing and legally binding climate change deal which many activists and governments want remains out of reach for the world. Actually, is the current climate change negotiating framework outdated? To answer this question, we have to analyse briefly the outcomes of both conferences first.

The green agenda ‘is’ the emergency plan

“Check, Switch, Insulate” is the achievement after the energy prices summit chaired by the prime minister this month. It is no different from just saying “God bless you” to people in predicament. Why don’t the government consider leveraging the green agenda - distributed generation - to fuel growth while suppress energy prices? Here, I am not just talking about the energy prices, but the strategy Britain desperately needs for economic growth.

Last week, columnist Leo McKinstry suggested in his ten-pronged emergency plan for Britain’s economy, published in Daily Express on 10 Oct 2011, that the green agenda be abandoned in the current economic recession. A day later, Lord Young, the former Trade & Industry Secretary, echoed in The Times (11 Oct) that this was no time to waste our money on windmills. In their views, promoting renewable energy simply represents the triumph of scientific uncertainty but “cripples us economically” as it is destroying our industries and pushing up our utility bills. I consider this opinion completely ludicrous. Instead, the green agenda should be the key to economic recovery.

         

Carrier bag levy for England - Can we learn a lesson from Hong Kong?

No doubt that carrier bags are really bad for the environment. In a bid to cut back on their “excessive” use, from this month, a charge of 5p per single-use carrier bag is introduced in Wales, with England and Scotland expected to begin public consultations soon. Applause should be given to the government when environmental issues are moving up the political agenda, but some green campaigners grumble over a 5p charge being not good enough. It, however, reminds me of the not-so-successful “plastic bag tax” imposed in Hong Kong since mid-2009.[1] The writer is apprehensive that the new levy may turn out to be a similar game of numbers. When the Government are liaising with the retailers, can we actually learn a lesson from the former colony?

How are we going to pay the €1 trillion for the Pan-European super smart grid?

There are less than three months until the next climate-change conference in Durban. As pledged in previous summits, can we really achieve a 20-30% emission cut by 2020?

        To do so, experts agree that our grids must become at least carbon-neutral. Last December, the European Commission unveiled its plan for a Super Smart Grid joining up the electricity networks of the EU and North Africa by 2050 to bring low-cost, low-carbon electricity and better investment opportunities in renewable energies. But it estimates that all infrastructural upgrades will need €1 trillion investment. So, the Pan-European Supergrid can’t go ahead unless the financing arrangement is sorted out soon.

European Super Smart Grid: Great Opportunities for Renewable Energy Sources

In December 2010, the European Commission formally presented the proposal for a Super Smart Grid (SSG), which joins up the electricity networks of the European Union’s member states and North Africa by 2050 as part of its energy infrastructure priorities for the next two decades.  Super smart grids are a type of infrastructure perceived by the European Parliament as indispensable to improve the efficiency of using renewable energy sources.  SSG will decarbonise the Pan-European electricity industry and economy and hence combat climate change; enhance security of energy supply; realise a single energy market; and in particular, increase the scale of renewables portfolio. (Prodi, 2011) A low-carbon Europe is in the making.

Is the free trade law doing any good to our planet? It's time to rethink.

Over the last couple of months, Russia has been negotiating to join the World Trade Organisation (WTO). True, free trade and associated benefits that WTO has to offer are quite tempting to many countries praying for more "foreign money".  Today when terms such as climate change, environmental conservation and sustainability top our agendas, is the current international trade law by which disciples of free trade are obsessed doing any good to our planet? Is the WTO and its dispute settlement body doing enough for the environment? It's time to give a rethink.       

  

Green Investment Bank: Driving transition to a low-carbon economy

Supporting the UK Government’s green policy objectives, the Green Investment Bank (GIB) is a new and enduring institution being established to finance environmental and clean energy projects for which the mainstream banks are currently reluctant to take the early risks.  The United Kingdom will be the first country to create a bank dedicated to the low-carbon revolution.  Ambitious to leverage billions of pounds of extra private sector capital, the bank will work to a ‘double bottom line’ of both achieving significant green impact and making financial returns.  It will gain market credibility by operating at arm’s length from Whitehall. While credits are given to this commitment made by the coalition government in their first 12 months, however, as at today, the progresses of setting up the Bank and creating associated green financial products are far from what the society expected, which is a due to a lack of cross-government support.

Financial market failure

          In fact, many energy efficiency projects and ventures face a plethora of barriers to financing as they are too small and/or risky to attract the attention of large financial institutions. (World Bank, 2008)  Today, not to mention various business projects of high profitability competing for capitals, the banking sector, in financing green energy projects, usually perceives the transaction costs and risks around new technologies, creditworthiness and revenue security, etc. to be unbearable.  A number of scholars and energy professionals agree that these market failures necessitates a government-backed bank acting in the public interest, if the UK is to go ahead with the scale of the low-carbon infrastructure required to meet the national carbon reduction targets.  Thus in 2009-10, the UK Government accepted a proposal by the Sustainable Development Commission for a green investment bank that will unlock private finance to accelerate a wide range of green infrastructure projects.

          The Green Investment Bank Commission estimates that £550 billion could be required for investment in supply chains and infrastructure in order to meet the national climate change and renewable energy target between now and 2020. (GIB Commission, 2010) Meanwhile, evidence given to the Environmental Audit Committee suggests that the UK will need to raise £200 billion and £1 trillion over the next two decades, but traditional sources of private fundraising are likely to deliver between £50 and £80 billion only.  (BBC News, 2011)

         

The ‘commercial’ bank for green economy

          The GIB is now being capitalised with £3 billion taxpayers’ money, of which £2 billion will be injected on top of the initial £1 billion capital according to the Budget 2011.  The bank is expected to have catalysed an additional £15 billion into the green economy within four years, making money for clean energy projects more cheaply.  According to the Deputy Prime Minister, Nick Clegg, some of the bank’s priorities will be offshore wind, non-domestic energy efficiency and waste. (Kinver, 2011) Work is being done to explore other sectors that would be eligible for intervention. A further boost to green campaigners is the possibility that GIB helps finance the green deal scheme, where householders will have access to loans for energy efficiency refurbishment to be repaid in instalments through their energy bills.

          The GIB Commission has proposed that the primary focus of the bank should be on lowering risk for investors, rather than simply providing capital. It could help catalyse low-carbon investment by:

(a)  Unlocking project finance through equity co-investment, first loss debt and insurance products;

(b)  Creating green bonds to access to very large pools of capital held by such institutional investors as pension funds and life insurance companies and which would provide the scale of capital needed; and

(c)  Selling green ISAs that enable retail investors to contribute to the funding of green infrastructure. (GIB Commission, 2010)

An independent institution

          To ensure the green bank is an enduring and independent institution, it will be free from governmental and political interference as well as able to reinvest the proceeds from its investments.  The GIB will be set up as a Companies Act company and follow best practice corporate governance. Its public roles, interim governance structure and independence will be enshrined in legislation as soon as the state aid approval is achieved. (BIS, 2011)  Actually, the independence of the bank from ministers has been a major concern for investors, who are worried about the Treasury’s plan to avoid legislation and retain control over the bank would result in years of damaging political interference.  The Deputy Prime Minister has reassured the public that it will be part of the institutional architecture of the country and translated from an idea to a flow of investment to Britain’s clean energy industries in under two years.  The GIB will have powers to borrow from the private money markets from April 2015.

          Downing Street’s decision to delay the bank’s power to borrow from the capital market until the public sector net debt has fallen as a targeted percentage of GDP attracted criticisms.   Some urged the Government to needs to say legislation will happen next year at the latest, and make clear the bank can borrow from the capital markets from the outset. (Kinver, 2011)  Earlier, the heads of 15 green campaign groups have written to the Prime Minister and pointed to delays in giving borrowing powers to the new green investment bank. (BBC News, 2011) “Setting up a Green Investment Bank without the power to borrow would be a bit like trying to buy a house without first getting a mortgage offer. George Osborne has got the deposit, but if he doesn’t allow the bank to raise extra capital, the sums are going to fall far short of what is needed,” said Joan Walley, chair of the Environmental Audit Committee. (BBC News, 2011) Many believe the most effective form to stimulate and promote green growth is to let the bank raise money in a similar fashion to regular banks that can leverage huge funding from the private sector.

Timing

          The Green Investment Bank will begin operating in April 2012, according to the latest statement of the Government in the House of Commons in May 2011.  The legislation for the bank may take longer than a year, but funds would be released within 11 months so that companies can start planning their applications for funding for green projects, including offshore wind farms, waste and industrial energy efficiency.  Now, Edinburgh and Bristol are bidding to be the home of the bank’s headquarter and a decision will be made later this year.

Limited progress in Whitehall

Downing Street in March this year launched the Carbon Plan, according to which, the Department for Business, Innovation & Skills (BIS) will get the GIB operational by September 2012 with the first annual data released on the funds in and size of investments made by the Bank by May 2013. In fact, attributable to the absence of cross-government support, the overall progress of setting up the green bank has been delayed by the Treasury which was instrumental in preventing the GIB from having any borrowing powers until 2015, subject to public sector net debt falling as a percentage of GDP. Thus, the capacity of the GIB to leverage private investment will be weakened. It is always this kind of caveat that is the barrier.

Figures from Ernst & Young show that £450 billion is needed in energy investment in the UK over the next 15 years, but only £50-80 billion is expected from traditional capital sources. (Ernst & Young, October 2010) The society had high expectation that a fully operational GIB can bridge this gap. It is more desirable for a bank which can support the transition to a low-carbon economy at the scale and speed required to deliver the targets in the Climate Change Act to be up and running much earlier.

As part of the GIB project, Downing Street also committed the government to creating green financial products such as Green ISAs, proposed by George Osborne when he was still a shadow chancellor, in order to provide consumers with opportunities to invest in the infrastructure which supports the green economy. However, hitherto, almost no progress is seen on this commitment as the Treasury considers green financial products as a matter for the GIB and thus will not offer any savings products until 2015. The different perceptions on low-carbon economy shown between departments cast doubts on how high the green agenda is on the Treasury’s priority list.

The way forward

            Vital to driving a transition to a truly low-carbon economy is the development of well-designed, long-term and stable policies that provide incentives for businesses to invest in new, green infrastructure.  Theoretically, the Green Investment Bank will unlock the major new streams of investment and give greater certainty of meeting the climate change targets.  It will work over the long term in the national interest with its focus on innovative risk aversion, sending a strong signal to investors that the UK is serious about its low-carbon transformation.  This is a tremendous opportunity to realise sustainable growth by rapidly scaling up the green investment, creating green jobs and industries of our future.  If the green bank model is a success, this will be another great contribution from Britain to the world’s economy. At the moment, what really matters is cross-government leadership that is desperately needed not to shiver the great commitment but to deliver the truly “greenest ever” government.

References

BBC News. (2011, May 14). Coalition 'losing way' on green policies - campaigners. BBC News .

BBC News. (2011, March 11). Green Investment Bank must not be compromised, say MPs. BBC News .

BIS. (2011). Update on the design of the Green Investment Bank. London: Department for Business Innovations & Skills.
Ernst & Young. (October 2010). Capitalising the green investment bank: key issues and next steps. London: Ernst & Young.

GIB Commission. (2010). Unlocking investment to deliver Britain's low-carbon future. London: Green Investment Bank Commission.

Kinver, M. (2011, May 23). Clegg: UK green bank 'to begin investing in April 2012'. BBC News .

World Bank. (2008). Financing Energy Efficiency: Lessons from Brazil, China, India and Beyond. Washington DC: World Bank.

  

Email me at winstonkm.mark@googlemail.com

Shaping our ocean policy with "ecosystem service" management

The world's oceans are in a worse state than previously suspected, according to a the latest report by the International Programme on the State of the Ocean (IPSO) in June 2011. Ocean life is “at high risk of entering a phase of extinction of marine species unprecedented in human history”. In their conclusion, issues such as exploitative fishing, pollution and climate change are acting together at accelerated rate that have not been recognised before. This report is just published a few months after a major assessment on coral reefs that warned three quarters of the world's coral reefs are at risk and most reefs will be gone in 50 years' time if nothing is to be done. (Black, 2011) I am going to look at the state of marine biodiversity in an ecosystem service approach.

Why biodiversity loss? Is a "nature corridor" the way out?

Biodiversity refers to “the sum total of all of the plants, animals, fungi, and microorganisms on Earth; their genetic and phenotypic variation; and the communities and ecosystems of which they are a part” (Dirzo & Raven, 2003) and is sometimes referred to as ‘species richness’. It is a concept of growing significance not only to ecologists but also to various governments. In essence, biodiversity reduces with extinction of species. Given the background extinction rates of 0.1-1.0 species per million species per year, for the last 300 years it is at least several hundred times the historical values. (Dirzo & Raven, 2003) From year 1500 to 2000 alone, 811 species have been recorded as extinct. I would like to discuss the relative importance of the major threats to global biodiversity.