Japan Approves New Renewable Energy Feed-In Tariffs

On June 18, Japan's Ministry of Industry approved the implementation of renewable energy feed-in tariffs.  These tariffs, set to last for at least 20 years, are among the highest in the world (see chart below) and they become effective from July onwards. Bloomberg New Energy Finance estimates that Japan's photovoltaic (PV) market alone could be worth at least 10 billion USD, with Japan poised to overtake Italy as the world's second largest solar energy market.

The new Japanese green tariffs require utility companies to purchase electricity from renewable sources, such as wind, solar, biomass, geothermal and different forms of biomass.  Japan's government views this requirement as a positive step towards reducing its historic reliance on nuclear power and thereby mitigate against a potential future "nature+nuclear" national catastrophe a la Fukushima.

Japan only generates about 1% of its energy from renewable sources at present, but analysts predict that the country should unlock at least 30 billion USD in fresh renewable energy investment by means of these new tariffs. It will be interesting to watch how feed-in tariff policies evolve in the USA and other major economies -- much work still needs to be done in order to reduce our global dependence on greenhouse gas emitting fossil fuels.

Cheers -- Jon

Tentative New Climate Deal Reached In Durban

Greetings everyone from Ukraine!  Well what can I say, there was a surprise announcement late this weekend that a platform had been agreed to extend the Kyoto Protocol in principle.  Although the agreement is rudimentary at best and leaves much room for clarification on how to implement a future legally binding treaty, it's more than the zero result most people anticipated coming into the conference.  It remains to be seen if the USA - a sadly visible and increasingly isolated leader in the anti-climate change movement - will be shamed and cornered by the rest of the world to get its act together finally, and if China goes along too.  One thing that is clear, however, is there is a glimmer of hope where before there was only darkness.

As reported on http://www.ens-newswire.com/ens/dec2011/2011-12-11-01.html

DURBAN, South Africa, December 11, 2011 (ENS) - As dawn broke over Durban this morning, climate negotiators agreed to launch a new legally-binding treaty limiting greenhouse gas emissions that would apply to all 194 member governments of the UN Framework Convention on Climate Change. They also approved a second commitment period for the existing Kyoto Protocol and the launch of the Green Climate Fund.

The final package of agreements, known as the Durban Platform, was reached after intense negotiations that extended until 5 am this morning, more than a day past the official end of conference. 

UN Secretary-General Ban Ki-moon today welcomed the outcome, saying these decisions represent "a significant agreement that will define how the international community will address climate change in the coming years. 

"Taken together, these agreements represent an important advance in our work on climate change," Ban said, calling on countries to "quickly implement these decisions and to continue working together in the constructive spirit evident in Durban." 

The new "agreed outcome with legal force" covering all countries must be negotiated by 2015 and take effect by 2020 at the latest.

It must ensure that countries take measures sufficient to meet the goal agreed at last year's climate conference of keeping global temperature rise below two degrees Celsius over pre-industrial levels, which many scientists say could avert the worst impacts of climate change. 

Work on this instrument will start immediately under a new group called the Ad Hoc Working Group on the Durban Platform for Enhanced Action.

Ban praised the agreement to establish a second commitment period of the Kyoto Protocol from January 1, 2013, the day after the first commitment period expires. He said it will "increase certainty for the carbon market and provide additional incentives for new investments in technology and the infrastructure necessary to fight climate change."

Parties to this second period will turn their economy-wide targets into quantified emission limits or reduction targets and submit them for review by May 1, 2012.

"This is highly significant because the Kyoto Protocol's accounting rules, mechanisms and markets all remain in action as effective tools to leverage global climate action and as models to inform future agreements," said Christiana Figueres, executive secretary of the UN Framework Convention on Climate Change.
Countries also agreed to implement the Cancun Agreements, which were created at last year's conference in Mexico. The new measures include setting up a Technology Mechanism that will promote access by developing countries to clean, low-carbon technologies, and establishing an Adaptation Committee that will coordinate adaptation activities on a global scale.

Ban applauded the launch of the Green Climate Fund and said he was gratified that a number of countries signalled their intent to contribute to it. The Fund was created last year to help developing nations protect themselves from climate impacts and build their own sustainable futures, but had not been launched. Ban had urged developed countries throughout the two-week conference to inject the necessary capital to kick-start it.
"This means that urgent support for the developing world, especially for the poorest and most vulnerable to adapt to climate change, will also be launched on time," said Figueres.

Achim Steiner, executive director of the UN Environment Programme, is encouraged by the agreements but said the real-world impact on the planet's climate is still uncertain.

"The big question many will ask is how this will translate into actual emission reductions and by when?" Steiner said. "Whatever answer will emerge in the coming months, Durban has kept the door open for the world to respond to climate change based on science and common sense rather than political expediency."

The latest "Bridging the Emissions Gap" report, coordinated by UNEP with climate modeling centers around the world, emphasized in November that the best available science shows that global greenhouse gas emissions need to peak before 2020.

The key question of the Durban outcome, said Steiner, is whether what has been decided will match the science and lead to a peaking of global emissions before 2020 to maintain the world on a path to keep a temperature increase below two degrees Celsius.

The United States has not signed on to the Kyoto Protocol, concerned that it does not cover high-emitting developing countries such as China and India. A big question in Durban was whether the United States, China and India would agree to be legally bound to limit their greenhouse gas emissions. In the final vote, all three countries did agree.

Although the Durban Platform sets the stage for a legally-binding agreement that does cover all countries, the U.S. supported it only reluctantly.

U.S. Climate Envoy Todd Stern told delegates, "This is a very significant package. None of us likes everything in it. Believe me, there is plenty the United States is not thrilled about." But he said the agreement formalizes important advances that would fall by the wayside if it had been rejected.

"We made it. EU's strategy worked. We got a roadmap that marks a breakthrough for international fight against climate change," tweeted EU Climate Commissioner Connie Hedegaard of Denmark, who chaired the 2009 UN climate conference in Copenhagen.

On Saturday, as the talks went into overtime, Hedegaard said of the intense pressure to reach agreement, "Finally we are getting to the crunch issues. And making progress. The time pressure is almost physically felt in the room. Nerve-breaking!"

Xie Zhenhua, head of the Chinese delegation, said, "The implementation of the Cancun Agreements and the Durban Outcome will not be achieved in a short run. A heavy load of work ahead on the post-2020 arrangement needs to be done in order to enhance the implementation of the Convention."

"The lack of political will is a main element that hinders cooperation on addressing climate change in the international community," he said. "We expect political sincerity from developed countries next year in Qatar."
The world's largest environmental group, the International Union for the Conservation of Nature, expressed optimism over the progress made in Durban.

Stewart Maginnis, IUCN's director of environment and development, said, "We had anticipated that Durban would be where the developed world would raise the bar on their current ambitions and all countries would purposefully commit to the development of a credible roadmap for deep and wide ranging targets for the comprehensive reduction of greenhouse gas emissions. This has been achieved, and steps have been laid out for a new agreement to be put in place by 2015."

"A new spirit of compromise spanning the developed and developing countries is an encouraging step forward," said Maginnis.

But other environmental groups warned that the Durban Platform is just another delay of effective climate action.

Greenpeace International Executive Director Kumi Naidoo said, "The grim news is that the blockers led by the U.S. have succeeded in inserting a vital get-out clause that could easily prevent the next big climate deal being legally binding. If that loophole is exploited it could be a disaster. And the deal is due to be implemented 'from 2020' leaving almost no room for increasing the depth of carbon cuts in this decade when scientists say we need emissions to peak."

"Right now the global climate regime amounts to nothing more than a voluntary deal that's put off for a decade," said Naidoo. "This could take us over the two degree threshold where we pass from danger to potential catastrophe."

Samantha Smith, leader of WWF's global climate and energy initiative said, "Governments did just enough to keep talking, but their job is to protect their people. They failed to do that here in Durban today. Science tells us that we need to act right now - because the extreme weather, droughts and heat waves caused by climate change will get worse."

"Some countries here, like the United States, showed they were not interested in supporting an ambitious outcome in Durban. The U.S. - afraid of the politics at home - fought over a few words, but missed the bigger story: limiting dangerous climate change," Smith said.

"Overall, the responsibility for this lies with a handful of entrenched governments - like the U.S., Japan, Russia, and Canada - who have consistently resisted raising the level of ambition on climate change. This is what brought us to this point.

"It is clear today that the mandates of a few political leaders have outweighed the concerns of millions, leaving people and the natural world we depend on at risk," said Smith. "Catastrophe is a strong word but it is not strong enough for a future with four degrees of warming."

The next annual UNFCCC Climate Change Conference is scheduled for November 26 through December 7, 2012 in Qatar. 

Kind regards from Kiev,
Jon

Bulgaria Temorarily Banned From Carbon Trading

Greetings folks, recently there's been a bunch of rumblings about Bulgaria possibly getting suspended from carbon trading.  Well, it is now confirmed.  They're suspended for an indefinite period.

According to a recent Reuters news article below (available at http://www.reuters.com/article/idUSTRE65S3RU20100629), the official announcement happened yesterday.

Bulgaria had been under fire for faulty greenhouse gas accounting and reporting according to United Nations and EU standards.  Basically, the figures used by the Bulgarian government have been considered less than credible -- thereby undermining the validity of their carbon trading activity.  So they are being suspended until such time that they clean up their act.

Given the large amount of money Bulgaria stands to lose if they don't get into compliance during the coming months, it is highly probable that they will fix the problems before the end of this year.  But only time will tell -- until then we will just have to wait and see.

Bulgaria suspended from U.N. Kyoto carbon trade

Tue, Jun 29 2010

SOFIA (Reuters) - Bulgaria has been suspended from United Nations carbon trading for violating greenhouse reporting rules set under the Kyoto Protocol, a key tool to fight climate change, the Bulgarian environment ministry said on Tuesday.

Sofia has been expecting the move since the middle of May, when the Bonn-based U.N. Climate Change Secretariat that oversees compliance of U.N.'s Kyoto Protocol warned the Balkan country its accreditation will be revoked.

The ministry said it has already taken measures to improve emission registering and expects a visit by U.N. experts in September and October to allow the Balkan country restore its accreditation before the end of the year.

The suspension will exclude Bulgarian companies from trading in greenhouse gas trading schemes under Kyoto, and would also affect their participation in the European Union's emissions trading scheme.

Industrial producers and utilities can carry out deals in the EU's carbon scheme, but the actual transfer of allowances to and from the national register would not be possible and would hamper spot trading.

Spot EU permit trading and Bulgaria's share of permits both account for a small portion to the total EU carbon market.

The suspension also means Bulgaria cannot sell the surplus sovereign emissions rights it has accumulated under Kyoto. The recession-hit country had hoped to sell at least 40 million metric tons of its Assigned Amount Units this year, worth upwards of 400 million euros ($488.2 million).

Greece received a similar suspension for seven months in 2008, but Greek companies were able to continue trading in the EU market as it was not yet linked to the Kyoto schemes.

(Reporting by Tsvetelia Tsolova)

French President Calls For Nuclear Energy Carbon Credits

Generally speaking, nuclear energy has been the red headed stepchild of climate change cap-and-trade.  Ignored completely by the Kyoto Protocol and related schemes, the sector has never been eligible for creating valuable carbon credits and therefore misses the multi-billion dollar carbon finance boat.  French President Nicolas Sarkozy currently wants to change this and expand the carbon credit market to include nuclear energy also.

President Sarkozy would like to improve the financing options for nuclear energy and make it more widespread.  Climate change mitigation proponents and cap-and-trade advocates have traditionally been divided over the subject of nuclear energy, due to the long half-lives of radioactive fuel materials and the dilemma of how to dispose of them safely over time.

Nuclear power supporters, like President Sarkozy, argue that these are outdated arguments. There is little risk of a future Chernobyl or Three Mile Island recurrence, they say, using modern technology; it is time for a changed perception towards nuclear power.

I am not qualified to speak on the merits of either side, surely.  But I can say that if nuclear power is allowed to participate in the future carbon market, it will have a definite impact on prices and project market characteristics.  So with that in mind, here is a recent public article from the Wall Street Journal on President Sarkozy's recent statements and views on this important subject.  You can find the original at http://online.wsj.com.

Cheers -- Jon

Wall Street Journal Online

8 March 2010

Sarkozy Urges Easier Financing for Nuclear Energy

By Adam Mitchell & Geraldine Amiel

PARIS—French President Nicolas Sarkozy on Monday urged the World Bank and other international institutions to help ease financing for civil nuclear-power projects around the world.

In a speech at an international conference in Paris on the theme of access to nuclear power, Mr. Sarkozy said he proposes to "eliminate the ostracism of nuclear energy in international financing."

"I do not understand why international financial institutions and development banks do not finance civil nuclear energy projects," Mr. Sarkozy said. "The current situation means that countries are condemned to rely on more costly energy that causes greater pollution."

The French president said he would propose to change that situation. "The World Bank, the EBRD [European Bank for Reconstruction and Development] and the other development banks must make a wholehearted commitment to finance such projects," he said. Mr. Sarkozy also called for nuclear power to be included in carbon-credits systems.

"Outdated ideology means that a country developing civil nuclear energy cannot obtain carbon credits," he said. "And yet, these credits are used to finance all other forms of decarbonized energy."

Mr. Sarkozy said carbon dioxide credits should "be used to finance all forms of decarbonized energy under the new global architecture after 2013."

Nuclear power is the main source of electricity in France and the country has a fleet of 58 reactors, which it is in the process of expanding. Mr. Sarkozy wants France to export the country's nuclear technology as widely as possible and has long spoken in favor of boosting access to civil nuclear power around the world.

Separately, Mr. Sarkozy said he wants to boost nuclear expertise through expanding training opportunities. "I have decided to step up our efforts by creating an International Nuclear Energy Institute that will include an International Nuclear Energy School," Mr. Sarkozy said.

The institute will be an "integral part," Mr. Sarkozy said, of an international network of specialized centers of excellence that is now taking shape, that will see the first center being set up in Jordan.

One Person's Chicken Waste Is Another Person's Clean Energy

There is a new technology on the horizon to help meet Ukraine’s energy challenges, and it comes from chickens.

Swiss company Alter Energy Group AG (www.alterenergygroup.com) is working to implement a sophisticated waste to energy process in Ukraine that converts poultry manure into clean, environmentally safe, industrial scale electricity and heat.

This is a highly uncommon type of energy project, and upon completion Alter Energy Group’s Ukrainian projects will join a tiny handful of similar projects worldwide.

The company’s technical approach involves burning chicken manure to create large amounts of electricity and heat. This heat and electricity then is supplied to Ukraine’s wholesale energy market and the surrounding population. It all sounds simple enough, however the process is in fact highly complex due to poultry manure’s tricky ammonia content and ash problems.

Poultry manure contains so much ammonia that it routinely destroys normal project equipment. It also causes toxic pollutants to be released into the air during the incineration process unless handled in a very delicate manner. The ash resulting from burned poultry manure also is uniquely disruptive. For this reason, only about seven commercial scale poultry waste to energy projects have been completed anywhere in the world thus far.

Alter Energy Group claims to have carefully dealt with all these chicken challenges by using a waste to energy methodology with a proven poultry-specific track record. In addition to heat and electricity, their projects will also produce large quantities of nutrient rich bio-fertilizers and animal feed for sale.

Ukraine is a country of large Soviet style poultry farms, and Ukrainian farmers presently have limited commercial use for their livestock waste. An opportunity therefore exists, with the right technology, for Ukrainian farmers to work with companies like Alter Energy Group to create a profitable new renewable energy niche market. Alter Energy Group’s first Ukrainian chicken projects could be completed sometime during early 2010, if all goes well. These types of projects qualify for Ukraine’s Green Tariff as biomass energy and also for carbon credits under the Kyoto Protocol.

Making clean energy from chicken manure is a relatively uncommon thing. Even in the most advanced renewable energy countries these projects are relatively unknown. It will be interesting to observe how things unfold in Ukraine with Alter Energy Group's chicken projects, and to watch whether similar projects are undertaken in neighboring CIS countries.

I will continue to monitor this area and report new developments as they arise.

10 Common Carbon Credit Buyer Questions -- What Every Seller Must Know

You’re a project owner or developer with a fresh project generating valuable carbon credits under the Kyoto Protocol. Perhaps this is your first project, or maybe you’ve already established your track record in the market.

No matter what your prior experience level, you know that 2012 is fast approaching and you want to obtain the best possible terms for selling your carbon credits. This means locking in a great price before market prices dip farther south. But for some reason whenever you try having serious talks about your project with prospective buyers they give only noncommittal signals of interest.

What is happening? Why are your sales talks hitting road blocks this year, when last year was smooth sailing and you could take your pick of any number of interested buyers from just a few phone calls? You’ve heard the market is getting tough as the 2012 Kyoto deadline approaches, but you’ve got a great project whose carbon credits should be easy to sell. You’re confused.

The recent lack of success may be due in part to your failure to show today’s nervous buyers that you have pre-identified and addressed their main risk areas. This is becoming increasingly important in 2009, as the market seems to be swinging from a seller’s to a buyer’s market. The pre-identification exercise not only allays investors’ fears, it also paints you in a highly positive light as an enlightened and responsible seller.

In order to achieve the best price and avoid painfully drawn out contract negotiations, you should be prepared to answer key questions from the very first serious discussion with a buyer. From the first phone call with a major bank, company or carbon fund, you should know how to respond to the 10 items below… even if you can only give a partial answer.

1. What is the project’s full reference name, host country, and approved baseline methodology number?

2. What documentation stage is the project at (PIN, PDD, validation report etc.)?

3. What approval stage is the project at (FSR, LOE, LOA, Track 1 or UNFCCC registered)?

4. What is the full project owner and project developer name, and what track record do they have for previous carbon projects?

5. What is the financing source for the project’s construction and equipment costs? Is financing complete or secure?

6. When should the project begin validation? Has a time slot been pre-arranged with a particular DOE?

7. When is the expected project commissioning date?

8. When is the expected project registration date?

9. What are the expected annual ERU/CER volumes? What portions of these volumes are available for sale? If not 100%, then who has rights to the remainder and what priority status is the piece available for sale?

10. What are the “get it done” purchase price terms … where if a buyer agrees, you can both cut the small talk and proceed directly into exclusive ERPA contract negotiations?

The best Kyoto Protocol projects are great for the environment but good for your bank account also. If you can answer the 10 questions above, you have an excellent shot to complete a carbon credit sales transaction on your terms and on your timeline.

Good luck, here’s hoping to your success in 2009 and to the success of all carbon credit projects worldwide!

Jon

CDM Project Validation Issues

Carbon Credits, Like People, Can Have Validation Issues

Jon M Queen, Las Vegas NV (17 December, 2008)

As 2008 comes to a close, investors and project developers in the carbon market are asking a common question. How can the validation process for projects under the Kyoto Protocol’s Clean Development Mechanism (“CDM”) be improved?

That question, raised but left unanswered at December’s 14th Conference of the Parties to Climate Convention, is essential to address. Project developers now can wait six months or longer before receiving validation services. Extended project validation queues reduce a CDM project’s carbon credits for compliance purposes under Kyoto, because CDM projects first must be: (i) validated by a specially designated auditing company called a Designated Operational Entity (but commonly referred to either as a “DOE” or a “validator”); and (ii) registered at the CDM Executive Board under the United Nations Framework Convention on Climate Change.

Given that CDM is an important tool and catalyst for beneficial new technology transfers and energy improvements for less developed countries, the long (and often inconsistent) CDM project validation processes undercut and even obviate many of these positive externalities. CDM project validation wait times can range from several months to over a year! These delays create market uncertainty and inefficiency, reducing CDM’s effectiveness as a weapon against climate change and as a high profile vehicle for large countries, companies and financial institutions to become engaged in the clean and renewable energy space.

Despite the serious validation delays in today’s CDM market, one simply cannot speed things up and blindly accelerate the validation process. Doing so would erode the important environmental due diligence and auditing function that validation is designed to provide in the first place.

The last thing that anyone wants is a systemic carbon credit credibility dilemma. The environment does not benefit from emissions reductions achieved solely on paper. Likewise, interest in new green energy projects will drop if a glut of hastily (or sloppily) validated carbon projects drives down the value of carbon credits to zero.

The small group of environmental auditing companies approved to perform CDM validation services under the Kyoto Protocol say it is impossible for them to keep pace with the large number of new projects submitted to them for validation each month. There are simply too many projects and not enough trained personnel to provide validation services.

Looking at the large number of new carbon projects originating in countries like China, India and Russia each month, it is easy to see the truth in this statement. But by the same token, these companies are not small shops; many are the crème de la crème of the commercial environmental auditing industry. These companies are, by and large, highly experienced and reputable multi-national firms with long histories of auditing services for large deals all over the world.

So why are the same firms so short-staffed and unable to meet demand for their services, in what clearly is a boom market for them?

While it is true that CDM projects are cropping up at high rates, employee attrition is a key part of why validators cannot keep pace with the demand for their services. Carbon funds and financial institutions often pay premiums for experienced project validation professionals to defect from their companies and join new investment or risk management teams. By the time a validator trains someone to perform their job effectively and assume a degree of personal responsibility and self-management, the employee is most likely entertaining several job offers for higher salaries.

This is, I suspect, a new type of problem for validators. Before CDM and the Kyoto Protocol, top environmental auditing companies faced relatively low risk of their employees being poached by a major banks or similar clients. The specialized expertise held by these professional auditors generally had little direct relation to the qualifications needed to be a commercial success in a banking, trading or investment firm.

This traditional divergence ceases to exist with CDM, where nowadays a 25 year old person with decent people skills, a good work ethic and 3 years of strong project validation experience can compete against MBA candidates for spots working under an investment bank’s managing director.

The attrition challenges presently confronting CDM validators are not new or unique over time. They are the exact same challenges that large corporate law firms experience everyday due to interaction between their best young associates and the wealthy business clients and institutions they represent. If CDM validators start making the types of salary adjustment decisions that big corporate law firms make for their associates and partners, it would directly address their attrition problem.

Big law firms typically do not pay associates and partners at the same levels as investment banks, yet they are not understaffed and can grow to match client demand. They commonly experience widespread attrition among young to mid-level associates, but this attrition is manageable from a business point of view because more experienced senior associates and partners generally stick around. Law firms maintain and slowly grow out their partner and senior associate base, while calculating junior associate hiring numbers to reflect a degree of expected attrition.

Validators should simply admit that CDM is a multi-billion dollar industry heavily focused on the skills and expertise their employees possess. Their personnel are therefore highly valuable, and they should re-assess the financial packages presently being offered to mid-level and senior employees. Adjustments should be made that create more of a “brass ring” structure that incentivizes employees to have a long-term career with the company.

When this happens validators will see their attrition rates decrease to manageable levels, and the CDM market will witness a decline in the delays and lag times for project validation work. Salary adjustments for validators’ employees will result in higher prices for validation services, but what of it? What is wrong with a little price bump, given the present alternative? Most validation costs are directly paid today by off-take purchasers, not the original project owners or developers. Is it not better to deter projects with low projected emission reductions from seeking validation, via increased prices for validation services, than for thousands of projects to be brought to a worldwide standstill because too few qualified validation professionals exist to service the market?

Validators should transition into a more commercially oriented employee compensation mindset to set the CDM validation and registration process back on track. That is the best and most direct solution to the present bottleneck.

Until the day when validators’ technical experts can reasonably decline banking job offers with roughly similar skill requirements, there will always be frustrating delays and lost market value arising from the CDM “validation issue.”