Wednesday, September 30, 2009

Co2 pollution is good!!

When one watches the following advert paid by the coal industry it is hard to know whether to laugh or cry.

Only in America.

For more information read this link from Care2.

Relax, CO2 is Good for You!

The Washington Post reports that long-time oil industry executive H. Leighton Steward has teamed with Corbin J. Robertson Jr., chief executive of and leading shareholder in Natural Resource Partners, a Houston-based owner of coal resources, to get out the message that higher CO2 levels will actually help the Earth's ecosystems. They have invested $1 million into two new organizations, one to lobby, one to educate the public. How lucky we are that these fearless oil and coal industry executives are leading this charge for truth.


Potato Economics

Always on the look out for new branches of economics come an unmissable paper from Nathan Nunn and Nabcy Qian from British Columbia and Yale respectively.

The abstract reveals the enormous impact of the Solanum tuberosum on world population growth and unbanisation. This is a great "globalisation" is good story. Without the marauding Europeans in the Americas and Columbus (1492) bringing the spud back to Spain, Europe would still be a agricultural backwater.

The Potato's Contribution to Population and Urbanization: Evidence from an Historical Experiment

Nathan Nunn
University of British Columbia - Department of Economics

Nancy Qian
Yale University - Department of Economics

July 2009

CEPR Discussion Paper No. DP7364

We exploit regional variation in suitability for cultivating potatoes, together with time variation arising from their introduction to the Old World from the Americas, to estimate the impact of potatoes on Old World population and urbanization. Our results show that the introduction of the potato was responsible for a significant portion of the increase in population and urbanization observed during the 18th and 19th centuries.

Keywords: agriculture, Columbian Exchange, Demography, Economic Development, Industrialization, potato

JEL Classifications: J1, N1, N5, O14
Working Paper Series

Tuesday, September 29, 2009

Environmental class war - burn the rich

George Monbiot writes great columns in the Guardian. Sure, pollution growth is never going to be good for the environment. What is far worse for the environment is the number of rich people.

The parts in "bold" are sheer classic Monbiot. A great thought provoking article.

Class war anyone?

While there's a weak correlation between global warming and population growth, there's a strong correlation between global warming and wealth

Here is the link to an article worth reading in full.

Stop blaming the poor. It's the wally yachters who are burning the planet [Guardian]

It's no coincidence that most of those who are obsessed with population growth are post-reproductive wealthy white men: it's about the only environmental issue for which they can't be blamed. The brilliant Earth systems scientist James Lovelock, for instance, claimed last month that "those who fail to see that population growth and climate change are two sides of the same coin are either ignorant or hiding from the truth. These two huge environmental problems are inseparable and to discuss one while ignoring the other is irrational." But it's Lovelock who is being ignorant and irrational.

A paper published yesterday in the journal Environment and Urbanization shows that the places where population has been growing fastest are those in which carbon dioxide has been growing most slowly, and vice versa. Between 1980 and 2005, for instance, sub-Saharan Africa produced 18.5% of the world's population growth and just 2.4% of the growth in CO2. North America turned out only 4% of the extra people, but 14% of the extra emissions. Sixty-three percent of the world's population growth happened in places with very low emissions.

Even this does not capture it. The paper points out that about one sixth of the world's population is so poor that it produces no significant emissions at all. This is also the group whose growth rate is likely to be highest. Households in India earning less than 3,000 rupees (£40) a month use a fifth of the electricity per head and one seventh of the transport fuel of households earning 30,000 rupees or more. Street sleepers use almost nothing. Those who live by processing waste (a large part of the urban underclass) often save more greenhouse gases than they produce.

Many of the emissions for which poorer countries are blamed should in fairness belong to the developed nations. Gas flaring by companies exporting oil from Nigeria, for instance, has produced more greenhouse gases than all other sources in sub-Saharan Africa put together. Even deforestation in poor countries is driven mostly by commercial operations delivering timber, meat and animal feed to rich consumers. The rural poor do far less harm.

The paper's author, David Satterthwaite, points out that the old formula taught to students of development – that total impact equals population times affluence times technology (I = PAT) – is wrong. Total impact should be measured as I = CAT: consumers times affluence times technology. Many of the world's people use so little that they wouldn't figure in this equation. They are the ones who have most children.

While there's a weak correlation between global warming and population growth, there's a strong correlation between global warming and wealth. I've been taking a look at a few super-yachts, as I'll need somewhere to entertain Labour ministers in the style to which they are accustomed. First I went through the plans for Royal Falcon Fleet's RFF135, but when I discovered that it burns only 750 litres of fuel per hour I realised that it wasn't going to impress Lord Mandelson. I might raise half an eyebrow in Brighton with the Overmarine Mangusta 105, which sucks up 850 litres per hour. But the raft that's really caught my eye is made by Wally Yachts in Monaco. The WallyPower 118 (which gives total wallies a sensation of power) consumes 3,400 litres per hour when travelling at 60 knots. That's nearly a litre per second. Another way of putting it is 31 litres per kilometre.

Of course, to make a real splash I'll have to shell out on teak and mahogany fittings, carry a few jetskis and a mini-submarine, ferry my guests to the marina by private plane and helicopter, offer them bluefin tuna sushi and beluga caviar, and drive the beast so fast that I mash up half the marine life of the Mediterranean. As the owner of one of these yachts I'll do more damage to the biosphere in 10 minutes than most Africans inflict in a lifetime. Now we're burning, baby.

Someone I know who hangs out with the very rich tells me that in the banker belt of the lower Thames valley there are people who heat their outdoor swimming pools to bath temperature, all round the year. They like to lie in the pool on winter nights, looking up at the stars. The fuel costs them £3,000 a month. One hundred thousand people living like these bankers would knacker our life support systems faster than 10 billion people living like the African peasantry. But at least the super wealthy have the good manners not to breed very much, so the rich old men who bang on about human reproduction leave them alone.

In May the Sunday Times carried an article headlined "Billionaire club in bid to curb overpopulation". It revealed that "some of America's leading billionaires have met secretly" to decide which good cause they should support. "A consensus emerged that they would back a strategy in which population growth would be tackled as a potentially disastrous environmental, social and industrial threat." The ultra-rich, in other words, have decided that it's the very poor who are trashing the planet. You grope for a metaphor, but it's impossible to satirise.

James Lovelock, like Sir David Attenborough and Jonathan Porritt, is a patron of the Optimum Population Trust. It is one of dozens of campaigns and charities whose sole purpose is to discourage people from breeding in the name of saving the biosphere. But I haven't been able to find any campaign whose sole purpose is to address the impacts of the very rich.

The obsessives could argue that the people breeding rapidly today might one day become richer. But as the super wealthy grab an ever greater share and resources begin to run dry, this, for most of the very poor, is a diminishing prospect. There are strong social reasons for helping people to manage their reproduction, but weak environmental reasons – except among wealthier populations.

The Optimum Population Trust glosses over the fact that the world is going through demographic transition: population growth rates are slowing down almost everywhere and the number of people is likely, according to a paper in Nature, to peak this century, probably at about 10 billion. Most of the growth will take place among those who consume almost nothing.

But no one anticipates a consumption transition. People breed less as they become richer, but they don't consume less – they consume more. As the habits of the super-rich show, there are no limits to human extravagance. Consumption can be expected to rise with economic growth until the biosphere hits the buffers. Anyone who understands this and still considers that population, not consumption, is the big issue is, in Lovelock's words, "hiding from the truth". It is the worst kind of paternalism, blaming the poor for the excesses of the rich.

So where are the movements protesting about the stinking rich destroying our living systems? Where is the direct action against super-yachts and private jets? Where's Class War when you need it?

It's time we had the guts to name the problem. It's not sex; it's money. It's not the poor; it's the rich.

Is the ETS economic suicide for Europe? The NYT investigates

Europe leads the world in terms of environmental regulation via the European Trading Scheme (ETS).

Has the cost to competitiveness really been worth it given the increase in emissions from China, India and the US? Surely something is better than nothing but what about those who have lost their jobs because of the ETS (but what about all those nice new shiny green jobs?).

An expansion of the ETS across the globe would be great but politically next to impossible.

E.U. Alone and Lonely on Carbon [New York Times]

BRUSSELS — Carbon trading put the European Union in the environmental vanguard.

Since 2005, the trade bloc has operated the world’s only continentwide system that puts a cap on greenhouse gas emissions and that requires major polluters to hold tradable allowances.

But the system has also been the most “costly climate policy program in the world,” according to J├╝rgen R. Thumann, the president of BusinessEurope, a powerful confederation of industry and employer groups.

Mr. Thumann said European business leaders are desperate to expand the system to the United States and eventually across the globe to reduce the “dangers to our ability to compete internationally.”

But with talks on a new global climate treaty seemingly at a stalemate, and with climate legislation delayed in major polluting countries like the United States and Australia, those prospects look increasingly distant.

Meanwhile the E.U. shows no sign of abandoning the system, leaving business leaders like Mr. Thumann with little choice but to speak out at home and to press developed nations abroad to match Europe’s efforts when they gather at the U.N. summit meeting on climate change in December in Copenhagen.

Carbon trading was supposed to be the least costly way for Europe to cut emissions. The idea is that industries buy allowances to emit greenhouse gases if they exceed a certain quota or sell them if they have too many.

But Europe’s relationship with carbon trading goes much deeper than economics, and “is now rooted in the bloc’s aspirations to global leadership,” said Bernice Lee, an expert in energy and environment at Chatham House, a research institution in London.

After the United States declined to ratify the Kyoto Protocol in 2001, Europeans swung their weight behind the treaty, which was the first major attempt to limit emissions globally. As part of those efforts, Europe supported a bid by Russia to join the World Trade Organization.

Vladimir Putin, as Russian president, reciprocated by supporting Kyoto. The treaty required ratification by countries producing at least 55 percent of the world’s greenhouse gases and support from Russia, with its large share of emissions, allowed the treaty to take effect.

More recently, the E.U. authorities have identified carbon trading as a way of raising huge sums of money demanded by developing nations as part of any new global climate treaty.

Ms. Lee of Chatham House said there was “a strong and growing appreciation by E.U. governments” that the revenues generated from selling pollution allowances could help them to balance their own budgets, as well as fund climate-related initiatives.

Even as European nations deepen their reliance on carbon trading, governments elsewhere still are struggling to put such systems in place.

In the United States, legislation to set up carbon trading is stuck in the Senate, which probably will not act until next year. In Australia, the government could call an election on the issue if the legislation fails to pass on its second attempt in November.

In Japan, a new government wants to introduce carbon trading but faces stiff resistance from industry as the country emerges from its deepest postwar recession.

Another factor that continues to muddy the prospects for carbon trading are reports of abuse and manipulation.

In August, it emerged that British customs officials had arrested seven people near London for dodging a value added tax, which should have been paid for selling large amounts of allowances.

In a bid to stop similar cases in the future, Britain, France and the Netherlands have exempted carbon trading from the levy.

Last week, an E.U. court ruled that Poland and Estonia could challenge the European Commission’s assessment of how many allowances their industries were entitled to. That stoked fears among traders that those governments would take advantage of the ruling to issue larger numbers of allowances to favored industries than was originally permitted.

E.U. officials sought to quash speculation about the long-term stability of the carbon markets by saying governments would no longer have the same right to intervene after 2012. But prices of allowances still fell sharply on carbon markets.

Perhaps the thorniest problem for E.U. environment officials is how to make the system more palatable for business without entirely neutering its chances of cutting emissions.

Stavros Dimas, the E.U. environment commissioner, pushed forward this month with plans to continue giving large amounts of allowances away free to industry sectors most exposed to international competition.

The French president, Nicolas Sarkozy, said this month that he and Angela Merkel, the German chancellor, were proceeding with plans for a “border adjustment tax” on imports from countries without targets and trading systems comparable to those in Europe.

Mr. Sarkozy’s approach is sure to stoke tensions with some of the Continent’s major trading partners. Such taxes could start even start a protectionist backlash – a prospect that compounds Mr. Thumann’s concerns about the effects of carbon trading on European competitiveness.

“Climate protection is one of the saddest examples of a failure by leading nations to coordinate responses,” said Mr. Thumann of BusinessEurope. “We’ve got to have closer international cooperation to reduce emissions cost-effectively,” he said.


Carbon Capture and Storage - next steps: finance, demonstration and feasibility

London based seminar for all those interested in Carbon Capture (from the inbox).

Westminster Energy, Environment & Transport Forum Keynote Seminar

Carbon Capture and Storage - next steps:
finance, demonstration and feasibility

Martin Deutz
Director of the Cleaner Fossil Fuels Unit
Department of Energy and Climate Change


Tony Grayling
Head of Environmental Policy
Environment Agency

Morning, 23rd October 2009
The Royal Society, 6-9 Carlton House Terrace, London SW1Y 5AG

This seminar is supported by Scottish Power


This seminar will focus on the implications of the recent announcement from the Department of Energy and Climate Change on latest plans for the demonstration and deployment of CCS, and examine the outstanding practical issues. We are delighted that Martin Deutz, Director of the Cleaner Fossil Fuels Unit, Department of Energy and Climate Change; and Tony Grayling, Head of Environmental Policy, Environment Agency, have agreed to take part.

Other confirmed speakers include: Dr Jeff Chapman, Chief Executive, The Carbon Capture & Storage Association; Dr Pierre Dechamps, Adviser - Energy and Climate Change, European Commission; Sean Furey, Deputy Director, Protect Kent - The Kent Branch of CPRE; Simon Giles, Lead, Smart Technology Strategy, Accenture; Munir Hassan, Partner, CMS Cameron McKenna; Professor Stuart Haszeldine, Professor of Geology/co-leader, University of Edinburgh/UK Carbon Capture and Storage Consortium; David Hone, Group Climate Change Adviser, Shell; and Chris Littlecott, Senior Policy Advisor, Green Alliance. We are in touch with Ofgem, who have offered, in principle, to speak - and we are just sorting out details.

Supported by Scottish Power, this seminar is organised impartially and independently by the Westminster Energy, Environment & Transport Forum.

Sessions will look at key challenges for implementation, including:
• Current thinking on the key factors - technical, economic and practical - determining the feasibility of Carbon Capture and Storage;
• The Environment Agency’s proposed role as independent assessor of the financial and technical viability of CCS;
• Latest plans for the demonstration competition;
• First indications from trials in Germany - and emerging ‘numbyism’ public opinion barriers;
• Investment incentives, the role of the EU ETS and the potential impact on energy prices; and
• The likely effect of an emissions performance standard and options for a ‘safety net’ should the technology take longer than expected to prove.

Other themes in this complex set of issues will also be up for discussion. I have copied the current draft agenda below my signature, to give you a feel for the morning. You can follow the updated, live agenda here, at our website. This meeting is organised on the basis of strict impartiality by the Westminster Energy, Environment & Transport Forum.

Cap and Trade - Krugman style

Paul Krugman writes on "cap n trade" in the NY Time.

The textbook economics of cap-and-trade [NY Times]

I realized, after the last post, that it might be useful to write down just what the Econ 101 version of cap and trade looks like; as it happens, this also helps explain the intellectual sins of Glenn Beck and Martin Feldstein.

I am currently writing a paper with someone who is also the co-author of two of Krugman's ex-PhD students (from many years ago). Does that count for anything?


Saturday, September 26, 2009

Google and the Climate Simulator

Google have launched a new climate simulator. This could be a great tool.

Google Earth launches climate simulator [Guardian]

In collaboration with the Danish government and others, we are launching a series of Google Earth layers and tours to allow you to explore the potential impacts of climate change on our planet and the solutions for managing it. Working with data from the Intergovernmental Panel on Climate Change (IPCC), we show on Google Earth the range of expected temperature and precipitation changes under different global emissions scenarios that could occur throughout the century.


Friday, September 25, 2009

EU emissions trading - the wrangling continues

My environmental economics students will soon be getting to grips with the European Trading Scheme (ETS) as part of their course.

It is useful therefore to point out the continued political wrangling behind the ETS and how it never appears to get any easier.

Te environment invariably loses with every "wrangle".

Europe wrangles over carbon emissions quotas [Reuters]

BRUSSELS (Reuters) - France, Italy and several other European Union countries weighed their chances of haggling up their EU carbon emissions quotas on Thursday, one day after Poland and Estonia successfully challenged theirs in court.

The two east European countries won their appeal on Wednesday for more generous caps on industrial emissions in the Emissions Trading Scheme (ETS), the EU's main tool for ratcheting down gases blamed for climate change.

The ruling by the European Court of First Instance, the bloc's second highest court, threw European carbon markets into uncertainty and the International Emissions Trading Association (IETA) asked countries to refrain from challenging their own quotas.

European carbon markets closed 4 percent lower, leading to a two-day fall of nearly 9 percent.

"We call on all member states to hold back from attempting to make use of a loophole that simply has to be closed for the carbon market, and European climate policy, to continue on a sound footing," IETA said in a statement.

Poland was cautious about its victory on Thursday, weighing the possibility that any re-negotiated quota might be based on emissions data from 2008, a year when industry's emissions fell as it slowed down because of the economic crisis.

European Environment Commissioner Stavros Dimas confirmed that would result in little change to the cap. "It would appear unlikely that there would be any material difference concerning the total number of allowances," he said in a statement.

Elsewhere there was little sign of restraint, with Italy complaining about its quotas and Lithuania and the Czech Republic optimistic about their own pending court appeals.

European Commission spokeswoman Barbara Helfferich played down the chances of renegotiation.

"There is no way of increasing the allowances," she told Reuters. "The ceilings have been established already."


Lithuania and the Czech Republic, which are pursuing a similar appeal to Poland, were encouraged by Wednesday's court decision.

"We will need more carbon emissions due to shutting down Ignalina nuclear power plant at the end of this year, and switching electricity generation to fossil power plants," Stasile Znutiene, at Lithuania's environment ministry, told Reuters.

Italian Prime Minister Silvio Berlusconi had already written last week to the European Commission pointing out the country's difficulties with meeting carbon quotas, an Italian government spokesman said.

Italy did not ask to renegotiate the quota, but asked for "intervention to reach a shared solution," said Paolo Bonaiuti.

A shortage of carbon permits could cost Italy about 500 million euros ($736 million) in the short term, mounting to a total of 800 million by 2012, said another Italian government official.

Several European Union countries, including France, are also discussing the possibility of increasing carbon emissions permits in a reserve fund for new businesses entering the ETS, an EU diplomat said.

"The question of the reserve for new entrants is being asked in several EU countries, among them France, but at this point there is no formal demand of reviewing the allocation plan," the EU diplomat said.


Thursday, September 24, 2009

"Volatility and the Natural Resource Curse"

The natural resource curse gets of a lot of headlines. Rick ven der Ploeg is also doing a lot of interesting work in this area.

This recent OEP article demonstrates the importance of volatility.

"Volatility and the Natural Resource Curse"

Oxford Economic Papers, Vol. 61, Issue 4, pp. 727-760, 2009

RICK VAN DER PLOEG, University of Oxford

STEVEN POELHEKKE, European University Institute - Economics Department (ECO)

We provide cross-country evidence that rejects the traditional interpretation of the natural resource curse. First, growth depends negatively on volatility of unanticipated output growth independent of initial income, investment, human capital, trade openness, natural resource dependence, and population growth. Second, the direct positive effect of resources on growth is swamped by the indirect negative effect through volatility. Third, with well developed financial sectors, the resource curse is less pronounced. Fourth, landlocked countries with ethnic tensions have higher volatility and lower growth. Fifth, restrictions on the current account raise volatility and depress growth whereas capital account restrictions lower volatility and boost growth. Our key message is thus that volatility is a quintessential feature of the resource curse.


Who Pays a Price on Carbon?

Given the proposed US legislation the following paper is a timely piece of research.

The distributional effects of a carbon tax are worthy of further research.

Who Pays a Price on Carbon?

Corbett A. Grainger
University of California, Santa Barbara - Department of Economics

Charles D. Kolstad
University of California, Santa Barbara - Department of Economics

August 2009

NBER Working Paper No. w15239

We use the 2003 Consumer Expenditure Survey and emissions estimates from an input-output model to estimate the incidence of a price on carbon induced by a cap-and-trade program or carbon tax in the US context. We present results on how much difference income deciles pay for a carbon tax as well as which industries see the largest increase in costs due to a carbon tax. We illustrate the main determinant of the regressivity: consumption patterns for energy-intensive goods. We find that a policy targeting CO2 from energy consumption is more regressive than a price on all emissions. Furthermore, on a per-capita basis a carbon price is much more regressive than calculations at the household level. We discuss policy options to offset the adverse distributional effects of a carbon emissions policy.

JEL Classifications: H22, Q43, Q5, Q52, Q53, Q54, Q58


Wednesday, September 23, 2009

Glaciers thinning, water levels rising

Shoddy post frequency I know but I promise to improve over the next month.

Let us get back to action with some good old glacier work. I will catch up on all the pre-Copenhagen news soon.

What is interesting here is that it is the speed of the glaciers that is causing the problem. This can only get worse.

Thinning glaciers driving polar ice loss, satellite survey finds [Guardian]

A comprehensive satellite survey of the Greenland and Antarctic ice sheets has revealed an extensive network of rapidly thinning glaciers that is driving ice loss in the regions.

The most profound loss of ice was seen along the continental coastlines, where glaciers speed up as they slip into the sea. In some regions, glaciers flowing into surrounding waters were thinning by nearly 10m a year.

Scientists used data from Nasa's ICESat (Ice, Cloud and and land Elevation Satellite) to piece together a picture of the changing fortunes of glaciers on the ice sheets. The satellite bounces laser light off the ground, allowing researchers to measure the terrain with extraordinary precision.

The survey, compiled from 50m satellite measurements taken between February 2003 and November 2007, shows glaciers thinning at all latitudes in Greenland and along key Antarctic coastlines. Thinning penetrated deep into the interior of the ice sheets and continues to spread as ice shelves melt into the sea.

"We were surprised to see such a strong pattern of thinning glaciers across such large areas of coastline. It's widespread and in some cases, thinning extends hundreds of kilometres inland," said Hamish Pritchard who led the study at the British Antarctic Survey.

In Greenland, glaciers in the south-east were found to be flowing at speeds of more than 100m per year, during which they thinned by 84cm. More slow-going glaciers lost around 12cm a year.

In a vast region of western Antarctica that drains into the Amundsen Sea, the Pine Island glacier and neighbouring Smith and Thwaites glaciers are thinning by 9m a year, the satellite measurements show. The study is published in the journal Nature.

Previous satellite surveys of polar regions have relied upon radar measurements that cannot map the Earth's surface with the same precision as the ICESat laser rangefinder. The satellite allows scientists to take 65m-wide snapshots of the ground, giving an unprecedented view of glaciers on the steep terrain where ice meets ocean.

This satellite survey helps scientists explore how different aspects of climate change are driving ice loss in polar regions. Higher air temperatures can increase surface melting, but warm ocean currents accelerate ice loss more when glaciers flow into the sea.

"The majority of the thinning we see is not due to increased melting from higher atmospheric temperatures, but because the glaciers are flowing faster thanks to their interaction with the oceans," said Prof David Vaughan, a co-author on the study.

Monday, September 07, 2009

Climate Policy Options and the World Trade Organization

A good summary article of the WTO - environmental position.

It is going to get very messy in my opinion especially with the US proposal to tax carbon imports. The authors of this article are correct to point out the almost certain challenges that will arise.

Climate Policy Options and the World Trade Organization [PDF]

Gary Clyde Hufbauer and Jisun Kim
Peterson Institute for International Economics, Washington


This paper examines whether the climate policy options policymakers are contemplating are compatible with core principles of the world trading system set forth in the General Agreement on Tariffs and Trade (GATT), the World Trade Organization (WTO), and Appellate Body decisions. The authors argue that border measures—both import restrictive measures and export subsidies—contemplated in US climate bills and the climate policies of other countries stand a fair chance of being challenged in the WTO. Given the prospect of foreseeable conflicts with WTO rules, the authors suggest that key WTO members should attempt to negotiate a new code that delineates a large “green space” for measures that are designed to limit GHG emissions both within the member country and globally. By “green space,” the authors mean policy space for climate measures that are imposed in a manner broadly consistent with core WTO principles even if a technical violation of WTO law could occur. To encourage WTO negotiating efforts along these lines, the authors recommend a time-limited “peace clause” to be adopted into climate legislation of major emitting countries. The peace clause would suspend the application of border measures or other extraterritorial controls for a defined period while WTO negotiations are under way.


Solar trade war heats up

A good trade and the environment story hits the news. Solar is big and has attracted subsidies for many governments around the world looking to generate "green jobs". Each country wants to be the "first mover" and to reap the future rewards.

We then have the classic over investment situation of oversupply forcing prices down, ensuring the weakest players leave the market with a few winners left at the end. The problem, as always, is governments attempting to rig the result by subsidising national champions to ensure that their companies are among the winners.

Oversupply was inevitable and anyone buying shares in "the next big thing" were always going to lose out in the short run.

Is it inevitable that China will win this battle? I suspect it is and no amount of complaining by the US or Germany will change the result. Let us watch how it plays out.

Sell US and German solar companies - the Chinese have very deep pockets.

Not so sunny: trade war looms in solar space [PlanetArk]

HONG KONG/FRANKFURT - Fair competition or Save the Planet?

That could ultimately be at play as China and the West, long at odds over trade in steel, textiles and auto parts, risk being sucked into a row over protectionism in renewable energy equipment such as solar panels.

German solar firms Conergy and Solarworld have voiced strong concern about the pricing practices of Chinese panel makers -- who undercut their German peers' products by around 20 percent. Chinese modules sell in Europe at about 1.70 euros per watt, according to a UBS report.

Industry experts say U.S. firms share those German concerns.

Germany's BSW solar industry association is looking into allegations of dumping by Chinese rivals as Conergy rallies support to call on the European Union to examine Chinese pricing tactics.

"It cannot be the aim of our environmental and economic policy to lose to the Far East our pioneering role with regard to the last great future technology, which was raised here with great efforts," said Dieter Ammer, CEO at Conergy, Germany's second-biggest solar firm by revenue.

The once red-hot solar sector faces a massive oversupply of cells and modules that has driven down average selling prices for solar systems by more than a fifth in Germany and the United States -- two major solar markets -- and Chinese companies are grabbing market share by slashing costs.

A solar system below 10 kilowatt costs about 3,400 euros in Germany, while a large home solar set-up would sell at more than $70,000 in the United States.

Making solar energy affordable through subsidies was always a challenge for Western governments promoting clean energy use, but resisting low-cost imports from China may prove a bigger hurdle.

"Solar is a very special product. I don't think it's a good idea to target this (for dumping) as the product is important for the world (to achieve) a low carbon economy," said Fu Donghui, trade lawyer for Allbright Law Firm in Beijing.

"The world benefits if the cost goes lower."

Protectionist measures may actually be too little, too late for German companies already suffering from the global financial crisis and falling domestic demand.

Solarworld shares have dropped 63 percent in 12 months, while Q-cells, the world's largest maker of solar cells, has slumped 85 percent and Conergy 77 percent.

Credit Suisse rates Solarworld an "underperform," saying margins could come under pressure as Asian rivals become increasingly competitive on pricing.

"Accusations of dumping in the solar space raise concerns that an important sector like solar could be weakened by protectionism," said Felix Lam, analyst with CCB International.

"In the end, everyone loses if there are trade barriers."

The big potential losers if the trade barriers go up include Chinese panel maker Suntech Power Holdings and U.S. industry bellwether First Solar, whose German sales made up over 70 percent of total in 2008.

First Solar announced in July it would start to offer rebates to defend its position in Germany, expected to be the largest market for solar panels this year.

"China is dependent on foreign trade, but so are the United States and Germany," said HSBC analyst Christine Wang. "Chinese companies will definitely be hurt, but in the long run German firms will also suffer as China is potentially a huge market."


Other renewable energy sectors such as biofuels and wind are also vulnerable if global trade hostilities escalate.

China is a frequent target for complaints that it blocks access to its markets or unfairly helps its exporters with huge subsidies.

Beijing enhanced cash perks for the solar sector, announcing in July a 50 percent subsidy for investments in solar power projects, that could help further cut production costs, already among the world's lowest.

In March, the government said it would pay 20 yuan ($2.90) per watt of roof-top solar systems with a capacity of more than 50 kilowatt peak (kwp).

"It's unfortunate that the spirit of efficient allocation of resources based on marginal cost advantages has gone, and claims of dumping, often groundless, are increasingly used as a tool to protect inefficient production," said Charles Bai, CFO at Chinese solar wafer maker ReneSola Ltd.

But many Chinese solar firms see trade barriers as a minor irritation against the potential major payoffs from early investment in the sector.

Yingli Energy Holdings, which had a 6 percent share of the global market for modules last year, plans to further expand in Europe by setting up a new subsidiary in France this year to market its solar panels.

"We also plan to extend our business in the U.S., where we have a presence in San Francisco and New York," said company spokeswoman Qing Miao.

ReneSola expects its strategy of slashing prices will pay off through greater market share in the United States and Europe.

"Processing costs have become a key factor in determining cost competitiveness, and this is where the Chinese do better," said Bai.

"Using dumping as an excuse to protect inefficient production can only buy time, it can't change the competitive landscape in the long run."


Friday, September 04, 2009

WTO and Copenhagen linked in a death spiral?

If, as is likely, Copenhagen ends in failure will it spell trouble for the WTO? Pascal Lamy, head of the World Trade Organisation, certainly seems to think so. The FT report.

I happen to believe him. There are some rather odd proposals on how tariffs can be used to "punish" emitters although these are fundamentally flawed in my opinion.

This debate is what this blog is all about. The link between trade, FDI and the environment is absolutely crucial but needs to be understood. The US proposal to tax carbon in imports is madness.

Lamy fears spillover between climate and trade talks [FT]

Failure to find agreement at United Nations climate change talks in Copenhagen in December would threaten a much needed overhaul of the international trading system, Pascal Lamy, head of the World Trade Organisation, warned on Thursday.

His comments highlighted concerns that a breakdown in discussions about reducing greenhouse gas emissions may spill into the trade arena – with devastating effect, as some countries seek to exclude goods from high emitters.

India has already protested to Hillary Clinton, the US secretary of state, about the threat of carbon tariffs from environmental legislation proposed by the Obama administration.

Speaking as trade ministers from 39 countries met in New Delhi to progress the WTO’s Doha round, Mr Lamy cautioned against adopting trade measures to force changes in environmental behaviour.

“I sincerely hope that [agreement] will happen in Copenhagen. If it doesn’t happen, our job at the WTO will become more difficult,” Mr Lamy told the Financial Times. “Go-it-alone measures will not achieve the desired results. Relying on trade measures to fix global environmental problems will not work.

He said world leaders, who meet at the Group of 20 in Pittsburgh, US, later this month, had to prioritise agreement on tackling climate change, ahead of discussion of how trade policy might be used to deepen environmental protection.

“I am of the firm conviction that the relationship between international trade and climate change would be best defined as a follow- up to a consensual international accord on climate change that successfully embraces all major polluters,” Mr Lamy said.

Some developing countries have expressed concerns about environmentally linked tariffs on imports by developed nations, as the pressure to cut greenhouse gases intensifies. They claim such tariffs are in effect protectionist measures.

The American Clean Energy and Security Act, passed by the House of Representatives in June, has fuelled concerns among developing countries that it may lead to punitive US border adjustment mechanisms, shutting out trade.

At a time when the developed world is trying to persuade growing economies like China and India to agree greenhouse gas emissions cuts, some climate change experts say threats to resort to trade measures are “dangerous”.

“The discussion of trade and climate is already out there,” said one expert. “That is a big risk for Copenhagen. Counter-measures are not a helpful dynamic. We have got to talk collaboratively.”

Trade negotiators are hoping that a successful conclusion of this week’s meeting in New Delhi will help put the revival of the stalled Doha round firmly on the agenda of the G20 meeting in Pittsburgh. Many view a trade deal as an economic stimulus to help the global economy recover from its downturn.

However, Mr Lamy said world leaders had to find the political will to embrace tougher global financial regulation to prevent a repeat of last year’s banking crisis and prepare the ground for the Copenhagen talks on climate change.

Anand Sharma, India’s commerce minister, on Thursday played down the prospect of a swift conclusion of the Doha round in spite of calls by some of his counterparts to home in on a few outstanding issues.

“Let’s be frank in acknowledging that even the unequivocal expression of political resolve has not been translated into action . . . It has been suggested that most issues have been settled almost in ‘end-game’. However, it would be apparent that there are still a few gaps and a large number of unresolved issues.”

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Copenhagen posturing: Africa I

Ahead of the UN climate change talks in Copenhagen there are going to be many countries and regions threatening many things, walk outs, veto's and boycotts being top of the list.

This is all about political game playing and posturing ahead of the conference and can be largely ignored. There is nothing new "minimum positions" but it is true that Africa will bare the brunt of climate change and yet did very little to cause it. There is an issue of justice there somewhere.

The odds of Africa's minimum position being met are close to zero in my view.

What is does show however is just how difficult it will be to come to any sort of agreement that will have any chance of having any effect in terms of greenhouse gas emission mitigation.

Africa threatens walkout from climate talks [Daily Nation]

ADDIS ABABA, Thursday - Africa's climate change negotiators led by Ethiopian Prime Minister Meles Zenawi have threatened to withdraw from the upcoming global climate change talks.

The Ethiopian PM said Africa might have to walk out if the December climate negotiations in Copenhagen, Denmark, failed to agree with Africa’s minimum position.

“If need be we are prepared to walk out of any negotiations that threaten to be another rape of our continent,” he said.

Mr Zenawi told Africa ministers and European partners gathered in Addis Ababa to consolidate Africa’s expectation and position for the next global climate negotiations.

According to Africa's common position paper, the continent wants huge financial support (estimated at US$300 billion) and technology transfer from the West for mitigation and adaptation activities to curb the impact of climate crisis on the continent.

Mr Zenawi, however, hinted that his delegation will not claim compensation but fight for global action to reduce the impact of climate change.

“We will never accept any global deal that does not limit global warming to the minimum unavoidable level, no matter what level of compensation and assistance is promised to us,” he said.

“We will not be there to express its participation by merely warming the chairs or to make perfunctory speeches and statements,” Mr Zenawi said.


Africa demands that developed countries should commit 0.5 per cent of their GDP for climate action in developing countries and commit to new and innovative sources of public and private sector finance, with the major source of funding coming from the public sector.


Rich nations need to reduce their greenhouse gas emissions by at least 40 per cent below 1990 levels by 2020 and at least 80 to 95 per cent below 1990 levels by 2050.

Africa also demanded from the West better climate change adaptation fund worth US$67 billion per year by 2020.

Developed countries should commit to the deployment, diffusion and transfer of technology to developing countries, based on principles of accessibility, affordability, appropriateness and adaptability.