Vigorous competition may hold the key helping the energy industry innovate to respond to climate change, according to a new book.
Harvard Business School’s Rebecca M. Henderson and Richard G. Newell of Duke University examine four particularly innovative sectors of the U.S. economy: agriculture, chemicals, life sciences, and information technology. These four sectors have been extraordinarily important in driving recent economic growth. Henderson and Newell describe why accelerating innovation in energy could play an important role in shaping an effective response to climate change.
An effective innovation system has three key elements: accelerating demand for new technology; institutions that support abundant generation and dissemination of fundamental scientific and technical knowledge; and a vibrant, competitive private sector.
“The last, but perhaps the most striking finding from our histories is the importance of vigorous competition in promoting innovation. In life sciences, in chemicals and in IT, our authors suggest that the combination of appropriate antitrust, intellectual property and standards policies created an environment in which there was the creation of a “market for technology” and extensive entry. In contrast, in the case of agriculture the authors hold that the worldwide consolidation of the industry –attributed largely to the need to consolidate IP holdings – may act as a serious constraint on innovation. More broadly, every sector has been characterized by a lively “innovation ecosystem” that both eagerly incorporates the results of publicly funded research and supports private sector experimentation. We suspect that creating such an ecosystem in clean energy could be a key contributor to accelerating innovation in the sector.”
An excerpt is available here.
Technorati Tags: climate-change, energy
Guest Post by Oxford Analytica
Delegates on December 7-18 met in Copenhagen for the 15th Conference of Parties to the UN Framework Convention on Climate Change (COP-15). Hopes were set high that the meeting might produce a significant global agreement on climate change, which addressed specific emissions commitments from the key emitting countries — including the United States, China, and India. Delegates and heads of state failed to produce this. Instead, a small group of key countries agreed on a ‘Copenhagen Accord’, which establishes consensus on specific provisions.
Farcical conference. The conference itself was a self-parody of the logistical and negotiating impotence of international meetings:
- Tens of thousands of observer delegates were left standing in freezing weather and subsequently locked out of the conference centre for the final days.
- Leaked texts, such as a draft from host country Denmark in the first week, clearly were not vetted well beforehand and several times caused melodramatic walkouts and posturing from many sides.
- Damage control for several such mistakes cannibalised valuable days from talks; this approach to delicate negotiations slowed progress considerably.
Copenhagen Accord. As such, when heads of state arrived in the final two days of the conference, they had almost no agreed text to work with. Many ministers and then even heads of state began negotiating directly and at length with each other, seeking to find consensus on even a few topics to avoid abject failure. Such efforts to a small extent paid off, as negotiations among a small group of key emitters (in particular the United States, China, India, Brazil) produced a skeletal Copenhagen Accord, which, while not the broad agreement that had been sought, represents several notable points of progress:
Global warming threshold. The agreement sets forth a consensus global warming threshold of two-degrees Celsius, which represents the point at which risks of climate change are judged to become unreasonably high, is a fundamental element in establishing what global emissions levels might have to be over the next decades.
International monitoring and verification. The agreement establishes the principle of international monitoring and verification of actions taken at national level. This element, while seemingly somewhat technical, was a key point of disagreement between the United States and China both during negotiations and for months before.
The consensus is that an eventual treaty should enable countries to make a commitment to specific quantitative targets, which they then implement fully and independently via domestic actions.
Progress on this, which Obama pursued vigorously, will be helpful in the US congressional debate on climate legislation that is expected in early 2010. At this stage, the administration can point to the existence of an agreement on monitoring and verification of commitments to assuage — at least partly — congressional concerns about potential free-ridership of other large emitters.
Unaddressed points. However, despite small successes, the Accord does not address a number of points that had been expected. In particular, it does not:
- set a goal for global emissions reductions by 2050;
- give details on international carbon market mechanisms, such as much-needed reform of the Clean Development Mechanism, beyond;
- specify mechanisms for technology transfer;
- specify procedures for reducing deforestation in tropical countries; and/or
- set out a timeline for concluding a larger treaty
Some of these areas by most accounts were close to consensus even before the Copenhagen conference began. Therefore, lack of agreement underscores the unfortunate consequences of the ‘all or nothing’ approach that seems to have infected negotiations especially in the early days.
Outlook. The Copenhagen meeting on climate change was a fiasco that only the determination of ministers and heads of state in final days rescued. This is noteworthy in that it underscores the priority accorded to international climate policy. The Copenhagen Accord falls far short of a broad agreement, but it provides the basis for future negotiations and potentially progress in US domestic legislation.
Technorati Tags: climate-change, Copenhagen
Talks at the UN climate summit have resumed after protests from developing nations forced a suspension, demanding more time be spent on the Kyoto Protocol. This latest showdown illustrates the hurdles that need to be overcome to achieve meaningful progress at the summit. Datamonitor has a useful backgrounder (Complimentary download here) that outlines the many obstacles faced by negotiators.
Datamonitor sees the financing of climate change mitigation and adaptation in developing countries as one of the key challenges at Copenhagen. However, “given the extent of the challenge, the short timeframe and fierce Western opposition, Copenhagen will not resolve the finance issue.”
“Developing countries that participate in an international cap-and-trade scheme could be partly compensated by developed countries having to purchase allowances from developing countries. The scale and rate of implicit financial transfers from developed countries to developing nations would be set by the initial allocation of emission caps and allowances. While allowance allocation on an equal per capita basis has popular support, it is unlikely that it would result in a fair and equal outcome (for developing nations).”
Highlights:
- The issue of binding ‘targets’ is largely misunderstood and presents a key stumbling block at Copenhagen.
- Copenhagen will fail to deliver the significantly scaled-up technological resources needed by developing countries and will not resolve the issue of financing.
- The European Union Emission Trading Scheme will survive Copenhagen, despite the plot to ‘kill’ Kyoto. Copenhagen could instead revive the failed EU promise of a strong market-based solution, thus far whittled down by politics.
Datamonitor has especially harsh words for the EU’s climate change policies:
It is apparent that the plethora of European and regional initiatives, directives and interventions have not produced the desired environmental outcomes and that current measures will fail to halt climate change in its apparently devastating tracks.
“The design of the EU’s 2008 climate change package is inexorably flawed, to say nothing of the fact that it has been subjected to the usual political concessions to the almost complete detriment of its original purpose. Europe’s irrational and short-term regional response to a long-term global problem has been witnessed in the establishment of the 20-20-20 by 2020 package of initiatives. More politic slogan than credible environmental energy policy, the economically inefficient measures are underpinned by a 20% overarching production-based target that appears to have been instigated more by a political PR process than scientific and environmental certainty.”
The full report Copenhagen Climate Change Conference – current situation and likely outcome is available for free download to Research Recap users by special arrangement with Datamonitor, an Alacra content partner.
Technorati Tags: cap-and-trade, climate-change, Copenhagen, European Union, global-warming
capGemini’s latest annual European Energy Markets Observatory (EEMO) charts the deteriorating financial condition of European utilities.
Key findings:
The crisis has put the Utilities sector under pressure and challenged the resilient character attributed to the Utilities sector:
- Decrease in electricity and gas demand in Europe
- Drop in electricity and gas wholesale prices
- The credit crunch combined with decreasing demand and lower prices has pushed down the investments
- Having gone through expensive M&As, many Utilities’ financial situation has deteriorated
Security of supply has improved in electricity, little progress was observed in gas
- Europe’s declining reserves and high dependency on Russian gas supplies are an issue
Progress towards a single electricity and gas market
- The EC Third Package including the ownership unbundling was adopted in April 2009
- Electricity exchanges have increased and wholesale markets have continued to consolidate
- On the retail side, churn continued to increase, but remains small. Retail electricity and gas markets remain highly concentrated
- Electricity and gas prices have increased significantly in H2 2008, raising protests from end-users
Even if the European Union is the only region with a clear policy on climate change, more efforts need to be implemented
- On April 6, 2009 the European Commission adopted the Climate-Energy package
- Consumption and CO2 emission drops are more cyclical than structural
- Investments in renewable energies are hit by the crisis
- Carbon Capture and Storage is needed on the long term
- The crisis has revealed the need for deeper Utilities business models changes
Utilities need to lower their “cost to serve” and distribution costs, adapt to new customer relationship, streamline and simplify their organizations, processes and IT to increase efficiency, manage their strategic resources and take advantage of new technologies.
Technorati Tags: climate-change, electricity industry, Europe, natural gas, utilities
US 60-day auto delinquency rate will rise to almost 0.90% by year-end (4.65% increase from last year ): TransUnion http://bit.ly/SeqQD
Why we need the FDIC … by FDIC Chief Sheila Bair (OpEd in NYTimes) http://bit.ly/PxRHt
British teenage girls are the drunkest, Turkish teens the biggest bullies , Swiss teens the least active (OECD) http://bit.ly/4r8eMD
Savings from preventive care unlikely to cover much of of cost of health system overhaul (Washington Post) http://bit.ly/1a4xJI
US Defaults of multifamily and commercial real estate loans from banks climbed to their highest rate since at least 2003 http://bit.ly/L1Mkf
RT @KauffmanFDN Regulating Venture Capitalists? Market regulation should be driven by risk and assets, not title. http://bit.ly/Pq60B
RT @alacra1 Securities Analysts? Fuggedaboutem – Analyst about-face has minimal short-term effect on share prices. http://bit.ly/lJhVB
Henry Kaufman wants centralized financial regulation, just not by the Federal Reserve (book review in The Economist) http://bit.ly/17O2Ti
Good Washington Post article on US budget deficits and the inevitability of tax increases http://bit.ly/jUBOf
Effective personal tax rates on $100,000 range from 55% in Slovenia to under 20% in Switzerland (KPMG /The Economist) http://bit.ly/T9nRx
Big Banks Get Bigger: JP Morgan, Bank of America each hold more than 10% of deposits (Washington Post) $JPM $BAC http://bit.ly/15RMpH
Investment in technology could avoid $11 of damage from climate damage for every dollar spent: McGill study via Reuters http://bit.ly/AT1WH
Technorati Tags: analysts, auto loan ABS, banks, budget-deficit, climate-change, commercial-real-estate, Equity Research, FDIC, financial-regulation, venture-capital
Following the recent approval by the US House of Representatives of a climate change bill, the world now appears set on an irreversible path toward a dramatic expansion of carbon trading. Oxford Analytica takes a look at carbon emissions legislation around the world in a new report.
“OxAn expects carbon markets to triple in size by around 2012: “The establishment of new national emissions trading schemes in countries including the United States, Australia and New Zealand combined with continuation of the European Emissions Trading Scheme (EU ETS) will be the main drivers of this growth. Japan and Canada, though more cautious, are also in a position to move quickly towards a regulated ETS.”
The appeal of emissions trading lies in the way it simultaneously supports innovation and entrepreneurship with the desire of regulators to set tight standards.
“Unlike taxation, it has clear goals, which can be easily communicated by politicians to the public and provides useful signals in international cooperation. While the economic crisis has added weight to industry concerns of the impact of increased climate regulation, existing carbon markets continue to expand in scope and new national markets will be implemented in the United States, Australia and New Zealand in the next few years.”
“Irrespective of the nature of the agreement reached at Copenhagen in December, carbon markets will continue to expand due to new national schemes. Implementation of such schemes in Australia, Canada and New Zealand will follow developments in the United States. The degree to which legislators look prepared to use trade sanctions against countries will shape carbon market development in Japan and other major emitters without plans for regulated markets.”
Technorati Tags: carbon-trading, climate-change, coal, energy, greenhouse-gases
Falling energy investment will have far-reaching and, depending on how governments respond, potentially grave effects on energy security, climate change and energy poverty, the International Energy Agency says. “Cutbacks in investment in energy infrastructure will only affect capacity with a lag, often amounting to several years. So, in the near term at least, weaker demand is likely to result in an increase in spare or reserve production capacity,” the IEA says in a report prepared for the G8 Energy Ministerial in Rome on 24-25.
But there is a real danger that sustained lower investment in supply in the coming months and years, could lead to a shortage of capacity and another spike in energy prices in several years time, when the economy is on the road to recovery. The faster the recovery, the more likely that such a scenario will happen.
Other conclusions:
- In the short term, slower economic growth will curb growth in emissions. But, in the medium and longer-term, the crisis may lead to higher emissions, as weak fossil-energy prices and financing difficulties curb investment in clean energy technologies, increasing reliance on fossil-fuelled capacity.
- At the same time, investors will remain risk averse, so that funding for clean energy projects will be available primarily for proven technologies in attractive markets. Once the recession is over, the likely burst of economic growth or “catch-up effect” may also cancel out any short-term emissions benefit.
- There is also a very real risk that the world’s preoccupation with dealing with the crisis will lessen the chance of reaching a comprehensive climate-change agreement in Copenhagen.
- Cutbacks in energy investment will impede access by poor households to electricity and other forms of modern energy – a vital factor in pulling people out of poverty.
Technorati Tags: climate-change, greenhouse-gases, oil prices
New modeling carried out by MIT on the likelihood of how much hotter the Earth’s climate will get in this century shows that without rapid and massive action, the problem will be about twice as severe as previously estimated six years ago – and could be even worse than that.
The new projections, published this month in the American Meteorological Society’s Journal of Climate, indicate a median probability of surface warming of 5.2 degrees Celsius by 2100, with a 90% probability range of 3.5 to 7.4 degrees. This compares with a median projected increase in the 2003 study of just 2.4 degrees.
MIT says the difference is caused by several factors rather than any single big change. Among these are improved economic modeling and newer economic data showing less chance of low emissions than had been projected in the earlier scenarios. Other changes include accounting for the past masking of underlying warming by the cooling induced by 20th century volcanoes, and for emissions of soot, which can add to the warming effect. In addition, measurements of deep ocean temperature rises, which enable estimates of how fast heat and carbon dioxide are removed from the atmosphere and transferred to the ocean depths, imply lower transfer rates than previously estimated.
The least-cost option to lower the risk is to start now and steadily transform the global energy system over the coming decades to low or zero greenhouse gas-emitting technologies.
The study uses the MIT Integrated Global Systems Model, a detailed computer simulation of global economic activity and climate processes that has been developed and refined by the Joint Program on the Science and Policy of Global Change since the early 1990s.
While the projected outcomes where there are no policies in place that specifically induce reductions in greenhouse gas emissions now look much worse than before, there is less change from previous work in the projected outcomes if strong policies are put in place now to drastically curb greenhouse gas emissions.
Technorati Tags: climate-change, global-warming, greenhouse-gases
NERA Economic Consulting has published the first issue of a new newsletter designed to help US companies cope with the likelihood of a cap-and-trade system. Mandatory climate policies in the US are getting closer and promise to lead to major impacts on companies in virtually every sector, particularly the energy-intensive. sectors. Every company can and should prepare for these developments.
In particular:
- Every company should understand the implications of a carbon price for its business. At a minimum, companies need to understand what a carbon-constrained world could mean for them. In many cases, indirect effects like changes to the prices of inputs and impacts on revenue may be just as important as the costs of direct emissions.
- Every company should evaluate the financial impacts of alternative future mandatory carbon policies. These policies should include potential cap-and-trade programs as well as various renewable and energy efficiency programs that are likely to be put in place. These analyses can clarify “what is at stake” under different potential policies.
- Climate policy effects should be included in planning for investment and other major decisions. Climate policy affects the costs and revenues of major investments, both directly through emissions costs and indirectly through changes in fuel prices and product prices. Economic modeling can help clarify these impacts and point the way to superior decisions.
- Assessing climate policy impacts is an ongoing task. Companies will need to address the effects of climate policy in numerous ongoing decisions, including pricing decisions. Economic modeling is thus an ongoing task to make sure the right information is available for these decisions.
NERA has developed its own Carbon Financial Impacts Model, which it has used for more than five years to evaluate the impacts of climate change policies for numerous companies and sectors, including electricity, oil and gas, refining, pulp and paper, cement, aviation, and others.
Climate Policy Economics Insights can be downloaded free of charge.
Technorati Tags: cap-and-trade, climate-change, energy policy, greenhouse-gases
The Pew Center on Global Climate Change has issued a handy comparison of cap and trade and a carbon tax as policies aimed at reducing greenhouse gas (GHG) emissions. The free paper gives the edge to a cap and trade system.
Those in favor of cap and trade argue that it is the only approach that can guarantee that an environmental objective will be achieved, has been shown to effectively work to protect the environment at lower than expected costs, and is politically more attractive. Those supporting a carbon tax argue that it is a better approach because it is transparent, minimizes the involvement of government, and avoids the creation of new markets subject to manipulation.
“This review of cap and trade and taxes suggests that many of the longstanding myths about these approaches fail to recognize advances in design options aimed at addressing earlier concerns. While a tax regime sounds simpler in theory, history suggests that special provisions would be added, for example, to avoid adversely impacting specific regions, to exempt feedstocks and to mitigate competitiveness concerns. While a cap-and-trade regime doesn’t directly provide price certainty, recent proposals include temporal flexibility (e.g., banking, borrowing, and multi-year compliance periods) as well as floor prices and offset provisions that would dampen price volatility.”
In the end, history suggests that it is unlikely that a tax would result in a simpler system. The greater flexibility for firms and greater certainty that environmental objectives will be met appear to be the greatest strengths of a cap-and-trade policy.
Technorati Tags: cap-and-trade, carbon-tax, climate-change, greenhouse-gases
