Climate Policy News

October 15-21, 2012

IN BRIEF
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EC unveils new proposal to limit ILUC in biofuel production Shale gas boom undermines US investment in clean coal Brazil enacts the new forest law The Carbon Market this week US is part of the heated presidential campaign, where both candidates Obama and Romney expressed their support for clean coal but failed to specify how to finance CCS. Despite the significant financial support US Congress has provided for CCS technology since 2005, private investors still hesitate in front of an unclear regulatory framework that fails to incentivise investment. Tim Profeta, director of the Nicholas Institute of Environmental Policy at Duke University, confirmed that without a carbon price

EU Emission Trading Scheme

EC unveils new proposal to limit ILUC in biofuel production
On Wednesday, the European Commission unveiled a new proposal aimed at limiting land conversion for the biofuels production and therefore promoting more sustainable biofuels which would help carbon emissions reduction without affecting food production. The proposal will amend current legislation on fuel quality and renewable energy by (i) increasing the minimum greenhouse gas (GHG) saving threshold for new installations to 60 percent; (ii) include indirect land use change (ILUC) factors in the reporting of GHG savings of biofuels and bioliquids; (iii) limiting the share of food-based biofuels to be used to achieve the EU's 10 percent target for renewable energy in the transport sector to 5 percent up to 2020; (iv) incentivising the production of 2nd and 3rd generation biofuels from non-food feedstock, like waste or straw. Introducing these measures the EU legislation will take account for the first time of biofuels' impact in terms of driving the conversion of land such as forests and wetlands to agricultural land, which can lead to emissions increase. According to Commissioner for Climate Action Connie Hedegaard, through such a proposal the EC is sending a clear signal that future increases in biofuels must come from advanced biofuels. Everything else will be

and with low natural gas prices these technologies are having problems drawing investment and attention. However, CCS, where the US and China are competing for technology leadership, should, according to corporate analysts, remain a part of the generating mix, not only because GHG emissions will rebound as the economy recovers but also because of its booming applications in enhanced oil recovery (EOR). Long term energy policy that maintains a balance between coal and gas is also emphasised by the Electric Power Research Institute (EPRI), which warns about the vulnerability of a power fleet

predominated by gas turbines due to increased exposure to high volatility and rapid escalations of natural gas prices. US Energy Information Administration (EIA) expects average natural gas spot prices of $2.71 per MMBtu (million British thermal unit) in 2012 and $3.3 per MMBtu in 2013.

Brazil enacts the new forest law

After years of arm-wrestling with Brazils powerful farm lobby, on Thursday President Rousseff signed the new forest law vetoing nine congressional changes pushed by the lobby. The law will see to replant illegally cleared forests for a total of 30 million hectares (about the size of Italy), rejecting the possibility to use fruit trees for the reforestation as vetoed by the President. The enforcement of the law will be challenging with the farm lobby threatening to bring it to court retaining the law unconstitutional due to Rousseffs wholesale changes in its key points. Environmentalists also question the law because it accounts river margins and steep hills for the total preserved woodland, whereas in the old forest code their conservation was mandatory.

unsustainable. The text of the proposal can be downloaded at http://ec.europa.eu/clima/policies/transport/fuel/docs/com_201 2_595_en.pdf

News from the World

Shale gas boom undermines investment in clean coal US

The Carbon Market

As the news that project developers requested U.N. to be issued with about 47 million credits by mid-November reached the market, the CDM vintages suffered a bearish turn, posting their biggest ever fall on Friday and widening the EUA/CER spread especially for the 2012 vintage. In particular, the December 2012 CER contract closed the week at 1.10, around 33 percent down compared to the previous weeks close. Concerns about a possible EU ban of more credits next year added further nervousness to the market. On the EU side, EUA market gained 1.8 percent over the previous week, with the benchmark contract closing at 7.93 after hitting a five-week high of 8.32 on Wednesday on strong buying from utilities.

Low prices of natural gas and technological breakthroughs in extracting it from shale formations are likely to derail the investment of the US power sector on clean coal plants. According to academic and business experts, since the share of coal in US power production has shrunk from over half to a bit more than a third, its future depends largely on financial, political and regulatory support provided to carbon capture and storage (CCS) technology. With current gas prices, deepening fiscal crisis and record low GHG emission levels since 1992, the sector faces difficulties in attracting investment. While keeping coal jobs in the

SOURCES TO THIS ISSUE Thomson Reuters Pointcarbon, Climate Ark, Euractiv, Carbon Finance website. News and updates selected and edited by Marinella Davide and Jenni Mikkola, FEEM and CMCC For questions and comments please contact: marinella.davide@feem.it

Climate Policy News October 15 21, 2012 http://www.iccgov.org/Publications.aspx?IDSM=61&IDPG=83&Lan=en-US www.cmcc.it/publications-meetings/publications/