Monday, June 21, 2010
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Carbon Prices
In this week’s issue:
• Obama speech short on
energy, climate details
• U.S. Senate leader
noncommittal on carbon
price bill
• EUAs rise towards €16/t,
focus on Dec-12 CERs
• UN cancels JI meetings
over cash shortage
• EIB, banks to launch
Mediterranean carbon fund
• POLL - EU carbon
emissions, EUA price
forecasts to 2020
• Global voluntary carbon
market tumbled in 2009
• INTERVIEW - Voluntary
emissions exchange will
boost trade - CEO
• INTERVIEW - Climate chief:
EU must fight for green-
tech jobs
• Britain needs low-carbon
energy revolution - Huhne
• UK can purge all carbon
emissions by 2030 -report
• Obama to meet senators on
energy bill next week
• U.S. EPA finds Senate
climate bill affordable
• Japan aims to pass climate
bill by yr-end UN talks
Top Story
Obama speech short on energy, climate details
By Richard Cowan
WASHINGTON, June 15 (Reuters) - U.S. President Barack Obama's national address on the Gulf
of Mexico oil spill on Tuesday fell short of a strong call for comprehensive energy and
environmental legislation this year and left the U.S. Congress with no clear direction.
Obama delivered his high-profile speech, coming on the 57th day since the start of the huge BP oil
spill, from the White House Oval Office, a venue presidents normally reserve for announcing major
initiatives or explaining important developments.
This speech was mostly the latter, which likely will be a disappointment to supporters of strong
legislation to clamp down on offshore oil drilling practices and carbon dioxide pollution blamed for
global warming.
Last year, the House of Representatives narrowly passed a comprehensive bill to reduce carbon
dioxide emissions from utilities, factories and oil refineries, but it has languished in the Senate.
Many saw Obama's speech on Tuesday as an opportunity to jump-start the effort in Congress.
Many lawmakers have been hoping to avoid a tough vote on climate change this year and instead
pass a much less ambitious bill to encourage the use of alternative energy. That legislation could be
coupled with measures to clamp down on offshore oil drilling safety practices and expanded liability
for Big Oil.
Here's how Obama's speech could play on Capitol Hill:
* There was little in Obama's speech to prompt undecided lawmakers to jump on the bandwagon for
comprehensive climate change legislation.
Instead, Obama put the ball in Congress' court, saying he was "happy to look at other ideas and
approaches from either (political) party -- as long they seriously tackle our addiction to fossil fuels."
* Obama's lack of details could underscore the divisions within Congress, and especially the
Senate, over how far energy and environmental legislation should go just months before the Nov. 2
congressional elections. Democratic leaders in Congress are still gauging rank-and-file sentiment
for tackling controversial climate change legislation. Their willingness to take chances could be
waning, especially on the heels of tough votes this year for healthcare reform.
* Obama could still launch a quiet lobbying campaign with members of Congress for global warming
legislation that would mandate reductions in carbon dioxide pollution from electric utilities and
factories.
* Obama's speech robs Republicans of a talking point they began floating even before he delivered
his speech.
"The president will use his remarks not as an occasion to unite the nation in a common effort to
solve this crisis, but to make his case for a national energy tax," Senate Republican leader Mitch
McConnell incorrectly warned earlier in the day. He was referring to Democratic bills to reduce
carbon dioxide pollution, a move that Republicans say will bring higher business costs and higher
energy prices.
* Obama mentioned climate change legislation passed in the House of Representatives, which
became bogged down in the Senate. But he didn't throw his weight behind the House-passed bill or
alternatives being considered in the Senate.
"Last year, the House of Representatives" passed "a strong and comprehensive energy and climate
bill -- a bill that finally makes clean energy the profitable kind of energy for America's businesses."
The president noted there are "costs" associated with such legislation, but said the U.S. cannot
"afford not to change how we produce and use energy." While he praised the House-passed bill, he
didn't demand that the Senate do something similar.
* Given the lack of detail from Obama, the speech could give Congress latitude on how to impose
tougher offshore oil drilling safety measures and ways to increase the use of cleaner-burning
alternative energy, something that even Republicans back.
* Before the speech, some prominent lawmakers, including Senator Joseph Lieberman, said they
hoped Obama would help rally support for climate change legislation by underscoring the need to
put a price on carbon dioxide emissions and thus control the pollution.

"There are a lot of people in the Senate who are still undecided"
on climate change legislation, Lieberman, an independent, told
reporters a few hours before the speech. Lieberman added: "The
president is going to help us tonight" in rallying congressional
support.
But tough words from Obama were not uttered.
* Aside from any energy/environment legislation Congress tries to
pass with Obama's urging, the administration and Democratic
lawmakers will continue to pressure BP and the oil industry more
broadly.
For example, three Democratic senators on Tuesday denounced
what they described as a reported plan by BP Plc to provide a
"backdoor payment" to shareholders through an escrow account.
And Obama hopes to talk BP into establishing a fund to
guarantee that the oil company will cover billions of dollars in
cleanup costs and economic assistance to Gulf Coast
communities.
(Editing by Eric Walsh)
((For full coverage of the spill, see http://link.reuters.com/hed87k))
((richard.cowan@thomsonreuters.com; 202-898-8391; Reuters
Messaging; richard.cowan.reuters.com@reuters.net))
U.S. Senate leader noncommittal on carbon
price bill
By Richard Cowan
WASHINGTON, June 17 (Reuters) - U.S. Senate Majority Leader
Harry Reid on Thursday emerged from a meeting with fellow
Democrats refusing to embrace energy and environment
legislation that would put a price on carbon dioxide pollution as a
way of reducing greenhouse gases.
"There were a number of discussions today on how we can arrive
at what is best for the country and of course pricing carbon is part
of that discussion," Reid said.
The Democratic leader was responding to a reporter's question on
whether he would commit to moving legislation this year that puts
a price on carbon, which would rise over the years and encourage
the use of cleaner energy sources.
While Reid did not reject the controversial carbon trading program
that has been approved by the House of Representatives and
won some praise from President Barack Obama this week, he
said the legislation was still "a work in progress."
Countries around the world are watching the Senate intently to
see whether it will back up Obama's promise to cut carbon dioxide
emissions with a strong, mandatory program for electric power
utilities, factories and the transportation sector.
Senate Democrats huddled in the Capitol for an hour to hear
competing ideas on how to tackle global warming.
Afterward, Senator John Rockefeller said he has received
assurances of a Senate vote this year on his proposal to impose a
two-year moratorium on Environmental Protection Agency
regulations on greenhouse gas emissions. A Republican move to
permanently ban such regulations failed earlier this month.
Rockefeller, who represents big-league coal producer West
Virginia, argues the time-out would give Congress more time to
write climate control legislation and for "clean coal" technology to
advance.
In a prepared statement, Rockefeller also warned senators
against tackling comprehensive climate change legislation this
year, a move he said would spark a "bitter fight."
Reid is in the unenviable position of deciding, along with Obama,
which approach to take in this election year. Some lawmakers are
hoping to avoid casting votes on climate legislation that could
raise energy and other consumer prices.
CARBON MARKET WEEKLY
Monday, June 21, 2010
HOPING FOR NEW JOBS
Senator Joseph Lieberman, an independent who co-authored a
climate change bill with Democratic Senator John Kerry, told
reporters after the meeting, "This is going to be a long journey ...
for the rest of the year." He acknowledged the debate could
stretch beyond the Nov. 2 congressional election.
During Thursday's huddle in the Capitol, Kerry and Lieberman
presented arguments for passing their climate bill, which
embraces Obama's goal for a 17 percent cut in carbon emissions
by 2020, from 2005 levels. They would do so by requiring utilities,
and later on manufacturers, to buy pollution permits that could be
traded on a regulated market.
The aim, Kerry told reporters, is to create new jobs through
alternative energy. "You have to create demand (for alternative
energy) in the United States," Kerry said. "The only way to create
that demand is to price carbon."
The Kerry-Lieberman bill would also expand nuclear power
generation -- with a helping hand from the government -- and
expand offshore oil drilling, but with hastily added protections in
response to BP's Gulf of Mexico oil spill.
Senator Maria Cantwell countered with a proposal to lower planet-
warming pollution by requiring coal and oil companies, which sell
fuel to utilities and factories, to buy pollution permits in a much
more limited trading scheme. Consumers would receive checks
each month to help cover higher energy costs.
While the climate-control part of the Democratic bill is not yet set,
it is likely that sometime in July senators will debate at least two
other parts of the energy puzzle.
Senate Energy and Natural Resources Committee Chairman Jeff
Bingaman has legislation to accelerate new, clean energy
technologies and require utilities to meet 15 percent of their
electricity sales through renewable energy sources.
Democrats are likely to attach to that measure wide-ranging
legislation clamping down on offshore oil drilling operations and
increasing industry liability in accidents like the BP disaster.
Next week, Obama is expected to meet with lawmakers to
discuss how far to go on climate change legislation this year. And
Senate Democrats will hold another meeting of their membership
to gauge sentiment.
(Additional reporting by Thomas Ferraro, Charles Abbott and
Donna Smith; editing by Bill Trott and Todd Eastham)
((richard.cowan@thomsonreuters.com; 202-898-8391; Reuters
Messaging; richard.cowan.reuters.com@reuters.net))
MARKETS:
EUAs rise towards €16/t, focus on Dec-12
CERs
LONDON, June 21 (Reuters) - European carbon emissions
futures rose towards 16 euros a tonne on Monday on firmer
German power and oil prices, but traders said the market was still
likely to focus on U.N. credits for delivery in 2012.
EU Allowances (EUAs) for December delivery rose 18 cents or
1.14 percent to 15.95 euros ($19.75) a tonne at 0657 GMT,
having climbed to an intra-day high of 16.04 euros in the first hour
of trade. Volume was light at 465 lots traded.
"It's quite a lacklustre start," an emissions trader said, referring to
the lack of volume. "Most people are still looking at the Dec-12
spread."
Last week, the market focused its attention of U.N. carbon credits
for delivery in 2012 on concerns over supply after 2012.
2

A U.N. panel is meeting this week to decide whether to revise a
methodology on the number of credits chemicals plants that
destroy the potent gas hydrofluorocarbon-23 (HFC-23) can earn
under the U.N.'s Clean Development Mechanism.
Any changes could affect the issuance rate of certified emissions
reductions (CERs) from 2013.
The benchmark EUA contract was lifted by higher energy prices
early on Monday but there was relatively low volume in the market
as participants seem reluctant to take on big positions due to
lingering economic uncertainty. Traders said 15 euros to 16.25
euros is a currently realistic price range.
The benchmark contract's upward trend is likely to continue,
especially after China said it would allow a more flexible
exchange rate for the yuan, which has raised expectations of
higher crude oil imports by China, said Jean-Francois Cauvet at
COER2 Commodities.
A stronger yuan against the dollar may make Chinese imports of
oil cheaper, fanning energy consumption.
Energy production from coal is increasingly attractive in price to
natural gas, which signals more demand for carbon permits.
This, coupled with some nuclear tightness and higher French
power demand and a more optimistic global commodities outlook,
could give more momentum to the market, he said.
German Calendar 2011 baseload power on the EEX was up 66
cents or 1.21 percent at 55.20 euros per megawatt hour, while
crude oil rose to over $78 a barrel, its highest level since early
May.
Benchmark U.N.-backed certified emissions reductions were up
10 cents or 0.75 percent at 13.39 euros a tonne, setting the EUA-
CER spread at 2.56 euros.
Dec-12 CERs were slow to trade.
(Reporting by Nina Chestney; Editing by Alison Birrane)
((nina.chestney@thomsonreuters.com; +44 207 542 8071;
Reuters Messaging: nina.chestney.reuters.com@reuters.net))
UN cancels JI meetings over cash shortage
LONDON, June 16 (Reuters) - A United Nations carbon finance
panel has cancelled its meetings scheduled for September and
December in a protest over a lack of funds from governments, it
said on Wednesday.
The Joint Implementation Supervisory Committee (JISC) will now
hold a special meeting in October which will focus on finalising a
report, which will include funding recommendations, ahead of a
UN climate summit in Cancun, Mexico in November.
"Cancelling these regular meetings of the JISC should send a
clear message to parties (to the Kyoto Protocol) that funds are
needed immediately," said JISC chair Benoit Leguet in an email.
"The special meeting planned in its place is an attempt to gain
meaningful policy and regulatory support from parties and
generate the level of market activity that this mechanism
deserves."
Under Joint Implementation, a carbon trading scheme under
Kyoto worth $354 million last year, companies can invest in clean
energy projects in Kyoto signatory countries, and in return receive
carbon offsets which they can use towards emissions goals or sell
for profit.
Failed UN climate talks to extend Kyoto or agree a new treaty in
Copenhagen last December meant new funding arrangements for
the scheme were not agreed.
Most JI projects registered to date have been in eastern
European Union member states like Czech Republic and Poland,
and in former communist countries like Ukraine and Russia.
CARBON MARKET WEEKLY
Monday, June 21, 2010
The JISC also cancelled an August meeting of the scheme's
accreditation panel, which makes recommendations about what
companies can audit the projects and their emissions cuts.
Under JI's Track II, projects and subsequent reductions in
greenhouse gas emissions are vetted by third party auditors, the
UN's climate change secretariat and the JISC.
But countries are now foregoing Track II in favour of Track I,
which allows the country hosting the project to oversee it
independently, thereby bypassing paying the fees that support
Track II activities.
"Project participants recognize the value of Track II, and the
emission reduction units it produces are recognized for their
quality, but it's difficult to compete with Track I," Leguet said.
"When you also consider that countries borrow heavily, free of
charge, from the regulations developed by the JISC and make
use of certifiers accredited by the JISC, it's clear the funding
model needs fixing."
(Reporting by Michael Szabo; editing by James Jukwey)
((michael.szabo@reuters.com; +44 207 542 9242; Reuters
Messaging: michael.szabo.reuters.com@reuters.net))
EIB, banks to launch Mediterranean carbon
fund
LONDON, June 17 (Reuters) - Five European public financial
institutions on Thursday said they are developing a fund to
finance low-carbon projects in poor Mediterranean nations, which
could eventually grow to 200 million euros ($245.3 million).
The Mediterranean Carbon Fund (MCF), backed by the European
Investment Bank, is expected to launch in 2011 and will generate
carbon offsets through 2020 from renewable energy, waste
management and energy efficiency projects under the Kyoto
Protocol's Clean Development Mechanism (CDM), the group said
in a statement.
Southern Mediterranean countries need an estimated 100 billion
euros of new infrastructure in the next five years, much of which
will go to ensure they avoid blackouts as power consumption
grows, analysts say.
The MCF will provide expertise and finance projects in the
southern and eastern Mediterranean, which includes Union for the
Mediterranean members like Morocco, Algeria, Jordan and
Turkey.
Its size will be based on the number of carbon credits potentially
generated by 2020 by regional projects registered under the
CDM, the group said.
The MCF's other supporters include Germany's KfW
Bankengruppe, Italy's Cassa depositi e prestiti, French
Development Agency AFD and CDC Climat, a subsidiary of
France's Caisse des Depots.
The European Union in December said it is offering to lend
southern Mediterranean states 5 billion euros over three years to
invest in renewable energy.
The EIB said in May it is launching a similar fund for climate
friendly investments in Africa, the Caribbean, Asia-Pacific and
Latin America.
(Reporting by Michael Szabo; Editing by Sue Thomas)
((michael.szabo@reuters.com; +44 207 542 9242; Reuters
Messaging: michael.szabo.reuters.com@reuters.net))
3
 CARBON MARKET WEEKLY
Monday, June 21, 2010

POLL - EU carbon emissions, EUA price (1) Deutsche Bank said EUA prices are likely to trend up into the
18-20 euro range by the end of 2010. Its analysts see an average
forecasts to 2020 Phase 2 price of around 20 euros based on the market's current
LONDON, June 14 (Reuters) - Analysts have increased their price dynamics, but said EUAs have a fundamental value of 30 euros
forecasts for carbon permits under the EU's Emissions Trading this year, rising at cost of carry rate (+CC) of 4 percent annually to
Scheme for this year and beyond on expectations of a tighter cap 48 euros in 2020.
on emissions from 2012 and higher emissions from companies as (Reporting by Nina Chestney and Michael Szabo; Editing by
they recover from recession. Keiron Henderson)
On Friday, some Western European countries gave strong ((nina.chestney@thomsonreuters.com; +44 207 542 8071;
backing to deeper cuts in emissions to 30 percent below 1990 Reuters Messaging: nina.chestney.reuters.com@reuters.net))
levels by 2020 from the current EU goal of 20 percent. A more
ambitious emissions reduction goal would require much tighter
limits on companies' emissions output from 2012. Global voluntary carbon market tumbled in
Nine emissions analysts polled by Reuters said they expect 2010 2009
EUA prices to average 16 euros ($19.50) a tonne this year, up
from 15.4 euros a month ago. They also raised forecasts for WASHINGTON, June 14 (Reuters) - The global voluntary carbon
subsequent years of the EU ETS. market tumbled last year both in value and in volume, according
to a report released on Monday, as the recession and uncertainty
Benchmark EU Allowances (EUAs) for delivery in December were about whether the United States would regulate greenhouse
trading at around 15.85 euros a tonne on the ECX on Monday. gases hurt demand.
Nine analysts polled by Reuters estimated 2009 emissions have The value of deals in the global voluntary carbon markets
fallen to around 1.9 billion tonnes, meaning participants will have dropped 47 percent to $387 million in 2009, said the report by
received a collective surplus of up to 170 million tonnes in EU Ecosystem Marketplace and Bloomberg New Energy Finance.
permits.
The voluntary carbon market operates outside mandatory
The analysts predict Phase 2 (2008-2012) emissions to average emissions reductions schemes such as the European Union's.
2.06 billion tonnes, resulting in an annual surplus of 50 million Many companies in voluntary carbon markets, such as the
tonnes. Chicago Climate Exchange (CCX) , to prepare themselves for
They also said the linear annual reduction in the scheme's mandatory markets that might affect them in the future.
emissions cap through Phase 3 (2013-2020) will see a shortage In such markets companies pledge to cut emissions of planet-
of around 250 million tonnes per year, and as a result EUA prices warming gases. Those that reduce emissions can sell credits
will double to average 30.6 euros per tonne. representing the cuts to companies who do not. Almost half the
Following is a table showing analysts' forecasts for total carbon voluntary market was transacted through the CCX last year.
dioxide emissions per year by companies participating in the EU The average price of carbon credits in the over-the-counter
scheme and averaged across the scheme's second and third market slipped about 12 percent from $7.30 per tonne to $6.50
phases. The table also contains surplus or shortage (long/short) per tonne, said the fourth annual report.
estimates for EUAs, and notes whether each analyst has taken
into account emissions from aviation, to be included in the Volumes declined 26 percent in response to the global financial
scheme from 2012, or from Norway, which is not a member of the crisis as companies cut spending in corporate social responsibility
EU but has an emissions trading programme linked to the bloc's and as government climate plans stalled in the United States and
scheme. Australia.
The U.S. House of Representatives narrowly passed a climate bill
EUA PRICE in the middle of the year but legislation stalled in the Senate
ESTIMATES 2010 2011 2012 P2 P3 during the second half, which helped push down demand.
BarCap 15.1 20 28 19.8 35 "The year came in like a lion but went out like a lamb," Katherine
COER2 Hamilton, a managing director at Ecosystem Marketplace, said at
Commodities 18.5 24 30-32 21.8 N/A the report's launch.
Daiwa 13.3 13.9 14.4 15.5 20 The most popular type of offset -- or certified reduction in
Deutsche Bank greenhouse gases that can be bought by a company -- was
17 +CC +CC 20 40-42 originated by burning methane, a powerful greenhouse gas, at
(1)
farms or abandoned coal mines. Forestry projects, either planting
Nomisma trees or managing forests, were also popular.
Energia 15 17.9 19.8 17.7 24
17 21 26 19.9 33 The report was based on information collected from more than
Point Carbon 200 suppliers of offsets. It did not measure how well the voluntary
Sagacarbon 17.5 20 25 19.6 N/A deals actually cut emissions.
SocGen/orbeo 15.9 21 23 19.1 30.8 (Reporting by Timothy Gardner; Editing by David Gregorio)
UniCredit 14.6 18 21 17.9 N/A ((timothy.gardner@thomsonreuters.com; +1 202-898-
16 19.5 23.5 19 30.6 8360,timothy.gardner.reuters.com@reuters.net))
AVERAGE

* Average emissions and allocation figures take a simple average

of all the data, ignoring the inclusion/exclusion of Norway (NO)
and aviation (AVTN).

4

INTERVIEW - Voluntary emissions exchange
will boost trade - CEO
By Nina Chestney
LONDON, June 15 (Reuters) - The Carbon Trade Exchange
(CTX) hopes to lift the voluntary carbon market from a slump by
making transactions simpler, cheaper and more efficient, the
company's chief executive and founder said in an interview.
"We started this exchange in voluntary spot trade as it was
completely unserviced. We hope it will be the efficiency engine
room to light up the whole market," Wayne Sharpe told Reuters.
Launched on June 7, London-based CTX describes itself as the
first global spot exchange for voluntary carbon credits. The
market operates outside mandatory emissions reductions
schemes, relying on companies to offset their emissions by
buying carbon credits.
The value of the market almost halved to $387 million in 2009
from $705 million as the recession reduced demand for offsets
and uncertainty about a U.S. emissions trading scheme hurt
demand, a report on Monday showed.
Prices slumped and trading volumes dropped 26 percent in 2009
but Sharpe believes the market will pick up. Currently, most trade
is restricted to over-the-counter (OTC) transactions which Sharpe
said are disjointed, inefficient and costly.
"We believe there is a large number of companies globally who
want to offset but their resistance comes from the fear of cost,
getting embedded consultants in their organisation and the
unknown. We have simplified that," Sharpe said.
Market players complain there are far more sellers than buyers in
the market right now, leading to over-supply, cheap credits and an
illiquid market.
However, Sharpe, who is also the founder of barter trading
exchange Bartercard Plc, argues that potential buyers have been
waiting for an exchange as a simpler way to enter the market.
"The only issue which has hamstrung companies' ability to offset
has been the lack of a global exchange which has made it
difficult, time-consuming and costly to do," he said.
ACCESSIBILITY
Through CTX, project developers can post credits from anywhere
in the world when they are verified. Buyers select credits by their
vintage, project type, standard, location and price. The original
project documentation can also be viewed to check who verified
the project and where it originates from.
This will make the market more transparent and accessible for
potential buyers, Sharpe said.
Brokers will be able to complete a deal in one contract, instead of
multi-party contracts, lowering the cost. Brokers do large deals to
make them financially viable but will now be able to do smaller
transactions as well, he added.
"(Brokers) may have a bigger margin but with all the costs
involved, it doens't make them any more profitable," Sharpe said,
adding that London-based broker Tullett Prebon has already
joined the exchange.
CTX currently enables trade in several types of voluntary credits,
including Voluntary Carbon Standard credits. In time, it will
expand to include higher quality Gold Standard credits.
Some market participants fear the exchange will flood the market
with a large number of low-priced credits which sellers have been
sitting on in the absence of buyers, driving market prices further
down.
"I don't believe that to be the case. Certainly, there will be slightly
less of a margin opportunity for some big carbon funds, but it
means they will have to rely more on volume rather than margin,"
Sharpe said.
CARBON MARKET WEEKLY
Monday, June 21, 2010
"We need a good supply of inventory on the exchange to actively
promote the market to corporates who want variety."
Sharpe said it was too early yet to reveal how many credits have
been traded on the exchange, adding that CTX will list credits
after members' accounts are activated.
"We expect to build trading activity over the next two to three
weeks."
(Reporting by Nina Chestney; Editing by William Hardy)
((nina.chestney@thomsonreuters.com; +44 207 542 8071;
Reuters Messaging: nina.chestney.reuters.com@reuters.net))
EUROPE:
INTERVIEW - Climate chief: EU must fight for
green-tech jobs
By Pete Harrison
BRUSSELS, June 16 (Reuters) - Europe's green-technology
industries need determined political backing if they are to outpace
rivals in Asia, Europe's climate chief said on Wednesday.
European Climate Commissioner Connie Hedegaard observed
the fine balance Europe must strike with China and other swiftly
developing regions, sometimes as trade rivals and other times as
partners in tackling climate change.
"Europe must do whatever we can to protect and develop our
stronghold within the energy-efficient and renewables sectors,"
she told Reuters in an interview.
"There's a growing recognition that our strong position is not
automatic in the next decade," she added. "We must fight for it."
Hedegaard spoke amid a tense European debate over whether to
deepen planned cuts to carbon dioxide emissions over the next
decade to 30 percent below 1990 levels, compared to current
plans for a 20 percent cut.
Europe's powerful business lobby has successfully fought off the
prospect of deeper cuts, saying they would make traditional heavy
industries such as steel and cement lose market share to less-
regulated overseas rivals -- so-called "carbon leakage".
But many of Europe's greener governments are starting to worry
that staying at 20 percent would undermine the EU carbon
market, which makes industry pay for permits to pollute and
provides the main incentive for green innovation.
France, Britain and Spain are among them.
"Yes, there can be carbon leakage if you are too ambitious, but
you can also lose jobs if you are standing still while your
competitors are moving ... if you are not innovating enough,"
Hedegaard said. "We must find the right balance point."
BORDER TARIFFS
She declined to speculate on whether Europe would deepen
emissions cuts on its own if international climate talks fail again to
reach a deal in Cancun, Mexico in December.
But she raised the difficult question of Europe's growth prospects
if it does not increase the pressure for innovation in the face of
strong competition from China, Japan, Brazil and South Korea.
"What are we going to live from in Europe?" she said. "There are
so many things we cannot compete on. We cannot compete on
taxes, wages or pension ages. Here we have one area where we
still have a worldwide front-runner position and we should take
care to keep that."
Some European countries, notably France and Italy, have raised
the prospect of protecting European industries by placing border
tariffs on imports from bigger polluters. But Hedegaard said
premature action could damage global talks and the threat was
enough in itself.
5

"Border tax could be one of the tools in the toolbox," she said. "I
think it should stay there. If we did it right now, how likely is it we
could get a result around the negotiating table? It's difficult
already."
TECHNOLOGY TRANSFER
An alternative is to pursue sectoral agreements on cutting
greenhouse gases, and Hedegaard said China was proving to be
a valuable partner in this area.
"They know they particularly have to address the challenges
within cement, aluminium and steel," she said. "They mentioned
these sectors. And where do we have the biggest threats of
carbon leakage in Europe? Cement, aluminium and steel. We
could cooperate in finding solutions."
Sectoral crediting would allow European companies to offset their
emissions by funding cuts in developing countries, focused on
sectors rather than individual companies.
"Next month, some experts from my services will go to Beijing and
work with Chinese experts," she added. "This is really happening.
Just two years back it would have been unthinkable."
But while China is a partner in some areas, it is clearly also a
competitor in manufacturing.
So-called "technology transfer" has become a mantra in
international climate talks for poor nations, which say they need
technical help to cut emissions. The latest United Nations
negotiating text lists it as a top priority.
But Hedegaard described a more nuanced approach.
"Technology cooperation has been more in focus in recent years,
and technology dissemination," she said. "Nobody foresees we
should just give away our technology and make it even easier for
China or others to compete with us."
(Reporting by Pete Harrison, editing by Dale Hudson)
((pete.harrison@thomsonreuters.com; reuters messaging:
pete.harrison.reuters.com@reuters.net; +322 287 6843))
Britain needs low-carbon energy revolution -
Huhne
By Daniel Fineren
LONDON, June 17 (Reuters) - Britain needs an energy revolution
centred on efficiency and low-carbon technology and possibly
including nuclear power to meet binding targets for carbon
emissions, energy minister Chris Huhne said on Thursday.
Faced with the closure of most of Britain's old coal-fired and
nuclear power plants over the next decade, time is running out for
the new coalition government of pro-nuclear Conservatives and
nuclear-sceptic Liberal Democrats to give investors the certainty
they need to build plants that will keep the lights on.
"We need to do some really quite radical things if we are to push
through what is effectively a new industrial revolution," Huhne, a
Liberal Democrat, told journalists in London.
"What we have to do again is create that new change so that the
power, the energy for the new economy comes from low-carbon
sources, which are actually going to be sustainable."
Huhne said the focus of the government's forthcoming Energy Bill
would be to slash energy waste in homes across the country,
which are responsible for about a quarter of total carbon
emissions.
He declined to give any details on the government's plan to set a
minimum charge on industrial plant for emitting climate-warming
carbon dioxide, which should make nuclear and renewable
energy more attractive to developers by increasing the costs of
fossil fuel-fired power plants.
CARBON MARKET WEEKLY
Monday, June 21, 2010
The government said earlier on Thursday it would press ahead
with over 72 million pounds ($105.6 million) of funding for offshore
wind projects, which are much more expensive than established
technologies.
Although the Conservative-led government wants to see a boom
in renewables such as wind and marine energy, it will not dictate
how much of each technology should be built over the next few
years and will let the market decide, Huhne said.
"Nuclear is a mature technology. It doesn't require or deserve the
sort of public subsidy that you would give to an infant technology,
which is attempting to grow to a scale where it can wash its own
face," he said.
"But if investors want to come forward, within the safety
parameters, and actually build nuclear reactors, it's clear from the
coalition agreement that they will be able to do so," he added.
Analysts say cheap gas, tight credit and uncertainty over long-
term power prices will probably put off nuclear investors unless
there are much higher penalties on carbon emissions or a radical
reform of Britain's power market.
(Additional reporting by Tim Castle, editing by Jane Baird)
((daniel.fineren@reuters.com; +44 207 542 3083; Reuters
Messaging: daniel.fineren.reuters.com@reuters.net))
UK can purge all carbon emissions by 2030 -
report
LONDON, June 16 (Reuters) - Britain can eliminate all its carbon
emissions by 2030 by overhauling its power supply, national diet
and transport, a report by the UK's Centre for Alternative
Technology said on Wednesday.
The blueprint to fight climate change did not require a "hair shirt,
survivalist rejection of modernity," said author Rob Hopkins,
founder of Britain's Transition Towns movement.
"At least one set of policy options ... exists to eliminate carbon
emissions whilst simultaneously enhancing our quality of life,"
said co-author, Graham Parkhurst of the Centre for Transport and
Society.
Suggestions which may struggle for public acceptance, however,
included a halving or more of food imports, replacement of short-
haul flights with buses and trains, and a 70-80 percent cut in
consumption of livestock products, which are associated with
emissions of methane, a powerful greenhouse gas.
Such measures could win public acceptance through canny
communication and "social marketing tools".
The 400-page, "Zero Carbon Britain 2030" report argued that
Britain should take a lead in fighting climate change as one of the
world's first nations to undergo industrialisation.
Other recommended measures included a more than halving of
energy demand, through better efficiency, and an overhauling of
the fossil fuel-based electricity supply, to rely on hydro, wind,
biomass and barely tested wave power.
Such deployment would be achieved through a combination of
penalties on fossil fuels and incentives for green power.
Upfront capital would come from public and private funds. The
report did not address a possible energy funding gap where
neither utilities, banks, pension funds nor governments were able
to stump up all the cash required, estimated at 200 billion pounds
($296.5 billion) in Britain through 2020.
Outside the energy sector, agriculture would drive zero net carbon
emissions through practices which lock carbon emissions in the
soil, called carbon sequestration, while towns would be re-
modelled to be less car-dependent.
6

The proposals went much further than a British commitment
under domestic law to cut greenhouse gas emissions by 34
percent by 2020 compared with 1990 levels and by 80 percent by
2050 -- already considered ambitious.
Last year Britain ranked 11th globally on a league table of carbon
emissions from burning fossil fuels, but its emissions fell 8.2
percent compared with the previous year as a result of recession.
About 130 countries support an accord agreed in Copenhagen in
December which said the world should limit warming to less than
2 degrees Celsius. Average temperatures have risen about 0.8
degrees since 1850, which most scientists agree is largely due to
manmade greenhouse gases.
((Reporting by Gerard Wynn, Editing by William Hardy,
gerard.wynn@reuters.com; +44 207 542 2302))
AMERICAS:
Obama to meet senators on energy bill next
week
WASHINGTON, June 16 (Reuters) - U.S. President Barack
Obama will meet key Republican and Democratic senators on
June 23 to discuss a way forward for energy legislation currently
stalled in the Senate, a White House aide said on Wednesday.
The meeting, which will include Republican Lindsey Graham, one
of three original authors of the bill in the Senate who later dropped
support for it, takes place as the president pushes for energy
reform in the aftermath of the Gulf of Mexico oil spill.
"Next week he will be reaching out to senators on both sides of
the aisle to chart a path forward," the official said.
In his Oval Office address late on Tuesday, Obama said he was
willing to take ideas from both political parties in order to advance
the legislation.
"The tragedy in the Gulf underscores the need to move quickly,
and the president is committed to finding the votes for
comprehensive energy legislation this year," the aide said.
Senator Joe Lieberman, an independent, said on Wednesday he
thought Obama was pushing for comprehensive legislation and
his support could make a big difference for the bill that many
doubt can pass ahead of November's mid-term congressional
elections.
"The president is not asking that the Congress pass another
ordinary energy bill as we've done twice in the last five years, that
hasn't really changed our dependence on foreign oil or on fossil
fuel generally," Lieberman told reporters. "He's asking for
something so big that he compared it to the mobilization for World
War Two and the moonshot program."
Democratic Senators Barbara Boxer and John Kerry and
Republican Senators Susan Collins and Richard Lugar will also
be involved in the meeting, among others, the White House aide
said.
Kerry and Lieberman unveiled the Senate bill last month which
would require U.S. industries and utilities to cut their output of
carbon dioxide pollution, which many scientists blame for global
warming.
In a move to attract Republican votes in the divided Senate, the
two senators also included incentives for expanding nuclear
generating capacity, oil and gas drilling and research on how to
cut pollution at coal-burning utilities and factories.
After BP's massive spill, the bill would also likely include
measures to strengthen oversight of offshore drilling, while
allowing it to continue.
(Reporting by Jeff Mason and Susan Cornwell; Editing by Eric
Beech and Sofina Mirza-Reid)
CARBON MARKET WEEKLY
Monday, June 21, 2010
U.S. EPA finds Senate climate bill affordable
By Timothy Gardner and Richard Cowan
WASHINGTON, June 15 (Reuters) - U.S. environmental
regulators said on Tuesday the climate and energy bill in the
Senate would only add slightly to average household costs, but
the finding was not expected to boost chances for the legislation
that would cap greenhouse gas emissions.
The climate bill unveiled last month by Senators John Kerry, a
Democrat, and Joseph Lieberman, an independent, would cost
households an average of $79 to $146 per year through 2050, the
Environmental Protection Agency said in an economic analysis.
Through 2020 consumer energy costs would go down before
picking up in following decades, the EPA said in the analysis that
Senate Majority Leader Harry Reid promised Republicans last
year the bill would have to face.
The EPA's cost estimate of the Kerry-Lieberman bill was similar to
the price tag it put last year on an analysis of the climate bill
narrowly passed by the House of Representatives, which gained
no traction in the Senate.
One analyst said the lack of a big change from last year's
estimate limited how much the new analysis will boost support for
the long-delayed Senate bill.
"The bottom line is the EPA analysis was not much different than
last year's and the moderate result won't do much to change the
calculus in the Senate," said Divya Reddy, an analyst at the
Eurasia Group in Washington. "Many lawmakers from coal and
manufacturing states still have reservations."
That could leave the bill's chances of passing largely up to
President Barack Obama, who has made passing a broad energy
bill to boost alternative energy and cut emissions one of his top
priorities. In a speech to the nation later on Tuesday, Obama is
expected to offer ambitious plans to cut U.S. dependence on
fossil fuels in the wake of the BP Plc oil spill in the Gulf of
Mexico.
The EPA analysis also showed that prices for carbon permits in
the cap and trade market outlined in Kerry-Lieberman should hit
$16 to $17 per tonne in 2013 and $23 to $24 per tonne in 2020.
Those prices were well within range of the bill's initial floor and
ceiling prices.
DID NOT FACTOR IN BENEFITS
For his part, Kerry centered on the part of the analysis that
showed costs would fall at first.
"Well-designed climate change and energy legislation is good for
American consumers," Kerry told reporters.
He also added the EPA analysis does not factor in other benefits
to the U.S. economy that would be achieved from getting global
warming under control. Those include, he said, avoiding lower
crop yields, extreme weather-related deaths and more destructive
storms.
Environmentalists were pleased with the analysis.
"The EPA's analysis removes the last excuse senators may have
for not passing strong climate and energy legislation this session,"
Kevin Knobloch, the president of the Union of Concerned
Scientists, said in a release.
But big industry has been skeptical of EPA analyses on previous
climate bills. The American Petroleum Institute has said it would
not make a decision on whether to support the bill until the Energy
Information Administration does its own analysis. Some see the
independent branch of the Department of Energy as freer of
influence from the Obama administration.
Majority Leader Reid wants a broad energy bill to move to the
Senate floor in coming weeks, though time is running short ahead
of midterm elections in the fall and ideas for legislation are still
being kicked around.
7
 CARBON MARKET WEEKLY
Monday, June 21, 2010

(Reporting by Timothy Gardner and Richard Cowan; Editing by Currently, Japan only has a voluntary carbon market at the
David Gregorio and Sofina Mirza-Reid) national level based on companies' pledged goals, which are
((timothy.gardner@thomsonreuters.com; +1 202-898- mostly caps on emissions per unit of production and leave room
8360,timothy.gardner.reuters.com@reuters.net)) for rises in emissions when output grows.
BILATERAL CREDITS
Linking a new compulsory carbon market with those abroad would
ASIA-PACIFIC: be a supplementary step to keep domestic carbon credit prices
Japan aims to pass climate bill by yr-end UN from rising too high, Toda said at a Tokyo seminar.
talks His ministry is also looking into the usage of offset credits
proposed in a climate bill in the United States now under
16:48 15Jun10 -UPDATE 2-Japan aims to pass climate bill by yr-
Congress debate.
end UN talks
"We understand a U.S. bill would accept both domestic and
By Risa Maeda and Chisa Fujioka
bilateral offsets. We'll study and learn more about this feature by
TOKYO, June 15 (Reuters) - Japan will aim to pass a shelved exchanging views with the United States," Toda said.
climate bill setting tough emission reduction targets before an
His comments underlined a report on June 1 by Japan's trade
annual U.N. meeting in Mexico later this year, the environment
ministry proposing Tokyo seek bilateral agreements with
minister said on Tuesday.
developing countries to reflect in its 2020 goal the value of
The ruling Democratic Party of Japan (DPJ)-led government had emission cuts through transferring its low-carbon technology and
hoped to enact the bill, which paves the way for a mandatory products.
emissions trading system, by the end of the current session of
The trade ministry's proposal is expected to be included in a mid-
parliament ending on Wednesday.
to long-term economic growth strategy the government is set to
But with time having run out for deliberations, the bill will be announce as early as on June 18, paving the way for making
delayed. The government now plans to resubmit the bill to such bilateral carbon credits a part of Tokyo's foreign policy goals
parliament after an upper house election expected on July 11. in climate change talks, including COP 16.
Environment Minister Sakihito Ozawa said he wanted to have the (Additional reporting by Chikako Mogi; Editing by Sugita Katyal)
bill enacted by a U.N. meeting in Mexico from Nov. 29-Dec. 10,
((risa.maeda@thomsonreuters.com; +81 3 6441 1856; Reuters
where negotiations will take place for a global agreement on
Messaging: risa.maeda.reuters.com@reuters.net))
fighting climate change.
"We want to complete the bill by COP 16, so we can show our
determination (on climate policy)," Ozawa told a news conference.
Japan is the world's fifth-biggest greenhouse gas emitter and its
pledge to cut emissions by 25 percent from 1990 levels by 2020 is
government policy and part of the bill.
Ozawa could not rule out the possibility of the bill being watered
down if the DPJ failed to win an outright majority in the upper
house election, but said the government aimed to enact the bill in
its current form.
The DPJ has a comfortable majority in the more powerful lower
house, but a weak outcome for the party in the upper house
election would force it to rely on help from smaller parties to pass
bills smoothly, since the upper chamber can stall bills.
"We think the bill is the best proposal, so we don't plan to make
any changes," Ozawa said.
CLIMATE BILL
The bill includes a plan for Japan to consider imposing an
environment tax from 2011, an aim to boost renewable energy
sources to 10 percent of primary energy supply by 2020 and a
target to cut emissions by 80 percent by 2050.
Ozawa also said he hoped plans for a mandatory emissions
trading system would remain on track despite the bill's delay.
The climate bill calls for the government to draft separate
legislation to design the trading scheme within a year after the
climate bill is enacted.
The government had initially planned to enact an emissions
trading bill in the next regular parliamentary session in early 2011,
aiming to launch a compulsory carbon market either in 2012 or in
2013.
Eisaku Toda, director of the environment ministry's market
mechanism office, said experts and industry officials have been
discussing details on when and how to launch a new carbon
market to make proposals to the government.

8
 CARBON MARKET WEEKLY
Monday, June 21, 2010

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