Obama drops the C bomb

Ahead of the Independence Day holiday this week, US and UK leaders set forward their plans of attack in the ongoing effort to curb the globe’s rising temperatures. And on the other side of the world, Kevin Rudd ousted Julia Gillard as Australian prime minister, leaving some observers to wonder whether he will speed up plans to link the nation’s carbon market with Europe.

It used to be a word that made some US politicians blush, but President Barack Obama does not seem to be afraid to say it anymore.

‘Climate’ was the focus of the president’s speech at Georgetown University in Washington on June 25. Obama proposed a sweeping plan that sets goals to reduce carbon emissions and bolster renewable energy, while also preparing the country for the consequences of planetary warming.

His ‘climate action plan’ includes an order to the Environmental Protection Agency to limit CO2 emissions from existing power plants. The president has directed the EPA to issue a revised proposal for new power plants by September 20, with a final rule following in a ‘timely fashion’.

EPA draft rules for existing power plants are now due by June 1 2014, with final standards to be issued by June 1 2015. If the standards for existing plants are similar to those that have been proposed for new plants so far, they would likely spell the end of coal-fired generation in the US.

Some clean energy portions of the plan include an initiative to increase renewables’ share of federal power procurement to 20 per cent by 2020, from 7.5 per cent now. Another proposal would direct the Interior Department to permit 10GW more renewables capacity on public lands by 2020.

As much as possible, the plan is designed to be carried out without Congressional assent. Yet, actions that Obama may consider to be entirely within his administrative purview, such as public land use and energy efficiency at federal properties, will likely be targeted by Congressional opponents.

Looking abroad, Obama pledged to end US government financing of overseas coal projects, a promise that could end millions of dollars in support for power plants in nations such as Vietnam and India. He called for ending US support, unless these projects are in the poorest nations or have expensive carbon-capture technology.

Over in the UK, energy companies were given new details relating to the nation’s Electricity Market Reform, which promises ‘low-carbon, affordable and reliable power for the long term’. Just a few weeks prior, the House of Commons narrowly voted against an amendment to the Energy Bill that would introduce a 2030 carbon intensity target for the power sector in 2014, rather than potentially in 2016, as the government proposes.

The most important of the new announcements last week was of the strike prices for the contracts for difference for all renewable technologies. Though the incentives are roughly in line with current Renewable Obligation Certificates, the announcement now allows developers to compare the attractiveness of the two schemes while they overlap in the period 2014-17.

The government also said it will run its first capacity market auctions next year, for delivery by the winter of 2018-19. The purpose of the mechanism is to ensure there is enough generation capacity that can be brought online at times of peak demand. The UK is concerned that it is facing a capacity shortfall as coal plants retire due to EU emissions regulations and gas power stations are mothballed on account of poor generation economics.

Moving Down Under, Australian politics caught many people’s attention last week, including that of carbon market watchers.

After winning a vote against Gillard, Rudd became leader of the governing Labor Party and later prime minister. Some media reports have suggested he may now be forced to give way on the country’s controversial fixed carbon price.

The Australian market is set to link with the European Union in July 2015. Until then, emitters pay a fixed price that is about four times the market price in Europe. Now Prime Minister Rudd may be pressured to move from a fixed carbon price to a trading scheme earlier than planned. However, this requires legislative change so it could not occur until after Australia’s election in September, if he were to win.

Finally, the WilderHill New Energy Global Innovation Index (NEX) recovered from an early swoon to finish up 2.3 per cent in the trading week ended June 28. The top NEX weekly gainer was US biofuels source KiOR, which was up 39.3 per cent. Advanced biofuels producers, such as KiOR, are benefiting from expectations that there will be insufficient supply to meet the US Renewable Fuel Standard blending mandate for 2013.

EU carbon

European carbon slipped last week as traders closed positions ahead of a vote on an emergency plan to fix the region’s oversupplied emissions market. European Union allowances (EUAs) for December 2013 lost 3.9 per cent over the week to close at €4.21/tonne on Friday, compared with €4.38/t at the end of the previous week.

EUAs had a bearish start to the week, dropping to an intraday low of €4.05/t on Tuesday, after the majority of European People’s Party (EPP) working group spoke out against the carbon market rescue proposal. The European Parliament is set to vote on July 3 on the plan, known as backloading, which would delay sales of some carbon permits. Prices later recovered and stabilised below €4.50/t over the next few days, on low trading volumes.

UN Certified Emission Reduction credits (CERs) for December 2013 gained 6.4 per cent last week to close at €0.50/t.

This article was originally published by Bloomberg New Energy Finance.