TAKING THE INITIATIVE
The European Union's Emissions Trading Scheme should be the world's biggest and
best legislative action against climate change. Instead it is a broken, dying
scheme that has the confidence of neither the affected companies nor
environmental campaigners.
The ETS should cap the overall amount of carbon dioxide emissions by selling
only a limited number of permits to emit. Companies would therefore be
encouraged to invest in long-term technologies to permanently cut their
emissions, rather than buying permits to emit more.
Simple, no? But that only works with high prices and since the economic
downturn of 2008 cut
Europe
's emissions and undermined
the need for extra cuts to meet the cap, demand for permits tumbled, as did
prices. Permits have fallen from a high of EUR30 a metric ton to under EUR5
now.
With considered opinion seeing EUR15 as a minimum price for the scheme to work,
the cost of CO2 is no longer a factor in investment and is virtually useless.
So we face a rare situation, where business and European legislators are
singing from the same song book. The European Commission has proposed delaying
the auctioning of new permits, scheduled for 2013-2020. This will mean fewer
allowances will be put on the market to 2015, reducing oversupply.
More than 30 leading companies from across
Europe
have
called on EU policy makers to back these moves, Platts reports. Their open
letter can be found on Shell's website. It is signed by, among others, E.On,
Unilever, Vestas, Areva, Alstom and Statoil.
Of course, that such businesses are in lockstep with the politicians isn't
purely for altruistic reasons. If the EU ETS is truly broken, the alternative
may be a much-less palatable carbon tax.
The Financial Times says that, as with many things European, the German
position will be crucial. The Guardian notes that 10 German companies are
EUR1.2 billion better off thanks to the scheme.
GAZPROM SHOWS IT STILL MATTERS
Readers of the previous Energy Journal may have been given the impression that
Russia
's
Gazprom is a busted flush, facing a shrinking market and surpassed in the
Kremlin's affections by the upstart Rosneft.
If it is on the wane, then Gazprom won't go quietly. Particularly not when it
comes to dealing with
Ukraine
, its
old nemesis. The Financial Times says Gazprom has rejected an appeal by
Kiev
to
renegotiate its gas-supply contract, insisting
Ukraine
must
pay $7 billion for unused gas.
"The principle of take or pay," according to Gazprom deputy chief
Alexander Medvedev, "is that if you don't want to take it, you still have
to pay for it."
For all the saber-rattling, this does come at a difficult time for Gazprom. As
The Wall Street Journal reports, European competitors such as Norway's Statoil
are offering Gazprom's traditional European customers more flexible contracts
-- not necessarily 'take or pay' -- and aren't linking gas prices to the cost
of oil.
Plus European countries are hoping to soon have their own gas reserves.
Ukraine
,
desperate to free itself from
Russia
's
influence, has signed a huge deal with Shell, according to the Journal. Reuters
says Chevron is moving toward shale exploration in
Romania
, and
France
's
Total is considering investing in the development of shale in the
U.K.
,
Platts says, and wants to explore in its home country, according to the
Journal's @Geraldine Amiel.
Paradoxically,
Norway
's
chief central banker has warned that the country should reduce its dependency
on energy. It's a cautionary tale of wage inflation and household debt, told by
the Journal's @Kjetil Malkenes Hovland.
MORE SHALE
Much excitement about a PwC report which says global shale-oil production has
the potential to reach 14 million barrels a day by 2035, and that this could
reduce oil prices by between 25% and 40% by the same date.
PwC says the projected scenario will reduce the influence of OPEC. The Journal's
@Sarah Kent, however, says political, economic, logistical and geological
stumbling blocks are on OPEC's side.
And Carbon Brief wonders whether this hasn't all been heard before with the
shale gas boom. Predictions that shale gas would be exploited worldwide in the
same way as in the
U.S.
haven't materialized, and
U.S.
shale
gas is yet to bring the global cost of gas down.
MARKETS
Crude futures lost ground Friday as the dollar strengthened to the euro, making
oil a less attractive buy for holders of currencies other than the greenback. The Journal's market report is
here.