ISIS AND OIL

 

Nimrud

 

 

As an environmentalist for more than forty years I have got used to the spasm of rage when I read of another act of wanton destruction of an irreplaceable natural treasure. Like professionals in the emergency services you have to protect yourself from your feelings or you become disabled by them. So I was caught unawares today when I read of the wanton destruction by ISIS of the city of Nimrud.

The fury I felt was more intense than that I feel when reading of elephant or rhino poaching. I can at least understand why very poor people might kill animals to earn some money. I cannot begin to understand why anyone would destroy a deep root of our history. And I mean ‘our’ history. All of humanity’s history has its roots in Mesopotamia. Whatever the culture into which any of us is born it grew out of Africa via the Fertile Crescent.

Those remains belong to all of us. They did not belong to ISIS. They had no right to destroy them, only the might to do so. That might is financed by our consumption of oil. Without the money flowing from oil the virulent pathogen that is ISIS could not exist. We have many reasons to kick our addiction to oil. This is another. It is as culturally important as the need to keep the climate safe is environmentally important.

An essay I have just written http://e3g.org/library/the-road-not-taken-2 argues that we must and can end this addiction in the near future. To do so is a necessity to give our children and their children a safe climate. It is a choice to protect the roots of our culture. We should make it.

 

Tom Burke

London

April 12th 2015

 

 

 

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THE ROAD NOT TAKEN

 

This essay argues that the oil industry will lose the battle for the future. The growth it expects will not occur. The key issue is whether the world makes an orderly or disorderly transition to a carbon neutral energy system. An orderly transition preserves both the economy and the climate. A disorderly transition will damage both.

 

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THE ROAD NOT TAKEN

 

Shell CEO, Ben van Beurden, startled the world earlier this year. In a speech to the Energy Institute in London he urged his industry colleagues to be less ‘aloof’ from the public debate on climate change.

This was not a problem for Shell most of those involved in this debate had noticed. Nor was this a casual intervention. He reiterated themes he had first advanced at Columbia University last September just before the UN climate summit in New York.

Discerning the true purposes of someone in Mr van Beurden’s job is not easy. Concealing your hand in plain view is an essential skill for success at his level in the corporate world. It would be unwise to take his call for a more ‘balanced’ debate at face value. The unexpectedly rapid collapse in the oil price has unsettled the oil industry, unnerving the investors on whom it depends for the vast flows of capital needed to maintain production.

Oil industry leaders deeply believe that governments will not meet their obligation to keep the eventual rise in global temperatures below two degrees. They view this goal as unrealistic. But they have been disturbed by the ability of the stranded assets debate to generate sustained headlines. They foresee more confidence shaking headlines running all year as December’s climate conference in Paris approaches. It is time to steady the ship.

The primary purpose of the van Beurden speech – there are many secondary purposes – is to create a persuasive narrative to keep investors aboard during a turbulent year. ‘Don’t worry, we have thought this through’, is the reassuring message to investors, ‘your money is safe with us.’ This may not work. The combination of market, political and climate forces buffeting the oil industry warrants a more penetrating look at its road ahead.

Veterans in the industry know one thing for certain. The oil price will go up and it will go down. The trick is to know when. The blinding fog of opinion released by the current turmoil in the oil market reveals just how hard it is to perform. ‘I do not know’ is a tough sentence for anyone to say – impossible for an expert. However, one really significant thought is emerging through the fog.

If we succeed in avoiding dangerous climate change then the price of oil will go down permanently. Keeping the climate safe means building a carbon neutral global energy system by the middle of the century. Exactly what that system will look like remains to be seen. A lot of new energy technologies will be developed and deployed over the next twenty five years.

But at least one feature of a carbon neutral global energy system is already certain. It will not contain several billion internal combustion engines. Our vehicles will be moved by electrons not molecules. But, if molecules are not driving our cars what are the oil companies selling?  Whatever it is, it will not be petrol, the top and most valuable end of the oil barrel. Take away the top of the barrel and the rest of it is worth a lot less so its price will fall.

The current fluctuations in the oil price offer us a look down the road to keeping the rise in global temperatures below the 2°C threshold of danger. It is a path with a lot of twists and turns: some foreseeable, others surprising; some accidental, others carefully constructed.

One of the foreseeable twists is that the price of oil will rise again from today’s low. The oil majors had already begun reducing capital spend before prices fell off a cliff last year. They have now accelerated that reduction. This will constrain supply in the medium term and so drive prices up again; when, by how much and for how long is unknown.

Welcome to the world of volatility. In an increasingly turbulent world where the cost of capital has only one way to go this is not a great incentive for investment in high risk, long life projects with a big gap between spend starting and revenues flowing. Our previous experience with oil price spikes is that the steps people take to reduce their exposure to them continue long after the prices fall. The demand reduction often becomes permanent.

The upside of the price fall for governments, especially at a time of stuttering growth, is that it puts money directly into the pockets of people who will spend it. But it has to be paid for; in this case by the loss of jobs, tax revenues and dividends. These are the consequences that spooked the British government into immediately looking for ways to prop up its ageing North Sea oil industry.

The view further down the road from this point is chilling if you are the Chancellor of the Exchequer. Britain is committed to meeting its obligations under the Climate Act and playing its part in keeping the climate safe globally. It has led the drive to build an ambitious global regime to manage climate change.

But success in avoiding dangerous climate change will mean eventually giving up the £25 billion a year in revenues the Treasury gets from vehicle excise duty alone as well some £30 billion in corporation tax from the oil and gas sector.

Furthermore, two companies, Shell and BP, between them provide about 20% of all the pension fund revenues. This, too, will go.

Of course, as oil company CEOs keep reminding us, we still need energy. We will have to replace the oil and gas we are no longer burning with something. This will provide taxes and dividends and jobs. But they will not be the same jobs, for the same people, with the same skills in the same places. So there will also be a significant social adjustment cost for retraining and relocating a displaced workforce. There will, of course, be dividends and taxes but they may not be so abundant or so easy to realise. This prospect will not be welcome to Her Majesty’s Treasury which could well become a major obstacle on the road to 2°C.

But hanging on to business as usual also has risks for the economy. The current oil price fall is partly a consequence of Saudi Arabia’s willingness to use its market power. As the world’s lowest cost major oil producer this power remains. It can be used to drive prices up as well as down. The availability of unconventional oil from North America masks, but does not eliminate, the consequences of political disruption to supply from Libya, Syria, Iran, Nigeria, the Sudans and Iraq.

Geopolitical risks to the economy are much harder to anticipate than climate risks

There are other bumps in the road to business as usual in an oil dependent economy. The trajectory of future demand is also becoming less certain. The amount of fuel consumed by light duty vehicles in the US has declined 11% since 2004. Without confidence that projected demand will materialise, oil companies will be unwilling to make the risky, high cost investments necessary to sustain the current level of taxes and dividends anyway. So abandoning your climate goals will not necessarily keep the money flowing.

In the OECD countries, demand for energy started levelling-off before the 2007 financial crisis halted growth and depressed wages. This accelerated the take up of energy efficiency measures that had long been available but ignored by governments and businesses alike. US primary energy consumption has now fallen 18% since 2004. The restored political momentum for building a European Energy Union is driven primarily by fears over the availability of Russian gas. These were high before Putin invaded the Ukraine. They are higher now. This led to the EU prioritising energy efficiency in managing this geopolitical exposure.

The oil companies – and the International Energy Agency – expect surging demand in the emerging economies to more than make up for this drag on demand. BP recently published their Energy Outlook for 2035. It is as good an expression of oil industry orthodoxy as you could wish for and projects oil demand to rise 0.8% a year for the next twenty years. All of this demand is projected to come from the non-OECD countries. If BP are right, then the taxes and revenues will be safe but the climate will not.

Underlying this orthodoxy is the belief that population will go up, energy demand will go up, oil production will go up and the planet’s temperature will go up. In this comforting modellers’ fantasy there is no connection between rising temperatures and rising oil production. The two numbers head skywards on parallel tracks. None of the models used to project future oil demand, including that of the IEA, incorporate any impact of rising temperatures on growth.

This stems from the widely held misconception that the economic impacts of a changing climate are some way off in the future. The current rise of just less than 1°C globally – a much greater rise in some places – is already a significant drag on the economy. We have simply failed to measure it yet. But the global growth the oil companies, and Finance Ministries, are counting on, depends entirely on rising real incomes in the bottom two quartiles of the population in the emerging economies.

These are exactly the incomes that will be rapidly and harshly hit by the food and water price spikes and extreme weather events that will be ever more frequent as we move from 1°-2°C and beyond. There has been little growth of any kind in hurricane-devastated Tacloban since 2013. The price of water has risen so high in Sao Paolo this year that water tankers are subject to armed hijacking. If the projected growth is diminished by a changing climate then the oil demand projected to accompany it will not appear. If the oil demand does not appear, the oil price will fall.  If the price falls, investment will too. The further you look down the ‘business as usual’ road the less navigable it looks.

So, is there a better route than this cannibalistic spiral where your growth eats the climate and the climate eats your growth? Fortunately, there is. But it means taking charge of our path to the future and transforming the global energy system.

There are no technological obstacles to building a carbon neutral energy system by the middle of the century. We already have enough technology to do it now. And we will have more and cheaper technologies in the years to come. Nor is there an economic obstacle. Getting off the ‘business as usual’ death route will cost more than staying on it. At first. But the additional costs of carbon neutrality are off-set very quickly by the avoided costs not having to find, lift, transport, refine and burn the oil. The IEA estimates that the additional cost of a staying below 2°C, $44 trillion, will be comfortably offset by these savings of $115 trillion.

The technology and the economics of building an oil free future may not be much of an obstacle to getting on to a better road to the future, but the politics are. The current political equation from the top of any government looks like today’s fossil winners versus tomorrow’s possible carbon free winners. For governments, this is a no brainer. Back today’s winners. But the equation is changing. It is becoming today’s climate losers plus tomorrow’s winners versus today’s winners.

Slowly but steadily the voices of those businesses already having their interests damaged by a changing climate are getting louder. They are the wine and winter sports industries already feeling the effects of a small change in the climate. The property, insurance, construction, tourism, agriculture, water and big retail brand industries are all just beginning to count the cost to them of our dependence on fossil fuels. This year the Bank of England began an inquiry into the impact of a changing climate on Britain’s economy as a whole.

And tomorrow’s winners are becoming today’s winners far more rapidly than anyone forecast. Deutsche Bank have just published a report on solar pointing out that it is now at grid parity in more than 50% of countries and will be so at 80% within two years. In some countries solar electricity is already 40% below the retail cost of electricity. They see no sign that the oil price fall will slow the momentum for the deployment of renewables.

They are not alone, Citi recently announced the establishment of a $100 billion fund to invest in renewables. The Abu Dhabi National Bank stated that at recent solar prices – which will fall further – even $10 a barrel oil could not compete with the technology. The fossil fuel consultancy, Wood McKenzie pointed out that solar farms were already cheaper and displacing gas-fired generation in the US despite the low cost of gas. This has implications for the price of oil because the oil majors like Shell are increasingly oil and gas companies – hence the attraction of a merger with BG. Renewables compete directly with gas putting the oil companies’ balance sheets under further stress.

The most profound challenge to business as usual for the oil companies and their dependent stakeholders comes from neither governments nor the green NGOs. It comes from the motor industry. All the major motor manufacturers now have a mass market electric car offer. They are all costing the manufacturers money and making little impact in the marketplace. They are being positioned for the moment the huge reduction in the cost of driving a car with electrons rather than molecules outweighs the additional cost of the vehicle. The current oil price fall has put that moment off.

This is reassuring for the oil companies who anyway believe that this moment is a long way off. They may not be right. Half the cars bought each year in Germany and the United Kingdom are fleet cars. A future oil price spike – and there will be one – could well push the capex-opex trade-off past the point from which it becomes sensible for fleet owners to go electric. At that point the take-up of electric vehicles could accelerate to a rate more common in consumer technology than vehicle markets.

Advanced battery technologies are coming to market far faster than was believed possible. Two years ago the IEA estimated cost parity would be reached in 2020 at $300/kWh. Market leaders got there in 2014. Policy driven markets for electric vehicles in China and possibly India will add to this momentum. The accelerating shift to distributed electricity generation will offer additional revenue flows to electric vehicle owners. In these force fields it might not take much of an oil price spike to set off the transformation. If so, it will be market events rather than climate policies that determine the future of the jobs, taxes and dividends the oil industry provides.

What the tale of the twists and turns reflecting on the collapse of the oil price reveals is that a transformation of our route to the future is inevitable. We can try to maintain the carbon intense ‘business as usual’ path on offer from the fossil fuel companies and the global temperature will rise to levels which will destroy the very economic growth they fuel. Or, we can try to build the carbon neutral road whose course is already visible. On one route risks to both the economy and the climate grow rapidly. The other risks neither.

The real difference is that on the first path we let events shape the route and on the second we must shape it ourselves with a lot of hard political decisions. The promise of the first option is a very disorderly transformation to an uncertain future. The second offers a more orderly transformation to a more predictable future. The first choice is within the current bounds of the politically possible. The second requires that we expand those bounds.

There is a well-known poem by Robert Frost which ends:

 

“Two roads diverged in a wood, and I –

I took the one less travelled by

And that has made all the difference”

 

We should follow his advice.

 

 

Tom Burke

 

 

 

 

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Solar is set to transform the global energy market – Podcast – Today Program BBC Radio 07/04/2015

 

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We have had a very inconsistent approach to renewables and deploying renewables in Britain. We are really starting to miss out and get left behind because of that inconsistency by government. It’s completely incoherent to complain about subsidies as the government did on renewables when you are preparing to sell thirty five years worth of index linked tax receipts in order to get nuclear power form EDF. So I don’t think that the issue of solar panels in fields is really the dominant issue, the real issue is how quickly can we get our stake up in a transformation that is happening at incredible speed.

 

You can listen to the full podcast here

Segment starts 06:26

 

 

 

 

 

 

 

 

 

 

Posted in BBC, Business, Changing the Politics, Climate Change, Economics, Energy, Energy Efficiency, Energy Security, Environment, In the media, International, Interviews, Radio, renewables | Tagged , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , | Leave a comment

What environmental issues does the next government need to address?

 

 

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What environmental issues does the next government need to address?

With representatives of the main parties set to outline their green agenda, this week we look at the key policies and areas the environmental community want them to look at.

Rob Comba spoke to Tom Burke from Third Generation Environmentalism (E3G) and Sandra Bernick from the New Economics Foundation to get their thoughts.

 

 

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What should be top of any government’s green agenda?

Tom says there are three things:

  • Being able to borrow enough to establish a low carbon, resource efficient economy
  • To restore the government’s ability to protect environment
  • It needs to get tough on the burden weak environment policy is having on the NHS

Sandra thinks a key area is energy and people should be able to generate energy locally.

What about concerns?

Sandra believes there needs to be an immediate focus on climate change, as well as on local issues.

From an environmental perspective, who would form the ideal government?

Tom would like to see a Labour-led coalition after May’s election, that’s because he says Cameron and the Tories haven’t kept their promise to be the ‘greenest government ever’

What about UKIP, is their rise a concern for environmentalists?

Both Tom and Sandra don’t think they will be powerful enough to have too much of a say in the next government.

 

 

 

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TROUBLE AHEAD

 

This piece first appeared in BusinessGreen

 

EU US FLAGS

 

 

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The political argument for trade liberalisation has always been that it is good for the economy. This argument was losing traction even when what was good for the economy was good for your wallet. Now that rising incomes for most people have been detached from a better economy it has even less resonance with the public.

This adds edge to the increasingly rancorous debate about the Transatlantic Trade and Investment Partnership ( TTIP ). Trade policy debates used to be about lowering tariffs on goods. They were of limited interest to most people. They promised the public lower prices at a small cost to the public purse. Not surprisingly, only those whose interests were threatened by lower prices cared very much.

Tariff barriers to transatlantic trade have all but disappeared. So what is TTIP for? Its purpose is to stimulate investment and trade in services by reducing or eliminating non-tariff barriers to trade. Europe’s growth-less leaders are very keen. Europe’s wage-poor publics much less so.

The controversy to date has focussed on the proposed Investor State Disputes Settlement  ( ISDS ) provisions. These are intended to protect foreign investments from discrimination or expropriation. In  practise they have become a battleground for corporate lawyers seeking to globalise a uniquely American legal doctrine of ‘takings’. This famously led the Swedish utility Vatenfall to sue the German government for compensation for Germany’s decision to close its nuclear power stations.

The argument over why a secretive arbitration process is to be preferred over a transparent court process has been loud and long. It is not yet resolved. Nor is it clear why a company should be compensated for failing to properly assess the political risk to investments that might be vulnerable to public policy change. It is also difficult to see what is attractive to governments about putting themselves between the rock and a hard place of being constrained from adopting policies to protect health or the environment for fear some company would sue it for billions of dollars.

The loud noise over the ISDS provisions of TTIP has diverted attention from another innocuous sounding proposal that could be as effectively, if less visibly, a constraint on governments’ freedom of action. This is the idea of making European and American regulations compatible with each other. Proposing to reduce regulatory burdens has immediate appeal. It could reduce the costs of meeting high environment or health standards and thus make their achievement more likely.

This may even be what the drafters of TTIP intend. If so, they have failed to grasp just how differently the EU and US approach regulations. There are scholarly examinations of these differences. There will be more as the argument over TTIP continues. A blog is not the place for scholarship so let me just flash some warning lights about the problems ahead.

One of the ideas for achieving coherence is to have ‘early consultations on significant regulations’. What could possibly be wrong with this? Well, the structure of European policy making involves a considerable amount of pre-legislative consultation and consensus building. In America consultation takes place after legislation as regulators develop the rules for implementing the law. There is no obvious way for early consultations to cross this difference.

Partly as a consequence of this difference another big difference emerges. American regulatory practise involves considerable use of the courts to interpret the intent of Congress. Individual, businesses and civil society bodies have, and often use, access to the courts to challenge interpretations. The key decisions on regulations are thus often made in the courts. In Europe, regulators have far more discretion to interpret the law and access to the courts, especially at European level, is restricted and rarely used. Most key decisions are thus made by regulators.

It is very difficult to see the EU extending access to the courts to the level taken for granted in the US. Nor is it easy to see American stakeholders, including businesses, being willing to accept restrictions on their access to the courts. Nothing has yet been said publicly by the trade negotiators about how these differences are to be aligned.

A third problem arises from different approaches to impact assessment. US law mandates the use of cost-benefit analysis in assessing regulatory impact. To be lawful the economic benefits must exceed the economic costs. The EU uses a precautionary approach. Economic costs and benefits are among the factors to be considered but meeting the objectives of the regulation takes precedence. In the US the economic considerations outweigh the achievement of the objectives. In Europe the achievement of the outcomes outweighs the economic factors.

Neither of the problems I have picked out, or the many others, that stand in the way of making regulatory coherence a reality will be resolved in the negotiated text of TTIP. Rather they will be delegated for resolution to the proposed Regulatory Coherence Council. The prospects of significant decisions on the implementation of environmental law disappearing behind the traditional veil of trade secrecy does not inspire confidence. Regulatory coherence cannot be achieved in practise without trust, and trust cannot be achieved in private.

TTIP is extending the reach of trade policy in a way that could impinge damagingly on  environmental policy. Trade policy makers need to demonstrate that they are aware of and responsive to this risk. They could start by guaranteeing that the proposed Regulatory Coherence Council has equal access to business and civil society participation. They should also insist that the agendas and papers for all meetings of the Council and its subordinate bodies are published in real time. Since this is an administrative not a commercial arrangement there is no justification at all for secrecy.

 

Tom Burke

February 6th 2015

London

 

 

 

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Written evidence submitted to Environmental Audit Committee on Transatlantic Trade and Investment Partnership

 

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Written evidence submitted by Tom Burke, Chair of E3G

 

When we met the other week I offered to write to you and set out some of my concerns about the regulatory coherence provisions of the Transatlantic Trade and Investment Partnership.

There are clear benefits from  creating a better alignment between US and EU regulation. However, this goal may be more difficult to achieve than is widely recognised. As has become clear from large corporate mergers, it is one thing to align systems and another, more difficult and protracted matter, to align cultures. There are many examples of benefits from  aligning systems lost by failing to align cultures.

The European and American environmental regulatory systems are products of very different cultures. Public policy on the environment is developed very differently reflecting fundamental differences in the way public policy is translated into law. The role regulators play in implementation of the law also differs significantly not the least because of the different role of, and access to, the courts.

As a consequence simply aligning regulatory texts will not necessarily achieve the goal of regulatory coherence. This means that in practise coherence will be achieved through the operation of the proposed Regulatory Cooperation Council. This is to be composed of ‘senior level representatives from regulators and trade representatives’.

This raises an immediate question for the EU members of the Council as to whether they will be operating under an environment ( mixed competence) or trade ( sole competence ) legal base. There is a further complication in that the US members of the Council would be drawn from the Commerce or State Departments with no direct experience of environmental regulation. Retaining public confidence in regulatory coherence procedures within the EU will be much more difficult if decisions affecting environmental outcomes are seen to be entirely in the hands of trade officials.

The Commission has emphasised the provisions on the face of the agreement for maintaining existing levels of environmental protection and the right to regulate to achieve high levels of protection. However, these assurances miss the point. These rights have not been questioned.  The intent of the coherence provisions is to shape the way in which those rights are exercised and this may have an impact on the environmental outcomes it is possible to achieve in practise by their exercise.

The Commission proposals for achieving regulatory coherence include ‘early consultations on significant regulations, use of impact assessments, evaluations, periodic review of existing regulatory measures, and application of good regulatory practises’. The first and second of these provisions raise significant potential problems for achieving coherence which need more careful, and public, examination before they are agreed.

European environmental regulations are developed over a long period, typically a decade or more, with widespread consultation with member state governments, the European Parliament and a large array of business and civil society stakeholders throughout the process. The resulting political agreement is thus founded a carefully constructed consensus that is resistant to late alteration. There is little scope, or call for, a role for the courts and actions before them are rare. Access of individuals or non-state actors to the courts is very restricted.

American practise is very different. Federal legislation may originate in either House of the Congress and can be initiated by any individual member, at any time. There is no equivalent of the EU consultation processes and legislation passes whenever enough votes have been accumulated for it to succeed. Significant late interventions are frequently successful as part of the bargaining to accumulate sufficient votes.

In the EU regulatory culture grants the regulators considerable discretion over how the regulatory intent in to be applied in particular circumstances subject to the requirement to observe due process. The American regulatory culture severely constrains the discretion of regulators.

The appropriate agency is required to develop specific rules for the application of the legislation in each of the contexts to which it applies. These rules must be developed through widespread public consultation with interested parties. There are even rules as to how the agency must reason in its response to submissions. Any of the interested parties who feel that their interests have not been appropriately considered may, and often do, seek redress in the courts. Access to the courts for individuals, businesses and civil society is commonplace.

These considerations generate two problems for the achievement of regulatory coherence that need further examination prior to agreement. First, how is ‘early consultation’ to be achieved between two regimes in which public consultation in one is pre-legislative and in the other is post-legislative? Second, in the EU the key decisions on the implementation of a regulation is made by the regulators in the US  it is made in the courts. How will coherence on the role of the courts in environmental regulation be achieved? If it difficult to see either the EU extending access to the courts or the US restricting such access. This raises the difficult prospect of disaffected parties in either jurisdiction seeking extra-territorial redress in the US courts.

A further complication arises over the differing approach to impact assessment. US law mandates the use of cost-benefit analysis in assessing the impact of regulations. For a regulation to be lawful the economic benefits must exceed the economic costs. The EU uses a precautionary approach in which the economic costs or benefits are among the factors that are used in an assessment of the value of a regulation and the premise is that they take a subordinate place to achieving the objectives of the legislation. In other words, US regulatory practise demands that the economic costs of a measure are outweighed by the benefits. EU practise requires the achievement of the desired outcome to take precedence. The means of achieving coherence across these difference are not immediately obvious.

It is clear that much of the Commission’s thinking has been shaped by consumer protection considerations such as maintaining food and health standards. This can be achieved by technical means such as specifying the amount of unwanted materials permitted in a product and agreeing on the means used to measure the presence of such materials.

It is less obvious that sufficient thought has been given to the particular requirements of achieving environmental outcomes. For example, European climate legislation places an economy wide cap on greenhouse gas emissions. The Federal Government has no power to impose an economy wide cap on emissions but seeks to reduce emissions by point source controls. It is not very obvious how ‘regulatory harmonisation, equivalence, or mutual recognition,’ is to be accomplished in this case.

The Commission’s proposal recognises that TTIP will have to deal with these, and other,  complexities on a case by case basis over a long period. Hence the proposal for a Regulatory Coherence Council which may create a set of subordinate bodies dealing with sectoral or cross-cutting issues.

Lowering the burden of achieving better environmental outcomes through regulatory coherence is a shared objective. Fears that the processes to reach this goal could lead to a weakening of environmental standards or a chilling of environmental regulation are legitimate. Reaching beyond the traditional boundaries of trade liberalisation, as regulatory coherence does, requires also reaching beyond the traditional practises of trade negotiations.

The benefits of regulatory coherence can only be achieved if there is a high level of public trust in the institutions created to bring it about. This in turn will only be accomplished is there is a level of transparency and participation not common in trade negotiations. This has two important implications for the current negotiations:

The negotiating process itself should be transparent. Since the balance of commercial advantage is not at stake there is no reason why all interested and affected parties should not be able to monitor the progress of the discussions in real time;

The Regulatory Coherence Council and any subordinate bodies must consult with experts from all interested and affected parties. At any table where businesses are present, so, too, must be representatives of civil society. The agendas and papers for all meetings of the Council and its subordinate bodies should be published in real time.

 

3 February 2015

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ON TURNING GOOD NEWS INTO BAD

 

 

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When it comes to energy policy the Financial Times seems to be suffering the editorial equivalent of a nervous breakdown. Looking back through some of its recent stories I was struck by a headline from a Pilita Clark story in early October. ‘Germany energy market a disaster, says EDF chief’. What, I wondered, made the views of a French nuclear industry chief on his increasingly non-nuclear German colleagues so interesting.

Clark is one of the better informed and more meticulous journalists covering the environment anywhere. I have never found any reason to doubt the accuracy of her reporting. She has been a careful and consistent commentator on climate change. She does not normally cover energy stories.

The opening sentence of this particular story reminded us, as the FT often does, that Merkel accelerated a phase out of nuclear energy in Germany after Fukushima. Actually, to be rather more accurate, what Merkel really did was to restore a long standing phase out she had recently abandoned under pressure from German utilities.

The rest of the story reported the views of Henri Proglio, the Chairman of EDF, a French nationalised industry, on the German energy market. This he called ‘a disaster’. The FT clearly thought this intervention to be noteworthy. It had to dig quite deep to get the story.

It turns out that Mr Proglio’s remark was provoked by a question about the state of the French business environment. This in turn had arisen because of a singularly dumb comment from the head of John Lewis about France being ‘finished’. Mr Proglio clearly thought that Germany energy industry was too.

But, he went on, the picture in France and Germany was mixed. There were, he said with unarguable lucidity, ‘some very good and some very bad examples’. And that, more or less, was that. Hardly a story of overwhelming importance to the FT’s readers.

But not quite. There was one other point. Mr Proglio’s remark was prompted by the problems of Eon and RWE. ‘One’, he said, ‘is more or less dead, the other is in a very difficult situation.’ As the article pointed out, they had experienced a 20% and 62% fall in profits respectively.

So far, so sad. But the real kicker in story was the explanation the companies offered. In both cases this turns out to be renewable energy. For RWE it has left many of its power stations unable to cover their operating costs, and for Eon it had caused a decline in the price of baseload power.

So here we have it. The head of the French nuclear electricity industry is complaining about renewables destroying the value of German nuclear owning utilities. It is not hard to imagine why. The same gun is pointing his way.

Dissing renewables is an FT trope. So deeply is it twisting their editorial judgement that every opportunity to be negative, including one as trivial as this, must be taken. If this story had any value at all it was to celebrate the creative destruction of capitalism as nimbler rivals exposed the shared frailty and rigidity of both private and publicly owned existing utilities. Instead, the FT placed itself firmly on the side of the status quo.

Just over a month later, Mr Proglio had been sacked, the French Government has announced a 33% cut in its dependence on nuclear power; Eon had decided to spin out its traditional, less profitable, businesses into a separate entity and Citi had published a report forecasting a 28% fall in electricity market share for the UK Big 6 by 2020.

 

 

Tom Burke

Brussels

December 2nd 2014

 

 

 

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OF NIGHTMARES AND PARROTS

 

This piece was first published in BusinessGreen

 

dead-parrot

 

 

Let me introduce you to the mysterious world of triads. This is not, however, an article about the exotic world of Hong Kong’s ill-famed criminal gangs. This is about the much more prosaic world of managing electricity bills.

Triads are the three half hour periods when electricity demand is at its highest in Britain. They occur in winter. Between November and February businesses are charged significantly more for their electricity during these 30 minute periods.

This is a perfectly sensible measure to encourage those who can to use less power when demand is highest. It is exactly what you would expect to happen in an efficient market obeying the laws of supply and demand.

Britain’s energy intensive industries are not stupid. They try to guess when the triads will occur and then reduce production for those half-hours to cut their costs. This is a perfectly sensible response by those businesses. They do it if the marginal production losses during those three half hours are less than the extra cost of the electricity.

This is a routine business operation to cut costs which has gone unnoticed for years. The arcane skill of guessing the triad has not warranted much attention from the media and its best practitioners have preserved their anonymity.

This era of quiet professionalism may now be over. That is, if a recent headline in the Financial Times is to be believed. “UK manufacturers warn of shutdowns amid energy measures” it bellowed. This sits the story squarely in the media’s running nightmare that Britain’s lights are about to go out. Triads, it seems, are now critical to the health of Britain’s economy.

So, what is the source of this dire threat? This turns out to be the National Grid which has launched a Demand Side Balancing Reserve (DSBR) scheme. This is one of a number of measures it is deploying to increase security of electricity supply.

These measures are necessary because of the uncertainties created by unplanned outages from ageing nuclear reactors, the closing of uneconomic gas fired generators, old coal-fired power stations coming offline for air pollution reasons and the growing proportion of wind and solar generation in the system. They underpin National Grid’s confidence that it will keep the lights on this winter, as it does every winter.

The DSBR scheme will invite companies to reduce their demand during peak winter evenings. Those companies that do so will be paid. So, why would anyone object to being paid reliably to do something they used to have to guess about? After all the invitation is open to exactly those companies whose production is already sufficiently flexible to play triad roulette.

Furthermore, triads have been becoming more difficult to predict anyway. Electricity demand has been falling for nearly a decade. Rising bills have stimulated more companies to get into this game. You would have thought that the predictability of a contract would have been preferable to the current guessing gamble.

Not so according to the energy intensive businesses. Npower, Sheffield Forgemasters, the EEF have all sucked their teeth and complained to the FT that this will be very bad – ‘ a very real concern’, ‘disrupting production’, ‘more….shutdowns’ they told the FT.

How so? This scheme simply adds a belt to the many braces the National Grid already employs to keep the lights on. Energy intensive industries are not being asked to do anything they are not already doing. It is their electricity suppliers not the companies themselves which are being invited to sign up to the scheme.

The ability this scheme gives to National Grid to reduce demand is good for the security of the system as a whole. This is a useful benefit to every other business and domestic consumer. All it means for the energy intensive industries is that it will be a little more difficult to guess exactly when the triads will occur.

Hardly surprising therefore that National Grid dismissed the complaints. As it pointed out, this is not a scheme they are likely to use very often. It would only represent a fraction of the amount of demand reduction provided by triad avoidance with which the companies already cope well.

So nothing to worry about in Tanya Pawley’s story with its alarming headline? Not quite. The story accidentally reveals two things that do matter: the penchant for Britain’s energy intensive industries to whinge at all times and declining editorial standards of the FT.

If a possible increase in the price of electricity on three half hours a few days a year is ‘a very real concern’ you have got lot more to worry about than guessing wrong on triads. If these industries really are balancing their viability on such a thin edge we would we better off thinking hard about how best to close them.

In reality, of course, they are not that fragile.

The FT has taken an ill-informed and increasingly hysterical stand against the effort to decarbonise the British economy. A frequent riff of the campaign has been that this threatens our energy security. Last winter and the winter before the FT joined the rest of the media in noisy warnings that the lights would go out. They didn’t.

So what is the point of running a dead parrot of a story about a measure that would actually help to keep the lights on? Ah, well that is because this is ‘an emergency measure’ which will ‘force’ businesses to ‘shut down’. The editorial intent is clear if unstated. These disruptive measures are needed because decarbonisation is damaging Britain’s energy security.

The only point of this parrot is to populate the FT’s nightmare that dealing with climate change is ruining the economy. It is time its editors woke up to the dangers of failing to deal with climate change so cogently provided by one of its own most distinguished columnists.

 

 

Tom Burke

November 26th 2014

London

 

 

 

Posted in Business, Campaigning, Climate Change, Economics, Energy, Energy Efficiency, Energy Security, In the media, Oil and Gas, Politics, renewables, Sustainability | Tagged , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , | Leave a comment

Tom Burke talks to Comment Visions about the costs and opportunities of climate change

 

Talking to Comment Visions about the opportunities and costs of climate change.

 

 

 

 

Two important things about businesses; first of all for the energy businesses, the high carbon businesses are starting to get increasingly nervous about governments actually being willing to do more as the cost of renewables come down, and the low-carbon businesses are seeing an expanding realm of opportunity. So I think those businesses are going to see a change of focus from worrying about what happens to the high carbon businesses, to looking at all the opportunities for the low-carbon businesses.

Up until now we’ve only really heard from what I think of as the climate makers; the fossil fuel industries and their allies, increasingly what’s becoming clear is that the rest of the business community is going to have to pay for a changing climate in terms of lost opportunities, increased costs and damage to their facilities. So I think over the next few years I think we are going to hear many more voices being expressed from businesses like tourism, agriculture and property who will pay for a changing climate.

 

 

 

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US and China emissions agreement – BBC World Service – 12 November 2014

 

 

BBC WORLD SERVICE

 

 

 

 

 

 

 

Here is an interview I did recently for  the BBC World Service discussing why the emissions agreement between the US and China is so important.

 

“This is really important because the real problem with climate change is not so much technology or economics, it’s politics. It’s actually getting politicians to do what we know we can do. And I think that this is a pretty big signal, when you have both China and the US agreeing really to do a lot more than people have expected them to do. Will it be enough? I don’t think where they have got to today is going to be enough to really solve the problem, but it does take us a big step down the right road.”

 

“If you think of China as one of the biggest investors in one of the biggest periods of growth, what it is actually saying is after 2030 all the investment in energy in China will be low-carbon or carbon-neutral, and that is a pretty big statement for a country that is still developing. So what China has actually signalled is that there is no conflict between dealing with climate change and having rapid growth and development for poorer people.”

 

“There has always been this idea that somehow China is doing nothing, and you regularly hear that from the climate sceptics in this country, but the fact is that China’s has been doing a lot for a very long time.  What they haven’t ever done before is said when emissions will peak, and that of course means that they will now shift basically to renewables, energy efficiency and nuclear as a way of delivering all the energy they need for their people’s prosperity but without destroying the climate.”

 

 

You can listen to the whole discussion here

 

 

Posted in BBC, Business, Changing the Politics, Climate Change, Domestic, Economics, Energy, Energy Efficiency, Energy Security, Environment, European, In the media, International, Interviews, Nuclear, Oil and Gas, Politics, Radio, renewables, Sustainability | Tagged , , , , , , , , , , , , , , , , , , , , , , , | Leave a comment