Australia represents only about 1.5 per cent of global greenhouse gases, but on a per capita basis, it ranks No 1 in carbon emissions.

The  carbon pollution reduction legislation, which has been subject to endless committee hearings, and purposedly delayed to start July 1 2012,  to avoid  the disruption of the global downturn, requires only a modest 5 per cent reduction in carbon emissions by 2020 from 2000 levels.

The legislation went through the lower House, but has been held up in the Australian Senate, by a determined rabble of global warming sceptics, despite getting significant legislative concessions by the Rudd government.

If you measure Australia against a significant grouping of carbon emissions targets by other countries, the lucky downunder country comes out poorly.

The Copenhagen summit, from December 7 to 18, will go a long way to an international agreement, which can be codified in 2010, and if need be 2011, so as to slot in when the Kyoto Protocol comes to an end in 2012.

Carbon emission targets so far promised:

*European Union 27-country bloc’s  longstanding commitment to a 20 per cent cut in carbon emissions by 2020 from below 1990 levels. A few of the country membership, such as UK, Belgium, Netherlands would like the EU to move to a unilateral 30 per cent cut.

However, the eastern European members, particularly Poland, which have  coal dependent economies oppose this move, and would like the 2020 target changed to 2030.

*President Obama’s promise for the US is a  17 per cent emissions reduction by 2020 from below 2005 levels, although the cap and trade legislation is held up in the US Senate. According to the WWF, this is equal to a 4 to 5 per cent reduction from below 1990 levels to have a meaningful comparison with the EU target.

President Obama also said his Administration’s overall goal is to reduce emissions 30 per cent below 2005 levels in 2025, 42 per cent below 2005 levels by 2030, and 83 per cent below 2005 levels by 2050.

* China, which is now the world’s largest carbon emitter, with the US the second largest is committed to a meaningful slowing in greenhouse gas emissions. The undertaking is to reduce carbon intensity by 40 to 45 per cent by 2020 compared with 2005 levels. Carbon intensity is the amount of CO2 for each unit of GDP (gross domestic product).

UN climate officials have said to Associated Press that the 40-45 per cent cut would put China on a path to reduce greenhouse gas emissions about 13 per cent from business- as- usual, the level emissions would have reached without any action. As part of its pollution control policy, China has announced that it plans to invest up to US454 billion in environmental protection in the five years to 2015.

  *Japan is committed to a 25 per cent cut in emissions by 2020 from 199o levels. The new Democratic Party government hasn’t spelled out how the emissions cuts are to be achieved. 

But the Japanese steel industry, which has the most efficient emission controls among world steelmakers, will provide their latest technologies for cutting CO2 emissions to Chinese steelmakers.

 In return, the Japanese can include the emissions reductions in their own quotas under the Kyoto Protocol’s clean development mechanism. If more of Japanese industry  follow the same approach, it won’t be too difficult to reach the Copenhagen target.

*Brazil will be tabling its commitment to cut greenhouse gas emissions by between  36.1 per cent and 38.9 per cent of their business-as-usual level by 2020. The country is the fourth biggest carbon emitter in the world, largely due to deforestation in the Amazon. Brazil is looking to international funding to help in the remediation process.

*Canada is undertaking to reduce carbon emissions 20 per cent by 2020 from 2006 levels, although legislation is yet to be introduced. Even so, its emissions would still be 24 per cent higher in 2020 from 1990 levels.

* India is yet to announce a reduction in either carbon intensity, or in emissions, but it will make its plans known at Copenhagen. A range of incentives is shortly  to be announced  for 714 of the nation’s most energy-intensive installations across nine sectors.

As with China, energy efficiencywill be the key, with a national registry for energy-efficiency certificates, which will have a one year tenure. It sounds like a type of cap and trade. Prime Minister Singh says that the government has “a very ambitious national plan to combat climate change.”

 *Indonesia, the third largest carbon emitter in the world is undertaking to  reduce greenhouse gas emissions 26 per cent by 2020. As with Brazil, a strong campaign to save the forests and more of the peatlands, which  provide the carbon sinks would greatly help to achieve the target reductions. 

* South Korea is committing to a 4 per cent reduction by 2020 from 2005 levels.  This is equivalent to a 30 per cent reduction on the business- as-usual projection for 2020.

POSCO, the world’s fourth largest steelmaker, accounting  for 10 per cent of Korea’s total carbon emissions is currently studying the brand new technology of the hydrogen steelmaking process. This technology  doesn’t emit CO2 emissions, which would be a tremendous achievement, if it can be done.

* Russian President Medvedev said his country “would try” to reduce greenhouse emissions by 25 per cent, and in the process seek to increase energy efficiency by 40 per cent. 

* The 5o African countries, which have no plans to cut carbon emissions are demanding that rich countries commit to deep cuts in carbon emissions that add to global warming. In a show of unity, African countries blame advanced economies for using fossil fuels to take the fast track to prosperity, but at the cost os unleashing today’s climate nightmare.

A similar attitude to Africans is likely to be taken by Central and South American countries.

On the table for consideration at Copenhagen is that the rich industrial countries will subscribe US$ 10 billion a year to help developing countries become equipped to cope with climate change, and to make available technology transfers and know how on renewable energy. 

*

The quote is from Yves de Boer, Executive Secretary of the UN framework convention of climate change (UNFCCC). He was presiding at the Bonn climate change talks in the four day talkfest 10-14 August 2009.

Reaching some sort of agreement on the costs of climate change adaptation, availability of technology and building skills in developing nations is becoming urgent, as the countdown to COP15 December meeting in Copenhagen gets ever closer.

De Boer’s message is that ” a climate deal in Copenhagen this year is an unequivocal requirement to stop climate change from slipping out of control.”

The climate scientists are saying that deep cuts in carbon dioxide should start no later than 2015 or 2016, otherwise the climate change risks become unmanageable.

Chinese leaders, who are more keen on growing their economy to be at least the equal of United States rather than balancing this with controls on carbon emissions, are saying they will be ready to impose a 50 per cent reduction on carbon emissions in 2050. But nothing much before then.  

The Financial Times (September 1 2009) reports that Zou Ji, head of the environmental economics and management  department of Renmin University in Beijing , says that his research shows that China would face a cost of US$438 billion a year in reducing emissions by 2030.

This represents a cost equivalent to 7.5 per cent of China’s  gross domestic product in 2030. 

Confusing the situation even further, the Chinese Academy of Sciences is reported as saying that ”with major technological support from developed nations, China could see its emissions peak between 2030 and 2040.”  (Financial Times August 14 2009)

Alternatively, if you costed out o.5  to 1 per cent of GDP, says China and India, as  the price richer countries should pay developing countries each year for adaptation to climate change, it would be more than $300 billion a year.

The Royal Society in London reviewing earlier estimates of adaptation to climate change by the UN, Nicholas Stern, World Bank, Oxfam and others says the adaptation costs are going to be much higher than previously estimated.

The World Bank in 2006 had estimated adaptation costs to developing countries for 2010-2015 at $9 to 41 billion a year. Stern’s estimate was for $4 to 37 billion a year. Oxfam had suggested in excess of $50 billion a year and the UNDP $86 to 109 billion a year.

The Royal Society’s review suggested an all up cost of $300 billion a year.

How you reconcile this with the Chinese estimate for that country alone of $438 billion a year shows  that the wide variations in the estimates are degenerating into farce.

When you realise that the so called rich countries are not going to pay very much at all, the top down studies of adaptation costs are of limited value. What is urgently needed are bottom up estimates of adaptation costs by country.

For example, take Indonesia, with the fifth largest population in the world at 240 million in 2009, but vulnerable to overpopulation. The Jakarta Post is saying that if the annual population increase of 1.3 per cent was maintained, the population would surge to 470 million by 2060.

The CIA Factbook lists the Indonesian environmental issues as subject to flooding, severe droughts, tsunamis, earthquakes, volcanoes, forest fires. Deforestation is a major problem, as is water pollution from industrial wastes, sewage, air pollution in urban areas, smoke and haze from forest fires.

The Indonesian National Climate Change Council is proposing an ambitious 40 per cent cut in carbon emissions by 2030, compared with 2005 levels. The Council is saying that such a cut in emissions could be achieved if reforestation was pursued and peatland areas protected.

Australia as the nearest rich country, and  a neighbour could take on the mission of putting the funds together,along with know how and manpower to achieve the Indonesian environmental ambitions.

United States could take on the same role in Latin America. Japan, China, South Korea and India could help their Asian neighbours, and the European Union could achieve the same objectives in Africa and the Middle East.

The donor countries could use offset arrangements similar to the Clean Development Mechanism under the Kyoto Protocol to help bring down emissions. The UNFCCC could then take on the task of being the climate change auditors to ensure progress was being made.

This would be a lot more practical than the UN handwringing exercise of being the climate change convenors, without any powers at all.

I wrote a post last year on the theme that financial speculators play too big a role in the setting of many commodity prices.

In a letter to the Financial Times (July 25 2008), Senator Joe Lieberman, the Democrat leaning chairman of the US Senate Homeland Security and Government Affairs committee and two other Senators said that “financial speculators are overwhelming our commodity markets and leading to substantial increases in food and energy prices for years to come.”

The reality is that the speculators are at it again, despite the slow recovery from the global financial crisis, and the misery caused by a reported one billion poor people in the world, who are under- nourished, and can’t afford the continuing high food prices in many countries.

Right now, it is sugar prices which have risen fast, but it won’t be too long before cereals join in the stampede for higher prices.

Oil prices too are on the increase, despite the still intense recession in most countries.

The chief economist of the International Energy Agency, Fatih Birol told the Financial Times in London (August 4 2009), “that the world economy cannot sustain any further rise in the oil price,” and said that prices higher than US$70 a barrel “could damp a world recovery.”

Oil prices in Europe this year have so far reached a high of US$73.87. Speaking to the Independent newspaper in the UK, Birol said that “global oil production was now likely to peak within 10 years and that governments were woefully under-prepared for such an eventuality.”

According to an investigation of more than 800 oil fields by the IEA, the average rate of decline in oil production (this is the depletion rate) is now running at 6.7 per cent a year, compared to a 2007 published figure of 3.7 per cent. (Business Green.com August4 2009)

Against a future where oil supply will peak and start to decline, with the inevitability of fast rising energy prices, oil price speculation at this stage  is just  plain greed and gouging and should be controlled.

Gary Gensler, chairman of  the  Commodity Futures Trading Commission (CFTC), the US regulator, (July 27 2009) told Bloomberg financial service that the US “must seriously consider” strict position limits on energy markets to curb speculation.

Back in 2008, under the Bush Administration, the CFTC was opposed to any transparency, suppressing the data on the activities of speculators trading in commodites. Fortunately, the Obama change of government has brought a realisation that commodity prices should not be the plaything of financial speculators.

Jeff Korzenik, who writes the financial blog (www.inefficientfrontiers.com) in a piece for FT Energy Source (July  30 2009) pointed out that the current levels of speculation are “unequivocally bad.”  Commodities are conveniently treated in financial circles as an alternative asset class, but they are very different to stock prices.

As Korzenik says, there are a lot of ” innocent bystanders including the world’s poorest, who are disproportionately impacted by higher fuel prices.”

Let’s hope that the CFTC acts soon to curb the Wall Street financial speculators, not only in energy prices, but in other commodities as well.

Researchers at James Cook University in Townsville, which is situated north of the tropic of Capricorn say that “climate change is rapidly expanding the size of the world’s tropical zone, threatening to bring disease and drought to heavily populated areas.”

The findings showed the tropics now extended well beyond the traditional definition of the equatorial band circling the Earth between the tropics of Cancer and Capricorn.

The researchers led by Professor Steve Turton have been looking at long term satellite measurements, weather balloon data, climate models and sea temperature studies to determine how global warming was impacting on the tropical zone.

These now sub-tropical areas include regions of southern Australia, southern Africa, the southern Europe-Mediterranean-Middle East region, the south western United States, Northern Mexico, and southern South America.

All of these areas are predicted to experience severe drying. “If the dry subtropics expand into these regions, the consequences could be devastating for water resources, natural ecosystems and agriculture, with potentially cascading environmental social and health implications.”

Professor Turton, who is executive director CSIRO/JCU Tropical Landscapes Joint Venture said that tropical diseases such as dengue fever were likely to become more prevalent.

James Cook vice chancellor, Sandra Harding said the evidence showed climate change was already affecting wildlife and rainfall in Australia. She said studies showed changes to wind patterns meant rain was now being dumped in the ocean south of the continent, rather than over land.

There is also evidence that many Australian animal and plant species are moving south in an attempt to track their preferred climatic conditions. “Some won’t make it. Tropical climate conditions are expanding and the impact of this expansion is immense, because the tropics are a big, complex and important zone of the world,” Professor Harding said.

 A blog in 2007 described Norman Borlaug (aged 94) as the “greatest living American”. Borlaug received the Nobel Peace Prize in 1970 for his contributions to the world food supply. He subsequently received the highest civilian honour in United States, the Congressional Gold Medal.

Borlaug was one of four American geneticists breeding high yield disease resistant semi dwarf wheat for the Cooperative Wheat Research Production Program, a joint venture of the Rockefeller Foundation and the Mexican Ministry of Agriculture in the 1940s and 1950s. In the mid 1960s, he extended his work to India, on behalf of the Rockefeller Foundation and the Indian Ministry of Agriculture, at a time of widespread famine and starvation.

Borlaug’s Lerma Rojo 64 and Sonora 64 wheat varieties, successfully developed in Mexico enabled an almost doubling of wheat yields, enabling India and Pakistan to become self sufficient in the production of all cereals.

By 1968, William Gaud of the US Agency for International Development called Borlaug’s work a “green revolution,” and the name stuck.  Borlaug’s third contribution was the development of high yield semi dwarf indica and japonica rice cultivars at the International Rice Research Institute started by the Ford and Rockefeller Foundations, and at China’s Hunan Rice Research Institute. Borlaug’s colleagues at the Consultative Group on International Agricultural Research also developed and introduced a high yield variety of rice throughout most of Asia.

The first green revolution in Asia in the 1960s had been quite outstanding in its initial years, but 40 years on it has fizzled out. Is there now is a new green revolution in process of development, and can it sustain greater long lasting progress?

Today, there are a number of imponderables. The Food and Agricultural Organization (FAO) put the problem simply enough. Said the FAO on June 3 2008:“the world only needs $30 billion dollars a year to eradicate the scourge of hunger.”

Nice sentiment, but there isn’t money of that volume available from international aid for handout, and to do so each year is an impossible reality.

Dr Jacques Diouf, the FAO director general reminded the rich countries, that in a typical year like 2006, the world spent US$1,200 billion on arms, while food wasted in a single country could cost $100 billion, and excess consumption by the world’s obese amounted to $20 billion.

“Against that backdrop, how can we explain to people of good sense and good faith that it was not possible to find $30 billion a year to enable 862 million hungry people to enjoy the most fundamental of human rights: the right to food and thus the right to life,” asked the FAO chief..

Put that way, there is merit in what he says. But money aside, land degradation is on the rise, with FAO (July 2 2008) reporting that one fourth of the world’s population is affected by increases in land degradation. More than 20 per cent of all cultivated areas, 30 per cent of forests, and 10 per cent of grasslands are undergoing degradation.

There is also a growing shortage of water in the world, with the additional handicap of a  great deal of contaminated water, greatly adding to disease, and not really conducive to increased agricultural production.

Lars Thunell, executive vice president of the International Finance Corporation, an affiliate of the World Bank said at the Stockholm International Water Conference (IPS August 22 2008): “I believe we are at a tipping point, because the scarcity of water poses a threat to the food supply, just when the agricultural sector is stepping up production in response to riots over food prices, growing hunger, and rising malnutrition.”

According to UN estimates, a little less than one billion people worldwide still does not have access to clean drinking water, while over 2.6 billion people lack adequate sanitation.”

Understanding the impediments standing in the way of feeding starving people has prompted the need for a Green Revolution Mark 2. As in the 1940s and 1960s, philanthropists are involved in the new “African Green Revolution.” This time around it involves the Bill and Melinda Gates Foundation, and once again the Rockefeller Foundation.

Another international group, the Yara Foundation established in 2005 by the world’s leading supplier of fertilizers, the Norwegian based Yara International, has a record of a significant presence in Africa over the past 25 years.

Two other bodies have a role. The US Agency for International Development (USAID) promotes hybrid seeds through projects in Africa, as does the World Bank. There is also the lobbies of international biotechnology companies operating through the African Seed Trade Association (AFSTA), with the help of the American Seed Trade Association (ASTA).

At issue is a batttle about the role of biotech companies with proprietary genes dominating the international seed industry, which has been unresolved for a long time. That is the role of genetically modified crops (GMO), which United States promotes actively and the European Union still opposes.

The reporter Alleen Kwa (IPS September 1 2008) says that researcher Elenita Dano in her book “Unmasking the New Green Revolution in Africa: Motives, Players and Dynamics” is concerned about the deliberate sidelines role of the big biotech seed companies. 

Dano seeks to expose the seed companies. “Even as they quietly push their agenda forward through a myriad of partnerships with public research institutions, non-government organizations and farmers organizations.” She claims that the seed companies have allowed “public research institutions to be at the forefront in Africa, along with their philanthropic backers.”

The aim of the big seed companies is to secure an explicit target of gaining a five per cent increase in US seed exports to the African region within the first five years. Uganda was there first target, important mainly because it is strategically placed, as being next door to a much bigger market in Kenya. The US government’s USAID actively promotes the “potentials of biotechnology in the overall economic development strategy.” The philanthropists are fully behind the green revolution, with the involvement of the international seed companies.

Grace Machel of the Africa Progress Panel (New Times, Rwanda www.all Africa.com June 17 2008) says that Africa has the lowest use of fertilizers in the world, average grain yield in Africa is less than one ton per hectare, which is only one quarter of the world average. “Our population has increased, yet African agricultural yields have stagnated since the early 1960s. We must therefore raise agricultural productivity and increase food production.

“This includes reforming outdated policies and investing in key inputs such as fertilizer, improved seeds, effective water management and new crop varieties, and linking farmers to markets via investment in basic infrastructure. In short, Africa needs a green revolution. If the challenge seems daunting, there is some comfort in knowing that the expertise and the experience exist.

“With appropriate technology and support, for example, Malawi has gone from experiencing serious food shortages to becoming both self-reliant and a net exporter of food. The key is to build on this success and replicate it across the continent.”

The Africa Progress Panel is demanding that with the “shortfall of US$40 billion in aid, G8 countries must urgently address the deficits against their targets, set clear timetables for delivery and increase transparency in order to improve the quality of aid. The food crisis has put a clear premium on the G8 delivering its original pledges.” 

In West Africa, the Bill and Melinda Gates Foundation and the Rockefeller Foundation have financially supported the Alliance for a Green Revolution in Africa (AGRA), with a $150 million contribution to help small scale farmers grow more food by developing new crop varieties, introducing better farming techniques, and improving seed distribution.

The chairman of the Alliance is Kofi Annan, the former UN Secretary General and the executive head Namanga Ngongi, a retired UN official involved in the World Food Program. To date, the Alliance has been investigating the health of Africa’s soils, now the most depleted in the world. It has extended its work to help small scale farmers in water management initiatives to provide low cost efficient water management systems. In addition, the initial area of West Africa has been extended to the sub-Saharan region, where the volume of food available to the people seems to be reducing each year, at a time when the population keeps on increasing.

The International Food Policy Research Institute in Washington, which is associated with the biotech seed companies has acknowledged that serious mistakes were made in the first green revolution in Asia. To rectify the faults, there is a need for:

Ø       scale neutral technology package that can be profitably adopted on farms of all sizes.

Ø      The need for an equitable distribution of land with secure ownership or tenancy rights.

Ø      Efficient input, credit and product markets, so that farms of all sizes have access to modern farm inputs and information, and are able to receive similar prices for their products.

Ø      Policies that do not discriminate against small farms and landless laborers (no subsidies on mechanization and no scale biases in agricultural research and extension).

“These conditions are not easy to meet. Governments must make a concerted effort to ensure that small farmers have fair access to land, knowledge, and modern inputs.

“Another shortcoming of the Green Revolution was that it spread only in irrigated and high potential rain areas, and many villages or regions without access to sufficient water were left out.” There is widespread criticism that excessive and inappropriate use of fertilizers and pesticides polluted waterways, and killed beneficial insects and other wildlife.”

Irrigation practices have led to salt build-up and eventual abandonment of some of the best farming lands. Groundwater levels are retreating in areas where more water is being pumped for irrigation than can be replenished by the rains. Heavy reliance on a few major cereal varieties has led to a loss of biodiversity on farms.

The International Food Policy Research Institute says that there is a compound of tangled issues. “Millions of largely illiterate farmers began to use modern inputs for the first time, but inadequate extension and training, an absence of effective regulation of water quality, and input pricing and subsidy policies that made modern inputs too cheap and encouraged excessive use”are the root causes of most of the inadequacies.

There is no doubt that American and European researchers have developed some very valuable technologies, which can help to create a new green revolution. The sticking point is that most of the Asian and African farmers want the technologies, but they don’t want to be tied hand and foot to seed contracts by the biotech companies.

Professor MS Swaminathan, whom Time Magazine described in 1999 as the father of the Green Revolution, he had been a colleague of Norman Borlaug, and acclaimed as one of the 20 most influential Asians of the 20^th Century in a paper “Genetic Engineering and Food Security:Ecological and Livelihood Issues” deserves the last word.

“Because land and water for agriculture are diminishing resources, there is no option but to produce more food and other agricultural commodities from less arable land and irrigation water. In other words, the need for more food has to be met through higher yields per units of land, water, energy and time. We need to examine how science can be mobilized to raise further the biological ceiling without associated ecological harm.

“…The Green Revolution has so far helped to keep the rate of growth in food production above the population growth rate. The Green Revolution was, however, the result of public good research, supported by public funds. The emerging gene revolution, by contrast, is spearheaded by proprietary science and can come under monopolistic control. How can we take the fruits of the gene revolution to the unreached?”

It is a pity that the US, which does so much good work ruins it all with championing monopolistic biotech companies, rather than the needs of the Africans.

 Block

The European Union may have become a cumbersome grouping of 27 countries with an over zealous bureaucracy in Brussels, but its energy challenge to the rest of the world is quite daunting.

We intend, the EU says, to increase our renewable energies to 20 per cent of total energy consumed by 2020, and at the same time reduce greenhouse gas (GHG) emissions by 20 per cent from 1990 levels by 2020. This is only an interim step in the carbon abatement stakes, but it’s a good start to a much more ambitious carbon reduction target by 2050 and beyond.

Another requirement, less admirable, is to have all 27 countries achieving by 2010, a 10 per cent level of biofuels in the transport fuel mix, so as to reduce dependence on Middle East oil.

The European Union’s renewable energy targets started off with a big advantage in having large resources of hydro power, particularly in Scandinavian countries and in Austria, with a lot of small hydro projects scattered in the other countries.

At December 2006, the EU had reached a renewable energy level of 6.92 per cent. The make of renewables at that time was hydro 66.4 per cent, wind power 16.3 per cent, biomass 15.8 per cent, geothermal 1.3 per cent, and solar 0.3 per cent.

The goal for 2010 was to reach a 12.5 per cent renewable energy level. But this is proving unattainable, given that in 2008 only about 8.5 per cent of EU energy consumption currently comes from renewables. So the revised figure is to reach 12.5 per cent by the end of Phase 2 of the emission trading scheme in 2012.

To move to the 20 per cent renewable energy target by 2020 may prove more difficult, as the period of the soft entry into carbon abatement, that is from 2005 through to 2012, when heavy industrial emitters received free emission allowances comes to an end. From 2013, the emission allowances are to be auctioned and rationed at the same time to cope with the goal of reducing greenhouse gases.

From 2013 onward, the heavy emitters will have it much tougher. Andrew Bounds in Brussels for Financial Times (January 8 2008) says that some heavy industrial users are unlikely to be able to absorb increased costs from the proposed changes, which if implemented, would see a forced reduction in sulphur, nitrogen and dust emissions.

The draft directive would include carbon dioxide emissions of nitrous oxide from the production of nitric, adipic and glyoxalic acids, and perfluorocarbon, a greenhouse gas produced by some aluminium producers. No wonder some heavy industries are wondering whether it is worthwhile remaining as producers in the EU, in what could become a hostile atmosphere in directives from Brussels.

The new changes come into effect in 2013. They are aimed at closing loopholes that allowed power generators to make billions of euros in windfall profits from the over-allocation of free emissions permits in the 2005-07 first phase of the emission trading scheme.

The EU has cut national allocations of emission permits by 6.5 per cent for 2008-2012 compared with 2005, as it attempts to meet the 20 per cent cut in emissions from the 1990 level by 2020.The 10,800 installations covered by the emissions trading scheme account for 41 per cent of the EU’s carbon emissions.

At risk are producers of aluminium, steel, cement and chemicals, who apart from being forced to increase prices are unlikely to remain competitive with imports. How many companies may need to shift plants offshore to remain competitive is going to become a major concern, with consequent job losses in the EU?

The Financial Times says that the “commission wants to set an EU-wide emissions cap from 2013.” This will replace a more politically elastic system, whereby member states set their own cap, which are approved by Brussels. The free emission allocations for the energy sector and refineries will be no more.

“Overall, it is estimated that at least two-thirds of the total quantity of allowances will be auctioned in 2013. Today’s level is less than 10 per cent.” The newer members of the EU, the former Soviet satellites will receive disproportionate amounts of permits to allow them to catch up in economic terms, and they will receive the auction proceeds towards reforestation projects and investments in renewable energy technology.

The larger and richest economies are required to reduce emissions up to 20 per cent below 2005 by 2020, while the newcomers to the EU, the mainly agricultural countries with the lowest GDP per capita levels would be allowed to increase emissions compared with 2005, capped at +20 per cent for the poorest.

The EU ignored the large volume of lobbying from the richer countries, particularly the UK. To make matters worse for the laggards in renewable energy projects, such as the UK, they are almost certainly going to miss their EU targets by 2020.

There remains a possibility that major changes to the EU energy road map could happen, as a virtual deadline for parliamentary approval of the whole scheme will depend on elections to the new European Parliament, and subsequently a new Commission installed in mid 2009. As a study by Green Prices said: “the Commissioners might have new plans.” The consultant group went on: “there is still a danger that the proposal will be watered down during the tortuous negotiation process of the coming months.”

EU table of renewable energy competitiveness by 2020

countries which will get close to, or exceed the 20 per cent renewable energy target

2005 renewable level               2020 expected level

%                               %

Sweden         39.8                             49

Latvia         34.9                             42

Finland        28.5                             38

Austria        23.3                             34

Portugal       20.5                             31

Denmark        17                               30

Estonia        18                               25

Slovenia       16                               25

Romania        17.8                             24

France         10.3                             23

Lithuania      15                               23

Spain           8.7                             20

Germany         5.8                             18

Greece          6.9                             18

Italy           5.2                             17

Ireland         3.1                             16

Bulgaria        9.4                             16

The three laggard larger economies, UK, Netherlands and Poland are unlikely to meet their EU renewable targets.

UK               1.3                             15

Poland           7.2                             15

Netherlands      2.4                             14

Slovak Republic aims to get a 14 per cent renewable level by 2020, Belgium, Czech Republic and Hungary to a 13 per cent renewable level, while the other three EU members are all tiny economies- Luxembourg, Malta and Cyprus, with renewable targets ranging from 10 to 13 per cent.

One of the many problems in harnessing the differing renewable energy platforms in the community has been a lack of transparency and blocked access to energy grids. David Adam, the Guardian environment correspondent (July 24 2008) quoted Prime Minister Gordon Brown as saying the government would remove “without delay the barriers that currently prevent renewable generators connecting to the national grid.”

The current draft renewable energy directive provide for the virtual trading of renewables between member countries involving Guarantees of Origin (G0s), which certify the renewable origin of electricity produced. Under the system, member states may invest in renewable energy production in another member state in exchange for GOs, which can be counted towards the renewable target.

The Dow Jones-AIG Commodity Index lost 11.9 per cent in July 2008, the largest monthly drop since the index was first published in 1991. But even so, the 12 month return in the commodity index to end July was still an astonishing 21.5 per cent. 33 per cent of the Dow Jones-AIG index consists of components in oil and gas.

The fall in both agricultural commodities and in oil reflects partly at least the sharp decline in economic growth in Europe, North America and Japan. This is shown up in the Baltic Dry Index, a measure of the cost of shipping raw materials, which plummeted 37 per cent since hitting a record on May 20 2008.

The Baltic Dry Index tends to swing widely, rising 110 per cent between June and November 2007, then falling 49 per cent through January 2008, and later recovering 110 per cent through May, prior to the most recent fall.

But how much of the volatility in commodity prices is due to financial speculation, as distinct from the normal movements in demand and supply? That indeed is the $64,000 question, but there are clues.

Four US Senators- Ron Wyden of Oregon, Byron Dorgan of North Dakota, Maria Cantwell of Washington and Bill Nelson of Florida in a August 14 2008 letter to the Inspector General of the Commodity Futures Trading Commission (CFTC) asked for an investigation into a flawed report on oil prices released by the Commission. The July 2008 interim report was prepared by economists from a number of government agencies, especially co-opted at the request of the Futures Commission to give an air of gravitas to the oil study.

Democrat Senators are convinced that there is too much financial speculation in the setting of oil and agricultural commodities, while Republican Senators disagree. The July report goes out of its way to declare that the rapid increase in institutional purchases of commodity index funds and the commodity swap dealers, who act as their intermediaries were not responsible for the sharp rise in oil speculation leading to large price rises. The institutions involved are mainly the large pension funds and endowment funds, while the dominant commodity swap dealers are from the Wall Street investment banks and other financial groups.

As Senator Joe Lieberman, the one time Democrat and now Independent Senator for Connecticut and chairman of the Senate homeland security and government affairs committee, and two other Senators-one Republican the other Democrat in an article in the Financial Times in London (July 25 2008) pointed to the giant rise over the last five years in institutional investment in commodity index funds, swelling from $13 billion to $260 billion.

Over the same five year period, commodities tracked in these funds rose 200 per cent. The Senators said that more than 71 per cent of the commodity futures contracts are owned by speculators, compared with 37 per cent in 2000. There may be a case for some speculation, such as providing liquidity. “But speculation at this level wreaks havoc on the economy-unnecessarily driving up prices and threatening both businesses and household budgets.”

“Combine the increasing commodity investments from private, state and local government pension plans, university endowments, insurance companies and other institutional investors, and the result is clear. Speculators are overwhelming our commodity markets and leading to substantial increases in food and energy prices for years to come.”

“In a series of hearings held by the homeland security and governmental affairs committee, we heard testimony that this kind of excessive speculation in the commodity markets may be adding as much as $40 to $60 to the cost of a barrel of oil.”

“Unfortunately, the CFTC has ignored its mission as our front line defence against rampant and unmanaged speculation. To this day, the commission has yet to recognise that speculation affects commodity prices.”

What is needed at all times is transparency, and this is the missing element.

18 months ago, the CFTC decided to suppress the data on the activities of speculators trading in commodities. The only group who applauded that decision was the International Swaps and Derivatives Association, which lobbies on behalf of Wall Street firms. Yet remarkably, the former chief lobbyist from the swaps and derivatives association has been appointed a member of the CFTC.

Hopefully, 2009 will see reform, but I’m not confident.

Ray Block
economies, food, inflation

Says the World Bank: “Biofuels have forced food prices up by 75 per cent, far more than previously estimated. Rising food prices have pushed 100 million people worldwide below the poverty line, sparking food riots from Bangladesh to Egypt.”

The power of farm lobbies to enhance and entrench advantages for themselves knows no end in both United States and Europe. Politicians are like putty in their hands. The 75 per cent increase contradicts US government estimates that plant derived fuels have contributed less than 3 per cent to food price increases.

The Bush Administration links higher food prices to higher demand from India and China. But this is denied by the World Bank report. Says the World Bank: “rapid income growth in developing countries have not led to large increases in global grain consumption and was not a major factor responsible for large price increases.”

The G-8 country leaders meeting in Japan (July 8-9 2008) expressed suitable concern about escalating food and oil prices, but took no immediate action. The Japanese hosts gave the leaders a six course lunch and a 18 course dinner banquet, a hypocritical gesture demonstrating that pious talk without action about the growing food shortages shows how much real interest they have in the world’s poor.

Back in 2005, the G-8 leaders promised to increase global aid by 25 billion Euros a year by 2010. But the rich nations are only 14 per cent of the way towards hitting the target.

Other causes of higher food prices include the prolonged impact of the drought in Australia reducing that country’s wheat exports leading to a marginal reduction in the supply of world wheat stocks, and blue ear disease in China disrupted pig supply last year contributing to a 15.4 per cent increase in Chinese pork prices over the year.

The price of soybeans has doubled over the year, lower rice supply impeded by water shortages in South East Asia has led to a doubling in prices since the end of last year, with the world’s largest rice importer, Philippines ordering 1 million tons to feed its population. Water shortages has also affected rice production in Central America and West Africa.

The same trend to rapid rises in food prices, without the extreme effects in poorer countries is evident in America and other developed countries. In the US, the price of milk is up 17 per cent over the last 12 months, with a similar increase in dried beans, peas and lentils. The price of cheese is up 15 per cent, rice and pasta up 13 per cent, bread up 12 per cent. An even sharper rise in price of eggs over the last year is up 25 per cent, and up 62 per cent over the last two years.

Simon Johnson, chief economist of the International Monetary Fund also believes that ethanol and other biofuel subsidies are a major factor driving higher food prices. The IMF’s staff assessment is that a “significant part of the latest jump in food prices can be traced directly to biofuels policy.” Unless the policies are reversed, the impact of subsidies leading to a jump in ethanol supply, against the backdrop of protracted high food prices in coming years is going to be sharply more evident.

Still another factor involved in high food prices is the extent of speculation in the $US 5 trillion futures market for food commodities and oil. Senator Joe Lieberman, who chairs the US Senate committee on home security and government affairs said on July 7 2008: “My own conclusion is that index speculators are responsible for a big part of the commodity price increases.”

When you allow for world population expected by the United Nations to rise from a current 6.7 billion in 2008 to 8.9 billion by 2050, and the impact of global warming affecting agricultural production, with extremes in land degradation and weather conditions, can the world sit idly by and allow a speed up in diversion of food supply to expansion of biofuels?

This will show up in a rapid rise in diversion of corn from the foodstuff supply chain to ethanol feedstock, with a much greater increase in agricultural land dedicated to biofuel raw materials reducing the availability of foodstuffs. As ethanol and biodiesel production escalates, large increases in water usage dedicated to the biofuel market has started to impact on water availability in some US cities and towns.

The Institute for Agriculture and Trade Policy in Minnesota, the only US state which has publicly available records on ethanol’s water consumption says in a 2006 report that average water use in ethanol plants has been reduced from 5.8 gallons water per gallon of ethanol in 1998 to 4.2 gallons in 2005. This indicates greater efficiency over time, but ethanol is still costly in water usage.

Water availability will challenge the ethanol industry in many regions, particularly west of the Missouri River. Science Daily (October 11 2007) reported a National Research Council study saying that the rapid increase in ethanol production from corn could significantly harm water quality.

Rising increases in world oil prices, in conjunction with ethanol subsidy policies, has led to an explosion in corn ethanol production, and further expansion over the next 10 years will be even more dramatic. The new energy act passed by Congress basically mandates an increase in ethanol and biodiesel output to reach an annual goal of 36 billion gallons by 2022. Current US production in early 2008 is about 7 billion gallons, nearly all from corn and soybeans.

Biodiesel subsidies in the European Union has also had a similar experience to that of United States, particularly in a large diversion of farm land from dairy production into crops used for biodiesel production. This is particularly evident in rapeseed, with resultant sharp increases in price.

While politicians like the biofuel expansion because it reduces dependence on Middle East oil, reality must also be taken into account. As a Wall Street Journal editorial (October 17 2007) pointed out: “to replace just 10 per cent of gasoline and diesel consumption, the US would need to convert a full 43 per cent of its cropland to ethanol production.”

While the US and Europe are high cost producers of biofuels, there is at least a partial solution at hand. Brazil is ideally placed as the ethanol producing centre for the world. It is the low cost producer, due to the size of its sugarcane-ethanol industry and corresponding availability of bagasse (the solid residue after juices are pressed from the sugarcane stalk) as feedstock in the mills.

This was one of the conclusions from the Oak Ridge National Laboratory (ORNL) study Biofuel Feedstock Assessment for Selected Countries (2007). The only obstacle is that both the US and Europe have high tariff walls against imported Brazilian ethanol.

high food prices, low cost producer, exports, ethanol, biodiesels