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European cap-and-trade market takes a nose dive

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The European Union’s cap-and-trade system took a huge hit on Thursday, with carbon prices plummeting a record 40 percent after a panel rejected a plan to delay emission permit sales to alleviate the overabundance of permits already in the system.

“The market is panicking, really,” Daniel Rossetto, managing director of Climate Mundial, told Bloomberg, adding that traders fear that Europe’s carbon emissions market won’t continue past 2020.

An excess of carbon emission permits in the 54 billion euro trading system drove the price down 91 percent from its record high in April 2006. Carbon permit prices sank to a record low of 2.81 euros ($3.75) per metric ton immediately after the panel rejected the EU plan. However, prices slightly rebounded to 4.33 euros per metric ton.

“This should be the final wake-up call,” said EU Climate Commissioner Connie Hedegaard in a statement. “Something has to be done urgently. I can therefore only appeal to the governments and the European Parliament to act responsibly.”

The Financial Times reports that the carbon market has seen two record-low prices within the last four days, causing some analysts to say carbon permits are “worthless.”

The European Commission wanted to temporarily delay the sale of 900 million permits to alleviate the current overabundance. Analysts say this move would have boosted prices, but not high enough to provide sufficient incentives for utilities to switch to cleaner energy sources, reports the Guardian.

However, the plan was met with resistance from various governments, industries, and lawmakers.

Joachim Pfeiffer, economy spokesperson for German Chancellor Angela Merkel’s party, said the plan was “absurd” and would impose higher costs on German industry.Reuters reports that the bank Societe Generale cut its EU carbon price forecast from 2013 to 2015 by 30 percent, due to prices plunging to record lows.

“Negative news and events relating to the EU [Emissions Trading System] continue to pile up and come from all sides. So it is not at all surprising that EUA prices have fallen and have continued to be quite volatile,” they said. “The EU ETS has become a one-way market, spiraling down.”

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Study: Biofuels mandate could increase EU CO2 emissions

Published 17 September 2012

European biofuel mandates are unlikely to deliver a significant reduction and could even increase greenhouse gas emissions unless land use factors are considered, says a study by the International Council on Clean Transportation (ICCT).

The ICCT report suggests that Brussels is on the right track with its new biofuels rules, leaked last week, in which the EU executive backtracked on its policy goal of a 5.75% share for biofuels in the transport sector’s renewable energy targets.

The ICCT paper claims that, if not revised to address indirect land-use change (ILUC) the renewable energy directive could be expected to deliver a carbon saving of only 4% compared to fossil fuels, with a 30% chance actually of causing a net emissions increase.

The implementation of indirect land use change factors is likely to significantly increase carbon savings from biofuel policy, it says.

Such factors would also allow Europe to meet the directive’s target for a minimum 50% reduction in greenhouse gas emissions from biofuels compared to fossil fuels.

All of the carbon savings from the policy are likely to come from use of bioethanol, since its main source – sugarcane – uses less land than biodiesels made from palm and vegetable oils.

Biodiesel from non-waste vegetable oil, the study says, is “likely to have a worse carbon footprint that fossil diesel“.

No basis for biodiesel

“Given that biodiesel production is also expected to be worse for a range of other environmental indicators (e.g. acidification, eutrophication, biodiversity) … than fossil diesel, there is no environmental basis for the EU to continue to support the supply of biodiesel … from non-waste vegetable oil.”

Under the leaked EU proposal, the EU executive will end all subsidies for crop-based biofuels after the current legislation expires in 2020, a major blow to a sector worth an estimated €17 billion a year in Europe alone.

Angela Corbalan, EU media and communications officer for Oxfam, said her organisation viewed the leaked Commission proposal as a “step in the right direction.”

“If adopted”, she said in emailed comments, “it will send a strong signal that the Commission eventually wants to stop promoting the use of food for fuel and climate change damaging biofuels.”

A ‘crystal ball’ exercise

Rob Vierhout, secretary-general of ePure, a trade group representing the bioethanol industry, said he doubted the significance of ILUC factors in contributing to greenhouse gas emissions.

“I don’t trust this science”, he said, adding that at this particular point in time no clear methodology exists: “It’s a crystal ball exercise. No one can give hard numbers on iLUC.”

Vierhout also condemned the Commission policy u-turn as “inconsistent policymaking”.

“We’ve invested billions of euros”, he said. “Now the Commission says they’re going to change the game.” ePure would put up a strong fight against the proposed law, he vowed.

The criticism echoes many others in a biofuel industry which argues that current modelling, such as that used in the ICCT study, is not robust enough for use in policymaking.

Food prices vs CO2 emissions

Nusa Urbancic, clean fuels campaigner for the Transport & Environment NGO, said that despite the Commission proposing to cut the use of crop-based biofuels, the bioethanol industry could benefit from the new law.

European demand for biodiesel exceeds bioethanol, as more European cars run on diesel but, while the proposed law would hit all crop-based fuels – including ethanol made from sugar cane – the market for fuels better in iLUC factors could increase.

“It will still be good for them because there will be an incentive to move towards biofuels with lower factors”, Urbancic said.

Land used to power European cars with biofuels for one year could produce enough wheat and  maize to feed 127 million people, said a study released by Oxfam ahead of the EU Energy Ministers’ meeting today (17 September).

“With the world’s poorest at greater risk of hunger as a result of spiralling food prices, the international agency is calling on the EU to rethink its dangerous love affair with biofuels”, read a statement accompanying the study.

Positions:

Biofuels are wreaking havoc on tight food markets and our forests, increasing hunger and accelerating climate change just so Europe can fuel its cars,” said Robbie Blake, the biofuels campaigner for Friends of the Earth.

“The EU needs to comprehensively close the carbon accounting loophole [from ILUC], otherwise biofuels will continue to expand agriculture for fuel at the expense of forests and natural habitats, and increase carbon emissions.” He continued: “After months of delay, the Commission has come up with a messy compromise that acknowledges that ILUC is extremely serious, but then fails to address it in all pieces of legislation. This proposal would see an increase in Europe’s biofuels made from food, when what we need at this time of food crisis is to stop burning them altogether.”

“Europe has helped spark a global rush for biofuels that is forcing poor families from their homes, while big business piles up the profits. Biofuels were meant to make transport greener, but European governments are pouring consumers’ money down the drain, whilst depriving millions of people of food, land and water,” said Natalia Alonso, Head of Oxfam’s EU Office.

Study: Biofuels mandate could increase EU CO2 emissions | EurActiv.

Iran stops oil sales to British, French companies

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(Reuters) – Iran has stopped selling crude to British and French companies, the oil ministry said on Sunday, in a retaliatory measure against fresh EU sanctions on the Islamic state‘s lifeblood, oil.

“Exporting crude to British and French companies has been stopped … we will sell our oil to new customers,” spokesman Alireza Nikzad was quoted as saying by the ministry of petroleum website.

The European Union in January decided to stop importing crude from Iran from July 1 over its disputed nuclear program, which the West says is aimed at building bombs. Iran denies this.

Iran’s oil minister said on February 4 that the Islamic state would cut its oil exports to “some” European countries.

The European Commission said last week that the bloc would not be short of oil if Iran stopped crude exports, as they have enough in stock to meet their needs for around 120 days.

Industry sources told Reuters on February 16 that Iran’s top oil buyers in Europe were making substantial cuts in supply months in advance of European Union sanctions, reducing flows to the continent in March by more than a third – or over 300,000 barrels daily.

France’s Total has already stopped buying Iran’s crude, which is subject to fresh EU embargoes. Market sources said Royal Dutch Shell has scaled back sharply.

Among European nations, debt-ridden Greece is most exposed to Iranian oil disruption.

Motor Oil Hellas of Greece was thought to have cut out Iranian crude altogether and compatriot Hellenic Petroleum along with Spain’s Cepsa and Repsol were curbing imports from Iran.

Iran was supplying more than 700,000 barrels per day (bpd) to the EU plus Turkey in 2011, industry sources said.

By the start of this year imports had sunk to about 650,000 bpd as some customers cut back in anticipation of an EU ban.

Saudi Arabia says it is prepared to supply extra oil either by topping up existing term contracts or by making rare spot market sales. Iran has criticized Riyadh for the offer.

Iran said the cut will have no impact on its crude sales, warning that any sanctions on its oil will raise international crude prices.

Brent crude oil prices were up $1 a barrel to $118.35 shortly after Iran’s state media announced last week that Tehran had cut oil exports to six European states. The report was denied shortly afterwards by Iranian officials.

“We have our own customers … The replacements for these companies have been considered by Iran,” Nikzad said.

EU’s new sanctions includes a range of extra restrictions on Iran that went well beyond U.N. sanctions agreed last month and included a ban on dealing with Iranian banks and insurance companies and steps to prevent investment in Tehran’s lucrative oil and gas sector, including refining.

The mounting sanctions are aimed at putting financial pressure on the world’s fifth largest crude oil exporter, which has little refining capacity and has to import about 40 percent of its gasoline needs for its domestic consumption.

(Writing by Parisa Hafezi; Editing by David Cowell)

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