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This is the July 2006 issue of the
Cambridge Energy Forum members' newsletter

Since our last newsletter in April, the carbon price in the European Trading System has collapsed (and then rebounded somewhat) when it became apparent that the allowances had been overestimated when it was set up.

BioButanol to be made in the UK  more...

Iraq war costs USA more than Kyoto would even using the very high estimate of $325m for Kyoto compliance more...

European Trading Scheme for Carbon the national allocation plans 2008-12 were submitted to the EU on 30th June 2006. more...

Michael Grubb (Carbon Trust) spoke in Cambridge on perverse incentives more...

US-led Asia-Pacific funding cancelled by US congress more...

BP Chief Scientist spoke in Cambridge on BP's view of energy trends  more...

Russia's 40(+60) reactors and floating reactor plans now have funding backing  more...

Karsten Neuhoff of Electricity Policy Research group in Cambridge  more...

Skoda competing to build 2 Bulgarian nuclear plants in competition with Russians  more...

Bolivia nationalises gas reserves and upsets the Brazilians  more...

Japanese Carbon Storage Scheme  more...

UK Climate Ambassador appointed  more...

Cambridge Energy Forum next meetings July, Sept. University event more...

Cambridge Energy Forum Meeting on 28th June 2006 "Energy: How we can use less" more...

An online copy of this newsletter can be read at:
http://www.cambridgeenergy.com/files/jul06-news.html
The previous newsletter can be read at:
http://www.cambridgeenergy.com/files/apr06-news.html


BP, DuPont and British Sugar to make BioButanol. The first phase is to make 0.03  million tonnes a year by converting the existing sugar beet ethanol fermentation facility in Wissington, Suffolk (50km from Cambridge). BioButanol is a higher energy fuel compared with ethanol and has the advantage that a higher percentage (10%) can be blended with gasoline without requiring engine modifications. DuPont estimates that it will be competitive so long as oil remains above 40 $/bbl .

Iraq more costly than Kyoto for USA. In an article in the Washington Post (May 13th) by Cass Sunstein, it is reckoned that the Iraq war will have cost the USA $350m - and this does not include any costs borne by the non-USA participants. Costs today for the USA are about $4b a month. In 2000, Nordhaus and Boyer of Yale estimated the full cost to the USA of complying with the Kyoto treaty (over several decades) would be $325m: a figure very widely disputed but described by Bush as implying "serious harm to the U.S. economy."

ETS NAPs 2008-12. Acronyms are endemic in carbon trading and climate change literature. A NAP is a National Allocation Plan (prediction) that a country submits to the EU: this is the number of "free permits to emit CO2" that a state intends to distribute to its plants. It was over-allocation of these in the first round that lead to the collapse of the carbon price in May 2006. The UK is planning to auction 7% of its allocation in the next round. Nearly all the EU countries have missed the 30th June deadline for submitting proposals.

Chief Economist of the Carbon Trust, speaks in Cambridge. Michael Grubb, who actually lives in Cambridge, does not address meetings here very often. He gave a rare talk to the Institute of Manufacturing on May 8th on "Climate Policy in UK and Europe: on theories and the law of unintended consequences".

Michael explained how a predicted effect of the European Trading Scheme (ETS) was that the electricity companies (and indeed most ETS sectors) would make large extra profits, because the ETS raises all prices, but gives free allowances to cover most of the cost increases. He also explained how a very significant effect on the costs of cement producers can have a trivial effect on the retail price of cement. He analysed why energy efficiency measures (which everyone "ought" to be doing anyway) are hindered by behavioural economics, hidden costs and split incentives. He explained that for many companies, their energy bill would be insufficient incentive to make them change behaviour, for almost any conceivable price of carbon, but that these companies would be sensitive to a downstream tax if it meant that they had to internalise a reporting procedure for carbon emissions and publish their use in their public accounts.

He suggested that a large carbon emitter such as a coal-fired power station might be more likely to gain a significant carbon allowance, attracting a tradeable value, and thereby benefit from carbon trading more than a lower carbon emitter. This would potentially encouraging exactly the opposite behaviour intended by the tax. He touched upon a better solution to the tax, that of holding an auction for carbon allowances.

Finally he explained how the tax revenue from the Climate Change Levy is an incentive for the Treasury to prevent more effective carbon-reducing instruments being introduced if they reduce the income from the Levy. The slides of his talk are online (600K).

Asia-Pacific Partnership. On May 9th, USA congress denied the first payment of $5m as part of the Asia Pacific carbon-saving technology partnership: the USA, Australia, China, India, Japan and South Korea. A coalition of industries is also involved in the group, which held its inaugural meeting in Sydney in January. Bush asked Congress for $52 million to implement year No. 1 (2007) of the agreement: $30 million for the State Department, $15 million for the Energy Department, $5 million for EPA and $2 million for the Commerce Department. It is the first of these, for the EPA, which has been refused. Congress already provided $1.084 billion for other climate-friendly tax incentives in 2006 compared with Bush's request for $1.607 billion for fiscal 2007.

Steven Koonin (BP plc) in Cambridge. On May 25th, the Chief Scientist of BP plc was in Cambridge addressing the CEI on "Energy trends and technologies in the coming decades".  In one hour, he gave a masterly tour of all the important issues in energy for the next 30 years; including issues of international development, the carbon intensity of economies, security of supply, and climate social issues. He also managed to make it fresh and interesting, with many new observations and also insights into how BP viewed the future. The 47 slides from his talk are online at  www.cei.group.cam.ac.uk/events/250506.html .

Dr. Koonin's plots of energy use and carbon intensity against wealth for several countries clearly showed the low-carbon influence of the French nuclear industry and the Brazilian ethanol programme. Australia is in some sense an outlier, having a much higher energy growth rate than all other counties in the same income range.

He made the point that "coal is where the people are; and oil and gas are where the people aren't" so we can expect increased use of coal as energy independence becomes more important in future. On oil, he said that with prices at > $30/bbl, there is sufficient proven unconventional energy reserve that an oil peak is very unlikely - unless investment is insufficient to bring the production on stream.

As a physicist, Koonin was keen to take a "first-principles, quantitative and analytic" approach. He impressed on the audience that CO2 emissions were a stream, and that CO2 levels in the atmosphere are an integrated accumulation of that: so a 20% reduction in world emissions only buys a 15 year delay in reaching any particular level in the atmosphere. Also each 10% reduction in emissions from the developed world is completely counteracted by just 4 years growth in the developing countries.

Russian 40-reactor Nuclear Programme gets funding from State Bank
$60 billion will be needed to finance the construction of 40 nuclear reactors in Russia. On May 31st, state-owned Vneshekonombank agreed to play a major role in expanding this nuclear plant construction. The bank, which is the Russian government's agent for payment of foreign debt, also plans to expand its cooperation with Atomstroiexport for a further 60 reactors in India and China. Gazprombank is also a candidate for participating in syndicated loans organised by Vneshekonombank.

On May 30th it was announced that 4 VVER-1000 reactors will be built in the Chelyabinsk Region (Urals).

On June 14th, Sevmash shipyard in the Arkhangelsk Region signed a contract to deliver a floating nuclear power station. The plant will mainly provide power supplies for shipyard company itself, and will also sell one fifth of its energy to the energy-hungry Asia-Pacific region. The project will cost $337m and will be commissioned in October 2010. "It is planned to construct such plants in remote regions of [Russia's] Far North and Far East." The Sevmash plant is also building two Borey-class nuclear submarines to be commissioned in 2006 and 2007.

Karsten Neuhoff in Cambridge: solar and wind energy
On May 30th, i10 and eeeGr supported a seminar and dinner at Jesus College, Cambridge. Dr. Neuhoff of the EPRG and the University Economics Dept. presented results from a comparison of UK and German policy instruments encouraging renewable electricity generation. Contrary to what was expected by economists, the UK "market based" system exposed investors to effectively  greater regulatory risk, and thus lower effectiveness (in terms of number of wind turbines built per pound of government subsidy) and much lower numbers of wind installations overall. 

Karsten also showed that the current best guess is that solar PV will require a world-wide subsidy of between $10b and $55b before costs reduce to the point of commercial competitiveness for baseload generation. He also analysed the markets to show that it is not possible for a commercial investor to capture the benefits from such investment and therefore that this is an area where international government support would be required. The reasons are due to the specificity and lifetime of patents, the complexity of supply chains and the nature of large infrastructure construction.

Skoda and Atomstroiexport compete for 2 Bulgarian reactors
Bulgaria has brought forward plans for 2 new reactors at Belene on the Danube. These will be two 1000MW VVER reactors and bids are being prepared by the Russian nuclear export company and the Czech Skoda Alliance. The Czech consortium is ready to provide 100% financing  with the participation of Citibank, UniCredit, non-life insurance company EGAP, the Czech Export Bank and Ex-Im Bank of the U.S

Bolivia nationalises natural gas
Bolivia has the second largest reserves of natural gas in South America, and on May 1st they were placed under state control. Brazil imports half its gas from Bolivia and Petrobras has invested heavily in Bolivian gas infrastructure where it controls 20% of the Bolivian GDP. However, Petrobras is mostly privatised, with 60% of its shares held by organisations based in the USA. This is a very complex political situation involving most of the countries in S. America and much more than the issue of energy supply.

Japan to store 200m tonnes of CO2 by 2020
Japan emits 1.3 billion tons of carbon dioxide a year, and the Ministry of Economy, Trade and Industry is studying a scheme to start geological storage by 2010. Currently they estimate that storage costs $52/ton and they aim to halve that by 2020.

Beckett appoints John Ashton as climate ambassador
Margaret Beckett, now Foreign Minister, has continued the climate responsibilities she had at DEFRA by appointing  John Ashton as Special Representative on Climate Change; an ambassador-level post in the FCO. Ashton is a career diplomat with a scientific background and long experience in China. He has already criticised the USA for its "unhelpful stance" on global warming.

Next Forum Meetings will be in July, September and October 2006
We are planning a short-notice breakfast meeting soon after the publication of the government's Energy White Paper, sometime between the 11th and 21st of July.

The September one day conference will be open to all, but it is specifically designed for current research students and postdoctoral research workers at the university. We are doing this in partnership with the Cambridge University Energy Network and the Cambridge Environmental Initiative. We are awarding a prize of 500 for the best research poster.

In October our speaker meeting will be on the theme of "innovation" with a practical emphasis on biofuels.

Our Recent Forum Meeting was on 28th June 20065
Our speaker meeting discussion of demand-side control of energy use was a great success. Presentations and a report of the audience discussion will available soon for download at www.cambridgeenergy.com/archive/2006-06-28/download.html.

Please recommend us
Please tell your colleagues and friends about the benefits of membership. Please also ask your organisation if it would like to become a Advisory Member or a Principal Backer of the forum with associated benefits in promotion for what your organisation is trying to do:

Philip Sargent
Hugh Parnell
Tim Jervis
Mark Haslett

Cambridge Energy Forum
www.cambridgeenergy.com

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URLs
DTI: http://www.dti.gov.uk/technologyprogramme/Spring_06.html
ETS: http://ec.europa.eu/comm/environment/climat/emission.htm
Grubb: http://www.ifm.eng.cam.ac.uk/sustainability/seminar/documents/MichaelGrub8May2006.pdf
Koonin: http://www.cei.group.cam.ac.uk/events/250506.html
Russian reactors:  http://www.themoscowtimes.com/stories/2006/06/01/044.html
Bolivian gas: http://globalpolitician.com/articledes.asp?ID=1827&cid=7&sid=78