Sustainability Rating Scheme For Infrastructure Projects

The Federal Government has approved another $100,000 in funding for the Australian Green Infrastructure Council (AGIC) to develop a sustainability rating scheme for infrastructure projects, which brings the Government’s total contribution to the project to $500,000. And AGIC is co-hosting a forum in Brisbane at QUT on 30 July featuring John Hamilton Frazer, Professor of Design Science.

CE Daily reports:

Federal Government tops up funding for ‘green infrastructure’ scheme

The Federal Government has approved another $100,000 in funding for the Australian Green Infrastructure Council to develop a sustainability rating scheme for infrastructure projects.

The new funding, announced by Infrastructure Minister Anthony Albanese, brings the Government’s total contribution to the project to $500,000.

The scheme will be a voluntary framework that allows investors and participants in infrastructure projects to screen and assess projects using criteria including biodiversity, waste management, water, greenhouse gas management and emissions to air, water and land.

Source: www.cedaily.com.au

In a message from David Hood, Chairman of the Australian Green Infrastructure Council:

“We are now under way with the development of the world’s first full sustainability rating scheme for infrastructure”.

David is attending Enviro2010 in Melbourne and then onto 3rd Global Infrastructure Conference in Kuala Lumpur 26/27 July, where he’s chairing two sessions on sustainability in infrastructure and presenting on AGIC. Go to for more: www.marcusevans.com/marcusevans-conferences-event-details.asp?eventID=16409&sectorID=21#conference_focus

David Hood also extends an invitation to all to attend a Forum on Generative Design Applied to Urban Sustainability, co-hosted by the AGIC:

John Hamilton Frazer MBCS FSCD FRSA

Professor of Design Science at Queensland University of Technology

Friday, 30th July 6.00-7.00 pm

Room Z-401 QUT Garden Point

Professor Frazer will explain how urban modelling is being radically re-thought as a result of the introduction of complexity science into urban design theory.

A paradigm is offered for sustainable design on the basis of evolutionary thermodynamics and complex systems science.

In this model, buildings and cities adapt to the environmental context and their environmental performances are optimised in a mechanism of open systems evolution and self-organisation.

Professor John Hamilton Frazer directs the Centre for Complex Urban Systems Design in Queensland. He is an international pioneer of evolutionary and generative systems in the field of architecture and urban design. He is a highly regarded thinker whose influence continues to be instrumental in developing new approaches to the way in which we design and manage the built environments of the future.

Professor Frazer’s research is focussed around the creation of self-organizing, self-sustaining systems that evolve with user interaction – enabled by powerful computer systems and artificial intelligence. He has many notable research publications and his first book An Evolutionary Architecture, 1995, is regarded as the seminal work in the field of generative design.

Hosted by the Australian Green Development Forum

The Australian Green Infrastructure Council with

The Sustainability Minor, Faculty of Built Environment and Engineering

More on AGIC:

AGIC will be the catalyst for the delivery and operation of more sustainable infrastructure in Australia.
 
This vision will be achieved by driving market transformation through education, training, advocacy and by recognising leading sustainable practice via a sustainability rating scheme.

It is AGIC’s mission to:

• Benchmark, advance and promote the concepts and knowledge of sustainability throughout the design, construction and life cycle of infrastructure solutions
• Recognise and reward organisations that deliver world leading sustainable solutions in the design, construction and operation of our national infrastructure
• Provide a roadmap to assist stakeholders to achieve sustainable outcomes
• Define sustainability performance benchmarks for industry paticipants
• Provide independently certified sustainability ratings; and
• Encourage and promote the highest standards of sustainability performance.

Source:  www.agic.net.au

Oil Companies in Trouble: Breaking Pledges & Plugging Leaks

ExxonMobil, one of the world’s largest oil companies, has broken its pledge to stop funding groups that promote scepticism about man-made climate change, while BP floated a new option this week to plug the Gulf of Mexico oil leak to bring to an end the economic and environmental disaster sooner than expected. Report from The Times in The Australian (20 July 2010): ONE of the world’s largest oil companies has broken its pledge to stop funding groups that promote scepticism about man-made climate change. ExxonMobil gave almost £stg 1 million ($1.75m) last year to organisations that campaigned against controls on greenhouse gas emissions. Several made outspoken attacks on climate scientists at the University of East Anglia and argued that their leaked emails showed the dangers of global warming had been grossly exaggerated. The scientists were exonerated this month by an independent inquiry, but groups funded by Exxon have continued to lambast them. The Media Research Centre, which received $US50,000 ($57,500) last year from Exxon, called the inquiry a “whitewash” and condemned “climate alarmists”. Some of Exxon’s largest donations were to groups that lobbied against a global deal on emissions being reached at last December’s climate summit in Copenhagen. The value of Exxon’s oil and gas investments could fall sharply if governments adopt aggressive plans to reduce their dependence on fossil fuels. The energy giant had indicated it was pulling back from funding sceptics. In its 2007 corporate citizenship report, it stated: “In 2008, we will discontinue contributions to several public policy groups whose position on climate change could divert attention from the important discussion on how the world will secure energy required for economic growth in an environmentally responsible manner.” Exxon also gave reassurances last year that it had no funding links with the sceptics’ biggest annual conference, the International Conference on Climate Change. But a list published by Exxon this month of its “2009 worldwide contributions and investments” revealed it had given four co-sponsors of the New York event $US275,000. It also gave $US1m to 20 other sceptic groups. Bob Ward, policy director at the London School of Economics’ Grantham Research Institute on Climate Change, who has been monitoring Exxon’s links to sceptic groups, said: “Exxon has engaged in a public relations campaign to convince the world that it has stopped funding climate sceptic groups. But this has turned out to be pure greenwash. Exxon has continued to provide financial support for many groups that are engaged in activities to persuade the public and policy-makers into wrongly believing that climate change is a hoax.” Four of the groups funded by Exxon — the Atlas Economic Research Foundation, the Media Research Centre, the Pacific Research Institute and the Heritage Foundation — co-sponsored the New York conference. Exxon recently announced it would no longer fund the Atlas Economic Research Foundation, the Media Research Centre or the Pacific Research Institute. Source: www.theaustralian.com.au AFP report in The Age (20 July 2010): BP floated a new option Monday to plug the Gulf of Mexico oil leak and end the economic and environmental disaster sooner than expected. The “static kill” operation would involve pumping heavy drilling fluids known as mud through the blowout preventer valve system that sits on top of the well and then injecting cement to seal it. Similar to the “top kill” operation that failed in May, BP believes it will now work because the oil and gas in the runaway well is sealed already by its containment cap so the mud won’t need to be forced down so hard. BP senior vice-president Kent Wells said officials could decide to implement the operation within the “next couple days,” long before the first relief well – still seen as the ultimate fix – is completed at the end of the month. Back in May, the “top kill” saw engineers spend days pumping heavy drilling fluid into the leaking well, but they failed to smother the gushing crude. Former Coast Guard chief, Admiral Thad Allen, who heads the government’s response to the spill, confirmed there was “some discussion that there might be some way to do a static pumping of mud into the top that would suppress the hydrocarbons”. But he stressed the plan was still in its infancy and said he was waiting further analysis from BP before making a final decision. He admitted it could have better chances of success than the “top kill” because the well, which has been capped since Thursday, was now in a closed system with back pressure. Both BP and Admiral Allen treaded cautiously after a string of containment failures. “We’re trading off a lot of different options. We’ve discussed about three or four different things that could happen, the relief well being number one,” said Admiral Allen. “We’re still very much in the design and planning phase,” Mr Wells told reporters. “We’ve got some real experienced teams working on this over the next couple of days.” Gulf residents, who have seen the crude tarnish their shorelines and cripple the local economy since a rig leased by BP exploded and killed 11 workers in April, have reacted with cautious optimism. Kenneth Feinberg, who manages BP’s US$20-billion compensation fund, said capping the well would allow compensation claims to move forward more quickly as the extent of the damage became clearer. He urged fishermen, oyster collectors and hotel owners and other businesses to come forward with claims, including emergency payments to cover the first six months of damages. Residents face a tough choice: whether to accept compensation from the fund or pursue legal action against BP or the other companies involved. “I’ll be much more generous than any court will be, and at the same time you won’t need to pay lawyers’ costs,” urged Mr Feinberg. Oil has washed up on the coasts of all five Gulf states – Texas, Louisiana, Mississippi, Alabama and Florida – since the BP-leased Deepwater Horizon rig sank on April 22, two days after the explosion. Poisonous crude has killed birds, closed fishing grounds, decimated the tourism industry and done untold environmental damage. Source: www.theage.com.au

Don’t Rubbish This New “Wastefuel”  Way to Fly

British Airways has set up Green Sky with US biofuel firm Solena, which aims to build a plant capable of taking thousands of tonnes of rubbish from east London every year and converting it into enough jet fuel for all its flights from London City airport two times over.

Danny Fortson for the Sunday Times in The Australian (20 July 2010):

WILLIE Walsh has seen the future, and it’s in the smelly depths of your bin.

The chief executive of British Airways has many problems on his plate: a pound stg. 3.7 billion ($6.4bn) pension hole, striking unions and annual losses of pound stg. 530 million.

But it is banana peel, rotten tomatoes, coffee grounds and cardboard that he believes hold the key to the carrier’s future.

Walsh will use this week’s Farnborough Air Show to unveil a project that could set BA fair to fly into a future where pollution is taxed and oil is expensive.

BA has set up Green Sky with US biofuel firm Solena which aims to build a plant capable of taking thousands of tonnes of rubbish from east London every year and converting it into enough jet fuel for all its flights from London City airport two times over.

Jonathon Counsell, BA’s head of environment, said: “This is a proof-of-concept type project. We hope that eventually there will be many plants like this around the world.”

BA is not doing this out of the goodness of its heart. Airlines face a bleak future. Last year will, in the words of Giovanni Bisignani, head of industry trade group IATA, “go down into the history books as the worst year the industry has ever seen”. It rounded off a decade in which airlines accumulated $US47bn in total losses.

From 2012, airlines flying in to and out of Europe will be forced to pay for every tonne of carbon dioxide emitted over 2005 levels to comply with the European Union’s carbon trading scheme. And the price of jet fuel, the single biggest cost for an airline, is expected to rise in line with oil.

In January last year, Walsh broke ranks with the rest of the industry by declaring BA would halve its carbon emissions from 2005 levels by 2050. The move was followed by rivals.

Airlines have only one practical option: biofuels. Solena chief executive Robert Do said: “Air transport doesn’t have the same options that carmakers do. You can’t go hybrid, or plug (aeroplanes) in. The only option is to look at alternatives to jet fuel from oil.”

Some carriers such as KLM and Virgin Atlantic have begun experimenting using biofuels blended with conventional jet kerosene. But the infrastructure required for significant biofuel production, from crops to refineries to re-engineered engines, is still a long way off.

The Solena project tackles one key obstacle: feedstock. The idea of using large areas of arable land for the production of jet fuel has many critics.

Waste, however, is another matter. London produces 10,000 tonnes a day. The Solena plant would need 1500 tonnes daily, about 60 lorry loads. For waste firms it is an attractive proposition. Soaring landfill taxes mean they will pay Solena to take it off their hands.

It sounds simple.

It’s not. The technology that turns the muck into fuel originated in the US space program.

When NASA needed to test heat-shield materials that would protect a space capsule from the extreme temperatures on re-entering the Earth’s atmosphere, conventional combustion failed. Once the temperature reached about 1200C, the metal conductors melted.

A scientist named Salvador Camacho came up with the solution. He replaced the metal between the two electrodes — think of the bit that gets red when you turn on the toaster — with ionised gas. The plasma torch can provide a constant source of heat at up to 14,000C.

This is the key to Solena’s technology. “In low-temperature processes you lose carbon through the ash and tar it produces,” said Do. “Using plasma allows us to get 40 to 45 per cent more of the carbon out of the feedstock. It’s highly efficient, so we can use almost any type of source — whether it’s woodchips or banana peels. And in London the only abundantly available feedstock is waste.”

Most of the gas molecules generated from the process will be converted into liquid jet fuel through a process called Fischer Tropsch, a technology that has been used to convert coal into gas. At capacity the plant would produce 74.6 litres of jet fuel a year, just under 2 per cent of BA’s needs, which would then be blended with conventional fuel.

Some gas would be used to fire a turbine, which would provide the power for the plant.

Excess electricity would be sold to the grid and because it is renewable power it would fetch a premium. The other byproduct, bionaptha, could be used to make plastics.

Solena still has a big hill to climb, however. The plan calls for a plant over 6.5ha with constant lorry traffic, and it has yet to apply for planning permission.

Do is confident he will get approval. “We’ve been working closely with the Greater London Authority, and Boris Johnson, the Mayor, has been very supportive,” he said.

The firm has hired environmental consultancy Arcadis to help it get planning consent.

The other question mark is money. Green Sky needs pound stg. 230m to build the plant. Solena is in the process of bringing in new private equity backers but also needs considerable project finance. BA has agreed to take the fuel for a decade, but won’t be taking a stake in the venture.

The rest of the industry, meanwhile, is keeping a close eye on the plant’s progress.

Today there are about 18,900 airliners in the world. The Inter-governmental Panel on Climate Change estimates that aviation causes about 3.5 per cent of the man-made effects on the weather. New aircraft such as the Airbus A380 and the Boeing 787 are more fuel efficient, but the gains will be more than wiped out by the industry’s growth.

Source: www.theaustralian.com.au

The Impossible Dream Or 100% Renewable Energy by 2020?

A collaborative project involving a collection of engineers, scientists and other professionals with industrial and academic experience – working entirely pro bono – has come up with a detailed and costed blueprint for the transformation of the Australian energy system to become 100% renewable by 2020. This is the word from Beyond Zero Emissions.

Matthew Wright in Climate Spectator (21 July 2010):

Last week the Zero Carbon Australia Stationary Energy plan, a collaboration between the University of Melbourne Energy Institute and climate solutions think tank Beyond Zero Emissions, was launched at the Spot Theatre at Melbourne University.

Usually, talks about energy draw a fairly specialised crowd, but this event filled the 500 seat venue and around 300 people had to be turned away. So what is it about this project that has captured the imagination of so many people?

The answer is that this collaborative project – between a collection of engineers, scientists and other professionals with industrial and academic experience, working entirely pro bono – provides a detailed and costed blueprint for the transformation of the Australian energy system to 100 per cent renewable energy by 2020.

One of the perceived blocks to a wholesale shift to renewable energy is the idea that renewable energy can’t supply baseload power. Electricity is difficult and expensive to store and, as a result, needs to be produced to meet demand at any given moment. For this reason, in a fossil fuel-based system, ‘baseload’ coal plants run at a pretty much constant output, while gas peaking plants are brought on and off line to meet demand.

The argument run relentlessly against renewables by the carbon lobby is that, because ‘the wind doesn’t blow all the time and the sun doesn’t shine at night’, renewable energy can’t provide the constant, or ‘baseload,’ electricity we need to meet demand around the clock.

In fact, technology developed in the 1980′s overcame these limitations. While wind power output is variable, a combination of large-scale concentrated solar thermal plants with molten salt storage (otherwise knows as ‘baseload solar’) and wind farms can power this nation 24 hours a day, every day of the year.

Baseload solar thermal is the game-changing renewable energy technology, developed by
the US Department of Energy between 1980 and 2000. It is now commercially available from SolarReserve of California, and Torresol Energy/SENER of Spain, and many other solar thermal companies are upgrading to this technology, including solar thermal industry leaders Acciona and Abengoa of Spain, Brightsource of Israel and Solar Millennium of Germany.

Solar thermal plants use many mirrors to concentrate sunlight onto a receiver, generating heat to create steam and power a turbine. The heat is safely stored in insulated tanks of high-temperature molten salt, just like a thermos-flask stores a hot liquid. At any time of day or night, the hot liquid salt is used to generate steam for the turbine, creating zero-emission, baseload solar electricity.

According to US DoE projections, solar thermal will be cost-competitive with coal and gas power, as the solar thermal industry scales up to an installed capacity of thousands of megawatts
around the world.  Even the conservative International Energy Agency, to whom the world’s major economies turn for advice on energy, says that solar will make up 25 per cent of the world’s energy by 2050.

In Spain, where the solar resource is roughly on par with Victoria, plants using molten salt storage have been operational since 2008. Torresol Energy is building Gemasolar, a solar thermal power tower with 15 hours of storage, to be complete around the end of this year.

Meanwhile, US company SolarReserve has three Baseload Solar projects on the go: one 50 MWe plant in Spain, and two plants in the US ­ – 100 MWe and 150 MWe respectively. In total, the booming concentrating solar thermal industry is currently building billions of dollars of plants globally, including $20 billion in Spain and more than $20 billion breaking ground this year in the south-west of the USA.

Under the ZCA2020 Plan there would be 12 solar regions across the country, consisting of 3,500 MW of power tower units. These would supply 60 per cent of Australia’s electricity in 2020.

The other 40 per cent of Australia’s electricity would come from wind. 6,400 gearless Enercon 7.5 MW turbines are specified and and would be distributed to 23 sites across the country.

The rapid uptake of wind power in other countries is in stark contrast to Australia. Denmark, for example, with 5.4 million inhabitants crammed into an area twenty times smaller than New South Wales, is aiming for 50 per cent of its power to come from wind by 2025.

In China alone, the installed wind capacity has doubled every year for the past five years. “Wind power is vital,” says Shi Lishan, deputy director of renewable energy in China’s National Energy
Administration, “as it is the cheapest form of renewable energy. It is advantageous to put as much wind energy as you can harness in the grid because it’s cheap.”

Detailed modelling has been carried out based on wind speeds measured half-hourly for a two-year period and solar data from the 12 proposed solar sites. With a demand model based on data from the current National Electricity Market (NEM), we show that 100 per cent renewable
electricity supply can be delivered 24 hours, seven days, every day of the year matching Australia’s demand profile. The specified wind and solar system requires just 2 per cent backup from existing hydro and a small amount of co-firing with waste biomass for rare periods with less sun or wind than required.

A national grid is costed into the plan, to allow the renewable generating mix to be shifted from point of supply to demand, and to take advantage of geographical diversity. This would link WA’s two grids in the South and North with the eastern seaboard grid, the NEM. This is based on commercially available and costed High Voltage DC and AC transmission lines. The design of the grid was completed in conjunction with the advice and review of leading engineering firm
Sinclair Knight Merz.

Sound like a big task? All those wind farms and solar plants? Could we do it?

Australia has a huge and powerful industrial economy that is well up to the task. At the peak of construction, by 2016, we’d need an 80,000-strong construction workforce building the infrastructure.

That’s only about 8 per cent of Australia’s existing construction workforce of one million people, and in the resources boom from 2003-2008 the construction industry was growing at 50,000 new jobs per year, every year.The ZCA2020 Plan requires a ramp rate about 20 per cent of this. The manufacturing to build all the components? We’d need about one decent-sized car manufacturing plant to produce all the mirrors we’d need. We already have three of those.

There is a focus on detailing the kind of industries and jobs that will grow from the construction and manufacturing of the solar and wind plants and the modernised electricity grid. A vibrant renewable energy sector can be built in the current powerhouses of the Australian economy ­ the Hunter and Latrobe Valleys, and the Bowen basin in Queensland.

We know we have the technology, the industry, the workers, the engineers, the money and the materials to do the job. Now we need the leadership to step forward.

To go to zero emissions, we do not just throw on a carbon price and rely on the ‘unlocking’ of innovation to do the job. Instead we get ourselves a plan. The Zero Carbon Australia 2020 Plan is a detailed, pragmatic and costed plan to get on with the job and deal decisively with these crucial issues – and to achieve 100 per cent renewable energy by 2020.

Matthew Wright is an executive director at climate change solutions think tank Beyond Zero Emissions

Source: www.climatespectator.com.au

What Value Does Australia Put on a Green Investment Bank?

The formation of a Green Investment Bank in Australia can provide a vital, necessary link between projects requiring long-term debt funding and demand from an existing, large group of private sector bond investors. It can also explore the creation of new markets for financial products with hybrid characteristics. The main challenge will be to find the right structure for government support that balances the allocation of risks and returns between the public and private sector. Phil Preston says this in Climate Spectator.

Phil Preston in Climate Spectator (20 July 2010):

Those who oppose economic intervention may shudder at the prospect of a Green Investment Bank, but the reality is that urgency is required to build renewable energy infrastructure. Recent conversations in developed countries have focused on the potential for such a bank to help mobilise private sector savings.

As Giles Parkinson points out, the concept has gained traction in the UK and it is an option for Australia to consider. We must ask the question though: can a Green Investment Bank work in practice?

To answer this, we need to consider the features of project financing, the natural investors for such projects, and the role that a Green Investment Bank (GIB) could play in mobilising capital. We must be careful that we are not fooled by the simplicity of the concept, as there are some key elements to get right if it is to be a serious option at all.

The cycle of project financing

Project financing has several stages that can be broadly classified as feasibility, financing, construction and operating. To be feasible in the eyes of private sector sponsors, the basic project economics need to stack up. That is, the likely returns achievable from the equity invested in them must be commensurate with the risk taken. I’ll come back to that point in a moment, but assuming a given project is feasible, the debt and equity financing needs to be locked in and then the project needs to be built, successfully commissioned and operated.

At various points, the project’s risk profile changes and investors will be sensitive to their point of entry. Financing a tested and fully operating project is a different proposition to financing construction.

A side point here is to note how critical the off-take pricing of, say, a renewable energy project is to its feasibility. Currently, fossil fuel-based energy is cheaper than renewable energy – so government policy is required to stimulate investment.

A feed-in-tariff is one such government intervention, in this case to regulate the off-take prices for the energy produced. Such intervention at the project level ensures that energy prices, and therefore revenue, can be forecast in advance, which reduces revenue risk for the project sponsors. It also allows more debt to be raised against the project’s value, because lenders are faced with less risk.

Government support could also include such measures as carbon pricing or favourable tax treatment – some readers may recall the much sought after infrastructure bonds of the 1990s; economists can argue over which mechanisms will work the best – the point is that government support will be vitally important for project feasibility and will help shape the subsequent actions of the private sector.

Who are the natural investors during the various stages of a project?

Initial sponsors would typically be dominated by construction and energy companies. Once a project is commissioned and proven operational, then construction companies usually head for the exit in order to recycle their capital into new opportunities. This is the point where both listed and unlisted infrastructure funds find the lower risk and reasonable return prospects attractive and may build positions, or the project may simply stay on an energy company’s balance sheet.

The debt financing of project construction requires sophisticated lending skills. The major commercial banks possess those skills and have the right business structures to assess, manage and monitor project debt. Once the project is operational, the sponsors will want to refinance the bank debt with longer dated debt or bonds. The banks won’t mind – they prefer to recycle their capital into other projects because they are penalised from a capital perspective for holding long-term debt. The natural holders of long-term debt are those investors with long-dated liabilities: superannuation funds and insurance companies.

So there is a clear cycle of natural investors, starting with construction companies and banks and ending up with listed or unlisted funds and bond investors. Energy companies may also retain interest through some, or all, of this cycle.

What role is there for a Green Investment Bank?

Assuming feasibility has been dealt with through government mechanisms, the main issue is financing. Energy companies with large and solid balance sheets could undertake and finance projects themselves, however the quantum of capital required will limit the amount they can supply.

How can a GIB help to mobilise capital quickly? As per Murray Ward’s analysis, there is a vast cavern of capital sitting in pension, insurance, sovereign wealth and other private funds. A GIB can play a key role as an intermediary between projects and the providers of debt.

Firstly, it can act as an underwriter of debt, meaning that it commits at the financing stage to buying long-dated bonds when the project is successfully commissioned and operating. This has the benefit of reducing uncertainty for the sponsors and banks, who still retain the construction and commissioning risk. The GIB also becomes a hub for investment specialisation, a skill base that is expensive to re-create for each of the investment teams acting on behalf of the natural long term investors.

Secondly, the GIB can retain the long-dated bonds on its own balance sheet and issue its own bonds to match the needs of investors, whether they are short or long-term focused. By having the capacity to issue shorter-term debt they attract a much wider, global investor base. If the GIB can achieve a decent credit rating (of AA or AAA) and issue bonds in deep, liquid lines into the market, then it will be able to mobilise a serious amount of capital. Investment managers will buy highly rated and liquid bonds in spades without needing any specialised skills of their own to do so. In my experience, as the debt proposition becomes increasingly complex then the universe of potential investors falls away at an exponential rate.

The GIB may also have a role to play in providing equity support. Discussions in the UK include a host of ideas on this front. The designers and owners of the GIB would need to think long and hard about capital efficiency and conflict of interest under this approach – it may be more effective to consolidate equity support activities under an investment fund structure rather than as part of a special purpose bank. Mobilising debt funding should be its main purpose and priority.

What are the main challenges in the formation of an effective GIB?

This is no ordinary bank. It has an asset portfolio that consists of loans to renewable energy projects, which means that its assets are concentrated in one area. In layman’s terms, it has all of its eggs in one basket. An unexpected change in technology or regulation could seriously impact the value of its portfolio. To get a decent credit rating it would need to either hold a large amount of capital relative to traditional commercial banks, thus straining the economics and feasibility of a commercial return from the equity in the GIB itself, or receive some form of explicit government support.

Another problem is the mismatch risk in its portfolio. It owns long-dated bonds and funds them with shorter-dated debt, which can lead to trouble if the market goes through a credit or liquidity crisis, which it invariably does every five-to-ten years. This is an area in which government may be able to get more “bang for its buck” by providing explicit, contingent financial support that could be drawn in the event of asset quality problems or market disruption. It could be in the form of additional equity or lender-of-last-resort for refinancing debt, or a combination of the two. It is not ideal, but may be necessary. Because the support is contingent, it has close to zero cash cost today, which may be politically appealing. The downside is that it may become a burden in the future. Organisations such as the World Bank perform a similar role in developing countries. A major reason they achieve their AAA credit ratings is because their member countries commit to providing additional capital if required.

Further discussion is needed to tackle the issue of exactly who provides the equity and owns the GIB, and how a balance can be achieved between public and private objectives. That discussion will be driven by the nature of the explicit government support, should it be provided.

There has also been discussion in the industry of GIBs issuing instruments that are hybrid in nature, such as bonds whose returns are somehow linked to carbon prices. It is premature to consider these options seriously before getting the basic structure right. If a massive amount of capital needs to be mobilised, then there is a compelling case to raise it using existing markets and mechanisms that we know will work. Hybrid instruments may work in the future. They require new markets to be formed and the risk and return characteristics of those instruments will be very complex. It would be wise to view them as a ‘phase two’ idea.

Can it work?

The formation of a GIB can provide a vital, necessary link between projects requiring long-term debt funding and demand from an existing, large group of private sector bond investors. It can also explore the creation of new markets for financial products with hybrid characteristics. The nature of its assets and activities means that it will need explicit government support in some form to ensure its own viability. The main challenge will be to find the right structure for government support that balances the allocation of risks and returns between the public and private sector.

Phil Preston is the principal of Seacliff Consulting, a firm offering specialised consulting services in the financial and responsible investment fields. His prior work includes 17 years of financial research and portfolio management in the funds management industry.

Source: www.climatespectator.com.au

Lucky last: Climate change and the role of clouds

Philosophers, artists, politicians and daydreaming kids have long looked to the sky’s ungraspable clouds in search of meaning. But those innocuous clumps of water and ice, seen by British poet William Wordsworth as lonely wanderers, are being closely watched by climate scientists for clues to our future.

Clouds and water vapour play an important part in climate change, but the exact details of their role remains cloudy, writes Graham Readfearn on ABC Environment (12 July 2010).

“It still remains one of the top challenges in climate research – getting a better understanding of clouds,” says Steve Sherwood, a professor of atmospheric physics at the University of New South Wales Climate Research Centre. “It’s the main known unknown in predicting future climate.”

Water vapour in the atmosphere is invisible and everywhere – it is our most abundant greenhouse gas. The way that water vapour affects the climate is similar to that of carbon dioxide, methane and other gases. They all absorb and re-emit radiation, acting like a blanket enfolding the globe. For more go to:

http://www.abc.net.au/environment/articles/2010/07/12/2951257.htm

New Game Show: Carbon Price Is Right!

The focus this week is on money and economists after the emphasis last week was on books and authors.  Or more specifically:  the need for a Government policy that puts a price on carbon thereby introducing a market mechanism to reduce greenhouse gas emissions, move to a low carbon economy and increase investment in clean energy and green jobs. As simple as that. But PM Julia Gillard doesn’t seem to be listening to good advice from Reserve Bank Governor Warwick McKibben, in our profile, as well as other experts Paul Gilding and Frank Jotzo. The EBA and AGL make some important points on behalf of business, contrary to the negative advice from the AI Group. We should learn something from the strenuous and co-ordinated lobbying campaign in the US by Ceres and its “Business for Innovative Climate & Energy Policy”. Nobel Laureates like

Paul Crutzen make sense when they get together and we’re seeing positive investment signs with the launch of world’s first climate change advocacy fund. Take note also: latest Antarctic ice research supports predictions of a doubling in the rate of sea level rise over the next century. MBD reports progress with its algae bio-sequestration plans and the Carbon Trust is calling on business for expressions of interest. Not many know that the World Cup came up with more than a winning result for Spain – an energetic soccer ball! Solar Impulse keeps up in the air, even in the dark, while the Plastiki Pacific journey nears its end with the Australia coastline looming. How about putting a price on plastic?                                          – Ken Hickson

Profile:  Warwick McKibben

Professor of International Economics at the Australian National University and a member of the Board of the Reserve Bank of Australia, Warwick McKibbin has called for a dramatic new approach to combating climate change. As the current approach through the UN is failing due to the need to build a consensus among 193 member states with competing self-interest, he proposes an international agreed price on carbon should be set, without any specific  targets or timetables for emissions reduction.

Drew Warne-Smith in The Australian (8 July 2010):

RESERVE Bank board member Warwick McKibbin has called for a dramatic new approach to combating climate change.

The approach would set an international agreed price on carbon but shun any targets or timetables for emissions reduction.

With Prime Minister Julia Gillard expected to address the government’s climate change policy as early as this week as she clears the decks ahead of an election, Professor McKibbin proposed an alternative framework which he believes is more likely to win international support and cut emissions in the near term.

The proposal is contained in a paper launched at the Lowy Institute in Sydney, co-authored by analyst Greg Picker and lawyer Fergus Green, both of whom participated at last year’s Copenhagen climate change conference as negotiators. The co-authors argue the current approach through the UN is failing due to the need to build a consensus among 193 member states with competing self-interest.

Instead, he recommends that a new accord should be struck in the Major Economies Forum on Energy and Climate, a body which comprises 17 countries, including Australia, the US and China, and accounts for 80 per cent of global emissions. Running parallel to last year’s Copenhagen Accord, this framework would require each country to set a consistent price on carbon which rises annually.

That domestic price, or price band — which could be converted into a single international carbon price equivalent — would then be applied as each country sees fit; via a carbon tax, emissions trading scheme or hybrid scheme.

But no country would have to quantify its reduction in emissions, nor say when those reductions would be achieved.

In effect, there would be fewer grounds for dispute, with the cuts occurring as a consequence of the price mechanism.

In doing so, the approach avoids “the hodgepodge of current policies, envisaged actions and conditionally promised targets”, the paper says. Gone, too, would be complex offset arrangements where countries could import carbon credits from overseas or rely on terrestrial sinks.

And while the paper recommends that government subsidies to industry be factored into the price, businesses would have the confidence of knowing what the future carbon cost would be.

“The all-or-nothing character of a targets and timetables system, the long timeframes involved in the compliance period and the complexity and opacity of the data . . . mean such a system is ill-suited to fostering co-operation to mitigate climate change,” it says.

But the Minister for Climate Change, Penny Wong, indicated last night that the government was unlikely to support any moves to re-negotiate international agreements. Through the Copenhagen Accord, about 80 countries had already pledged to reduce or limit the growth of their emissions by 2020, a spokesman for Senator Wong said.

“Our efforts are best focused on implementing the pledges already made through the Copenhagen Accord, rather than spending valuable time re-negotiating the whole global framework for tackling climate change.”

Opposition Leader Tony Abbott did not respond to requests for comment.

Warwick McKibbin is Professor of International Economics at the Australian National University and a member of the Board of the Reserve Bank of Australia. He has been a consultant for many international agencies and governments on issues of economic policy, trade and greenhouse policy issues. Professor McKibbin co-wrote the popular book Climate Change Policy after Kyoto: A Blueprint for a Realistic Approach with Professor Peter Wilcoxen of Syracuse University, New York.

Read Warwick McKibbin’s full report at www.lowyinstitute.org

Summary: Confronting the Crisis of International Climate Policy

By Fergus Green , Professor Warwick McKibbin , Dr Greg Picker

Copenhagen failed to produce an agreement on climate change commensurate with the scale of the problem, highlighting the fundamental weaknesses in the existing UN framework. Progress on a new agreement is agonisingly slow. Weightier commitments by the major emitters are necessary, but calls for ‘greater ambition’ ignore the structural problems embedded in the institutions, processes and policy models of the UN climate regime.

This study proposes an international framework based on carbon prices rather than emissions targets. Under a price-based international framework, countries would undertake to implement specified actions and policies. Those policies should then be converted into an internationally standardised form of economy wide ‘carbon price equivalent’, with each country pledging/negotiating to implement a starting carbon price equivalent policy along with a schedule of real annual price increases.

Source: www.theaustralian.com.au and www.lowyinstitute.org

No Time Like the Present to Act

The head of AGL Energy says a price on carbon is needed to guarantee the security of Australia’s energy future. EBA’s Fiona Wain says the Government should immediately reinstate the emissions trading scheme as it will unleash capital investment, create wealth and generate jobs. While Australia’s Prime Minister Julia Gillard, facing an election where climate policy will be a key issue, has pledged to bring in a carbon price but said it may take time as it needed industry and voter consensus.

By Michael Perry for Reuters (13 July 2010):

Australian Prime Minister Julia Gillard, facing an election where climate policy will be a key issue, has pledged again to bring in a carbon price but said it may take time as it needed industry and voter consensus.

Gillard holds a cabinet meeting on Tuesday to formulate a new climate policy, with media reporting it may include restrictions on coal-fired power stations and new energy efficiency targets.

There is speculation Gillard may call a late August election within days.

“I understand there are millions of Australians disappointed we have not yet been able to put a price on carbon. I am disappointed by that too,” Gillard told a news conference in Canberra ahead of the cabinet meeting.

“But in order to get there we need to have a dialogue with the community that leads to a deep and lasting consensus about how we all price carbon, how we will go forward with a market-based mechanism, how we will work together to achieve the kind of transformations in our economy.”

Source: www.reuters.com

ABC Report:

Prime Minister Julia Gillard says she will not revive the Government’s emissions trading scheme until at least 2013.

Ms Gillard has indicated she will revise Labor’s climate change policy before the election, and ruled out a carbon tax as an interim measure.

She says the Government will stick with its intention of reviewing global progress at the end of 2012 before deciding whether to proceed with the trading scheme.

“The pricing of carbon I think is best done through a market-based mechanism, that is the carbon pollution reduction scheme, and the 2012 timeframe stands there,” she told ABC TV’s Lateline.

“I believe that there are a set of things we can do in the meantime.”

Labor’s previous plans for an emissions trading scheme were shelved under former prime minister Kevin Rudd.

Ms Gillard says the Government’s policy will aim to reduce household carbon emissions.

Source: www.abc.net.au

Statement from Fiona Wain, CEO, Environment Business Australia:

“We cannot afford to wait until 2012 for a price on carbon”

Climate change is a dire problem for all societies and economies.   A number of scientists have said that unless action to reduce greenhouse gas emissions, and to reduce concentrations of atmospheric carbon, is ramped up considerably the world is on a trajectory to undergo an average global warming of at least 4 degrees Celsius^. 

As the most vulnerable of developed countries Australia has a vested self-interest in tackling this problem head-on because it has unparalleled economic, security, health and wellbeing implications for all Australians. 

Australia is endowed with the skills, natural resources and economic capacity to help reduce atmospheric concentrations of carbon, rebuild soil productivity, and spearhead the transition to renewable energy.

Australia should seize this opportunity  to tackle climate change and the converging threats of ‘peak’ food and fuel.

The former Prime Minister’s decision to defer a decision on carbon pricing until 2012 denies the market strong signals that are urgently needed to develop the opportunity-side of climate change at scale and speed. 

The decision denies Australia the opportunity to build ‘new markets, new industries, new jobs’ and become competitive in the ‘Green Economy’.  Other countries – China, Japan, UK, USA, and the European Union seizing this initiative. 

Australia is being left behind because the lack of a carbon price signal has stalled investment in the vital projects that will help reduce greenhouse gas emissions.  It is a decision that is sending capital investment to other countries.

At the last election the Government was given a clear mandate to act decisively on climate change. 

Prime Minister Gillard should immediately reinstate the emissions trading scheme (referred to as the Carbon Pollution Reduction Scheme or CPRS) because it will unleash capital investment, create wealth and generate jobs.

A price on carbon is a key element of a policy portfolio to encourage investment in the Green Economy.

Editor: Fiona Wain said this in a letter sent to Prime Minister Gillard on 29 June 2010.

Source: www.environmentbusiness.com.au

Money Nine MSN (9 July 2010)

The head of renewable energy company AGL Energy Ltd says a price on carbon is needed to guarantee the security of Australia’s energy future.

AGL chief executive Michael Fraser says Australia’s resource and energy focused economy means business and political leaders have to consider the impact of climate change.

Ignoring the issue risks being caught out by changes in global energy consumption patterns, he says.

He says it’s “almost inevitable” climate change and energy security will drive a reduction in the consumption of high emission energy sources globally.

“Any change to the energy sources the world consumes will have a significant impact on our economy, both from an export perspective and from a domestic consumption perspective,” he told an American Chamber of Commerce luncheon in Sydney on Friday.

“We cannot simply assume the world of today will continue.”

Mr Fraser said continuing global demand for Australia’s energy resources would rely on the supply of lower carbon intensive products.

“It is my firm view that a broad-based cap and trade emissions trading scheme is the best way to deliver least cost solutions for reducing emissions.”

Mr Fraser said the federal government should implement such a scheme as soon as community consensus can be achieved.

Source: www.money.ninemsn.com.au

Carbon Trust Plan for Carbon Neutral & Energy Efficiency

Federal government has approved a new ”carbon neutral” logo designed to help people distinguish companies which have actually offset their greenhouse gas emissions and Australia’s Carbon Trust has issued a call for Expressions of Interest from companies and organisations wishing to co-invest and work on strategic relationships in developing energy efficiency projects.

Sydney Morning Herald (8 July 2010):

THE federal government has approved a new ”carbon neutral” logo designed to help people distinguish between companies who have actually offset their greenhouse gas emissions and those touting bogus claims.

The new labels are expected to help cut through the mass of competing claims about ”carbon neutral” products, a few of which have been exposed as exercises in greenwashing.

Companies will be able to apply to the Australian Carbon Trust, a government-funded public company headed by the former Howard government environment minister, Robert Hill, to have their products and services accredited under the new scheme, which replaces the government’s ”greenhouse friendly” program.

“This program will benefit consumers by giving them greater certainty about whether a product is truly carbon neutral,” said the Minister for Climate Change, Penny Wong.

Products carrying the logo will have met national guidelines for carbon offsets, meaning that the greenhouse gas released into the atmosphere by an activity is cancelled out by an equal amount of gas absorbed.

Source: www.smh.com.au

Information on Australian Carbon Trust

The Australian Government is providing over $100 million to establish the Australian Carbon Trust to further support energy efficiency action by businesses. The Australian Carbon Trust is a Commonwealth company limited by guarantee, with an independent Board of Directors. Its Chairman is the Honourable Robert Hill and Ms Meg McDonald is Chief Executive Officer.

The Australian Carbon Trust will manage the Energy Efficiency Trust which will provide information and tools for businesses to effectively participate in Australia’s climate change response.

The Australian Carbon Trust will manage two initiatives:

• the Energy Efficiency Trust which will provide information and tools for businesses to effectively participate in Australia’s climate change response; and
• the National Carbon Offset Standard Carbon Neutral Program 

Energy Efficiency Trust

The Government is providing over seed funding for an Energy Efficiency Trust to promote energy efficiency in the business sector.

The Energy Efficiency Trust will demonstrate innovative approaches to energy efficiency investment by business with the aim of showcasing and mainstreaming these approaches across the private sector. To do this, the Trust will bring together public and private seed funding, business skills and culture and technical knowledge to leverage investment in energy efficiency activities in commercial buildings and other business operations. By showcasing commercially viable energy efficiency opportunities, the Energy Efficiency Trust will increase awareness amongst businesses of the benefits of energy efficiency and facilitate the growth of private sector capacity.

The Australian Carbon Trust is seeking Expressions of Interest from businesses and other organisations to enter into Strategic Relationships and co-invest to deliver energy efficiency improvements in existing non-residential buildings across Australia.

To request information on the Expression of Interest process, please email eoi@carbontrustaustralia.com.au. The deadline for submitting Expressions of Interest is 5pm on 6 August 2010.

National Carbon Offset Standard Carbon Neutral Program

Australian Carbon Trust Ltd is the Program Administrator for the Carbon Neutral Program under the National Carbon Offset Standard.

The Carbon Neutral Program utilising the National Carbon Offset Standard officially commences on 1 July 2010. This Program is the successor to the Australian Government’s Greenhouse Friendly™ initiative (2001 – 2010).

The Carbon Neutral Program is a voluntary scheme which certifies products or business operations as carbon neutral.  The National Carbon Offset Standard, developed by the Australian government, underpins the integrity of the Program.

Invitation from Meg McDonald, CEO of the Australian Carbon Trust:

I am writing to introduce Australian Carbon Trust and to brief you on our programs and plans which we hope will be of interest to your organisation.  Australian Carbon Trust today announced the commencement of two of its national programs, including launching a call for Expressions of Interest in co-investing with us in energy efficiency projects.  We’d be very interested in hearing from you about ways we might collaborate.

Australian Carbon Trust has been established by the Australian Government as an independent company with over $75m initial funding to provide finance and advice to business and the wider community under innovative programs to catalyse investment in, take-up and use of energy-efficient technologies. The initial focus of our activities will be on achieving energy efficiency improvements in the buildings sector through retrofits in existing non-residential buildings across  Australia – including offices, food and non-food retail, education, community, health, hotels, etc – using commercially available technology.  We are now issuing a call for Expressions of Interest from companies and organisations wishing to co-invest and work with us in strategic relationships in developing such projects.

Criteria for eligibility include projects which feature:

•           a high demonstration value

•           scalability; are replicable and adaptable

•           knowledge uplift and capacity in the market

•           deliver cost effective energy savings

•           provide significant additional private sector finance

•           be genuinely additional to business-as-usual activity

Australian Carbon Trust will provide financial support to energy efficiency projects by a variety of means including low-interest rate loans, revolving loan arrangements and alterative structures. We envisage working with

•           financial institutions and property trusts to develop innovative funding models to finance energy efficiency projects in commercial retrofits

•           individual businesses and other organisations to identify and develop flagship energy efficiency projects

•           technical advice and service companies to deliver energy efficiency advice and finance to the business customer base

•           State and Local Government to leverage their existing capabilities and scale up existing programs

Support could be sought for co-investment in ‘flagship’ retrofit projects and projects which scale up existing Government initiatives.  Accompanying such finance, we will provide a range of services and advice to businesses and the wider community to further stimulate energy efficiency improvements. Any project which involves direct action in this sector, or the development of models for the delivery of finance, direct advice and related activities to stimulate such investment and action, will be eligible for consideration.

For more information on Expressions of Interest, please email eoi@carbontrustaustralia.com.au

Source: www.climatechange.gov.au