Triple Crunch Log Jeremy Leggett

Russia says it cannot rule out production cuts along side Opec. So says Energy Minister Sergei Shmatko at a conference in India.

27.11.08. European carmakers ask Brussels for €40bn bail out. As unsold vehicles stack up in ports all over the world, car manufacturing plants will have an extended holiday over the new year, all over Europe. Smart car sales have risen 47% so far this year.

Scientific review shows global warming is progressing much faster than IPCC predicted. The PIRC report, released at a public meeting in London, fouses on the evidence from the Arctic.⁹¹⁹

28.11.08. UK government takes majority stake in RBS, of 57.9%. But Brown, while hinting at a tougher line on ledning, rules out a complete takeover of British banks.

Climate saboteur crashes 500MW Kingsnorth turbine for four hours, cutting UK emissions by 2% during the period. He broke in undetected across two razor wire fences and under closed circuit TV surveillance at 10 pm before tempaering with a computer control in the turbine hall and leaving a crude banner saying No New Coal. No has claimed responsibility and nobody has been arrested.⁹²⁰

29.11.08. Hydrogen may be one of those promising technologies always “just a few years away.” Hydrogen in fuel cells can be made from any energy source, but it only makes any sense in terms of carbon emissions if renewable sources of electricity are used. Even then, the energy losses in the fuel chain – from electrolysis, through compression of the hydrogen for use, to inefficiencies in the fuel cell itself – currently mean less than quarter of the input energy does any useful work on the road. In contrast, electric vehicles using batteries leave more than two thirds of the original energy for use on the road.⁹²¹ (L) More detail in article.

Robot gliders have been sampling the Atlantic ocean since September looking at warming patterns. Launched in the Canaries by scientists from the NOC in Southampton, they can stay at sea for 100 days and around 3000 km between charges.

30.11.08. Will Hutton says financial visionaries can lead us out of recession, and they should be heeded. One is Yale professor Robert Schiller, whose form of mortgage would take much risk out of borrowing. It is tailored to rising and falling income, factoring in the possibility of redundancy, so obviating the (two-way) risk of repossession. The borrower also insures their down payment and housing equity against loss. he also advocates “livelihood insurance”, and recommends an army of advisors to help people understand the case and take up new mortgages.⁹²²

1.12.08. Barclays Capital concludes that thin-film systems are already at grid parity in areas of high insolation, installed at $4 per Watt (for the whole solar system), even for today’s gas prices.⁹²³

UK Climate Change Committee says UK needs an interim target of 34% cuts in GHG by 2020 en route to the 80% cuts in the energy bill, and 42% by 2020 if there is a global deal to cut emissions. Their first report, “Building a Low Carbon Economy,” says electricity generation is where the biggest scope for emissions reductions lie, and recommends 30% electricity from renewables by 2020. 40% of new cars would be electric by 2020. CCS rules must be “tough”, with all plants CCS-complaint by the early 2020s. The target goes further than EU law, and would involve personal greenhouse-gas budgets falling from 11.6 tonnes today to 7-8. It would cost around $15bn to do all this. The rate of emissions reduction would be 2.5% per year. The Green Alliance observes that reductions of more than 1% a year have only ever been achieved during significant recessions. The Guardian puts a positive spin on in an editorial on 2nd: “This was the day the government finally sized up the precise challenge it faces in mitigating climate change – and began planning how to meet it.”

Solar PV costs are 30-35 c/kWh in “areas of good irradiation,” Climate Change Committee asserts, arguing that it will take “several decades” if not the “late 21^st century” for PV to be cost competitive anywhere, and perhaps never in the UK. They have it wrong, like the IPCC, which suggested in its last report that PV would not be commercialized before 2030. The PV industry, and many investment analysts, expect to reach grid parity in just a few years.

And on the same day:

UK government zero-carbon homes consultation says PV & best-practice energy-efficiency is the cheapest way to meet Code 3 of UK building regulations - ahead of any combination of other microgeneration plus efficiency - in every housing category (ie city infill flats and houses, market town flats and houses and urban regen flats and houses). The PV and energy efficiency combination at Code level 3 is cheaper than advanced energy efficiency measures alone and in most cases much cheaper than the renewable heat alternatives including solar thermal plus e/e.  Best practice e/e alone is obviously cheaper but gets nowhere near the 25% CO2 improvement required.  There is a similar story at Code level 4 with the exception of urban regeneration site properties where PV is marginally more expensive per dwelling than biomass CHP plus e/e, but still cheaper than all other options including e/e alone.  These findings are also based on an assumption of 0.43 kg CO2 saved per PV kWh, not current building regulations, which use 0.568.  Even allowing for that, the basic message is that PV is the cheapest renewable technology at lower levels of the Code to 2013 (by some distance).⁹²⁴ (L)

RBS, now 58% owned by the taxpayer, gives 6 month mortgage grace period before repossession. Other banks will have to follow. “Only Barclays, suffering the burden of the bail-out terms from its sovereign wealth fund investors, is likely to cling to the banking tradition of being providers of umbrellas except when it is raining.”⁹²⁵

German solar company Centrotherm offers an all-in-one grid-parity crystalline silicon fab: a 347 MW-per-year factory, taking 3 years to build, that it says will be able to produce 16.5%-efficient cells with a manufacturing cost as low as $1.36 if sited in China, and $1.57 in the US. The factory, costing $915 million, is really five sub-factories, which could be located on separate sites. The polysilicon production, with a capacity of 2,500 tons a year, would best be located in an area of less-expensive electricity, for example next to a hydro-electric scheme. The module-production facility could be located in-market, to cut transport costs. Applied Materials and its main competitor, Oerlikon, offer thin-film factories capable of manufacturing cells at a cost of $1.27, at the time of writing. ⁹²⁶

2.12.08. Top EU officials soften position on carbon pollution permits. Germany, in particular, fears that chemical, glass, steel and cement companies must be given free permits if they are forced to compete with companies from other countries not subject to regulation. This would deprive governments of billions of euros in auction revenues that potentially could go to green energy.

Big 3 US carmakers travel by hybrid car to DC to beg for a $34bn bailout package. Last month they used their corporate jets.

3.12.08. Oil has now fallen $100 in the past five months: to below $47 at close of business today, the lowest level for three and a half years.

Gulf ministers say the world faces a supply shock if the oil price stays below $70. Qatar’s energy minister Abdullah Bin Hamad Al Attiyah says that investment in capacity expansion will be cancelled below that level. He echoes similar sentiments from the King of Saudi Arabia and his oil minister recently, when they identified $75 as a fair price for oil. Opec will cut production for sure in December, at a meeting in Algeria, Al Attiyah says. It deferred a decision at its November meeting.⁹²⁷

America, having faced a $1tn housing-collapse debt bill, must soon face the credit card bill. Accounting changes next year mean credit carb debt must now appear on balance sheets. BoA, Citigroup and JPMorgan currently hold more than half their credit card debt away from view. Oppenheimer and Co believe they will have to devote as much as 42% of their new capital to credit card debt. Will the $178bn the big six banks have raised - $100bn of it from the Tarp – be enough? Indeed, will the $350bn left in the Tarp be enough? Other debt is still off the balance sheets: fully $1.2tn including credit card debt at Citigroup alone, $735bn at JP Morgan, and $73bn at BoA.⁹²⁸

All-electric Mini unveiled at BMW’s HQ in Munich this week. It has been two years in the making. The 95mph top-speed model can do 150 miles on a full charge. 500 will produced at first, for trials in California, New York and New Jersey.

4.12.08. Merrill Lynch warns oil price could dip to $25 in 2009 if the recession spreads to China. In their main scenario, oil will average $50 next year.

Spread between oil spot price and one-year futures contract is at highest level since trading began 25 years ago. This spread, known among oil traders as the contango, is $13.50 (c.$46 to just over $60). In normal circumstances arbitrage by traders brings the forward price down, narrowing the contango. In the current abnormal circumstance, although the contango greatly exceeds the transaction cost (cost of storage and capital) traders cannot secure loans to finance the storage.⁹²⁹

The rush to government bonds may become part of the problem, experts say. Returns have fallen to record lows around the world as investors have piled in. Interest rates could be pushed higher because the pool of investors is small, and countries will compete to sell their debt. The UK plans to issue £146bn of Treasury gilts in 2008/9, up from £58bn in 2007/8 ….and up from single figures ten years ago. Of the UK’s total public debt of £651bn, almost £500bn is in Treasury gilts, of which £230bn are held by insurance companies and pension funds, and £167bn are held overseas.⁹³⁰

Welsh offshore windfarm, to be second biggest in world by 2014, gets go ahead. The 750MW Gwynt y More farm off North Wales will be built by npower, and will be second only to the 1GW London array. It will use 3 and 5 MW machines with rotor blades of up to 130m. Construction will take three years, from 2011. Wales now has a target to source all Welsh electricity from clean sources by 2025. Note: UK overtook Denmark in October as lead offshore wind generator (590MW vs 423MW).

Project Better Place signs up Hawaii for electric cars. The idea is the same as California’s, with tests from 2010, and a full network by 2012.

Nuclear industry has grown “sexy”, according to the AEA Chairwoman Lady Barbara Judge. “Atomic was a dirty word but now it is certainly a sexy one,” she tells a nuclear industry conference in London. But other officials admit its costs are rising. Flammanville is already 20% over budget. It will now cost €4bn (£3.5bn) at 2008 prices, up from €3.3, as a result of rising materials and regulatory impacts. Its electricity will now cost €54 a megawatt hour, up from the €46 claimed in 2006.⁹³¹

5.12.08. Biggest weekly oil-price drop since 1991: 25% down, to $42. US gasoline falls below $1 a gallon, and Merrill Lynch says the price could fall to $25 if China’s economy goes into recession. There have beeen more than half a million US job losses in last month.

Honda pulls out of Formula 1 motor racing, with falling sales no longer justifying the expense. With others rumoured to be considering similar retreat, the whole circus is under threat.

A further Bank of England 1% interest rate cut is not passed on by the banks, who are now on collision course with the government.

6.12.08. Microfinance guru Muhammad Yunus in conflict with fast-growth microfinance institutions. The Nobel Prizewinner claims the philanthropic movement he spearheaded is in the process of being lost to profiteering, because institutions like Mexico’s Compartamos are charging APRs of 100% and more. Note: The global microfinance movement now has more than 3,000 institutions with some $25bn of loans in place among some 125-150 million customers, but still serves less than one in ten of the several billion who lack basic life-improving facilities. Compartamos turned a $6m investment into a billion-dollar company (via an IPO in April 2007) in less than a decade. Deutsche Bank entered microfinance in 1997, Citibank in 2005, and JP Morgan in 2007. Barclays has a microfinance inititative in Ghana. An FT article by Tim Harford criticises the movement for not being transparent enough, and not having done enough rigorous trials of what works best within the 100% philanthropy through 100% commercial spectrum of options.⁹³² (L) More details in article.

Peer-to-peer lending takes off as banks continue to sit on their money. Zopa.co.uk recently reported that it has 222,000 members online, lending nearly £30m to each other with returns averaging 10% and a default rate of just 0.16%. A peer-to-peer online internet service wins the FT “Next Big Investment Idea” competition. Winner Jeff Norton aims to link high net-worth indivuals who don’t want to risk investing in shaky markets with professionals possessing good credit ratings but unable to borrow from banks. The bank is cut out: an untrustworthy intermediary no longer needed. The investor lands a bigger return than a bank deposit would give him, and the borrower a lower interest rate than the bank would give him, even allowing for the cut on the spread thaken by the facilitator. One research firm suggests $647m of peer-to-peer loans are now in play worldwide.⁹³³

8.12.08 Solar industry leaders tell climate summit that solar PV can make major contribution post-Kyoto. Many governments have not yet fully understood the potential of solar PV. A McKinsey study shows solar generation costs at grid parity (10-12 cents per kWh) in at least 10 markets by 2020, aand EPIA believes this will be the case in most European countries – even the cloudy ones – by 2020. Zhengrong Shi, Suntech CEO, says crystalline solar PV prices can reach 18-20 cents per kWh by 2012 ($4W). China has incubated many solar companies, and now has a national renewable energy standard of 15% by 2020, with a commitment to invest $180 billion in renewables by 2020. Mike Ahearn, First Solar CEO, says his company has lowered the cost of module manufacturing by two thirds in the last four years, and will reach grid parity in many areas within 2-4 years. Over half the states in America now have renewable portfolio standards. Note: First Solar has introduced the industry’s first comprehensive collection and recycling programme for solar modules.

Climate protestors occupy the runway at Stanstead, briefly shutting the airport down and causing cancellation of 52 flights, amid passenger fury. 54 of the young activists from Plane Stupid are arrested.

9.12.08. Shrinking Gazprom will increase investment in development to $33bn in 2009, up 10% from this year. Deputy Chief Executive Alexander Medvedev: “American vampires drank the blood from their financial system and tried to infect countries all over the world. As a result, many banks are “not performing their function”, and capital is very difficult to come by. Gazprom can meet its own needs for the time being, he says. But when the North Stream and South Stream projects come up for financing (the North Stream is due to come on stream in 2011) “we hope to find some banks that have not being vampirised.” Gazprom was the third largest company in the world in June, valued at $350bn. Today it is 35^th, valued at $100bn.⁹³⁴

11.12.08. Petrobras bullish on prospects for pre-salt oil, but refuses to speculate on ultimate size of the finds. It has released estimates for just three of dozens of oil fields: Tupi at 5-8 bn barrels, Iara at 3-4, Jubarte at 1.5-2. The oil lies under 7 km of water and rock, including thick and hard to penetrate salt. The company dismisses repeated doubts about its financial and technical ability to deliver, given the financial crisis, and the moribund state of Brazil’s shipyards as a result thereof. Chief executive Sergio Gabrielli says the company is talking with the Chinese about a $10bn loan in exchange for guaranteed supplies.⁹³⁵

German finance minister says Gordon Brown is guilty of “crass Keynsianism.” Peer Steinbruck’s unprecedented attack on the idea that the UK has the right model comes from a social democrat, to the joy of British conservatives. The argument is polarizing into two camps: the “spenders” (Brown, Obama, Sarkozy) and the “savers” (Cameron, Merkel, Hu Jintao). Quite why the Germans should attack their third biggest market at this fragile time is not clear, thought the reason for their frustration can be understood. Brown allowed British banking “assets” to rise from two times GDP to more than four between 2001 and 2008. Sitting on this mountainous bubble of dodgy credit, he then lectured the Germans on how they should follow the British/American model.⁹³⁶

Savage selling of sterling this week suggests the City has little faith in Brown’s £20bn VAT gamble. Short-sellers force the pound to record lows against the dollar and euro.

12.12.08. 27 EU leaders agree a “20:20:20” climate deal in Brussels, (20% emissions cuts by 2020, 20% renewables in the energy mix, and 20% improvement in energy efficiency) after hard negotiating by Poland, Germany, and Italy leads to big loopholes in the emissions trading scheme. As a result, heavy industry will be granted exemptions – effectively multi-billion euro windfalls – for free permits to pollute from 2013. The agreement also involves cutting emissions from cars by 19% by 2015, keeping a target for “sustainable” biofuels, and provision for 12 CCS projects (with doubled funding, after British prodding). Sarkozy, in has last blast with France in the presidency, claims a historic victory, and says that European leadership in fighting climate change has been underpinned. Environmental campaigners talk of “huge loopholes”, un-necessary complexity, and say the EU can no longer claim the ETS will be a major factor in emissions reductions, or that the US and the rest of the world will follow: the serious work in cutting emissions will now have to be done by renewables and efficiency. The decision will be turned into four laws next by the European Parliament: one to amend the ETS with new rules for the next phase from 2013, a second on effort sharing within the Union to cover areas not involved in the ETS (construction, transport and agriculture notably), a third on the the renewables target and how it divides into national targets, and one on CCS co-operation. Note: the trading system was supposed to raise €55bn for renewables etc, or so the Commission figured. It won’t now. Also, firms can still offset around half their emissions burden via offsetting in developing countries.

Poznan climate summit ends without any progress on global emissions curbs. The negotiations are effectively in abeyance waiting for signals from the Obama administration, once it takes over.

UK Treasury recently vetoed a proposal to install energy-saving gas and electricity meters in every household as part of the UK’s economic stimulus plan. So claims Philip Stephens in an FT op-ed, citing this as an example of their “scorn” for all greenery, especially that involving control of taxation and spending. He also claims Brown is muttering that Ed Milband is paying too much attention to climate change and not enough to energy security.⁹³⁷

Senate rejects US auto bail-out and White House, reversing policy, says Tarp can be used in last ditch rescue effort. $14bn will be used from the $700bn fund. Paulson has $15bn left from the first tranche of $350bn. The Bush administration blinks, taking the view – as the Press Secretary Dana Perino puts it - that “the currently weakened state of the economy is such that it could not withstand a body blow like a disorderly bankruptcy in the auto industry.”⁹³⁸

Joseph Stiglitz argues Chapter 11 is the right way for the Big Three to go. It is designed to give them space and time to restructure and modernize, including for low-emission products. Meanwhile the $34bn bail out they has asked for is widely considered inadequate, with a truer estimate being closer to $125bn. ust a few months ago Bush was arguing that wasn’t enough federal money for health insurance for poor children, even though it would cost only a few billion dollars.⁹³⁹

UK banks are “undercapitalized hedge funds with liabilities big enough to destroy the solvency of the British state,” says Martin Wolf in an FT op-ed. They enjoy a state-sponsored licence to create money, and this should never allow them to become a strictly private business. The regulators have totally failed to protect the risk takers of last resort. The banks have been allowed to build up assets almost 4.5 times GDP by 2008. Their average leverage along the way has been 33 to 1, with a range of 13 to 60.⁹⁴⁰

Goldman Sachs, once projecting $200 oil, now sees $45 oil in 2009. They see demand falling by 1.7 mbd in the first quarter. The team which correctly called the original ascent above $100 says an inevitable switch from demand destruction to supply destruction beyond will inevitably cause a rally.

House of Commons Business and Enterprise Committee warns of looming energy crunch. Just as the government has intervened to save banks, it will have to do so for energy companies, the all-party committee of MPs says in a report. Generating capacity equivalent to nearly a third of current electricity demand will be made redundant by 2020 and need to be replaced. The committee wonders how companies will raise the finance: particularly the nuclear industry.

Calls for a green new deal now span the political divide in the commentariat. Camilla Cavendish in the Times, who has been advocating a green new deal in just those words for some time, today wonders where else the jobs are going to come from, other than by “turning up the green heat of technology.”

Demenzes Coroner instructions jury not to return an unlawful killing verdict. But the jury rejects the testimony of the Metropolitan Police officers who did the killing. The Met’s shoot-to-kill policy remains in place, and the officers return to front line duty.

13.12.08. Stalled Poznan climate summit ends without significant progress. UN chief negotiator Yvo de Boer says “serious negotiations must begin now.”

New head of Global Carbon Project says it is already too late to stop a 2C global temperature rise. French scientist Philippe Cais says in Poznan that minister after minister is wrong to say that 2C guarantees avoiding dangerous climate change, and that 50% emissions cuts by 2050 will do the job. He also sounded the alarm about as-yet unpublished data showing a surge in methane concentrations in 2007, traceable to warming in the Arctic, where the vast amounts of methane below the melting permafrost pose the threat of an unstoppable process. “It is too early to say if we have passed that threshold. But once it is passed, even zero emissions of CO2 won’t stop the warming.”⁹⁴¹ (L)