Exports at risk from U.S. climate change bill

Submitted by Brett H on Wed, 04/08/2009 - 09:25.
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Wednesday Apr 08, 2009
By
The Globe and Mail
Proposed U.S. legislation could slap import levies on a range of Canadian products - from steel and cement to paper and ceramics - if Washington deems Canada is lax in fighting global warming.
The climate change legislation also includes low-carbon standards that could drive up the cost of imports from the Alberta oil sands.
Leading Democrats in the U.S. Congress this week introduced a bill to cap greenhouse gas emissions that would require the administration to impose tariff-like fees on importers whose own governments don't have regulations, reporting rules or enforcement mechanisms that are as tough as those laid out in the legislation.
The proposals in the bill have wide Democratic support and stand a good chance of becoming law.
U.S. President Barack Obama and congressional leaders are promising to move quickly on measures to combat climate change - from emission caps on industry, to low-carbon standards for transportation fuel, to renewable energy portfolios for utilities.
And while Mr. Obama yesterday warned of the dangers of protectionism at the Group of 20 meeting in London, trade experts say the environmental policies that he backs include a minefield of potential protectionist measures that would favour domestic producers over importers.
Coming after U.S. Energy Secretary Steven Chu's recent musings about using tariffs to protect American industry, the bill introduced this week by Representative Henry Waxman has heightened fears that the U.S. climate legislation will accelerate growing ecoprotectionism around the globe.
"We're very concerned," said Jayson Myers, president of the Canadian Manufacturers & Exporters association.
"I think the worst thing we could see here is regulatory standards being applied on manufacturing processes to restrict access to the U.S. market. ... On issues of enforcement, the boundaries get blurred pretty quickly, especially when you've got strong, local political pressure saying 'protect American jobs.' "
Chinese officials reacted angrily to Mr. Chu's suggestion at a congressional committee two weeks ago that some sort of tariffs could be used as a "weapon" to protect American jobs.
Under the legislation introduced this week, the U.S. government would be required to act when American manufacturing industries lose market share to foreign competitors deemed to enjoy an unfair environmental advantage.
Such importers would be required to purchase "emissions allowances" meant to equalize the environmental burden faced by U.S. producers.
The Obama administration and congressional leaders have vowed to pass climate change legislation this year, despite the recession. There is widespread agreement among supporters that such legislation must include measures to protect energy-intensive industries from unfair competition.
The current bill specifically targets industries such as steel and steel products, aluminum, cement, glass, pulp and paper, chemicals and ceramics.
Environmental experts argue such measures are necessary to prevent "leakage" - the loss of environmental benefits that would occur when energy-intensive industries boost production, and emissions, in less-strict jurisdictions and increase their exports to the United States.
Under the proposed legislation, Washington would have the power to control the volume of energy-intensive imports - and their prices - from countries that do not meet U.S. standards, said Elisabeth DeMarco, a Toronto-based lawyer with Macleod Dixon LLP.
That's because the proposed law would require importers to purchase "international reserve allowances" but would only make a limited number of those allowances available.
"Our provincial and federal governments need to wake up as to what is going on," Ms. DeMarco said. She added Canadian industries are going to have to step up their efforts to ensure their principal export market is not threatened by the U.S. climate change legislation.
Even as Congress debates a cap-and-trade bill, the U.S. government is expected to proceed with "product standards" like renewable-power standards for utilities and low-carbon fuel regulations, said Aldyen Donnelly, an economist and president of WDA Consulting Inc. in Vancouver.
She said many Democrats view the proposed environmental regulations as a way of rolling back massive job losses in the goods-producing sector that the United States has suffered over the past decade. "It was inevitable that as soon as the Democrats came to power, they were going to go this way," she said.
Prime Minister Stephen Harper's government is attempting to negotiate a continental agreement covering greenhouse gas emissions that would ensure Canadian industries are not unduly disadvantaged by the U.S. climate change regulations.
The government had been scheduled to unveil its own regulations to limit emissions on key industries but Environment Minister Jim Prentice has signalled that effort is on hold until there is greater clarity from Washington.
However, Ottawa will have to revisit its plans for intensity-based targets - which set regulations as a percentage of a company's production rather than hard caps - to ensure its plan is consistent with the U.S. approach. Canada must also ensure its enforcement mechanisms - and even its reporting rules - are consistent with U.S. approaches to avoid trade harassment.

Carbon-Intensive Mutual Funds to Become Big Losers

BOSTON, Mass. and LONDON, United Kingdom -- The carbon footprints of the nation’s largest mutual funds vary wildly, with the fund with the biggest footprint 38 times more carbon-intensive than the fund with the slimmest footprint. Environmental research firm Trucost hopes the results of its just-released report “Carbon Counts USA” will close the gap now that fund managers can access the data to measure financial risk exposure from future carbon constraints, such as climate change legislation and a greenhouse gas cap-and-trade program. The company ranked the country’s 91 largest mutual funds, with holdings worth $1.55 trillion, based on their carbon footprints. “The data hasn’t been available before, so in a sense, they’ve been flying blind,” Simon Thomas, Trucost’s chief executive, said during a conference call Wednesday. Mutual funds with large carbon footprints will likely become big losers in a carbon-constrained economy because a price on emissions will increase operating costs for companies with intensive fuel sources and processes. Most, if not all, companies will see their energy costs grow. Funds with the smallest footprints are will be impacted the least. Carbon-intensive funds like the Fidelity Capital Appreciation Fund, for example, could be subject to costs of nearly $125 million, or 3.32 percent of revenue, if the price of carbon is factored in, Trucost said. The company used a cost of $28.24 per metric ton as the basis for this calculation. In comparison, the most carbon-efficient fund, the Financial Select Sector SPDR Fund, would be subject to $8.3 million in carbon costs under the same scenario.There is no correlation between carbon footprint and performance, Trucost said. Rather, such a correlation won't materialize until a global carbon market is put in place.The study analyzed the funds based on eight investment styles: core, growth, value, index, country/regional, equity income, sector and sustainability/Socially Responsible Investment funds. As a whole, the portfolios of the 91 funds generate about 615 million metric tons of greenhouse gas emissions. The carbon footprint of the combined 91 funds measured in at 335 tons of carbon dioxide per million dollars of revenue. The carbon footprints of the S&P 500 and MSCI Europe funds were virtually identical: 384 and 383 tons of emissions per million dollars of revenue. Surprisingly, the Sentinel Sustainable Core Opportunities Fund -- an SRI fund -- had the fourth largest carbon footprint of the funds analyzed, with 692 tons of carbon dioxide equivalent produced per million dollars of revenue. Overall, however, the aggregated SRI funds had portfolios that produced just 226 tons of emissions per million dollars of revenue.The top five most carbon-efficient funds don’t invest in the utilities and oil and gas sectors. Instead their holdings are concentrated in lower-carbon financial services, banks and health care. Trucost declined to publish the full rankings of all 91 funds but said it may do so in the future.
The most carbon-efficient funds are:
Financial Select Sector SPDR Fund -- 40 tons of CO2 equivalent (tCO2e) per million dollars in revenue
Vanguard Health Care Fund -- 48
PowerShares QQQ Trust -- 69
Ariel Appreciation Fund -- 98
Oppenheimer Global Fund -- 111 The most carbon-intensive funds are:
iShares FTSE/Xinhua China 25 Index Fund -- 1,549 tCO2e per million dollars in revenue
Fidelity Capital Appreciation Fund -- 758
Janus Fund -- 744
Sentinel Sustainable Core Opportunities Fund -- 692
Energy Select Sector SPDR Fund -- 613

Investors eye forestry, water opportunities in tough markets New York,

9 April: US investors have deserted the green investment space, according to analysts and investors speaking at a recent environmental markets conference in New York. But forestry offset projects are poised to be a major source of investment opportunities amid indications that they will be included in a federal carbon cap-and-trade programme, market participants said, while water projects are set to benefit from major investments from the US economic stimulus package.
“The truth is [the market is] still contracting,” said Hilary Kramer, managing director of Greentech Research in Cambridge, Massachusetts. “It’s a very difficult time.”
This is an unfortunate development because there are numerous businesses and technologies that need a relatively small investment to proceed, Kramer said, speaking at the Wall Street Green Trading Summit in New York on 1 & 2 April.
Wind energy – tipped as the most scalable and the most cost-competitive renewable technology – is a good investment, although it continues to be hobbled by lack of financing, said Rob Romero, portfolio manager for investment advisor Connective Capital Management in Palo Alto, California.
“The US is a great long-term opportunity because it has high wind speeds and nice locations, but certainly project finance is a near-term obstacle,” he said. “China is fantastic for wind right now. They need the power strategically. They have the money to pay for it and they have a very dependable government. They don’t have a Congress that has to debate things. They just make it happen. From an investment perspective, we do look at that as a very attractive opportunity.”
The solar sector probably has the fastest growth potential, but still has a major inventory overhang so the market will be challenging for the next few quarters, Romero said. Because of the supply issues, Connective looks for companies such as Phoenix Solar that have “a nice pipeline of well-funded customers”, he said.
But the fundamentals for the renewable energy sector remain strong and there are signs of a pickup, said Mark Cox, chief executive officer of New Energy Fund in New York. For example, there are two banks competing to finance a $40 million, 3.5MW solar project in the Mojave Desert. “This is the first crack in credit,” he said. “Whether it is widespread, I don’t know.”
Water projects represent another good investment opportunity, said William Brennan, managing principal of Brennan Investment Partners in Wayne, Pennsylvania, a firm that specialises in analysis of and investing in the water sector. Spending on water infrastructure increased to $550 billion in 2008, from $250 billion in 2003 , a number that could rise to $1 trillion by end of 2012 due to predictions of a dramatic decline in water resources over the next decade. “There still is an acceleration of spending in this space,” he said.
Spending will rise 6% to 8% in developed countries and 15% or more in emerging countries – with the US economic stimulus package including $14 billion for investments in water infrastructure and technology, he added.
Meanwhile, the cap-and-trade proposal issued last week by Congressmen Henry Waxman and Ed Markey, signals that forestry offsets will be included in a federal programme.
Radha Kuppalli, a Washington, DC-based director of New Forests, a forestry investment firm that manages $150 million in forest assets in the Asia-Pacific area, has met with potential investors over the past several weeks trying to raise funds for forestry projects in Australia, New Zealand and Southeast Asia. “What we’re finding is that there’s been just an evaporation of liquidity and it’s a total buyer’s market for those with capital,” she said. “They’re really seeking hard assets with cash yields.”
Some investors are still seeking out long-term opportunities related to climate change, natural resource and energy usage, and changing consumer preferences around environmental issues, she said. Forest projects fit these investment scenarios because they can address major environmental problems such as climate change, biodiversity loss and water management while generating substantial public and private sector revenue streams, Kuppalli said.
In the US carbon space, the signals in California, regional and federal programmes are “all pointing in a positive direction”, she said. California has been strengthening its forest protocols to bring more private investment and private landowners into its programme while Waxman-Markey signals forestry credits in the US and abroad will be included. “We really see some significant strides in this area,” Kuppalli said.