– Jonas Minton is Water Policy Advisor for the Planning and Conservation League, an environmental advocacy organization.  Previously he was deputy director of the California Department of Water Resources. The views expressed are his own. –

In many ways, water policy in the Western United States mirrors the economic policies which created our financial catastrophe. Here in the West we’ve seen a massive development boom fueled by unrealistic expectations of ever-increasing supply.

Water contracts have been issued for many times the amount of water that nature can reliably provide. Wildly optimistic appraisals of water availability are being used to justify long-term, otherwise infeasible projects. Long held cautionary principles are being overlooked or eliminated in the rush to fulfill promises and support dreams that are unsustainable. And the public is being actively encouraged to invest billions more in bonds to subsidize the very system that is driving us to the crisis point.

The result has been escalating conflict, unwieldy demands, environmental collapse and economic disaster. Fortunately, as with the economy, adjustments in expectations, greater efficiency, and implementation of new, smarter ways of doing business can reverse some of the damage we have done, allow the West to come to grips with water limits, and provide reliable water to meet our needs.

The West supported lush post World War II growth in California, Nevada and Arizona by depleting local rivers and creeks and overdrafting groundwater. As these resources dried up, cities reached out with ever deeper wells and with hundreds of miles of aqueducts to grab “surplus” water from areas with less political clout.

But just like Wall Street’s derivatives, underlying water assets were counted many times over.  In startling testimony late last year the California State Water Resources Control Board revealed that they had issued water rights permits for over 8 times the amount of natural water available in an average year. On the Colorado River, seven states cling to unreasonable expectations that they will receive the full allocation promised to them in decades old agreements. (For background information, click here for PDF.)

Over allocation is not limited to surface water. Over pumping of groundwater water is also common in the regions overlying the huge Ogallala aquifer, a major source of water supply for South Dakota, Nebraska, Wyoming, Colorado, Kansas, Oklahoma, New Mexico, and Texas.

At the same time collapsing fisheries in the Sacramento - San Joaquin Delta, caused in large part by the overexploitation of rivers put the fishing industry as well as the fish, on the brink of extinction. The crisis is so bad that the salmon fisheries on the West Coast will be closed for the second year in a row.  Court decisions to prevent loss of multiple California fish control some water projects.

Similar to what happened with the start of the Wall Street collapse; water insiders are encouraging the public to increase investments in business as usual.  Some in California are admitting to supporting more plumbing specifically to allow increased water diversions from the Sacramento – San Joaquin Bay Delta Estuary, the largest estuary on the West Coast and the epicenter of the fisheries’ collapse.

Others are pushing for energy and greenhouse gas intensive desalination of ocean water, despite known impacts to ocean fisheries.  And a few others are trying to get the public to pay billions for more dams, even though there is not enough water to regularly fill the dams that already exist.

Yet, there are emerging solutions to ease these conflicts. Cost effective, climate resilient water development such as water recycling, conservation, groundwater recovery and protection, and stormwater capture all provide opportunities to increase our water reliability while also creating quality jobs.  Policy makers are beginning to see the value of these solutions.

This year State Senator Pavley from Santa Monica is authoring Senate Bill 565 that would pave the way to create at least 2 million acre-feet of new water by 2030 through safe recycled water.  That would be the largest water development program in California since the 1960s.

Another example of smarter water management is AB 1408 authored by California Assembly member Krekorian. This measure establishes a mechanism to allow new housing to be water neutral.  Under the bill, developments would incorporate state-of-the art conservation. The bill further encourages developers to work with water districts to offset all of the demand of the development through conservation in the existing buildings. If implemented, this measure would allow California to accommodate much or our future growth without increasing water demand.

Lastly the public is just beginning to see how the institutions that were supposed to protect them need to be reformed.  Entrenched special interests dominated the decision making in the past.  State and federal water officials for too long ignored their responsibilities to ensure water sustainability and stewardship rather than extraction and exploitation.

Climate change, environmental crisis in the largest estuary on the West coast, and fiscal realities are forcing us to come to grips with limits. Fortunately, we have tools that can allow California and the West to prosper in a sustainable way, but only if we are willing to change our ways.

(For additional information, click here for the Delta Vision Blue Ribbon Task Force Report, from December 2008, in PDF format.)

In “The Wall Street Journal of Atmospheric Sciences“, Stuart Gaffin, a climate researcher at Columbia University, takes on the newspaper’s presentation of global warming.

“They have fed their readers so much misinformation and confusion one can only conclude they consider complete fabrication fair play in the discussion,” Gaffin writes.

Holman Jenkins, a Wall Street Journal columnist and member of the WSJ editorial board, rejected the critique, stating:

Mr. Gaffin seems to read “climate” as “atmosphere” and my statement as suggesting we know nothing of any kind about how the atmosphere might behave in response to rising CO2 levels. But that’s not what I said. I’m talking about what everyone actually cares about, whether the net result is a warming climate that will continue to warm in detriment to the presumed interests of humanity.

Gaffin replied:

Mr. Jenkins seems strangely unaware that the warming of the 20th century has coincided with 20th century increases in CO2. Also the current rate of CO2 and other greenhouse gases increases are extraordinarily unprecedented during the last 2000 years of human civilization (see figure below), which is no doubt the most important period to consider for modern society.

– John Kemp is a Reuters columnist. The views expressed are his own –

President Barack Obama’s first budget puts climate change at the heart of the administration’s long-term economic plan. But despite the clear theoretical advantages of a simple carbon tax, he seems set to follow the EU and California in opting for a cap-and-trade system.

The budget plan commits the administration to work with Congress on an economy-wide emissions reductions program, based around cap-and-trade.

It also anticipates almost $650 billion in revenues over 10 years from selling these yet-to-be-agreed pollution permits, and proceeds to spend it on investment in clean technologies ($120 billion) and rebates for vulnerable families, businesses and communities ($525.7 billion).

In a sense the budget is a “wish list”. While federal law requires the president to submit a unified budget, there is no obligation for Congress to consider it line by line, or even use it as a starting point in the annual tax-writing and spending process.

Prudently, the administration has been careful not to rely on permit auction revenues it may never be able to collect. The projections do not anticipate spending any money raised from the permit program
until October 2012.

Revenues from permit sales have also been earmarked to fund clean technology and new tax offsets. If auctions do not occur, or raise less money than expected, these spending commitments can be cancelled without affecting the rest of the budget.

Nonetheless, by putting a cap-and-trade into the budget document, and anticipating how the revenues could be spent, Obama has given a strong personal commitment to seeking comprehensive climate change legislation this year.

Legislation will need to be sent to Congress within the next few months to stand any chance of being enacted in time for regulators to draw up scheme details and arrange an auction before the end of 2012.

TAXES OR CAPS

The budget confirms the president’s campaign commitment to achieve reductions via cap-and-trade rather than a carbon tax.

Most commentators agree it is cheaper to reduce carbon emissions through an “incentive-based” system (establishing a market price for greenhouse gas emissions) rather than old-fashioned “command-and-control” administrative regulations.

But there is much less agreement about whether to implement incentives through a carbon tax or cap-and-trade scheme.

The non-partisan Congressional Budget Office (CBO) published a comprehensive assessment of the alternatives last year, and concluded that in most cases a straightforward carbon tax would achieve the same emissions reductions at lower cost (read pdf).

In an analytical sense, carbon taxes and fixed caps are very similar. Both raise energy prices and discourage consumption of goods and services made by burning fossil fuels in favor of less energy-intensive items made with cleaner ones.

The principal difference lies in a trade-off between two types of uncertainty: uncertainty about the quantity of emissions reduction versus uncertainty about the cost.

A carbon tax establishes a single, transparent and certain price for burning fossil fuels, and therefore the ultimate cost of emissions reduction.

Households and firms have an incentive to take steps which increase energy efficiency and reduce fossil fuel use if the cost is less than the tax rate, but not if the costs exceed it. If the rate is set at a level which reflects the benefits to society of avoiding potentially catastrophic climate change, a tax would encourage households and firms to take only those mitigation actions which yield a net benefit.

The great advantage of a tax is that it gives households and firms certainty about how much reduction will cost. It also ensures there is no compulsion to undertake very expensive mitigation strategies for which costs far outweigh benefits.

But the disadvantage, especially in the eyes of climate-change activists, is there is no guarantee it will reduce emissions by a specified volume in any given year. Over a multi-year period, this is less of a problem. The rate can be varied if the volume of emissions reduction turns out to be smaller or greater than originally anticipated. Presumably it would also rise over time to force progressive improvements.

Cap-and-trade has the virtue of creating greater certainty about the volume of emissions reductions — but the disadvantage of huge uncertainty over the cost for households and businesses.

In a binding cap-and-trade system, permit prices can rise to any level to ensure the cap is achieved, even if the marginal cost of reductions proves very high, and far outweighs the benefits.

Massive volatility in permit prices is a major drawback of the cap-and trade-system.

Experience with other pollution trading programs in the United States such as California’s RECLAIM nitrous oxide program, as well as the EU’s Emissions Trading Scheme (ETS), suggests permit prices would be far more volatile than equities, making long-term planning very difficult.

The problem, as CBO notes, is that “the cost of cutting emissions by a given amount could vary from year to year depending such factors as the weather, the level of economic activity, and the availability of low carbon technologies”.

In fact, cap-and-trade risks exacerbating the already high volatility in energy prices. Trading programs are dangerously “pro-cyclical”. In a cold winter or a hot summer, when air conditioners are on full, rising fuel consumption pushes up the price of energy directly. But in a cap-and-trade system, it would also send the cost of permits soaring, pushing up the price of fuel even further.

In the 2000 heatwave, California power generators’ demand for extra trading credits under the state’s RECLAIM program sent the cost of permits up ten-fold from $4,000 per tonne to almost $45,000, contributing to high wholesale electricity prices during the period and the state’s energy crisis.

Conversely, in a downturn, slumping consumption would depress the cost of permits, and risks removing any incentive to invest in energy efficient technologies such as hybrid cars. Permit prices in the EU’s ETS have fallen from 30 euros per tonne last summer to a low of just 8 euros earlier this month, largely removing efficiency incentives.

Trading schemes can be designed to limit the acceptable range of prices. By auctioning permits rather than giving them away free, the scheme administrator can set a minimum price floor. The administrator can avert sharp spikes by setting a price ceiling and offering to auction an unlimited number of permits at that price to satisfy excess demand.

Some schemes try to limit short-term volatility by allowing surplus permits to be carried forward (”banking”) to meet demand in future years (when caps are likely to be tighter); or brought forward from the future to the present (”borrowing”) to relieve temporary shortages.

At the limit, if the price cap is brought low enough, and the floor is raised sufficiently, the trading scheme is identical to a tax.

Most real trading schemes allow far more volatility than this. The EU’s ETS is progressively moving to an auction system, but imposes no real upward limit on volatility. California’s proposed Western Climate Initiative (WCI) would auction allowances, and set a minimum reserve price for them to help establish an effective floor, but again there is no upper limit.

Despite clear economic drawbacks compared with a simple carbon tax, the obvious attraction of cap-and-trade is political. It avoids the need for the government to set an explicit and unpopular price on carbon dioxide emissions; policymakers can hide behind a price determined by the inscrutable magic of the market.

In practice, by picking a quantitative level of emissions, federal regulators will also be setting a price, albeit indirectly and one subject to enormous volatility. But advocates of trading hope the lower transparency will reduce its political visibility and make it easier to implement.

– Paul Taylor is a Reuters columnist. The opinions expressed are his own –

Investors in clean energy are like motorists stuck at broken traffic lights. The public policy light is green but the price and credit lights are deep red.

Investment in wind, wave and solar power should be booming after the European Union last year adopted an ambitious goal to draw 20 percent of its energy from renewable sources by 2020 to help fight global warming, and U.S. President Barack Obama made green power a central plank of his government’s policy.

But the credit crunch, economic recession, the spectacular fall in oil prices since last July and a record low European carbon price have cooled investors’ ardour.

Consultants New Energy Finance forecast zero investment growth in climate-related companies this year, after a spectacular growth rate of 60 percent in 2006-7.

“The commercial lending market is holding back and until that can be addressed, it’s going to be a major constraint,” says Christopher Knowles of the European Investment Bank’s energy and environment department.

Yet to achieve the EU’s 2020 target, investment decisions need to be taken soon on long-term projects to build a smart electricity grid, giant offshore wind farms and networks to bring renewable energy to Europe’s industrial heartland.

How can the private investment logjam be broken?

One way could be to extend the public support system through which countries like Germany and Spain guarantee higher-than-market prices to generators of renewable energy.

The scheme provides secure revenue to green power producers, making their projects as safe investments as municipal bonds. But critics say it inflates the cost to consumers and taxpayers.

For example, the price guaranteed for photovoltaic energy is 20 times the cost of electricity from conventional power plants, said former International Energy Agency chief Claude Mandil.

CARBON FLOOR AND CEILING
Another idea is to put a floor under the carbon price by creating a carbon central bank that could withdraw emissions allowances from the market if the price fell below a certain level and issue extra permits if it rose above a fixed ceiling.

Mark Lewis, managing director of commodities research at Deutsche Bank, says carbon prices are artificially low because firms have been selling off emissions permits they received for free to raise short-term cash that they can no longer borrow.

“This sends the wrong price signal for investment and for changing consumer behaviour,” Lewis told an energy conference organised by the French Institute for International Relations.

Last week’s record low price of 9.5 euros ($12.17) a tonne makes it more economical to build new coal-fired power stations than to invest in renewable energy and smart infrastructure.

A carbon bank, like a monetary central bank, would be empowered to intervene if market forces were not achieving the desired policy objectives, and the mere threat of intervention might be enough to curb speculative peaks and troughs.

However, a reform of the EU’s Emissions Trading Scheme just adopted for the period 2013-2020 contains no such provision.

The United States, Australia and Japan can learn from the mistakes made in Europe, Lewis says, by insisting that industry buys carbon permits from the outset instead of getting them for free, and by creating a carbon bank.

The EU could then link its system into a global emissions market, involving initially the advanced industrial nations and eventually the emerging economies too.

Laying the foundations of an international cap-and-trade system that would create a global price for carbon would be a giant advance at the U.N. climate change conference in Copenhagen later this year.
EU Energy Commissioner Andris Piebalgs contends the best way to guarantee the necessary investments in Europe is through a 10-year infrastructure investment plan backed by public money from member states’ economic stimulus programmes.

In the short term, the European Commission plans to allocate 5 billion euros in unspent EU funds as seed money to promote cross-border energy interconnectors, an electricity supergrid and clean coal plants using carbon sequestration technology, as well as broadband telecoms networks.

But to Claude Turmes, a leading European Parliament member on climate issues, the money is too thinly spread to break the investment deadlock in renewable energy.

The Luxembourg Greens lawmaker says it would be better to use the money to leverage credit from the EU-owned European Investment Bank at subsidised interest rates to build the infrastructure backbone needed to transport renewable energy.

– Mary D. Nichols is Chairman of the California Air Resources Board, the lead agency for implementing California’s landmark climate change law, the Global Warming Solutions Act of 2006. The views expressed are her own. –

After eight years of inaction on climate change by the federal government, we can now look forward to the Obama administration tackling global warming head on. With not a minute to lose, Lisa Jackson, the soon-to-be new head of the EPA, should move quickly to capitalize on the momentum of states that have so far been the leaders in fighting global warming. There is no better place to start than by establishing a national greenhouse gas emission standard for automobiles based on California’s landmark clean car law.

California has always been a pioneer in setting tough automobile emission standards. Our regulations paved the way for lead-free gas, the catalytic converter, and many other innovations that were later adopted as the national standard. As a result, we have eliminated 99 percent of harmful pollution pouring out of autos today compared to a 1960s era car, leading to clearer skies and cleaner air in our cities.

In 2002, California continued its track record of pioneering environmental legislation when it passed a law that directly addressed greenhouse gas emissions from cars. Personal vehicles produce 20 percent of the nation’s greenhouse gases, and so are increasingly being addressed by governments that are serious about averting catastrophic climate change. Thirteen other states have formally adopted and three states are considering adoption of California’s cost-effective and technologically doable program.

Indeed, the motivation is not only environmental - owners of these cars will save thousands of dollars over the vehicle’s life because cars that meet the standard are also likely to be more fuel efficient.

Together with California, these 16 states constitute almost half the country’s new vehicle sales, creating a huge market for the best that Detroit has to offer.

Despite these benefits, the EPA blocked California from enforcing its greenhouse gas emission standards for cars. It also delayed responding to the Supreme Court, which required that the EPA consider using the federal Clean Air Act to create a program similar to California’s program to reduce emissions from all the nation’s vehicles. Just last month, the outgoing administration failed to carry through on its promise to publish new CAFE rules – national fuel economy standards – as required by Congress.

The new Obama Administration should use this opportunity to set a new foundation for American energy and climate security. Soon-to-be Administrator Jackson should immediately follow through with President Obama’s promise to allow California’s regulations to come into force. She should also begin the process to create a national greenhouse gas standard for cars based on California’s approach – a 30 percent reduction by model year 2016 - and establishing even greater reductions in the future.

At the same time, the Obama Administration should direct the Department of Transportation to fix its flawed CAFE rules to be compatible with new climate change needs. It also needs to address a regulatory process so distorted that fuel economy standards are based on the technology of the “least capable manufacturer,” holding our nation’s energy security hostage to the lowest common denominator. Instead, Obama should direct DOT to work in concert with EPA to create standards that work for both fuel economy and the reduction of greenhouse gases.

Coordinating these two approaches will also provide automobile manufacturers with THE stable set of national policies they have been calling for. This strong national program will also send a clear signal to Detroit to fire their lawyers who have been wastefully battling California’s regulation and hire the engineers who will build the cars consumers want and that will support the future success of America’s auto industry in a global market.

If we’re going to wring the carbon out of our economy, we will need the coordinated actions of government agencies across all sectors and additional investments for rapid economic recovery under a comprehensive national climate change framework. That will take time to develop, and some careful planning. In the meantime, the EPA can immediately draw upon the experience of states like California and its leadership under Governor Schwarzenegger to use its existing authority under the Clean Air Act and take effective and early action against climate change.

By acting now, the EPA will show the world that the United States is finally taking its place among the community of nations to address the pressing challenge of, in the words of our new president, a planet in peril. California, and many other states, stand ready to help.

– Paul Taylor is a Reuters columnist. The opinions expressed are his own –

He wasn’t present and he isn’t even in office yet, but Barack Obama was the elephant in the room at last week’s European Union summit on economic recovery and climate change.

The 27 EU leaders knew they needed strong agreements to reduce greenhouse gas emissions and give their recession-hit economies a big fiscal stimulus to make themselves credible partners for the U.S. president-elect.

Europe’s green deal had to be bigger, bolder and more ambitious to avoid being dwarfed when Obama announces his own clean energy program at his inauguration next month.

After the EU agreed on rules to cut carbon dioxide emissions by 20 percent by 2020, draw 20 percent of its energy from renewable sources and reduce energy consumption by 20 percent, European Commission President Jose Manuel Barroso adapted Obama’s campaign slogan to drive home the point.

“Our message to our global partners is ‘yes, you can’,” he declared. “Yes, you can do what we are doing … especially to our American partners.”

“We are asking him (Obama) to join Europe and with us lead the world.”

French President Nicolas Sarkozy, climaxing an energetic six-month presidency of the EU, proclaimed: “No other continent in the world is setting itself such binding limits as the measures we have just adopted.”

Behind their hubris lay worries that the charismatic new U.S. president could grab the mantle of green leadership from Europe, even though the goals he has outlined so far are more modest — to stabilize U.S. carbon emissions by 2020.

“The risk is that the Europeans could be upstaged by Obama acting more radically than Europe,” says Antonio Missiroli of the European Policy Center think-tank.

There is also the perennial fear that Europe may not figure very high on the new American leader’s radar screen, and that he may care more about relations with Asia’s emerging economic powerhouses than with the slow but steady EU.

“For Obama’s agenda, Euorpe is neither very relevant nor an obstruction. It doesn’t tip the balance,” Missiroli said.

Sarkozy warned more reluctant EU leaders that Europe would make itself look ridiculous if it abandoned its green ambitions just when the United States had finally elected a president who made climate change his priority.

Brussels officials are talking enthusiastically of linking the European emissions trading scheme with a future U.S. system to lay the foundation for a global carbon market.

They may be in for a cold shower, given likely resistance in the U.S. Congress to any binding cuts in carbon emissions.

Indeed, EU and U.S. officials are pessimistic about the chances of an international agreement in December 2009 at United Nations talks on a climate pact to replace the Kyoto Protocol, which Washington never ratified.

Some European leaders argued that the EU had to take the lead precisely because of the problems Obama will face at home.

“An EU agreement will support President Obama, who will have great difficulty getting an agreement on a system of emissions trading,” German Chancellor Angela Merkel told fellow leaders behind closed doors, according to an official record.

On the economy too, Barroso argued that Europe and the United States should coordinate their recovery programs.

Yet the main European powers remain divided on the correct response to the recession, despite agreeing on paper on a European Commission programme calling for a stimulus of about 1.5 percentage points of Gross Domestic Product.

Obama has indicated he is considering a far bigger fiscal jolt to the economy, given the scale of the U.S. recession.

Germany’s finance minister has branded Britain’s sweeping cut in sales tax “crass Keynesianism”. All other EU countries rejected any across-the-board cut in Value Added Tax.

France has focused its recovery measures on public infrastructure investment, plus a short-term cash incentive to trade in old cars for new ones.

Merkel has resisted pressure from Berlin’s EU partners to do more to stimulate Europe’s biggest economy, but she now faces domestic calls too for tax cuts and spending on public works.

On both climate change and the economy, Europe hopes to find a more cooperative partner in Obama, but perhaps with a degree of self-delusion about his interest in European solutions.

For previous columns by Paul Taylor, please click here.

– Paul Taylor is a Reuters columnist. The opinions expressed are his own –

European Union leaders this week face a crucial credibility test of their ambition to lead the world in fighting climate change, just as President-elect Barack Obama is making it a top priority for the United States.

Will the EU give real teeth to its pledge to cut greenhouse gas emissions by at least 20 percent by 2020, draw 20 percent of their energy from renewable sources and cut energy consumption by 20 percent over the same period, or will it fall short?

The omens for the Dec. 11-12 summit are not too encouraging.

Europe’s climate goals were agreed in March 2007 in sunnier economic days. The financial crisis and looming recession have fueled pressure from heavy industry and some governments to go easy on implementation measures.

The EU will almost certainly reach a deal by the early hours of Saturday, which French President Nicolas Sarkozy will no doubt declare a triumph for his presidency of the bloc.

Yet the draft legislation has already been watered down to assuage industrial lobbies led by Germany, and more concessions will have to be made to placate coal-dependent Poland.

European Commission President Jose Manuel Barroso says he is confident the essentials of the EU executive’s proposal to turn Europe’s climate objectives into reality will remain intact.

But green campaigners say the result will be a toothless package that falls far short of the EU’s leadership boast.

“The glass is three-quarters empty. The emperor is standing there with no clothes,” says Stephan Singer, head of the European Climate Change and Energy Unit at pressure group WWF.

FEAR OF COSTS

He and other environmentalists argue that the EU should be aiming to cut emissions by 30 percent in the light of impending “regime change” in the White House, Australia’s ratification of the Kyoto Protocol on climate change, and sigs of progress by China, India, Brazil, Indonesia and the Philippines.

Singer says the 27-nation EU will probably achieve its so-called 20-20-20 objectives, since European emissions are already almost 9 percent down on the 1990 starting point, leaving just 11 percent to cut in the next decade.

Moreover, EU states can make half those reductions far from home through a Clean Development Mechanism, which gives them carbon credits for funding emissions cuts in developing nations.

The emerging EU deal may not be tough enough to galvanize other nations into an agreement at U.N. climate negotiations in Copenhagen in December 2009 to save the planet from potentially catastrophic ecological consequences of global warming.

Fear of high initial costs for business and consumers has made many European governments wary of unilateral EU action, despite warnings from economists such as Britain’s Sir Nicholas Stern that the price of inaction will eventually be far higher.

Auto manufacturers have been given an additional three years till 2015 to meet a binding limit on carbon emissions from cars, and fines for non-compliance have been tapered in a way that may encourage some producers to overstep the mark.

INDUSTRIAL LOBBYING

The main climbdowns have been on the European Emissions Trading Scheme (ETS), which caps overall output of carbon dioxide, the main greenhouse gas, and makes companies buy and sell permits to emit CO2 according to their needs.

The Commission proposed requiring industry to buy all or most ETS allowances at auction from 2013. Power companies would have to buy 100 percent of their permits from the outset.

However, energy-intensive sectors such as steel, glass, chemicals, aluminum, ceramics and cement, which threatened to relocate outside Europe if forced to pay for pollution permits, will now be granted free allowances — at least initially — unless there is an international agreement.

The criteria proposed by the French presidency to determine which industries are exposed to international competition and are hence deemed unable to pass on auctioning costs to customers seem particularly generous to business.

This is a victory for German Chancellor Angela Merkel, whose green credentials have been tarnished by industrial lobbying since she presided over the 20-20-20 accord last year.

Merkel is determined not to jeopardize jobs in Germany, Europe’s biggest industrial economy, in an election year.

Exempting many companies from having to buy permits will reduce the incentive to use energy efficiently and shrink the proceeds from auctioning earmarked to fund clean energy projects in poorer EU states and developing countries.

Even electricity generators may now get some free carbon allowances in countries that are highly dependent on coal.

This is a sop to Poland and other central European states that are heavily reliant on coal and do not want to become more dependent on Russia by switching to less polluting gas.

PARTNER FOR OBAMA

A summit deal may hinge on Germany and Britain agreeing to earmark more EU money for next-generation clean coal power stations, cross-border electricity grid interconnectors and perhaps new nuclear plants for Poland and its Baltic neighbors.

On the plus side, European countries have made significant progress on legislation to promote renewable energy sources such as wind, wave, tidal and solar power.

And they are well set to reap big energy efficiency gains through better building design, insulation, lighting, heating and cooling.

So the EU’s green credibility may just about survive the inevitable compromises and delays necessary to get a deal at the Brussels summit, although environmental campaigners are bound to denounce a sell-out.

“In the end, we will achieve 80 to 90 percent of our objectives and the critics will scream about the other 10 or 20 percent,” sighed an EU official involved in the climate drive.

“But Obama will look at what Europe is doing and see he has a partner in the fight against climate change.”

– Paul Taylor is a Reuters columnist. The opinions expressed are his own –

With Europe and the United States staring recession in the face, a growing chorus is calling for massive public investment in clean, green energy to revive economic growth while fighting climate change.

Under the slogan of a “Green New Deal”, leaders from U.N. Secretary-General Ban Ki-moon to former U.S. Vice-President Al Gore and German Foreign Minister Frank-Walter Steinmeier argue that industrialized countries can kill two birds with one stone and create millions of “green collar” jobs.

The idea of using tax breaks and extra public spending to promote energy efficiency, mitigate carbon emissions and develop renewable power sources, inspired by U.S. President Franklin D. Roosevelt’s New Deal public works program during the 1930s Great Depression, sounds like common sense.

But it may not happen fast enough, or on a sufficient scale, to stimulate the economy, arrest global warming or durably bring down oil prices that reached $147 a barrel earlier this year.

“This is the big opportunity to get off the oil hook, but governments have to be bold, do it on a large scale and stick to it,” said Tom Burke, co-founder of environmental consultancy E3G and an associate professor at Imperial College, London.

He advocates sustained public investment in wind farms, photovoltaic and solar energy, developing clean coal technology, connecting European electricity grids, and combining heating and power from gas to make offices and homes more fuel-efficient.

Yet governments which have collectively found about $5  trillion to rescue banks and galvanize economies are hesitant to focus fiscal stimulus measures on clean energy because of the long lead-time for many projects.

Indeed, there are signs that financial crisis is causing cutbacks in public and private-sector investment in wind farms, solar and wave power, and economic angst may make the European Union scale back ambitious legislation to fight climate change.

President-elect Barack Obama said in a campaign debate that the credit crunch could slow his plans for a $150 billion clean energy program, designed to reduce U.S. dependence on imported oil and create 5 million “green collar” jobs.

Research group New Energy Finance says new investment in clean power will decline by 4 percent this year compared with 2007 due to the crisis although the conditions for growth are intact. Total new investment in low carbon technology is estimated at $142 billion in 2008, down from a record $148 billion in 2007.

Germany, Europe’s biggest economy, earmarked just a fraction of this month’s 50 billion euro ($62.45 billion) stimulus package for measures to renovate buildings and reduce emissions.

Governments are tempted to give money directly to voters in tax cuts or one-off payments to trigger an immediate spurt in consumption rather than take the slower route of investing in green infrastructure schemes, economists say.

A recession is also a difficult time to introduce new green taxes that promote environmentally sustainable behavior.

Some governments have found ways to combine the two, but so far mostly on a modest scale.
Britain has spent public money on insulating old people’s homes. Lagging roofs and filling wall cavities cuts pensioners’ fuel bills, reduces energy consumption, curbs CO2 emissions and creates jobs. It’s a win-win-win-win proposition.

France has created tax incentives to buy low-emission cars, with corresponding tax hikes on gas guzzlers, that are changing driving habits and have prompted auto makers to advertise their vehicles’ green performance rather than acceleration or power.

To make an impact on gross domestic product next year, European countries would have to do far more, especially on energy efficiency, where environmentalists and EU officials say the biggest and quickest gains are to be made.

Achim Steiner, executive director of the U.N. Environment Program, says Britain could create thousands of jobs within two years by reducing the carbon footprint of buildings.

The European Commission’s Strategic Energy Review, published last week, offers plenty of longer-term projects awaiting funds.

They include a European gas and electricity supergrid, giant North Sea windfarms connected by underwater cables, pipelines across Turkey to central and southern Europe and a Mediterranean energy network to harness North African solar and gas potential.

There’s no shortage of work, but it takes political courage in a recession to think big.

This year is set to be about the 10th warmest since records began in the 19th century, according to Phil Jones, a leading British climate scientist -- see story here.

But does that confirm a long-term trend of global warming, stoked by human emissions of greenhouse gases, or show that it has stalled? The warmest year on record is now a while ago, in 1998.

Jones, head of the Climate Research Unit at the University of East Anglia, has no doubt that the underlying trend is still up -- 1998 was an unusual year when global temperatures were boosted by an El Nino weather event in the Pacific Ocean. And this year, the opposite La Nina effect is cooling the planet.

(Among signs of a cooler 2008, some high Alpine ski resorts in Switzerland have opened early...)

And Jones says that the world's thermometers may also be underestimating temperature rises because the Arctic -- visibly warming since summer ice shrank in 2007 to the smallest since satellite measurements began in the 1970s -- is pretty much excluded. That's because there's a lack of records from 1961-90, the benchmark years for judging current global warming, because ships didn't go there.

But Joseph D'Aleo, a meteorologist who leads ICECAP (International Climate and Environmental Change Assessment Project), wrote in a comment that "flawed science and bad siting" of thermometers often mean a bias towards warmer readings. He says that 2008 might only be in the top 20 or 30 years.

ICECAP says it is that it is worried that "the sole focus on greenhouse gases and the unwise reliance on imperfect climate models while ignoring real data may leave civilisation unprepared for a sudden climate shift that history tells us will occur again, very possibly soon".

And many sceptics about the U.N. Climate Panel -- distilling conclusions from work by 2,500 experts worldwide - are finding ammunition from the fact that temperatures are not setting records every year. The Climate Panel says it is at least 90 percent likely that human activities, led by burning fossil fuels, are the main cause of warming in the past 50 years.

D'Aleo notes that Jones' unit forecast once that 2007 could be the warmest on record. Jones says that the La Nina was unexpected at the time and knocked it down the rankings.

Jones says that natural variations in the climate -- such as El Nino, La Nina or volcanic eruptions that can dim the sun -- can easily mask the faint warming trend. Each year, he says temperatures can swing about 0.2 degree Celsius from the annual average because of natural variations. Meanwhile, global warming is adding about 0.2C per decade - by that sort of reckoning, he says it's not unusual that a year ranks 10th.

So who's right?