Ukraine will scrap gas subsidies

Posted by Laurens Cerulus on 24/11/14

For many years Ukraine has wasted huge amounts of energy through exorbitant subsidies on gas consumption, coupled with in-transparent multiple gas prices and large-scale corruption. Due to these factors, Ukraine has become one of the most wasteful energy consuming countries in the world. With household gas prices substantially lower than in any other European country and lower than the wholesale purchase prices, this regime had long become unsustainable.

Under the new political leadership it will finally disappear. There will be a single wholesale gas price which will cover the supply costs and yield a decent profit for the state-owned gas company. The IMF and the EU had conditioned their financial assistance to a profound reform of the Ukrainian gas market.

Gas prices will have to more than double, which cannot happen overnight. This huge rise of prices will induce consumers to a much more economic use of gas and higher energy efficiency. By the same token it will dampen the social impact of the price rise.

The future generated profits will be used to financing improvements of the gas distribution, improving energy efficiency and offering specific assistance to vulnerable groups of society.

This will be a revolution for Ukraine and other the countries still indulging in the luxury of fossil subsidies. It will not be easy to “sell” politically. But Ukrainians, having shown they can be tough, are likely to accept a higher gas price in exchange for security of supply.

If the anticipated increase of energy efficiency happens in the wake of the phasing out of subsidies Ukraine might become an example for other developing and emerging countries to be followed.

Eberhard Rhein, Brussels, 20/11/2014

New G20 ‘commitments’ on phasing out fossil fuel subsidies are worthless

Posted by Eberhard Rhein on 20/11/14

At the Pittsburgh G 20 meeting in September 2009 the heads of government had agreed to phase out subsidies on fossil fuels by 2020. At that time, the global volume of these climate-damaging consumption subsidies amounted to $ 300 annually, mostly in developing and emerging countries. Today, their volume has risen to $500 billion, and only few countries have lived up to their commitments to phase them out.

In Brisbane, November 15-16, 2014, the heads of government have repeated their commitment, using almost the same wording, but without fixing a date by which subsidies should be phased out.

This is regrettable, for for oil and gas prices constitute an incentive for higher consumption, which should be avoided in view of reducing green house gas emissions.

Whatever the G 20 agrees upon, whether fiscal behaviour by governments, investment packages, extra economic growth, is only of limited value as it does not bind any of the 20 countries and lacks a credible follow-up.

Unfortunately, the G 20 has failed in its role as a sort of global economic governance. Consensus remains the guiding principle. It is therefore one of the “loosest governing bodies” on earth. That raises increasing doubts about its utility considering the ever rising costs of security, travel and time spent for preparation and organisation.

The Brisbane summit will above all be remembered for Putin coming under heavy fire from the host and other prime ministers for shooting down a plane over Ukraine killing nearly 400 Dutch and Australian citizens. If this were to change his mind on Ukraine the meeting will have been very much worth the costs. Unfortunately that seems quite unlikely.

For the time being there is no better alternative for G 20 “diplomacy”. But summit meetings should take place only every three years!

Eberhard Rhein, Brussels, 18/11/2014

The climate deal between China and US is not good enough

Posted by Eberhard Rhein on 20/11/14

At the margin of the APEC meeting in Beijing November 8-10th 2014 the US and Chinese Presidents have concluded an “historic” deal on how to address the common challenge of climate change.

China will stabilise its green house emissions starting in 2030, while the USA will reduce its emissions by 26-28 per cent until 2025. This deal has raised hopes for what is considered the decisive Paris Climate Conference in December 2015. Other major climate polluters are expected to come up with meaningful commitments, after the EU, USA and China, being jointly responsible for more than half of global emissions, have started to make offers.

From an equity perspective, the deal seems correct: bearing a historical responsibility for rising emissions and unacceptably high per capita emissions developed countries, especially the USA, must go ahead with ambitious reductions. But emerging countries must also come on board their share in global emissions having started to exceed that of developed countries.

From a climate perspective the “offers” are insufficient.

According the latest “synthesis” assessment by the International Panel on Climate Change time is running out for keeping the global temperature within a two degree Celsius increase. Humanity must not emit more than 1000 Gt of C02 in the future, one quarter of the known coal reserves (!), and undertake substantial emissions reductions in the next few decades. Without doing so global temperatures are most likely to rise by more than two centigrade until 2100, a nightmare perspective.

The intentions of the three big players therefore lack the necessary ambition. Our top leaders are too much focused on their short- term political tasks and overlook that – for the first time in history – they have to act within a multi-decade perspective.

Even the EU, the pioneer of climate policy, has been too prudent with its 2030 objective of a 40 per cent green house gas reduction over 1990. To reach its own ambition of reducing its emissions by 80-95 per cent until 2050 it should aim at 50-55 per cent reduction by 2030.

This could be possible by complementing its system of emission capture&trading by “emission performance standards” comparable to those introduced for cars and light vehicles by EU and USA. The USA and UK will apply these also to reduce emissions in new power plants and put high hopes in them for a substantial reduction of their GHG emissions.

The US objective for 2025 looks ambitious, but would still leave the US with unacceptably high per capita emissions of around 10 tons per year. Unfortunately, the US government has little leverage to improve its offer considering the Republican majority in the Congress adamantly opposed to any type climate policy.

The eyes should therefore be directed to China.

The stabilisation of its green house gas emissions starting in 2030 will be the result of slower economic growth, an impressive deployment of hydro, wind and solar energies (20 per cent of total energy demand by 2030!), and more low-emission cars &e-vehicles, complemented by closures of the most polluting coal power plants in metropolitan areas in response to growing calls for clean air.

For a country having totally focused on economic growth during the last four decades that is quite impressive, but still not good enough for the biggest emitter with more than a quarter of global emissions and per capita emissions exceeding 7 tons.

It is not easy for China to rapidly implement effective remedies. The best ones are phasing out of most the coal-power plants in favour of lower emission gas-power plants and investing much more in energy efficiency.

In conclusion, the recent announcements by world’s biggest three emitters do not augur well for the 2015 Paris Climate Conference and the earth’s future climate.

Eberhard Rhein, Brussels, 17/11/2014


Higher petrol excise taxes are more efficient than road toll systems

Posted by Eberhard Rhein on 13/11/14

About two thirds of the EU member states are using toll systems for financing the construction and maintenance of highways. National governments monitor the rates being charged; and this functions quite satisfactorily.

There is no reason for the EU to intervene, except insisting on strict non-discrimination between road users from different member states. This seems never to have been an issue, until two weeks ago Germany also announced its intention to introduce highway tolls from which German citizens would, however, be exempted for the equivalent of the vehicle taxes. Such a construction would be a discrimination and therefore an infringement of basic EU rules.

Toll systems are an expensive way of charging users for road construction and maintenance. Gasoline and diesel excise taxation is a far more effective instrument for charging cars simultaneously for using the roads and polluting the environment.

The EU applies minimum tax rates for gasoline and diesel. But the present rate of € 359 per 100 litre gasoline and diesel are too low to encourage citizens to buy fuel-efficient vehicles and help neutralising the external costs. The EU should therefore double the minimum rate to € 700/100 litre. Adding the 20 per cent VAT, taxation would account for roughly two thirds of the gasoline/diesel price which is in line with excise taxes on tobacco or alcohol.

A doubling of the excise tax on diesel and gasoline would have four positive effects. It would:

  • raise member states` fiscal revenue to finance the construction and maintenance of roads;
  • charge road users according to the level of their C02 emissions;
  • make it easier to attain the 2050 EU objective of reducing C02 emissions from road traffic by 60 per cent;
  • make further road toll systems superfluous.

    Eberhard Rhein, Brussels, 12/11/2014

    China can reduce air pollution when it has to

    Posted by Eberhard Rhein on 06/11/14

    From November 3 to 11 Beijing is hosting an APEC Summit, which 20 Heads of Government from the Pacific region will attend.

    To that end, the local authorities have undertaken utmost efforts to clean up their city, which is one the most polluted on earth.

    The streets are “empty” because schools, local government, public and private companies send their students and staff on temporary leave. This enables the authorities to halve the number of cars on the roads, according to even and uneven number plates.

    The air is “clean” because some 300 energy-intensive factories around Beijing have to close down or reduce their activities during the Summit. Public works within the city are temporarily suspended.

    The APEC meeting can therefore take place in a beautiful, clean and quiet city that in reality does no longer exist; and the international visitors can return home with the impression that China is finally coming to grips with pollution, something its citizens have been demanding for years.

    After this impressive “clean-up” in Beijing popular pressure on local and central government is bound to grow to tackle air pollution and thus help reigning in rising health costs and climate-related natural catastrophes.

    This will require phasing out coal-fired power plants,and introducing equipment to eliminate small particles in factory-chimneys as well as less-polluting vehicles.

    The Chinese political establishment is becoming increasingly aware of these risks and would be well advised not to further delay urgent action.

    The Chinese position at the Paris Climate Conference in December 2015 will show to what extent awareness will have turned into action.

    Eberhard Rhein, Brussels, 5/11/2014


    Governments should benefit from low oil prices to end subsidies

    Posted by Eberhard Rhein on 03/11/14

    With oil prices having declined to less than $90 per barrel, a low level not seen for more than a decade, oil/gas subsidies are becoming a costly affair to countries with high production costs like Russia, Egypt, Yemen, Venezuela, Indonesia. At the same time, due to the lower prices consumers enjoying them will hardly feel the abolition of the subsidies.

    This is therefore the right moment to abolish them or at least start phasing them out. At the forthcoming Climate Conference in Lima, the IEA should therefore make a renewed plea for their abolition; and the international community should lend its full-hearted support for such action.

    A decision to phase out oil/gas subsidies in Lima it would be the first time ever that a climate conference produces a tangible result by ending an unforgivable incentive to fossil energy.

    Eberhard Rhein, Brussels, 20/10/2014

    Technological breakthroughs against climate change brighten the horizon

    Posted by Eberhard Rhein on 29/10/14

    Humanity will be unable to combat climate change without profound transformations in the way it generates energy.

    Two such transformations have been recently announced, one in Singapore, the other in USA.

    In Singapore, a team of scientists of the Nanyang Technological University have developed a new type of ultra-fast recharging batteries which are claimed to charge a car battery up to 70% of capacity within five minutes. This breakthrough will revolutionise e-mobility in terms of range and costs and make electric cars superior to the most efficient diesel vehicles.

    European manufacturers should therefore urgently reassess the situation and adapt their proven, but old-fashioned engine technology at the risk of losing out to US and Chinese competitors.

    The new batteries will provide us with truly clean motor vehicles and give a powerful boost to solar and wind energy, because millions of cars may form big energy storage systems helping to overcome the inherent intermittences of renewable energies.

    Separately, the US defence company Lockheed has announced a breakthrough in fusion energy. Within a year it will build a test reactor to be followed five years later by a prototype of a 100 MW reactor of tiny dimensions (2×3 meter!).

    Assuming the problems linked to nuclear fission, in particular safety and waste storage, to be solved this might usher in an era of non-fossil electricity generation based on wind, solar, biomass and nuclear fusion.

    The demand for oil and gas will also fall dramatically as the global car, shipping and possibly even aircraft industry will phase out the internal combustion engine, say by 2050, reinforcing the decline of C02 emissions.

    Add to these two technological breakthroughs the introduction of a magnetic super high-speed train by the Japanese railways until 2045.

    Running at a speed of up to 500 km/h the train will largely replace domestic air transport, also a significant source of C02 emissions. The Japanese industry will no doubt export the new train to other parts of the earth, from North America, to Brazil, Argentina, Russia and Europe, with the consequence that there too it is likely to replace domestic air traffic on distances of less than 1500 km.

    The news from Singapore, USA and Japan unfortunately show that Europe has lost its momentum in coming up with courageous technical and political solutions both to tackle climate change!

    We are closer than ever to technical solutions allowing for a largely emission-free future. By establishing strict emission targets heads of government will help accelerate the technological breakthroughs that are arising on the horizon.

    In conclusion, one year ahead of the World Climate Conference in Paris, there is reason for guarded optimism, provided policy makers will show the courage to fix ambitious long-term targets and avoid getting again lost in minutiae.

    Brussels 20.10 2014 Eberhard Rhein

    The Paris Climate Conference must agree on abolishing fossil energy subsidies

    Posted by Eberhard Rhein on 21/10/14

    During the last years international organisations from IMF to IEA have called for the abolition of subsidies on oil and gas consumption. At its meeting in September 2009, the G20 has also agreed to phase them out in the medium term.

    Without much avail; most governments concerned continue to ignore these calls, whatever the negative impact of their subsidies on budgets, urban traffic, trade balance, pollution, human health and, of course, the global climate.

    The amount of the subsidies does not show signs of decline. It continues to range about half a trillion USD, 0.7 per cent of global GDP!

    Most of the subsidies are being granted by low and medium-income countries, which can least afford to squander huge amounts of money for giving wrong incentives.

    The other category of sinners are rich oil- and gas- producing countries that seem to consider their oil and gas reserves big enough to indulge in the highest C02 per capita emissions on earth, topping the USA, Canada and Australia.

    Fossil-fuel subsidies counter-act the efforts undertaken to reduce greenhouse gas emissions and help humanity survive in sustainable conditions. By keeping fossil-fuel prices even below low world market levels they push up consumption.

    The 2015 Paris Climate Conference must therefore call for rising fossil energy prices in all countries, something that has never been done before.

    The first step must be a rapid phasing out of fossil-fuel subsidies to be followed by a progressive introduction of fossil energy taxation, whatever its form.

    Subsidies and taxes are easy to check: governments simply have to lay open their budget expenditures and revenues.

    The Paris Conference needs to fix a deadline, say 2025, when the phasing out of subsidies should be completed and fossil fuel taxation should start. IMF or IEA should be tasked with monitoring and reporting on progress.

    In view of achieving a consensus in Paris on this approach, the French government should dispatch several high-level emissaries to the major subsidising countries with the mission to convince the governments of the advantages from abolishing fossil fuel subsidies and introducing fossil fuel energy taxation.

    It will be anything like an easy mission. But after five years of inaction the international community must finally take the courage to be tough with the “sinners”.

    Eberhard Rhein, Brussels, 10/10/2014

    Bulgaria should not go ahead with a second nuclear power plant

    Posted by Eberhard Rhein on 21/10/14

    After seven years of negotiations Bulgaria has signed a provisional contract with the US company Westinghouse to build a 1 GW nuclear power plant to complement the 3.8 GW nuclear capacity of the 40 year old Soviet-built Kozloduy plant, reserving the final decision to the summer of 2015 after detailed cost-benefit analysis.

    Bulgaria`s record in the energy sector is one of the worst among EU member states. The costs are too high; the country is anything but energy-efficient and complaints about mismanagement, over-pricing, lack of competitiveness and corruption have been numerous.

    The new Bulgarian government should therefore undertake a thorough examination before finalising a contract, and it must do with the help of external neutral experts.

    Does Bulgaria, a net exporter of electricity, really need the extra power capacity? Is it worth investing $ 5 billions for a second nuclear power plant, considering its stagnant or even declining power demand, the experience with colossal cost-overruns of the new nuclear power plant in Finland and the decisions of Germany and France to close all or part of their nuclear capacity within the next 10 years.

    Is not much more effective to invest $ 5 billion a thermal rehabilitation programme of the poorly insulated apartment blocks from the Soviet era, as the Bulgarian President Rossen Plevneliev has recently suggested in an interview? Such a programme would certainly create many more jobs than a nuclear power plant.

    In any event, Bulgaria like all other member countries will have to put the emphasis on reducing the consumption of energy through higher energy-efficiency and putting in place renewable energies.

    It would therefore be appropriate for the EU Commission to take a closer look at the cost-benefit analysis that Bulgaria will undertake and make sure that it also includes alternatives like rehabilitation programmes for poorly insulated public buildings and apartment blocks?

    Eberhard Rhein, Brussels, 7/10/2014

    Germany turning into an Electricity Importer

    Posted by Eberhard Rhein on 20/10/14

    Germany is in the beginning of its nuclear phase-out to be completed by 2022.

    To that end, it has to replace nuclear power accounting for 18% of its electricity supply, compared to more than half from coal, by higher energy efficiency and renewable energy.

    It will also have to close some 30 conventional coal- and gas-fired power plants with a total capacity of 7 GW, which can no longer compete against wind and solar electricity.

    To cope with these closures north-south grids  will be necessary to transport large volumes of wind power, but their construction suffers delays because of technical hiccups and public opposition. German utilities have therefore begun buying electricity from Austrian, Italian and French sources for the winters 2014-2016.

    This is to be applauded. European power producers have an intrinsic interest to trade electricity according to daily and seasonal availabilities and costs.

    The wider the geographic scope for trading wind and solar electricity the easier will it be to do without “stand-by” power plants: somewhere in Europe hydro, biomass, sunshine or wind should normally  be available. Gas-fired stand-by capacities should be an exception, as they are expensive to operate because of low capacity utilisation.

    In order to obtain energy security and sustainable supply Europe will need pan European grids and optimal energy efficiency. That will take time and huge investments. The EU has laid out a strategy until 2050 to that end. It should start implementation 2014-20 with support financing from EU structural funds.

    Eberhard Rhein, Brussels, 10/10/2014

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