- Australia’s government shows an ideological opposition to renewable energy
- Surging US crude oil production will bring the energy security debate back to the fore
- US Environmental Protection Agency tightening the rules around all forms of pollution (carbon, SOx, NOX, mercury)
- Google financing US residential solar systems
- German energy policy takes a pragmatic turn – pressure on renewable energy manufacturers to continue driving down their product costs
- China signaling its resolve to truly tackle pollution by releasing alarming soil study – growing sense that China and the US are finding common ground in regards to pollution which gives hope for some sort of global agreement on carbon next year
- Japan officially puts nuclear back on the table but remains vague on its contribution
Energy Policy Assessment
In response to complaints from customers and installers, the California Public Utility Commission announced a draft ruling that prevents utilities from charging fees for connecting batteries to the grid. This removes another impediment to greater adoption of rooftop solar systems in the state.
While still only a simmering issue, the recent rise in gasoline prices despite record domestic oil production and record crude oil inventories is expected to bring the issue of energy security back to the fore. US companies are prohibited from exporting crude oil but are allowed to export oil products like gasoline and diesel. As domestic crude production has risen, product exports have likewise soared creating a stronger link with international energy prices which are generally higher than in America. The US Environmental Protection Agency (EPA) further reduced the cellulosic biofuel requirement for 2013 to 810,185 ethanol-equivalent gallons to match actual production. Second generation biofuels from inedilbe parts of plants have consistently struggled to meet the EPA’s growth target as the final 2013 quota was reduced from an earlier predicted value of 14 million gallons and well behind the 1.75 billion gallons original envisioned back in 2007 when the law was approved. More importantly, the final 2014 target values for all types of biofuel still has not been released with some market observers speculating other biofuels (like biodiesel) will see an increase in their allocation.
Another major solar leasing partnership has emerged this time between Google and Sunpower who have committed US$250M to help finance residential solar systems. The EPA also noted that automobile manufacturers are ahead of the CAFE compliance schedule. The Corporate Average Fuel Economy (CAFE) regulation seeks to improve the fuel economy of vehicle fleets from 35.5 miles per gallon in 2016 to 54.5 miles per gallon in 2025. In a solid win for the EPA, the US Supreme Court upheld the agencies authority to regulate cross state emissions by supporting the Cross State Air Pollution rule.
The EPA was also directed by a federal judge in California to publish long delayed rules on ground-level ozone pollution (aka smog) by December 2014. The initially discussed smog rules are very contensious as the cost of compliance is expected to be very high for businesses. Lastly, President Obama has taken a strong stance to address climate change following the release of the National Climate Assessment update that highlights climate change will only get worse unless action is taken immediately.
Germany finalised its new renewable energy policy that some have dubbed FiT 2.0. The key elements of the reform include: an annual cap on wind, solar and biomass installations; fewer energy intensive companies will be exempt from paying renewable energy surchages; larger solar installations (greater than 10 kilowatts) will have to pay a tax on the power they produce; and new very large renewable energy installations (greater than 500 kilowatts) will have to start earning market rates for energy from August 2014 with the size threshold falling to 100 kilowatts by 2017. This politically charged change has ultimately been a compromise between businesses and consumers that reflects increased pragmatism in dealing with the costs of renewable energy policy. Pressure now falls on renewable energy manufacturers to continue driving down their product costs because current wholesale market prices for electricity are generally a weak economic incentive for consumers to adopt renewable energy.
China released a long awaited soil report that indicated one fifth of its arable land is contaminated. Besides being a shocking revelation, it does highlight the strength of the government’s resolve to finally get serious about pollution as the report had previously been deemed a state secret. We also highlight a recent Financial Times interview conducted with China’s lead climate negotiator, Xie Zhenhua, where Mr. Xie essentially affirmed China’s strong pollution stance in a reflection of the country’s growing recognition of its broader role in the global community. There is a growing sense that China and the US are finding common ground in regards to pollution which gives hope for some sort of global agreement on carbon next year. The Guizhou province started a trading emission scheme for sulfur dioxide and nitrogen oxide the leading causes of acid rain and smog, respectively.
Japan approved a new energy policy that reinstates nuclear as an “important baseload power source” but recognises its diminished role going forward. Missing from the policy statement were specific levels of output from the various energy sources (i.e. renewable energy, coal, nuclear, hydro and natural gas) which would better signal the government’s long term intentions. We continue to expect that renewable energy, in particularly solar, will play an important role in the future energy mix.
Meanwhile in Australia, Treasurer Joe Hockey declared that he finds wind turbines on Lake George “utterly offensive” and “a blight on the landscape” reinforcing our negative policy assessment for renewable energy in this country. It would seem there is an entrenched ideological opposition to renewable energy in the current government.
At a supranational level, we note that the UN Economic Commission for Europe says liquefied natural gas (LNG) is key to decarbonising the global energy complex by facilitating the transition to a sustainable system whilst improving energy security.
Nathan Lim CFA
Portfolio Manager
Australian Ethical Investment
(02) 6201 1971
0400 300 819
nlim@australianethical.com.au