Investors welcome new China, U.S. climate goals

LONDON Thu Nov 26, 2009 10:03am EST

The sun sets over New York City as seen from Arthur Ashe Stadium in Flushing Meadows, New York, August 27, 2007. REUTERS/Mike Segar

The sun sets over New York City as seen from Arthur Ashe Stadium in Flushing Meadows, New York, August 27, 2007.

Credit: Reuters/Mike Segar

LONDON (Reuters) - Investors welcomed new China and U.S. climate targets 10 days before a U.N. summit but an Australian carbon vote delay hinted at wider difficulties to cement a global deal.

Traders in a $126 billion carbon market want tight climate targets to boost demand for emissions permits, and energy companies want to know the full future costs -- including from carbon -- of burning fossil fuels as they plan new power plants.

A December 7-18 Copenhagen meeting is intended to agree the outlines of a new global climate treaty and will shed light on future energy and carbon prices.

In jockeying ahead of that conference, the United States on Wednesday made its first offer since 1997 to cut carbon emissions and China vowed to slow carbon emissions from industry, helping drive momentum toward a global deal.

Energy analysts welcomed the U.S. and Chinese offers, although the U.S. target was widely expected and far below European Union ambition compared with a U.N. 1990 baseline.

"It increases the chances of getting a better, collaborative agreement in Copenhagen, which would in turn create a larger low-carbon marketplace," said James Cameron, vice-chairman of Climate Change Capital, an environmental investment group with $1.5 billion assets under management.

The U.S. and China moves provided a "very positive" further boost to what would be a record year for clean energy investment in 2010, consultants New Energy Finance predicted.

"I would not be surprised to see a $200 billion year," said New Energy Finance head Michael Liebreich. Investment would reach $160-$200 billion in 2010, compared with expected funding this year of about $125 billion, down from last year's record of $155 billion, Liebreich told Reuters.

CONCESSIONS

The U.S. target, to cut greenhouse gases by 17 percent from 2005 levels by 2020, added momentum but was widely expected.

"All the U.S. said was what's already passed in the House (of Representatives). I don't see it as a particularly significant development," said Deutsche Bank's Mark Lewis.

"It's much more important to see how they are going to reduce emissions," said Michael McNamara at Jefferies Bank.

The target would also need Congress backing in the shape of a domestic climate bill. Republican opposition has stalled progress through the Senate.

The Australian Senate delayed on Thursday a vote on a similar climate plan -- both include a cap and trade scheme -- alarming analysts concerned about a weakening of the scheme.

"The legislation has reflected incredible degrees of partisan politics," said Murray Ward, from the Global Climate Change Consultancy, referring to votes both in Australia and New Zealand which passed emissions trading scheme (ETS) legislation on Wednesday.

"The same is happening in the United States. This cannot bode well as the legislation will inevitably be compromised."

The Australian delay worried carbon traders, cheered by the passage of New Zealand legislation but still waiting the first major economy to follow a European Union cap and trade scheme launched in 2005.

"The Australian delay is potentially a major setback," said one carbon trader. "It is one of the biggest countries in terms of emitters so they should really move."

QUESTIONS

The New Zealand and prospective Australian emissions trading schemes would add limited new demand for carbon offsets -- traded under the Kyoto Protocol -- but important new momentum following recession and a slump in demand for pollution permits.

British utilities increasingly question the effectiveness of emissions trading in Europe, saying carbon prices are insufficient to make new nuclear power plants and coal with expensive carbon capture technology economic.

"Obviously a good strong agreement in Copenhagen will be a great legacy, but let's be realistic, that may not happen and it may be necessary that we have other mechanisms, if you like a Plan B," said Paul Golby, chief executive of the UK arm of German utility E.ON AG.

"Utilities need secure funding in order to develop these large scale projects, and quite frankly at the moment the carbon price is too low and too uncertain to support investment without further help."

-- Additional reporting by Nina Chestney and Daniel Fineren in London and David Fogarty in Singapore