ClimateIntel.com

 In April of 2008, Tesla Motors, Inc. sued Fisker Automotive, Inc., Fisker’s founder and CEO Henrik Fisker and other related entities in the Superior Court of San Mateo County (California), alleging that Fisker stole trade secrets to design Fisker’s own electric car, the Fisker Karma.  Tesla further alleged that Fisker committed fraud and breach of contract, among other claims. 

Tesla claimed that it hired Henrik Fisker to design the interior of its high-performance electric sedan, the Model S, previously known as the “White Star” project.  According to Tesla, Fisker took confidential technical information from Tesla while working on the White Star project and used that information to design and build its own four-door, plug-in, luxury sedan.  Tesla stated that it paid Fisker more than $800,000 for the design work performed on the White Star project and sued Fisker for the return of this money, along with other unspecified damages.

In May, Fisker requested that the judge assigned to the San Mateo case direct the parties’ dispute to private arbitration.  Fisker’s request was based on a clause in the contract between Fisker and Tesla, which required that any disputes between them be decided by an arbitrator in Orange County, California within 90 days.  The judge granted Fisker’s request for arbitration in June, and the San Mateo case stayed pending the result of the arbitration.

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In 2007, former Vice President Al Gore applied for a permit to install 33 solar panels on the roof of his home in Belle Meade, Tennessee.  His application, however, was blocked by the city until new local zoning rules were adopted.  Since then, new rules allow homeowners to install solar panels on their roofs, but only if they are not visible from the street or from any adjoining property.  As highlighted in a report released by the Network for New Energy Choices, too many towns, cities and counties are making it difficult and expensive for homeowners and small business owners to install small-scale solar and wind systems to generate their own renewable energy.     

The report identifies the following as the most significant municipal-level planning and permitting obstacles to small-scale distributed renewable energy systems:

• complex and/or unclear local permitting requirements;
• inspectors and permitting authorities that are inexperienced with renewable electricity systems;
• multiple permitting processes and standards that vary significantly across jurisdictions;
• permit fees that vary across jurisdictions and are sometimes not consistent with the municipal resources expended; and
• unfair and often illegal enforcement of restrictive housing covenants.

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 During a meeting of the European Union Council last month, Environmental Ministers from European Union (EU) companies met to establish the EU’s position on a post-Kyoto international climate change policy and reviewed the status of the EU’s own package of climate change legislative proposals.  While the climate policy issues were largely prospective in nature, the meeting indicated that European Ministers do not appear to be letting the current financial turbulence undermine their support for a robust post-2012 climate agreement.

Preparing for Post-Kyoto Treaty Negotiations

The next round of negotiations under the United Nations Convention on Climate Change (UNCCC) is scheduled for December 20, 2008 in Poznan, Poland.  During the EU Council meeting discussions related to that meeting, the parties reiterated the importance of achieving worldwide consensus by the end of 2009, to ensure a replacement regime for the Kyoto Protocol by the end of 2012.  Among the EU Council’s key conclusions and statements on upcoming negotiations, the Council:

• Reaffirmed its commitment to the Bali Roadmap, with a goal of completing the successor agreement to the Kyoto Protocol at the scheduled talks in December 2009 in Copenhagen, Denmark.
• Stated that any post-2012 agreement would need to limit global average temperature increase to not more than 2°C above preindustrial levels” - a limit that would require 50 percent reductions in global emissions from 1990 levels by 2050, with emission levels peaking and starting to decline by 2020.
• Called on developed countries to propose economy-wide, medium-term emission reduction targets at a “comparable level of effort” to the commitments made by the EU.
• Noted that “the least developed countries should not be subject to obligatory emission constraints” but encouraged them to link sectors, where appropriate, to the international carbon markets.
• Stressed the importance of reducing emissions from deforestation and forest degradation.
• Discussed the importance of energy efficiency and the transfer of clean technology.
• Recognized the threat to competitiveness posed by carbon leakage, and the need to achieve a level playing field between industrialized and developing countries.

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 A Dutch University is challenging the notion that the diversion of grains from food to biofuels is responsible for the spikes in agricultural commodity and food prices over the last two years.  The university’s findings likely will be welcomed by the biofuels industry in the context of the political and policy debate over the potential impact on food prices from biofuel requirements in the US and abroad. 

Wageningen University and Research Centre (Wageningen UR) in the Netherlands has analyzed  the factors influencing the rapid rise in worldwide food prices in a series of reports over the last five months.  Noting that the actual “long-term trend of world food prices is declining” in light of technological advances that continue to increase land productivity, the university cites a number of factors that it suggests have affected the recent trend in rising food prices:  

• High energy costs that led to higher costs for artificial fertilizers and fuel, as well as higher transport; costs for grains that travel long distances to market;
• Poor harvests of wheat and barley in Australia, Ukraine and Europe;
• Export taxes in Argentina, Kazakhstan, India, Vietnam and Egypt designed to protect domestic food supplies;
• Production limitations for food products in the European Union; and
• Rapidly growing demand in the developing world, particularly Asian countries that are increasing consumption of meat products.

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On November 4th, California voters rejected both of the proposed renewable energy measures.  Proposition 7, the Renewable Energy Generation Initiative, would have required government-owned utilities to generate 20% percent of their electricity from renewable energy by 2010, a renewable energy portfolio standard already applicable to private utility companies.  Proposition 7 also would have raised the requirement for all utilities to 40% by 2020 and 50% by 2025.  Many argued that, while well-meaning, the measure was poorly drafted, and would have created loopholes for compliance, resulted in higher electric rates and forced small renewable energy companies out of business.  Opposed by leading environmental groups, renewable power providers, taxpayers, business and labor, Proposition 7 was defeated 65% to 35%. 

Proposition 10, the Alternative Fuel Vehicles and Renewable Energy measure, would have authorized the state to sell $5 billion in general obligation bonds to finance various renewable energy and alternative fuel vehicle incentives, largely green car rebates.  It would have cost the state about $10 billion over 30 years to repay the bonds.  This proposition was heavily backed by Clean Energy Fuels Corp., a company founded by Texas billionaire T. Boone Pickens that operates natural gas filling stations throughout the U.S. and Canada.  Opponents, which included environmental groups and consumer watchdogs, criticized the measure as special interest legislation that would have provided large subsidies to compressed natural gas.  Voters rejected the measure 60% to 40%. 

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Last week, the California Public Utilities Commission (CPUC) issued a Proposed Decision authorizing the use of unbundled and tradable renewable energy credits (RECs) for compliance with California’s Renewable Portfolio Standard (RPS).  This Proposed Decision also sets forth the structure and rules for a tradable REC market and for the integration of RECs into the RPS flexible compliance system.          

Established in 2002 and accelerated in 2006, California’s RPS program requires electric corporations to increase procurement from eligible renewable energy resources by at least 1% of their retail sales annually, until they reach 20% by 2010.  Currently, California is considering raising the RPS to an even more ambitious 33% by 2020.

A REC generally represents the environmental and renewable attributes of renewable electricity as a separate commodity from the energy itself.  A REC can be sold either “bundled,” with the underlying energy, or “unbundled” into a separate REC trading market.  When traded in the voluntary market, a company may acquire non-renewable energy from its local energy provider and at the same time purchase an equivalent amount of RECs that have been “unbundled” from renewable energy produced elsewhere, and claim that it is powered by clean energy.  In an RPS compliance market, the RPS-obligated load serving entities can use unbundled RECs, rather than actual renewable energy, to comply with their RPS mandates.   

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Deutsche Bank has released a white paper entitled “Investing in Climate Change 2009: Necessity and Opportunity in Turbulent Times,” which asserts climate change investing can be suitable for all asset classes, including listed equities, private equity, venture capital, infrastructure and hedge funds.  Citing the $45 trillion of investment the IEA predicts will be needed in clean energy technologies by 2050 and the driving forces of government regulations, economic/market trends, and the development of new technologies, the white paper identifies four fast-growing markets likely to see increased returns and reduce expected risks in future years-

• Clean energy (power generation, cleantech infrastructure, power storage technology, and transport & sustainable biofuels);
• Environmental resource management (water, agriculture, and waste management);
• Energy and material efficiency (advanced materials, building efficiency, and power grid efficiency); and
• Environmental services (environmental protection and business services).

Investment-Side Analysis

The white paper identifies factors that should be considered in assessing the commercial breakeven point for various climate change technologies and investments, as well as considerations for assessing an industry’s or company’s adaptability in the face of updated or changed regulations.  The report suggests that investors can mitigate and hedge risk by diversifying the risk associated with the breakeven of a clean technology across carbon risk/return, energy price risk/return and regulatory risk/return.

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