x Abu Dhabi, UAESaturday 20 January 2018

Gulf to gain from US green move

Analysis:The Obama administration's commitment to green energy is likely to be felt as far afield as the UAE.

The President of the US, Barack Obama, seen here at a solar panel instillation near Denver, has pledged billions of dollars to renewable energy.
The President of the US, Barack Obama, seen here at a solar panel instillation near Denver, has pledged billions of dollars to renewable energy.

A green energy economy will finally receive the financial boost to bloom in the US, and the impact could be felt as far away as the UAE, experts say. The US President, Barack Obama, has pledged billions in new grants and tax incentives, and said he wanted to impose a cap on carbon emissions that would offer an incentive for firms to reduce pollution. For companies outside the US, the new measures could create a huge new market for renewable energy technology and expand the fledgling market for carbon credits.

"It's good for green energy, not just in the United States," says Daniel Litvin, an energy expert at Chatham House, the British think tank. "It will spur investment, it will create a blueprint for other governments to follow." For example, Masdar, the renewable energy investment firm backed by Mubadala Development, stands to gain in a number of ways from the US government's new commitments. US grants would directly aid American green firms in which Masdar has invested, while the increase in the size of the sector could expand the market for green technology imported from around the world, including from firms in the UAE.

Perhaps most importantly for Masdar, and Gulf countries in general, implementation of a so-called "cap and trade" system for emissions in the US would more than treble the size of the carbon market and boost prices for carbon credits, a key source of financing for green projects. In a speech to Congress two weeks ago, Mr Obama singled out energy as one of three priorities for his administration. "Thanks to our recovery plan, we will double this nation's supply of renewable energy in the next three years," he said. "We've also made the largest investment in basic research funding in American history - an investment that will spur not only new discoveries in energy, but breakthroughs in medicine and science and technology."

Mr Obama said his federal government would commit billions of dollars to research, construction of a new electricity grid, tax incentives and energy efficiency programmes. The size of the commitments is staggering: the government has already pledged up to US$55 billion (Dh202bn) to renewable energy programmes in the stimulus bill passed last month, with more to come from the 2010 budget to be passed later this year.

On top of all that, Mr Obama said $15bn would be spent every year on renewable energy for 10 years, raised from the new cap and trade system for emissions imposed in 2012. As a point of comparison, Masdar has funded its ambitious investments in the past two years with a total of $15bn from the Abu Dhabi Government. The green energy investments in the US will be underpinned by a new system to limit and trade greenhouse gas emissions.

"We need to ultimately make clean, renewable energy the profitable kind of energy," Mr Obama said. "So I ask this Congress to send me legislation that places a market-based cap on carbon pollution and drives the production of more renewable energy in America." The cap and trade system would set limits on greenhouse gas emissions for individual firms. Companies unable to reduce their emissions below the limit would need to purchase emissions allowances from cleaner firms, or face fines from the government.

The system is designed to satisfy three goals: reducing total emissions from the US to combat global warming; creating a financial incentive for individual companies to invest in improving technology and energy efficiency; and raising hundreds of billions of dollars for the federal government. A version of cap and trade is currently operated in Europe, and also by the UN through its Clean Development Mechanism (CDM), which awards credits to firms in developing countries for each tonne of carbon dioxide they keep out of the atmosphere. The firms can sell the credits to European companies on an open market.

If the US joins the global carbon market, it would immediately treble the size of the market and focus global attention on emissions trading, says Emmanuel Fages, a carbon market analyst at SG Orbeo, a French emissions trading firm. A US market would increase demand - and prices - for Certified Emissions Reductions (CERs), the carbon credits awarded to firms in developing countries through the UN, he says.

That is good news for firms in the UAE, which counted on CERs to defray project costs but watched prices fall by two thirds since March last year. Prices recovered slightly last week and were trading at about ?10 (Dh46). Chief among the UAE firms registering for credits is Masdar, which has said it would seek credits for a range of projects, including emissions reductions at Masdar City, the $22bn zero-carbon city being built at the edge of the capital, and a separate effort to capture 6.5 million tonnes of carbon dioxide from industrial sites and pump it underground for permanent storage.

Masdar officials have said the sale of carbon credits would represent an important revenue source for the company. Mr Fages says it is likely that Masdar is already benefiting from carbon credits by forward-selling CERs for projects that have not yet been completed. "They can start locking in some of their profits now," he says. "We are thinking there will be large CER reductions from this region, but it will mostly be after 2012."

Outside the carbon market, the legislation will increase US demand for green technology, says Ethan Zindler, the head of North American research for New Energy Finance, a renewable energy analysis firm that serves as a clearing house for data on the industry. "It creates enormous opportunities for companies whose businesses are very local by nature," such as solar panel technicians, Mr Zindler says. "I think the impact in terms of equipment providers will be more global."

But he says it remains unclear to what extent the new market created by the legislation will be able to soak up a current oversupply of green energy products in the system and overcome the credit crunch, which has hit the industry hard. The new flood of money into the sector will not, by itself, allow the US to dominate the industry, says Jonathan Johns, the head of renewable energy at Ernst and Young. Every quarter, the global accounting firm releases an index of each country's relative position as a destination for renewable energy investment. Last quarter, the US slipped from a commanding lead to share the leading position with Germany.

Mr Obama's policies are distinguished by their size and will certainly help enlarge the market in the US, Mr Johns says, but the cap and trade system has to be matched with a feed-in tariff or other structure to directly support new renewable energy projects and make them competitive with conventional energy sources. "The Germans have got it right already," he says. "[Cap and trade policies] aren't a substitute for a capacity building support system."

The new cash supplied by the US government does, however, raise the possibility that American firms could gain an advantage over their counterparts across the world. Mr Obama hoped as much when he told Congress that US companies had to overtake renewable energy firms in China, Germany, Japan and Korea that had already gained a sizeable lead. But Masdar officials, at least, have shunned talk of competition and say the market is large enough for all entrants.

Sultan al Jaber, the chief executive of Masdar, has expressed optimism about the Obama administration's commitment to renewable energy, and emphasised that Masdar would benefit from technological developments elsewhere by partnering with rival firms. Besides, he says, the company enjoys "a first-mover advantage" on some of its key projects, including the proposed system to capture carbon dioxide from four sites across Abu Dhabi and pump it into ageing oil wells to enhance production of oil.

Masdar is developing a number of proprietary technologies, Mr al Jaber says, which should be ready in time to serve the new green economy promised by Mr Obama. cstanton@thenational.ae