Articles in Category: Environment

Copenhagen has Failed

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Copenhagen has failed and American workers should heave a sigh of relief. Not because global warming does not have any scientific basis we don’t have the evidence to refute or support the proposition that man-made emissions are impacting global temperatures, we have our doubts and hunches but truthfully they are nothing more. No the reason American workers should heave a sigh of relief is because signing up to Copenhagen would have obliged the administration to push for a European style Cap & Trade scheme at home and Europe has shown that is simply a transfer of wealth from the developed to the developing world. It aims to reduce carbon emissions in the west (though that is debatable) and increases them in the east.

The example of Corus’ Redcar plant is a case in point. The plant was closed because key clients reneged on long term contracts and the 3m ton facility was left without enough sales to cover its costs. European steel producers receive about 2 tons of carbon credits for every ton of steel produced. Closure of Redcar will mean Corus will reduce its carbon emission by the equivalent of 6m tons of carbon emissions. But Tata, Corus’s owners,  are rapidly expanding steel production in India where it could receive hundreds of millions of dollars annually from the Clean Development Fund by building new plants that are less polluting than existing Indian plants (not less polluting than Redcar you understand, just less polluting than older plants in India). As we have written recently elsewhere, the Indian steel industry is set to more than double production to some 124 million tons a year by 2011-2012. Even environmentalists must see this is a disaster for the reduction of carbon emissions. It merely transfers production from western steel mills where steel is produced in a carbon constrained environment to a non constrained market India and China understand this, that is why they will not sign up to a Copenhagen accord.

As a Wall Street Journal article puts it, Cap and Trade is a scheme that would impose heavy carbon taxes and allowances on U.S. industries, which would then have an incentive to move overseas themselves, or to sell those allowances to overseas companies that could use them to become more competitive against U.S. companies. Like the 1,700 Brits at Redcar, American workers would be the big losers.

–Stuart Burns

An Open Letter to Santa

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Environment, Macroeconomics

Dear Santa:

I am so relieved that it appears you have averted bankruptcy (readers, see previous post).   Perhaps instead of making a bunch of toy requests, I thought you might be able to wield some of your media relations budget this week toward a few items involving metal buyers and producers.

But first and foremost, I would like to thank you for the early holiday gift of not having the US commit to any carbon emissions reductions unilaterally or without the full backing of the US Congress. You see Santa, we all act with good intentions, wanting to help the Earth and keeping the air clean for your transport fleet but the reality is that the whole notion of carbon cap and trade is problematic. First, our friends in Europe have shown us that their system doesn’t even reduce emissions. And if those rules don’t actually reduce emissions, then why do it in the first place? I think I know the answer to that one to raise taxes. But that’s such a silly thing to do when an economy remains tepid and so many people do not have jobs. Second, any unilateral commitment made on the part of the US without other large carbon emitters also joining in, would have a devastating impact on US producers that would ultimately hurt all buyers in the form of much higher prices.

So thank you Santa for that early gift. Here is an additional list of requests:

  1. Please do what you can to see if China can readjust their currency rates as soon as possible.   With fewer imports, we may all have a chance to reduce our trade deficit but more important, level the global playing field
  2. I’d also ask you to do what you can to help the US Congress reduce its urge to tax businesses and more important, arbitrarily tax different types of businesses (e.g. taxing medical device companies to help pay for health care reform)
  3. Well, now that we are talking about taxes in regard to a health care bill, we ask that you suggest to Congress that they spread the pain of tax increases more equitably and our first suggestion would be a little tort reform please!
  4. Last, if we are going to enact a “jobs bill here in the US (which many believe does nothing to help the economy) please just make it 100% stimulus and not a bunch of social welfare programs that fail to actually stimulate new job creation (after all, the research is pretty clear that lengthier unemployment benefits increase unemployment!). Santa, please ask the Senate to not introduce a $154b “jobs bill passed by the House if it includes   $79b of social programs (fully). Santa, how can a bill be called a “jobs bill if 51% of it doesn’t go toward jobs???

Sorry for the rant Santa but some of this legislation will have a chilling effect on our overall economy. Anything you can do would be most appreciated.

–Lisa Reisman

Santa Inc Saved From Bankruptcy

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Environment, Humor

Reports last week that Santa Inc is having its loans called in by Global Bank have been confirmed by a company spokesman. Speaking to MetalMiner Mr S.T. Nick said, “We were fine while we operated on a purely voluntary basis, our costs were low and we received a small annual revenue share from the postal service for all the business we generated for them which was sufficient to cover our overheads. But since we were brought out by the private equity firm Flipem Capital we have been so loaded up with debt to fund expansion in Asia we have found we cannot sustain cash flow commitments, particularly as our clients are sending in requests by e-mail instead of letters, cutting our traditional revenue stream.

A spokesman for Global Bank, main creditors to the firm, was more critical, “Santa Inc is operating a flawed business model; they buy all these raw materials, and take on staff to make products but then give it all away. We told them you have to start charging a market price or you will go bust, advised Aloysius Fortescue-Smyth head of Corporate Finance in the firm’s London office. “We commend their admirable work ethic, delivering millions of presents around the world in one night has made them a potential take-over target for certain major courier companies. An option the bank’s M&A department is rumored to be working on with various interested parties.

Mr Nick went on to say all was not lost, the firm approached world renowned metals consultants Aptium Global and although outside of their normal sphere were given what may prove life saving advice. Aptium recommended the firm leverage its client base to lobby EU decision makers in Brussels; it is a well known fact that Santa Inc’s clients have their own unique method of pressuring parents that makes then an extremely effective lobby group. As a result, the firm has just been granted free carbon credits due to the methane their transport system generates which Santa Inc has been able to sell on the open market creating a new revenue stream. So lucrative is this arrangement that the firm is not only expected to shortly pay down its loans but is investing in manure digesters for its Reindeer herds that will generate electricity. Excess power will be sold back in to the grid at subsidized rates further supporting future revenue streams.

“If it wasn’t for Aptium we would be facing foreclosure said a gnome recently transferred into corporate communications for Santa Inc “the bank had already listed our assets for disposal. In fact the corporate deer stalking event was scheduled for next weekend, Rudolf will be relieved.

–Stuart Burns

The Cost of Renewables in Germany

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Environment, Green

Cleantech German style inevitably involves a substantial amount of government subsidy and as a result investments are made and markets created that would not happen if traditional economics were in play. In a town in north-eastern Germany, 20 giant airtight tanks are filled with corn silage, tons of chopped up stems, grains and leaves, which is fermented at 96.8 degrees Fahrenheit for 10 weeks. The process, which yields bio-gas that contains methane, is apparently the same as what happens in a cow’s intestines says the plant owner in this article. Once the plant is up and running, farmers from a surrounding 3 mile radius will supply it with organic matter. Roughly 1,250 tons a day will be processed at the plant, producing methane that is pumped into a pipeline running directly beneath the plant grounds. The company expects to produce 46 million cubic meters of gas a year, enough for 50,000 households. Although the plant has venture capital money behind it, it wouldn’t have happened without government subsidy in terms of the price paid for the bio-gas produced.

In fact, German citizens have paid dearly for this part of their green dream. Electricity customers have paid $10 billion for solar modules that were installed between 2000 and 2008, and that’s just the beginning. A German economic research institute RWI-Essen estimates that the government will spend an additional $42 billion to promote solar power in the next 20 years, the balance of the country’s solar energy subsidy program.

Compared to the cost, the rewards from all this tax payers money are modest, raising questions about how much politicians should be trusted with making these decisions. Solar-generated electricity covers only 0.6% of demand in Germany. Subsidizing solar is neither good for the climate nor does it help employment in Germany, says the RWI. The Renewable Energy Act (EEG) has merely artificially stimulated demand for solar energy. “The EEG may be well-intentioned, but it’s highly inefficient from an economic standpoint” they say.

The law, enacted in 2000, allows operators of solar powered systems to collect a fixed payment of up to 43 cents per kilowatt hour that they feed into the grid, at prices guaranteed for 20 years. By comparison, the producer price of electricity is approximately 5 cents per kilowatt hour. In addition, photo-voltaic is by far the most expensive method of reducing carbon emissions. It costs more than $1000 to reduce CO2 emissions by one ton, for wind energy that cost is reduced to about $145 per ton. It would be more worthwhile to improve the efficiency of brown coal power plants, for example. According to a study by the consulting firm McKinsey, that would cost less than $30 per ton. In other words, the money that is spent to save one ton of CO2 with solar power could be used to save up to 30 tons in coal-fired power plants.

Meanwhile back to the bio-gas plant, natural gas from Russia currently costs less than 3 cents per kilowatt hour, while bio-gas is only profitable at prices of 8.5 cents or higher. This is one of few positive arguments for a universal carbon trading system; at least it would allow the market to direct where investment in alternative energy sources was made instead of micro managing politicians making arbitrary decisions. The problem in Europe is all the worse because polluters have been given their credits for free and so the system is not, nor will it, work effectively for many years to come.

–Stuart Burns

Yes I know the whole point of this design is that there is very little metal in it but we couldn’t resist a short update on Sir Richard Branson’s Virgin Galactic Space Craft. While the mother ship White Knight has been under tests for a year now the combined mother ship and space craft have just been presented to the press at a ceremony in the Mojave Desert according to this release.

SS2 and VMS Eve in hangar 3

The ship’s unique design is a two part craft – the spaceship itself is attached to a bigger mother ship, called the White Knight but nicknamed Eve after Branson’s mother (well if you are a billionaire I guess you can indulge in such things), which carries the smaller craft up to an altitude of 50,000 feet, before the rockets kick in and the spaceship jets up to 340,000 feet, around 65 miles, at a speed of 2500 miles per hour. Eve is powered by four Pratt and Whitney PW308A engines and the centrally slung spaceship SS2 is powered by rockets, at 50,000 ft+ the air is getting too thin for turbines. After a flight above the suborbital atmosphere, the craft’s wings fold up 90 degrees and it becomes a glider, gently coasting back down to earth.

The Virgin Galactic program is hoped to be ready for launch late 2011, and will take off from a special Space Port being built in New Mexico by acclaimed architect Norman Foster’s firm. Virgin has been clever in adopting a low cost airline approach where the airports pay the airline to bring in flights and generate traffic. Virgin has talked New Mexico into building the Space Port for them in return for the kudos of hosting the US base. A European space port has not been decided on yet.

Made of carbon composite, a lighter material than metal, the ship is more fuel efficient than current space vehicles, with a carbon footprint reputed to be equivalent to one business class ticket from London to New York, compared to the current Space Shuttle carbon count which is equal to the energy output of New York City for five days! Whatever the fuel efficiency you have to admit Branson has style. There are already several hundred paid up “astronauts for which read passengers, who have put down some $200k each for the one and a half hour flight.

–Stuart Burns

Besides perhaps the health care debate, no single policy issue has created as much controversy as the EPA’s recent Ëœendangerment’ declaration that greenhouse gas emissions cause people harm. And as my colleague Stuart posted last week, “whatever one may think of the whole concept of carbon trading and  however flawed one believes existing trading systems are and believe me this site has frequently criticized both the fact remains that carbon trading is almost certainly here to stay and will have a major impact on business and our personal lives in the decade to come.

Stuart didn’t touch the hot potato of whether the science supports the argument behind the case for global warming (or if the best way to address it involves carbon cap and trade or just a plain old carbon tax or curbing emissions via the Clean Air Act or some other scientific means making its way around such as injecting sulfur dioxide into the stratosphere which by the way, a very prominent metals subject matter expert who has posted on MetalMiner subscribes to but for which we are not yet at liberty to discuss). We’ll steer clear of that one as well but the science behind global warming and the trail of hacked emails suggesting the science may not sit on as strong a foundation as some would like us to believe may very well turn out to be what will ultimately undermine the EPA’s ability to regulate greenhouse gases. In addition, the fact that the EPA made the ruling, whereas Congress failed to act, may place the entire issue squarely on President Obama and his administration. And therein lies the rub – Congress, instead of tackling this controversial issue, can punt it to the EPA and leave the implementation of the ruling to the lawyers (you can be sure there will be lawsuits) as well as the burden of proof to the EPA (the EPA has to prove greenhouse gases are harmful to human health). And that’s where those ugly leaked emails can get a little tricky for the EPA.

Prior to the EPA’s ruling last Monday, organizations like the American Iron and Steel Institute, “has made it known it wants to make sure energy-intensive imports such as steel bear the same climate-related costs as domestic products.”  If the EPA sets policy, as opposed to Congress, the AISI concerns become very real. The EPA could only regulate domestic producers. A unilateral solution will have a devastating impact on US manufacturing. Consider the following:

  • A piece on manufacturer Quality Float Works a company that makes metal float balls used on flagpoles, weather vanes, plumbing and industrial devices raises concerns about how a middle market manufacturer will compete globally
  • Nucor has not made a decision on where to put a new plant (it is deciding between Louisiana and Brazil) pending the outcome of climate change legislation, Copenhagen etc.
  • Here is a list of a few of the trade associations who have come out against the EPA endangerment finding:
  • So here is my prediction: Congress will do nothing on carbon cap and trade because now it no longer needs to do anything. According to this Forbes article, “Around March, look for the EPA to finalize its ruling for the auto sector (editor’s note: to federally regulate automotive emissions). It will also put the finishing touches on its decision to tailor greenhouse gas regulation under the Clean Air Act. What happens then? Lawsuits.

    And that’s my second prediction.

    –Lisa Reisman

    The loss of 1,700 jobs is always a tragedy although in the steel industry unfortunately not an unusual story. Nor did Tata’s Corus come in for a huge amount of blame when they announced this week that they were closing the three million ton per year merchant bar plant at Teesside in the UK after four long term clients failed to honor their commitments to take product from the plant earlier in the year. Corus tried manfully to keep the plant going, losing some $130m over the intervening 7 months since the original announcement was made regarding the contracts, according to Bloomberg.

    But there is another story doing the rounds following an article in the Times that detailed the windfall $1bn benefit ArcelorMittal are said to have secured from the European Union after intense lobbying by them and their trade body Eurofer. Arcelor have been granted the rights to 20.8 million surplus carbon emission allowances given to it free by the EU. With the carbon price at over $21, they are worth about $440 million. But, with additional surplus allowances up to 2012 and an increased carbon price expected to rise to over $45 – the company could have gained assets worth around $1.6 billion.

    The next largest beneficiary of this largesse is none other than Corus, with ThyssenKrupp coming in third. The story suggests Corus stands to gain at the current carbon prices $165m and, with an increased carbon price and its additional allowances, the asset value of its cap and trade holdings could amount to over $600m. But that may not be the end of it. Closure of the plant will deliver further “savings” of over 6m tons of carbon dioxide, worth an additional $130 million per annum at current rates but around $330 million at expected market levels.

    Meanwhile, producers like Arcelor and Corus are keen to build new production facilities in developing countries like India. New facilities are not only lower cost but under the UN’s Clean Development Mechanism the producer is paid up to $50 a ton for each ton of carbon dioxide “saved” by building a new plant, while the company which owns them also gets paid $50 for each ton of carbon dioxide not produced in its European plant, for which read Redcar.

    I am sure this was not the intention of the European Union when it first dreamed up the Cap and Trade scheme, but like most politically driven initiatives, once the politicians have nailed their colors to the mast they stubbornly refuse to change course or admit they could be wrong. One can’t blame Corus. If the above scenario is correct they are merely responding to the business environment the politicos in Brussels have created.

    –Stuart Burns

    As many a consultant might say, the best way to rid oneself of high material cost is to not design it in, in the first place! Though MetalMiner frequently looks at the range of metals categories from a strategic sourcing perspective, it would behoove us not to discuss various metal product innovations particularly when they have (or claim to have) the ability to reduce costs. Last week, Carpenter Technology announced a new material, PremoMetâ„¢ Alloy that claims could serve as an alternative material to cobalt-containing steel alloys.

    Judging by cobalt prices for the past year, identifying lower cost alternatives might make good business sense:

    Courtesy of MetalPrices.com

    The target applications for these materials include power train components in heavy-duty diesel engines (including on-highway over the road trucks), off-road (construction type vehicles) and large marine engines. The new EPA determination that greenhouse gas emissions causes people harm probably helps some of the buying communities as weight reduction and engine efficiency improvements help reduce such emissions. According to Mike Wilkes, Market Manager, Automotive at Carpenter, “Manufacturers will therefore need to specify higher strength metals for their light-weighting projects in order to achieve lighter weight. The lighter components will need to maintain performance requirements. Mike suggested life-cycle costs can be reduced by purchasing less material per part. In addition, the substitute material should allow for longer engine life and lower fuel consumption.

    All of those arguments sound good on paper. But how do purchasing organizations reconcile the fact that specifying proprietary alloys and products can result in higher prices over the longer term? Simple, according to Carpenter enter into a long term supply agreements to allay concerns.

    If you are a metal producer and have a new product on the market, drop us a line. We’d like to hear about it at lreisman(at)aptiumglobal (dot) com.

    –Lisa Reisman

    Whatever one may think of the whole concept of carbon trading and  however flawed one believes existing trading systems are and believe me this site has frequently criticized both the fact remains that carbon trading is almost certainly here to stay and will have a major impact on business and our personal lives in the decade to come.

    The global carbon trading market is at a cross roads this month. If the US can be persuaded to join the system at the Copenhagen Climate Change Conference the market would explode in terms of projects subsidized and credits traded over the next five years. The United Nations Clean Development Mechanism (CDM) program is in tatters, widely criticized on all sides it is under funded, under staffed, slow, complicated and seen by many as ineffective. Indeed reform of the system will almost certainly be one of the US demands if they are to get on-board.

    The world market in greenhouse gases has grown from nothing in 2005, when the Kyoto protocol came into effect, to about $125bn last year, despite the financial crisis, according to Point Carbon, quoted in an FT article. If the US were to participate in carbon trading, which it does not because it has not ratified the Kyoto protocol, the analyst firm estimates the total value of the market would rapidly rise by several hundred billion dollars, and could reach $3,000bn by 2020.

    The UN’s  CDM carbon trading program faces two major problems. The first is the absence of the US, the largest per capita emitter of carbon, and the other is structural. The CDM cannot cope now with the number and complexity of project applications. If the US joined they would be swamped. As it is the system has come under widespread criticism for granting credits to projects, particularly in China and India that would have gone ahead anyway and should not be qualifying for carbon subsidies. This is the concept of “additionality that says any project should only qualify for subsidy if it would not otherwise be taking place, or put another way it is an additional opportunity for carbon reduction. But millions in subsidies have flowed to Chinese wind-farms that would almost certainly have happened anyway. To the UN’s credit, they have recently put a moratorium on subsidy for new Chinese wind farm projects while they review the criteria.

    The worry is the UN is looking at ways to resolve the current problems in typical politicians ways by removing per project revue to setting wide benchmarks that cover industries or even countries and then award credits based on how well industries or countries do against a benchmark. The opportunity for falsification of results and fudge sound like they would become rife.

    Meanwhile, major corporations are in Copenhagen trying to influence governments thinking on carbon trading and the impact regulation could have on business. Coming back to our opening comments, regardless of our view in various ways the outcome of this week will impact us all in the years to come.

    –Stuart Burns

    There’s nothing at MetalMiner we like more than to bring you news of new developments, products or innovations particularly if they further the use of metals. So it was a pleasure to catch up with an old friend of mine Igor Malyshev this week.

    Russia has come a long way from the first days I did business there in the early 90’s when the answer to a slow paying customer in the depths of one Siberian winter was we lock him in Gregors garage, in the morning he pays cash! gulp. Well as you can imagine, I always paid my bills on time. Igor fortunately never had to lock me in his garage or anyone else’s for that matter and for a number of years we very successfully cooperated in the sale of Rusal’s semi finished products in Asia. Since then, Igor has moved on to another Russian mill Kamensk Uralsky Metallurgical Works (Kumz) and is again doing wonders developing their sales. But here his challenge was greater. Read more

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