SINGAPORE - Oil prices edged down below $105 a barrel on Thursday, after surging almost $4 in the previous session after the sharp drawdown in refined fuel but a large build in crude stocks in the United States.

U.S. crude fell 31 cents to $104.52 a barrel by 3:23 a.m. EDT, while London Brent crude shed 38 cents at $103.37 a barrel.

Gasoline inventories in the United States tumbled 4.5 million barrels last week, data from the U.S. Energy Information Administration (EIA) showed, a much steeper fall than analyst forecasts of a 2 million-barrel decline.

Distillate stocks fell by 1.6 million barrels.

The drawdown in refined fuels came as the world's top oil consumer gears up for summer vacation season, when fuel demand usually peaks.

U.S. crude stocks jumped 7.4 million barrels last week, the largest build since March 2004, as imports rose and demand from domestic refiners remained low.

"The U.S. EIA's weekly petroleum status report contained mixed news from an oil market perspective, but was received bullishly by the oil market," said David Moore, a commodities analyst at the Commonwealth Bank of Australia, in a note.

Some analysts said the crude stock build, partially reflecting the abundant supply that the United States was getting, would eventually weigh down oil prices since demand was expected to remain weak given the sluggish U.S. economy.

Also supporting crude's surge, the dollar fell after Federal Reserve Chairman Ben Bernanke conceded for the first time that the U.S. economy may fall into recession in the first half of 2008.

US lawmakers have taken oil giants to task over the industry's huge profits as ordinary Americans struggle with record fuel prices.

Executives from five oil companies were forced to explain why they should continue to receive $18bn in tax breaks when they made $138bn profits in 2007.

They were also criticised for not investing more in renewable energy.

In their defence, the executives said high oil prices were not their fault and the huge earnings were justified.

Executives from Exxon Mobil, Chevron Corp, ConocoPhillips, BP and Royal Dutch Shell testified before a House of Representatives committee.

"Our earnings, although high in absolute terms, need to be viewed in the context of the scale and cyclical, long-term nature of our industry as well as the huge investment requirements," said J.S. Simon, senior vice president of Exxon Mobil Corp.

"We depend on high earnings during the up cycle to sustain ... investment over the long term, including the down cycles," he said.

Exxon made $40bn last year, a record for a US company.

Oil prices recently hit a record high of $111.80 and this has translated into higher petrol prices.

Americans now pay a record $3.29 a gallon at the pump.

"On April Fool's Day, the biggest joke of all is being played on American families by Big Oil," Edward Markey, the Democratic congressman who chairs the Energy Committee, told the executives.

WILKES-BARRE, Pennsylvania -- The Democratic presidential candidates are criss-crossing Pennsylvania this week, dropping in at gas stations and truck stops to convince voters they've got the best plan to tackle soaring gas prices and Big Oil profits.

Clinton likened herself Tuesday to Sylvester Stallone's Rocky Balboa character, but said the big fight ahead isn't just against her opponent, Sen. Barack Obama, but also against the country's oil crisis.

While beating back calls from some of her opponent's supporters to step down, Clinton has taken to lashing out at the Bush administration's oil policy.

"The president is too busy holding hands with the Saudis to care about American truck drivers who can't afford to fill up their tank any longer," she said.

Obama, meanwhile, said Monday a crackdown is needed on oil companies.

"[We] need a president who can stand up to Big Oil and big energy companies and say enough is enough," Obama said Monday.

Clinton and Obama held events a mile apart Monday in Wilkes-Barre, Pennsylvania. Both focused on energy issues.

"It's affecting the business pretty bad, because as gas prices are higher, the rates of the cabs are higher. And the customers are complaining," a cab driver said.

In Washington Tuesday, top executives from five of the biggest oil companies -- Exxon Mobil, Royal Dutch Shell, BP, Chevron and ConocoPhillips -- were grilled before Congress over their growing profits and corporate tax breaks.

Rep. Jay Inslee, a Democrat from Washington state, said to one executive, "If you were going to give awards for taxpayer abuses, this would win the Heisman and the Oscar and the Nobel Prize."

Shell Oil Company President John Hofmeister said the energy supply outlook was "sobering" and the U.S. needs to tackle the energy quandary with programs akin to the Manhattan Project or Apollo moon launch.

Several lawmakers, mostly Democrats, want to take the tax break away from oil companies and use the money to subsidize renewable energy projects.

Rep. Ed Markey, a Massachusetts Democrat, slammed the executives for their opposition to eliminating about $18 billion in tax breaks over 10 years amid record profits for the industry.

"Imposing punitive taxes on American companies will discourage the investments needed to safeguard our energy security," said Stephen Simon, senior vice president of Exxon Mobil Corp.

The oil industry and the Bush administration argue it is unfair to target the oil industry when tax breaks are available to all manufacturers.

Clinton wants oil companies to contribute to a $50 billion fund to invest in alternative energy and for car manufacturers to increase fuel efficiency standards and for the government to tap into its emergency oil reserves.

Obama proposes a $150 billion investment over 10 years in clean energy and an 80 percent reduction in carbon emissions over 40 years.

Energy industry experts say the candidates' plans offer little to provide immediate relief, which Obama acknowledged.

"I would be dishonest if I said we've got a lot of short-term answers to bringing down gas prices. I don't think we do," he said.

Attending an International Renewable Energy Conference in March, President Bush said, "America has got to change its habits. We've got to get off oil."

"I've set a great goal for our country, and that is to reduce our dependence on oil by investing in technologies that will produce abundant supplies of clean and renewable energy," Bush said.

BAGHDAD: Increased oil revenue will allow Iraq to add US$5 billion to its 2008 budget, money earmarked for investment in infrastructure and services, a government spokesman said Monday.

Ali al-Dabbagh said in a statement the additional funds will be included in a complementary budget to be issued by the end of June. The money will be used for "important" and "strategic" investment, he said.

The funds will be tacked onto US$15 billion that was already planned for economic and infrastructure development in Iraq's budget, which stands at US$48.4 billion, not including the latest addition of US$5 billion.

Iraq spends nearly one-fifth of its budget — US$9 billion — on security.

Officials have said that security and economic revitalization are the focus points of Iraq's spending in 2008.

Security, it has been noted, must come before any hope for an economic upturn. Several reconstruction projects in the country have been halted or delayed because of deteriorating security situations.

Iraq's oil exports have increased of late since declining after the U.S.-led invasion in 2003. An average of 1.54 million barrels were sent each day through the main oil hub Basra in February, according to the Oil Ministry.

Iraq's average production for February was 2.4 million barrels per day. Exports averaged 1.93 million barrels per day during that month.

Despite a week of fighting between government troops and militants in Basra, officials have said the oil industry has been little affected.

Iraq, like all oil-producing nations, have seen windfalls as oil prices have climbed above US$100 a barrel.

Iraq's southern oil export flow stood at around 1.2 million barrels per day (bpd) today, steady from yesterday, shipping agents said.

The flow rate at the main southern Basra terminal has recovered after dipping to around 840,000 bpd for about 12 hours yesterday due to a power outage, one agent said.

Iraq ships about three quarters of its exports, or an average of around 1.5 million bpd, from Basra. The pumping rate at the port typically varies between 1.2 and 1.7 million bpd.

A bomb attack on a pipeline branch from the Bazargan oilfield on 27 March forced Iraq to shut in around 100,000 barrels per day of output. Exports were also affected, although Iraq has used oil in storage at both the fields and the terminal to minimise the impact on shipments.

The attack was the first to disrupt southern exports since 2004.

Iraq planned to restore the shut-in output yesterday. Officials were unavailable to comment today on whether the flow had restarted, Reuters reported.

Colombia’s heavy oil area could hold 20bn barrels of recoverable resources, giving the country greater reserves than leading producers such as Mexico and Algeria, said its natural resources agency.

Foreign investment in Colombia’s oil and gas industry is booming, and the country hopes to lift oil production to 1m barrels a day in the next decade, from about 550,000 b/d currently.

Colombia’s heavy oil potential is dwarfed by that of its neighbour Venezuela, which is estimated to have at least 240bn barrels recoverable in its Orinoco belt region. But Colombia has the great advantage of welcoming foreign investment.

It is one of the few countries with significant resources becoming more accessible to international companies, and capable of growth in oil exports.

The ANH, Colombia’s national hydrocarbons agency, is on Wednesday setting out details of Colombia’s second licensing round in London, following presentations in Houston last week.

Larger companies have been invited to bid for heavy oil exploration acreage in the Llanos Basin, towards the border with Venezuela. ExxonMobil and Chevron of the US, Royal Dutch Shell and Lukoil of Russia have expressed interest.

The estimate of recoverable heavy oil comes from a study by Halliburton, the oil services group, which suggested there were 100bn barrels in place, and a typical recovery factor of 20 per cent.

Halliburton also suggested Colombia could have more than 50,000bn cubic feet of gas, about as much as Canada or the Netherlands.

David Thomson of Wood Mackenzie, the consultancy, said he thought the estimate of recoverable heavy oil was “probably on the hopeful side, but by no means impossible”.

“Colombia is not like Venezuela, Bolivia or Ecuador, which have all been pursuing unfriendly policies towards business, and its geology is also relatively easy, so it is attractive.”

Armando Zamora, director-general of the ANH, told the Financial Times he thought Colombia was now the most popular country in Latin America for foreign investment in oil and gas production. That investment rose from $1.8bn in 2006 to $3.5bn last year, and is expected to be close to $5bn (€3.2bn, £2.5bn) this year.

Mr Zamora acknowledged that in the areas being offered for heavy oil there were security concerns because of possible attacks by Farc rebels, which he said took refuge in bases across the border in Venezuela, and there would be a need for the government to deploy additional troops “to be on the safe side”.

However, Farc activity had declined sharply.

He would reassure potential investors about the tension between Colombia and its neighbours Venezuela and Ecuador. “There is no chance we would start a war with them,” he said.

The body that manages the bulk of China’s $1,650bn in foreign exchange reserves has bought a 1.6 per cent stake in France’s Total, the fourth-largest oil group, in a sign of its more aggressive approach to investing the funds under its control.

China’s State Administration of Foreign Exchange, or Safe, which operates under China’s central bank, began building its stake, valued at €1.8bn ($2.8bn), several months ago, according to a person close to the company.

It is understood that this has been done with the full knowledge of the oil company and representatives of Safe are likely to have met Total’s team, the person said.

News that France’s biggest company by value has drawn the interest of Chinese funds is likely to revive a debate over economic patriotism in France, a phrase coined by Dominique de Villepin, the former prime minister, after rumours of a possible bid for Danone by PepsiCo of the US sparked a national outcry.

In China, the revelation of Safe’s purchase will heighten tensions between it and the China Investment Corporation, the country’s sovereign wealth fund established last September, with $200bn of funds under its control.

Safe’s more aggressive investment posture after the establishment of the sovereign wealth fund has caused divisions at the top of the Chinese government because of concerns that two agencies could be competing in what Beijing recognises as a geopolitically sensitive area.

The CIC’s attempts to establish itself in the global investment community as a transparent and independent investment entity, a challenge given the focus both on China and sovereign funds generally, is being damaged by Safe’s assertiveness, according to officials in Beijing.

Safe usually invests most of its funds in low-yielding securities, such as Treasury bonds and mortgaged-backed securities, but the falling US dollar has also put pressure on it to diversify its portfolio.

China added more than $100bn in funds to its reserves in the first two months of this year alone, all of which come immediately under Safe’s control.

Nicolas Sarkozy, the French president, has said that state-owned funds are welcome to invest in France as long as they are transparent and that French companies can invest freely in their countries.

Total says it is used to having state funds as investors and even welcomes them.

“These funds are no different from other shareholders,” the company said.

“In fact, Total actually welcomed this development as these public investors helped to create a stable long-term shareholder base.”

Safe is the only Chinese public fund to have taken a meaningful stake in Total.

The group already has sovereign investors from Norway and the Middle East among its shareholders.

According to Total’s latest accounts, 88 per cent of its shareholder base is accounted for by institutional investors. About 8 per cent is held by individual entities.

The biggest single shareholder in the oil company is Albert Frère, the Belgian entrepreneur, with 5.3 per cent, while employees own 4 per cent.

Safe could not be reached for comment.

Mexico’s centre-right government always knew that any attempt to reform the ailing energy sector would be tricky. But to judge by the events of the past few days, the task has become considerably harder.

This week, opposition members of Congress voiced their anger and frustration with how President Felipe Calderón’s administration has handled negotiations on an issue that most economists say needs urgent changes if Mexico is to ensure its long-term self-sufficiency in oil.

Samuel Aguilar, congressman for the Institutional Revolutionary party (PRI) and one of the party’s energy spokesmen, told the FT: “We have no idea when the government is going to present a bill . . . we are in limbo.”

His reaction came a few days after the government presented Congress with a document outlining its understanding of the present state of Pemex, the state oil monopoly, and some guidelines as to what an eventual reform should include.

The document suggests the need to make the country’s rigid oil laws more flexible to allow Pemex to form alliances with private companies to increase rates of exploration, to construct new refineries and to improve distribution.

It says: “Pemex needs to be able to join together with other companies.”

The problem is that the document was received very badly in the country. Mr Aguilar, for example, says that the decision to present a document rather than a concrete proposal was little more than a cowardly act to pass the buck on reforming an energy regime that, 70 years after Mexico nationalised its oil industry, continues to be a huge source of national pride.

“It is clear that the government does not have the courage to present a bill because it does not want to assume the political costs involved,” says Mr Aguilar. “This whole reform attempt has no direction and, to be honest, I now see the possibility of passing a reform as extremely remote.”

Indeed, with time running out before the end of the country’s present congressional session on April 30 – and with the next session in September almost certainly centred on the 2009 budget as well as perilously close to next year’s mid-term elections – an increasing number of political analysts share his view.

In private, even some of the country’s government officials accept that the long-awaited reform may not happen.

That would be a setback for Mr Calderón, who until now has gained a reputation for his ability to work with Congress. It would also be a victory for Andrés Manuel López Obrador, the leftwing leader and a fierce critic of the government.

Perhaps more important, says Sergio Sarmiento, a respected analyst and columnist with Reforma newspaper, the absence of reform would have huge implications for Mexico’s oil industry and for the wider economy.

“It would mean that we are going to cease to be an oil-exporting nation within five to 10 years,” Mr Sarmiento says.

George Baker, director of energia.com, a Houston-based consultancy, agrees. He points out that Mexico’s proved reserves have been falling consistently since the 1980s, and says that in the past few years Pemex’s replacement rate of current production has only been less than 20 per cent compared with at least 50–80 per cent for international companies.

“If you had a management team at Exxon that was getting those replacement rates for a couple of years running they would all be out of a job,” he says.

Mr Baker, an expert on Mexico’s energy sector, believes that even the recommendations that are included in the government’s document are too narrow and far too timid to solve Mexico’s long-term problems.

As things stand, the hope that even those recommendations will become law in Mexico looks increasingly unlikely.

Qatar’s pioneering plant to convert natural gas to liquid fuels operated by Sasol of South Africa will continue to run at well below full capacity until the second half of this year at the earliest.

The technical problems that have dogged the Oryx project, which opened last year, are further evidence of the challenges in commercialising gas-to-liquids (GTL) technology.

That technology is being touted by some oil companies as an important source of future fuel supplies.

Pat Davies, Sasol’s chief executive, told the Financial Times he expected Oryx to get close to its planned normal operating output in the company’s next financial year, which starts in July.

Once that has happened, he said, it would “reduce the perception of risk” in GTL investments and should lead to other deals for more projects.

“This plant is a combination of firsts and one doesn’t want to have teething problems with these projects, but one does,” he said.

But while its notional capacity is 33,000 barrels per day, it produced just 9,000 b/d in December.

The end-product was being contaminated by particles from the catalyst used in the process.

That meant that Sasol has had to instal additional filters, which will not be in place until the third quarter of the year.

Once those filters were fitted, Oryx should be able to raise its output close to 30,000b/d, Mr Davies said.

Sasol hopes to increase the plant’s capacity to 100,000 b/d, but Mr Davies said he had “not started serious discussions” with Qatar on the expansion. “We will have to wait for Oryx 1 to be up and running,” he said.

Rising oil prices and predictions of tight supplies in the future have encouraged interest in GTL. Sasol is a world leader in the technology, thanks to its investment in alternatives to conventional fuels in the apartheid era of South Africa’s international isolation.

Royal Dutch Shell has also invested heavily in GTL and is building what will be the world’s biggest plant when it opens, with a capacity of 140,000 b/d, also in Qatar.

However, that plant, like many big projects, has suffered from soaring costs. It is expected to cost up to $18bn, three times the initial estimate.

Last year ExxonMobil scrapped its plan for a GTL plant in Qatar.

Mr Davies said Sasol’s other GTL plant under construction, a joint venture with Chevron of the US and the Nigerian National Petroleum Corporation, was also “under cost pressure”. He added that the plant, which is scheduled to open in 2010, was “on a particularly difficult site, in a swamp, in a remote area”.

The availability of gas is another potential constraint on new GTL plants. They have to compete with local demand for gas, which is rising fast in many countries in the Middle East, and with plants for liquefied natural gas, which super-cool gas so it can be exported in tankers.

Although Sasol has a joint venture with Chevron for worldwide GTL projects, Mr Davies said the US company would not necessarily be involved in its future investments.

“The default position is we are 50/50, but we can also go it alone,” he said.

Background
The technology to convert natural gas or coal into liquid fuels and lubricants was developed by

German scientists in the 1920s, and is known as the Fischer-Tropsch process after its inventors.

It was used on a large scale by Germany in the second world war, but has been seen as uneconomic compared with conventional fuel production from crude oil. It has come into play again as a result of rising oil prices and increased interest in exploiting gas reserves that would otherwise be uneconomic to develop. Several proprietary versions of the technology exist; the other company apart from Sasol with a proven record is Royal Dutch Shell, which has operated a GTL plant since 1993. Oryx is the world’s biggest working GTL plant and the first commercial plant to be opened for more than a decade.

Gazprom, Russia’s state-owned gas group, is likely to secure energy assets in Libya alongside Eni gaining a long sought entry to north African oil and gas fields and tightening its grip on European markets.

Paolo Scaroni, the Eni chief executive and Alexei Miller, the head of Gazprom, discussed the idea during talks in Moscow last Thursday, the Italian said in a statement disclosing the location of the assets.

Industry sources said Eni had agreed to share assets with Gazprom “in a north African country, probably Libya”.

An advance by Gazprom into Libya, one of the oil and gas producers in north Africa with the most potential, will raise alarm bells that it is tightening its stranglehold on European markets.

Europe, dependent on Gazprom for more than a quarter of its gas supplies, views north Africa as an alternative source of gas to Russia.

Eni, the leading foreign operator in Libya, recently agreed to double capacity in an 8bn cubic metres per year pipeline carrying Libyan gas across the Mediterranean to Italy. The company plans to invest $28bn in the coming decade, boosting production at its existing Libyan fields and exploring nearby areas.

Gazprom has been aggressively hunting for assets in north Africa, one of a shrinking number of places where international oil groups have not yet been sidelined by increasingly assertive state oil companies.

Talks with Sonatrach, Algeria’s state oil company, about a possible partnership opened in 2006, but have made little progress. However, the prospect of an alliance between Russia and Algeria, the European Union’s two biggest gas suppliers, has fuelled European fears about energy security.

More recently Gazprom has offered to invest billions of dollars in gas projects in Nigeria where it is competing against western companies to build a 4,128km gas pipeline.

Centrica said yesterday that it was considering building Britain's first offshore gas storage facility for more than 25 years.

The parent company of British Gas is teaming up with Gaz de France and First Oil to look at converting the partly depleted Bains gas field in the Irish Sea, close to Centrica's Morecambe Bay gas fields, into a storage unit.

The proximity of the Bains field to the UK mainland and the existing infrastructure would mean the facility would be able to supply gas at short notice.

Centrica, which owns Rough, Britain's biggest gas storage facility, said the cost of converting the Bains gas field could be about £350m.

Centrica's chief executive, Sam Laidlaw, said: "As the UK becomes increasingly reliant on imported gas, and flexibility from North Sea fields declines in the coming years, investing in much-needed storage facilities, which will boost this country's security of supply, forms part of Centrica's long-term programme of investing in a range of gas, power and renewable projects to supply our British Gas customers."

Companies running gas storage facilities look to buy gas during the spring and summer months, when prices are usually at their lowest, and then sell it on in the autumn and winter as prices rise with demand.

Britain has a low level of storage capacity compared with a number of continental European countries, having previously been able to rely on increasing North Sea output during times of high levels of demand.

Industry experts estimate that Britain may see up to £1.5bn in investment in storage capacity over the next five years. As Centrica was unveiling its own entente cordiale with Gaz de France, Gérard Mestrallet, the chief executive of the French utility Suez, was outlining the terms under which his company would be prepared to take part in building nuclear power stations in the UK.

He said his company was in regular contact with British Energy, which owns most of Britain's nuclear generation, but made it clear that Suez wanted more than a financial investment in the UK company.

"If they say take a stake in British Energy and that's it, then we are absolutely not interested. But if they want to involve us in the development and production of one or several reactors ... then we are willing to have discussions.

"Then we would say yes or no if we think production costs or the location of site suit us or not."

India's Oil and Natural Gas Corporation (ONGC) and the Hinduja Group are in discussions with Iran for the signing of a mid-April contract that would pump billions of dollars into Iran's South Pars gas field and the south Azadegan oil field, ONGC chairman and Managing Director RS Sharma told reporters Wednesday.

Though there is no definitive agreement, the "participating agreement" would involve ONGC Videsh and Hinduja in the development of phase 12 of the South Pars, as well as field development of the Azadegan oil patch.

"A lot of ground has to be covered before reaching a stage of signing a definitive agreement," Sharma told reporters.

Azadegan is the largest oil field in Iran after its 1999 discovery.

China and India have been on the hunt for opportunities to exploit the country with the world's second-largest oil and gas reserves. This week, China said it would be willing to step in and pick up any slack left by India in the $7.4 billion Iran-Pakistan pipeline deal if India backs out.

In December 2007, Sinopec signed a deal with Iran to develop the Yadavaran oil field.

Energy group E.ON yesterday asked the government to hold back granting planning permission for the company's controversial £1.5bn Kingsnorth power plant, which would be Britain's first coal-fired power station for 20 years.

E.ON said the Kent project should not be approved until the government had finished consultation this year on regulating carbon capture and storage.

Carbon capture (CCS) is seen as crucial to the development of fossil fuel power generation because of its potential to curb emissions. But E.ON is reluctant to commit itself to building a new station if future regulations might make it impossible to fit the plant with CCS technology.

Green campaigners immediately seized on E.ON's move as a "climbdown" by the company and a blow for the business and enterprise secretary, John Hutton. They called for the prime minister, Gordon Brown, to take control of government policy on using coal in power generation.

The government is a keen promoter of cleaner coal as part of Britain's power generation mix. It is backing a trial aimed at developing the use of CCS technology, where CO2 from fossil fuel plants is captured and buried, either in depleted oil or gas fields or saltwater acquifers.

Yesterday E.ON said it was entering Kingsnorth into the government competition to develop commercial-scale CCS technology. E.ON's UK chief executive, Paul Golby, said: "Decarbonising fossil fuels - and especially coal - is one of the key challenges to be overcome if we are to combat climate change, and we aim to be right at the centre of the debate."

Golby said it was crucial to the development of CCS technology, both in this country and in potential overseas markets, to demonstrate the practicalities of building a CCS-ready plant and then fitting CCS technology.

"That is why we are also proposing to government that the Kingsnorth planning decision is made following their consultation process, when we will all know exactly what is required by the government for a station to be deemed CCS ready."

Environmental campaign group Greenpeace said E.ON had expected Kingsnorth to be given the go-ahead by the end of May and claimed government policy over coal was in disarray, with ministers worried about the damage to Britain's reputation if Kingsnorth went ahead.

"E.ON's Kingsnorth climbdown is a major blow to John Hutton and his plans to have a new coal-fired power station under construction this summer," said John Sauven, Greenpeace executive director.

"With the most ardent coal generator now calling for a delay, Hutton's under-fire department is looking isolated. It's time for the prime minister to step in and take control by initiating a full government coal review."

A government spokesperson said: "There is no confusion about the government's policy, which is to cap emissions in the power sector through the European emissions trading scheme and to provide support for low carbon technologies.

"It is an inescapable reality that fossil fuels will continue to be an important part of the energy mix for decades to come. But the strength of policy on cleaning up the use of coal is underlined by applications from E.ON and several other major energy companies to participate in our competition to build one of the world's first carbon capture and storage plants by 2014."

Thirteen people have been arrested for aggravated trespass after a protest at Wales' biggest power station.

Climate change activists blocked roads and chained themselves together outside coal-fired Aberthaw, Vale of Glamorgan.

The protest was to highlight the environmental impact of fossil fuel. Police said it caused traffic tailbacks.

The power plant said its output was not affected but work on new environmental technology had been interrupted.

Protesters blocked the access road to the power station, run by the energy supplier Npower, and attached themselves to heavy objects there.

The climate activists, the Bristol Rising Tide, said they wanted to "stop normal work at Wales' biggest polluter".

In response, a power station spokesman said: "Aberthaw does produce more carbon dioxide than any other single place in Wales - but it is the biggest power station in Wales.

'Dirty dinosaur'

"We have to keep some coal-fired power stations to keep the lights on.

"We are building carbon capture and storage test plant at Aberthaw - to capture CO2 from emissions and store them. Aberthaw is at the centre of trying to improve burning coal. It is a massive investor in cleaner gas."

He said the protest had not affected operations as day shift workers had used another entrance.

Station manager Clive Smith said: "We've been able to keep the power flowing."

He added the protest had interrupted work to install the technology to reduce sulphur emissions, described as "a £100m project that has been going on for some time".

Gordon James, director of Friends of the Earth Cymru, described the power station as a "dirty dinosaur" that should not be allowed to stay open in its present form.

Barry and Vale group coordinator Keith Stockdale said the blockade had come after attempts to use "official channels" for objection had proved ineffective.

Traffic tailbacks

He said: "We find the authorities are exempting Aberthaw from making real efforts to reduce their coal emissions.

"The plans to use wood-fuel instead of 300,000 tonnes of coal are hardly progressing."

Police said the protest led to traffic tailbacks for a mile-and-a-half back to Llantwit Major and towards Cardiff Airport in the other direction and motorists were advised to avoid the area if possible.

A police presence remained at the scene after the protest as a precautionary measure.

The protest came after activists protested at Ffos-y-Fran opencast mine in Merthyr Tydfil on Tuesday.

The Energy Supply Association of Australia (ESAA) says the Government should not force the electricity industry to use selected technologies as it attempts to reduce carbon emissions.

NASA's chief climate scientist James Hansen has written to Prime Minister Kevin Rudd urging him to halt the building of coal-fired power stations unless they can capture carbon emissions.

ESAA chief executive Brad Page says the Government's role is to set a clear emissions target and put a price on carbon emissions.

"If they put a price on CO2 emissions and set a target for both the medium term and the long term the market will soon work out whether it makes sense or not to build new coal-fired power stations," he said.

"Most of the conventional wisdom at the moment is that it is most likely, until carbon capture and storage is available, new coal-fired plants are unlikely to be built. In fact they are more likely to be gas-fired."

Mr Page says it is up to the market, not governments, to choose the right technologies to reduce carbon emissions.

"It's a very difficult transition period to 2020, depending on just how big those emission cuts have to be," he said.

"But beyond there, there will be many new technologies that will dramatically change the footprint of electricity generation in this country, so in the medium to longer term we're very confident."

The Nuclear Decommissioning Authority on Wednesday will appeal to industry for help in dealing with the UK’s 100-tonne stockpile of plutonium, and in deciding whether to treat it as waste or reuse it as fuel for nuclear reactors.

One option being considered is for the highly radioactive plutonium to be used to make fuel for a new nuclear reactor at Sellafield, where the plutonium is currently stored.

But the question of whether the plutonium should be used or disposed of could reopen the debate on nuclear reprocessing and whether spent fuel from the next generation of nuclear reactors should be reused.

The government will be concerned that the controversial policy of backing new nuclear reactors could be further complicated by the reprocessing issue.

The stockpile has accumulated over 40 years, through the reprocessing of spent enriched uranium fuel from Magnox and AGR nuclear power stations. Reprocessing separates spent fuel into radioactive waste, which needs to be disposed of, and uranium and plutonium, which can be made into mixed-oxide reactor fuel.

Plutonium is also used to make nuclear weapons. No country has yet successfully devised a plan to dispose of the highly radioactive substance.

Areva, the French state-owned nuclear company, and US nuclear decommissioning groups such as Fluor and Washington Group are likely to be among those suggesting ideas to the NDA. The agency was set up by the government to tackle the clean-up of Britain’s nuclear waste.

The NDA and the companies will look at whether the plutonium should be disposed of with the rest of the UK’s highly radioactive waste in an underground bunker or turned into reactor fuel. The NDA hopes to present a list of options to the government by the end of the year.

Ian Roxburgh, NDA chief executive, said it would cost between £3bn ($5.93bn) and £4bn ($7.9bn) to dispose of the plutonium.

The NDA is talking to energy companies including EDF, Eon, RWE and Centrica about building nuclear reactors on some of its sites. Mr Roxburgh said there had been “a robust response” from the companies and that Wylfa in Anglesey and Bradwell in Essex were viewed as the best locations.

It is understood that one proposal under consideration is that a new nuclear reactor at Sellafield could use the plutonium stocks. “That is one credible option,” said a person close to the situation.

Two plants at Sellafield currently reprocess spent fuel from the UK’s existing reactors and foreign power plants – although the Thorp reprocessing plant has been beset by operational problems.

The government has not yet decided whether to reprocess fuel from any new reactors built in the UK.

France reprocesses all of its spent fuel, while President Jimmy Carter banned reprocessing in the US in 1977 because of fears of nuclear weapons proliferation.

A consortium of Areva, URS Washington Division, Studsvik UK and Serco Assurance signed March 31 a five-year contract to manage and operate the UK's low level radioactive waste repository in Cumbria, North West England, French nuclear engineer Areva said Monday.

Valued at Eur160 ($251) million for the consortium, the contract can be extended for up to 17 years, taking contract value up to Eur650 million, Areva said. The contract also covers the implementation of a national strategy to manage additional low level waste expected to be generated by the NDA's
decommissioning of 20 nuclear facilities across the UK.

The contract is the first to be awarded for the operation of a nuclear site by the UK Nuclear Decommissioning Authority (NDA) since it was established in 2005.

Areva is also a member of Nuclear Management Partners, one of the consortia bidding for the management of Sellafield, the UK's largest nuclear complex. Its partners are URS Washington Division and Amec. The result of the competition is expected to be announced later this year.

The world's largest prize for marine renewable energy innovation has been announced by the Scottish Government.

The £10m Saltire Prize aims to push the boundaries of research in the global fight against climate change.

Scottish first minister Alex Salmond unveiled details of the scheme while on a visit to the US.

To be eligible for the prize, innovations must be commercially viable and will be demonstrated in Scotland, the government said.

Speaking at the National Geographic Society's world headquarters in Washington, Mr Salmond said the prize would also deliver clear economic benefits at home.

"Scotland won the natural lottery with oil and gas in the 1970s and has won it again in its potential for planet-saving renewable energy," he said.

"Our Saltire Prize is a call to action to scientists around the world to help bring the power of the seas around Scotland and indeed the United States, online that much sooner."

It is thought the seas around Scotland could generate a quarter of Europe's tidal power and 10% of the continent's wave energy.

The Scottish Government wants half of its electricity from renewable energy by 2020, with a target of 31% by 2011.

'Real' solutions

Mr Salmond added: "This global initiative is hugely exciting. It puts Scotland at the very heart of the battle against climate change and builds on our nation's substantial reputation for innovation in the areas of science that matter."

The National Geographic Society's head of global missions, Terry Garcia, was announced as one of the first members of the international prize committee, along with Scotland's chief scientific adviser, Prof Anne Glover.

"The world's oceans are an incredibly valuable global resource in a myriad of ways, and we applaud the Scottish Government's efforts to generate real energy solutions involving marine renewables," said Mr Garcia.

Mr Salmond was criticised by Scottish Liberal Democrat leader Nicol Stephen, who said: "Marine renewable technology needs sustained investment, not recycled gimmicks."

Hydrogen may be lighter than air, but for two chemical plants in North Vancouver, it caused a weighty problem — until they figured out a solution that benefited both the bottom line and the environment.

Erco Worldwide's sodium chlorate plant and Canexis' clor-alkali facility across the road both produce excess hydrogen as part of their operations. Both companies use electrolysis on salt water to extract valuable chemicals such as chlorine, and hydrogen is a natural byproduct of the process.

Hydrogen is not a greenhouse gas and, because it is so incredibly light, if it is released it causes no environmental problems under normal circumstances as it races to the stratosphere. But it is extremely flammable, and both companies went to great lengths and expense to ensure that their excess hydrogen was disposed of safely and appropriately. And, since their operations together produce more than 1,000 kilograms of the lightest substance in the universe every hour, it wasn’t a small problem.

But what some people throw away, others treasure.

"We saw these companies venting hydrogen — it was just going to waste," said Hamid Tamehi, senior engineer and project manager at Sacré-Davey Engineering. "We realized that we wanted to capture it, purify it and use it for energy."

It sounds logical, but it wasn't a simple or inexpensive task.

Although everyone talks about hydrogen as an energy source, few people have actually done anything about it. Sacré-Davey, a North Vancouver engineering and consulting firm, managed to attract some high-rolling partners to the idea, which it named the Integrated Waste Hydrogen Utilization Project (IWHUP). After setting a budget of $18.3 million, Sacré-Davey raised 25 per cent of the funding from a consortium of 12 corporate partners — including Ford Canada — and the rest from the federal government.

Since the fall of 2007, IWHUP has been harvesting the waste hydrogen, taking out what Tamehi calls the "chlorine, water vapor and other nasties," and trucking it to two fuelling stations — one in North Vancouver and the other in Port Coquitlam, a nearby suburb.

The station in North Vancouver fuels the project's nine pickup trucks and two small shuttle buses. Used by various partners, the pickups and buses are basically stock vehicles, modified slightly to run on compressed hydrogen gas instead of gasoline.

"It doesn’t have a fuel cell, it's a good old-fashioned V8 with a few modifications to bring it to the same level of performance as a conventional gasoline engine," says Sean Allen, project engineer at Powertech Labs. "But essentially, it has zero emissions at the tailpipe — it's just steam. They're a much more cost-effective solution than fuel-cell vehicles, and they act as a stepping-stone technology to help introduce the infrastructure necessary for a hydrogen economy."

"They aren't zero-emission vehicles like fuel-cell vehicles are," added Tamehi. "But they are very, very close."

Since the fall of 2007, the Integrated Waste Hydrogen Utilization Project (IWHUP) in B.C. has been harvesting waste hydrogen. Fuel cells were deemed too expensive for the IWHUP project, and the existing internal-combustion technology was already available through Ford. The partnership has given Ford a testing ground for its alternative fuel systems.

"Ford supplied the trucks and they asked us to use them as much as we can," he said. "They wanted to know how their technology would work in real-world circumstances."

So far, so good, according to the project's backers. Other than routine maintenance, the only problems with the engines have been fuel injectors that have to be replaced more frequently than those on more conventional vehicles.

Four full-sized buses that run on a mixture of compressed hydrogen and natural gas also use the Port Coquitlam station. Operated by TransLink, the greater Vancouver transportation authority, the buses behave very much like those powered by natural gas alone, but with a 50-per-cent reduction in nitrogen oxide emissions.

"We've converted four compressed natural gas buses to run on a hydrogen mix, and the biggest difference is cleaner emissions — there's much less nitrogen oxide and greenhouse gases," said Jack Lees, maintenance manager for Translink’s Port Coquitlam station. "After the conversion, there was virtually no performance difference whatsoever, the power and torque remained the same."

The vehicles use a small fraction of the hydrogen IWHUP produces. So the engineers at Sacré-Davey also designed a project that would demonstrate how hydrogen power could work in non-transport scenarios — they built a car wash. But unlike conventional car washes, the North Vancouver Easywash facility is powered and heated by a hydrogen fuel cell.

"We wanted to use one from Ballard, our neighbours," said Tamehi. "But they didn’t have anything big enough."

Instead, they went to Cambridge, Mass.-based Nuvera, which supplied a 150 kW fuel cell, which proved more than up to the task.

"The fuel cell not only powers the car wash, but also heats the water," said Geoff Baker, co-founder of Easywash. "We don't use all the power that's being produced, so we actually turn the switch and actually send power to the B.C. Hydro power grid."

According to Tamehi, Easywash is now the biggest energy re-supplier to the grid.

And there's plenty more waste hydrogen to be had. While IWHUP current powers 15 vehicles, Tamehi estimates that the amount of hydrogen gleaned from the Erco and Canexis plants could power 20,000 vehicles and, if all the similar plants in Canada were tapped, there would be enough to run 250,000 vehicles.

Trucks like these, rather than traditional fuel tankers, are used to deliver hydrogen to fuelling stations. "It's not enough to satisfy the needs of all the cars in Canada, but it's a start," he said.

What Tamehi calls "our mini-hydrogen economy" has not gone unnoticed.

"We get visitors from industry, academia and government — Toyota was here the other day," he said. "Delegates come from Japan, Thailand, Korea, the U.K. — lots from the U.S."

WASHINGTON -- CIA Director Michael V. Hayden said Sunday that he believes Iran is still pursuing a nuclear bomb, even though the U.S. intelligence community, including his own agency, reached a consensus judgment last year that the Islamic Republic had halted its nuclear weapons work in 2003.

Asked on NBC's "Meet the Press" whether he thought Iran was trying to develop a nuclear weapon, Hayden said, "Yes," adding that his assessment was not based on "court-of-law stuff. . . . This is Mike Hayden looking at the body of evidence."

He said his conviction stemmed largely from Iran's willingness to endure international sanctions rather than comply with demands for nuclear inspections and abandon its efforts to develop technologies that can produce fissile material.

"Why would the Iranians be willing to pay the international tariff they appear willing to pay for what they're doing now if they did not have, at a minimum . . . the desire to keep the option open to develop a nuclear weapon and, perhaps even more so, that they've already decided to do that?" he said.

However, a sweeping assessment from the intelligence community issued in December concluded Iran had suspended its nuclear weapons work in 2003, soon after the United States invaded Iraq, and appeared not to have restarted it.

The CIA director is the latest senior Bush administration official to question the findings of the National Intelligence Estimate, which was widely seen as a setback to efforts by the United States and European nations to step up international pressure on Tehran.

Soon after the report was released, President Bush argued that it should not be seen as a sign that Iran was backing away from its pursuit of the bomb.

"Iran was dangerous, Iran is dangerous, and Iran will be dangerous if they have the knowledge necessary to make a nuclear weapon," he said in a Dec. 4 news conference.

In an interview with ABC News last week, Vice President Dick Cheney alleged that Iran was "heavily involved in trying to develop nuclear weapons enrichment, the enrichment of uranium to weapons-grade levels." International inspectors have not found evidence of such an effort.

Iran has said its nuclear program is strictly for peaceful energy purposes, to generate power. In its latest report, the International Atomic Energy Agency, the United Nations' watchdog group, said that Iran's uranium enrichment operations at its Natanz plant are yielding material useful for civilian reactors, but far below the 80% or 90% grade needed for weapons production.

Still, the United States and other Western nations fear that Iran's pursuit of dual-use nuclear technologies will eventually enable it to develop nuclear weapons.

The National Intelligence Estimate on Iran represented a startling shift in the intelligence community's views of Tehran's nuclear activity. The report, issued after years of warnings that Tehran appeared bent on building a nuclear bomb, begins by saying that U.S. spy agencies had concluded "with high confidence that in fall 2003, Tehran halted its nuclear weapons program."

The finding was cited as evidence that Tehran was susceptible to diplomatic pressure. It was subsequently attributed to new intelligence that had surfaced in the summer of 2007, including journals kept by senior Iranian officials that documented the decision to suspend the program.

But the report also notes that Tehran "at a minimum is keeping open the option to develop nuclear weapons" and has not ceased civilian uranium enrichment activities that could possibly be converted to weapons development purposes.

The nation's top intelligence official, J. Michael McConnell, testified last month that he "probably would change a few things" if given a chance to redo the report, suggesting that its conclusions had been misinterpreted.

The document includes a footnote that specifies that Iran is believed to have stopped only its "weapon design and weaponization work," not the uranium-enrichment work that is widely considered the biggest obstacle to constructing a bomb.

Hayden acknowledged Sunday that U.S. estimates on such matters were now viewed with greater skepticism because assertions about Iraq's alleged stockpiles of banned weapons had been proven wrong.

The U.S. intelligence community "has additional burdens to carry because of the Iraq NIE, in which we got so much of that estimate wrong," he said.

China has betrayed one its closest allies by providing the United Nations with intelligence on Iran's efforts to acquire nuclear technology, diplomats have revealed.

Concern over Tehran's secretive research programme has increased in recent weeks after officials at the International Atomic Energy Agency (IAEA), the UN's nuclear watchdog, discovered that Iran had obtained information on how to manufacture nuclear-armed weapons.

Beijing is believed to have decided to assist the inspectors after documents seized from Iranian officials included blueprints for "shaping" uranium metal into warheads, the testing of high explosives used to detonate radioactive material and the procurement of dual-use technology.

Much of the new material was presented to the governors of the Vienna-based IAEA in February. That meeting is said to have triggered China's change of heart.

Diplomats described Beijing's decision to provide material related to Iran to the IAEA as a potentially significant breakthrough.

Chinese designs for centrifuges that refine uranium into a "weaponised" state have been found in Iran but these are thought to have come through a network controlled by the disgraced Pakistani scientist AQ Khan.

John Bolton, the former American ambassador to the United Nations, said suspicions over the leakage of technology from China to Iran had long centred on uranium enrichment technology and their bilateral ballistic missile trade.

A spokesman for the IAEA said it did not comment on intelligence it received from its members.

Beijing has long-established ties with Iran's clerical regime and has emerged as one of the country's biggest customers for oil and gas.

It has allied itself with Tehran's attempts to prevent the IAEA referring Iran to the UN Security Council, which can impose sanctions.

China has not used its veto powers to block US and British sponsored sanctions but it has ensured the measures were watered down.

The council has levied three rounds of financial sanctions on Iran in an attempt to force the country to declare all its nuclear activities.

IAEA weapons inspectors report that Iran has not provided full co-operation.

An American intelligence assessment judged it likely that Iran stopped efforts to produce a nuclear weapon in 2003 but there are strong fears it has resumed the work under President Mahmoud Ahmadinejad.

Michael Hayden, the director of the CIA, said this week that he believed that Iran is still developing a nuclear bomb.

Meanwhile, Israel has accused Iran of setting up listening stations in Syria to eavesdrop on its military communications network.

The United States has increased pressure on Switzerland following the signature of a gas export deal between Swiss and Iranian companies.
After the contract was signed in Tehran on March 17, the US embassy in Bern officially requested a copy. The embassy originally asked for a copy of the contract in June 2007, according to information published on its website.

"As of now, we have not received a response to our request for a copy of the contract," the question and answer statement dated Friday said.

The US intends to examine whether the deal between the private Swiss firm, EGL, and the National Iranian Gas Export Company violates UN sanctions against Iran.

Swiss Foreign Minister Micheline Calmy-Rey earlier defended the Swiss move, pointing out that the natural gas accord breached neither UN nor US sanctions, which forbid any investment in Iran's oil and gas sector worth more than $20 million (SFr20 billion).

Switzerland is representing Washington's interests in Iran.

History may not repeat itself, but, as Mark Twain observed, it can sometimes rhyme. The crises and conflicts of the past recur, recognisably similar even when altered by new conditions. At present, a race for the world's resources is underway that resembles the Great Game that was played in the decades leading up to the First World War. Now, as then, the most coveted prize is oil and the risk is that as the contest heats up it will not always be peaceful. But this is no simple rerun of the late 19th and early 20th centuries. Today, there are powerful new players and it is not only oil that is at stake.

It was Rudyard Kipling who brought the idea of the Great Game into the public mind in Kim, his cloak-and-dagger novel of espionage and imperial geopolitics in the time of the Raj. Then, the main players were Britain and Russia and the object of the game was control of central Asia's oil. Now, Britain hardly matters and India and China, which were subjugated countries during the last round of the game, have emerged as key players. The struggle is no longer focused mainly on central Asian oil. It stretches from the Persian Gulf to Africa, Latin America, even the polar caps, and it is also a struggle for water and depleting supplies of vital minerals. Above all, global warming is increasing the scarcity of natural resources. The Great Game that is afoot today is more intractable and more dangerous than the last.

The biggest new player in the game is China and it is there that the emerging pattern is clearest. China's rulers have staked everything on economic growth. Without improving living standards, there would be large-scale unrest, which could pose a threat to their power. Moreover, China is in the middle of the largest and fastest move from the countryside to the city in history, a process that cannot be stopped.

There is no alternative to continuing growth, but it comes with deadly side-effects. Overused in industry and agriculture, and under threat from the retreat of the Himalayan glaciers, water is becoming a non-renewable resource. Two-thirds of China's cities face shortages, while deserts are eating up arable land. Breakneck industrialisation is worsening this environmental breakdown, as many more power plants are being built and run on high-polluting coal that accelerates global warming. There is a vicious circle at work here and not only in China. Because ongoing growth requires massive inputs of energy and minerals, Chinese companies are scouring the world for supplies. The result is unstoppable rising demand for resources that are unalterably finite.

Although oil reserves may not have peaked in any literal sense, the days when conventional oil was cheap have gone forever. Countries are reacting by trying to secure the remaining reserves, not least those that are being opened up by climate change. Canada is building bases to counter Russian claims on the melting Arctic icecap, parts of which are also claimed by Norway, Denmark and the US. Britain is staking out claims on areas around the South Pole.

The scramble for energy is shaping many of the conflicts we can expect in the present century. The danger is not just another oil shock that impacts on industrial production, but a threat of famine. Without a drip feed of petroleum to highly mechanised farms, many of the food shelves in the supermarkets would be empty. Far from the world weaning itself off oil, it is more addicted to the stuff than ever. It is hardly surprising that powerful states are gearing up to seize their share.

This new round of the Great Game did not start yesterday. It began with the last big conflict of the 20th century, which was an oil war and nothing else. No one pretended the first Gulf War was fought to combat terrorism or spread democracy. As George Bush Snr and John Major admitted at the time, it was aimed at securing global oil supplies, pure and simple. Despite the denials of a less honest generation of politicians, there can be no doubt that controlling the country's oil was one of the objectives of the later invasion of Iraq.

Oil remains at the heart of the game and, if anything, it is even more important than before. With their complex logistics and heavy reliance on air power, high-tech armies are extremely energy-intensive. According to a Pentagon report, the amount of petroleum needed for each soldier each day increased four times between the Second World War and the Gulf War and quadrupled again when the US invaded Iraq. Recent estimates suggest the amount used per soldier has jumped again in the five years since the invasion.

Whereas Western countries dominated the last round of the Great Game, this time they rely on increasingly self-assertive producer countries. Mr Putin's well-honed contempt for world opinion might grate on European ears, but Europe is heavily dependent on his energy. Hugo Chávez might be an object of hate for George W Bush, but Venezuela still supplies around 10 per cent of America's imported oil. President Ahmadinejad is seen by some as the devil incarnate, but with oil at more than a $100 a barrel, any Western attempt to topple him would be horrendously risky.

While Western power declines, the rising powers are at odds with each other. China and India are rivals for oil and natural gas in central Asia. Taiwan, Vietnam, Malaysia and Indonesia have clashed over underwater oil reserves in the South China Sea. Saudi Arabia and Iran are rivals in the Gulf, while Iran and Turkey are eyeing Iraq. Greater international co-operation seems the obvious solution, but the reality is that as the resources crunch bites more deeply, the world is becoming steadily more fragmented and divided.

We are a long way from the fantasy world of only a decade ago, when fashionable gurus were talking sagely of the knowledge economy. Then, we were told material resources did not matter any more - it was ideas that drove economic development. The business cycle had been left behind and an era of endless growth had arrived. Actually, the knowledge economy was an illusion created by cheap oil and cheap money and everlasting booms always end in tears. This is not the end of the world or of global capitalism, just history as usual.

What is different this time is climate change. Rising sea levels reduce food and fresh-water supplies, which may trigger large-scale movements of refugees from Africa and Asia into Europe. Global warming threatens energy supplies. As the fossil fuels of the past become more expensive, others, such as tar sands, are becoming more economically viable, but these alternative fuels are also dirtier than conventional oil.

In this round of the Great Game, energy shortage and global warming are reinforcing each another. The result can only be a growing risk of conflict. There were around 1.65 billion people in the world when the last round was played out. At the start of the 21st century, there are four times as many, struggling to secure their future in a world being changed out of recognition by climate change. It would be wise to plan for some more of history's rhymes.

· John Gray is author of Black Mass: Apocalyptic Religion and the Death of Utopia, published by Allen Lane in paperback on 24 April

Investors in the fledgling market in greenhouse gas emissions have seen their share of volatility and shocks in the past three years.

Shares in several carbon trading companies have fallen sharply in the past year, and traders have had to cope with a crash in the carbon price and uncertainty over the future regulation of the market.

A delay to technology linking the European Union’s emissions trading scheme to the system run by the United Nations has proved troublesome, and a report out this week from the UK’s Financial Services Authority warned of a litany of risks to the market, from a lack of liquidity to the possible mis-selling of emissions products.

But most carbon traders remain optimistic about the future, pointing out that teething problems are to be expected in such a young market, and that the market itself is based on a strong fundamental – the need to tackle climate change.

James Cameron, vice-chairman of Climate Change Capital, says: “Entrepreneurs like risk, because risk is opportunity, so you should not complain about risk. We are still very strong believers in the carbon market.”

Climate Change Capital remains privately owned, but the Alternative Investment Market plays host to a small clutch of carbon trading specialists. The City of London is widely acknowledged as the world centre of carbon trading, which is mainly carried out by investment banks, energy brokers, power generators and oil and gas companies.

The global trade in greenhouse gases was worth about €40bn last year, up 80 per cent on the previous year, and is expected to increase to €63bn ($98bn) next year, according to Point Carbon, the market analysts.

Most of the trading was carried out under the EU’s emissions trading scheme, but about €12bn came from the United Nations system of emissions trading under the Kyoto protocol.

The emissions trading market took off in early 2005 with the start of the EU’s emissions trading scheme. Under the scheme – the first of its kind – companies in certain energy-intensive industries such as power generation and steel-making were issued with free permits for each tonne of carbon dioxide they may produce, which they can trade with one another.

Companies producing less CO2 than their allowance can sell their excess allowances to other companies that lag behind in lowering their emissions.

Companies can trade their permits through exchanges, such as those run by Climate Exchange, Nordpool and Nymex, or buy and sell directly with one another. But the bulk of the market is made up of over-the-counter trades through brokers.

The idea of the scheme is that companies are encouraged to cut their emissions of CO2 at the lowest possible price. Companies can cut their emissions by improving their energy efficiency or installing low-carbon technology. Companies can also buy “carbon credits” issued by the UN to projects such as wind farms or solar panels that cut emissions in the developing world.

But the EU’s scheme has not worked quite as intended so far. In the first phase of the scheme, from 2005 to the end of 2007, permits were over-allocated, meaning most companies had a surplus and thus no incentive to buy permits or to cut emissions.

When the glut was discovered, the price of permits crashed from more than €30 to less than €10.

The cap on carbon has been tightened for the second phase of the scheme, which runs to 2012.

Instead of a surplus, there should be a difference of a few per cent between what companies are expected to emit and the number of permits they have been allocated.

However, this could be substantially affected by a worsening economic situation – any industrial slowdown would lead to a decline in emissions, narrowing the shortage of permits and cutting their price.

The uncertain future of the market was also underlined when the European Commission unveiled its proposals for emissions cuts earlier this year, when a row broke out over whether companies should have to buy their carbon permits after 2013, when the scheme enters its third phase.

BANGKOK — Representatives of more than 160 countries began formal negotiations here on Monday on a treaty to address climate change, with the secretary general of the United Nations, Ban Ki-moon, urging governments to help in “saving the planet.”

The weeklong meeting will lay out the agenda for the talks, which are scheduled to conclude at the end of 2009. A rancorous meeting three months ago in Indonesia exposed deep fissures over how countries plan to approach global warming.

“Saving our planet requires you to be ambitious in what you aim, and, equally, in how hard you work to reach your goal,” Mr. Ban told delegates in a recorded video message.

One of the main challenges for negotiators over the next 21 months will be reintroducing the United States to a global system of emissions reductions. The United States signed but never ratified the Kyoto Protocol, the 1997 agreement that binds wealthy countries to make specific cuts in greenhouse gases. The new treaty would follow the Kyoto Protocol after its binding terms expire in 2012.

Angela Anderson, director of the global warming program at the Pew Charitable Trusts, the American philanthropy, said negotiators were watching the United States election campaign closely for signs of increased willingness to grapple with climate change.

“We have three presidential candidates, all of whom have said they will re-engage in climate negotiations,” Ms. Anderson said. “There will definitely be a new voice in the U.S.”

The November presidential election will come roughly halfway through the negotiations, and many here believe negotiators will defer tough decisions until a new president is inaugurated.

The American public also appears more aware of the issue of global warming than at the start of the Bush administration.

Former Vice President Al Gore, who won a Nobel Peace Prize for his environmental advocacy, is starting a $300 million campaign this week to encourage Americans to push for aggressive reductions in greenhouse emissions.

Some countries disagree over what role wealthy and poor countries should play in reducing emissions. And even among wealthy countries there is significant discordance.

Last week, the Japanese vice trade minister, Takao Kitabata, said the method used to measure reductions in greenhouse gases in the Kyoto Protocol was “extremely unfair.”

The Kyoto agreement uses 1990 as a reference point for greenhouse gas levels, mandating that industrialized countries as a group cut their emissions by at least 5 percent below 1990 levels by 2012. Japan proposed using 2005 as a new reference point, a change that would put other countries at a severe disadvantage, among them Germany. For Germany 1990 is an ideal starting point because western Germany absorbed and cleaned up the heavily polluting eastern Germany in the 1990s, allowing for a marked reduction in emissions over all.

Countries also disagree on how much to compensate developing countries for their efforts in reducing global warming. The agreement reached on the resort island Bali in December called for wealthier countries to help finance cleaner-burning energy technologies and non-fossil-fuel alternatives in developing countries.

The United Nations calculates that at least $200 billion will be needed by 2030 for these changes. As a measure of the enormous potential shortfall, the world’s wealthiest country, the United States, has so far proposed to contribute $2 billion over two years.

Britain is seeking to change the rules governing renewable energy targets to make it easier for the UK to fulfil its commitment to promote clean energy, the Guardian has learned.

At present, only 3% of the UK's power comes from renewable energy, but ministers have agreed to increase this fivefold within 12 years. To help reach this goal, the government has started lobbying the EU over the way the target is calculated.

At a closed session of the energy council of ministers this month, the business minister, Lady Vadera, proposed that British investments in renewable energy anywhere in the world should count as part of UK's effort.

In a speech that astonished European renewable energy companies, environment groups and other EU energy ministers, she said: "It is imperative that cost-efficiency is at the heart of our approach ... Demand for renewable energy projects outside the EU should be considered [part of the renewable target]."

She also appealed to Europe to allow all EU countries to count carbon "saved" from coal-fired stations fitted with equipment that captures harmful greenhouse gas emissions. The electricity generated by this "clean coal" would then count as renewable energy and go towards UK national targets. "Member states might be further incentivised to support carbon capture projects if they were allowed in some way to contribute to the 2020 [renewable] targets," she said.

Environmental groups regard both proposals as a way for Britain to put off or scale back on increasing renewable energy through windfarms, hydroelectric and solar energy initiatives.

Last year the Department of Business, Enterprise and Regulatory Reform (Dberr) attempted to dilute EU renewable targets. Gordon Brown ordered a rethink on how Britain addressed renewables when leaked papers from Dberr were published in the Guardian.

Last night renewable energy companies and environment groups reacted with alarm. "This would kill renewable energy in Britain," said Dale Vince, chief executive of Ecotricity, Britain's biggest windfarm company. "It makes a mockery of any attempts to address climate change. The idea that we can build wind farms or other renewable energy projects [abroad] and then offset them against the UK target is outrageous. If it were possible to build projects anywhere in the world where planning is lax, nothing would be done in the UK."

John Sauven, director of Greenpeace, added: "This would allow a UK minister to lay the foundation stone of a power station in China and say it counts as our contribution to European renewable energy targets."

"Yet again Britain is found trying to evade its environmental responsibilities," said a spokesman for the environment group WWF.

The proposals to the EU have heightened concern among the groups that the UK is on a course for a massive nuclear power programme. The energy secretary, John Hutton, argued this week that Britain should not just replace existing nuclear plants but greatly expand the nuclear and coal industries.

This week's state visit by President Sarkozy confirmed that the powerful French nuclear industry will be encouraged to develop at least four but possibly more nuclear power stations in Britain.

Industry recognises that nuclear power and renewables in Britain are mutually exclusive because they both need government support as well as the same national grid infrastructure to distribute electricity. Last week Carlo de Riva, chief executive of French state-owned nuclear company EDF, said British backing for renewables, would undermine nuclear power.

"If you provide incentives for renewables ... that will displace the incentives built into the carbon market. In effect, carbon gets cheaper. And if carbon gets cheaper, you depress the returns for all the other low-carbon technologies. [like nuclear power]."

Ben Bernanke, the chairman of the Federal Reserve, has admitted for the first time that the US economy may be contracting, but he said suggestions that the country was heading into a new Great Depression were unlikely to prove true.

Assailed by references to the economic catastrophe of the 1930s during his testimony before Congress yesterday, Mr Bernanke – one of the world's foremost scholars of the causes of the Depression – said the modern-day Fed was pursuing "creative" actions to shore up confidence in the financial system.

His comments were the first public references to the Fed's role in the bail-out of Bear Stearns, whose failure last month would have had consequences that "could have been severe and extremely difficult to contain", he told the joint economic committee.

The Fed stepped in with a $29bn loan to support JPMorgan's takeover of Bear Stearns and ripped up decades of previous central banking policy to promise that it would act as lender of last resort not just to retail banks but also now to Wall Street. "We think we have been pretty creative," Mr Bernanke said.

The Fed chairman batted away suggestions that it would have been better to let Bear Stearns go into liquidation, to punish it for poor investments in sub-prime mortgages. He said that, "with the very glaring exception of the 1930s, the Fed has been an eff-ective market stability regul-ator".He added: "At the time of the Depression, liquidationist theory was supported by the Treasury, and it was partly on the basis of that theory that the Fed stood by and let a third of the banks in the country fail. The financial stability that was not addressed was a major contributor to the Depression, not just in the US but abroad. Today we will not let prices fall at 10 per cent a year, we will act to keep the economy growing and stable. There are very great differences between the 1930s and today."

Mr Bernanke repeated his prediction of a rebound in the US economy later this year but conceded: "It now appears likely that real gross domestic product will not grow much, if at all, over the first half of 2008, and could even contract slightly". It was before the joint economic committee a year ago that Mr Bernanke predicted "the impact on the broader economy and financial markets of the problems in the sub-prime market seem likely to be contained" – a prediction that proved not to be the case.

The International Monetary Fund has again cut its forecast for global growth this year, it emerged yesterday. The world economy will grow at the slowest pace since 2002, according to an IMF document obtained by Bloomberg News, and there is a one-in-four chance of an all-out global recession.

"Global expansion is losing momentum in the face of what has become the largest financial crisis in the US since the Great Depression," the IMF says.

Cash-strapped consumers are raiding their savings accounts and embarking on a borrowing spree as the credit crunch puts household disposable incomes under massive pressure.

Unsecured personal borrowing soared by £2.4 billion in February, the biggest monthly rise for more than five years, according to Bank of England figures released yesterday. A smaller rise of £900 million was recorded in January.

The much sharper than expected increase in unsecured borrowing - mainly through personal loans and overdrafts rather than on credit cards - startled the City.

The figures came in a worrying week with householders being hit by a series of inflation-busting increases in everything from council tax to utility bills.

The higher living expenses, which come as the tax year ends, raised fears that consumers will be forced to borrow even more to meet their outgoings. There were also signs that householders were saving less and failing to put money aside to cover their retirements.

Economists said that the jump in lending was explained by a dash for borrowed cash by consumers fearful that access to funds will dry up as the credit squeeze worsens.

“Together with the news that secured lending is getting harder and harder to come by, this could be a worrying sign of distress,” Danny Gabay, of Fathom, the economic con-sultancy, said.

Vicky Redwood, of Capital Economics, said: “Consumers are simply resorting to unsecured borrowing in their time of need. A similar pickup in consumer credit was seen in the United States slowdown in the middle of 2007. Either way, a rise in unsecured borrowing out of desperation would hardly be a positive development.”

The splurge in personal borrowing comes as high street lenders push up the cost of mortgages or withdraw from the market.

Two days ago First Direct, owned by HSBC, stopped lending to new mortgage customers after similar retrenchment by rivals led to five times its usual volume of applications. Experts are predicting that some of First Direct’s rivals will follow suit soon.

Britons are already facing their lowest level of disposable incomes for a decade after big planned rises in water bills, council tax, TV licences and road tax took effect this month. Customers of Scottish and Southern Energy are being hit by a 15 per cent increase in gas and electricity bills, as the group follows similar moves by rivals that look likely to push annual bills for dual-fuel customers past £1,000.

Council tax bills in England are going up by about 4 per cent a year, effective from April 1. The TV licence fee rises to just under £140 a year and green-oriented increases in road tax mean bills for drivers of the most heavily polluting cars will rise £100 a year.

The changes will add £203 a year to the average bill for a household that is a customer of Scottish and Southern.

Higher utility bills are adding to the pain of sharp rises in food costs and dearer petrol. Oil prices have pushed petrol up by 18 per cent.

On top of that, volatile stock markets are providing scant relief for savers and investors, who are increasingly sitting on any spare cash they have to ensure that they can meet their mortgage payments.

With two days to go before the end of the individual savings account (Isa) season, the booming market for the usually popular funds is threatening to fall off as consumers cash out in droves. Before the end of the tax year on Saturday, Isa sales are predicted to record their lowest annual figure since they were introduced almost ten years ago.

Evidence is mounting that Britain’s households are drawing on every resource to make sure they avoid defaulting on their mortgages, a problem that has sent America spiralling towards recession. According to a survey by the Prudential yesterday, Britons have almost halved their voluntary pension contributions in the past 12 months as a prosperous retirement becomes an unaffordable luxury for some.

Controversial tax changes including the removal of the 10 per cent low income band, are also likely to put pressure on low earners. The changes, due to come into effect on Sunday, will mean a low-paid worker on £10,000 a year will be £107 out of pocket.

First Direct has announced it is withdrawing its mortgage range from new customers while two other lenders raised their rates for existing ones.

The internet and telephone bank said it was temporarily withdrawing its range from 5pm yesterday after receiving five times the usual volume of applications in recent weeks.

At the same time, NatWest and Royal Bank of Scotland and Kent Reliance Building Society became the first lenders this year to raise their variable mortgage rates for existing customers.

First Direct said the "unprecedented" level of business it was receiving meant it was taking longer to process applications than it would like.

It added that it had decided to withdraw its range from people who were not already customers until it had