NEW YORK - Big Oil's money gusher started going dry in the fourth quarter, as the industry wrote down the value of its oil fields to reflect an unprecedented drop in energy prices.

While the performance in the first three quarters of the year lifted annual profits for some of the big five integrated oil producers, only Chevron managed to book an increased bottom line for the last three months of the year.
Exxon Mobil posted a slimmer profit, while Royal Dutch Shell, BP and ConocoPhillips all ended up in the red on non-cash impairments.

The fourth quarter marked a huge reversal in the fortunes of integrated oil giants after the price of oil peaked at an all-time high of $147 a barrel in July. In the fourth quarter, crude futures swooned to below $35 a barrel from about $100 a barrel on Oct. 1.

Exxon Mobil remained at the head of the class with the fattest overall profit - not a surprise since the company remains the largest company of any kind in the world with a market capitalization of nearly $400 billion.

The Irving, Texas energy giant earned a fourth-quarter profit of $7.82 billion, down 33% from $11.66 billion in year-ago period. The company broke its own record for the richest annual profit in world history with a 2008 bottom line of $45.2 billion, up 11% from $40.6 billion last year.

ConocoPhillips trailed the pack with a whopping quarterly loss of $31.8 billion tied to about $34 billion in non-cash goodwill impairments. In the year-ago period, ConocoPhillips earned $4.37 billion. Adjusted profit sank by more than half to $1.9 billion from $4.1 billion in the fourth quarter.

Production problems
Evan Smith, co-manager of the U.S. Global Resources Fund , said Wall Street largely expected big write-downs of oil companies' assets - primarily their proven oil and gas reserves -- after oil prices dropped sharply on worries about the global economy and financial crisis.

But oil majors have been hard-pressed to increase the amount of crude they get out of the ground while competing with nationalized oil companies and contending with lower output from existing wells.

"Big oil is still struggling with production growth," he said.

Exxon Mobil posted a 3% decline in production, though oil production per share of common stock rose because of its robust share buyback plan, he said.

While oil sold for $100 a barrel or more for much of 2008, lower production didn't hurt the bottom line. Now, companies must try to boost the number of barrels they get out of the ground to make up for lower oil prices.

Many big oil companies are cutting capital spending in order to shore up their balance sheets. This could lead to lower production down the road, just when oil demand starts recovering, Smith said.

"What you're setting up is further declines in oil production," Smith said. "If you see a flattening out or rebound in oil demand, the industry is setting itself up for the next oil crunch."

Still, the integrated oil companies remain healthy for now, as a haven for investors seeking solid companies that still pay dividends, Smith said.

Howard Chernick, professor of economics at Hunter College in New York City, noted that oil companies benefited directly from high oil prices last year since their production cost remained mostly fixed.

"A 10% increase in the price of oil translates very smartly into bottom line profits," he said. "The reverse is also true." 

Steep falls in oil production means the world now needed to replace an amount of oil output equivalent to Saudi Arabia’s production every two years, Merrill Lynch said in a research report.

Non-OPEC crude oil production may have already peaked and international oil companies faced the prospect of both younger and older oil fields declining steeply, the firm said in the report released on Wednesday.

It said the cumulative decline of global oil production from today could amount to 30 million barrels per day by 2015.

“As a result of these steep decline rates, the world now needs to replace an amount of oil production equivalent to Saudi Arabia’s production every two years,” said Francisco Blanch, head of global commodities research at Merrill Lynch.

The International Energy Agency expects an increase in non-OPEC output of 51 million barrels per day over the next seven years, the firm said, while it saw production in the range of 49 million to 50 million barrels a day in the same period.

But it said should the credit crunch push decline rates to six percent, non-OPEC production could decline precipitously towards 47 million barrels per day by 2015 from current levels.

It said oil production decline rates were a function of investment rates, as well as the size and age of oil fields. “All these factors point to steeper oil output declines going forward,” said Blanch.

Merrill Lynch said the combined declines in OPEC and non-OPEC countries alike could lead to pressure for higher oil prices as soon as 2010 or 2011, assuming the economic slowdown did not turn into a multi-year event where global oil demand was pushed down structurally for the next five years.

Saudi Arabia, the world’s largest oil exporter, said last month it will take the lead among OPEC members in trying to halt a six-month slide in prices.

Oil stood little changed around $40 a barrel on Thursday, after falling the previous day on lower share prices and after data showed US crude inventories rose under the weight of an economic slowdown.

Crude stocks in the world's top energy consumer jumped by 7.2 million barrels to an 18-month high last week, data from the US Energy Information Administration showed.

That was more than twice the rise that analysts had forecast and the sixth straight weekly increase.

US light crude for March delivery ticked up 3 cents to $40.35 a barrel at 0622 GMT, having earlier risen 20 cents. That is about $4 below London Brent crude for the same month, which gained 25 cents to trade at $44.40 a barrel.

NYMEX crude for April delivery is almost $4 a barrel more expensive than for March delivery, with the contango firming to more than $13 a barrel towards the end of the year, creating a chance for traders to profit from storing crude for later use and showing they may be betting on a recovery late this year.

US equities dropped on Wednesday on concerns over a financial rescue plan, reversing gains from earlier in the day. Japan's Nikkei average slipped 0.7 percent on Thursday.

Adding further to the economic gloom, US non-farm payrolls, due out on Friday, are estimated to have shed more than half a million jobs in January after losing a similar number in December as employers, fearing the impact of a weak economy on sales and profit, shrank their work forces to cut costs.

"The tenacity that WTI crude oil prices have shown over the past couple of weeks by being able to hold on at or above $40 per barrel is incredible given what seems to be a near unstoppable flow of bad fundamental news," said Martin King, an analyst at First Energy Capital.

"Can this continue? Much depends on where we are in the process of getting oversupply off the market," he added.

A global financial crisis, which started with a downturn in the US housing market, has triggered recessions in all of the big industrialised economies, sharp slowdowns elsewhere and put millions of jobs on the line.

That in turn has cut the demand for oil and swelled fuel stocks, knocking more than $100 a barrel of the price off crude since its July 2008 peak near $150.

However, oil's losses have been limited by signals this week from the Organization of the Petroleum Exporting Countries that it may cut oil production further in an attempt to bolster the market.

OPEC's president said on Tuesday the group could remove more oil from the market if needed.

OPEC, worried that the global economic downturn is reducing oil demand and pressuring prices, has promised to reduce oil production by a total of 4.2 million barrels per day (bpd) from levels seen in September.

The North Sea oil boom has ended, most British offshore oil and gas industry operators agree.

Project financing channels are frozen and the oil price has fallen to under $50 per barrel, leading threequarters of offshore operators to expect reduced activity this year, according to a survey by the chamber of commerce of Aberdeen, the centre of the domestic oil industry.

Geoff Runcie, the chamber's head, urged the government not to ignore the industry whose decline has been so rapid that its full effects had yet to be absorbed.

"It is crucial that the UK government implements in the forthcoming Budget a long-term fiscal and energy policy that recognises the high levels of dependence on hydrocarbons and ensures the continued competitiveness of the UK continental shelf," he said.

The UK oil industry could now expect a period of consolidation, suggested operators who were surveyed.

That is not entirely bad, according to some in the industry, who have said that in addition to drilling equipment being easier than ever to obtain, cash buyers will have unprecedented opportunities to pick up undervalued North Sea assets in anticipation of the next upswing.

Graham Stewart, chief executive of Faroe Petroleum, which operates in the far North Sea, said the company was looking to coinvest with sovereign funds or private investors in distressed North Sea companies - and was receiving daily overtures from such potential partners.

Oilexco North Sea, the most active driller of appraisal wells in recent years, signalled the North Sea bust when it entered administration in January.

Mr Stewart estimated weeks earlier that Oilexco and 20 other oil producers around the North Sea were on the verge of failure.

Many ventures were only viable at high oil prices, given the costs of producing oil offshore in Europe. North Sea production costs have been estimated at about $40 per barrel, compared to today's prices of some $45 per barrel.

Bill Murray, chief executive of the Offshore Contractors Association, called on the government to "bring forward tax reliefs or allowances to bolster activity until the economy recovers".

A prominent concern among those surveyed was the long-term effect of losing skilled offshore oil and gas workers during the downturn. Now facing unemployment, they might decamp to more competitive oil-producing regions and decide not to come back, some warned.

"The management of the eventual upturn will be significantly more difficult with shortages of skilled people," said Chris Stang, director of the Well Services Contractors Association. 

The oil major BP may have announced another set of record profits yesterday, but behind the headline figures, the falling oil price is taking its toll on profitability and the chief executive's strategy to transform the company is not yet complete.

The company saw profits rise by a whopping 39 per cent to a record $25.6bn (£17.8bn) in 2008, with post-tax operating cashflow up 54 per cent to $25.6bn and $30.7bn-worth of investments over the period. Total dividends for the year were up 30 per cent in dollars and 40 per cent in sterling, making a total of $13.3bn distributed to shareholders over the year, including the $3bn share buyback programme halted last September in response to the uncertain economic environment.

But Tony Hayward, the chief executive, was explicit that the good times produced by last year's oil price boom are over for the foreseeable future, citing a $50 to $60 per barrel oil price for break even, compared with current prices around the $40 mark. "What is evidently different about 2009 is the economic environment, which means I don't see the record financial performance being repeated for some time," said Mr Hayward.

Performance in the fourth quarter gives an indication of what is to come. A one-off $700m tax-related loss by the company's Russian joint venture, TNK-BP, did not help matters. But the main culprit was the oil price. As it slid from last July's eye-watering $147 per barrel high, so too did BP's profits, dropping to $2.6bn on a replacement costs basis in the last three months of the year, down 24 per cent from the same period in 2007 and 74 per cent from the previous quarter.

Against such a background of unprecedented volatility, Mr Hayward has been pressing ahead with plans to rescue BP from a recent history beset by safety and performance issues. He remains bullish. "A year ago, we set out a plan to deliver safe and reliable operations, to restore revenues and to reduce the complexity and cost structure of BP. We've done exactly that," said Mr Hayward. "Our aim is to strike the right balance for shareholders, between current returns via dividend, sustained investment for long-term growth, and action on costs in the current challenging environment."

Mr Hayward has faced considerable tests since he took over as chief executive, in May 2007. His predecessor, Lord Browne of Madingley, was considered a stellar performer until being tarnished by his untimely departure for lying to a High Court judge over details of his personal life. But under his leadership, BP was run as a federated series of fiefdoms, creating strong entrepreneurial spirit and the easy integration of assets acquired on a four-year buying spree. The downsides of that approach are now plain.

While Lord Browne was a world-class strategist, he was less good at operational detail, and his legacy was a company theoretically well-positioned but plagued by problems. The worst incident was the death of 15 employees in an explosion at the Texas City refinery in 2005. An oil spill in Alaska the following year, a fire at the company's Whiting plant in Indiana, and delays to the flagship Atlantis and Thunder Horse projects in the Gulf of Mexico, added to the tally of woe. And just a few months after he took over, Mr Hayward's prediction of "dreadful" quarterly results and the worst financial performance for 15 years were leaked to the press.

Twelve months on from the launch of its simplification and efficiency strategy, BP has made undoubted progress. The company reduced its 98,000-strong workforce by 3,000 last year, and will exceed the target to strip out 5,000 jobs by mid-2009. It has reduced the number of layers of management and eliminated nearly a fifth of its senior roles.

In the upstream business, production grew by 5 per cent last year and nine major projects got off the ground. Of great symbolic value was the start of production at Thunder Horse, in the Gulf of Mexico, in July. Development of the field took nearly three years longer than planned, with everything from welding problems to Hurricane Denis adding to delays, but the facility is now running at 200,000 barrels per day.

Another area of significant success in the last year is exploration. Mr Hayward yesterday trumpeted 2008 as "one of the best years in the past decade for exploration success", citing discoveries in Gulf of Mexico, Angola, Algeria, Egypt and the North Sea.

But the biggest improvements are in the refinery business, which has never been at BP's core. Underlying pre-tax profit in 2008 was nearly $650m, an improvement of more than $700m on the previous year's dire performance despite the weaker economic environment. In fact, compared with 2007, and adjusting for a lower margin and adverse foreign exchange rates, underlying profitability of the business has improved by more than $2bn. Not only is the refinery business running at 91 per cent capacity for the first time in more than three years, but, like at Thunder Horse, there have also been important symbolic victories – Texas City and Whiting have both returned to full economic capacity.

The trouble is that the unprecedented economic conditions are interfering with normal business. Richard Griffiths, an analyst at Evolution Securities, said: "So far Tony Hayward has been quite successful, but the problem is that the volatility in both the oil price and in refining margins has made it hard to measure."

The big question is, what happens next? Despite the endless gloomy economic data, BP is relatively upbeat about 2009. The company raised $5bn in debt last year and with only 21 per cent gearing, at the bottom of its target range, the company is not spooked by the difficulties of the credit crunch. It is sticking to plans for capital expenditure of $20-22bn this year, compared with $21.7bn in 2008, and will be keeping an eye open for potential acquisitions.

The key to the next 12 months will be to cut costs, particularly in the supply chain. Massive inflation in recent years has seen costs go up in double digits, and until the falling oil price feeds through to deflate commodity costs, the oil companies are being squeezed on both sides.

Over the longer term, all the oil companies face a challenge about how to respond to dwindling reserves and the world's attempts to wean itself off its environmentally destructive dependence on hydrocarbons.

The multinational oil giants are pouring money into their renewable divisions – BP's wind power capacity more than doubled to 432 megawatts in the fourth quarter, for example – and oil-rich sovereign wealth funds from Abu Dhabi to Norway are doing the same.

But there is a view amongst some in the City that such transformations are best left alone, and that the companies would be better returning capital to shareholders and gradually winding themselves down.

"You can probably find ample evidence in history of industries that, once they stepped outside their area of expertise, did not succeed," one analyst said.

"But we are still far away from that, and in the context of where the world's energy is and what the demand is, the only really viable option is still hydrocarbons."

Next in line: Who will follow Peter Sutherland?

As if plunging oil prices were not enough, BP's search for a new chairman is not going as smoothly as planned. The hunt for a suitable replacement for Peter Sutherland, who will step down in March, has been running for some 18 months already. But when Paul Skinner, the Rio Tinto chairman, emerged as the favourite, the appointment was considered a done deal.

However, Rio is saddled with $40bn (£28bn) of debt after last year's purchase of Alcan, and its target to pay down $10bn this year is looking tricky. It admitted last week it is mulling a rights issue.

Not only does the debt fiasco reflect badly on Mr Skinner, but his board's blank refusal of a takeover offer from rival BHP Billiton also looks like poor judgment. Or so some BP shareholders think.

Whether the decision ultimately tips in his favour is likely to come down to the outcome of Rio's defensive manoeuvres. BP is tight-lipped, but Mr Skinner, who has resigned from Rio, may scrape through.

Crude oil in New York will average $35 a barrel this year as the global economy contracts, limiting demand for fuels, Morgan Stanley said.

The price of West Texas Intermediate crude, the basis for futures traded on the New York Mercantile Exchange, will fall to a low of $25 a barrel in the second quarter, according to the Feb. 2 report by analysts led by Hussein Allidina. Crude will rise to average $55 a barrel in 2010 and $85 a barrel in 2011, he said in the report.

Oil futures in New York have slumped 73 percent since reaching a record $147.27 a barrel in July as the world’s economies have shrunk. The International Monetary Fund said last month gross domestic product in the U.S. will contract 1.6 percent this year, while Japan’s will fall 2.6 percent and the euro-area economy by 2 percent.

“We think that the oil markets are lagging the macroeconomists in understanding the severity of the economic outlook,” the analysts said. “As they catch up, and as the full extent of the demand weakness becomes clear, we expect prices to move lower.”

Crude oil for March delivery gained as much as 63 cents, or 1.6 percent, to $40.71 a barrel in after-hours Nymex electronic trading. It was at $40.56 a barrel at 12:05 p.m. Singapore time.

The recession in developed economies, combined with slowing emerging markets such as China and India, will cause oil demand to fall by 1.5 million barrels a day in 2009, the analysts said.

Asia Weakness

“Recent data refute notions of decoupling and the inevitability of non-OECD oil demand growth,” wrote Allidina and his team. “Economic data point to weakness in Asia meeting or exceeding 1997 levels, when regional oil demand contracted by 2 percent.”

Morgan Stanley’s outlook for West Texas oil is the lowest of 35 analysts’ forecasts tracked by Bloomberg News. Mark Pervan, a senior commodity strategist at Australia & New Zealand Banking Group Ltd. in Melbourne, predicts an average of $43.13 a barrel. Gerard Burg, an energy economist at National Australia Bank Ltd. in Melbourne, has the highest estimate at $110 a barrel. The median forecast is $58 a barrel.

Brent crude oil traded in London will perform slightly better, averaging $36 a barrel in 2009, the Morgan Stanley analysts said. It will gain to an average of $55 in 2010 and $84 a barrel in 2011.

Brent for March settlement rose as much as $1.03, or 2.4 percent, to $44.85 a barrel on London’s ICE Futures Europe exchange. The contract yesterday declined $2.06, or 4.5 percent, to settle at $43.82 a barrel.

Petrobras, Brazil’s national oil company, is in direct talks with governments including Washington and Beijing to help finance the $174bn development of its huge reserves.

The partially traded group recently discovered the biggest oil fields in Latin America in the past 30 years and industry leaders, such as Tony Hayward, BP’s chief executive, believe the waters off Brazil’s south-eastern coast hold oil reserves as big and important as those discovered in the North Sea in the 1970s.

José Sergio Gabrielli de Azevedo, Petrobras’s president and chief executive, told the Financial Times that Petrobras had secured almost all of its financing for this year and over the five-year period could finance $120bn from its own cash flow.

But that still leaves the company with a large financial hole it will need to plug to realise its goal of increasing current oil and gas production of 2.2m barrels a day to 3.3m b/d by 2013 and to 5.7m barrels a day by 2020.

“It’s going to be tough, it’s going to be challenging, but it is not impossible.” he said. “We have had several talks with different countries, not only China, even the US. We think this is going to be an important source of financing for us.”

The UAE is also thought to have shown interest.

In the US, Mr Gabrielli said Petrobras had held conversations with Export-Import Bank and Overseas Private Investment Corporation, which he said wanted to improve the presence of US companies in Brazil. But he said his conversations in Washington were hampered by the fact there was not one central institution.

He said that, in return for help financing the project, Petrobras would guarantee future oil and oil products.

“In relation to the US, today we are already a net exporter of petroleum products. This is going to increase,” Mr Gabrielli said.

Analysts and other oil company executives agree that securing financing would be one of Petrobras’s two biggest hurdles, considering the credit crisis and the fall in oil prices of more than $100 a barrel in six months. The second hurdle is expected to be the technical challenge of extracting oil trapped under thick layers of salt, far below the ocean’s surface.

An executive from a competing oil company with operations in Latin America and the North Sea said: “They have found a North Sea. It took 15 big companies more than a decade to develop that.”

But Mr Gabrielli said he believed companies that had not helped find the pre-salt fields would be left out.

“Brazil’s regulatory system rewards the companies that took exploration risk.” He noted that these included: BG of the UK, Galp of Portugal, Repsol of Spain, ExxonMobil and Amerada Hess of the US, and Anglo-Dutch Royal Dutch Shell. “The ones who didn’t take it [the risk] are not going to be rewarded,” he said.

Presenting its business plan for 2009-2013 last week, Petrobras insisted it would push ahead with plans not only to develop its newly discovered fields, but to build three oil refineries, Brazil’s first new refineries for almost 30 years. Mr Gabrielli said Petrobras was unique among big oil companies in having big new fields to develop and a big domestic market.

But its plans also involve expanding export sales of value-added refined products rather than crude oil. “To capture [our advantages] we need to build capacity now,” Mr Gabrielli said. “If we don’t build it now we will miss our chance.”

Almir Barbosa, financial director, said Petrobras still needed to raise about $8bn to meet investment targets of $28bn this year and $35bn in 2010. He said the company was striving to reduce its financing needs by a cost-cutting programme, involving renegotiations of all projects, especially those still in their early stages.

Additional reporting by Jonathan Wheatley in São Paulo

Cost pressures on military budgets, caused in part by last year’s rocketing oil prices, are pushing the UK and other leading powers to consider alternative fuels and propulsion technologies.

Fuel costs accounted for $17bn of the combined budget for the world’s top 20 military spenders last year, and the sharp increase in the price of oil added $6bn to the bill, according to estimates in a Jane’s Industry Quarterly study last month.

Crude oil peaked at $123.80 per barrel in the second quarter last year, a 90.8 per cent increase year on year, said Jane’s.

The US, the world’s biggest military spender, spent $12.6bn, or 2 per cent, of its total budget on fuel.

In the UK, where rising oil costs added £120m-£130m to its fuel bill between 2006 and 2008, the government spent $1.06bn (£740m) last year.

France called off three naval exercises during the summer of 2008 as a result of escalating fuel costs.

“The burden placed on militaries by fuel demands is significant,” said Guy Anderson, editor of Jane’s Industry Quarterly. Even putting budgetary burdens aside, the reliance on petroleum products exposed militaries to the vagaries of the international energy markets and security concerns relating to dependence on foreign suppliers, he added.

In the UK, the Ministry of Defence last year set up an internal fuel forum to look at all aspects of fuel usage, including efficiency. Several initiatives are under way: expanding use of simulator-based training for armed forces; optimising fuel usage during live training (for example conducting fast-jet training without unnecessary underslung equipment); and improving fuel storage.

Separately, the Royal Navy says it recycles ships that are no longer seaworthy, where possible, and is in the process of installing updated waste disposal methods on ships.

The navy’s two new £4bn aircraft carriers, which are due to come into service in the next few years, will have diesel generators while current carriers are having “anti-foul coating systems” applied to their hulls to improve fuel efficiency.

Longer-term solutions are also on the horizon. The US defence department views hybrid electric drive as the most attainable military propulsion technology in the near term.

HED vehicles offer fuel savings of 30-40 per cent over diesel systems, according to Mr Anderson. But to be widely ready for military use in the next 15 years, the primary challenge for HED developers will be “to continue to keep development costs down while at the same time maturing the technology”, says Jane’s.

Another alternative is biofuels, such as biodiesel, which is a product of feedstocks such as soyabeans and palm oil. However, there are drawbacks to using biofuels in the military. Not least of these is that current biofuels are 25 per cent lower in energy density than military jet fuel.

Researchers are also trying to increase the endurance of unmanned aerial vehicles, a big growth area for the military and already used extensively for intelligence and surveillance.

According to Mr Anderson, the US is the only market even close to large enough to drive change.

Portsmouth sees energy plant proposal as a time of waste

Almost 900 years after its dockyards opened for the building and servicing of Britain’s warships, Portsmouth’s historic naval base on the south coast is going green . The base, which will be the home of the Royal Navy’s two new aircraft carriers, plans to build a waste-to-energy plant to help cut its energy bills and meet the ships’ electricity needs onshore once they come into service.

The Ministry of Defence has asked a handful of waste specialist and support services companies to bid for a contract to build a commercial waste-to-energy plant. With fuel bills expected to keep rising, despite recent falls in commodity prices, the plant would help the base cut its electricity bills.

Under the proposal, the new plant would provide a minimum of 12 megavolt amperes (MVA) directly to the base. The base is limited to a 30MVA demand on the National Grid, with a further 10MVA reserve. However, the peak load once the new carriers are in service is forecast to be as high as 48MVA. The two ships, HMS Queen Elizabeth and HMS Prince of Wales, will be the biggest and most powerful warships built for the navy. Each will be at least twice the size of the Invincible-class carriers currently in service and, once in port, each will require a sizeable chunk of electricity from the grid. The new plant would help the base meet that increased demand.

VT Group is tipped by defence industry sources as the frontrunner to win the contract.

A decision is expected later this month.  

China will spend 580bn yuan (£59.5bn) expanding its energy sector in 2009 with plans for new solar and wind-powered generating capacity, but also nuclear and coal-fired plants.

State-owned power companies were stepping up investment to meet growing demand and boost economic growth as part of a government stimulus plan, said Zhang Guobao, director of China's National Energy Administration. He also called on ministers to ensure there were appropriate measures to raise and save energy as well as using it more efficiently.

China is heavily dependent on cheap coal to generate much of its electricity but is on a drive to cut carbon and other pollution in its smog-filled cities by going at least partly green. Statistics show it consumed 2.74bn tonnes of coal in 2008, up 4.5% on the previous year, but the rate of growth was 1.6% lower than in 2007.

China's wind market is one of the fastest growing in the world with the exception of the US. A recent study by the Global Wind Energy Council predicted it may have installed capacity of 122 gigawatts by 2020, equivalent to the capacity of five Three Gorges dams.

No further details were given by Zhang about wider plans for expanding energy generation, but the China Daily newspaper said Beijing was looking forward to eight more nuclear plants, with a total of 16 reactors being operational within three years. The country currently has 11 nuclear reactors supplying about 1% of its power, but wants to see that contribution rise to at least 5%.

More wind power was installed in the EU than any other electricity-generating technology in 2008, according to data released yesterday.

The European Wind Energy Association (EWEA) produced figures showing wind power provided 43% of new capacity – or almost two gigawatts (GW) – compared with 35% for gas, 13% for oil, 4% for coal and 2% for hydro power.

The EWEA's claim that wind power is the fastest growing technology in Europe for the first time came as it emerged that the US overtook Germany last year – before Barack Obama entered the White House with his "green" agenda - to become the world's number one wind power installer.

The Global Wind Energy Council (GWEC) said China, whose capacity doubled for the fourth year in a row, was set to reach second place by 2010 – meeting its 2020 target of 30GW 10 years ahead of schedule.

EWEA's figures come at a period of heightened EU debate over the role of nuclear power, with France awarding the contract for its second EPR (the controversial European Pressurised Reactor) to state-owned EDF last week.

There is also concern over the viability of plans to generate 20% of primary energy from renewables by 2020, the future of carbon emissions trading and the security of gas supplies after the latest Russia-Ukraine dispute.

Christian Kjaer, the EWEA chief executive, said: "The figures show that wind energy is the undisputed number one choice in Europe's efforts to move towards clean, indigenous renewable power." On each average working day in Europe last year, 20 wind turbines were installed.

The new wind power capacity, costing €11bn (£9.9bn), should, in a normal year, produce 142 TWH (terawatt hours) of electricity or about 4.2% of EU demand and abate 100m tonnes of CO2 a year – equal to taking more than 50m cars off Europe's roads.

Germany and Spain both installed more than 1.6GW while the UK added 836MW (megawatts) to reach 3.24GW. Ten of the EU's 27 states have now got wind power capacity of more than 1GW.

Global capacity grew by 27GW to reach almost 121GW by the end of 2008, prompting Steve Sawyer, the head of GWEC, to assert that wind energy was the only technology capable of delivering the necessary CO2 cuts in the critical period up to 2020. Investments last year totalled €36.5bn.

US capacity now totals 25GW, after leaping by a half in 2008, with Germany close behind at 24GW. But the GWEC admitted that financing for new projects and orders "slowed to a trickle" in the US as the economic crisis deepened.

China, which added 6.3GW, now has 12.2GW of capacity and the country has identified wind energy as a key growth component in its economic stimulus package. Li Junfeng, the head of the Chinese Renewable Energy Industry Association, said new capacity would almost double again this year.

Could the credit crunch actually benefit the development of Scottish wave and tidal power?

This intriguing prospect has been raised by Cameron Johnstone, director of Strathclyde University's energy systems research unit and a member of EquiMar, Europe's largest ocean energy research programme.

Speaking in Edinburgh last week, Mr Johnstone said: "With sterling losing value against both the dollar and euro, the attractiveness of deploying devices in UK waters increases for overseas developers."

Vessel hire and services costs accounted for a large part of project costs, he said. "Since these are charged in local currency, it will be 25 per cent cheaper for most foreign projects to work in UK waters compared with the same time last year - and that is a meaningful reduction in total project delivery costs."

Mr Johnstone was speaking on the day Lord Smith, chairman of the Environment Agency, expressed concern that several big energy companies were reconsidering plans for offshore wind farms. Eon, the German energy company, also said the economics of the London Array - touted as the world's biggest offshore wind farm - were on a "knife-edge".

But Mr Johnstone argued that the credit crunch had reduced asset values of both share and land bank portfolios, so returns to investors in conventional markets were very low. The Russian threat to the security of gas supplies had induced further instability in financial and energy markets.

"The coincidence of these events could open up opportunities for wave and tidal energy projects to attract new and greater levels of investment," he said.

Returns on wave and tidal projects "could easily match and potentially exceed" returns in conventional markets. Such projects would also provide "an autonomous energy supply" controlled by the UK.

"Scotland is ideally placed to house new marine projects - and reduce its dependency on potentially insecure supply networks, with all the turmoil that dependency creates in both our financial and energy markets."

Mr Johnstone was speaking days after Alex Salmond, Scotland's first minister, said one of the world's largest wave electricity generating stations would be constructed at Siadar, off Lewis in the Western Isles.

The 4MW Npower Renewables scheme will create up to 70 jobs and start with the capacity to power about 1,800 homes.

In 2007 the Scottish government granted consent for a 3MW array of four Pelamis machines at the European Marine Energy Centre in Orkney. Pelamis machines float on the surface of the waves, while the proposed 40 turbines at Siadar would be encased in a concrete breakwater.

Holyrood is processing 30 applications for renewable projects - 23 wind farms and seven hydro-electric projects - and more are expected.

The tardiness of the planning process is also being addressed. The Scottish government said it had determined 24 energy applications since being elected in May 2007 - more than during the previous four years. Of these, 18 renewable and one non-renewable project had been approved.

Scottish government targets are to meet 50 per cent of electricity demand from renewables by 2020, with an interim target of 31 per cent by 2011.

Total installed capacity of renewables in Scotland is already more than 3,000MW. Adding all potential energy from consented renewable projects brings the total to 5,500MW, which means the government is set to surpass its 2011 target.

Meanwhile, about £12bn

of new offshore power networks will be needed to carry electricity from proposed wind farms off Britain's coast. Ofgem, the UK energy regulator, has appointed financial advisers to help it run the competitive tendering of the transmission licences.

Ofgem has engaged a consortium - led by Ernst & Young, the professional services group, Royal Bank of Canada and Willis, the insurance broker - for the first round, which is expected to conclude in June. Shortly after that, £500m to £1bn of competitive tenders will be invited.

The Department of Energy and Climate Change expects up to 33,000MW of offshore wind generation to be constructed under the scheme - enough to power about 10m homes.

The UK is already the largest user of offshore wind, with some 4,500MW of projects in operation, under construction or with consent, according to the British Wind Energy Association. The association says increasing the amount of wind energy in the UK's electricity mixture reduces overall energy costs and limits the risks associated with volatile prices of fossil fuels.

Scottish generators say the development of renewable energy is being hindered by the electricity charging regime, which encourages the generation of power close to the largest centres of population.

The Scottish government - backed by Scottish Power and Scottish and Southern Energy - has lobbied Ofgem over this and National Grid is expected to publish further analysis of the issue this month.

Some biofuels cause more health problems than petrol and diesel, according to scientists who have calculated the health costs associated with different types of fuel.

The study shows that corn-based bioethanol, which is produced extensively in the US, has a higher combined environmental and health burden than conventional fuels. However, there are high hopes for the next generation of biofuels, which can be made from organic waste or plants grown on marginal land that is not used to grow foods. They have less than half the combined health and environmental costs of standard gasoline and a third of current biofuels.

The work adds to an increasing body of research raising concerns about the impact of modern corn-based biofuels.

Several studies last year showed that growing corn to make ethanol biofuels was pushing up the price of food. Environmentalists have highlighted other problems such deforestation to clear land for growing crops to make the fuels. The UK government's renewable fuels advisors recommended slowing down the adoption of biofuels until better controls were in place to prevent inadvertent climate impacts.

Using computer models developed by the US Environmental Protection Agency, the researchers found the total environmental and health costs of gasoline are about 71 cents (50p) per gallon, while an equivalent amount of corn-ethanol fuel has associated costs of 72 cents to $1.45, depending on how it is produced.

The next generation of so-called cellulosic bioethanol fuels costs 19 cents to 32 cents, depending on the technology and type of raw materials used. These are experimental fuels made from woody crops that typically do not compete with conventional agriculture. The results are published online today in the Proceedings of the National Academy of Sciences.

"The dialogue so far on biofuels has been pretty much focused on greenhouse gases alone," said David Tilman, a professor at the department of ecology, evolution and behaviour at the University of Minnesota. "And yet we felt there were many other impacts that were positive or negative not being included. We wanted to expand the analysis from greenhouse gases to at least one other item and we chose health impacts."

The health problems caused by conventional fuels are well studied and stem from soot particles and other pollution produced when they are burned. With biofuels, the problems are caused by particles given off during their growth and manufacture.

"Corn requires nitrogen fertilisers and some of that comes on as ammonia, which is volatilised into the air," said Tilman. "The ammonia particles are charged and they attract fine dust particles. They stick together and form particles of the size of 2.5 micron and that has significant health impacts. Some of this gets blown by prevailing winds into areas of higher population density – that's where you have the large number of people having the health impact which raises the cost."

Health problems from biofuels and gasoline include increased cases of heart disease, respiratory symptoms, asthma, chronic bronchitis or premature death. The team has calculated the economic costs associated with these. "For the economy, it's the loss of good, productive workers who might otherwise have been able to contribute," said team member Jason Hill, an economist at the University of Minnesota's Institute on the Environment.

"These costs are not paid for by those who produce, sell and buy gasoline or ethanol. The public pays these costs," said Dr Stephen Polasky, an economist at the University of Minnesota, also part of the team.

A report published last year by Ed Gallagher, the head of the government's Renewable Fuels Agency, suggested that the introduction of biofuels to the UK should be slowed until more effective controls were in place to prevent the inadvertent rise in greenhouse gas emissions caused by, for example, the clearance of forests to make way for their production.

His report said that if the displacements were left unchecked, current targets for biofuel production could cause a global rise in greenhouse gas emissions and an increase in poverty in the poorest countries by 2020.

Gallagher also suggested the government should introduce incentives to promote the production of next-generation biofuels of the type studied by the Minnesota researchers. So-called cellulosic ethanol can be made from plants such as switchgrass or jatropha that can grow with very little fertiliser on poor land, but the technology to convert these plants into fuels is in its early stages.

Tilman said society needed to make the transition away from corn-based ethanol as soon as possible.

"We've gone one step further than the work that only looked at greenhouse gases and found some surprisingly large effects. Before we dedicate major resources to new biofuels, we should be trying to quantify other likely impacts to society – water quality, biodiversity and so on – and put all of those into our analysis." He hopes this will encourage society to make "a long-term commitment to the right biofuel".

Japan Airlines became the first airline to demonstrate camelina as a successful biofuel this week, as the fuel surpassed traditional 100% Jet-A fuel in efficiency according to pilots. The biofuel blend used, which was 84% camelina, 16% jatropha and less than 1% algae, brings optimism that the airline could be flying full passenger flights using only biofuels within 3-5 years.

The remarkable crop, camelina, has been eyed for years as an affordable biofuel that can be grown easily in rotation with traditional food crops like wheat. Used as biodiesel, camelina could also potentially power cars and trucks cheaper than its petroleum counterpart. But for all of its use as a biofuel, it might be most exceptional as a cooking oil. Loaded with Omega-3 fatty acids, vegetable oils made from camelina are good for the heart and the brain, and could also be used as a cheap feed for fish and livestock.

According to Sustainable Oils, Inc., a US-based provider of camelina fuels, plans are underway to haul out between 100 and 200 million gallons of the jet fuel as demand increases over the next half decade. The crop is best grown in moderate climates such as in the northern plains of North America, Northern Europe and Central Asia, which means it can be easily produced close to home for the world's most fuel-hungry nations.

Given the Boeing prediction last year that flight-related greenhouse gas emissions could be reduced as much as 80% by switching to biofuels, this news bodes well for a notoriously dirty industry. Green-minded travelers might soon be able to quiet the devil on their shoulder during those long and sleepless trans-Pacific flights.

A U.K. food crisis is “not unthinkable” in coming decades unless the government takes action to change consumption patterns and food-production methods, London-based research institute Chatham House said.

The global food system will come under pressure because of population growth, increased meat consumption, scarcity of energy, land, water and labor, as well as climate change, a group of researchers wrote in a report called “Food Futures: Rethinking U.K. Strategy,” published today.

Food prices will be increasingly volatile and pressure on U.K. and European Union prices is likely to continue, according to the researchers. The United Nations index of global food prices has risen six years in a row.

“If action is not taken, there is a real potential for demand growth to outstrip increases in global food production,” the Chatham House researchers said. “The U.K. can no longer afford to take its food supply for granted.”

More food needs to be produced, in a more sustainable manner, requiring higher public investment in food and agriculture research. Scarce resources may become a strategic concern for many countries, causing protectionism and trade disruptions, the report said.

The U.K. would be affected by other countries’ actions to protect scarce resources because it depends on a number of “critical sources and inputs” from the world market, including soybean-based animal feeds and phosphate fertilizers, according to the researchers.

“The U.K. will continue to rely heavily on the EU for its food supplies and as a market for its food exports,” the report said. “U.K. isolation is not an option and the U.K. will need to work closely with the EU to develop the right policy frameworks.”

Leaves are falling off trees in the height of summer, railway tracks are buckling, and people are retiring to their beds with deep-frozen hot-water bottles, as much of Australia swelters in its worst-ever heatwave.

On Friday, Melbourne thermometers topped 43C (109.4F) on a third successive day for the first time on record, while even normally mild Tasmania suffered its second-hottest day in a row, as temperatures reached 42.2C. Two days before, Adelaide hit a staggering 45.6C. After a weekend respite, more records are expected to be broken this week.

Ministers are blaming the heat – which follows a record drought – on global warming. Experts worry that Australia, which emits more carbon dioxide per head than any nation on earth, may also be the first to implode under the impact of climate change.

At times last week it seemed as if that was happening already. Chaos ruled in Melbourne on Friday after an electricity substation exploded, shutting down the city's entire train service, trapping people in lifts, and blocking roads as traffic lights failed. Half a million homes and businesses were blacked out, and patients were turned away from hospitals.

More than 20 people have died from the heat, mainly in Adelaide. Trees in Melbourne's parks are dropping leaves to survive, and residents at one of the city's nursing homes have started putting their clothes in the freezer.

"All of this is consistent with climate change, and with what scientists told us would happen," said climate change minister Penny Wong.

Australia, the driest inhabited continent on earth, is regarded as highly vulnerable. A study by the country's blue-chip Commonwealth Scientific and Industrial Research Organisation identified its ecosystems as "potentially the most fragile" on earth in the face of the threat.

Many factors put Australia especially at risk. Its climate is already hot, dry and variable. Its vulnerable agriculture plays an unusually important part in the economy. And most people and industry are concentrated on the coast, making it vulnerable to the rising seas and ferocious storms that come with a warmer world.

Most of the south of the country is gripped by unprecedented 12-year drought. The Australian Alps have had their driest three years ever, and the water from the vast Murray-Darling river system now fails to reach the sea 40 per cent of the time. Harvests have fallen sharply.

It will get worse as global warming increases. Even modest temperature rises, now seen as unavoidable, are expected to increase drought by 70 per cent in New South Wales, cut Melbourne's water supplies by more than a third, and dry up the Murray-Darling system by another 25 per cent.

As Professor David Karoly, of the University of Melbourne, said last week: "The heat is unusual, but it will become much more like the normal experience in 10 to 20 years."

The northern and central provinces of Henan and Anhui, both of which are major grain producers, estimate that they could lose as much a fifth of their wheat crop.

Both provinces are desperately poor, and home to millions of migrant workers, many of whom have been laid off by factories on China's coast.

Roughly 3.7 million people and 1.9 million head of livestock do not have easy access to water.

China's State Council, the equivalent of a ministerial cabinet, on Thursday ordered another 300 million yuan (£30 million) of aid in addition to the 100 million yuan that has been spent on relief supplies since the end of last year.

President Hu Jintao said that all efforts must be made to save the summer grain harvest.

"With the drought reaching a severity rarely seen in history, the State Flood Control and Drought Relief Headquarters has called a level two emergency," China National Radio reported. Level two is categorised as a "serious" emergency on a four-stage scale, with level one being the worst.

Some areas have seen no rain or snow since November, while Beijing has not had a drop of rain for 100 days. Zong Zhiping, the head forecaster at the China Meteorological Association, said the lack of rainfall was due to a series of cold fronts that have stopped rain clouds reaching China from the Bay of Bengal.

Almost half of China's wheat is grown in just eight provinces, all of which have been affected by the drought. Around 9.5 million hectares of farmland has been hit.

The drought may also make birds more susceptible to avian flu, scientists said. There have been eight cases of bird flu in humans since the start of the year, six more than in the whole of 2008. The Food and Agriculture Organisation has hinted that China may not be reporting a major outbreak of the disease among its poultry.

Unless there is timely action on climate change, California's agricultural bounty could be reduced to a dust bowl and its cities disappear, Barack Obama's energy secretary said yesterday.

The apocalyptic scenario sketched out by Steven Chu, the Nobel laureate appointed as energy secretary, was the clearest sign to date of the greening of America's political class under the new president.

In blunt language, Chu said Americans had yet to fully understand the urgency of dealing with climate change. "I don't think the American public has gripped in its gut what could happen," he told the Los Angeles Times in his first interview since taking the post. "We're looking at a scenario where there's no more agriculture in California. I don't actually see how they can keep their cities going."

Chu's doomsday descriptions were seen yesterday as further evidence that, after eight years of denial under George Bush, the Obama White House recognises the severity of climate change.

Chu is not a climate scientist, and won his Nobel for his work on lasers. But he was well-known at the Lawrence Berkeley National Laboratory for his outspoken concern about climate change and his commitment to developing clean energy long before Obama appointed him.

The language he used yesterday, though stark, was in step with a co-ordinated effort by Obama's officials and Democrats in Congress to project an image of consensus among policy makers in Washington on the need to move America away from fossil fuels and cut greenhouse gas emissions.

In the interview, Chu said raising public awareness was crucial to that transformation. "I'm hoping that the American people will wake up."

He blamed warmer temperatures for the acceleration in California's cycle of droughts. Global warming had caused a decline and evaporation of the Sierra mountains snow-pack, which had served as a natural storage system for the spring run-off that helped irrigate California's valleys and provided water to its cities.

Chu said up to 90% of the Sierra snow-pack could disappear, eliminating those sources of water.

Scientists have long cited the declining spring run-off as a contributing cause of California's wildfires. California's governor, Arnold Schwarzenegger, has blamed climate change for making forest fires a year-round threat.

California's department of water resources said last week that the state's snow-pack was at 61% of normal levels. The reduction is especially worrying because of the severely dry spring of 2008, leaving the state with little water in reserve. Two dozen local water agencies have already imposed rationing.

There are heightened concerns about water shortages in the west and upper midwest as well. Earlier this year, the journal Science warned of worldwide crop shortages because of rising temperatures.

Obama ran a presidential campaign pledging to cut greenhouse gas emissions by 80% by the middle of the century. He made his first move to redeeming that promise last week when he ordered the environmental protection agency to reconsider its refusal, when Bush was president, to allow California and 13 other states regulate car exhaust emissions.

He also directed the car industry to produce cars that can achieve 35 miles per gallon by 2020.

In the two weeks since Obama's inauguration, there have been almost daily meetings and conferences on the environment on Capitol Hill and elsewhere. After the Bush era, when science and concern about the environment took a back seat to business interests, administration officials have taken it almost as their mantra that they put science first in dealing with climate change.

They also say they will press hard to retain green measures in the economic rescue package now before Congress, and for legislation regulating greenhouse gas emissions this year.

Barbara Boxer, the chair of the Senate's environment and public works committee, said on Tuesday she hoped to produce a draft bill reducing greenhouse gas emissions by the end of this year. Henry Waxman, her counterpart in the House of Representatives, has set an even more ambitious target, saying he aims to have a draft out of the committee by the end of May.

But the extent of public support is less clear, and a number of leading Republicans remain implacably opposed to the idea that global warming exists. Recent opinion polls suggest that the economic recession has eclipsed concern about the environment.

Democrats insist that the downturn should not prevent action on greenhouse gas emissions. "If you want to fight this recession, do it by mobilising to become energy independent with clean energy and really save this planet," said Boxer.

But America's credit crisis appears to have stopped the growth of the wind and solar power industries in their tracks. Factories building components for wind turbines and solar panels have been letting staff go.

Three new gas-fired power stations will be given the go-ahead by the government on Thursday, but industry executives have warned there is still a need to speed up the pace of investment to prevent electricity shortages in the next decade.

Relations between Ed Miliband, energy secretary, and industry leaders have improved since last year, when he was accused of failing to understand the threat to future energy supplies.

However, executives still say there is a lack of coherence in energy policy. In Thursday’s Financial Times, Andrew Duff, chief executive of RWE Npower, one of the “big six” energy suppliers, writes: “Government and regulators continue to treat the big energy issues in isolation ... The drive to set and meet ever more stringent CO2 targets is not integrated with the ministerial push to tackle energy costs and, vitally, the need to ensure security of supply.”

The expected retirement of nine coal and oil-fired power stations over the next few years, forced by European Union regulations to curb acid rain, has raised fears that there will be an inadequate margin of generation capacity over peak demand, creating a risk of electricity shortages and blackouts.

Mr Duff said a “significant” proportion of those stations could be shut by 2013.

The approvals for the three power stations – to be built by RWE in Pembroke, Richard Budge’s Powerfuel in Hatfield, Yorkshire, and Centrica in King’s Lynn – reflected concern Britain could face a “generation gap” by the middle of the next decade, according to Dominic Maclaine, editor of New Power UK, an industry newsletter.

However, the new stations can only be part of the solution. They have a combined capacity of about 4,000 megawatts, compared with about 12,000MW for the stations scheduled to be closed, according to Utilyx, an energy risk management company. That compares with total electricity supply capacity of about 79,400MW.

Not all of the new plants are close to being built. Mr Budge said his Hatfield project, which has the option of burning coal – capturing and storing its carbon dioxide emissions – could be producing electricity by 2012.

Centrica’s planned expansion at its King’s Lynn site will not receive final investment decision until 2012, meaning it is likely to be operational in 2016. Nick Horler, chief executive of ScottishPower, said government and regulators needed to understand Britain was in an international competition for investment by multi-national energy companies, which had been sharpened by the election of Barack Obama as US president.

GDF Suez, the French utility group, said on Wednesday it was teaming up with Spain’s Iberdrola and Scottish and Southern Energy to look at building new nuclear reactors in Britain. The partners are also talking to Vattenfall of Sweden about joining the partnership.

The analysis suggested biodegradable waste could be used to make biomethane to be injected into the gas grid, which would help achieve targets to source 15 per cent of all energy from renewables by 2020.

The study by Ernst and Young for National Grid also said that in the longer term, biogas could be used to provide up to half the country's domestic gas heating.

Currently a small amount of biogas is produced from landfill and sewage plants but is burnt to produce electricity, and National Grid believes piping the gas to homes would be more efficient.

The study said the £10 billion costs of delivering renewable gas compares reasonably with the provision of other types of renewables, such as wind power, and the unit cost of the gas would be similar to other "green" energy sources.

It would also provide the country with greater energy security to use waste products generated in the UK to provide gas as North Sea supplies of natural gas tail off.

Biogas, which is already being produced and injected into gas grids in Europe, is made through anaerobic digestion of wet waste such as sewage or manure, or through gasification of drier waste or energy crops.

Janine Freeman, head of National Grid's sustainable gas group, said: "Biogas has tremendous potential for delivering large scale renewable heat for the UK but it will require Government commitment to a comprehensive waste policy and the right commercial incentives.

"Biogas has benefits on so many fronts," she went on.

"It is renewable and could help to meet the target of 15 per cent of all our energy coming from renewable sources by 2020.

"It provides a solution for what to do with our waste with the decline in landfill capacity and it would help the UK with a secure supply of gas as North Sea sources run down."

The report said there would be no insurmountable technical difficulties in delivering biogas, and with an extensive gas grid in the UK there would be little need for major new infrastructure development.

National Grid said the main hurdle would involve getting commercial incentives for waste to be turned into biomethane for injection into the gas grid rather than electricity.

A spokeswoman for the Department of Energy and Climate Change said: "Government set out its policies on recovering energy from waste in its Waste Strategy 2007.

"Further work is taking place in the context of our Renewable Energy Strategy to establish what potential might exist for biogas injection to the gas grid."

Britain’s energy regulator yesterday called for a crackdown on green energy tariffs, after claims that some suppliers had misled customers about their environmental credentials.

Ofgem called for the creation of an independent accreditation scheme for green tariffs in an effort to “reduce customer confusion and rebuild trust”.

Under Ofgem’s proposed guidelines, tariffs will be considered green only if they bring additional environmental benefits beyond suppliers’ existing legal obligations to generate some of their electricity from renewable sources.

About 319,000 customers in the UK subscribe to green energy tariffs, but the offerings vary widely in quality. Some suppliers offer electricity generated from 100 per cent renewable sources or pledge to invest more than 60 per cent of the proceeds in new wind parks. Others simply repackage their existing generation portfolios, including renewable energy that they are obliged to purchase under UK law.

The “Big Six” energy suppliers and the niche supplier Good Energy have already pledged to sign up to the new guidelines, which Ofgem hopes will be in place by this summer.

The accreditation scheme, which will be overseen by an independent body, will enable householders and small-business customers easily to compare green offerings based on the reduction in carbon emissions.

Juliet Davenport, the chief executive of Good Energy, a niche supplier of 100 per cent renewable electricity, welcomed the announcement made by Ofgem.

Ms Davenport said that a voluntary code was the minimum step that any company should take before offering a “green” energy tariff. She said: “We are pleased to see these guidelines emerge and to be the first independent supplier to have signed up. Good Energy has been calling for more formal guidelines on green supply for several years to allow customers to differentiate between genuine green tariffs and mere ‘greenwash’. We are especially pleased that green claims will be subject to independent scrutiny, giving consumers confidence in what they are signing up to.”

British Prime Minister Gordon Brown said Wednesday that the world is in a depression, the first time he has used the word to describe the global economic downturn, though a spokesman said later that the use of the word was a mistake.

"It's ... absolutely clear that we should agree as a world on a monetary and fiscal stimulus that will take the world out of its depression," Brown said during his weekly question time in the House of Commons.

There was no response from other lawmakers to Brown's use of the word. The prime minister's office at Downing Street had no immediate comment.

Asked by CNN to comment on the word, a spokesman from the prime minister's office at Downing Street said: "It wasn't deliberate. It's not what he thinks."

The spokesman would not elaborate further or tell CNN what Brown was trying to say.

Britain, like the United States, is officially in a recession, which is defined as two consecutive quarters of falling GDP. There is no widely accepted definition of a depression.

The Economist magazine suggested in December that there are two principal criteria for distinguishing the two terms: a decline in "real" GDP that exceeds 10 percent; or one that lasts more than three years. Real GDP accounts for inflation.

The Great Depression in the United States qualified on both counts, with GDP falling 13 percent during 1937 and 1938, and GDP plummeting by around 30 percent between 1929 and 1933.

Some analysts have already used the term "depression" to describe the economic situation in the United States. Albert Edwards of Societe Generale wrote last month that it is looking likely in America, while labor economist Peter Morici, of the University of Maryland, said the United States is "already in the jaws of a depression."

Others are not so sure. Anirvan Banerji of the Economic Cycle Research Institute told CNN that for this to be a depression, things should look "much worse -- several times as bad" as they are now.

Oil refinery workers who walked out in a dispute over foreign labour agreed to return to work today.

Hundreds of workers at the Lindsey Oil Refinery, in North Lincolnshire, voted to end their unofficial industrial action after accepting a deal drawn up by union officials and companies at the heart of the row.

Under the deal, 102 new jobs will be provided to UK workers on a project which was contracted to an Italian company.

Around 300 workers packed into a marquee at the North Killingholme site to vote on the proposals.

Loud cheers could be heard coming from the behind-closed-doors meeting as the workers discussed the issues.

Staff will return to work at the plant on Monday.

The dispute began on Wednesday last week after it was revealed the Italian company contracted to the project would bring its own construction engineering staff.

The unofficial strike action sparked copycat protests from thousands of workers at power stations and other construction sites across the country.

Phil Whitehurst, a member of the negotiating committee for the GMB union, said he was delighted with the vote.

He said: "It was an excellent decision. We have now got the chance to go back to work but the fight does not stop here. The fight continues at Staythorpe and anywhere else where an injustice is being done.

"It was a unanimous decision. It was an excellent vote.

"We have got the MPs worried. I think we have got Gordon Brown worried. I don't think they know how to deal with us. We are not trying to bring the Government down, we're just trying to get them to listen.

"If you look at the PMQs (Prime Minister's questions) that man (Gordon Brown) was seriously rattled. He couldn't get a sentence out.

"There was an uprising here but I don't think it's going to stop. We have started it but I think it's going to carry on elsewhere."