Crude oil rose the most in three weeks as leaders of the Group of 20 nations meeting in London agreed on measures to fight the global recession.

Oil surged after the G-20 said it will implement new rules on compensation and bonuses, expand controls on hedge funds and move to clean up toxic assets. Energy prices also increased as the euro gained against the dollar, bolstering the appeal of commodities as an alternative investment.

“The equity and commodity markets have shaken off a lot of dour economic news,” said John Kilduff, senior vice president of energy at MF Global Inc. in New York. “The fact that global leaders are close to an agreement on a coordinated response to the recession helps all the markets.”

Crude oil for May delivery rose $3.67, or 7.6 percent, to $52.06 a barrel at 11:22 a.m. on the New York Mercantile Exchange. Futures rose as much as $4.07, or 8.4 percent, to $52.42, the biggest increase since March 12. Prices are up 17 percent so far this year.

The G-20 nations will channel $850 billion to the International Monetary Fund and World Bank. They also offered cash to revive trade to help governments weather the economic and social turmoil. They sidestepped the question of whether to deliver more fiscal stimulus in their own economies.

“The markets like the fact that a lot more money is going to the IMF,” said Phil Flynn, a senior trader at Alaron Trading Corp. in Chicago. “The additional funds should be stimulative.”

Stock Rally

Stocks rallied around the world, driving the MSCI World Index higher for a third day, as some reports suggest the pace of economic decline may be easing. China’s manufacturing expanded for the first time in six months in March. U.K. house prices unexpectedly rose for the first time since October 2007.

The Standard & Poor’s 500 Index increased 3.7 percent to 840.94. The Dow Jones Industrial Average rose 270.48, or 3.5 percent, to 8,032.08.

“Demand is not going to fall as much as some of the doom- sayers have been saying,” said Gareth Lewis-Davies, an analyst at Dresdner Kleinwort Group Ltd. in London. “What we’re seeing now is the rate of decline in demand in developed economies decelerating, which of course has to happen before a recovery.”

The euro rose after the European Central Bank cut its benchmark interest rate by 25 basis points. A drop of 100 basis points was forecast, according to a Bloomberg survey. The common currency climbed 1.5 percent to $1.3445 from $1.3249 yesterday.

“The ECB cut interest rates by less than expected and that’s given the dollar a real shellacking,” Kilduff said.

OPEC Production

Prices have rebounded this year as the Organization of Petroleum Exporting Countries cut production. The group reduced daily output targets by 4.2 million barrels since September to prevent a glut and bolster prices. The group, in a meeting March 15 in Vienna, decided against cutting production targets further because of concern higher prices might harm an ailing economy.

OPEC cut oil output by 1.2 percent to an average 27.395 million barrels a day last month, according to a Bloomberg News survey of oil companies, producers and analysts. The 11 OPEC members with quotas, all except Iraq, pumped 25.06 million barrels a day, 215,000 more than their target of 24.845 million.

Oil prices are insufficient to spur investment, OPEC Secretary-General Abdalla El-Badri said today before an oil conference in Paris.

“They have bottomed out now and we hope they will improve, even though fundamentals are really the same,” El-Badri said.

Goldman Sachs Group Inc. said Brent crude oil prices may reach $50 a barrel this year, up from an earlier estimate of $45, because of OPEC production cuts.

Brent crude oil for May settlement rose $3.61, or 7.5 percent, to $52.05 a barrel on London’s ICE Futures Europe exchange.

A plunge in oilfield spending means non-OPEC oil output could soon fall, raising prices and potentially derailing any global economic recovery.

A growing number of forecasts predicting a fall reflect a major drop in oil drilling because of lower crude prices and tighter credit, and defy an earlier market consensus that non-OPEC output would rise through the economic downturn.

Global oilfield spending will probably fall 30 percent this year, cutting non-OPEC supply by 1.7 million barrels per day (bpd) by the end of 2010, and pushing oil prices up another 60 percent, Sanford Bernstein forecast.

Barclays Capital saw a potential drop of 1.5 million bpd, or 3 percent of non-OPEC supply, and a 70 percent price rise from current levels to $85/bbl in 2010. Deutsche Bank saw a 280,000 bpd decline this year.

Some of these analysts were among the most bullish on oil prices, but they expected a new reality of falling oil output will soon be recognized more widely.

The International Energy Agency, the U.S. Department of Energy and OPEC still see non-OPEC output firm or rising.

But they have already cut supply forecasts sharply, and may do so again.

"We're looking at a decline. There is often a lag before the data catches up with reality," said Benjamin Dell, senior analyst at Sanford Bernstein in New York.

"Lower oil prices could lead to lots of marginal fields being shut in the U.S., the UK, Norway and Russia."

A fall in non-OPEC ouput -- which accounts for two-thirds of world supply -- could push oil prices up sharply when demand rebounds during an economic recovery.

The drop in oil prices is among few bright spots for consumers this year. The price of a barrel has averaged $43, down from around $100 last year. Benchmark U.S. crude for May delivery was trading near $48 a barrel on Wednesday.

The IEA's Executive Director Nobuo Tanaka has said $40 oil would amount to a $1 trillion economic stimulus for the global economy in 2009 and some have said the figure is higher.

Global oil demand fell in 2008 and should slide further this year, the first demand reductions since 1983.

Production may fall even faster.

The IEA said the oil market would be under-supplied by late 2009 if OPEC fully complied with the 4.2 million bpd of cuts it has announced since September 2008.

"While everyone has been so focused on short-term demand, it now looks like we'll see some real tightening in the market in 2010 due to the drop-off in non-OPEC supply," said Amrita Sen, analyst at Barclays Capital in London.

"There could be a real run-up in prices just as the world economy begins to recover, which is the last thing the economy needs on the way out of a recession."

RUSSIA AND U.S. LEAD THE DECLINE

Non-OPEC production may fall most in Russia and the United States, the No. 2 and No. 3 global oil producers after OPEC member Saudi Arabia. Berstein saw the two countries' output declining a combined 1.55 million bpd through 2010.

Analysts also warned of potentially large drops in Mexico, the No. 6 producer, whose mature Cantarell offshore field has entered a decline, and in No. 7 Canada, with its expensive oilsands production. Other at-risk regions include Norwegian and UK offshore fields.

In the U.S., the number of rigs drilling for oil and gas has fallen by almost 50 percent since September, 2008, the steepest decline since 1986, oil services company Baker Hughes said.

The global rig-count fell by 8 percent from September through February, and is expected to fall further in coming months, a spokesman said.

JP Morgan commodities analyst Lawrence Eagles said he still expected modest growth in non-OPEC output, as a recent 20 percent fall in drilling costs in some regions helps to forestall decline.

Cambridge Energy Research Associates saw no immediate non-OPEC fall, but last week CERA scaled back its forecast for world oil output capacity in 2014 by 7 percent, or 7.6 million barrels.

Some analysts wondered why companies with cash would choose to spend it on drilling. Dell said it costs around $20-25 a barrel to find new oil, while the price of buying competing oil companies -- and their existing reserves -- is $10-12 a barrel.

Additional reporting by Robert Campbell in Mexico

FACED WITH a depression in oil prices, Opec's strategy has always been to cut production. But the cartel's ability to effect a supply side rescue has, this time, been overwhelmed by the fundamental shifts under way in the global economy. Demand rules the game, and Opec's cards are suddenly very weak.

Last month's ministerial meeting implicitly acknowledged this. The group ruled out another immediate cut in supply, pinning its price hopes on a recovery in the world's economy next year and tighter compliance this year with quotas it already has in place.

That strategy drops the ambition, announced at the December meeting in Oran – at which the group slashed quotas by 4.2m barrels a day (b/d) – to secure a "fair price" for oil of $75 a barrel. Some of the oil ministers attending a two-day seminar in Vienna last month, such as Venezuela's Rafael Ramirez, still spoke of pushing oil to $70-80/b. But such talk is now "off message", says one analyst. Opec's policy for now is "stability" in the price.

In the week following last month's ministerial meeting, that strategy brought some immediate rewards: prices firmed above $50/b. But the reasons for that $7/b gain belonged not to Opec, but to the US, where the Federal Reserve surprised markets by pledging $300bn to buy up long-term treasury bonds and $0.75 trillion to shore up mortgage-backed securities. A rumour that Russia might be edging closer to joining Opec – a prospect greeted with little enthusiasm in Saudi Arabia – also drew some bulls back into the crude market.

So at least Opec can be grateful that its decision to roll over December's quotas did not trigger another sell-off. Nonetheless, the movement in the crude price after the Fed's announcement told the bigger story of the oil market: consumers are in the driving seat.

That is the legacy of the great bull run of 2006 to 2008, which peaked with last summer's historical high of $147/b. As oil soared above $100/b, Opec ministers continually said such prices would be bad both for consumers and producers – even while they were reaping the riches for their energy-dominated economies. The analysis was correct, but few within the cartel can have imagined the peak's disastrous consequences for the long-term viability of Opec's business.

This is a triumph for consumers, but they should avoid triumphalism. Cheaper oil now will help stimulate economic growth across the world – the equivalent of a trillion-dollar stimulus package, says Nobuo Tanaka, head of the International Energy Agency (IEA). The wiser heads in Opec understand this, which is why sense prevailed. With the world's economy still spluttering, the cartel revealed that the "time is not right" to pursue its $75/b target. Another output cut, it calculated, would artificially inflate oil prices and delay global economic growth and a recovery in oil demand. Things remain fragile, to say the least: the IMF expects a 0.75% contraction of the world's economy this year.

But cheaper oil, even if it prompts a recovery in demand (which will be at least 1m b/d lower this year than last, says the IEA) is painful for many Opec states. While the sun was shining, there was little incentive to diversify economies and beef up sectors that do not rely on oil and gas. But with prices low, such a strategy is necessary, but more difficult.

There are other problems for the group. Power is now draining away from producers as quickly as they accrued it during the bull run. This will put relations between national oil companies (NOCs) and the international oil companies (IOCs) on a new footing. As recently as last year, Tony Hayward was conceding that the majors would need to scrap the old model "that requires ownership of reserves and production". His company, BP, had been on the frontline of the IOC-NOC battle in Russia. But now, terms for access are easing again as producer countries accept that cash-rich companies with expertise might be useful after all.

Hayward made that speech in July 2008. It seems like an age ago, and the collapse in oil prices since then points to another big problem for Opec and other resource holders. The price peak woke a giant whose reach has stretched from the forecourts of gasoline stations, to the boardrooms of cash-strapped airlines, to the White House and its plans for a green new deal. The oil-price shock has changed oil-consumption patterns with astonishing speed. It is a trend that scares Opec.

So the cartel's frequent argument that renewable energy and biofuels cannot replace hydrocarbons are now at the front of its strategy to shore up demand for its oil when the global economy recovers (see box). Saudi Arabia's oil minister, Ali al-Naimi, made that argument again last month in Vienna (see p2). Shell's chief executive, Jeroen van der Veer, made similar comments – and, for good measure, his company has scrapped many of its green businesses.

Talking down renewables

Opec has good reasons to talk down the renewables revolution. And its argument is correct – for now. Renewables are too expensive, unreliable and too small to provide a genuine power-sector alternative, let alone for transportation. Reminding the world of this is helpful, lest the green rhetoric create unrealistic expectations for consumers. Even during the worst economic downturn since 1945, the world is still consuming 85m b/d of oil. And the IEA still expects demand to grow well beyond 100m b/d within two decades. Renewable energy cannot replace that.

Not yet, anyway. But the logical consumer response to Opec's dampening of the renewable agenda ought not to be to abandon the project, but to step it up – quickly. Speed is necessary because, Opec says, another sharp rise in oil prices awaits when world economic recovery begins. Opec's argument on this front should also keep planners in consumer countries awake at night. Abdalla El-Badri, Opec's secretary-general, says its members are scrapping some 35 upstream projects that are not viable at today's oil prices.

Outside Opec, the trend is already evident in costly regions such as the oil sands, where forecasts of $100bn of investment by 2020 now look foolish. That is a threat to Alberta's oil-sands-dominated energy sector. But Canada will find it easier to survive the downturn than many Opec members, because the country's economy has more successfully diversified into other areas, such as manufacturing and financial services.

With few exceptions, Opec states are far more exposed to the price collapse and its effect on revenues (PE 1/09 p4). But Qatar, for example, can get by nicely at much lower oil prices; and Algeria's energy minister, Chakib Khelil, told Petroleum Economist that his country is in "very good health" economically (see box).

Nonetheless, as a group, Opec's message about the downturn is that it will hit upstream spending plans; and that this will lead to a repeat of the tightening in the oil market witnessed between 2006 and mid-2008. The solution, Khelil said, is a "reasonable price". Without that, "it's definite that people will not invest, or will postpone their investments." Another price spike "in a couple years" is, therefore, "very likely ... We're going to have a crunch again – a worse crunch."

This argument is true as far as it goes: low oil prices cause investment to decline and demand to rise. Even Saudi Aramco – whose capacity will reach 12.5m b/d by the middle of this year, according to al-Naimi – is cutting back on its spending. Last month, it halved to $60bn its planned investments to 2014. The problem, said Khelil, is that costs have not fallen nearly as quickly as the oil price. Building a refinery, for example, costs three times as much now as in 2000. But oil prices are only about twice as high as they were a decade ago.

Yet if an oil-price spike is just two years away the group's argument is weak. Oil producers – companies and countries both – are fond of saying their decisions are made for the long term. Chevron boss Dave O'Reilly said at last month's Opec Seminar that, even at present levels, oil prices are within the major's planning range. Why would a producer cut back on spending if prices were about to rise rapidly again?

Frightening fundamentals
The answer might be that Opec is more scared of the market fundamentals than it has been before. The group's spare capacity already amounts to as much as 6m b/d, according to some analysts. And it will rise still further as the new Saudi fields come on stream and if compliance with the existing cuts rises beyond 80%. Those are both bearish signals to the market. So are forecasts for the call-on-Opec crude, which the IEA says will remain flat this year.

Cheaper oil should, eventually, force down some of the costs that remain stubbornly high. Oil-sands producers, for example, will have to bring down the marginal cost of their production to adapt. The industry's history of technological innovation suggests that will happen.

So what can Opec do, beyond bickering about biofuels and pleading with consumers to abandon green dreams? Compliance with quotas is high by the cartel's standards, but more could be done. Adhering fully to its quotas would at least give Opec's strategy a chance to work. And Saudi Arabia, suggests the IEA (see Table 1), is doing the bulk of the cutting. More equitable compliance would prevent an internal conflict between the cutters and the quota cheats. But the real answer is that Opec members should start tidying up their own economies and mitigating their exposure to a sustained period of low oil prices.

For now, the world cannot afford $75/b oil. If Opec wants to ensure oil retains its long-term share of global energy demand it should not talk up another price spike. The last one was a nightmare for consumers and the reaction has fundamentally altered the balance of power in oil markets. The global addiction to oil is threatened now more than ever. The environmental reasons to reduce consumption are irresistible. Opec would be unwise to oversee another price shock any time soon. Some members think their economies depend on an oil-price recovery. In reality, Opec's survival depends on keeping oil cheap and available.

OPEC's oil output in March is expected to average around one million barrels per day (bpd) above its target as Iran and some other members pump above agreed levels, an industry consultant said on Friday.

Output from the 11 OPEC members with production targets is expected to average 25.9m bpd, compared with a revised 25.93m in February, Conrad Gerber, head of Petrologistics, said.

The estimate implies the group delivered on around 75 percent of 4.2m bpd of output cuts agreed since last year, according to Reuters calculations - less than the 80 percent found by many analysts for February.

"They are still around one million barrels above the target," Gerber said.

"The Iranians are over their target, the Angolans are well over and the Venezuelans are over."

The Petrologistics estimate suggests OPEC is pumping 1.06 million bpd above a collective target of 24.84m bpd that took effect on Jan. 1.

That means members have made 3.14m bpd of the 4.2m bpd cutback promised.

Even so, a compliance rate of 75 percent is still relatively high based on the group's past performance in meeting promised cutbacks.

The Organisation of the Petroleum Exporting Countries, source of more than a third of the world's oil, began reducing supply in September to prop up prices that have collapsed as the economic crisis erodes demand.

Oil prices fell on Friday.

US crude was down $2.34 at $52.00 a barrel by 1505 GMT.

It has dropped from a record near $150 since last year.

Top world oil exporter Saudi Arabia has led the OPEC cutbacks.

It is pumping 8.05m bpd in March, in line with its OPEC target, and down from an upwardly-revised 8.13m bpd in February, Gerber said.

But Iran, OPEC's second-largest producer behind Saudi Arabia, is expected to pump 3.75m bpd in March, he said.

Iran's OPEC target is 3.34m bpd.

Gerber did not provide exact figures for Angola and Venezuela's supply.

Iraq's production is expected to average 2.24 million bpd compared with 2.28  bpd in February, he said.

That brings supply in March from all 12 OPEC members to 28.14m bpd.

Geneva-based Petrologistics measures OPEC supply, which excludes oil produced and placed in storage, by tracking oil tanker shipments and estimating domestic consumption.

OPEC does not issue timely estimates of its own production.

BAGHDAD - Iraq's Oil Ministry has qualified nine foreign oil firms out of 38 interested parties for a second round of bidding for contracts in some of its prized oil and gas fields, the ministry said on Wednesday.

The firms qualified to bid for servicing contracts include Russian state oil firm Rosneft and Russian mid-sized oil firm Tatneft, Kazakh state-run KazMunaiGas and Petrovietnam, also a state firm, the ministry said on its web site.

The others are Angola's state-owned Sonangol, state-run Pakistan Petroleum Ltd., Japan Oil, Gas and Metals National Corp, also state-run, Cairn Energy PLC of Britain and state-run Oil India Ltd, it said.

Thirty-eight international oil firms had submitted applications. Firms that qualified for a first round of bidding are automatically qualified for the second round.

The ministry did not offer an explanation for why the selection of newly qualified bidders was so heavy on state-run firms.

"The nine qualified companies were selected because they fit the terms and conditions set by the Petroleum Contracts and Licenses Directorate," said Abdul Mahdy al-Ameedi, deputy director general at the directorate.

Ameedi said the global economic crisis and its possible impact on the finances of private oil firms had not been a factor in the decision.

"We never paid any attention to the global economic problem. That's for the oil firms to worry about, not our office," he said.

Iraq announced a second bidding round for oil and gas fields at the end of December, naming 11 fields it would open up for bidding for service contracts.

That came after the first bidding round was opened in June for six of Iraq's largest producing oilfields and two gas fields.

Some 35 companies qualified in the first bidding round after around 120 applied, and 32 were still in the race for deals.

Iraq sits on the world's third largest proven oil reserves and they are largely underexploited due to decades of war, sanctions, underinvestment, sabotage, theft and the sectarian and insurgent violence unleashed by the 2003 U.S.-led invasion.

The bloodshed of the past six years has begun to fade and the Iraqi government is keen to entice international expertise and capital to help it dramatically increase its oil output, from which the government derives almost all of its income.

The fields announced in the second round could increase oil production by up to 2.5 million barrels per day (bpd) in a few years from current levels of 2.3-2.4 million bpd, Iraq's Oil Minister Hussain al-Shahristani has said.

The fields announced in the first round could provide another 1.5 million bpd in additional output.

The oil ministry was expected to announce the winners of the first round by the middle of this year, while contracts for the second round would be finalised by the end of 2009.

Editing by Michael Christie and Christian Wiessner

MOSCOW - Russian gas export monopoly Gazprom's March gas production slumped by a quarter from a year ago as demand shrivelled in Europe and at home and buyers delayed purchases in hopes that prices would fall.

Russian Energy Ministry data showed on Thursday Gazprom's March gas output was 1.24 billion cubic metres per day, 12 percent down from 1.41 bcm per day in February 2009 and 24 percent down from 1.63 bcm per day in March 2008.

Mikhail Korchemkin from the East European Gas Analysis think tank said his data showed Gazprom's gas output fell as low as 1.146 bcm on some days in March.

"Such low production levels have been unseen over the past decade, even during summer months, when Gazprom puts some wells on planned maintenance," he said.

Gazprom said on Tuesday its European gas exports were likely to fall more than it had previously expected as the global financial crisis hit demand.

Russia's total gas output in March was 1.58 bcm per day, down 9 percent from 1.74 bcm per day in February and 19 percent less than the 1.94 bcm per day produced in March 2008.

Novatek, Russia's second-largest gas producer, extracted a total 2.6 bcm of gas in March, down 13 percent from February, but up 2 percent from March 2008, the data showed.

Gazprom's production started to fall from January, when its supplies to Europe were severely disrupted by a pricing dispute with Ukraine. Analysts only expect a recovery in the second quarter, when gas prices drop as they follow oil prices with a lag of six to nine months.

Gazprom, the world's biggest gas producer and supplier of a quarter of Europe's gas, has kept output relatively stable over the past few years.

Production contracted sharply only in January, but it did not recover in February, a sign cash-strapped consumers were cutting consumption and were choosing cheaper alternative fuels.

Gazprom extracts around 80 percent of gas in Russia. The rest is produced by smaller independent gas firms or oil majors.

OIL OUTPUT RISES

Russian March oil output stood at 9.8 million barrels per day, up 1 percent from 9.72 million bpd in February 2009 and up 0.5 percent from 9.76 million bpd in March 2008.

The oil output data was a surprise, as industry sources expected extraction to fall as a result of low energy prices and a reduction in upstream investments.

Oil production in Russia, the world's No. 2 exporter, fell by about 1 percent last year because of ageing reserves and plunging oil prices. The decline is cause for concern in a country highly dependent on oil export revenues for its budget.

Russian state oil major Rosneft, the country's largest oil producer, raised oil output in March by 1.8 percent versus February. But production was down 0.4 percent from March 2008.

TNK-BP, Tatneft, Novatek and small producers increased oil output month-on-month, while output at LUKOIL, Surgut, Gazprom, Bashneft and Russneft declined, the data showed.

Small producers boosted oil output by 12 percent versus March 2008, while Russneft's output dropped by 10 percent in the same comparison.

PSA (Production Sharing Agreement) operators increased crude production by 4 percent versus February 2008 and 28 percent from March 2008, demonstrating the highest production rise in Russia's oil industry.

Energy Minister Sergei Shmatko said in March Russia could sustain and even raise oil output if prices stay above $50 per barrel.

Dated BFOE in March BFO- averaged just $1 below the $50 per barrel level, Reuters data showed.

Pipeline oil exports stood at 4.22 million bpd, down from 4.33 million in February and nearly flat with 4.23 million in March 2008.

* Gazprom March gas output slumps by a quarter yr/yr

* Falls 12 pct from February 2009

* Total Russian March gas output down 19 pct yr/yr

* Oil output shows signs of recovery in March

BERLIN - Russian President Dmitry Medvedev said on Tuesday it would be difficult for Moscow to grant Ukraine financial credits to cover its deficit until the two states resolved their gas dispute.

Russia has said the Ukrainian government, seeking help to extend credits to help cover its budget deficit, has asked it to secure a $5 billion loan. However, the two countries are also locked in a battle over gas supplies.

"Our Ukrainian colleagues ask us to give money. How can we give money if we cannot agree on such a crucial issue," Medvedev told a news conference with German Chancellor Angela Merkel.

Medvedev said Russia must be part of the talks on a deal between Ukraine and the European Union on upgrading its gas pipeline network.

Russia, angry at being excluded from the talks, has criticised the modernisation agreement, which was signed by the EU and Ukraine earlier this month.

Ukraine is the main transit route for Russian gas exports to Europe and the spat has revived fears of a repeat of a dispute over prices with Russia in January which disrupted supplies to many countries in the middle of winter.

Ukraine has said the overhaul of the gas transit system, likely to boost capacity, was not aimed at Russia.

Merkel said the parties must prevent the dispute from escalating.

"There is no need to make a conflict out of something that is not a conflict," she said.

Medvedev said Russia was ready to continue consultations on the issue but that if Russia was not included, it would affect relations.

"If our Ukrainian partners decided to hold consultations without Russia's participation, we can take our own steps of which you know," said Medvedev, in an apparent threat to halt deliveries.

"You cannot distribute a product you don't own or build a delivery system without the participation of the country which produces the product," he said.

Writing by Madeline Chambers; Editing by Angus MacSwan

Britain's latest coal-fired power station should not be built, according to Lord Stern of Brentford, the economist who led the Government's review into the financial cost of climate change. Lord Stern called on the Government to halt the planning process and said that the new coal-fired power station proposed for Kingsnorth in Kent cannot be justified until the technology is developed to capture and store its huge carbon dioxide emissions.

It is the first time that the author of the landmark 2006 Stern Review has spoken out against coal power.

Coal is one of the dirtiest fossil fuels in terms of the amount of carbon dioxide release per megawatt of electricity generated. Lord Stern said it was important to send out a message to other countries, notably China, that Britain will not contemplate new coal-fired power stations until carbon capture and storage is proved to work.

"We shouldn't go ahead because coal is so polluting and we need very strong examples of how to move forward with our electricity supply in a way that doesn't use coal... without carbon capture and storage," Lord Stern said.

It could take 10 or 15 years to develop the technology, where carbon dioxide emissions are prevented from being released into the atmosphere to exacerbate global warming. "There are other ways we can handle the interim," he said. "The fastest way is to put up a gas-fired power station. That is emitting, but much less so than coal. We've got to build up solar and wind."

Last year, James Hansen, the leading Nasa climate scientist, said: "Kingsnorth is a terrible idea. One power plant with a lifetime of several decades will destroy the efforts of millions of citizens to reduce their emissions."

Lord Stern said the climate crisis was so urgent that we must reduce carbon dioxide emissions as fast and as soon as we can, otherwise the expected increase in global average temperatures could exceed 5C above pre-industrial levels.

"We haven't seen temperatures like that for 30 million years," Lord Stern said. "We've got to understand the magnitude of the risks we face. It will transform where we live. Some places will be deserts, others will be racked by storms. It will involve the likely movement of hundreds of millions, possibly billions of people, and extended conflict."

German ministers have agreed on guidelines for the introduction of technology that prevents the release of carbon dioxide from power stations.

The draft legislation sets out a regulatory and technical framework for trial carbon capture and storage (CCS) projects, providing utilities with much-needed planning and investment guidelines, while setting environmental and public safety rules.

The German environment and economics ministries had argued for weeks over the rules, which cover the secure separation, transportation and storage of CO2 underground.

One of the most hotly debated stipulations is that German-based utilities will not be allowed to transfer responsibility to the state for their CO2 repositories until 30 years after the plant that produced the gas has closed.

Karl-Theodor zu Guttenberg, economics minister, described CCS as “a very important contribution towards climate protection and energy security” and said he hoped parliament would approve the bill by the summer.

The European Union has identified carbon capture as a key component in its effort to limit greenhouse gas emissions and avoid the worst effects of global warming.

In December, European leaders agreed to dedicate billions of euros in revenues from the EU emissions trading scheme to help fund the development of 10 to 12 carbon capture pilot plants.

Just last month, they opted to award another €1bn ($1.3bn, £917m) to five CCS projects as part of a broader economic recovery plan.

Several private energy and engineering companies, including Shell, Alstom, General Electric and Vattenfall, have given their enthusiastic backing to CCS in spite of complaints from critics that the technology has not been tested on an industrial scale and that government money would be better spent on energy efficiency projects.

Sigmar Gabriel, the German environment minister, argued on Wednesday that coal power plants would still have a future if they become less damaging to the environment and said critics were wrong to present CCS technology as a barrier to the development of renewable energy.

The total volume of EU CO2 emissions is capped, meaning that CCS technology will only be developed on a large scale if it turns out to cost less than the price of the carbon certificates that utilities are obliged to purchase.

Germany depends on coal for about half of its electricity needs and, in spite of big strides in renewable energy, this situation will be difficult to reverse quickly.

An agreement to phase out the country’s 17 nuclear reactors has prompted industry to warn of a looming energy gap.

It is, therefore, not surprising that Germany has taken a lead in CCS technology and is home to three pilot projects, including the world’s first operating CCS power plant, which was unveiled last year by Vattenfall, the Swedish utility.

RWE has set aside €1bn to build a bigger plant near Cologne, which is due to open in 2014, while Eon also plans to roll out the technology at a plant at Wilhelmshaven on the North Sea coast.

Berlin plans to review the first CCS trials in 2015 when it will decide whether to revise the environment standards.

Carbon dioxide captured from the chimneys of power stations could be safely buried underground for thousands of years without the risk of the greenhouse gas seeping into the atmosphere, a study has found.

The findings will lend weight to the idea of carbon capture and sequestration (CSS) – when carbon dioxide is trapped and then buried – which is being seriously touted as a viable way of reducing man-made emissions of carbon dioxide while still continuing to burn fossil fuels such as oil and coal in power stations.

There are two substantial problems with CCS. The first is how to trap carbon dioxide efficiently in power-station emissions and the second is how to ensure that the underground store of the gas does not leak back into the atmosphere and so exacerbate the greenhouse effect and global warming.

In seeking to answer the second question, scientists looked at natural underground reservoirs of gas. They found that carbon dioxide trapped underground had been stable for possibly millions of years because it dissolves harmlessly in subterranean stores of water which do not appear to have leaked any substantial quantities of the gas back into the atmosphere.

The researchers believe the study shows that it will be possible to inject vast amounts of carbon dioxide from power stations into deep underground reservoirs where it will dissolve in water and remain undisturbed for at least as long as it will take for mankind to completely abandon fossil fuels and generate clean, carbon-neutral electricity.

Stuart Gilfillan of the University of Edinburgh said: "The study shows that naturally stored carbon dioxide has been safely stored for millions of years, which means that these sort of storage timescales should be achievable for the deliberate sequestration of the gas.

"It suggests that underground storage of carbon dioxide, in the correct place, should be a safe option to help us cope with emissions until we can develop cleaner sources of energy not based on fossil fuels," Dr Gilfillan said.

The study, published in the journal Nature, was based on an analysis of the chemical isotopes of helium and carbon dioxide in nine natural gas fields in North America, Europe and China. These gas fields have filled with carbon dioxide for many thousands or millions of years as it seeps from even deeper sources resulting from either volcanic activity or the heating of carbonate rocks.

The ratio of the two isotopes in the gas fields can tell the scientists whether any substantial quantities of carbon dioxide have seeped out of these underground sites during the period of time that they have filled up with gas.

Professor Chris Ballentine of Manchester University, who took part in the study, said that the isotopic technique will also be invaluable for further research, particularly when engineers begin carbon sequestration.

"The new approach will be essential for tracing where carbon dioxide captured from coal-fired power stations goes after we inject it underground – this is critical for future safety verification," Professor Ballentine said.

One of the reasons why the carbon dioxide remains trapped in the nine natural gas fields studied by the researchers could be down to physical changes occurring after its dissolution in water.

Dr Gilfillan said that when carbon dioxide dissolves in water the solution becomes denser than ordinary water and so sinks. This feature may have helped to keep the carbonated water underground for a long time, he said.

"We already know that oil and gas have been stored for millions of years and our study clearly shows that carbon dioxide has been stored naturally and safely in underground water in these fields," he said.

"It's good news in terms of the understanding of the system of carbon dioxide storage. It means that what actually happens in the natural storage of carbon dioxide suggests that it is possible to achieve the 10,000-year storage widely quoted as being necessary for effective carbon sequestration," he added.

There were initially fears that injecting carbon dioxide into the ground could simple result in it bubbling to the surface like a source of carbonated mineral water, releasing the gas into the atmosphere. The scientists also found that the underground carbon dioxide would not tend to form minerals and so form immovable solids. Mineral deposits block pores in rock, limiting the size of the overall carbon sink.

"It's bad news in the sense that mineralising the carbon dioxide would make it even more stable. But the good news is that mineralisation would have limited the amount of carbon dioxide that could be pumped into any one reservoir," Dr Gilfillan said.

Barbara Sherwood Lollar, a geologist at the University of Toronto, said that it was important to understand how carbon dioxide was stored in natural underground reservoirs if the problems of long-term storage of carbon dioxide were to be solved.

What we found was remarkable. At sites throughout the world, we found that the major way carbon dioxide is stored is by dissolution into the underground water, rather than by mineral trapping," Dr Sherwood Lollar said.

However, even if the sequestration part of the equation is solved, there is still the major problem of how to capture carbon dioxide emitted by power stations efficiently and cheaply.

A sell-off of the UK Atomic Energy Authority's commercial nuclear clean-up business was announced by the government yesterday, prompting Conservative accusations of a "fire sale".

The privatisation of some or all of UKAEA Limited is expected to raise about £50m for the government, and represents one of the final sales from Britain's state-owned nuclear industry.

Last night, the Tories questioned whether selling the business in the "fire sale environment" of the financial crisis would reap the maximum return for the taxpayer. "Britain needs to be building up its nuclear capabilities," said Greg Clark, the shadow energy secretary.

He expressed concern that the sale could be designed "to help the government out of a short-term cash crisis, at the expense of our long-term competitiveness".

The criticism foreshadows a wider political debate over the timing of asset sales that will come to the fore with next month's Budget.

However, the company and the government said yesterday that the reason for the sale was not the need to raise funds for the hard-pressed public finances, but the ambition to free UKAEA Ltd to compete for nuclear decommissioning work in Britain and internationally.

The revival of the nuclear industry in many countries - prompted by recent high fossil fuel prices and concerns about climate change - is creating a huge market for companies with the necessary skills.

As well as the clean-up of old nuclear sites, companies seeking to build new reactors will need to make provision for the eventual decommissioning of the facilities, creating opportunities for UKAEA Ltd in consultancy and project management.

Lady Judge, who chairs the atomic energy authority, said: "UKAEA Ltd is a decommissioning business par excellence, and it has an awful lot of work to do. But to get into the new-build business, we need a stronger financial backer."

She rejected the suggestion that the government was being pushed into a quick sale, saying the privatisation had been in preparation since 2004.

Some British companies have already expressed an interest in the business, and potential international buyers are also likely to come forward. Lady Judge said the buyer was "at least as likely to be a British company as a foreign one".

Possible buyers include the UK businesses Amec and VT Group, both of which have nuclear engineering operations. Areva of France and CH2M and URS of the US are also likely to be interested. The sale was backed last night by Prospect, the union representing nuclear engineers. The chosen buyer will not simply be the highest bidder, but the company that offers the best combination of cash and development plans for the business.

UKAEA Ltd, with a current annual turnover of £31m, is working on Britain's fourth-largest decommissioning project at Dounreay, northern Scotland.

Under European Union rules, the government cannot give financial guarantees to help it win contracts.

Simon Hughes, the Liberal Democrats' energy spokesman, called government nuclear policy "costly, risky and unnecessary". He added: "Liberal Democrats believe that we should decommission our old nuclear power stations and not recommission new ones."

Meanwhile, potential privatisations expected to be highlighted in the Budget include the Royal Mint and the Queen Elizabeth II conference centre in London. Other state-owned assets that could be earmarked for sale include British Waterways's canal-side properties.

But last year's failure to sell the Tote highlighted the relative dearth of private sector buyers in current market conditions.

Alistair Darling, the chancellor, has asked Gerry Grimstone, the chairman of Standard Life, to review the state's portfolio of 29 businesses to find ways to maximise return to the taxpayer.

The UK and atomic energy

Nuclear businesses sold off: Westinghouse, the nuclear engineer: sold to Toshiba for £2.9bn, 2006

BNFL services: sold to VT Group for up to £75m, 2007

British Energy, the nuclear generator: 36 per cent stake sold to EDF for £4.4bn, 2008

Atomic Weapons Establishment at Aldermaston: one-third stake sold to Jacobs Engineering of the US for an estimated £100m, 2008

Nuclear assets still held UKAEA Limited: up for sale, price about £50mNuclear Decommissioning Authority sites: auction under wayUrenco, uranium enrichment company: sale of government's one-third stake delayed indefinitely

The construction of a £1bn windfarm off the Norfolk coast will go ahead this summer after Statoil Hydro, the Norwegian oil and gas group, signed a joint venture with Statkraft, the country's state-owned utility.

Once fully up and running, the 315 megawatt (MW) 88-turbine installation at Sheringham Shoal, 13 miles out into the North Sea, is expected to produce 1.1 terawatt hours of power, enough for about 220,000 homes. The first electricity will be produced in 2011.

The investment decision was due last autumn, but was delayed by ructions in the world economy as Statoil Hydro searched for a partner to share the costs. Statkraft signed a £514m deal for a 50 per cent stake in the project yesterday, paving the way for building work to begin.

For the two companies, the project is a chance to showcase their credentials. For the UK wind sector, the decision is a much-needed counterpoint to the growing list of suppliers baulking at the cost of offshore infrastructure.

Installations out at sea are vital to meeting the Government's commitment to source 15 per cent of all Britain's energy from renewables by 2020. But extreme environmental conditions – added to the scarcity of everything from turbine blades to cabling to the barges used for installation – multiply the costs.

The focus is on the Renewables Obligation Certificate (Roc) regime. The law requires power companies to derive a growing proportion of their electricity from renewable sources. By issuing certificates to generators – to be sold on to utilities to prove the obligation has been fulfilled – the system is designed to provide an extra revenue stream to help justify renewable infrastructure investments. Government plans to give an extra boost to more costly offshore installations by designating 1.5 Rocs per MW hour – compared with 1 Roc per MWh for onshore – came into effect yesterday, to help address operators' concerns.

Statoil Hydro is cagey about how much the extra allocation counted in its decision to go ahead with Sheringham Shoal, but stressed the centrality of the incentive scheme as a whole.

"The project was sanctioned on pure commercial terms," a spokeswoman said. "We won't go into the details of the business plan, but having incentives is crucial and is a very important signal from the Government."

But not all are convinced. Although Iberdrola, the Spanish energy giant, has denied press reports it is cutting 40 per cent, or more than £300m-worth, of wind-power investments in the UK, there are several outspoken examples of projects on hold for want of commercial logic.

Centrica's 250MW Lincs scheme, given the go-ahead by the planners in October, is still hanging in the balance and the company says the allowance for offshore developments will need to go up again – to 2 Rocs per MWh – to have a discernible impact. "We are still going through the costs of Lincs, but the economics just aren't stacking up at the moment," a spokesman for the company said. "Two Rocs rather than 1.5 would make a big difference."

Meanwhile, the London Array – the plan for 341 turbines covering 90 sq miles and producing enough power for 750,000 homes – is also still in jeopardy, despite the involvement of Masdar, the Abu Dhabi sovereign wealth fund, after Shell backed out last summer. Construction tenders are being evaluated, but whether the sums add up is not yet clear.

E.ON, a partner in the London Array, also backs calls for a 2-Roc allowance for offshore. Not only are the UK plans competing for resources in an increasingly global market – made even more competitive by US President Barack Obama's commitments to renewables, but bidding is starting for the UK's third round of offshore concessions. These are even further out to sea and will be even more expensive to build.

"There is a lot riding on decisions being made in the near future," a spokesman for E.ON said. "It is significantly easier to build in a Texan or Spanish desert than in the North Sea. And if the London Array can't be made to work then it is difficult to see how 'round three' will work either."

Renewables groups squeezed by the economic crisis are going bankrupt in spite of the billions in new funding for the sector earmarked by the administration of Barack Obama.

It could take several months for the government to establish a regulatory framework to disburse the funds set aside in the administration’s stimulus package to build a “green” economy. In the meantime, some companies already are in an untenable position.

Investment in renewables has been delayed or even terminated as the credit crisis has dried up capital. The slowdown has also resulted in sluggish sales of clean technology while plunging oil and natural gas prices have made such projects less economically viable.

“That has put a lot of pressure on companies operating in the renewable area,’’ said Charles Swanson, the managing partner of Ernst & Young’s Houston office. “They are starting to struggle mightily.’’

Ethanol producers in particular have been under pressure as a result of volatile corn prices.

VeraSun, Greater Ohio Ethanol and Gateway Ethanol were among the first victims, filing for Chapter 11 bankruptcy protection last October. The trend has continued this year, with Renew Energy and Northeast Bio-fuels filing in January.

The latest victim, Aventine Renewable Energy, told investors on March 16: “We do not expect to have sufficient liquidity to meet anticipated working capital, debt service and other

liquidity needs during the current year unless we experience a significant improvement in ethanol margins or obtain other sources of liquidity.’’

The company is seeking additional debt and equity financing, as well as a potential sale of all or part of the business but admits it might not be successful in the current environment.

“If we cannot obtain sufficient liquidity in the very near term, we may need to seek to restructure under Chapter 11,’’ Aventine said.

The Obama administration says renewables were not given enough attention under the previous administration of George W. Bush. It has uncovered a backlog of 200 solar power project applications and 20 wind project applications awaiting action.

Ken Salazar, interior secretary, quickly established a taskforce to spur the development of such projects. “For the last administration, renewable energy simply wasn’t a priority,” he said. “They focused their time and resources almost exclusively on permitting for oil and gas.”

The Obama administration’s stimulus package includes $56bn in grants and tax breaks for US clean energy projects over the next 10 years and a budget calling for $15bn annually for renewable energy programmes. Yet Mr Swanson said: “Few, if any, of the funds have actually been distributed.’’

Once they are, he says, the financial support will enable many distressed companies to survive. “It’s certainly going to be a lifeline to get through the next five years.’’

Yet for renewables to take off long term, they must be able to compete with fossil fuels economically without government assistance. Estimates of the potential contribution to US energy supply of renewables varies from 10 per cent to 20 per cent in 20 years.

Rex Tillerson, chief executive of ExxonMobil, the world’s biggest publicly listed oil and gas company, said this month that the US needed to be realistic about how much renewables could add to the energy mix and within what timeframe. Exxon is not, at present, making any renewable investments, but Mr Tillerson said it had plenty of time. “We just think the timeline is very, very long, so we’re not going to miss anything.”’

Karl Miller, an energy expert and institutional investor with experience in utilities and energy trading, intends to hold off investing in renewables.

“Investors like me will be waiting on the sidelines ­during the short-term boom period and will look to step in and buy assets for pennies on the dollar when the renewable bust comes in a few years,’’ Mr Miller said.

By then, he said, the market would be littered with uneconomical renewable projects. As an investment model, he suggests, one need only look at the ethanol boom and bust of the past three years. “It was a clear demonstration that government handouts simply do not work.’’

Leaders attending the G20 meeting in London plan to gather again in the summer for a special summit on tackling climate change, The Independent on Sunday can reveal.

The new summit – which is being called on the initiative of President Barack Obama as part of a US drive to get a new international agreement on tackling global warming – is to take place alongside the annual G8 gathering of world leaders on the island of La Maddalena off Sardinia.

Scientists and environmentalists will hope that it will make up for a failure by the leaders at this week's meeting to do more than agree warm words about the need for a "green new deal" and the importance of building low-carbon economies. Every nation attending has flatly refused to discuss any commitment to devote an agreed percentage of its financial stimulus package to green measures, insisting instead on focusing on relatively short-term measures to tackle the immediate financial crisis.

News of the summit comes as governments gather in Bonn today to start eight months of negotiations on an agreement to replace the Kyoto Protocol, which are to climax at a conference in Copenhagen in December. The conference is widely seen as the world's last chance of getting global warming under control before it precipitates disastrous climate change.

This month President Obama wrote to Gordon Brown and the leaders of France, Germany, Russia, Italy, Japan, Canada, China, India, Brazil, South Africa, Mexico, South Korea, Australia and Indonesia to propose the summit, and the plan has gelled over the past week. Ironically, it will take place under the auspices of a mechanism – the "major economies" meetings – started by the former US president, George W Bush, to detract from the international attempt to get a new treaty, rather than galvanise it.

The initiative is one of the clearest signs to date of the unexpectedly high priority the new President is giving to combating climate change.

Gordon Brown has repeatedly pledged that the G20 London summit would launch a "global green new deal". Many, will be disappointed, however, at the failure of the G20 talks to commit nations to take the opportunity offered by the huge spending on stimulus packages to allocate a high proportion of the money to recession-beating environmental measures.

Countries have earmarked widely varying percentages (see graphic). South Korea leads with 81 per cent, while Britain is one of the worst performers at 7 per cent. China has earmarked more than 110 times as much money as the UK for the purpose.

Lord Stern, the author of a seminal government report on climate change, says that 20 per cent of the stimulus should go on green measures, which have been shown to employ more people and spark more innovation than conventional economic ones. When the UK government put the proposal on the table for the G20 meeting, not a single country supported it.

But late last week, secret pre-summit negotiations were making progress on agreeing measures to help developing countries, including maintaining aid and increasing finance for the International Monetary Fund.

The week before last, twenty-five hundred delegates, from more than seventy countries, met in Copenhagen to prepare for the United Nations Climate Change Conference, which will take place there in December and will produce a successor to the Kyoto Protocol, which was adopted in 1992 and will expire in 2012. The speakers in Copenhagen were united by a sense of urgency—and for good reason, given the poor record of most participating countries in meeting their Kyoto targets for reducing the emission of greenhouse gases.

So far, the most effective way for a Kyoto signatory to cut its carbon output has been to suffer a well-timed industrial implosion, as Russia did after the collapse of the Soviet Union, in 1991. The Kyoto benchmark year is 1990, when the smokestacks of the Soviet military-industrial complex were still blackening the skies, so when Vladimir Putin ratified the protocol, in 2004, Russia was already certain to meet its goal for 2012. The countries with the best emissions-reduction records—Ukraine, Latvia, Estonia, Lithuania, Bulgaria, Romania, Hungary, Slovakia, Poland, and the Czech Republic—were all parts of the Soviet empire and therefore look good for the same reason.

The United States didn’t ratify the Kyoto Protocol, but Canada did, and its experience is suggestive because its economy and per-capita oil consumption are similar to ours. Its Kyoto target is a six-per-cent reduction from 1990 levels. By 2006, however, despite the expenditure of billions of dollars on climate initiatives, its greenhouse-gas output had increased to a hundred and twenty-two per cent of the goal, and the environment minister described the Kyoto target as “impossible.”

The explanation for Canada’s difficulties isn’t complicated: the world’s principal source of man-made greenhouse gases has always been prosperity. The recession makes that relationship easy to see: shuttered factories don’t spew carbon dioxide; the unemployed drive fewer miles and turn down their furnaces, air-conditioners, and swimming-pool heaters; struggling corporations and families cut back on air travel; even affluent people buy less throwaway junk. Gasoline consumption in the United States fell almost six per cent in 2008. That was the result not of a sudden greening of the American consciousness but of the rapid rise in the price of oil during the first half of the year, followed by the full efflorescence of the current economic mess.

The world’s financial and energy crises are connected, and they are similar because credit and fossil fuels are forms of leverage: oil, coal, and natural gas are multipliers of labor in much the same way that credit is a multiplier of wealth. Human history is the history of our ascent up what the naturalist Loren Eiseley called “the heat ladder”: coal bested firewood as an amplifier of productivity, and oil and natural gas bested coal. Fossil fuels have enabled us to leverage the strength of our bodies, and we are borrowing against the world’s dwindling store of inexpensive energy in the same way that we borrowed against the illusory equity in our homes. Moreover, American dependence on fossil fuels isn’t going to end any time soon: solar panels and wind turbines provided only about a half per cent of total U.S. energy consumption in 2007, and they don’t work when the sun isn’t shining or the wind isn’t blowing. Replacing oil is going to require more than determination.

The environmental benefits of economic decline, though real, are fragile, because they are vulnerable to intervention by governments, which, understandably, want to put people back to work and get them buying non-necessities again—through programs intended to revive ordinary consumer spending (which has a big carbon footprint), and through public-investment projects to build new roads and airports (ditto). Our best intentions regarding conservation and carbon reduction inevitably run up against the realities of foreclosure and bankruptcy and unemployment. How do we persuade people to drive less—an environmental necessity—while also encouraging them to revive our staggering economy by buying new cars?

The popular answer—switch to hybrids—leaves the fundamental problem unaddressed. Increasing the fuel efficiency of a car is mathematically indistinguishable from lowering the price of its fuel; it’s just fiddling with the other side of the equation. If doubling the cost of gas gives drivers an environmentally valuable incentive to drive less—the recent oil-price spike pushed down consumption and vehicle miles travelled, stimulated investment in renewable energy, increased public transit ridership, and killed the Hummer—then doubling the efficiency of cars makes that incentive disappear. Getting more miles to the gallon is of no benefit to the environment if it leads to an increase in driving—and the response of drivers to decreases in the cost of driving is to drive more. Increases in fuel efficiency could be bad for the environment unless they’re accompanied by powerful disincentives that force drivers to find alternatives to hundred-mile commutes. And a national carbon policy, if it’s to have a real impact, will almost certainly need to bring American fuel prices back to at least where they were at their peak in the summer of 2008. Electric cars are not the panacea they are sometimes claimed to be, not only because the electricity they run on has to be generated somewhere but also because making driving less expensive does nothing to discourage people from sprawling across the face of the planet, promoting forms of development that are inherently and catastrophically wasteful.

One beneficial consequence of the ongoing global economic crisis is that it has put a little time back on the carbon clock. Because the climate damage done by greenhouse gases is cumulative, the emissions decrease attributable to the recession has given the world a bit more room to devise a plan that might actually work. The prospects for a meaningful worldwide climate agreement probably improved last November, with the election of Barack Obama, but his commitments to economic recovery and carbon reduction—to bringing the country out of recession while also reducing U.S. greenhouse emissions to seventeen per cent of their 2005 level by 2050—don’t pull in the same direction. Creating “green jobs,” a key component of the agenda, is different from creating new jobs, since green jobs, if they’re truly green, displace non-green jobs—wind-turbine mechanics instead of oil-rig roughnecks—probably a zero-sum game, as far as employment is concerned. The ultimate success or failure of Obama’s program, and of the measures that will be introduced in Copenhagen this year, will depend on our willingness, once the global economy is no longer teetering, to accept policies that will seem to be nudging us back toward the abyss.

Energy companies are already familiar with measuring and trading their carbon emissions, but now regular businesses and other organisations are poised to follow suit.

Under the Government's Carbon Reduction Commitment (CRC) scheme, announced last May, from next year every organisation that consumes more than 6,000 megawatt hours of electricity in 2008 — or about £500,000-worth — will need to buy carbon allowances.

The mandatory cap and trade scheme will affect 5,000 large companies and local authorities in Britain and is aimed at slashing the country's total carbon emissions by an extra 1.2 million tonnes a year by 2020.

The proceeds will be paid back later to participants based on their organisation's performance during that year, as ranked in a league table based on carbon reduction and early action.

For many chief executives, keeping on top of changing rules and regulations like this is a constant game of catch-up.

But, for those that manage to stay one step ahead by preparing for rules before their introduction, it can be an excellent way to gain advantages over their rivals, Harry Morrison, of the Carbon Trust, argues.

Curbing emissions by reducing energy waste can also deliver something even better, especially in these straitened times: cost savings.

That's why a growing number of organisations are turning to the Carbon Trust Standard, a voluntary and independent certification scheme designed to help them monitor their emissions using a respected, common methodology — and to demonstrate the cuts they achieve.

“We feel strongly that leading businesses that take action now can get a double benefit, both in preparing for the legislation and also in terms of their public reputation,” he said.

“These groups really need to be thinking now about how they are going to comply with the CRC scheme and achieving the Carbon Trust Standard will be a very good start.”

Sixty-five groups have already signed up to the standard, including some of the best-known names in British business such as B&Q, Morrisons and O2 and a string of public sector organisations like Woking Borough Council, the Crown Prosecution Service, London Fire Brigade and King's College London.

Adrian Swindells, general manager of Abbey Corrugated, the packaging group, said: “We now understand that having gained the standard we will have a higher ranking in the CRC league table. This will definitely reduce costs to the business. We are now much better on business housekeeping with controlled start-ups and shutdowns that help to reduce energy use.

“And the standard has aligned closely with other certifications that the company has, ensuring we have robust systems and procedures to continually reduce our carbon footprint and energy consumption.”

Mark Willcox, development director at Branston, the foods group, said: “Branston has improved its carbon efficiency by 6 per cent in 2008. Gaining the Carbon Trust Standard also makes us eligible for a significant reduction under the CRC.”

Not only is the standard a good way for organisations to prepare for the introduction of the CRC and to bolster their reputation among consumers, it is also delivering real cash savings by identifying waste in their use of transport fuels, electricity, gas and oil.

“The 65 groups that have signed up have already achieved savings totalling £73 million,” said Mr Morrison, who describes the programme as an “holistic package that is designed to measure, manage and reduce their emissions”.

Organisations that sign up to the Carbon Trust Standard undergo a rigorous analysis of their energy use across all their buildings, plants and vehicles over a three-year period.

A comprehensive set of data on emissions is then produced which, assuming the right actions have been taken, can hopefully be shown to be heading down over time.

While membership of the standard does not in itself ensure compliance with the CRC scheme, it is one of the factors that counts towards performance in the league table, as part of an organisation's early action score.

It also perfectly positions companies for its introduction by ensuring they are measuring and reducing their emissions using the correct methodology and focusing management attention on the issue.

The financial impact of the CRC scheme is set to grow over time. An introductory phase is due to start in April 2010, under which all allowances will be sold at a fixed price. However, from April 2013, allowances will be allocated through auctions, with the number of credits available being reduced over time.

Russia has released plans to create a dedicated military force to patrol the Arctic, where it is laying claim to billions of tonnes of hydrocarbons.

Countries in the northern hemisphere are vying for control of the polar region, which is thought to contain up to a quarter of the world's undiscovered oil and gas. The presidential security council issued a strategy document which outlined Russia's plans for defending its vast swath of polar territory up until 2020.

A major component of the strategy was the creation of a group of general-purpose units of the armed forces of the Russian Federation and other military units and agencies, primarily border guard agencies to ensure security.

The Kremlin has engaged in sporadic tub-thumping over its right to the Arctic's resources ever since two mini subs planted a titanium Russian tricolour on the seabed under the North Pole in 2007. President Dmitry Medvedev said in September that the region must become Russia's strategic resource base for the 21st century.

Moscow's bold assertion that it will militarise the region comes as Russia, the United States, Canada, Norway and Denmark (via Greenland) lobby UN bodies to decide jurisdiction over the region.

The five countries with an Arctic coastline have exploitation rights over a 200 mile zone extending north of their borders, but the Kremlin is claiming a much bigger territory on grounds that an underwater ridge running towards the North Pole is connected to Russia's continental shelf.

The "cold rush" for the Arctic's resources has intensified as global warming opens up new shipping routes and eases the difficulty of offshore exploitation and drilling.

Artur Chilingarov, the polar explorer who is Russia's envoy on international co-operation in the Arctic and Antarctic, said this month that the country was justified in laying claim to waters off its Arctic coast. "We are not squeezing anyone out," he said.

However, other states have said they are unnerved by the Kremlin's "aggressive" stance. Earlier this month the Canadian government demanded an explanation after Russian bombers and a submarine were recorded entering its Arctic zone.

In turn, Moscow has reacted angrily to suggestions by Nato that it could enter the fray in the far north. The Nato secretary general, Jaap de Hoop Scheffer, said in January that the security alliance needed a military presence in the region to defuse tensions. "I would be the last one to expect military conflict - but there will be a [Nato] military presence," he said, adding: "It should be a military presence that is not overdone, and there is a need for political and economic co-operation."

Russia's envoy to Nato, Dmitry Rogozin, said yesterday he would not discuss military co-operation with Nato in the Arctic because it was "totally absurd" for countries not abutting the region to get involved.

The security council sought to play down its strategy document later on Friday, saying its emphasis was on improving the border guard service and its co-operation with other states in "combating terrorism in the sea, seeking to prevent illicit trade and illegal migration, and in seeking to protect aquatic biological resources."

The Prime Minister claimed to have struck a "historic" deal to end the global recession as he unveiled plans to plough more than $1 trillion into the world economy.

"This is the day that the world came together to fight back against the global recession," he said. "Not with words but with a plan for global recovery and reform."

Barack Obama, the US President, hailed the deal as a "turning point" for the global economy which would put it on the path to recovery.

However, critics pointed out Mr Brown had been unable to secure agreement on a new co-ordinated fiscal stimulus package that he and Mr Obama had been urging. The Prime Minister has staked his political future on securing a deal at the summit.

Under the $1.1 trillion (£750 billion) agreement, which followed several days of intense negotiation, struggling economies will be offered money provided to the International Monetary Fund (IMF) by wealthier nations.

The G20 leaders also agreed restrictions on bankers’ pay, rules to target tax havens and hedge funds and a new financial early warning system to prevent a future economic meltdown.

"Today’s decisions, of course, will not immediately solve the crisis. But we have begun the process by which it will be solved," Mr Brown said. "I think a new world order is emerging with the foundation of a new progressive era of international co-operation,"

Following the announcement of the deal at the ExCeL conference centre in London’s Docklands, the FTSE share index closed up more than four per cent. Other stock markets around the world also rose sharply.

The conclusion of the summit also coincided with the release of figures that suggested the British economy could be starting to recover. House prices have risen and the Bank of England claims that lending to businesses has improved.

Mr Brown’s delight at securing the agreement — which had been under threat from Nicolas Sarkozy, the French President, and Angela Merkel, the German Chancellor — was evident.

The success was echoed by Mr Obama. "By any measure the London summit was historic," he said. "It was historic because of the size and the scope of the challenges that we face and because of the timeliness and magnitude of our response."

Mr Sarkozy, who had threatened to walk out of the talks unless he got action on tax havens, said a "page has been turned" on the old financial model, the "Anglo-Saxon model".

One trillion dollars will be made available to the IMF and, in turn, to countries threatened by the downturn. However, Mr Brown made it clear that he did not intend to apply for funds for Britain, despite opponents warning that the country will soon need a bail-out due to the growing deficit in the public finances.

Mr Obama, who leaves Britain after a three-day visit on Friday morning, played an important part in brokering the deal, in particular French concerns over the deal on tax havens. A senior White House official said the President took Mr Sarkozy to a corner of the room for a chat. He then acted as a go-between with President Hu Jintao, of China until they both agreed to a solution put forward by Mr Obama.

As The Daily Telegraph disclosed on Thursday, a key part of the global rescue package included united action to curb excessive pay to bankers and traders.

Downing Street will be relieved that the summit has not proved a failure, despite Mr Brown not securing some of his earlier objectives, notably a second round of fiscal stimulus.

A last-ditch effort is being made to insert clearer green commitments into the global economic recovery package. The move comes amid fears amongst some British government officials that the G20 summit is in danger of missing a unique opportunity to prevent the world from being locked into irreversible and catastrophic climate change.

Gordon Brown yesterday promised that a commitment to tackle the environment will be one of the five tests of the communique due to be released following the summit on Thursday, adding "there were long hours of hard negotiations ahead".

Number 10 counselled caution insisting that the main climate change event of the year will be at Copenhagen in December, when the UN hopes to reach a global deal to replace the Kyoto agreement.

The draft G20 communique leaked at the weekend makes only the smallest reference to climate change, and appears to be vague on the subject of how green the $2tn (£1.4tn) stimulus package agreed by world leaders should be.

This provoked the eminent climatologist James Hansen, director of Nasa's Goddard Institute for Space Studies, to tell the Guardian: "If this is the best they can do, then their 'planet in peril' rhetoric is probably just that - empty rhetoric."

Professor Robert Watson, chief scientific adviser for the Department for Environment, Food and Rural Affairs, also voiced concern about the limited commitment to a low-carbon economy: "I think it [low-carbon recovery] deserves a higher profile. Everybody seems to be focusing on short-term recovery and getting long-term regulation of the banks right. I haven't heard anything that suggests the green recovery and climate change are a major part of the [G20] agenda."

He added: "It would be a missed opportunity while they're talking about the economy not to talk about how to transform it to low carbon."

Steve Howard, CEO of The Climate Group, which works with major businesses and governments to promote a low-carbon economy, said: "What is lacking from the statement as a whole is timetables, targets and amounts. It lacks specifics on anything."

Some senior British officials privately believe the framing of the G20 stimulus package to ensure it has a large green element will be as decisive in the battle against climate change as the outcome of the UN talks on climate change in Copenhagen.

British ministerial sources insisted last night that there will be no mention in the communique of what proportion of the new jobs stimulated by the economic recovery package will be low-carbon roles. They suggested that any mention of green jobs might be seen as a form of covert protectionism by some members of the G20.

British officials said yesterday they regard it as essential that during the summit China gets a clear message from countries such as South Africa, Mexico, France, Germany, Britain and the US that they are all committed to tackling climate change and that China will not be put at a disadvantage if it shapes a low-carbon recovery.

Lord Stern, the government's former climate change adviser, yesterday tried to increase the pressure on the G20 by arguing that the worst recession since the 1930s gave the world the opportunity to lay the foundations for growth over several decades, based on low-carbon technology and energy efficiency.

He said the argument that the first priority was to deal with the current economic crisis and postpone action on climate change was "wrong and should be confronted".

He called for the G20 leaders to send out a signal that the "difficult" work of getting the specifics of a deal in place needed to be done. "This is an opportunity to have a green recovery that lays the foundations of growth for the next two to three decades."

A report by HSBC found that the US, Europe, China and South Korea lead global "green" spending plans after committing $300bn-$500bn to boost low-carbon technologies under wider plans to boost the global economy.

Green spend accounts for about 15% of the total economic spending of $2tn-$3tn.

Britain's economic rescue package contains "neglible" spending on green measures, campaigners claimed in a report published today. Just 0.6% of the government's stimulus package will help develop a low-carbon economy, said the New Economics Foundation.

The report contrasts the £120m promised funding for the green economy with the £775m bonuses paid to staff at the Royal Bank of Scotland and £2.3bn handed to the car industry. Gordon Brown has claimed that around 10% of the stimulus package is directed towards "environmentally important technologies".

Today's report said ministers could be missing a "huge opportunity" to boost the economy, ensure energy security and tackle climate change through investing in renewables and green jobs.

Andrew Simms of the New Economics Foundation said: "We face a unique alignment of economic and environmental interests. Investing in rapid transition away from the UK's fossil fuel dependence could provide a parachute for a troubled economy. But it feels like the government has cut the parachute strings and pushed green energy, efficiency and conservation from the plane."

The report found "new and additional" spending on green measures announced in the government's pre-budget report amounted to around £105m and goes almost entirely to the Warm Front grants programme, an effort to improve household energy efficiency. It added that including modest spending on adaptation measures and spending brought forward makes the total £120m, or 0.008% of GDP. Lord Stern has called for investment of 0.8% of GDP annually in green stimulus spending.

John Sauven, executive director of Greenpeace UK, said: "Gordon Brown's high-flying green rhetoric just isn't matched with real action. His support for green industries when times are tough is nothing short of negligible."

A separate report published today said hundreds of thousands of jobs could be created if the government launched an energy-efficient programme to tackle climate change. Research for Greenpeace suggests that investment of £5 billion a year in making buildings and homes more energy-efficient would lead to 55,000 direct job opportunities.

Hundreds of thousands of indirect jobs could also be created in a sign of the scale of the work needed to tackle energy inefficiency in UK buildings, said the report, which was supported by the Liberal Democrats, TUC and Federation of Master Builders.

Greenpeace urged ministers to adopt a number of measures including a home energy MoT, subsidised loans for energy efficiency work and investment to train people to carry out the necessary work.

Nick Clegg, Liberal Democrat leader, said: "As thousands of people lose their jobs every month and more businesses go under there is a danger that green issues will slip off the agenda but protecting the environment offers us the best route to economic recovery. Action taken now to insulate schools, hospitals and homes would create thousands of jobs, protect the environment and help families struggling to pay their fuel bills."

Scotching optimism that the world's largest country may already be in recovery, the bank predicted that Russia's economy is contracting far more sharply than the Kremlin has acknowledged.

According to revised government forecasts, the Russian economy will shrink by 2.2pc this year. But it its latest economic report on Russia, the World Bank predicts that Gross Domestic Product will actually contract by 4.5pc.

Has Russia got its groove back?The assessment comes as foreign investors focussed on emerging markets again start to flirt with Russia after months of record capital flight in the wake of last August's war with Georgia and a collapse in the price of oil.

The Russian stock exchange's benchmark RTS index has gained over 30pc this year alone, outpacing most emerging markets, after a modest recovery in oil and metal prices.

But Zeljko Bogetic, the World Bank's lead Russia economist, cautioned against such optimism.

"As the crisis continues to spread to the real economy around the world, initial expectations that Russia and other countries will recover fast are no longer likely," he said.

Mr Bogetic also warned the Kremlin that it faced popular discontent, especially among Russia's large working class, if social spending was not dramatically increased.

"The social situation has worsened so rapidly and so unexpectedly that it is important to shift the focus of the anti-crisis policy to the population," he said. "Since there is a threat of significant social pressure, it would have been clever to pay attention and assign funds for social protection."

With the World Bank predicting a rise of unemployment to 12pc, Mr Bogetic called on Russia to raise unemployment subsidies by 70pc and child welfare benefits by 220pc.

Russia's fiscally conservative finance ministry has so far been reluctant to raise social spending so dramatically, fearing inflationary pressure.

Even so, Russia's budget is expected to run a deficit of over 7.0pc this year, against a 4.1pc surplus in 2008, thanks to falling oil revenues, an ambitious stimulus package and a reluctance to cut back on planned infrastructure spending.

Despite the size of the deficit, Russia should have little difficulty financing the budget thanks to substantial foreign currency reserves and a healthy oil windfall fund.

While the World Bank's forecast is gloomy, it remains more optimistic than the predictions of some government officials who have privately warned that the economy could shrink by as much as 10pc in 2009.

The World Bank's assessment is predicated on oil prices of $45 a barrel. Russia's Urals blend of crude is hovering at about $50, up from a low of $35 last year. Some strategists predict oil could continue to recover over the next few months thanks to greater discipline in enforcing production cuts by the Organization of Petroleum Countries, of which Russia is not a member.

Viktor Yushchenko, Ukraine’s president, on Tuesday called for urgent economic and political reforms in response to a huge drop in the country’s output, and launched a bitter attack on the prime minister, his fierce rival, over her handling of the crisis.

In a state of the nation address to parliament, Mr Yushchenko claimed Ukraine’s gross domestic product had plunged by an annual 25 to 30 per cent in January and February. He urged lawmakers to press ahead with legislation to clear the way for an International Monetary Fund rescue package and constitutional reforms to clarify the division of power between the president and parliament.

The president slammed Yulia Tymoshenko, his flamboyant prime minister, saying the country had been “ill prepared to confront the crisis” and accusing the government of purposefully trying to “conceal” the slowdown by releasing economic data quarterly, rather than monthly.

His speech underscored the depth of the economic crisis facing Ukraine, the European country worst affected by the credit crunch, and the damage done to political stability by rifts in the Kiev leadership.

Parliament is most unlikely to co-operate with Mr Yushchenko’s constitutional reform plans. But the divided assembly is scheduled this week to consider legislation required to unfreeze a $16.4bn standby loan granted by the IMF last autumn. The Fund’s first $4.5bn tranche last autumn helped to stabilise Kiev’s shaky banking system and currency, which lost 40 per cent of its value last year. But further disbursements have been delayed because of IMF concerns over the size of Ukraine’s budget deficit and political infighting.

Mr Yushchenko has told parliament to bring the budget deficit down to less than 3 per cent. On Tuesday, parliament raised taxes on petrol, cigarettes and alcohol. But Ms Tymoshenko is refusing to cut spending or raise utility tariffs, insisting it would be too much of a burden on cash-strapped citizens. She says the president’s allies are sabotaging her initiatives to meet the IMF’s demands.

Ukrainian economyUkraine has been hit hard by falling global trade, frozen credit and plunging prices for steel, the country’s main export. Output was also hit when Russia cut off natural gas supplies in January in a dispute over prices.

Unemployment has doubled to 1m since autumn and polls suggest that an increasing number of Ukrainians are sympathetic to anti-government protests About a third of household bank deposits have been withdrawn in the past six months, prompting fears that Kiev’s financial woes could affect western Europe. European banks control more than 20 per cent of Ukraine’s banking system.

In February, the owners of seven troubled banks appealed for state bail-outs, offering for their banks to be nationalised in return. But it remains uncertain how many of Ukraine’s 180 banks the cash-strapped government can save.

Alexander Valchyshen, head of research at Investment Capital Ukraine, a Kiev-based asset management firm, said: “Resuming co-operation with the IMF is very crucial to shore up confidence.”

Ms Tymoshenko has appealed to the world’s richest countries for a loan of up to $5bn (€3.8bn, £3.5bn) to cover the budget deficit. But Mr Valchyshen warned that lenders would not grant a loan until co-operation with the IMF was resumed.

“Meeting IMF requirements is a sign of prudence in fiscal and monetary policymaking. If this co-operation fails, then there is a risk that the government will turn to inflationary financing of the fiscal deficit,” covering the shortfall by printing currency, Mr Valchyshen added.