Having forecast late last year that OPEC capacity would grow by 3.2 million b/d by 2014, the International Energy Agency now sees OPEC capacity growth at just 1.7 million b/d between 2008 and 2014.

Indeed, the IEA sees capacity in two key producers, Iran and Venezuela, actually shrinking over the period.

"Weaker demand, contract renegotiation, reduced cash flow, geopolitical turmoil and increased resource nationalism underpin this year's more modest outlook," the IEA said in its Medium-Term Oil Market Report released June 29.

"Saudi Arabia, the UAE, Algeria, Libya, Iraq and Angola all see capacity expansion, but these are largely offset by decline elsewhere."

Oil production capacity in Iran, Venezuela and Ecuador is expected to drop by a collective 1 million b/d by 2014 as a consequence of growing resource nationalism, the IEA said.

"The increasing trend towards resource nationalism among some OPEC countries over the past few years is having a marked impact on crude capacity expansion plans for the outlook period," it said.

"The upward oil price trend from 2004 to mid-2008, and expectations that capacity constraints would make oil ever more costly, empowered several OPEC members such as Algeria, Ecuador, Iran and Libya to alter production sharing contracts in an effort to capture more of the revenue stream," it said.

"In the case of Venezuela oil assets have been nationalized. As a result, sharply lower production profiles emerged for some countries in the medium term, with Ecuador, Iran and Venezuela now collectively envisaged posting a 1 million b/d drop in production capacity by 2014," it said.

Iranian capacity, seen at 3.97 million b/d in 2008, is forecast to drop by 490,0000 b/d to 3.48 million b/d by 2014.

Venezuelan capacity is seen dropping from 2.62 million b/d in 2008 to 2.2 million b/d in 2014.

Ecuador's capacity is forecast to drop from 500,000 b/d in 2008 to 390,000 b/d by 2014.

Nigerian capacity is also forecast to drift downward from 2.48 million b/d in 2008 to 2.46 million b/d by 2014.

"Iran's challenging political and commercial operating environment, coupled with sharply lower oil revenues, continues to undermine the country's ambitious production expansion plans," the IEA said.

"Already plagued by persistent delays and cancellations of planned projects, IOC interest in developing projects in the country has cooled along with the downturn in the outlook for oil demand," it said, adding that for cost capacity was now around 100,000 b/d below that of a year ago, largely because of stalled plans for Darkhovin lll and Azadegan ll.

"New capacity additions over the 2008-2014 period are a net 470,000 b/d but the escalating decline rates at older onshore fields more than offset the gains," the IEA said.

The IEA said it had been "extremely difficult to develop a robust production capacity forecast for Venezuela given the acute lack of available data and increasingly cloudy investment outlook due to the ongoing nationalization of oil industry assets."

"Because of these issues we have previously retained a 'current capacity extended forward'approach until a clearer picture emerged," it said. "Venezuela has recently released some unaudited data on the country's oil exports, aiming to augment third-party estimates of production levels. Not only does considerable uncertainty over baseline production persist, but so too for future developments in the oil sector and investment plans."

The agency said it was increasingly apparent that the global downturn was likely to have a detrimental impact on Venezuela's oil sector.

It noted that, in response to lower oil revenues and the continued need to fund the government's social welfare programs, Caracas had slashed the budget for Petroleos de Venezuela by 65% this year to $6.1 billion.

"As a result, we have amended our outlook to reflect the acute shortage of investment capital for PDVSA, with capacity expected to decline by 420,000 b/d, from 2.6 2 million b/d in 2008 to 2.2 million b/d in 2014.

The IEA said the outlook for Ecuador had been clouded by the government's severe shortage of investment capital and, given stricter operating terms, it's inability to attract foreign partners.

OPEC kingpin Saudi Arabia's capacity is forecast to rise to 11.22 million b/d this year from 10.74 million b/d in 2008, but the agency said it believed the Kingdom could "surge" to 12.5 million b/d by the end of this year "if the need arose."

The IEA sees Saudi capacity rising to 12.16 million b/d in 2010 before falling back to 12.04 million b/d in 2011 and to 11.83 million b/d in 2012.

It rises again to 11.86 million b/d in 2013 and to 11.97 million b/d in 2014.

"Saudi Aramco will register the largest single incremental capacity increase in history this year with the startup of the massive 1.2 million b/d Khurais development in June 2009," the IEA said, noting that the 250,000 b/d Shaybah expansion and the 100,000 b/d Nuayyim project were also brought on stream in June.

"...combined, the three projects are designed to raise the kingdom's total installed capacity to 12.5 million b/d," it said.

"However, given weak near-term demand, it is unlikely that Saudi Aramco will maintain immediately operable capacity at such elevated levels, and we have assumed operations at some fields could be shut in for rehabilitation or extensive maintenance work during this weaker demand period," it said.

"As a result, a net 1.23 million b/d increase in capacity, to 12 million b/d by 2014, is projected," it added.

"That said, we assume that Saudi Arabia could surge to 12.5 million b/d by end-2009 if the need arose."

UAE capacity is forecast to climb by 330,000 b/d to 3.1 million b/d in 2014, but the IEA said reaching the targeted 3.5 million b/d "will require considerable investment and technological expertise given the Emirates' mature fields and challenging geological basins."

In Kuwait, where capacity is seen rising by just 60,000 b/d to 2.69 million b/d by 2014, "longstanding internal political disagreements between ... parliament and the ruling family over the future role of [international oil company] involvement in the country's oil industry are having a serious impact on the medium-term oil production outlook," the IEA said.

Iraq, it said, "remains the OPEC wild card given constitutional and security issues, and we maintain a cautious view on its supply capacity growth."

The IEA's base case or "higher GDP" scenario sees demand for OPEC crude increasing by around 3.8 million b/d between 2009 and 2014, from 27.68 million b/d this year to 31.45 million b/d in 2014.

Under the alternative, "lower GDP" outlook, however, demand for OPEC crude is forecast to average 27.82 million b/d this year--140,000 b/d more than the base case projection for 2009--and to rise by just 60,000 b/d over the period to 2014.

The worst recession in decades will curtail oil demand for years to come, the International Energy Agency predicted on Monday as it cut sharply its forecasts for world consumption and declared that the threat of a supply crunch had receded.

Oil figuresThe consuming countries’ oil watchdog said it expected global demand to grow at an average annual rate of just 0.6 per cent or 540,000 barrels a day from 2008-14, raising consumption from 85.8m b/d to 89m b/d.

This latest forecast is 3.3m b/d lower than the previous forecast for 2013 volumes. If the agency’s most pessimistic economic scenario proves correct, oil demand could contract, with consumption falling to 84.9m b/d by 2014, it said in a report.

The slowdown in demand growth means the crucial cushion of spare supply the Opec oil producers’ cartel holds is now expected to reach 7.78m b/d next year, or 8 per cent of global demand. Last year, the IEA expected surging energy usage to reduce that supply cushion to 1.67m b/d.

The size of the Opec cushion has been an important driver of international crude prices. The cushion’s diminishing size has stoked fears that Opec has too little spare supply to bring on to the market to plug shortfalls and contributed to last year’s surge in benchmark Nymex West Texas Intermediate to a record $147 a barrel.

On Monday, WTI futures for August delivery rose 49 cents to $69.65, after an attack on a Royal Dutch Shell oil platform by a Nigerian militant group.

The IEA cautioned against putting too much faith in hopes of a swift economic recovery, which have pushed the oil price back up towards $70 a barrel from half that level in February. It said that economic “green shoots” could be accounted for by stock rebuilding across industries after a steep drawdown of inventories.

Nobuo Tanaka, the group’s managing director, said it had become difficult to make predictions and that the watchdog’s assumptions, based on April data, were getting old. “If the economy grows much faster, the market could be much tighter, and we could see much smaller spare capacity in 2014.”

Total non-Opec supply was projected by the IEA to fall 400,000 b/d from 2008 to 50.2m b/d in 2014, with deferred or cancelled investments in oilfields the main reason for the decline.

China, the world’s second-biggest energy consumer, raised fuel prices by as much as 11 percent today to prevent China Petroleum & Chemical Corp. from making losses as crude oil costs rise.

Pump prices for 90 octane gasoline will be set at a maximum of 5.71 yuan ($0.84) a liter, or about $3.16 a gallon, in Beijing, the National Development and Reform Commission said yesterday. That compares with an average of $2.69 a gallon in the U.S. The fuel price increase is China’s third this year.

China Petroleum, also known as Sinopec, the nation’s biggest refiner, said on May 22 it will lose money turning oil into fuels should crude trade above $60 a barrel and the government stop it increasing prices. China’s consumer prices fell for a fourth month in May, making it easier for the government to raise the cost of oil.

Crude oil futures have risen 60 percent to more than $70 a barrel in New York this year on optimism a global economic recovery will spur demand for fuel.

“These price increases are very positive news for Sinopec and also for PetroChina,” Grace Liu, analyst at Guotai Junan Securities, said by phone in Shenzhen. “It shows that the government is serious about enforcing the pricing mechanism to take into account rising crude oil prices.”

Sinopec climbed 0.7 percent to close at 10.66 yuan in Shanghai while its Hong Kong-listed shares rose 3.3 percent to HK$5.91. PetroChina Co., the nation’s second-biggest refiner, gained 0.28 percent in Shanghai and fell 0.35 percent in Hong Kong. The benchmark Hang Seng Index was down 0.8 percent.

Sinopec Profit

The government controls prices under a mechanism introduced in December that takes into account crude-oil costs, taxes and a profit for refiners. China may adjust fuel prices when crude-oil costs change more than 4 percent over 22 straight working days, the commission said on May 8.

The government last increased prices on June 1 by 400 yuan a ton, or 8 percent.

Profit at Sinopec fell 47 percent last year before the pricing changes were introduced because government curbs meant it was unable to pass on higher oil costs to customers. PetroChina posted a fourfold increase in oil-processing losses last year.

Sinopec and PetroChina, who operate most of the nation’s retail gasoline stations, must ensure the market is adequately supplied and must stick to the government’s price policies, the NDRC said in its statement yesterday. Local governments will be responsible for ensuring the price increases are implemented and penalties will be imposed for any illegal price adjustments, the commission said.

Tianjin, Sichuan

Prices for gasoline and diesel will rise by 600 yuan a ton and jet fuel by 620 yuan, the NDRC said yesterday. The price increases will be different in each city and region, it said.

The ceiling retail price for 90 octane gasoline that meets euro III standards will be 7,795 yuan in southern Guangdong province. The ceiling price for 90 octane that meets euro II standards will vary from 7,485 yuan per ton in Tianjin, a port city near Beijing, to 7,705 yuan per ton in Chengdu in southwestern China.

Gasoline and diesel prices supplied to the military, the state oil reserves and the railway system were also raised by between 9.8 percent and 11.1 percent, the NDRC said.

China is raising prices amid a surge in demand for automobiles in the world’s third-largest economy. Passenger-car sales rose 47 percent in May to 829,100 units, the biggest jump since February 2006.

Industrial production expanded 8.9 percent last month, boosting fuel use and adding to signs China is recovering from its worst slump in almost a decade.

Editors: Ang Bee Lin, Clyde Russell.

Russia has been forced into an embarrassing climbdown on resource nationalism, as the credit crunch has left it unable to invest in the development of its assets.

In a surprise move, Russian prime minister Vladimir Putin invited Royal Dutch Shell to help develop two new oil and gas fields on Sakhalin Island, just three years after the government forced the company to cede majority control in the Sakhalin 2 project to state-controlled group Gazprom.

In its biggest resource nationalism drive in 2006, the Russian government forced Shell to sell its stake in the project to Gazprom for $7.5bn (£4.5bn). The Anglo-Dutch group retained a 27.5pc stake, with Gazprom holding 50pc plus one share. Mitsui owns 12.5pc of the project and Mitsubishi 10pc.

According to IMF and World Bank estimates, the oil and gas sector generated more than 64pc of Russia's export revenues in 2007.

However, as commodity prices plunged last year the country's economy has gone into a sharp reversal and Russia needs external funding and expertise to develop its oil and gas reserves.

Last week, the World Bank said that it expected the Russian economy to shrink 7.9pc in 2009.

In the last major meeting of his tenure as Shell chief executive, Jeroen van der Veer and incoming chief executive Peter Voser held discussions with Mr Putin in Moscow over the weekend, where they were told that involvement in the Sakhalin 3 and Sakhalin 4 projects was "highly possible".

This follows the signing of an exploration joint venture last week between Total and Russia's largest independent gas producer Novatek, which could eventually lead to the French group being chosen to partner with the Russian group in Shtokman, one of the largest gas prospects in the world.

The agreement, however, was informal and there was no confirmation that Shell would own a stake in the projects.

Shell also signed a co-operation deal with Russian shipping firm Sovcomflot to develop shipping infrastructure for the transport of liquefied natural gas.

Only one of the bidders for the eight contracts to run oil and gas fields in Iraq has accepted oil ministry terms.

Six oil fields and two gas fields were available in a televised auction that was the first big oil tender in Iraq since the invasion of 2003.

BP and China's CNPC agreed to run the 17 billion barrel Rumaila field after Exxon Mobil turned it down.

Iraq has asked the rest of the companies to consider resubmitting bids for the other seven contracts.

The oil ministry is offering 20-year service contracts.

Other fields have failed to find buyers, either because there were no bidders or because terms were declined.

Thirty-two oil companies had been approved as potential bidders.

Red envelope

For each field, the ministry specified a minimum production level, which was close to the amount that is currently being produced.

The bidders will not be paid for anything up to the minimum production level - but they say how much they want to be paid for each barrel produced above the minimum, and also predict how much oil they will be able to produce.

From that, the auctioneers pick a winning bidder.

However, there is another twist. In a red envelope, the auctioneers have the maximum amount that the oil ministry is prepared to pay.

Those amounts were significantly less than the oil companies were asking for, so the winning bidders were asked to cut their prices.

In the case of the Rumaila field, Exxon Mobil declined to accept the ministry's maximum payment, but BP and CNPC, which had originally asked for $4 a barrel, agreed to do the work for $2 a barrel.

They will also be able to charge the ministry for the costs of the work they have to do on the production facilities.

The contracts are subject to approval by the cabinet.

Other winning bidders declined to accept the ministry's maximum payments.

Raising production

Before the auction, Iraqi officials said companies from nations involved in the 2003 invasion would be neither favoured nor disadvantaged.

The auction was originally planned for Monday, but had to be delayed because of sandstorms in Baghdad.

"Our principal objective is to increase our oil production from 2.4 million barrels per day to more than four million in the next five years," Oil Minister Hussein al-Shahristani told Iraqi public television.

Iraq has the world's third-largest proven oil reserves, with 115 billion barrels, of which the fields up for auction account for about 43 billion barrels.

But there has been some controversy about the auction, with members of the Iraqi parliament objecting to not having the chance to approve the deals.

Parliament has not yet passed an oil bill. Some observers have suggested that the decision to award service contracts, instead of the more common production-sharing contracts, was taken to make it easier to proceed without such a bill being passed.

Under a production-sharing contract, an oil company would recoup its costs and then be entitled to a proportion of the oil extracted, instead of being paid a fixed fee for each barrel.

To oil executives, Iraq's first auction of energy contracts since the U.S. invasion was a giant flop. To Iraqis, basking in a renewed sense of sovereignty and nationalism, it may turn out looking like a victory.

Iraq's embattled Oil Minister Hussain al-Shahristani did not look particularly pleased on Tuesday after Iraq secured just one deal to develop an oilfield out of the eight massive oil and gas fields it had put out to tender.

Despite the lure of the world's third biggest and largely underexplored oil reserves, energy firms balked at the cheap price Iraq was willing to pay them for helping it boost lacklustre oil production so that it can raise the billions it needs to recover from six years of war.

But by standing up to global oil majors and refusing to give up Iraq's prized oil wealth at any cost, Shahristani may end up bolstering his position, some Iraqi politicians say.

"Yes, we set tough contractual terms with foreign oil firms, but all that is to make it clear to all Iraqis we are keen to safeguard Iraqi oil revenues," Shahristani told reporters after bidding for the oil and gas fields had concluded.

The auction coincided with the pullout of U.S. troops from Iraqi cities under a bilateral security agreement, the first step toward a full U.S. withdrawal by the end of 2011. That has fuelled a sense of national pride as Iraqis start to believe they can throw off the shackles of a foreign occupation.

Having staked his ambitions for increasing Iraq's oil output on successfully attracting foreign expertise and capital into the country, the lack of deals at the auction has prompted questions about Shahristani's future as oil minister.

Only a BP-led group managed to secure a contract, for Iraq's biggest oilfield, Rumaila.

TACIT BACKING

Yet Shahristani's stance won the tacit backing of some of his colleagues on Wednesday when the cabinet also rejected the proposals from energy firms for developing the seven oil and gas fields that were not awarded.

"If the cabinet rejected these offers, that means, the rejection was for technical reasons not personal reasons," said Kamal al-Saadi, a lawmaker from Prime Minister Nuri al-Maliki's Dawa Party.

"I do not think that Shahristani will resign, because he knows that the prime minister was the person who invited him to encourage companies to invest in this country and develop the oil wealth."

Nabil Ismail, of the Supreme Islamic Iraqi Council, which while partnered with Dawa in government is also its main rival for Shi'ite votes, said the cabinet and the minister were right to reject deals that failed to meet Iraq's needs.

"Shahristani will not resign," said Ismail, a member of parliament's finance committee.

"What he did was to preserve public funds. Shahristani proved that his policy is serving the people, not the reverse."

Political analyst Mazin al-Shammari said Shahristani's trump card was that he appeared to have the prime minister's support. To challenge Shahristani would be to challenge Maliki, and few would contemplate doing that at this moment in time.

"Maliki's attendance (at the bidding) is a blessing for Shahristani. I think he succeeded in his job," Shammari said.

Yet politics in Iraq is volatile and allegiances can be fleeting. The minister also faces vocal critics.

The Oil Ministry and the Shi'ite Arab-led government as a whole are embroiled in a dispute with semi-autonomous Kurds over land, power and Iraq's monumental oil wealth.

"It was definitely a failure," said Ali Balou, the Kurdish head of parliament's oil and gas committee.
"We advised Shahristani to work with parliament to provide legal cover for these contracts. Shahristani turned his back on parliament and then the oil firms turned their backs on him."

Additional reporting by Khalid al-Ansary; Writing by Michael Christie; Editing by James Jukwey

We are at the beginning of the end. On Tuesday, US troops left Iraq’s cities, and in two years they will leave the country. Or so the official story goes. In reality, most of the “withdrawing” forces are merely relocating to forward operating bases where they appear to be hunkering down for a long entr’acte offstage in expensive, built-to-last facilities.

Still, Nouri al-Maliki, the prime minister, is touting this redistribution of American power as a “great victory” against foreign occupation, akin to the Iraqi rebellion against the British in 1920. The US media appear bemused at the comparison, as they continue to miss the point of the Iraqi insurgency. But Mr al-Maliki is more right than he knows about the historical echo: 1920 turned out to be a sad year for Iraq, as the brutal British suppression of that uprising inaugurated four decades of British rule, lasting until the 1958 Iraqi revolution.

Today, too, victory is tinged with fraud. And the Fallujah bombers – the “patriotic resistance” – know it. Mr al-Maliki may claim US participation in maintaining public order is “finished”, but everyone knows public order depends on Iraqi awareness of the offstage presence of US troops.

US operations will be suspended for a few days to promote the perception that Iraqi forces are actually in control; Ali al-Adeeb, a senior leader of Mr al-Maliki’s Dawa party, says the Americans will become “invisible”.

But Iraqis are too shrewd to fall for invisible occupation again; indeed, they never fell for it the first time. Tuesday’s withdrawals echo the cynical British grant of “independence” in 1932 more than Mr al-Maliki’s selective memory of 1920. Then, too, the foreign occupiers co-operated in the local government’s efforts to create an impression of sovereignty, while continuing to pull the strings of real authority behind the scenes. Then, too, Iraqis saw through the ruse. The celebrations of 1932 rang hollow as British aircraft continued to patrol overhead and British personnel were renamed advisors, trainers, liaisons – “the same individuals with new and supposedly thicker cloaks”, one British official confessed. Today, too, the thousands of troops that will remain in Iraq will be restyled as “trainers” and “advisers”; American aircraft will retain their free hand. Moreover, the Iraqi and US governments’ focus on appearances has increased their need for secrecy about the true number and nature of the withdrawals, compounding suspicions of foul play.

Iraqis worry equally about the loyalty of Iraqi security forces, who will remain under the sway of thousands of embedded US “trainers”. Their takeover of the violent security work of the former occupiers also renders them suspect.

In sermons last week, Moqtada al-Sadr, the firebrand cleric, warned of American loyalists in the military and government. Echoing 1920s and 1930s speculation that violence was the result of British machinations, he blames recent explosions on an American conspiracy to justify the US presence. His sermons inspired marches in Sadr City with shouts of, “No, no to America. No, no to occupation. No, no to terrorism. Yes for independence”. The current withdrawals are not seen as a step toward independence but to more covert and thus even more unaccountably violent American control – like the post-1932 British period.

American officials should heed the cautionary tale of the past, unwittingly invoked by Mr al-Maliki’s bluster. As the British ambassador in “independent” Iraq realised too late, Iraqis “never swallowed the fiction that [the advisers] are maintained as much, more even, for their good than for ours”. Independence remained a mirage as British trainers refused to entrust critical elements of Iraqi security to their trainees for fear of compromising British security. Security itself remained a pipe dream. As the isolated trainers grew increasingly susceptible to a paranoid groupthink about Iraqi politics, it became impossible for them to accept real withdrawal. The fortifications that protect US trainers from their trainees threaten to create a similar bubble.

In 1932 as now, rhetoric about withdrawal was aimed at global as much as Iraqi opinion. Instead of attending only to appearances, stoking the fears of a people familiar with nominal independence, the US and Iraqi governments should deliver the reality Iraqis and Americans want: “Yes for independence.”

The writer is assistant professor of history at Stanford University and author of Spies in Arabia

Global demand for gas is expected to fall in 2009 marking the first annual decline since the Fifties, a new report warns.

The International Energy Agency's (IEA) annual Natural Gas Market Review said: '[We] project that for the first time in 50 years, the world will witness a drop in global gas demand.'

It says that after a 1% increase in gas consumption in 2008, gas demand among OECD countries fell by 4% during the first quarter of 2009 - January to March - and is expected to decline further this year.

'The global financial crisis has turned the economic landscape upside down, with huge implications for the oil and gas sector,' said Nobuo Tanaka, IEA executive director.

'In the natural gas sector, we have moved from a tight supply and demand balance with extremely high gas prices to an easing one with plummeting prices. Both markets [oil and gas] face enormous uncertainty surrounding the timing, pace and extent of any economic rebound, which affects all prognoses for oil and gas market fundamentals over the next five years.'

The report serves as a fresh reminder of the severity of the current world recession despite coming amid some early signs of recovery.

The IEA said said prices soared in the first half of 2008 but that was followed by demand weakening and spot prices plummeting.

The report added that the combination of weak demand and lower prices could undermine future investment with exploration companies, which already face financing problems from the credit crunch, reluctant to push ahead with projects until they can foresee rising demand. That could create a price squeeze in the medium-term when demand recovers, the IEA said.

It also said climate change awareness 'puts a question mark on the future role of gas' and that Russia, the world's largest producer, faces 'considerable' technical and financial 'challenges'.

The spate between Russia and Ukraine, which disrupted European supplies in early 2009 was also cited a cause for concern.

'Critical improvements need to be made in developing cross-border interconnections and market functioning,' said the IEA's Tanaka.

'Despite a new contract between Gazprom and Naftogaz, there are many concerns about the security of Russian gas supplies: the difficult economic situation in Ukraine makes every monthly payment a challenge, and tensions remain high. The IEA is therefore seriously concerned that the flow of Russian gas through Ukraine may be subject to disruption at almost any time.'

The IEA's Medium-Term Oil Market Report 2009, also published today, sharply cut the organisation's medium-term forecast for oil demand, saying there was a chance of an extended contraction. After a two-year fall it expects crude demand to increase by between 0.4% and 1.4% from next year, 'depending on the pace of global economic recovery'.

It added: 'It may be too early to cite a definitive structural downshift in oil use, but events such as GM and Chrysler filing for bankruptcy protection in the US, and further rationalisation affecting transport and power generation fuel use provide some hints that it will occur.'

However, it also points to increased demand from Asia and the Middle East.

The price of oil was caught in a speculative bubble, surging to $147 a barrel in 2008, underpinned by booming demand in China. The severity of the credit crunch, which led to global recession, then forced the price down to a low of $31. It has since rallied again in 2009 back up to $70 on hopes of a nascent economic recovery. Today, crude shrugged off the bearish IEA report to rise above $70. The price was buoyed by an attack by militants on a Royal Dutch Shell operation in oil-rich Nigeria.

However, some market watchers urge caution on recent price rises. In a research note today, City-based Lombard Street Research said recent rises had been supported by factors that could rapidly disappear.

Russian gas giant Gazprom has signed a deal to import natural gas from Azerbaijan and then pipe it to Europe.

Gazprom will import 500 million cubic metres of Azeri gas from 2010, and it expects import levels to rise.

The move is being seen by observers as an attempt by Moscow to extend its grip on potential European energy supplies.

Europe gets about 20% of its gas from Russia via pipelines in the Ukraine - though last winter rows between Kiev and Moscow saw supplies being cut.

Gazprom chief executive Alexei Miller said that his firm had also been promised priority in buying gas from the second phase of the Shakh Deniz Caspian Sea field.

This is seen as a potential key source of gas for the EU-backed Nabucco pipeline, which circumvents Russia.

Representatives from the World Bank, the International Monetary Fund (IMF), European Investment Bank and the European Bank for Reconstruction and Development are meeting in Brussels with the vice presidents of Russian gas giant Gazprom and Ukraine's gas monopoly Naftogaz to discuss how to best come up with enough money for Ukraine to pay its upcoming gas bill.

The talks, hosted by the European Commission, are taking place less than a week before Kiev will be expected to hand over three billion euros ($4.2 billion) to Russia for gas that it has started to store for the coming winter.

A dispute over payment earlier this year led to Russia shutting off gas supplies to Ukraine, which affected not only citizens there, but also those living in parts of the European Union which depend on gas coming from pipelines running through Ukraine.

A quarter of all the natural gas burned within the EU comes from Russia, with 80 percent of that flowing through Ukraine, mostly to the south-eastern corner of the continent.

Transparency an issue

Weighed down by the global financial crisis, Kiev claims it won't be able to come up with the money in time to buy the roughly 20 billion cubic meters of natural gas that it wants, and that has incited the EU to call on the international community to give Ukraine a short term loan.

However, many organizations, including the IMF, aren't convinced that Naftogaz is in a position to receive funding. Ceyla Pazarbasioglu, head of the IMF delegation, told the Reuters news agency that they were demanding that the state-owned gas giant undergo some serious reorganization, adding that the company needed to become more transparent and clean up its finances.

The multibillion euro loan would be part of the IMF's $16.4 billion program to help out nations hit hard by the economic crisis.

The UK could benefit from 250,000 jobs and up to £70bn in revenue from offshore wind and wave technologies by 2050, according to a study by the Carbon Trust. This potential will only be realised, however, if the government gives clear signals to industry, so that investors know where to put their money, rather than leaving new technologies to face the market alone.

The Carbon Trust, a government-backed agency that studies ways to promote low-carbon technologies, carried out economic analyses in six areas of low-carbon industry including offshore wind, wave, solid-state lighting and micro combined heat and power.

The studies, published today, looked at the current status and costs of the technology, how these would develop and what research and development costs there might be in the coming decades.

The studies for offshore wind and wave power showed these technologies could provide at least 15% of the total carbon savings required to meet the UK's 2050 CO2 reduction targets. "The UK's greenhouse gas targets mean that by 2050 We must reduce our emissions to just one-10th of today's levels, per unit of output," said John Beddington, the government's chief scientific adviser.

"This is a formidable challenge, requiring step changes in the rate at which we improve our energy efficiency and in low-carbon innovation.The Carbon Trust's proposals recognise the need for us to be smarter in focusing our investments, including to help businesses seize the economic opportunities of the transition."

According to the new analysis, published just a few weeks ahead of the forthcoming government white paper on energy, the UK could attract 45% of the global offshore wind market by 2020, delivering £65bn of net economic value and 225,000 total jobs by 2050.

This would only happen with an investment of up to £600m into research, the removal of regulatory barriers and incentives to increase the deployment of the turbines. In the UK this means installing around 29GW of wind by 2020 and upwards of 40GW by 2050. A large part of the economic benefit would come from exporting technology developed here.

For wave, the outlook is more modest. Around a quarter of the world's wave technologies are being developed in the UK and the Carbon Trust said Britain should be the "natural owner" of the global market in this area. It could generate revenues worth £2bn per year by 2050 and up to 16,000 direct jobs.

"These technologies are not green 'nice to haves' but are critical to the economic recovery of the UK," said Tom Delay, the chief executive of the Carbon Trust. "To reap the significant rewards from their successful development we must prioritise and comprehensively back the technologies that offer the best chance of securing long-term carbon savings, jobs and revenue for Britain. Rather than following in the footsteps of others, this new analysis shows it is an economic no-brainer to be leading from the front."

In addition to the direct jobs in these in industries, there would be further benefits to the economy. "The UK's also very good at the secondary service industries - things like the financing of wind farms, the legal documents, environmental assessments," said Paul Arwas, a consultant who wrote the new Carbon Trust report. "Those jobs would be in addition - for offshore wind, it would be another 70,000 by 2050."

None of this will happen, though, without government support. Arwas said that when encouraging new industries, authorities tended to swing between two poles - either direct state funding or allowing markets to decide. "Either the governments didn't intervene at all or, if they did they did it by market mechanisms which are totally undifferentiated by technology. There you end up with a situation where, to take a footballing analogy, you've got the under 21s playing the under 12s."

Instead the Carbon Trust has proposed a new, semi-interventionist, model where the government chooses a family of technologies to invest in, for example wave power, and tells developers there will be subsidies or long-term help available to develop the sector as a whole but without backing individual technologies.

John Sauven, Greenpeace's executive director, welcomed the Carbon Trust's proposed approach. "Every country now needs a decarbonisation plan to help solve three of our greatest challenges - climate stability, energy security and economic prosperity. The UK has an enormous untapped supply of clean, green renewable energy and a world class engineering industry well placed to develop it."

Martin Rees, the president of the Royal Society, said the UK had little choice but to develop these new technologies, given the dwindling supplies of fossil fuels: "In the past we have let opportunities to capitalise on our scientific leadership slip through our fingers. The US and others are investing heavily in low carbon technologies; we must not fall behind and waste the scientific expertise that we have in the UK."

The nuclear power industry has been accused of trying to muscle in on plans to establish a global body to represent the renewable energy industry at a key meeting in Egypt tomorrow.

France – a major user and exporter of nuclear technologies – is accused by critics of trying to win the top job inside the renewable organisation so it can move the International Renewable Energy Agency (Irena) towards being a promoter of "low-carbon" technologies – including atomic power.

The talks in Sharm el-Sheikh are already threatening to become a major standoff between Germany and the United Arab Emirates over which country should win the right to have the headquarters of Irena based in its country.

France, which recently signed a nuclear co-operation agreement with the UAE, is supporting Abu Dhabi. It also wants one of its own civil servants, Hélène Peloss, to be given the top role.

Britain, which only signed up for membership on Friday, has given no indication whether it plans to cast its vote in favour of Bonn or Abu Dhabi, while the US is expected to join Irena in Egypt and then lend its support to Germany.

Karsten Sach, an official in the German environment ministry with responsibility for Irena, said he was "very optimistic" that his country would be chosen but he refused to be drawn on the competition with Abu Dhabi or the role of France.

"I think we have an excellent offer in terms of experience, policy frameworks and vibrant research but we are not campaigning against any other offer," he argued.

Bonn is considered by many to be the more obvious location because the renewables agency was the brainchild of the Germans, who have led the way in the clean technology sector through its determined championing of solar power. The promoters of Bonn are also suggesting that the Danish renewables policy expert Hans Jørgen Koch should be chosen as director general.

But Abu Dhabi, in the UAE, is pushing its claims to host Irena by emphasising its new commitment to clean technology through the construction of the hugely ambitious, low-carbon Masdar City project. It is also arguing that a developing country rather than the west is better placed to pursue the vital north-south dialogue needed to beat global warming.

At previous planning meetings for Irena, the French have talked about "low-carbon" technologies, encouraging speculation about its ultimate motives.

Eric Martinot, a senior research director with the Institute for Sustainable Energy Policies in Tokyo, and a former environment specialist at the World Bank, told the Huffington Post, an online newspaper, that the French manoeuvres should be resisted.

"An Irena located in Abu Dhabi under such circumstances would be 'nuclear tainted' because the negotiating process used to select a host country would be based on support for nuclear power," said Martinot.

"Are the original goals of Irena being co-opted so that renewables become a mere appendage to a nuclear agenda? 'Sprinkling some renewables on top of our nuclear power'?" he asked.

More than 100 countries have signed up to the new organisation, although the US and China have yet to do so. Sach said he was hopeful that the US might join in Egypt and that China would eventually come on board.

The renewable agency will have a mandate to disseminate knowledge, develop regulatory framework and to actively promote the widespread adoption of renewable energy technologies around the world.

It comes ahead of vital new talks in Copenhagen at the end of this year about how to tackle global warming and amid excitement that the US and China are finally starting to play more constructive roles compared with the past.

Wind has the power to revolutionise the UK's electricity industry, according to a study published on Wednesday.

Research from analysts Poyry says that the UK can massively expand wind power by 2030 without suffering power cuts or a melt-down of the National Grid.

The cost of electricity would then be determined not by consumer demand, but by how hard the wind is blowing.

When it is windy power will be so cheap that other forms of generation will be unable to compete, the report says.

If accepted by government, these key findings could strongly influence the UK's future energy supplies.

The study was done for National Grid, Centrica and others. The researchers reviewed 2.5 million hourly weather reports on wind speeds all around the UK.

Idle time

If the wind were to drop everywhere round the UK (as happened during the January high pressure cold snap), other generators would make their money by switching on back-up fossil fuel power stations for a very short time, charging extremely high prices, it predicts.

Dr Phil Hare from Poyry said these back-up generators might stand idle for years without making a profit - so the government might need to find a new way of ensuring they were funded.

The study bases its assumptions on current levels of subsidy. It concludes that, thanks to the wind subsidy through the "Renewable Obligations Certificates" issued by regulator Ofgem, electricity prices would be negative if the wind were blowing hard.

"The market will have to evolve to accommodate the wind. The average output of a wind turbine is only about a third of its full capacity. So when the wind is blowing strongly you'll have to turn some of the wind power off; otherwise it will swamp the system," Dr Hare said.

"Nuclear power stations will have to be built with variable output so they - like gas and coal plants - can occasionally cut their power when the wind is blowing most strongly. It does look as though nuclear, coal and gas are competing for the same share of the market."

Dr Hare said the study answered another key question: whether we could move to widespread intermittent power from the wind, waves and tides together.

"Some people were worried that the complexity stemming from intermittent wind with an overlay of tidal power peaking twice a day might simply have been too much change for the grid to bear. But our research shows the grid can cope."

The study investigated a scenario for 2030, in which electricity is more than 40% renewable - mostly from wind. But some experts urge caution.

Dr John Constable, from the Renewable Energy Foundation, said: "The study confirms that while very high levels of uncontrollable renewable generation are theoretically manageable, the practical difficulties are significant, and the cost will be high.

"Less ambitious levels of wind would almost certainly result in a system which is not only just as clean but is also more robust and affordable."

The study amplifies a recent paper from National Grid itself stating that a move towards wind power would not necessitate widespread investment in expensive back-up power plants fuelled by gas or coal.

This is a key finding which helps remove one of the main barriers to the advance of wind, although some will remain sceptical.

But it comes with a warning. Dr Hare said: "It will cost more. There is no such thing as cheap green power - that is a myth."

The authors of a report from the Royal Society this week made the same point. But politicians are still reluctant to pass on this message to the public.

The “lack of affordable credit” and “bleak prospects for investment” are just two factors that could lead to the loss of tens of thousands of jobs in the U.K.’s oil and gas sector.

In a groundbreaking report released today (June 30), the U.K.’s House of Commons energy and climate change committee boldly stated: “If the industry’s worst case scenario is realised in 2010, then 50,000 jobs could disappear and production would fall significantly.”

Right at the beginning of the 59-page report is the caveat: “It is vitally important swiftly to decarbonise the UK economy if the country is to meet its obligations to tackle climate change, and clearly the use of fossil fuels must diminish.”

According to the report, the U.K. has produced more than 38 billion barrels of oil equivalent over the past 40 years. Although production peaked in 1999—meaning the country is now a net importer of energy—one billion BOE of oil and gas were recovered in 2007. The U.K. still ranks eighth in the world among gas producers, the report adds.

“There are tensions between the objectives of achieving affordable and secure energy and reducing carbon emissions,” the report states. “If we are to move towards a low carbon economy, our reliance on fossil fuels needs to diminish. This transition is a necessary one and one which we support wholeheartedly. But it will not happen overnight; and it is in the UK’s interests to exploit its remaining oil and gas resources in a strategic manner, both to help achieve a secure supply of energy and to support the many workers and companies reliant on the industry.”

In an April 13 phone interview, Bill Rees, a UBC professor of community and regional planning, said the blame for this situation lies with the neoconservative governments of the triumvirate of Margaret Thatcher, Ronald Reagan, and Brian Mulroney. Rees said these three all did little to preserve the resource in their years at the helm and allowed world prices to collapse after supply ballooned to meet increasing demand. This has led to rapid depletion of oil and gas.

“If you lower taxes and artificially create lower prices for energy and other things such as food, then people will overspend on those areas—which is a mark of economic efficiency—which causes greater and greater environmental damage,” said Rees, creator of the ecological footprint concept. “Which is exactly what we’re doing. So the ironic thing is, because we have socially engineered people into this insane idea that governments are bad and taxes are evil, our principle response to the current financial crisis and to the ecological crisis is to lower taxes even further and to try to recreate the same system that caused the problem in the first place. So we just double and redouble the damage. We are so completely unconscious of what is going on here as a culture.”

The announcement came as the company opened a new Energy Academy in Leicester, which will train the engineers responsible for installing the smart meters.

The creation of the new jobs is in addition to the 1,500 new green jobs the company announced earlier this year.

The Government announced plans in May for every household in Britain to have smart meters installed for gas and electricity by 2020. The moves were hailed as the biggest revolution in energy use since the 1970s.

British Gas is currently running the largest smart meter trial in the country, with almost 50,000 homes and businesses already using the new technology.

The 2,600 new jobs include 2,100 engineers who will work in the field, as well as 400 supporting team members and 130 managerial staff.

Around 900 of the roles will be people who transfer to British Gas from other metering organisations.

As well as the site in Leicester, the company's Energy Academy runs training bases at Dartford, Thatcham, Leeds and Hamilton.

The meters are expected to give households greater control over energy use, as well as reduce carbon footprint and save money on fuel.

The company has invested £30m a year in the academy, which was formed in 2003 and has trained more than 5,000 apprentice engineers.

Britain's energy systems are no longer fit for purpose, according to leading members of the UK's best-known scientific academy, the Royal Society.

A meeting of experts at the society said the government must invest hugely to create a new low-carbon economy.

And it must take on the big generating companies who dominate energy policy, participants said.

The government says the key issues on energy will be addressed in its forthcoming energy White Paper.

Electricity 'supergrid'

The experts say ministers must make up lost time by investing massively in research and deployment of renewables; creating a more wide-ranging electricity 'supergrid'; and ensuring that coal-fired power stations capture 90% of their carbon emissions by 2020.

One leading member of the society said privately that the government's performance on carbon capture so far had been pathetic - although would agree that criticism should not be confined to the UK.

The meeting agreed that failure to develop renewables in time meant that the UK must continue to rely on nuclear power - even though questions over waste and security were unresolved.

First priority on the society's action list is a big push on energy efficiency in existing homes, taking advantage of the latest technologies.

The call is echoed by the all-party parliamentary climate change group, which is set to insist that landlords should be prevented from letting homes which waste energy.

White Paper

The group's vice-chairman, Lord Redesdale, said the UK would never reach its climate change targets unless it radically improved policies on existing homes.

He said: "A billion tonnes will have failed to be saved from domestic carbon emissions and this is equivalent to the CO2 pollution from Britain's aviation sector over the next 25 years.

"We can either heat our homes and have hot baths, or fly but not both. There really does need to be much tougher policies on reducing carbon emissions from the homes."

The government says many of the issues will be addressed in its energy White Paper - although to the frustration of ministers in the energy and environment departments, the Treasury has blocked whole scale investment in home refurbishment until after 2012.

Ministers argue that their policy on carbon capture and storage is ahead of any other major nation - calling for four demonstration projects and insisting that new coal-fired power stations should capture a percentage of their emissions until the technology is fully proven.

A Department of Energy and Climate Change spokesman said the UK had made major strides recently on energy and climate change.

He listed The Climate Change Act, carbon budgets, and leadership for the Copenhagen climate summit - including the Prime Minister's suggestion last week that rich nations should transfer $100bn-a-year to poor nations to help with climate change.

View report

The world's central bankers have warned that the British economy faces relapsing into another recession – the much-feared "double dip" downturn.

A continuing drought in bank lending, evidenced in the latest figures from the Bank of England, and the threat that spiralling public borrowing will feed through to higher interest rates and inflation, are judged by international economists to be mortal dangers to a sustained recovery.

The Organisation for Economic Cooperation and Development (OECD), which comprises the 30 most advanced economies in the world, added to the gloom, saying that Britain remained "deep" in recession and faced a "bleak short-term outlook".

"The recovery is likely to be slow and unemployment is expected to climb significantly," it said, adding that the Treasury could do "considerably more" to fix the public finances.

Both warnings are at odds with recent market optimism and so-called green shoots suggesting that output in the economy may be recovering. But the Bank for International Settlements (BIS), which includes the Bank of England, the US Federal Reserve and the European Central Bank, said it feared that the problems of the world's banks are far from fixed and could easily trigger a so-called "double dip" or "W-shaped" downturn. "A major cause for concern is the limited progress in addressing the underlying problems in the financial sector," it said.

"A significant risk is therefore that the current stimulus will lead only to a temporary pick-up in growth, followed by protracted stagnation."

The BIS cautioned that "governments may not have acted quickly enough to remove problem assets from the balance sheets of key banks". It added that financial products should be treated like medicines and sold to consumers only when they are certified safe, to help prevent a repeat of last year's financial meltdown.

Figures from the Bank of England yesterday confirmed that the banks and building societies remain reluctant to lend to any but the most secure of businesses and home buyers. Mortgage approvals barely improved during May, remaining stuck at a little over 43,000 – some way above the nadir of 27,000 last winter, but under half of their normal level. Analysts at Capital Economics said the figures were "consistent with house prices falling at double-digit annual rates".

Detailed data on changes to the money supply indicated that relatively little of the £100bn pumped into the economy by the Bank of England through its policy of "quantitative easing", akin to "printing money", is finding its way as yet into meaningful lending by the banks to small businesses and first-time buyers.

A small improvement in consumer confidence was registered last month, and there is plenty of evidence of more buyer interest at estate agents and of shoppers continuing to shop. However, for as long as the banking system remains reliant on public funding and unwilling to offer credit, little of this still-fragile optimism will be seen in hard purchases of "big ticket" items such as houses, cars and other goods linked to house purchase, such as electrical appliances and furniture.

Figures to be released by the Office for National Statistics are likely to reveal that the downturn in the UK in the first quarter of the year was even more severe than first thought, though most economists think the worst of the slump is over. A CBI survey published yesterday said more than 95 per cent of banks and building societies expected their bad debts to rise over the next few months. Such write-offs will join the existing "toxic assets" on the banks' balance sheets and make them even less willing to take on riskier lending – the much feared "negative feedback loop".

Most embarrassing for ministers is the OECD's "health check" on important public services. The OECD agreed that, since Labour came to power in 1997, health spending has "surged" but "the returns so far appear modest". Ironically, given official enthusiasm for "league tables", the OECD says the UK's economic future is endangered by the inequality of educational achievement – a factor which has left the UK towards the bottom of the league table of advanced economies for social mobility: "International standardised tests show that the UK lags better performing countries significantly."

However, the OECD supports the shift away from targeting: "The focus on raising the school leaving age and meeting performance targets in education may still be distracting attention from the more important goal of raising core literacy and numeracy achievement." It adds: "Adequate provision of public infrastructure should be a priority, particularly in transport where road and airport congestion, and problems in the rail system impede business and constrain productivity."

Ministers have cancelled this year's Comprehensive Spending Review on the grounds that the economic picture is too uncertain and that, after a general election, "tough choices" may become easier to implement. Still, the OECD said it wanted "explicit" detail on spending cuts and tax rises, adding: "Experience in other countries suggests that a focus on expenditure cuts, rather than revenue raising, is associated with more successful consolidations." At the moment, the OECD claims, the Government is not being "ambitious" enough.

When it comes to environmental sustainability, the prognosis is grim: Britain is "winning battles, but still losing the war".

The UK is failing to hit a raft of key targets on sustainable living, according to a new report to be published this week. In its critical analysis, released on Wednesday, the Sustainable Development Commission (SDC) warns that progress on a number of green targets has been "undermined by stasis or even reversion". Jonathon Porritt, outgoing SDC chair and one-time "green guru" to Tony Blair, claims sustainability plays second fiddle to the drive for consumption-driven economic growth. "The thing that stands out is the very limited progress we've made on reducing inequity in our society... it's a startling indictment of this Government that more people will be living in fuel poverty at the time of next election than were living in fuel poverty in 1997," he said.

The "review of progress on sustainable development" details how the "Securing the Future" strategy launched by Tony Blair in 2005 has failed in a number of areas. It says Britain remains the EU's second-largest emitter of greenhouse gases and is not on track to meet its target of a 20 per cent reduction in CO2 emissions by 2010.

Britain remains well behind most European countries on supplying renewable energy, which accounts for less than 2 per cent of overall energy consumption, according to the report, which also predicts the proportion of energy produced by renewables in 2020 will be just 5 per cent – far short of the EU target of 20 per cent. And while recycling is on the increase, there is a long way to go to meet the 40 per cent target by 2010, with the UK heavily reliant on landfill, says the report.

Mr Porritt, who steps down next month, admitted: "I feel some disappointment inevitably because I would have wanted to see faster progress," and cites a new energy White Paper as something "they could, and should, have done four or five years ago".

The embarrassing report comes just days after Gordon Brown's proposals for a £60bn international fund to help poorer countries deal with climate change were announced. The Prime Minister is also arguing for aviation and maritime emissions to be included in global climate-change talks taking place in Copenhagen in December.

The Government's record on sustainability also came under attack from politicians and pressure groups last night. Greg Clark, Tory spokesman on energy and climate change, said: "This is a time when we need action rather than spin."

And Mike Childs of Friends of the Earth said of the Government: "They've produced strategies and had press conferences but there hasn't been conviction... that sustainable development is of critical importance."

In a statement, the Department for Environment, Food and Rural Affairs said: "We're grateful to the SDC for the work they've put into this report. We look forward to its publication... and we will consider its content carefully."

Greenhouse gas emissions

Government target

Twenty per cent cut in CO2 emissions by 2010, and an 80 per cent reduction by 2050.

What the report says

Britain remains the second-largest emitter of greenhouse gases in Europe. In 2007, CO2 emissions were 8.5 per cent below 1990 levels.

Verdict

Britain is not on track to meet its target on emissions. An apparent decrease becomes a significant increase once emissions embedded in trade and travel are taken into account.

Energy production

Government target

Britain to supply 10 per cent renewable energy by 2010. Twenty per cent of EU energy production from renewables by 2020.

What the report says

In 2007, the percentage of final energy consumption from renewable sources was less than 2 per cent. Projections suggest that this will increase to 5 per cent by 2020.

Verdict

Britain is one of the poorest performers in Europe in supplying energy from renewables and is not on track to meet national and EU targets.

Existing homes

Government target

To eliminate fuel poverty in all households by 2016.

What the report says

Cavity wall insulation is one of the most cost-effective measures to reduce carbon, yet 8.5 million UK households do not have this. In 2006, there were approximately 3.5 million UK households (14 per cent) in fuel poverty, an increase of 1 million since 2005. Some 2.75 million of these were classed as 'vulnerable' households.

Verdict

Despite some improvements, significant energy efficiency improvements are required to meet climate-change targets.

View SDC Where we are now report

View SDC Breakthroughs for the 21st Century report

U.S. House Democrats cheered when they won a vote to impose the nation’s first limits on greenhouse-gas emissions. Senate Democrats didn’t join the party.

“They don’t have my vote yet,” said Democratic Senator Sherrod Brown of Ohio. “In the Senate this bill will not pass unless Midwestern Democratic senators support it in large numbers.”

The hard-won 219-212 vote on June 26 to move a climate bill through the House was just a first step on a difficult legislative path. Several climate measures are being crafted in the Senate, where the regional and philosophical differences that dogged the House measure are even more sharply defined.

Climate-change legislation is a top priority of President Barack Obama, who has asked Congress to pass a bill before December’s United Nations climate talks in Copenhagen. In his weekend radio address, Obama said the House plan would transform the nation’s economy and create millions of jobs.

“The House vote lets President Obama walk into the G-8 summit of world leaders in Italy next month with his head held high,” said Alden Meyer, director of policy at the Union of Concerned Scientists in Washington. There, the president will discuss climate change with fellow world leaders.

Cap-and-Trade

The House measure, called the American Clean Energy and Security Act, would create a cap-and-trade system that would curb emissions while creating a market for trading pollution permits and fund investment in new energy sources. It aims to cut fossil fuel emissions from power plants, factories, oil refineries and vehicles 17 percent below 2005 levels by 2020.

Long before the House vote, work began on how to get a bill through the Senate. In March, Energy Secretary Steven Chu, Environmental Protection Agency Administrator Lisa Jackson and other Obama administration officials dined at the home of Senate Foreign Relations Committee Chairman John Kerry of Massachusetts. The group pondered how to rally Senate support for a climate bill while preserving its mandate to focus on environmentally friendly alternative energy sources such as cellulosic biomass and nuclear power.

Even so, broad Senate support for cap-and-trade legislation has yet to materialize.

“The bill is not perfect, but it is a good product for the Senate and our committees to start considering,” Senate Majority Leader Harry Reid of Nevada said in a statement after the House vote. He has told committee chairmen to finish their climate work by September 18. At least six of the Senate’s 20 committees are working on their own pieces of legislation.

Weekly Meetings

Twenty senators led by Kerry and Environment and Public Works Committee Chairwoman Barbara Boxer have been meeting weekly to flesh out ideas. The group was briefed last week by a coal-state architect of the House bill, Representative Rick Boucher, a Virginia Democrat. Electricity generated from coal and oil produces the most carbon dioxide per megawatt-hour, making fossil fuel reduction a focus in the climate debate on Capitol Hill.

Boxer, of California, plans to hold a committee vote on her plan by early August, before lawmakers’ summer recess. Oklahoma Senator James Inhofe, the top Republican on Boxer’s committee, has vowed to stop it. He called the House plan the “largest tax increase in American history.”

“Today’s razor-thin vote in the House spells doom in the Senate,” Inhofe said in a written statement.

‘Magic Formula’

Kerry, saying he is confident the Senate can pass legislation, put it this way: “We have to find the magic formula over here.”

Even with Obama’s backing, “it’s going to be very tough,” Senate Agriculture, Nutrition and Forestry Committee Chairman Tom Harkin of Iowa said in an interview.

Harkin, Brown and their Midwestern and industrial-state colleagues are concerned that a cap-and-trade system would raise energy costs on consumers, including farmers, while forcing U.S. companies to comply with stricter environmental standards than their overseas competitors. Yet any effort to weaken environmental mandates risks losing support of senators such as Bernie Sanders, a Vermont independent.

Business groups including the Arlington, Virginia-based American Chemistry Council are lobbying the Senate to boost the number of free pollution credits to manufacturers and other polluters. At the same time, environmental advocates are urging senators to improve forest protections, making emission limits more strict and limiting the number of offsets companies can buy to make up for the pollution they produce.

“The House bill is inadequate,” said Carl Pope, executive director of San Francisco-based Sierra Club. “We still have power plants operating without any pollution controls that were built when Woodrow Wilson was president” almost a century ago.

Forest Protections

The Natural Resources Defense Council, which helped sketch a blueprint for the House bill, wants senators to strengthen that measure’s pollution controls and forest protections. Still, the two chambers aren’t as far apart as some might think, said David Doniger, policy director of the New York-based group.

The House measure “has all the elements in it that are going to work in the Senate,” he said.

One example is a House provision that would force states to obtain at least 20 percent of their electricity from renewable sources such as wind and solar power. On June 17, the energy panel advanced a bill requiring that utilities get at least 15 percent of their power from renewables.

“Six months ago lots of people said the House could not get this done by the end of June,” Doniger said. “They have. Momentum creates more momentum.”

Gordon Brown will tomorrow outline Britain's blueprint for a new international deal on global warming, which world leaders are pushing to be agreed at December's critical UN talks in Copenhagen. In a speech at London Zoo, the prime minister is expected to call on all developed countries, including Britain and the US, to show greater ambition in the fight against climate change.

The new agreement is intended to replace the Kyoto protocol in setting national limits on carbon pollution, and is billed by green campaigners as the last chance to save the planet from severe and dangerous levels of warming.

Brown and Ed Miliband, the energy and climate change secretary, will publish details in the government's Road to Copenhagen document, which Miliband said was aimed at revitalising public interest in the issue.

Speaking ahead of the launch, Miliband said: "People are still not sufficiently aware of the scale of the problem this could create for them and future generations in Britain.

"People believe climate change is happening in the UK, most people don't think it's a plot or something made up, but most people don't seem to think it will happen in their area."

He said Britain, which will negotiate the new treaty as part of the EU bloc, was pushing for the new deal to force emissions from developed nations to reach a peak by 2015.

Global greenhouse gas output should peak and begin to decline by 2020, to "irreversibly break" the trend of rising emissions.

Scientists have warned that global emissions need to peak in the next few years, and then significantly shrink, to avoid dangerous rises in temperature and changes to the climate.

Miliband said: "We're talking about reversing 150 to 200 years of the growth of carbon emissions. It's difficult, there are many obstacles in the way, but it's ­doable with the right political will."

The UK wants the deal to include ­commitments in three areas – emissions cuts by developed countries, reductions by developing countries compared with what they would emit without an ­agreement, and finance for climate change measures.

He said various countries, including the US, Japan and the EU, had already made offers of commitments they would sign up to, while China and other developing countries wanted a deal. But he said there needed to be "greater ambition from all countries" since the world could not afford to fail on the issue.

Miliband said his department has established a "Copenhagen war room" and ministers from across Whitehall are being instructed to raise the issue on all overseas visits.

A pamphlet explaining the risks posed by climate change and the importance of a Copenhagen deal is being sent to nearly 20,000 organisations across the UK – including libraries, schools, health centres and GP surgeries, as well as Citizens Advice centres and local authorities.

Miliband said: "There's a real danger of defeatism in this debate, a danger people think 'nothing can be done, it's inevitable, let's just hide under the bedclothes'."

He said leaders needed to be in the "business of optimism" and that he was genuinely optimistic about the efforts to tackle climate change.

The announcement comes the day after new data showed the growth of global ­carbon dioxide emissions fell by half in 2008 as a result of the recession, high oil prices and an increase in renewable energy. In addition, the figures show that, for the first time, carbon dioxide emissions from the developing world account for more than half of the global total.

The analysis, by the Netherlands Environmental Assessment Agency, shows that the rise in the world's emissions from fossil fuel burning and cement production in 2008 was just 1.7%, compared with 3.3% in 2007.

The slowdown in emissions growth was caused primarily by a 0.6% fall in the consumption of oil – the first decline in global oil use since 1992. This trend was uneven around the world. In China, oil use continued to rise, but at only 3%, down from an average of 8% since 2001. In the US, oil consumption fell by a massive 7%.

By contrast, global coal use continued to creep up and the rise in the consumption of natural gas remained unchanged.

Increasing renewable energy capacity and improving energy efficiency in many countries also contributed to the reduced rise in carbon dioxide emissions. NEAA's Jos Olivier said: "The impact of energy and climate policy is hard to distinguish from those of fuel prices and the recession, but policies encouraging renewable electricity generation will have helped avoid around 500m tonnes of carbon dioxide from fossil fuel power stations."

It remains to be seen how the rate of emissions will change in 2009. If the recession continues to bite through the year, global emissions could flatten off entirely.

Meanwhile, policymakers are likely to be particularly struck by the revelation that, in 2008, the developing world accounted for 50.3% of carbon dioxide emissions, exceeding developed nations and international travel combined for the first time. This fact will provide ammunition for those arguing in favour of binding emissions ­targets for all nations, not just industrialised ones.

Furthermore, the data does not take into account the carbon dioxide released by deforestation, which accounts for almost 20% of all greenhouse gas emissions and takes place overwhelmingly in the developing world.

Link to Road to Copenhagen document

The growth of global carbon dioxide emissions fell by half in 2008, according to data released today. The global recession and high oil prices played a major role in reducing the rate of emissions. But measures to tackle global warming by cutting emissions such as renewable energy were only partly responsible. The data from the Netherlands Environmental Assessment Agency (NEAA) also show that, for the first time, CO2 emissions from the developing world account for more than half of the global total.

Analysis from the NEAA draws on fossil fuel consumption figures published last week by BP. It shows that the rise in the world's emissions from fossil fuel burning and cement production in 2008 was just 1.7%, compared with 3.3% in 2007.

The slowdown in emissions growth was caused primarily by a 0.6% fall in the consumption of oil – the first decline in global oil use since 1992. This trend was unevenly distributed around the world. In China oil use continued to rise, but at only 3%, down from an average of 8% since 2001. In the US, oil consumption fell by a massive 7%.

The falling global demand reflects high prices for oil in the first half of 2008 and the economic slowdown in the second half of the year. Increasing biofuel production also helped displace a substantial volume of fossil-fuel petrol and diesel.

Jos Olivier, the NEAA researcher responsible for the new data, acknowledged that the environmental benefits of biofuels would look "less favourable" in a broader analysis considering the impact of all greenhouses gases, rather than CO2 alone. Furthermore, the data does not take into account the CO2 released by deforestation, which accounts for almost 20% of all greenhouse gas emissions and takes place overwhelmingly in the developing world.

Increasing renewable energy capacity and improving energy efficiency in many countries will also have contributed to the reduced rise in CO2 emissions. Olivier said: "The impact of energy and climate policy is hard to distinguish from those of fuel prices and the recession, but policies encouraging renewable electricity generation will have helped avoid around 500 million tonnes of CO2 from fossil-fuel power stations."

Coal consumption continued to creep up at a slower rate than in previous years, but the rise in the consumption of natural gas remained unchanged.

It is too early to determine whether the recession will lead to global emissions flattening off entirely this year. But policymakers are likely to be particularly struck by the second revelation in the NEAA analysis.

In 2008, the developing-world accounted for 50.3% of CO2 emissions, exceeding developed nations and international travel combined for the first time. With crucial UN climate negotiations over a successor to the Kyoto protocol now less than six months away, this new data will provide useful ammunition for those arguing for binding emissions targets for all nations.

The world's largest oil company is continuing to fund lobby groups that question the reality of global warming, despite a public pledge to cut support for such climate change denial, a new analysis shows.

Company records show that ExxonMobil handed over hundreds of thousands of pounds to such lobby groups in 2008. These include the National Center for Policy Analysis (NCPA) in Dallas, Texas, which received $75,000 (£45,500), and the Heritage Foundation in Washington DC, which received $50,000.

According to Bob Ward, policy and communications director at the Grantham Research Institute on Climate Change and the Environment, at the London School of Economics, both the NCPA and the Heritage Foundation have published "misleading and inaccurate information about climate change."

On its website, the NCPA says: "NCPA scholars believe that while the causes and consequences of the earth's current warming trend is [sic] still unknown, the cost of actions to substantially reduce CO2 emissions would be quite high and result in economic decline, accelerated environmental destruction, and do little or nothing to prevent global warming regardless of its cause."

The Heritage Foundation published a "web memo" in December that said: "Growing scientific evidence casts doubt on whether global warming constitutes a threat, including the fact that 2008 is about to go into the books as a cooler year than 2007". Scientists, including those at the UK Met Office say that the apparent cooling is down to natural changes and does not alter the long-term warming trend.

In its 2008 corporate citizenship report, published last year, ExxonMobil said it would cut funds to several groups that "divert attention" from the need to find new sources of clean energy.

The NCPA and Heritage Foundation are included among groups funded by ExxonMobil, according to details of its "2008 Worldwide Contributions and Community Investments" published recently.

Ward said: "ExxonMobil has been briefing journalists for three years that they were going to stop funding these groups. The reality is that they are still doing it. If the world's largest oil company wants to fund climate change denial then it should be upfront about it, and not tell people it has stopped."

In 2006, Ward, then at the Royal Society, wrote to ExxonMobil to challenge the company's funding of such lobby groups. The move, revealed in the Guardian, prompted accusations of censorship and debate about whether experts should "police" the distribution of scientific information.

In an article on the Guardian website, Ward writes: "I have now written again to ExxonMobil to point out that these organisations publish misleading information about climate change on their websites, and to seek guidance on how to reconcile this fact with the pledge made by the company. I believe that the company should keep its promise by ending its financial support for lobby groups that mislead the public about climate change."

ExxonMobil said it annually reviews and adjusts its contributions to policy research groups. A spokesman said: "Only ExxonMobil speaks for ExxonMobil and our position on climate change is clear. We have the same concerns as people everywhere, and that is how to provide the world with the energy it needs while reducing greenhouse gas emissions. We take the issue of climate change seriously and the risks warrant action."

The full scale of the funding crisis facing Britain's transport system was exposed today as the country's most expensive rail contract was nationalised, while details emerged of a potential £30bn spending gap.

A leaked industry memo seen by the Guardian warned of "looming spending cuts" on major transport projects after Department for Transport officials described the consequences of restoring order to public finances. There are now fears that major schemes could be delayed, reduced or scrapped in an expenditure freeze. They include:

• The £16bn Crossrail scheme linking Heathrow airport to Canary Wharf and Essex, which could be delayed.

• A £6bn road building programme including the extension of the hard shoulder on Britain's motorways, which could be cut.

• A proposed high-speed rail route could be pushed back by a decade.

• The rail fare cap of inflation plus 1% could be lifted, raising fares.

The DfT's financial constraints were exacerbated as National Express announced it will hand back its £1.4bn east coast contract at the end of the year, the second time in three years that a company has bid more than £1bn for the route and then quit after admitting that it could not afford it. GNER gave up its £1.3bn contract in 2006, only for National Express to place a higher bid less than a year later.

The east coast withdrawal marked a new low in the tense relationship between struggling train operators, who are battling to honour expensive contracts signed before the recession, and the transport secretary, Lord Adonis. He warned that National Express would be barred from the rail market amid uproar that the company was preparing to avoid fulfilling its £1.4bn pledge.

"It is simply unacceptable to reap the benefits of contracts when times are good, only to walk away from them when times become more challenging," he said. The heavily indebted group also rejected claims by Adonis that it had financial problems and that they had contributed to the sudden departure of its chief executive, Richard Bowker, who shocked colleagues with his resignation shortly before announcement.

It also emerged that the DfT is braced for a reduction in its capital expenditure plans that could total £28.9bn over the next decade. The permanent secretary to the DfT, Robert Devereux, told a private industry conference recently that the chancellor, Alistair Darling, expected the public finances to be brought into line over the next 10 years.

In a presentation described as "very stark" by one person familiar with its contents, Devereux indicated that future growth in capital expenditure would be flat and would no longer include a 1.25% annual increase, limiting the outlay on new projects to £7.4bn per year. A transport industry memo produced after the seminar calculated that without the 1.25% escalator, the DfT would have £28.9bn less to spend than expected on new projects over the next 10 years.

The memo added: "We have been expressing concern for sometime now that spending cuts post-2010 could be significant. What was said at this meeting confirms our worst fears."

Transport experts said the constraints on capital expenditure could force the government to delay the completion of the £16bn Crossrail project, which will build twin rail tunnels under London, and also to consider road pricing as a means of funding new road schemes.

Stephen Glaister, professor of transport and infrastructure at Imperial College London, said: "Transport is always the department that tends to get the tough end of the cuts because it is capital intensive and you can do short-term cuts without the results being visible for quite a while. And that's against the picture of a growing market in road and rail. Just to stand still we have to spend a lot of money and that is looking quite unlikely."

The Office of Rail Regulation, which monitors expenditure on Britain's rail networks, has admitted that putting together the next five-year budget for the railways will be "tough" due to the state of the public finances.

There is also speculation within the industry that the £3bn-a-year rail budget will have to be propped up by an increase in rail fares above the current regulated limit of inflation plus 1%.

The DfT said the calculations in the memo referred to the department's "long-term funding guideline" and not to actual budgets, which will be set in the next comprehensive spending review.

"These calculations in no way represent final budgets for the periods referred to and therefore it would be misleading to make assumptions about future spending based on them in isolation," said a DfT spokesperson. The department added that its £6bn roads programme was "progressing".

The industry memo warned, however, that a new comprehensive spending review by a Labour or Conservative government will almost certainly target the DfT. It said: "It has historically often seemed less painful to target transport spending, rather than more 'sensitive' programmes such as health, education and social security."

There is widespread speculation within the rail industry that a legal row between the DfT and one of the largest operators, Stagecoach, is driven by the need to conserve funding within the department. Stagecoach is claiming that it is owed at least £200m from its South West Trains contract and has accused officials of behaving inconsistently over the dispute.

The Germans may have given the world the Audi and the autobahn, but they have banished everything with four wheels and an engine from the streets of Vauban – a model brave new world of a community in the country's south-west, next to the borders with Switzerland and France.

In Vauban, a suburb of the university town of Freiburg, luxuriant beds of brilliant flowers replace what would normally be parking outside its neat, middle- class homes. Instead of the roar of traffic, the residents listen to birdsong, children playing and the occasional jingle of a bicycle bell.

"If you want to have a car here, you have to pay about €20,000 for a space in one of our garages on the outskirts of the district," says Andreas Delleske one of the founders and now a promoter of the Vauban project, "but about 57 per cent of the residents sold a car to enjoy the privilege of living here." As a result, most residents travel by bike or use the ultra-efficient tram service that connects the suburb with the centre of Freiburg, 15 minutes away. If they want a car to go on holiday or to shift things, they hire one or join one of the town's car-sharing schemes.

Because it has no cars, Vauban's planners have almost completely dispensed with the idea of metalled roads. Its streets and pathways are cobbled or gritted and vehicles are allowed in only for a matter of minutes to unload essential goods. Being virtually car-free is only the start of what has been hailed as one of Europe's most successful experiments in green living and one which is viewed increasingly as a blueprint for a future and perhaps essential way of living in an age of climate change.

Vauban is a southern suburb of Freiburg and home to 5,300 people. Its elegant, weather-boarded, four-storey homes are painted in subtle tones of blue, yellow and red or left as natural wood. They have wide balconies and large French windows that look out on to quiet, park-like gardens. The overall impression is of being stuck in a never-ending IKEA advertisement.

But if the district's surface texture is eminently middle class, an eco-revolution is bubbling beneath the surface. The windows of all the homes are triple-glazed. An intricate ventilation system fitted with heat exchangers ensures that apartments are kept constantly topped-up with fresh air at room temperature, even when the windows are shut. Most homes are powered by solar panels and smart co-generator engines that run on wood chips which provide domestic heating and electricity for lighting and appliances. One of the consequences is that most of Vauban's homes generate a surplus of electricity and sell what they don't need to the power companies that run the national and regional electricity grids.

With their 35cm thick walls, the homes are so well insulated that the temperature inside is directly affected by the number of people in each apartment. "If it gets too cold in the winter, you have the choice of turning up the heating or inviting a couple of friends round to dinner," Delleske says. He is immensely proud of the fact that his 90sqm, four-roomed "Passive house," which is almost environmentally perfect, costs a mere €114 a year to heat. "Most people pay that kind of money for heating each month," he says. The "Passive house" has even managed to dispense with drains for the toilets and showers. The waste is reduced to compost in special biological toilets and shower and washing-up water is filtered and used to water the garden.

Word about the Vauban experiment is spreading. Each day, six or seven busloads of visitors roll up – parking on the outskirts, needless to say – to witness the suburb's environmentally friendly living. At the entrance, they are greeted by slogan in big letters that reads: "We are creating the world we want."

Yet the suburb's origins were very remote from such idealistic themes. It started life in 1937 as the Leo Schlageter army barracks, a collection of three-storey stone buildings to house Adolf Hitler's expanding Wehrmacht army. It was named after a German hero from the First World War who was executed by the French in 1923. At the end of the Second World War, the barracks were requisitioned by the French army and renamed Quartier Vauban, after a noted 17th century military architect. After Germany's re-unification, the French withdrew and the district was handed over to the city of Freiburg in 1994, to be promptly occupied by squatters.

Soon after, a group of ecologically minded and mostly middle-class people became interested in the quarter. Many had taken part in the anti-nuclear movement as students in the 1970s and 1980s. They set up the Forum Vauban, which began negotiating with the city government.

Vauban's founders explain that much of the eco-friendly technology that has gone into the complex was conceived and developed around Freiburg as an alternative to nuclear power. The upshot was the formation of a series of loosely structured housing associations which commissioned architects to design new and ecologically sustainable homes on the site. Most of the old Nazi-era barrack buildings were torn down and more than 60 architects were engaged to reconstruct Vauban. Its three- to five-storey buildings contain apartments of varying sizes and 80 per cent are privately owned. A four-bedroom unit costs about €250,000.

The project is a reminder of the strength of Germany's green movement. Freiburg's city government is run by a coalition of conservatives and Green Party councillors and the Greens hold the most seats. During the European elections, the Green Party won up to 60 per cent of the poll in Vauban's constituencies.

The district also bucks Germany's reputation for having one of the world's lowest birth rates: nearly 30 per cent of its inhabitants are aged under 18. Ute and Frank Lits moved to Vauban five years ago. Their children, aged six and 10, can walk out the front door of their four-bedroom apartment into a communal garden equipped with a playground and a wood-fired pizza oven. "We wanted to buy our own home and we liked the eco-friendly principles of the place," Mrs Lits said. "But the main reason is that Vauban is prefect for children. They enjoy the kind of freedom that it would be difficult to find in a normal town apartment." The couple owns a car, but neither mind having to park it in a communal garage eight minutes' walk from their home.

If Vauban's brave new world suffers from anything, it is its own peculiar brand of middle-class monoculturalism. Sitting outside a former Nazi barrack building that now functions as an organic restaurant selling ricotta-filled ravioli and ostrich meat, its is difficult to spot anyone who is non-European, old or poor.

Wolfgang Konradi, a youth worker who spent years working in less sophisticated urban areas before coming to Vauban, says the district's teenagers behave like normal people of their age. "The problem is mainly the parents, they go around expecting their offspring to be perfect citizens, but that's just not realistic," he laments. Ina, his wife, said that since having their son, she had learned to appreciate the advantages that Vauban offered for children. But she added: "It's very nice here, but a bit like living under a bell jar. I certainly wouldn't want to live here forever."