Nations Lead Carbon Plans Amid Elusive Global Price, Shell Says

Investors in clean-energy projects will need to work within national policy “bubbles” because a global carbon price will remain elusive for years, according to David Hone, Royal Dutch Shell Plc’s climate adviser.

The U.K. set a floor on carbon prices this month to encourage investment in climate-protecting projects as the cost of European Union emission permits fell near a record low. The support makes Britain attractive to Shell, which is a preferred bidder for 1 billion pounds ($1.5 billion) of funding for a commercial carbon-capture project, Hone said in an interview.

Policymakers need to move toward a so-called clean carbon price by avoiding “invisible” influences such as subsidies and feed-in tariffs, a process that probably won’t happen in the EU before 2015, he said. The bloc’s parliament is scheduled to vote April 16 on a plan to reduce the surplus of emission allowances that contributed to the price slump.

“The clean carbon price is the cheapest way forward, but we don’t have that today, even though we know that carbon capture and storage really needs to get going,” he said. “The policy bubble approach that the U.K. has embarked on to deliver one or two CCS projects is probably the best way forward, given the circumstances.”

Carbon Floor

Britain is demanding utilities pay 4.94 pounds per metric ton of carbon dioxide emitted for the year through March 2014 under its price floor plan. The cost steps up to as much as 18.08 pounds a ton by 2015.

The U.K. is seeking to spur carbon-reducing projects by making it more costly to burn fossil fuels. On top of the support payments, the nation’s energy companies may have to pay out another 14 euros ($18) a ton if EU lawmakers approve proposals to delay the sale of new permits in a strategy known as backloading, according to Bloomberg New Energy Finance data.

Without U.K. support, Shell’s carbon-capture project isn’t attractive after a 57 percent slump in EU emission allowances in the past two years, Hone said. The oil company plans to fit equipment to trap emissions from Scotland’s Peterhead power station for storage in the depleted Goldeneye offshore gas reservoir.

Policymakers in the U.S. are seeking a 2015 climate deal that may allow nations to initially set their own targets, said Cameron Prell, the U.S. working group chairman of the Climate Markets & Investment Association, a London-based industry group.

“The U.S. clearly thinks it’s more important to get all countries to agree on individual reduction goals that will be implemented first, and work on ambition second,” said Prell, who is also senior counsel for climate and energy at McGuireWoods LLP in Washington.

The U.S. submission to United Nations climate talks starting April 29 in Bonn said countries may not have in place even by 2015 their “full range” of post-2020 measures and “will need to have the flexibility to update their contributions.”

Companies will have to live with the patchwork of support available, said Shell’s Hone.

“A global carbon price is a bit of a far-off wish,” he said. “What we would like to see first is countries or regions having a clean carbon price, a carbon market unaffected by other policies.”

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