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Triple Crunch Log                                                                                                            

22.10.10. Oil could hit $100 a barrel soon, JP Morgan predicts. FT: “China's economy was quick to recover from the global downturn and has been growing at a spectactular pace, resulting in rampant demand for oil. Growth has slowed slightly to an annual rate of 9.6% in the third quarter from 10.3% in the second.”963

Government goes soft with a levy on banks that would raise no more than £2.5bn. Guardian: “The planned levy does not appear to match George Osborne’s promise to extract 'the maximum sustainable tax revenues from financial services'. The day after George Osborne announced swingeing cuts to public services and welfare benefits, the government was expected to announce payback time for Britain's banks – blamed by many for the country's parlous economic state … the plan bears the hallmark of a summer of intense lobbying by the industry, prosperous again after being bailed out by the taxpayer two years ago, and which has succeeded in winning important concessions from the government. … The Treasury spent the summer consulting on a levy that would consist of a charge of 0.04% of a bank's total balance sheet in the first year rising to 0.07% to recoup the targeted £2.5bn by 2013-14. But today it conceded that it was yet to agree on the actual rate at which the levy would be imposed.964

UK CRC energy-efficiency scheme hits medium energy users while letting big polluters off. Guardian: this week dealt a shocking blow to participants in a government carbon-cutting scheme for companies and organisations with medium-size energy use, known as the CRC energy efficiency scheme, by turning the scheme into a tax. These 3,000 or so organisations, including councils and NHS trusts reeling from other cuts, find themselves facing a tax on the carbon they emit, while many that invested in energy-efficiency measures encouraged by the legislation are penalised. And yet the biggest polluters will evade the taxman. … The CRC was introduced with the promise that it would be revenue-neutral, in that all CRC permit costs would be recycled to participants. … Although the payment phase has been pushed back by a year to 2012, every participant will now have to find often upwards of millions of pounds each year to meet the Treasury's estimation of £1bn in tax revenues in 2014-15 (an implied price of £15 per tonne of carbon). … There is also the issue of punishing preparedness. … While the reputational value of performing well in the CRC League Table remains unchanged, the fact that this has been decoupled from a financial gain has completely altered the investment equation. And past investment now has a delayed pay-back period, and in some cases none at all. … Finally, and perhaps most unjustly, big polluters get off tax-free. Literally. The European Union emissions trading scheme (ETS), which captures large emitters such as power station and heavy industry, remains a cap-and-trade scheme that is subject to significant criticism. For a start, the cap is now ineffectually high as a result of the recession and a weak political commitment to reduce emissions by only 20% compared with 1990 levels by 2020. A commitment to reduce emissions by at least 30% has been shown to be necessary to price carbon sufficiently high to encourage low-carbon investment, so until this happens, companies in the EU ETS are under little pressure to change their ways.”965

Coal India’s prospectus contained a mistake, it emerges. But investors won’t be put off. FT: “Coal India’s record $3.5bn share sale might be in great demand – the offering was more than 15 times oversubscribed – but accounting errors that emerged in its IPO prospectus on Friday are a reminder that the state-run group has poor corporate governance standards. Investors have even been given the option of withdrawing their subscription bids after India’s capital markets regulator found that figures in Coal India’s prospectus had been mistakenly interchanged. Few, however, are likely to pull out. …. Janus Capital, Fidelity, Franklin Templeton and Capital International were among the biggest foreign investors’ to bid for Coal India, according to the Economic Times. 966

The only investors who don’t buy into the Coal India story are the employees of the coal miner. Although they were offered a 5 per cent discount of the stock the company’s workers only went for 10 per cent of the shares reserved for them. Which is hardly a sign of confidence. The lack of confidence should be a warning sign.967

“Coal buzz dwarfs pollution concerns: Telegraph of India. “Investors in Coal India’s mammoth Rs 15,000-crore maiden issue that closed on Thursday have already started counting the gains they hope to make if they cash out their investment on November 4 when the stock lists on the bourses. …. The grey market – a shadow market where investors make speculative bets on the likely listing price of a new stock – is already gung-ho over the Coal India flotation. “The listing price for Coal India is going to be anywhere around Rs 300,” says one investor who doesn’t wish to be named. “The buzz in the grey market is of a premium of Rs 30 to 40 per share.” …. Investors have been wowed by the prospect of a 30 per cent gain on a 15-day investment that a flipping strategy in Coal India affords. Just compare this with the piffling return on a 15-day deposit with State Bank of India – a mere 4.5 per cent annualised.” 968

Carbon and climate figure nowhere in investors’ considerations when it comes to Indian coal. Telegraph of India: “Manish Sonthalia, vice-president and fund manager at Motilal Oswal Asset Management, says that while many are looking to cash out the gains on listing, there are many serious long-term investors in the Coal India stock. Coal India supplies 80 per cent of the coal used by a range of consumers in the country. As long as coal remains the principal source of energy, an investment in the world’s largest coal producer will pay off in the long run as well. … Coal accounts for more than half of India’s energy consumption and will continue to reign as the leading fuel for energy-hungry India – at least over the next two decades. …. Coal is the most polluting fossil fuel, implicated in the rising levels of carbon dioxide and global warming. Coal already accounts for 65 per cent of India’s carbon dioxide emissions. It also produces black carbon, another atmospheric pollutant. Energy plans show that India will remain intimately tied to coal. India’s coal-burning power plants account for more than 60 per cent of the country’s coal demand. India's use of coal for generating electricity is expected to rise by 2 per cent each year in the coming years, and the total coal-based electricity capacity is expected to rise from 78 gigawatts in 2006 to more than 140 gigawatts. …. At the current levels of consumption, India’s coal reserves are expected to last for about 80 years.969

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