Financing the Transition to a Low Carbon Economy Peter Young SKM Enviros 2 nd February 2010...
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Transcript of Financing the Transition to a Low Carbon Economy Peter Young SKM Enviros 2 nd February 2010...
Financing the Transition to a Low Carbon
Economy
Peter Young SKM Enviros
2nd February 2010Environment Business Australia Forum
Sydney
Aim of Presentation
• Set context for need and size of investment to achieve transition to a low carbon economy
• Introduce role of Aldersgate Group• Summarise impact of ‘Financing the
Transition’ and subsequent UK govt activities• Open up for Q&A session
Investment Drivers: Global Population in Billions+.....
...... Observed Global Temperatures and Carbon Dioxide + ...
...Future Carbon Dioxide Emissions to 2100 + .....
.....Global Energy Demand +...
.... Global Energy Inefficiency +....
..... Poor Urban Design...
Do the Maths
• Currently emit 6 tpa CO2 per capita (EU 8, Aus 19).
• Long term stability requires ~1 tpa at 9 billion population if equitably spread
• This represents 8 fold change in EU, 20 fold in Australia
• UK has mandatory targets of 80% (five fold reduction)
= Implications for the whole economy
Source: CCC Building a Low-Carbon Economy –The UK's Contribution to Tackling Climate Change
• Not only de-carbonising electricity generation
• But also to facilitate savings in other energy use emissions categories
• Will impact on all sectors of economy
Investment Needs
• Fiscal stimulus response to GFC aimed more at environment (eg US $150bn investment to create 5M green collar jobs by 2020 = 20%) replicated varyingly globally
• UK government calculated £200bn to 2020 to meet carbon targets
• UK low carbon infrastructure £264bn to 2020 (Dieter Helm et al)
Who is Aldersgate Group?
ALDERSGATEGROUP
• Founded in 2006 • A broad coalition of businesses, NGOs, Profession Bodies,
political figures and government agencies• Believe that high environmental standards are vital to
future economic growth and competitiveness• Engage actively with government and other key decision
makers – and as conduit of business led solutions
What we aim to do
ALDERSGATEGROUP
• Raise awareness in the UK and Europe of the wide ranging (economic and social) benefits of high environmental standards.
• Build political support for smarter environmental policymaking based on a thorough assessment of these wider benefits
• Develop a broad coalition of stakeholders to encourage policy makers to act early and strongly
Tactical IssuesExample: EU Car Emissions
ALDERSGATEGROUP
• UK: EU proposals would export 1000s of jobs and ‘drive European car makers to brink of extinction’
• Italy: ‘unprecedented high level’ of penalties• Germany: ‘hinder innovation, threaten jobs and fail to be an effective
instrument of climate protection’VS
• Stimulate innovation and reduce cost of compliance• US impact of similar proposals calculated to create 241,000 jobs and
reduce oil by 1.6m barrels per day• Remember catalytic converters – industry priced at £400-£600 but now
£30-£50 each and drove fuel efficiencies
Current Focus
ALDERSGATEGROUP
To achieve the required rate of decarbonisation and competitive advantage, early and better action in three critical areas in UK and EU:
1. Skills – ‘Mind the Gap – Skills for the Transition to a Low Carbon Economy’ published in November
2. Resource Efficiency – ‘Beyond Carbon – Towards a Resource Efficient Future’ published yesterday
3. Finance – ‘Financing the Transition – A Strategy to Deliver Carbon Targets’ – published in October
Lessons from Writing Report
• Amazing response from investors, there is enough capital if confident of returns
• ‘City’ and Government in UK don’t understand each other
• High consensus that action was needed and that this was an issue of national competitiveness as well as targets
Key Recommendations
• Policy risks are critical, requires surety in targets, bankability of policy decisions, and public guarantees/bonds linked to performance
• Climate bonds or other green investment vehicles will mobilise private capital at scale
• Institutional reform required, both in consolidating govt expertise and creating eg a new Green Investment Bank (GIB)
Response Since October
• Opposition announced interest in establishing new Green Savings vehicle and GIB.
• Govt created Infrastructure UK, bringing together PFI, TIFU and DECC teams under Paul Skinner (former chair, Rio Tinto)
• 100M euro UK addition to EIB fund• Detailed private meetings on how to construct
a GIB – key issue is public balance sheet
-100-110-120-130-140-150-160
43 2726252423222120
100
98
203040
-10-20
7
-40-50-60-70-80-90
0 1 10 11 12 13 14 15 16 17 18 192 65
-30
Cost of abatementEUR/tCO2e
Insulation improvements
Fuel efficient commercial vehicles
Lighting systemsAir Conditioning
Water heating
Fuel efficient vehicles
Sugarcanebiofuel
Nuclear
Livestock/soils
Forestation
Industrialnon-CO2
CCS EOR;New coal
Industrial feedstock substitution
Wind;lowpen.
Forestation
Celluloseethanol
CCS;new coal
Soil
Avoided deforestation
America
Industrial motorsystems
Coal-to-gas shiftCCS; coal
retrofit Waste
Industrial CCS
AbatementGtCO2e/yr
Avoiddeforestation
Asia
Stand-by losses
Co-firingbiomass
Smart transit
Small hydro
Industrial non-CO2
Airplane efficiency
Solar
Investment Programmes around Carbon Abatement Costs...
...and around Energy Generation
• Marine energy resource key opportunity• GIB/EIB to remove risk by offshore grid• Infrastructure Planning Commission • PE, pension funds and banks all making
constructive proposals• Could existing RBS, HSBC portfolios seed corn
a renewables development fund?
The Emerging Market – Investors are moving ( and Should Australia be in top 6?)
Analysis of 53 leading economies: Environmental Goods & Services economy in a global economy worth £3 trillion
Rank Country Market Value £bn % of total
1st US 629 21
2nd China 411 13
3rd Japan 191 6
4th India 190 6
5th Germany 127 4
6th UK 106 3
Conclusions• The Low Carbon Economy requires massive
mobilisation of capital (24% pa growth)• In spite of GFC the capital is there• Policy risk is a huge barrier to unlocking private
finance early enough• In the new low carbon economy new institutional
models are required• UK is benefitting from new collaboration on
financing – should Australia do the same?
Time for Q & As
Thank You!
For reports please seewww.aldersgategroup.org.uk