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Financing the Transition to a Low Carbon Economy

Financing the Transition to a Low Carbon Economy. Peter Young SKM Enviros 2 nd February 2010 Environment 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

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Financing the Transition to a Low Carbon Economy

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  1. Financing the Transition to a Low Carbon Economy Peter Young SKM Enviros 2nd February 2010 Environment Business Australia Forum Sydney

  2. 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

  3. Investment Drivers: Global Population in Billions +.....

  4. ...... Observed Global Temperatures and Carbon Dioxide + ...

  5. ...Future Carbon Dioxide Emissions to 2100 + .....

  6. .....Global Energy Demand +...

  7. .... Global Energy Inefficiency +....

  8. ..... Poor Urban Design...

  9. 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)

  10. = Implications for the whole economy • Not only de-carbonising electricity generation • But also to facilitate savings in other energy use emissions categories • Will impact on all sectors of economy Source: CCC Building a Low-Carbon Economy –The UK's Contribution to Tackling Climate Change

  11. 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)

  12. ALDERSGATE Who is Aldersgate Group? GROUP • 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

  13. What we aim to do 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 ALDERSGATE GROUP

  14. Tactical IssuesExample: EU Car Emissions 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 ALDERSGATE GROUP

  15. ALDERSGATE Current Focus GROUP To achieve the required rate of decarbonisation and competitive advantage, early and better action in three critical areas in UK and EU: • Skills – ‘Mind the Gap – Skills for the Transition to a Low Carbon Economy’ published in November • Resource Efficiency – ‘Beyond Carbon – Towards a Resource Efficient Future’ published yesterday • Finance – ‘Financing the Transition – A Strategy to Deliver Carbon Targets’ – published in October

  16. 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

  17. 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)

  18. 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

  19. Cost of abatement EUR/tCO2e AvoiddeforestationAsia Coal-to-gas shift Industrial feedstock substitution CCS; coal retrofit Forestation Soil Waste Livestock/soils Wind;lowpen. CCS EOR;New coal 40 Smart transit Solar 30 Small hydro Forestation Nuclear Industrial non-CO2 20 Airplane efficiency 10 Stand-by losses 0 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 19 20 21 22 23 24 25 26 27 -10 18 Avoided deforestation America -20 Industrial CCS Celluloseethanol Industrialnon-CO2 -30 Co-firingbiomass CCS;new coal Sugarcanebiofuel -40 AbatementGtCO2e/yr -50 Industrial motorsystems Fuel efficient vehicles -60 Water heating -70 -80 Air Conditioning -90 Lighting systems Fuel efficient commercial vehicles Insulation improvements -100 -110 -120 -130 -140 -150 -160 Investment Programmes around Carbon Abatement Costs...

  20. ...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?

  21. 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

  22. 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?

  23. Time for Q & As Thank You! Pjyoung@globalskm.com For reports please see www.aldersgategroup.org.uk

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