Will investors invest despite Copenhagen? The problem of price & uncertainty.
A positive outcome of Copenhagen was the pledged US$30 billion (2010-2012) quick start fund and the USD 100 billion dollars a year by 2020 for developing countries with a significant portion of this to flow through the ‘Copenhagen Green Climate Fund’.
This is good, but the Accord doesn't specify how the money will be raised, and according to many the price tag isn’t enough. The International Energy Agency's 2009 World Energy Outlook says that investments in low-carbon energy technologies and energy efficiency on the order of $500 billion a year for the next 20 years will be required to reach 450ppm of carbon in the atmosphere.
Copenhagen also dashed any hope of a global market and left a question mark on the price of carbon. Immediately after Copenhagen, carbon dropped to a six-month low because of heightened uncertainty over the continuation of the CDM and JI mechanisms beyond 2012 and a concern that the development of new CDM projects would slow significantly.
It is expected that some 85 percent of the financial resources needed to cope with climate challenges must come from private investment, but investors post Copenhagen are faced with an uncertain path of diverse national policies on climate change. This will create an uneven playing field and is likely to increase the possibility of high-carbon industries “leaking” to those countries with less stringent policies; and some countries imposing tariffs on carbon-intensive imports.
What investors want according to a recent Deutsche Bank report is TLC (Transparency, Longevity and Certainty) in policy to mobilize capital with certainty, and at the scale needed. Investors also need the assurance that the price of carbon will be much higher than the current levels to make their investments cost-competitive with coal, oil or natural gas. Airlines and power companies don't yet know whether upgrading to cleaner technology will be economically worthwhile. According to the IEA, the carbon price must be €33 in 2020 and €73 by 2030 to make low-carbon technologies economic. Last year it was averaging at €14.
The Deutsche Bank report goes onto to highlight that investors will become increasingly concerned about regulatory risk and countries that deploy a transparent, long-lived, comprehensive and consistent set of policies will attract global capital. Among the major economies surveyed in the report, Australia, Brazil, China, France, Germany and Japan were found to present the lowest investment risks. Germany and China ranked highly in terms of the amount of clean tech investment projects between 2000 and 2008, with respectively $36.7 billion and $41.2 billion in capital investment. The report also stresses the importance of energy efficiency in reducing global GHG emissions, saying "It is essential that governments incentivize deployment of capital in this area."
Just last week on January 14th 2010, investors representing US$13 Trillion met at the UN in New York for an Investor Summit on Climate Risk and called on the USA and other countries for "a price on carbon emissions" and "well-designed carbon markets" to provide "a cost-effective way of achieving emissions reductions." Likely this summit was timed to put pressure on the passing of USA’s pending climate change bill, if passed it will limit carbon in the USA and put a price on carbon, as well creating a carbon market three times the size of the EU ETS scheme. All eyes on the USA....
Ciara Shannon
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