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Catalysing capital (1)

Blood David

James Cameron

Readinch

The low-carbon economy will need a major shift in global investment flows, from economic activities which promote emissions growth to those which limit emissions, write David Blood and James Cameron.

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[This article first appeared as a paper in the Copenhagen Climate Council Thought Leadership Series. It is reproduced here with permission.]

Capitalism is at a crucial juncture. The sustainability challenges we face – the climate crisis, water scarcity, extreme poverty, shifting demographics – are unprecedented and require an urgent response. Failure to address these challenges will put at risk our ability to create prosperity in the long term. The current state of the global economy compounds these challenges; in fact, the financial crisis has only underscored our conviction that sustainability will be a critical driver of economic and industrial change over the next 25 years.

In the case of the climate crisis, significant capital needs to be mobilized towards low-carbon solutions that span sectors and borders. This mobilization poses a tall yet manageable order as ours is not a problem of capital, but one of capital flow. The global community has the money, the policy insights, and many of the technologies needed to modify our emissions trajectory.

Fundamentally, the challenge ahead is about capital reallocation and timing: how do we steer capital away from high-carbon investments and channel them towards the low-carbon economy? And, above all, how do we mobilize this capital at the pace required to avoid dangerous climate change?

In the face of converging financial and environmental crises, the context for business most certainly has changed. We can capitalise on an opportunity to lay the foundation for a sustainable future, both financially and environmentally. Businesses are seeking new strategies to adapt to a new landscape of risk and opportunity. Governments are facilitating investments in low-carbon infrastructure to boost jobs and economic growth. Unthinkable only a few years ago, today the case for a green recovery of the economy continues to gain traction around the world.

The stimulus package in the United States, for instance, incorporates provisions seeking to deploy capital toward low-carbon assets. The business community is lining up to call for a consistent price signal on carbon to help guide long-term investments. Around the world, governments have already allocated billions in fiscal stimulus to climate-related investments. These commitments are just the first instalment in what could ultimately be a long-term government policy to use low-carbon growth as a key lever for economic recovery.

The financial industry is also adjusting to a new reality. Investors are recalibrating their risk and reward expectations; investment committees, boards of directors and shareholders are adjusting their concept of how to secure sustainable returns. Investors are finding longer-term horizons and investments in tangible low-emissions infrastructure more appealing than in past years.

There has never been a more appropriate time to return to fundamentals. Long-term investment strategies, in particular, will play a pivotal role in the transition to a low-carbon economy. So, how much capital will be needed to avoid dangerous climate change?

A manageable challenge

Investments towards a low-carbon economy must enable reductions in emissions of greenhouse gases sufficient to avert a catastrophic rise in global average temperatures. The investment decisions made in the next 10 years will play a critical role in defining our long-term emissions trajectory as the infrastructure we finance today will lock in technology for decades to come. We need to finance infrastructure that will allow atmospheric concentrations of CO2 equivalents to stabilize at the levels the scientific community deems safe.

Many studies have provided clarity regarding the costs of action (and inaction) to avoid dangerous climate change. While these studies differ in the specifics, their core message is consistent: addressing the climate crisis is technically feasible and the investment required is considerable but manageable.

The Stern Review, commissioned by the British government, estimated that the annual global investment needed to avoid the worst impacts of climate change could be limited to around 1% of global GDP each year if action starts now. By contrast, the report estimated the costs of inaction would be equivalent to losing at least 5% of global GDP each year. While scientific consensus since the Stern report was published has suggested that climate change is occurring faster than was anticipated at that time, the estimates by Stern remain a useful starting point in conceptualising the scale of this challenge.

According to McKinsey & Company, pursuit of the most economically rational emissions abatement opportunities would result in total upfront investment in addition to business-as-usual capital expenditures of €530 billion each year in 2020 and €810 billion each year in 2030. This sum corresponds to 5% to 6% of business-as-usual investments in fixed assets in each respective year. In addition, much of this investment could be recovered through future energy savings, bringing the total investment to €200-350 billion annually by 2030, less than 1% of forecasted global GDP in 2030.

According to the United Nations Framework Convention on Climate Change (UNFCCC), tackling climate change in the next quarter century will require "major changes to patterns of investment and financial flows." The UN study estimated that US$200-210 billion worth of additional investment and financial flows would be necessary to return greenhouse-gas emissions to current levels.

Other studies have estimated the investment needs in specific sectors: the International Energy Agency estimates that additional investments in energy infrastructure equal to 0.6% of global GDP in 2030 are needed to maintain a 450 parts-per-million (ppm) concentration. New Energy Finance and the World Economic Forum estimate that at least US$515 billion needs to be invested annually in clean energy over an extended period to keep carbon emissions from reaching a level deemed unsustainable by scientists."

According to the Eliasch Review on financing global forests, commissioned by the British government, the finance required to halve emissions from the forest sector to 2030 could be around US$17-33 billion per year. In the very short term, 40 forest nations will need roughly US$4 billion to fund capacity building efforts over five years.

These studies provide further insight into why the challenge ahead is manageable. If we are able to capture all costs-savings accruing from abatement measures, many investments could produce net benefits: in many cases, the up-front capital investment could be recovered over time thanks to energy savings. According to McKinsey, approximately 11 of the 38 gigatonnes of abatement opportunity in 2030 could have a net economic benefit by enabling the savings in the future to outweigh their upfront investment.

Another key insight from research to date is that the vast majority of abatement will need to occur in emerging economies. Therefore, a core challenge ahead will be to tackle the barriers to investments in these countries.

Numerous studies have also shed light on the need for prioritising policy tools. Since most global greenhouse-gas emissions are energy-related (power plants, buildings, transport and industry), much of the required capital will have to flow into energy solutions – both towards de-carbonising the supply of energy and reducing demand. These solutions require urgent attention as many of these technologies (such as stricter building codes and fuel efficiency standards) are readily available, yet need public policy support to provide the long-term framework investors require.
New capital and financial flows are also needed to limit the destruction of critical carbon sinks, particularly since land-use changes account for roughly 20% or more of global greenhouse-gas emissions.

Some of the barriers to low-carbon investing are behavioural and sector-specific, such as addressing the agency problems that property owners face to make building efficiency investments. For example, building owners lack the incentives to make the upfront payments to retrofit buildings because the benefits, in the form of energy savings, accrue to tenants and not to them.

In other cases, barriers are institutional: almost all of the investment needed to tackle deforestation will have to be deployed in emerging economies that may lack appropriate institutional infrastructure to make investors feel sufficiently comfortable. Many governments, NGOs, and multilateral agencies, along with private investors, are working proactively to address the needed infrastructure, monitoring, and compliance to ensure national emissions reductions. Globally, the efforts to address deforestation must be scaled dramatically.

NEXT: How can we make the shift?


David Blood is senior partner and co-founder at Generation Investment Management LLP.

James Cameron is vice-chairman and co-founder at Climate Change Capital Ltd.

[This article first appeared as a paper in the Copenhagen Climate Council Thought Leadership Series. It is reproduced here with permission.]

Homepage photo by Swisscan

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资本不是万能的

毫无疑问,用市场化的机制解决问题是可行的,但千万别把市场化作为唯一的手段。yfyf

Capital is not omnipotent

There's no doubt that using the mechanism of marketization is a good way to solve problems, but we must be very careful indeed not to mistake it for the ONLY way.


低碳经济还是低欲望经济

虽然我们大家都明白,我们中国人民以及绝大部分发展中国家的人民永远都不可能过上美国人那样的幸福的奢侈的生活,但是向往那样生活的人数随着全球人口的增多也在不断增加。
低碳经济当然好,可是世界业已到了进行彻底反思资本主义的时候,所谓的工业革命,信息革命还是什么新能源的革命,绿色革命,都不能从根本上解决问题。不过是把一个问题转嫁到或者转移到另外的问题上而已。
我们需要不但低碳化的经济行为,更需要降低欲望的佛教经济学。人立于天地之间,可是天已然不是那个天,地也非那个地,人的未来可想而知。
我想人类可以发明越来越节能的设备,包括节能灯,电动车还可以把二氧化碳抓起来,或者就从空气中直接抽取二氧化碳等等来减缓我们目前面临的风险,可是这些努力又能解决什么问题,恐怕谁也心中没数。这里面有心理因素在作怪。
比如,改革开放前的中国人民全部穿的都是纯棉的衣服,让日本人羡慕的不得了。现在呢,我们也很羡慕全民穿纯棉的旧时代。可是我们永远也不可能回到过去了。相同的,我们也不必为了不可能人人都像美国那样开个车到处转而遗憾或者失落。
只有降低了人的欲望,把经济从目前的资本主义所倡导的物质文明更多的转向精神文明,我们才有得救的可能,并且是根本上的得救。
当然我不是说我们一定要像苦行僧,我们要有一定的物质财富作为基础,我们要改变目前这种东西部以及城乡和穷富之间的巨大差距,光靠想把8亿农民全弄得富裕起来这样的美好愿望活下去已经是绝对不可能的了。这个世界满足人类的基本生活看来条件还是具备的,但是绝对不可能满足人的贪欲。世界需要流传了数千年之久的东方智慧。

A low-carbon economy or a low-desire economy?

Although we Chinese (together with the inhabitants of the majority of developing countries) are well aware that we won't ever be able to lead the kind of luxurious lifestyle that people in America now enjoy, the number of people headed in the direction of this kind of existence is continuing to increase as the global population expands.
While the idea of a low-carbon economy is of course a good one, the time has definitely come for a more thorough review of the basic idea of capitalism. The industrial revolution, information, even things like the new energy revolution or green revolution - all of these things are fundamentally incapable of solving the problems we face. All they can do is shuffle them around.
What we need is something that goes beyond low-carbon economic behaviour - we should be working towards a model of Buddhist economics that seeks to lower people's desires and expectations.

People occupy the space between heaven and earth - if heaven and earth are no longer the same, our fate is easy to imagine.
I'm sure humanity will come up with ever more ingenious solutions to counteract the dangers we now face, whether it be energy-saving installations or lightbulbs, electric cars, or removing CO2 directly from the atmosphere. But I'm not sure that anyone's really stopped to think about what problem they'll actually be solving. There are thorny psychological factors at play here, too.
For example, before the reform period, everyone in China used to wear pure cotton, which made the Japanese terribly envious! Nowadays, we ourselves look back fondly on those days when everyone wore cotton! But there's no way we can ever return to the past. At the same, we shouldn't feel like we're losing out because we're not driving cars everywhere like the Americans.

We have to rein in our desires. We will only be able to save ourselves if we can shift the focus of our economy from capitalist-advocated material civilization towards a more spiritual form of civilization. This, and only this, will be our salvation rather than just another 'solution.'
Of course, I'm not suggesting we all start living like monks - everyone needs a certain fundamental degree of material wealth. But if we hope to build a brigter future simply on the basis of the (admittedly admirable) notion of making every single one of our 800 million peasants a rich man, things just aren't going to work out. It looks like the conditions on this earth are quite sufficient to meet humanity's basic needs, but it will never be able to satisfy our greed. The world urgently needs the ancient wisdom of the East.


硅谷在哪里?

昨天出席了持续半日的麻省理工学院/斯坦福大学创业研究室活动,是关于清洁技术的投资。这个消息看起来并没有那么好。对刺激计划会启动和加速绿色技术应用的潜能的兴奋劲缓和下来了由于来自官方的巨大压力以及缓慢的行动实施。首先,有人建议启动期或创立期的公司和大的实体公司搭档。指导方针每天都在修改。提交的哪些文件几百页之长,而且不包括1,000页的建议。对那些被挑选出参与的人的付款并没有预示会比从应用之日起一年半到两年提前。
同时,硅谷倾向与对清洁技术-IT提供资金支持.智能网格类型应用的软件被予以高度重视。
行动胜于空谈,刺激资金的早期应用正在起步阶段(2007年已经提交了方案),泰斯拉就在其中,它当然是“一辆大型高速电动跑车”。
难道不是时候硅谷该看看对环境的影响和世界环境优先考虑的是什么?硅谷不要错失良机啊。

本评论由陈丽英翻译

Where is Silicon Valley?

Attended the MIT/Stanford Venture Lab half day session yesterday on investments in clean tech, and the news is not looking so great. The excitement around the stimulus package's potential to kickstart and accelerate greentech is mitigated by huge bureaucratic pressures and slow-moving commitments. Firstly, little startups or early stage companies are advised to partner with larger entities. Guidelines are revised daily. The documents for submission are hundreds of page long, if not 1,000 page proposals. Actual payments to those selected for participation is not forecast to come any sooner than 18-24 months from time of application.

In the meantime, Silicon Valley's bent is to fund what it knows in cleantech - IT. Software for smart grid type of application was said to be highly valued.

In the actions speak louder than words department, the earlier applicants for stimulus funding are now in the starting gate (having submitted their proposals in 2007)...among them is the Tesla, which is of course a grand highspeed electric sports car.

Isn't it time Silicon Valley looked at environmental impact and what the world's environmental priorities are? Silicon Valley is missing the boat.


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