Banking for 7 billion and 7 million

GLOBAL INVESTOR 3.06 Basics — 25
renewable technologies. A new era of green power has arrived,
with alternative energy stocks surging dramatically. Mutual funds
that invest in green energy achieved an average gain of 39% in the
12 months ended on May 3 (Bloomberg). The alternative energy
bulls are indeed charging. What is needed to improve the alternative
energy investment climate in the USA is national standards on
renewable energy. We think this will occur in the next five years,
regardless of which party controls Congress and the White House.
If the Democrats gain in this fall’s election, Congress could become
incrementally more supportive of renewables. Several regional elections
could also increase the number of renewable-friendly state
executives. Table 2 gives a summary of key milestones in climatechange
policy.
The USA, like Australia, has passed no binding national legislation
to reduce GHG emissions. However, sufficient activity is now
under way in the US Congress to warrant investor attention. The
Regional Greenhouse Gas Initiative (RGGI) MOU was recently
signed by the governors of the New England states to cap CO 2
from power plants. The US Energy Policy Act has also paved the
way for government support of nuclear power, which was given
cautious support from world leaders at the recent G-8 Summit.
Other factors, including new markets opening up, growing environmental
concerns, company savings via carbon credits, and less
resistance from environmental lobby groups toward nuclear power
and uranium mining have fueled popularity in alternative energy.
Furthermore, the Pavley Plan bill in California, which caps CO 2
from cars, is being copied by a number of other states. We believe
all these initiatives are setting the stage for firms to benefit
from opportunities that address climate-change issues – especially
the problem of greenhouse emissions. Examples of companies with
exposure to these themes are Archer Daniels (NR 2 ) – biofuels; Caterpillar
(HOLD) – low-emission diesel engines, recycling; General
Electric (BUY) – wind turbines, hybrid rail engines; Waste Mgmt
(BUY) – landfill gases; Johnson Controls (NR 2 ) – heating, ventilation
and air-conditioning; Kinder Morgan (NR 2 ) – CO 2 transportation;
and Eaton (NR 2 ) – hybrid diesel-electric truck power trains.
For exposure to the nuclear/uranium theme, we would highlight
Cameco (BUY), Energy Resources of Australia (BUY) and BHP Billiton
(BUY).
Clean energy initiatives promoted in Asia
Experience in Europe and the USA has shown that favorable government
policies can be a strong catalyst for the development of
alternative energy. Governments in Asia are implementing policies
encouraging or mandating alternative energy investment. Coupled
with strong economic growth and growing Asian environmental
issues, we think the prospects for meaningful growth in alternative
energy investment and manufacturing in the region are good. China
and India, already among the world’s top ten countries with regard
to wind turbine systems installed, seem to have significant growth
potential, and in most other places the outlook is promising – Korea
stands out with its aggressive plans for photovoltaic (PV) cells. The
Clean Development Mechanism (CDM) of the Kyoto Protocol for
reducing GHG emissions, together with non-binding international
partnerships like the Asia-Pacific Partnership for Clean Development
and Climate (USA, Australia, China, India, Japan and Korea),
could also fuel investments in Asia by providing an additional potential
revenue stream that would further enhance project economics.
In 2002, Japan adopted a “Special Measures Law Concerning the
Table 2
Milestones in climate policy
The 1992 UN Framework Convention on Climate Change and
the 1997 Kyoto Protocol are major milestones.
Source: UNFCCC, AIP
1979 First World Climate Conference.
1990 First Assessment Report of the IPCC; initial evidence that human
activities might be affecting climate, but significant uncertainty.
Second World Climate Conference; agreement to negotiate a
“framework treaty.”
1992 UNFCCC established at the UNCED
(also known as the Earth Summit) in Rio de Janeiro, Brazil.
Annex I developed countries pledge to return emissions to 1990
levels by 2000.
United States ratifies UNFCCC later in the year.
1993 Clinton administration publishes its Climate Change Action Plan,
a collection of largely voluntary emission-reduction programs.
IPCC Second Assessment Report completed (published in 1996);
stronger conviction expressed that human activities could be
adversely affecting climate.
1995 Berlin Mandate developed at the first COP (COP1) to the UNFCCC.
Agreement to negotiate legally binding targets and timetables
to limit emissions in Annex I countries.
1997 COP3 held in Kyoto Japan, leading to the Kyoto Protocol.
Annex I/Annex B countries agree to binding emission reductions
averaging 5% below 1990 levels by 2008 –12, with “flexibility
mechanisms” (including emissions trading) for compliance; no
commitments for emission limitation by developing countries.
US Senate passes Byrd-Hagel resolution, 95 to 0, stating that
the United States should accept no climate agreement that did not
demand comparable sacrifices of all participants and calling for
the administration to justify any proposed ratification of the Kyoto
Protocol, with an analysis of benefits and costs.
1998 COP4 held in Buenos Aires, Argentina; emphasis on
operationalizing the “flexibility mechanisms” of the Kyoto Protocol.
IPCC Third Assessment begins.
1999 COP5 held in Bonn, Germany; continued emphasis on
operationalizing the flexibility mechanisms.
2000 Global Climate Coalition dissolves, as many corporations
grapple with the threat of warming, but oil lobby convinces the
US administration to deny the problem.
2001 Third IPCC report states that global warming, unprecedented since
end of the last ice age, is “very likely,” with possible severe
surprises.
Bonn Meeting, with participation of most countries except the USA,
develops mechanisms for working toward Kyoto targets.
2003 Deadly summer heatwave in Europe accelerates divergence between
European and US public opinion.
2005 Kyoto Treaty goes into effect, signed by major industrial nations
except the USA. Japan, Western Europe, and regional US entities
accelerate work to impede emissions.
Hurricane Katrina and other major tropical storms spur worldwide
debate over the impact of global warming on storm intensity.
IPCCC = Intergovernmental Panel on Climate Change
UNFCCC = United Nations Framework Convention on Climate Change
UNCED = United Nations Conference on Environment and Development
COP = Conference of Parties