Climate Action 2010-2011

Finance and Markets
Policy transparency, longevity and
certainty
The actual types of policy design and instruments appear
to be of only secondary importance from an investor’s
perspective: according to Mark Fulton, managing director
of Climate Investment Research at Deutsche Bank and
co-chair of UNEP Finance Initiative’s Climate Change
Working Group, it is crucial that policies are in place,
but they are not much use unless investors and financial
intermediaries can fully rely on them in the medium to
long term.
Looking around the world,
there are many examples of
countries embodying the
principles of TLC in their
climate and energy policies.
Of primary importance for investors and lenders
is that policy frameworks and instruments are
governed by the principles of transparency, longevity
and certainty (TLC). Only if these principles are
featured in government action on carbon emissions,
renewable energy and energy efficiency, will investors
deploy capital. Investors need transparency in policies
to create understanding and a level-playing field.
Longevity means policy has to match the timeframe
of the investment and stay the course. Certainty refers
to knowing that incentives are financeable and can be
trusted in the financial return calculation and are likely
to be maintained over the course of the investment.
In economic terms, TLC should result in a lower cost
of capital for projects while still delivering a fair and
market-related return to capital.
Who is winning the global race for
clean energy investment?
This year has been a tough one for the global climate agenda.
Policy pessimism after Copenhagen has been compounded
by (largely unfounded) doubts over climate science along
with governments backtracking on commitments in key
countries. But, according to Nick Robins, Head of the
HSBC Climate Change Centre of Excellence and Co-
Chair of UNEP FI’s Climate Change Working Group,
“through the fog of the carbon war, a new climate economy
is emerging and the global race for attracting investment for
a clean and innovative energy economy continues, driven as
much by resource scarcity and industrial innovation as by the
raw realities of global warming.”
New research by HSBC shows that the future size of
the ‘climate economy’ – which encompasses products and
services related to the generation and distribution of lowcarbon
power as well as energy efficiency improvements
in buildings, industry and transport – is likely to double
in size from US$740 billion in 2009 to between US$1.5
and US$2.7 trillion in 2020. It also shows that the fastest
growth is likely to occur in emerging markets, notably
China and India, with the low-carbon energy market in
both countries offering average yearly growth rates of 14
per cent. This delivers an important shuffling of the pack
in terms of market share. The EU remains the largest
market but its share falls from 33 to 28 per cent by 2020.
China grows from 17 to 24 per cent, pushing the US
into third place. India also rises and becomes the fourth
largest market, with Japan falling to fifth. Clearly, these
growth rates are strongly influenced by the underlying
economic dynamism in Asia – but they also reflect the
growing strength of policy frameworks in these countries
with regards to transparency, longevity and certainty.
The analysis suggests that just two regions – the EU and
China – already make up half the global market and this
proportion is projected to grow further by 2020.
Looking around the world, there are many examples
of countries embodying the principles of TLC in
their climate and energy policies and achieving capital
deployment. Germany has established a feed-in tariff
(FiT) regime that supports the EU mandated goal of
20 per cent renewable energy as a share of electricity
by 2020. Germany’s FiT system embodies TLC
for investors: not only does it provide standardised,
transparent contracts with up to 20 years of longevity,
with guaranteed payment streams; it also ensures the
‘right pricing’ for electricity consumers, through a
tariff digression over time to match all reductions in
technology costs, with an end target of grid parity with
fossil fuels. The results speak for themselves: the creation
of 300,000 jobs; renewable energy at a 13 per cent share
of electricity and rising; a rapid fall in solar Photovoltaic
costs leading to lower tariffs on the digression schedule
with a forecast of grid parity by 2013.
Remco Fischer is Programme Manager for UNEP FI
where he manages the Initiative’s activities on climate
change and co-ordinates the UNEP FI Climate Change
Working Group (CCWG). Prior to joining UNEP FI,
he worked as an investment management assistant,
designing structured deals in infrastructure project
finance, predominantly for renewables. He holds British,
German and Spanish degrees in Business Administration,
Finance and International Economics.
UNEP FI is a unique global partnership between UNEP
and the financial sector. Over 190 institutions, including
banks, insurers and fund managers, work with UNEP to
develop and promote linkages between sustainability and
financial performance and to realise the adoption of best
environmental and sustainability practice.
Tel: +41 (0) 229178685
Fax: +41 (0) 22 796 9240
Email: remco.fischer@unep.org
Website: www.unepfi.org
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