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Category Archives: Finance

UNEP: Public finance can scale up climate investment

Monday, October 26, 2009

 Public finance could help stimulate private investment in climate change solutions in developing countries, a report commissioned by the United Nations’ Environment Program showed on Monday.

World leaders are grappling with how much funding should be provided for poor countries as part of a deal to tackle climate change which they hope to clinch in Copenhagen in December.

“Today’s report underlines a range of public policy options that reflect the varying circumstances currently prevailing in developing economies and show how existing barriers to a green economy can be leap-frogged,” said UNEP’s Executive Director Achim Steiner.

Investments of around $530 billion a year are needed to help avert the dangerous effects of climate change and drive forward low-carbon economies, according to the International Energy Agency.

The World Bank estimates that around $475 billion of that investment must happen in developing countries.

Although the drain on public finance is severe following the financial crisis, the private sector is not able to shoulder the financing burden because returns from low-carbon investments do not outweigh the risks.

Public finance mechanisms could help manage the risks the private sector can’t control and improve returns for investors, the report said.

SOLUTIONS

The mechanisms can help shape private capital, with previous research suggesting that $1 of public money spent through well-designed mechanisms can encourage between $3 and $15 of private sector investment.

The report suggests several ways to stimulate that investment:

* Provide and expand insurance cover against country risk, such as breach of contract or war, to support low-carbon funds.

* The same bodies providing country risk cover could also provide low-carbon policy risk cover where countries go back on policy frameworks that underpin low-carbon investments, such as emissions trading or renewable energy incentives.

* Public finance could provide currency funds which offer cost-effective hedges for local currencies which would otherwise not be available in the commercial foreign exchange markets.

* Improve deal flow to provide a series of commercially attractive projects and vehicles specializing in early-stage low carbon projects.

* The public sector could invest directly in low-carbon funds through ‘first loss equity’, which would reduce risks for private investors.

The report was commissioned by UNEP, along with several investor and climate groups. Research was carried out by Vivid Economics.

The full report is available at www.unepfi.org.  (link)

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Oil prices hit high but report warns of supply crunch

Tuesday, October 20, 2009

World oil prices hit their highest point for a year yesterday, as a major new report urged governments around the world to take drastic action to head off an approaching oil supply crunch.

US light crude futures pushed above $79 a barrel, supported by the view that a recovering world economy would raise demand for crude. Oil prices have more than doubled from the low point they hit in the spring, but are still around half the all-time high of nearly $150 a barrel they reached in early summer last year.

Analysts have been surprised at the recent resilience of oil prices given the impact on energy demand of the global recession. In spite of this year’s volatility in the oil price, the underlying trend for a decade has been for it to rise steadily.

A report from the non-governmental organisation Global Witness – famous for its exposé of so-called “blood diamonds” – pointed to an impending supply shock that could be so severe that many of the world’s poor countries would simply be shut off from the world of energy by sky-high prices.

Two years in the preparation, Global Witness’s report, Heads in the Sand, accused governments of ignoring the fact that the world could soon start to run short of oil. This would lead to huge consequences in terms of price shocks and much higher levels of violence around the world than last year’s food riots.

“There is a train crash about to happen from an energy point of view. But politicians everywhere seem to have entirely missed the scale of the problem,” said the report’s author, Simon Taylor.

“We are all addicted to oil but if you look at the mathematics of the problem, they simply don’t add up in terms of future supply and demand.”

The report went through the latest figures from the oil industry and the Paris-based International Energy Agency, which last year drastically reduced its estimate of the available oil.

The IEA figures showed there could be a gap of 7m barrels a day between supply and demand by 2015. That represents about 8% of the expected world demand by then of 91m barrels a day.

The IEA expects production from existing oilfields to fall by 50% between now and 2020 and warned the world needs to find an additional 64m barrels a day of capacity by 2030 – equivalent to six times current Saudi Arabian production.

But Global Witness took issue with the IEA’s recommendation that the oil industry spend $450bn a year chasing these supplies, many of which may well not be there. Because of the demands of climate change, the report argued, the money would be better invested in moving rapidly to a post-oil world of renewable energy and conservation.

Taylor said even the new IEA projections of how much new oil the world would discover were likely to be over-optimistic. He said the so-called “big” oil discoveries of the last few years added up to nothing like the “discovery rate” needed to replace the world’s dwindling supplies from existing fields. They have totalled around 16bn barrels, or only around 1.7m barrels a day, once up and running.

The report said that between 2005 and 2008, global oil production ceased to grow in spite of widespread investment and rising prices, which should normally have brought forth a big rise in supply. It notes that the biggest year for new discoveries was 1965, since when they have been falling. Global oil production overtook new discoveries in 1984 and has outpaced them ever since.

It also dismissed as myth a widely held expectation that tar sands in Canada could fill the supply gap. Tar sands are unlikely ever to yield more than 3-4m barrels a day, equivalent to the pace at which existing fields are declining every year.

Taylor said the four key issues about oil – declining output, declining discoveries, increasing demand and insufficient projects in the pipeline – have been apparent for many years.

“But governments and multilateral agencies have failed to recognise the imminence and scale of the global oil supply crunch, and most of them remain completely unprepared for its consequences,” he said.

“There has been a decade of dithering and it is now too late to avoid the consequences unless the authorities move like there is no tomorrow.”   (link)

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GE Takes Two New Stakes in Clean Technology Start-Ups

Wednesday, October 14, 2009

General Electric Co unveiled two investments in start-up clean technology businesses on Wednesday as part of its strategy of focusing on ways for business to generate and use energy more efficiently.

The largest U.S. conglomerate said it had taken a stake in Israeli startup SolarEdge, which allows photovoltaic panels, which convert sunlight into electricity, to operate up to 25 percent more efficiently.

GE’s Energy Financial Services arm is one of a handful of investors in a $23 million round of funding in the company.

The world’s largest maker of electricity-producing turbines also said it had taken a stake in Tendril, a Boulder, Colorado-based company that produces equipment allowing utilities to communicate with residential and commercial electricity users. That technology, known as the smart grid, can help homeowners, for instance, run energy-hungry equipment like dishwashers at off-peak hours, reducing stress on electric grids.

GE, which disclosed the news at its research headquarters in Niskayuna, New York, did not specify the amount of its investment in the two companies.

GE’s prior investments in alternative energy include a stake in A123 Systems Inc . That maker of next-generation lithium-ion batteries has seen its shares soar since its September initial public offering, which investors said could whet the market’s appetite for more cleantech-related IPOs.  (link)

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Blue Source, Goldman in $12 million carbon deal

Monday, October 12, 2009

The president of carbon offset developer Blue Source said his company and Goldman Sachs Group have completed a transaction of carbon credits worth $12 million that he called the largest publicly announced U.S. offset deal.

Blue Source generated the offsets from U.S.-based projects involving stopping forests from getting cut down, and capturing and burning a potent greenhouse gas given off by landfills and coal mines.

The forestry offsets were generated by convincing farmers in North Carolina not to cut down tree stands, even though they had permits to do so, Greg Spencer, president of Blue Source, said.

Goldman marketed the credits for Blue Source, which were then sold to CE2 Carbon Capital, a U.S. investor and owner of carbon commodities. Goldman bought a minority stake in Blue Source last year.

The companies would not reveal how many of the credits were sold or the prices each type of offset garnered.

Spencer said the three types of offsets were represented roughly equally in the deal.

The companies said the deal was a sign that businesses are moving forward with a wide range of carbon offset deals, even though the U.S. Congress still has to determine what kinds of offsets would be allowed in any national carbon market.

“From the legislative standpoint … forestry and agriculture are often among the favorite types among Congress,” said Spencer. “But I think you are also seeing a number of indications that that list will be expanded probably in any final legislation.”

Democratic Senators John Kerry and Barbara Boxer have unveiled climate legislation that built on a bill that passed narrowly in the House of Representatives in June. Whether the bill will win the 60 votes necessary to pass in the Senate is uncertain.

The projects meet quality standards of the Climate Action Reserve and Voluntary Carbon Standard. The transaction included credits from the Alligator River Forestry project in North Carolina, which is the first forestry project to be listed on the CAR outside of California.   (link)

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George Soros pledges $1bn to search for clean energy

Monday, October 12, 2009

Billionaire financier and philanthropist George Soros has pledged to invest more than $1bn (£625m) of his own money in clean energy technology to tackle climate change. Speaking in Copenhagen on Saturday evening, the Hungarian-born Soros also announced the foundation of the Climate Policy Initiative, which he will fund with $10m annually for the next decade.

Soros, ranked the world’s 29th wealthiest individual by Forbes magazine, said: “There is no magic bullet for climate change, but there is a lethal bullet: coal.” Soros, who already holds limited investments in clean coal technology ventures, explained he would apply “stringent conditions” to the disbursement of the $1bn. “I will look for profitable opportunities, but I will also insist that the investments make a real contribution to solving the problem of climate change.”

The Climate Policy Initiative, formally launched in Berlin next month, would focus on the efficacy and implementation of policy, said Soros, “to protect the public interest against special interests”. The new global climate watchdog will be based in San Francisco and headed by Stanford professor Thomas Heller.

Soros’s speech at the Project Syndicate editors’ forum came a day after climate talks in Bangkok ended in deadlock and 57 days before world leaders gather in the Danish capital to thrash out a new climate agreement. Soros said: “Global warming is a political problem. The science is clear; what is less clear is whether world leaders will demonstrate the political will necessary to solve the problem.”

Soros revealed that he had been converted to the cause of tackling climate change by former US vice-president Al Gore. While he lacked any scientific expertise, he said, “the one thing I have is the ability to put money to work”.

Soros’s intervention came as pressure mounted on national leaders to attend the Copenhagen talks in person. The former UN secretary general Kofi Annan, Danish prime minister Lars Lokke Rasmussen and Nicholas Stern, author of a review into the economics of climate change, all urged heads of government to attend. “This is about the future of government-level commitment,” Stern said. “It is very important that the heads of government are there.”  (link)

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New DOE Loan Guarantee Program Ropes In Lenders

Thursday, October 8, 2009

 The U.S. Department of Energy’s new solicitation for loan guarantees puts financial institutions as intermediaries between the department and interested projects, which may speed up some aspects of the approval process even as it slows down others.

The DOE opened a new solicitation on Wednesday to issue up to $750 million in loan guarantees that would support up to $8 billion in project financing. Under the new terms of the loan guarantees, qualified financial institutions will submit projects that they have vetted and agree to invest in for DOE approval.

The new solicitation is limited to conventional, as opposed to innovative, renewable energy projects that generate electricity and aren’t manufacturing projects, which previous loan programs have supported.

“Because only renewable generation projects using commercial technology are being solicited, we expect the processing time to be much quicker than the processing time for innovative projects,” said Ebony Meeks, spokeswoman for the DOE, in an email to Clean Technology Insight.

The DOE is also hoping to limit the effort it spends on processing applications by turning over some of the due diligence to financial institutions that would put their own skin in the game when agreeing to invest in the projects.

But the DOE is requesting as much information from applicants as in the previous solicitations, said Ken Hansen, partner at the Washington, D.C., law firm Chadbourne & Parke LLP, which helps clients structure renewable energy project financing deals.

“They are not delegating very much. They are inviting [lenders] into the deal, but it’s hard to see what’s delegated,” he said.

The DOE also hasn’t selected lending institutions yet - even though the application window was open as of Wednesday. The financiers will be evaluated as part of the project applications that they submit. Financial institutions are evaluating the risks and rewards of participating in the program now.

“We’re reading through the solicitation right now to figure out how it works,” said John Anderson, head of power and infrastructure group at John Hancock Financial Services, in Boston. Anderson said that the firm had been in contact with the DOE about a public-private partnership to accelerate the loan guarantee program since February.

“Our understanding about the goals for the program was that it was quite attractive…for encouraging the financing of renewable energy projects,” said Anderson. John Hancock Financial is a unit of Manulife Financial Corp. (MFC), a Canada-based financial services group that offers products such as insurance and mutual funds.

The DOE is asking for applications to be submitted in two parts, which Hansen said isn’t what was expected by the industry. With the two-part process, “you are guaranteed to lose two months,” he said.

Hansen said that many banks anticipated that the DOE would automatically approve requests from projects that meet the qualifying criteria and get the lenders’ investment commitment. But they will now have to go through a competitive process, where several qualifying projects may vie for the same government money, raising the risks of participating in the program.

“It really changes the nature of the process,” Hansen said.

John Hancock’s Anderson said that it has been in discussions with customers about the program and that, so far, “I can get up to $1 billion in financing fairly easily. As we read though details of the program and figure out exactly how much it is for…we’ll find out if it proves to be as good as we all hope.”

General Electric Co.’s (GE) Energy Financial Services unit, meanwhile, is currently evaluating whether to become a lender, said a GE spokesman.

The questions GE is evaluating before it makes the call include: “Is the cost of capital available through this program attractive enough to offset the additional costs and effort it requires?,” the spokesman said. GE does expect to be an equity sponsor of projects that apply, the spokesman said.

Attorneys, investors and developers are combing through the 135-page solicitation rules posted Wednesday by the DOE.

Another area that investors expect could delay the process is getting environmental impact clearance under the National Environmental Policy Act, or NEPA.

“Today’s announcement will allow private banks to accelerate the NEPA process by contributing their own due diligence, but we doubt there will be any radical changes to the timelines due to the nature of the regulations,” said Robert Lahey, an analyst with research firm Ardour Capital Investments, in a note to clients.

“It’s going to be a torrent [of applications], but the torrent will build for a little while,” said Hansen, adding that he expects at least a week or two before the first application under the new solicitation gets filed. (link)

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UPS to Offer Per-Package Carbon Offsets

Wednesday, October 7, 2009

 United Parcel Service (UPS) has begun offering its customers the chance to buy carbon offsets to neutralize the greenhouse gas emissions associated with their shipped goods.

The Atlanta-based company also stepped up its environmental offerings with a new contract service that can calculate the carbon footprint of individual customers’ shipping activities, UPS said Tuesday. High-volume customers can then offset the impacts through UPS offset purchases.

The offsets cost 5 cents per package for shipments delivered via Ground service, or 20 cents each for packages sent by Next Day Air, 2nd Day Air or 3 Day Select. The flat fee includes the cost of the offsets, emissions calculation and administration.

“Our customers told us they wanted an easy, credible way to join us in our efforts to reduce the environmental impact of their supply chains,” Bob Stoffel, senior vice president of engineering, strategy, supply chain and sustainability, said in a statement.

UPS will match the amount of offsets purchased by up to $1 million. The offsets will be purchased periodically, most likely on a quarterly basis, according to Lynette McIntire, UPS director of reputation management.

The offsets, which will be certified by the Gold Standard, Voluntary Carbon Standard or the Climate Action Reserve, will be retired according to industry standards.

About one million UPS customers who use UPS Internet shipping with a UPS account number can access the service immediately by simply checking a box at the end of their transaction, to be followed by other UPS customers next year.   (link)

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America makes first move to allow independent fund for poor countries

Tuesday, October 6, 2009

US breaks deadlock on organisations such as World Bank deciding how to allocate money for clean tech and adaptation

The US has made the first move to bridge the yawning gulf separating rich and developing countries on the money needed to secure a successful climate change deal at crucial UN talks in Copenhagen this December.

 

Although US negotiators have not made any specific promises on finance at talks currently under way in Bangkok, the US has accepted the principle of a single independent fund to be administered at least in part by the UN.

 

This is a long way from what developing countries want - firm pledges of large sums of money to allow poor countries to buy technologies to help them develop cleanly and to adapt to climate change. But because talks have been frozen on the issue for months, the movement in the US position is being seen as a positive step.

 

Until now, America, backed by Britain, has proposed that any money paid should be channelled through existing organisations like the World Bank. In addition it has insisted that contributions by rich countries should be voluntary.

 

This has been flatly rejected in the past by G77 countries (an umbrella group of 130 developing nations) who have long mistrusted the bank, saying it is institutionally biased against poor countries. They have said they want the UN to administer a separate fund which would be guided, controlled and managed by all countries. In addition they do not want promises of cash, but guaranteed, predictable flows of money.

 

Under the new US proposal, countries would be allowed to choose how much they paid and to direct it to specific areas, such as forestry or technology. Rich countries would come together every few years for what have been called “pledge parties”, where they would indicate how much they intended to pay. In addition, they want businesses and other groups including NGOs to have access to the funds.

 

The proposal will almost certainly be rejected by G77 countries and insiders do not expect it to form part of the final Copenhagen deal, but the US move is considered significant because it represents some movement in the negotiating positions. The talks have been deadlocked on finance for months.

 

“The positions are becoming clearer. The US has opened the door to a single fund. The worrying sign is that it assumes that the developing countries will take what they can get and will not walk out of the talks. That’s a dangerous assumption,” said Oxfam analyst Antonio Hill.

 

“We still have a deadlock on finance. The key to unlocking it is with the Annex 1 [rich] countries. At the moment no money has been put forward,” said Raman Metha of Action Aid who suggested that the US proposal was a negotiating tactic to force the G77 to compromise.

 

Countries have made no progress in Bangkok on how much money they are prepared to put up, or what proportion would be new rather than come from carbon markets or existing aid. Discussions are expected to go to the wire at Copenhagen in December.

 

At present the leading contender is still Gordon Brown’s suggestion of $100bn a year (£61bn) which has been endorsed by the EU’s environment minister Stavros Dimas.   (link)

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Economics of climate legislation deserve honest accounting

Monday, October 5, 2009

The debate over the Kerry-Boxer bill has picked up where Waxman-Markey left off: the economics of climate legislation. Perhaps empowered by the “death panel” misinformation campaign, climate bill obstructionists are reviving rumors of economic disaster in the hopes of panicking the public and eviscerating or blocking final legislation. Just as no one was every going to pull the plug on grandma, the truth of the matter is that the benefits of controlling our carbon emissions far outweigh the costs. As we enter the opening round of hearings on the bill, it is important to draw the line between fair political debate and misleading exaggeration.

When Senator Inhofe, the ranking member of the Environment and Public Works Committee, claims that the bill would be the “largest tax increase in American history,” he is treading dangerously close to that line. In fact, reputable studies of the costs of climate change legislation have shown them to be relatively modest: less than a postage stamp per day. 

Senator Inhofe’s comment is likely based on data that has been twisted to suit opponents needs. In fact, one MIT professor who conducted a study on climate change economics was so upset by how his research was being misused that he took the unusual step of formally requesting that the work not be misquoted. But being called out by the author of the report did nothing to deter some legislators from getting their preferred message out. Even referring to this proposal as a “tax” is innacurate. The final bill is likely to either give allowances away or distribute funds from an auction back to consumers-neither method can rightly be called a “tax.” Prices for certain carbon-intensive products may rise, but those costs are accounted for in the “postage stamp” calculation. And Americans will be able to make choices-opt for clean energy products and services that will end up being cheaper than those that create a lot of heat-trapping pollution. That is, after all, the point of this exercise; to move away from the greenhouse gases that are warming our planet.

Inhofe and his allies have taken a serious and complicated economic question and reduced it to a series of false one-liners. But, just as informed people now ignore Inhofe’s infamous claim that global warming is “the greatest hoax ever perpetrated” on the American people, it’s time to disregard his bogus claims of economic doom-and-gloom.

To engage in a meaningful debate about taking on climate change, the costs of action have to be compared to the costs of inaction.  Doing nothing may cost as much as nine times the price tag of the legislation-failing to combat climate change will impose an enormous economic penalty. In fact, the Kerry-Boxer bill is likely to generate trillions of dollars of benefits above and beyond the costs of the bill. This is a fact rarely mentioned on either side of the aisle, but is the fundamental economic reality that should be the centerpiece of the discussion, not a sideshow. 

Rigorous, honest debate is healthy, but spreading misinformation and intentionally exploiting economic fears has to be considered political malpractice if our democracy is to survive. The intricate questions facing society-health care, financial regulation, the national debt, climate change-will only get more complex as time goes on. If our political culture cannot evolve in a more civil direction, where facts and evidence take precedence over rumor and innuendo, we may find ourselves in a ditch too deep to climb out of.  (link)

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Gordon Brown’s $100bn climate aid proposal is ‘only first offering’

Thursday, October 1, 2009

The $100bn from rich countries proposed by Gordon Brown to compensate developing countries and help them adapt to climate change is a first offering in the world climate negotiations, international development secretary Douglas Alexander told a meeting at the Labour party conference in Brighton today. The final offer could be greater, he said.

 

But he admitted that other rich countries had so far not backed Britain and many needed convincing that a settlement on the funding was necessary to secure a global deal at UN talks in Copenhagen in December. “We are working to get other world leaders to get close to that figure,” he said. Brown proposed $100bn a year by 2020.

 

But as the UN talks proceed in Bankok, Alexander said he was optimistic that developing countries would embrace the figure. Meles Zenawi, the president of Ethiopia, who is leading the African block in the global warming talks, is “very positive”, he said.

 

Alexander was backed by energy and climate secretary Ed Miliband, who said the EU should move its position on the greenhouse gas emission cuts it has proposed and the money it had offered, both of which have been described as “woefully inadequate”, by developing countries and charities.

 

“It is imperative for the world to to come to a deal in December, and not to delay the outcome till next year. There is no plan B, no time for another international meeiing. There is a powerful necessity to seize the moment. If we don’t, then I fear the consequences,” he said.

 

He urged negotiators meeting at Bankok this week to not treat the climate talks as a traditional trade meeting. “The future depends on us getting a deal,” he said.

 

But Maria Souviron, Bolivia’s ambassador to Britain, said that rich countries not only needed to come up with money but also show real commitment to adopting low carbon economies. “Those producing the harm must be held to account. Developed countries must pay for past, present and future impacts,” she said.

 

“We need real commitment. The money is there. Western countries should start by reducing their spending on arms to pay for climate change,” she added.

 

Melanie Ward, political adviser to Christian Aid, said: “The UK government must exert maximum pressure on the EU and the US if there is to be any hope of reaching afair and effective deal. The EU has offered only €2bn-€15bn, this number must reach at least €35bnannually to deal with devastating impacts of climate change already being seen.”

 

Andy Atkins, director of Friends of the Earth, added: “The UK government has shown leadershiop in putting $100bn on the table, but developing countries need double that amount at least. The rich world has an historic responsibility to make good the damage they have caused.”

 

Separately, a climate scientist warned that the best the world may be able to do is limit global warming to a 4C rise. Kevin Anderson, head of the Tyndall Centre for Climate Change Research, said current levels of emissions meant that it was effectively impossible limit warming to the 2C agreed as necessary by the major nations. “If we do everything we can do then we might have a chance of 4C,” he told a conference at Oxford University.

 

Anderson said new research by his group showed that developed nations would have to peak their carbon emissions in 2012 and then reduce them by 3% a year to give a 50% chance of limiting temperature rise to 4C. Developing countries such as China would need to peak by 2030.

 

To stand a chance of hitting 2C, he said, rich countries would need to peak in 2011 and then reduce by 8% a year. China and others in the developing world would need to peak in 2025 and switch to 100% renewable energy by 2050. “You have to ask whether that is viable,” Anderson said.   (link)

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