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Seize the moment

 

JIGAR SHAH CEO
The Carbon War Room

Investors and policymakers face a historic choice: invest in energy infrastructure now or wait for economic recovery. The world undoubtedly faces serious challenges to both capital markets and the global economy as the effects of the financial crisis unfold, but this is not an “either/or” issue. Green investment is not a luxury that we cannot afford, as some commentators contend. Rather, investing in green energy infrastructure is a business and environmental necessity that we cannot afford to postpone.

The cost of clean energy technologies is decreasing steadily, and China and the European Union continue to adopt supportive policies. Yet the United States remains unconvinced that green infrastructure is a viable, smart investment. Since the nineteenth century, we have looked to Wall Street for its innovation and mettle in finding the necessary capital to grow and strengthen United States infrastructure, and today is no different. We need to identify its motivating factors for — and facilitate its investment in — climate change solutions to help unlock capital for one of the greatest wealth-creation opportunities of our lifetime.

There must be a shift away from investment in business-as-usual resources toward next-generation energy systems that combines substantially less emissions with higher job creation. There are varying views regarding the amount of investment needed to transition to a low carbon economy, but the World Economic Forum and Bloomberg New Energy Finance estimate that it will require a shift of approximately $550 billion per year for 20 years — less than 1 per cent of total current private capital allocations.

We must determine what it will take for pension funds, highnet- worth individuals, sovereign funds and retail money holders to shift their equity to lower risk, clean climate solutions, and what those new financial products will look like. We must also begin to work with capital sources and entrepreneurs to scale up existing solutions that work within existing policy frameworks.

Specifically, we must focus on four key priorities that will keep us on a path toward meaningful carbon reduction.

First, we need to focus on the co-benefits of clean tech solutions. By pushing for a comprehensive negotiation on carbon dioxide and its equivalents, we have deliberately shifted the conversation away from clean air, clean water, reduced health impacts, lower bills, good jobs and economic development — the things people actually care about. Refocusing on the good work already being done in this space will encourage more support without the rancour surrounding greenhouse gas emissions.

Second, new financial products must be created. We can shift the required $550 billion per year in private capital allocations by investing in profitable returns. Although we have invested heavily in educating the finance sector, the investment banking community has still not created the necessary suite of financial products. With more than 85 per cent of the investment capital in private hands, entrepreneurs must now step in to bridge this gap.

Third, it is time to pursue incremental policy victories by focusing on opportunistic moments. Every day, events occur that present real opportunities for small wins that can have a huge impact: an oil spill in the Gulf of Mexico, a new coal plant applying for a water permit, a new building undergoing construction, a new leader emerging in Nigeria, the development of an economic development plan in Ghana, or the conception of a new transportation plan. To date, however, these moments have not been leveraged effectively.

Finally, we must account for the “true costs” associated with the current economy. Our inability to transition away from a carbonintensive economy is driven by our misguided measurement of national and international wealth and progress. The billions of dollars in explicit subsidies (such as to fossil fuels) are accounted for, but implicit costs borne elsewhere (such as health care costs from pollution) are not included in the calculation of expenses. Ending information asymmetries so as to address market failures, and eliminating fossil fuel subsidies will level the playing field and further drive capital to the right solutions.

Of course, the process of transitioning investments from traditional resources toward the clean economy has already begun. Between 2004 and 2007, clean energy investment increased from $33 billion to $148 billion and today accounts for around 10 per cent of global energy infrastructure spend. At the same time, a number of initiatives now exist to educate and encourage investors.

But this is not enough. To be successful we need a fast, pragmatic approach that is focused on reaching the goal of $550 billion in global clean energy investment per year for the next 20 years, adopting the regulations and legislation necessary to eliminate unintended barriers, and developing insurance products necessary to move on this scale. If we can accomplish this, it will give Governments and civil society the confidence needed to pass bolder policies to level the clean energy playing field, if not mandate the outcome.

The Carbon War Room — a global, independent non-profit focusing on the belief that climate change is a business opportunity masked as a crisis — aims fundamentally to change the trajectory of humankind’s response to climate change by allowing markets for entrepreneurs to make money for themselves and investors in order to achieve the response the environment and business needs at sufficient speed and scale. More specifically, it targets moving institutional capital into a working marketplace and eliminating such market inefficiencies as insufficient information and high transaction costs.

Investing in the environment can create wealth and jobs while ensuring a sustainable planet. While the politicians of the world have failed to realize this, it is time for business to lead. It is time to shift our focus. Our moment of truth, and of greatness, lies in this opportunity. This is the moment for the world’s citizens to choose to be masters of their fates rather than victims of events at risk of moving beyond control.

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