Transcript The Catalysing Change Kate Hampton

Catalysing Change
How to finance environmental and energy
security
Kate Hampton
11/05/04
Issues
Why sustainable energy is a security issue
Good renewables policy
Clean energy ventures
Fossil fuel subsidies
Decarbonisation
Carbon trading
Headline recommendations
Energy security
Need to move away from hard energy security to designing resilient
energy systems (focus on use)
Clear advantages of renewables and efficiency/conservation
Clear disadvantages of fossil-based energy:
 Fuel supply disruption (vulnerability) and price volatility
 Militarisation of supply routes e.g. BTC, Equatorial Guinea
 Corruption, poverty, loss of livelihoods (cf. EIR, Global Witness, Oxfam,
FoE…)
 Scarcity of oil and gas (not an issue for coal)
However, must be honest about problems e.g. intermittent supply and
build in resilience over time
Need to move away from finding least-cost options to adopting a
minimum-cost portfolio approach (risk mitigation)
Achievement of the MDGs will require the provision of energy
services to the poorest
Distributed energy services provide resilience for vulnerable
communities (e.g. adaptation to climate change)
Key elements of good renewables policy
LEGAL: Adopt a legally based approach with a robust compliance
regime
LONG: Introduce stable rules with a time horizon that reflects the
financing horizons of projects - pick a system and stick to it!
LOUD: Send a strong price signal and communicate it widely
Support new technologies
Reduce subsidies for conventional energy
Minimise barriers to market entry
Tackle grid infrastructure issues e.g. distributed generation, offshore
Implement a clear process for planning and approval
Key elements of good renewables policy contd
Feed-in tariffs provide price certainty and result in higher deal flow,
especially for newer technologies and small-scale projects
Tradable certificates are more cost-effective but riskier for investors so
they favour parties that can already manage risk and access capital (i.e
bigger utilities)
International tradable certificates: capital would flow to where the
resources are (subject to verification)
Emerging markets/developing countries present additional challenges:
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creditworthiness
lack of access to capital
absence of financing in local currencies
lack of finance-ready business plans
business models eg linking to productive use
Capacity building and support of local intermediaries
Clean energy venture market
Energy sector spends, proportionally, about a tenth of the
pharmaceutical industry on R&D
Large energy companies v. SMEs
In 2003, investment in clean tech ventures rose 8% while overall
venture capital investment fell 14% (CTVN, 2004)
Energy generation and storage saw a decline, but energy infrastructure
and efficiency saw an increase. Overall, energy investment was lower.
Energy – need government support to accelerate the process of
bridging the gap between wind and next generation (offshore wind,
marine) with demonstration projects, investment for commercialisation
Biofuels and biomass face technical, land-use and transport issues
Pension funds beginning to move: California’s Public Employee’s
Retirement System (largest US pension fund) voted to invest $200
million in clean energy start-ups and $500 million into
environmentally responsible stocks and mutual funds
Decarbonisation
Avoiding warming above 2C requires a global emissions
peak within the next 20 years
Technology lock-in is created by every new investment
(cars, buildings, power stations, urban development) so
change must begin now
‘Enabling environments’ for technology transfer must be
created (push and pull)
Power sector reform is providing new challenges and
opportunities: a level-playing field must be established
Fuel-switching is an interim measure only
Fossil fuel subsidies
National fossil fuel production subsidies:
 In 1998, $9 billion was spent on coal production subsidies in 4 countries: Germany,
Spain, Japan and France (OECD)
 A similar amount was spent on fossil fuel subsidies in 4 developing countries:
Indonesia, Iran, Venezuela and Algeria (OPEC)
National subsidies to conventional energy: $250-300 billion/year in the mid-1990s (G8
Renewables Task Force) – usually benefit industry and wealthier populations
R&D: conventional energy still gets more public money everywhere
Multilateral subsidies: BP said the BTC pipeline project would not economic without
IFI and ECA support (“free public money”)
Since Rio (1992), the World Bank has provided $20 billion for fossil fuel projects (IPS,
2002)
Between 1994 and 1999, ECAs supported $103 billion of fossil fuel intensive
investments in developing countries compared with $2 billion for renewables. 70% of
all ECA financing goes to fossil fuel power generation and oil and gas projects (WRI)
In 2000, the World Bank Group’s renewables portfolio totalled $636 million with GEF
co-financing of $230 million (expected to leverage $2.3 billion from other sources)
Question of carbon capture and storage/hydrogen
Carbon trading
Two markets: government-to-government and business-to-business
Kyoto flexibility mechanisms: IET, JI, CDM
EU Emissions trading scheme (CO2 only)
Common currency: CDM credits (incl. non-CO2 gases)
International linking of domestic schemes (verification)
Reinvention of Kyoto doesn’t make sense:
 Kyoto is the driver for domestic GHG regulation
 Reinventing the wheel: mandatory tradable caps backed with an
international compliance regime, sinks, science-policy interface
 Sunk human capital and capacity building
 Less than 20 years to bend the emissions curve
Need to overcome race to the bottom (CDM, ETS) and free-riding
(US, Australia)
Emissions Trading: Background
Europe has many Directives
that reduce GHG emissions
European Greenhouse Gas Emissions
 Renewables
 CHP
 Burden Sharing Agreement
Europe on track to overshoot
objective by 7%
Additional measures are
forecast to reduce overshoot to
1%
 Labelling
 Energy Efficiency of
Building
 Biofuels
Trading should close the gap
Source: European Environment Agency, November, 2003
Burden sharing agreement
Allocation of “pain”
Country
Spain
Italy
Germany
Belgium
Netherlands
1990
Emissions
GHG emission performance at 2001
Reduction
per burden
share
agreement
EU15
Sweden
15.0%
-6.5%
-21.0%
-7.5%
-6.0%
United Kingdom
-21.0%
Greece
Austria
69,360
77,388
-13.0%
Netherlands
Ireland
53,430
13.0%
Portugal
Portugal
UK
Greece
Luxembourg
Finland
65,106
27.0%
-12.5%
25.0%
-28.0%
0.0%
Denmark
Sweden
France
286,428
522,132
1,222,765
143,125
210,342
742,492
104,755
10,836
77,093
70,566
551,805
4,207,623
mtCO2e
4.0%
0.0%
-8.0%
Germany
Luxembourg
Italy
France
additional
existing
Finland
Belgium
Austria
Ireland
Spain
Denmark
-20
-10
0
10
20
Distance from target (%)
30
40
EMISSIONS TRADING: OPTIONS
Generators can:-
Abatement actions depend on
expectations of allowance
prices, relative fuel costs and
existing plant mix
Allowance prices will depend
on number of allowances
issued by member states and
demand for them.
Trigger Allowance Prices for Abatement Options in
Power Generation
100
80
Permit Value ($/t CO2e)
 Increase output from existing
CCGTs
 Convert coal/oil stations into
CCGTs
 Refire coal/oil with gas
 Build new CCGTs
 Build Renewables
Burn gas in coal stations
60
40
Build new CCGTs
Refurbish coal into CCGTs
20
Increase CCGT output
0
2
3
4
-20
Gas price $/mmBTU
(Coal at $60/tonne)
Current 04 forward gas price
5
6
Allowance availability
Member States will not seek a reduction of more
than 64 mtCO2 reduction from traded sector
unless other sectors or flex mex fail
1990
Existing
& additional measures
2010
Domestic sinks
2001
19
251
~1200?
158
64
4204
4108
4183
Gap?
3868
MtCO2e
Sources: EEA, CCC, RIIA
Hot Air
Kyoto
Cap or additionality rules
Trading
~360?
?
CDM
Conclusions and recommendations
What does the environmental security lens add to the sustainable
energy and climate change debates?
 Supports reprioritisation of objectives, reallocation of resources –
sustainable energy becomes more important but access to energy increases
in importance
 Not just about renewables – efficiency and fossil fuels must be tackled
 How can energy be deployed to support poverty eradication, failing and
post-conflict states?
 Remove the division in the climate change debate between adaptation and
mitigation – focus on human and ecosystem resilience
Move debate from energy security to one about energy systems
Policy-led markets are essential but policy risk must be minimised to
attract private capital
Long, loud, legal: good renewables policy
Begin a multi-level dialogue on global decarbonisation