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Clean Energy Investment Sags Amid Mounting Climate Risks

Christiana Figueres, the executive secretary of the U.N. Framework Convention on Climate Change. Credit: Lusha Chen/IPS

UNITED NATIONS, Jan 16 2014 (IPS) - Despite Wall Street’s nascent rediscovery of green stocks, global investment in alternative energy declined by 12 percent last year.

According to a Bloomberg New Energy Finance report, investment was scaled back in both the U.S. and China – for China it was the first year without growth in the sector in a decade – and plunged by nearly half amidst austerity in Europe.

“Why is Goldman Sachs investing? Why is Warren Buffet investing? The answer is these aren’t dumb players." -- Michael Liebrich

The solar sector led the decline, as plummeting prices for photovoltaic arrays led to an industry-wide contraction of nearly 20 percent.

But the front-end of the solar sector saw a surge in demand for rooftop solar installations and investors piled into installation companies, doubling the value of the MAC Global Solar Energy Index.

In May, Goldman Sachs agreed to finance more than 500 million dollars in solar panels for California-based SolarCity Corp.

“Why is Goldman Sachs investing? Why is Warren Buffet investing? The answer is these aren’t dumb players. There’s plenty of money to be made,” said Michael Liebrich, CEO of Bloomberg New Energy Finance. “For every solar panel someone is selling at a loss, someone is getting a cheap solar panel.

“We are seeing a new era of energy technologies breaking through into the big time and the finance is flowing. Those sort of eye-catching deals mean it will be that much easier for the next lot.”

Liebrich spoke to IPS at the 6th Investment Summit on Climate Risk, held at the U.N. Wednesday.

The summit brought together nearly 500 private investors, pension managers and bankers who listened to speakers who repeated two bottom lines: climate change must be diminished, and there’s money to be made in avoiding it.

But as the alternative energy sector consolidates and matures, a safer investment environment offers little immediate respite for residents in at-risk countries, where the last year has seen record temperatures in Australia, massive floods in South Sudan and in the Philippines, the most powerful storm ever recorded.

“Absent climate change, we would be moving towards lower carbon energy matrixes anyway,” said Christiana Figueres, the executive secretary of the U.N. Framework Convention on Climate Change. “But climate puts an urgency factor there that we otherwise would not have. We know that if we delay in being able to balance the global energy matrix, we may be facing very, very serious threats to the global economy.”

A November climate conference in the Polish capital saw the creation of the “Warsaw Mechanism” for loss and damage associated with climate change. Agreed to just days after Typhoon Haiyan ravaged the Philippines, the mechanism offers a vehicle to allocate funds to poorer countries that suffer the brunt of natural disasters associated with increased carbon emissions. But how the mechanism will be financed is still up in the air.

“We have a window to do that, which is basically the next 10 years,” Figueres told IPS. “In the next 10 years we have to be able to reach a global peaking of emissions.”

Yet despite a consensus on carbon-induced global warming, many countries continue to subsidise fossil fuels, often putting alternative energy at a disadvantage even where it can compete in a free market.

“Certain renewable energies are already now cheaper than fossil fuel energy, despite the fact the fossil fuels are benefiting from subsidies,” said Figueres. “So actually they are being really truly competitive. But the point we have to get to is not to have those as isolated cases in certain countries.”

In 2011, the International Energy Agency reported subsidies for renewable energy totaled 88 billion dollars. The same year, the IEA estimated direct fossil fuel subsidies exceeded 500 billion dollars. And in 2013, the International Monetary Fund (IMF) reported “that energy subsidies amount to a staggering $1.9 trillion worldwide”, mostly devoted to fossil fuels.

“The policy stick is hugely important because right now we’re lacking a level playing field between clean energy, an emerging industry with big societal benefits, and the fossil fuel industry, which is highly subsidised and has negative societal impacts it’s not paying for,” said Mindy Lubber, president of Ceres, co-host of the Summit .

“Comprehensive government policies that better incentivise clean energy and properly price fossil fuel impacts will be enormously helpful in spurring more clean energy investment.”

Several large banks in the U.S. and Europe, including Bank of America, JP Morgan and Credit Agricole Corporate, recently agreed to voluntary guidelines on the issuance of so called “green bonds” earmarked for climate change mitigation. Public pension funds in California and Sweden have already invested in similar bonds.

“Government policies have a critical role, but investors themselves need to work harder to prioritise clean energy investing across all asset classes, including the largely untapped bond market and direct project investments. Setting specific portfolio-wide clean energy investing goals would send a powerful signal to the markets,” Lubber told IPS.

But the cautious optimism of the summit was tempered by the continued plight of developing countries. After Haiyan, the Filipino government took out one billion dollars in emergency loans from the World Bank and Asian Development Bank in order to rebuild. Without a working mechanism to allocate funds to countries like the Philippines, their debt load could grow along with climate change and could erode the economic growth and poverty reduction of the last 25 years.

“There should be protections in place for the poorest countries and people in the world who are going to be harmed by this,” said Liebrich, who suggested funding solutions like the Warsaw Mechanism with financing from countries proportional to their historical emissions.

Asked if such a set-up could be achieved by 2015, when climate talks will be held in Paris, Liebrich said no.

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  • PluviAL

    This is a truly frightening factor, as energy becomes more expensive it becomes dirtier. Dirtier means more expensive; it’s a circular definition because energy is the underlying source of all wealth. Barring strong legislative action, loss of investment in clean energy with then be the first victim. And, strong legislative action is contingent on higher wealth and stability; another circular contingency.
    My only hope is that Pluvinergy will be developed, and deployed soon enough to keep this spiral from sinking us into unfathomable abyss of chaos.
    The luxury of empathy depends on stability and wealth; we don’t need to look very deep in history or current events to see this (practical?) aspect of human character.

  • PluviAL

    Clean energy can compete with fossil fuels if dirty energy is made, economically, responsible for it’s indirect costs. In a logical world that is only just, and cost-effective. With an ASCEND system of discourse this will be possible, but that will not be an effective system for sometime to come. Thus, clean energy cannot be cost competitive. Note the sudden loss of investment in photovoltaic in the US this year, after much fighting to open federal lands to solar projects, not a single request for permits was filed; the reason: cost.

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