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“Towards better policies through shared investment research”
The London Accord
Making Investment Work for the ClimateProfessor Michael MainelliExecutive Chairman, Z/Yen Group &Principal Advisor, London Accord
Friday, 9 October 2009
“Towards better policies through shared investment research”
Paying Attention
“…while climate change may have reached a tipping-point of sorts in 2006 as far as perceptions of the problem are concerned, the same cannot be said for perceptions of the solution.”
- Center on International Cooperation & River Path Associates, “The State of the Debate”
“Towards better policies through shared investment research”
Cash In, Carbon Out
The London Accord shows investors and policy-makers where and how to
make investment work for the climate by applying financial analysis
to climate change investment.
“Towards better policies through shared investment research”
“Towards better policies through shared investment research”
2008ESG growth
2007 Launch
19 December 2007Landmark report
2005Concept
The Road To London
2006Recruitment
2008Policy impact
2009Index-linked
carbon bonds
“Towards better policies through shared investment research”
Why Is The London Accord Unique?
Private sector investment is crucial to climate change investment (86% of capital investment according to UNFCCC)
Pension funds and asset managers rely on analysis by the financial services sector for their decision making
Global accord to share ‘open source’ ESG research
Financial services are engaged – over 20 of the world’s leading investment firms co-operate in the London Accord valued at approximately £10M and growing at about £3M pa
“Towards better policies through shared investment research”
www.london-accord.co.uk
“Towards better policies through shared investment research”
Picking Winners and LosersClimate change is a global problem and the temptation is to look for a single global solution, or a few global solutions
Cap-and-trade schemes provide market-driven solutions to identify efficient sets of solutions that will evolve
“Towards better policies through shared investment research”
Winning Portfolios?
Successful model portfolios exist – though concentrated at $30 to $60 per tonne, and based upon IPCC/UNFCC data
A mix of sectors and technologies is essential; no single technology suffices
Abatement potential up to about 15 Gt is available
“Towards better policies through shared investment research”
Abatement
Solar important in smaller, successful portfolios at the efficient frontier.
Forestry is crucial for large abatement portfolios, but uncertain.
Energy investment is riskier - technological change, higher & volatile fossil fuel prices, rising emissions costs.
“Towards better policies through shared investment research”
Policy Implications
• Focus on the Carbon Market - business investment follows the carbon price
• Support More Research:
– Quantify the Impact of Forestry
– Assess Carbon Capture and Sequestration
• Avoid Carbon-Dumping Wars – duties on carbon ‘at the borders’ could be worse than anti-dumping trade wars
• Set International Standards – product level, carbon intensity, carbon offsets
• Set Higher Policy Standards to Realise Existing Positive Abatement Opportunities - lower consumption, and increase efficiency of existing energy
“Towards better policies through shared investment research”
Watch – reductions & coverage
Carbon Reduction Scenarios
0
20
40
60
80
100
120
140
2000 2010 2020 2030 2040 2050 2060
EU/ETS
US 2020 peak carbon
IPCC Category 1 15%
IPCC Category I I
IPCC Category I 25%
“Towards better policies through shared investment research”
Costs Impact of Emissions Trading on Energy Demand
Average prices 2000-2010 Incremental Price 2015 2020 2025 2030
Electricity € 97 € 25 € 31 € 28 € 18Elasticity -0.1Change from Carbon Pricing 26% 32% 29% 19%Change in demand -2.6% -3.2% -2.9% -1.9%
2015 2020 2025 2030Gasoline € 1.01 € 0.10 € 0.13 € 0.11 € 0.07Elasticity -0.7Change from Carbon Pricing 10% 13% 11% 7%Change in demand -7.2% -8.9% -7.9% -5.2%
2015 2020 2025 2030Diesel € 0.90 € 0.13 € 0.15 € 0.14 € 0.09Elasticity -0.7Change from Carbon Pricing 14% 17% 15% 10%Change in demand -9.8% -12.0% -10.8% -7.0%
2015 2020 2025 2030J et fuel 0.678 € 0.12 € 0.15 € 0.13 € 0.08Elasticity -0.6Change from Carbon Pricing 17% 22% 19% 13%Change in demand -10.5% -12.9% -11.5% -7.5%
Scenario: IPCC Cat 1 15% Elasticity -0.8 Efficiency: 1.50%
“Towards better policies through shared investment research”
Next Steps
• Wider social & ethical issues
• Financial industry community that can communicate with policy-makers and NGOs
• New reports
• New members
“Towards better policies through shared investment research”
Professor Michael Mainelli, Principal Advisor to the London Accord
Z/Yen Group Limited5-7 St Helen’s PlaceLondon EC3A 6AUUnited Kingdom+44 (0) [email protected]
Home - www.london-accord.co.uk
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