Collaborative research

Applying financial analysis to climate change investment

UNFCCC:86% of total

investment has to come from the private sector

“…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 and River Path Associates, “The State of the

Debate”

20072006

Initialcommitments

Launchconference

Researchperiod

Analysisperiod

FinalReport

Earlyideas

Shaping

Cap-and-trade schemes provide market-driven solutions to identify efficient sets of solutions that will evolve

Forestry is a big unknown - the range of credible estimates for the real extent of abatement

potential is broad, and the real costs of forestry

projects which mitigate greenhouse gas emissions

are unknown.

Carbon Capture and Sequestration (CCS)“Given [the] obstacles, along with the fact that some key technological aspects remain unproven, CCS is unlikely to contribute to stabilizing atmospheric concentrations of CO2 over the next two decades.”JP MorganChase

Solar Energy“Photovoltaic [should grow at a] rate of 50% over the period 2006-2010. For the next decade (2011-2020) average annual growth is expected to run at well over 22%.”Bank Sarasin

Biofuels“Since the price of diesel is highly correlated with the price of crude oil, high oil prices imply higher biodiesel prices, in our view. Therefore, if oil prices remain high – ie, greater than US$55/barrel, there is potential for significant upside in the valuation of biodiesel.”ABN Amro

“Climate changes are locked into the world’s weather system and these changes may represent material risks (or opportunities) to business.”Barclays and Acclimatise

Adaptation

Renewable energy“The renewable energy industry has momentum and is here to stay. [...] Several technologies are already price competitive and others are close, when GHG emissions are priced in. [...] Our top picks are in: project developers, geothermal, solar thermal and wave power”CanAccord Adams

Energy efficiency“Reducing the percentage of energy costs in relation to total sales has become a key means of remaining competitive and lessening the impact of higher raw material costs on profit”Credit Suisse

Forestry“Forestry resources represent the second largest bio-energy resource and a key material for the development of new markets that include clean energy, bio-materials and molecules [...] Paper companies owning substantial forestland are thus becoming increasingly attractive for investors”Sustainable Forestry Management

Energy investment is going to become much riskier:

technological development, higher and more

volatile prices for oil and gas;

pricing of greenhouse gas

emissions.

“Wider sustainability issues matter in selecting

options to combat climate change as, apart from

being important in themselves, they are also often likely to be material to the commercial viability

of an investment”Forum for the Future

Pick a winning portfolioInvestors should invest now, as markets and other government

measures are likely to produce prices in the range of €30 to €40 per tonne of CO2.

A mix of sectors and technologies is essential; no

single technology suffices

Abatement potential up to about 15 Gt is

available

Successful model portfolios exist – though concentrated at $30 to $60 per tonne, and based upon IPCC/UNFCC data

Rules and changes

•Investors need stable policies and a predictable process for change

•A price for carbon is essential

•Good regulations can drive efficiency gains

•The dialogue with policy makers must improve

Policy implications• Create the Carbon Market - business will invest once

carbon price and markets exist

• Support More Research:

• Quantify the Impact of Forestry - an accurate model is necessary for realistic portfolios

• Assess Carbon Capture and Sequestration – real costs may outweigh perceived benefits

• 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

Summary