A study¹ of global energy use that shows the world is still well over 80% dependent on fossil fuel sources is a sobering wake up call to the urgent need for investment in the renewables sector. An even more startling figure is that only 13 per cent of the energy in all this fuel is put to beneficial use. The world is wasting 87% of the energy in all the fuels we burn.

Completed by the University of Cambridge, the research provides the first ever accurate snapshot of global energy use and provides the evidence that the key counter-measure to the impact of global warming is to implement more energy efficiency to reduce the demand for energy. This in combination with a switch to non-fossil (‘low carbon’) fuels is the only hope of reducing carbon emissions to avoid climate change damage from global temperature increases significantly above 2⁰C.

This sentiment is also echoed by Lord Nicholas Stern² who argues that not taking action on climate change would cost the UK more (five per cent per annum GDP/year), whereas taking action was estimated at just under one per cent.

The latest Living Planet report from the World Wildlife Fund (WWF) shows that humanity's demands on natural resources have doubled since 1966 and that we’re using the equivalent of 1.4 planets to support our activities. It’s patently obvious that we have only the one planet, but this over-demand is especially felt by those living in densely populated Europe, where the dependence on imported goods and food is greatest. Elsewhere many nations continue to consume resources as if there were a limitless supply. So climate change and resource use are urgent priorities which need a global change, and nothing short of a new industrial revolution will do.

So is there a revolution underway? Well in China, US$9 billion a month is being spent on low carbon technologies, and there is also significant investment and innovation happening elsewhere, especially in the United States. The UK faces a major challenge to fund its desired low carbon targets costed at £70 million a day - made more challenging as the country recovers from the impact of the global financial crisis.

So with all those drivers you’d think that the money would be flowing from conventional funders like the banks, but it is flowing in a very different way. The peak of low carbon investment globally was £840 billion in 2008 and I would estimate that in 2010, thanks particularly to China, the figure will be fairly close to that after a massive dip in 2009.

But it (investment) is not happening in Europe because the banks have been told to keep a lid on investment to cover their debts and lending. As a result, two thirds of the Venture Capital (VC) deals globally in low carbon have been made in the US, particularly from the high-tech sector in California’s Silicon Valley. Whilst with Initial Public Offerings (IPOs), which was typically what Europe was spending a lot of time doing, 70 per cent of those in the year to date have shifted to China. This means that the financing of low carbon investment in the private sector is not happening in Australia, New Zealand or Europe, it’s happening in the US and China. This lag in investment is dangerous for our future economic competitiveness.

Why energy is key

In spite of the major focus on decarbonising electricity generation to reduce global greenhouse gas emissions, ambitious targets being set around the world will only be met by decarbonising the whole economy. This is something that must engage everyone because it is not something that we can leave to the power sector alone. Every sector has to change radically.

The Cambridge University study¹ analysed global data to calculate that a total of 27 gigatonnes of CO2 was emitted from the energy converted from oil, gas and coal. This is the lion’s share of all global greenhouse gas (GHG) emissions..

The results showed that while global energy demand in 2005 totalled 475 Exajoules (EJ), only 55 EJ was actually used (principally to move things around and for heating) with the remaining 420 EJ being lost in the many useless energy conversion processes – equating to a global planetary energy efficiency of just 13 per cent. There are limits to the amount of energy that can be converted, eg about 39 to 40 per cent is about as good as it gets when converting thermal energy from a fuel to electricity, but 13 per cent is pathetic. So there must be an equal focus on energy efficiency as there is on decarbonising power generation to accelerate the transition to a low carbon world.

It is pleasing, from a global citizen viewpoint, that China will meet its 10 per cent renewables target by the end of this year. Importantly, there is also an increasing realisation in the US and elsewhere that something must be done. The private sector is very keen to get into renewables and the message they are giving is that it is the uncertainty, and particularly the policy uncertainty, that gets in the way.

It is therefore time to look at voluntary corporate unilateral, bilateral and multilateral action. If we wait for 140 countries to reach a common decision and drive a global policy, as we did in Copenhagen, then we are going to be waiting a long time. An examination of other international initiatives shows that we can actually move quickly when we are led by a relatively small number of countries doing intelligent things. Some international businesses are anticipating this leadership, reacting and investing now.

The challenge therefore is to create an environment for policy certainty in each country or, put another way, a mandate for strong environmental policies that deliver economic competitiveness and a catalyst for fast and effective change. In the UK, I chair the Aldersgate Group, a coalition of businesses, NGOs, professional bodies, parliamentarians and others to raise this awareness and lobby for high environmental standards on the basis of economics.

Unusually, the three main UK political parties are within the group, which makes chairing a very challenging task. But, when you get down to the fundamentals, we actually have a common interest. We all would rather have a planet that is functioning for our children and grandchildren.

Financing

I make no apology for focusing on financing in the climate change debate because private finance has to be mobilised to fund the massive level of investment needed to transition to a low carbon, resource efficient economy. There is no other source of such massive funding needs - we’re not going to pay enough in tax for governments to do it.

To finance a future much less dependent on fossil carbon and profligate use of resources also invokes an abnormal level of innovation – the same again just will not do. But the change of tack brings an additional risk to investors. This is where a Green Investment Bank (GIB) is needed; enabling the risks from the innovation that society now demands to be shared according to who best can manage them.

There are seven key attributes that a Green Investment Bank (GIB) would need to be effective:

1. It must be part of a wider set of policies – it is not a stand-alone panacea 
2. Durability – the structure must have permanence, and that is something the markets want to see 
3. A focus on the particular things you need to do, which the private sector won’t, eg smart infrastructure like off shore renewables 
4. Access to institutional investors who are very keen to enter this market, but don’t have the capacity to invest in single projects driven by the green agenda, eg by creating green bonds 
5. Scale up energy efficiency – a very important activity that requires more financial capacity 
6. Sufficient capital – in the UK £4 - 6 billion capital is required in the first three to four years 
7. Expertise – there are a small number of green investors, the bank must aggregate that expertise.

Action requires clarity of vision of what a newly invigorated economy looks like when built consistently on the path to a low carbon and resource efficient future.

And such a model could prove extremely helpful elsewhere. The time has come for a GIB to attract the best of the new wave of entrepreneurs to invest in the green economy.

	The scale of change - A glimpse of cities in 2050 Energy use will be almost entirely electric  Existing power stations and highways will be showing their age  Energy and material costs will be higher  A shift to local – grids, generation, manufacture  A price on carbon  Declining personal vehicle ownership  Changing retail behaviour with goods being home-delivered  Agriculture will be strategically managed  Biodiversity will be of much greater value  Many homes are net energy suppliers

Learn More

	Financing the transition to a low carbon economy Join Peter Young from SKM Enviros as he talks about 'Financing the transition to a low carbon economy' at the Environment Business Australia Forum. 2nd February 2010

¹ JM Cullen and JM Allwood. Energy Policy 38 (2010) 75−81, University of Cambridge

² Stern, N. (2006) Stern Review on the Economics of Climate Change, HM Treasury, London

© Sinclair Knight Merz
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