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Wind turbines are pictured at a wind farm in Penonome, Panama, Nov. 10, 2015. Photo: Carlos Jasso/Reuters |
The wave of optimism that followed last month’s
climate change deal in Paris is wending its way down Wall Street.
Investors and financiers
meeting in New York this
week vowed to harness their trillions of dollars in collective wealth
to develop clean energy projects and curb the planet’s carbon emissions.
Whether they actually deliver on that promise could mean the
difference between winning and losing the fight against climate change.
Only with a dramatic spike in spending — and a total shift away from
fossil fuel investments — can countries have a shot at avoiding
dangerous levels of global warming, according to policy leaders and
climate experts speaking at the
Investor Summit on Climate Risk at the United Nations headquarters Wednesday.
“We have the momentum with us. We are winning. But we need you,”
former U.S. Vice President Al Gore told a group of over 500 investors,
pension fund managers, bankers and business executives over lunch. “This
is a moment of extraordinary hope, because the investor community is
moving — because the business community is real.”
The financial sector’s participation is considered critical for
ensuring the goals of the Paris climate conference are actually
achieved. Last December, the leaders of nearly 200 nations agreed to
limit the rise of global average temperatures to “well below” 2 degrees
Celsius (3.6 degrees Fahrenheit) above pre-Industrial levels.
To hit that target, the world must invest at least $12.1 trillion in
renewable electricity — including solar and wind power, battery storage
and energy efficiency — within the next 25 years, analysts at Bloomberg
New Energy Finance said in
a new report.
So far, countries are on track to spend $6.9 trillion by 2040,
resulting in an investment gap of $5.2 billion, by BNEF’s estimate.
Investments in emissions-free vehicles, alternative fuels and
sustainable-agriculture practices will add trillions more to the total.
Investors and fund managers at the even pledged to plug that funding
hole by backing more renewable energy projects and revisiting their
investments in fossil fuel companies or energy-intensive sectors.
“We want to be part of closing that gap,” Thomas DiNapoli, the New
York State comptroller, told reporters at the U.N. headquarters. He
noted the state this month launched a 10-year, $5 billion Clean Energy
Fund to install more solar and wind power in New York. “Investors have
put the word out that we’re looking to put more money into these kinds
of opportunities, so the opportunities are coming to us,” he said.
The financial industry has transformed from a reluctant bystander on
the topic of climate change to an active participant in the past few
years.
In the run-up to the Paris climate summit,
six major U.S. banks
urged world leaders to adopt policies that “recognize the cost of
carbon” and “drive innovation in low-carbon energy.” Large pension funds
from California to Norway are stripping their portfolios of risky,
high-carbon coal companies. Late last year, the first “fossil-free”
exchange-traded fund was
launched on the New York Stock Exchange. The ETF includes only companies with cleaner-than-average carbon footprints.
Motivations are mostly economic. If countries adopt policies to
reduce emissions to nearly zero this century, those who heavily support
coal, oil and natural gas will see their returns evaporate. The effects
of climate change itself — from rising sea levels to enduring droughts
and extreme storms — threaten to disrupt production and trade flows, and
drain global economic growth.
Yet for all the conviction and enthusiasm at Wednesday’s summit, the
path for delivering a clean energy transformation remains largely
uncertain. In many markets around the world, petroleum-based fuels and
electricity from coal and natural gas remain cheaper and easier to
access than cleaner alternatives. Most investors generally prefer to
stick with the safe bets, rather than testing the waters with new
financing tools like “green bonds,” or carbon-free investment funds.
Christiana Figueres, the U.N. climate chief, outlined two broad steps that could clear some of those roadblocks: putting a global price on carbon dioxide emissions and compelling companies to publicly disclose more information on how climate regulations could threaten their bottom lines
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Christiana Figueres, the U.N. climate chief, outlined two broad steps that could clear some of those roadblocks: putting a global price on carbon dioxide emissions and compelling companies to publicly disclose more information on how climate regulations could threaten their bottom lines. U.N. climate chief Christiana Figueres, center, celebrates the historic adoption of a global climate change deal in Paris, Dec. 12, 2015, with Laurence Tubiana, left, the French ambassador for the international climate negotiations, and Laurent Fabius, right, the foreign affairs minister and president-designate of COP21. Photo: Francois Guillot/AFP/Getty Images |
“Both of those brought together will be incredible enablers of the speed of transformation,” she said during a panel.
Pricing carbon emissions would effectively penalize polluters and
make it more expensive to extract or consume oil, coal and natural gas.
Renewable energy, as a result, would gain a competitive price advantage.
About 40 nations and 23 cities, states and regions have adopted or
are starting to adopt a price on carbon, either via a direct tax on
emissions or through a cap-and-trade system. California and nine East
Coast states have cap-and-trade markets in place, although efforts to
adopt a national scheme resoundingly failed during the first Obama
administration. Exxon Mobil and other energy companies have adopted an
internal carbon price to help determine the long-term viability of their
exploration projects.
Betty Yee, the California state controller, said a universal price on
carbon would make it less risky for the state’s investment funds to
direct their dollars to clean energy projects. The California State
Teachers’ Retirement System has a goal to invest $3.7 billion in clean
energy by 2019. But that amount could reach $9.5 billion under a carbon
price, Yee said.
While the policy
has gained momentum
in the wake of the Paris agreement, the plunge in oil and gas prices
over the past year could derail some of those efforts, energy analysts
said. Policymakers and the broader public may be less inclined to
support regulations that drive up prices when they’re enjoying cheaper
gasoline and heating fuel.
“For the clean energy sector, sustained low oil and gas prices are
concerning, there’s no question,” said Michael Liebreich, founder of
Bloomberg New Energy Finance and chairman of its advisory board.
The
push for increased public disclosures
is also gathering support from global business leaders and shareholder
activists. Proponents say boosting climate disclosures could steer more
dollars toward cleaner energy projects by making investors better
informed of the risks of investing in fossil fuels.
“What banks and financial institutions choose to finance will make an
enormous difference in how people go about getting their energy,” Mary
Schapiro, former chairman of the U.S. Securities and Exchange
Commission, said during a panel.
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A tractor trailer delivers a truckload of coal to Arch Coal Terminals, June 3, 2014, in Cattletsburg, Kentucky. Photo: Luke Sharrett/Getty Images |
Schapiro adopted the 2010 SEC guidance that requires publicly traded
companies to inform investors of their climate risks. She now serves on
the Task Force on Climate-Related Financial Disclosures, a new
initiative of the Financial Stability Board led by Michael Bloomberg,
the billionaire founder of Bloomberg LP and three-term mayor of New
York. The task force aims to develop consistent voluntary guidelines for
companies providing information to lenders, insurers, investors and
other stakeholders.
Yet guidelines and other measures have their limits. A New York
investigation into Peabody Energy last year found the St. Louis coal
giant, despite the SEC guidance, had not been forthright with investors
and regulators about the threats to its business that the company
acknowledged behind closed doors.
Peabody’s shares have fallen nearly 96 percent in the past year to
around $4 a share as the industry has grappled with rising debt,
plunging coal prices and softening demand from the power and steelmaking
sectors. The Dow Jones U.S. coal market index has plunged 80 percent in
the past year and 95 percent since 2011. In an agreement with New York
Attorney General Eric Schneiderman, Peabody agreed to disclose more
details about the financial risk it faces from climate change policies
and other environmental issues that could limit demand for its coal.
“Understanding those risks is important for investors in decisions
about where to allocate capital,” Schapiro said. “Without disclosure you
can have no understanding.”
During his impassioned lunch speech, Gore argued that backing clean
energy would not only help investors manage their financial risks but
also transform the global economy.
He likened the push to invest in lower-carbon energy systems to the
industrial expansion that arose in the 1940s during World War II. Clean
energy transformation could catapult the global economy by creating jobs
and boosting production in the same way the war machine boosted the
world from the depths of the Great Depression, Gore said.
“The transition to a low-carbon economy is the greatest opportunity
we have to lift the global economy in a sustainable way,” he said.
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