Green power
Governments push environmental change despite economic slump: report
Posted: February 25, 2009, 8:44 AM ET
Governments worldwide have escalated "green" regulation and innovation initiatives over the past eight months, despite the global economic slump, according to a report from Deutsche Asset Management's DB Climate Change Advisors unit.
In fact, industries focused on clean technology, renewable energy and climate-change alleviation are likely to emerge from the global recession in good shape precisely because economic stimulus packages passed by governments around the world have earmarked significant resources toward those very efforts.
The report identified250 new regulations — worth more than $200 billion all told — that support renewable energy and climate-change mitigation that have popped up in government stimulus packages worldwide.
"(Governments) have certainly stepped up the pace in the past six to nine months, particularly because of the stimulus packages," Mark Fulton, global head of climate-change investment research at DB Climate Change Advisors, said during a Feb. 24 conference call on the report.
The report identified three broad areas of regulatory policy: traditional regulation, including mandated standards and public education; carbon pricing, including carbon taxes and cap-and-trade programs; and innovation policy and subsidies. The report identified 124 traditional regulation policy developments worldwide since July 2008, 57 carbon pricing developments and 69 innovation policy developments.
"What's interesting is how much activity there has been in the traditional mandates and the innovation incentives and subsidies areas," Mr. Fulton said. "Carbon markets are important in the long run … but in the day-to-day investible markets, these mandates and these innovation policies are very important to keep markets moving at the moment."
And while market conditions and the liquidity crisis have been difficult on every economic sector, including climate change, Mr. Fulton said, the regulatory policies are laying the foundation for potential growth over the medium and long term.
"These are the sectors that can lead us out (of the financial crisis)," he said.
Equities, PE, VC and infrastructure to get boost
Asset classes that could particularly benefit include public equities, private equity and venture capital, and infrastructure, the report identified. In public equities, cap-and-trade programs or carbon taxes can increase the value of so-called "clean" businesses.
Also, policies such as feed-in tariffs (programs in which regional or national electric utilities are required to buy renewable electricity at above-market rates set by the government), tax credits and mandatory standards create demand for "green" products and services.
In private equity and venture capital, research and development incentives and subsidies are supporting innovation and the scaling-up of cutting-edge "clean" technologies such as renewable energy (wind power, solar power, biomass, hydropower, biofuels), information technology, green transportation, electric motors, lighting and clean technology manufacturing.
In infrastructure, feed-in tariffs and tax credits make climate change-related projects economically sound and mandatory standards require the scale-up of green industries.
About 13.5% — or $106 billion — of the $787 billion economic stimulus package signed into law by President Barack Obama on Feb. 17 is committed to green, climate change-related initiatives, the report said. Of that, $85 billion is dedicated to direct spending measures, including $18 billion for mass transit, and $21 billion for renewable energy tax breaks.
Among other items, the report identified $11 billion in the stimulus package dedicated to electric power grid investment, $8 billion to capital assistance for high-speed rail corridors and intercity rail services, $6.9 billion to the Federal Transit Administration's transit capital assistance, $6.3 billion to energy efficiency and conservation grants, $6 billion to renewable energy and transmission loan guarantees, $6 billion to nuclear waste cleanup and $5 billion to weatherization assistance program.
The report also tracked several non-U.S. initiatives, including the €200 billion ($257 billion) stimulus package proposed by the EU Commission in November, which included €4 billion in low interest loans to promote "the safety and environmental performance of cars" and €10.6 billion to other green technologies, such as energy efficiency in buildings.
"While there has been a lot of focus on the U.S. initiatives, we think it is very important to put it into a global context," Mr. Fulton said.
Green ideas in China stimulus not clear
The report separated China from the $212 billion it identified globally for green initiatives, because it is not obvious with the information available how much of the country's $586 billion stimulus package announced in November would be considered green, Mr. Fulton said. But the report did identify about 12% of the package as being targeted at energy efficiency and environmental improvements. That included $70 billion to upgrade and integrate the national electric power grid, $29 billion for power plants, including a number of nuclear plants and a natural gas pipeline, and $2.9 billion for water conservation and irrigation projects.
The four main investment themes that governments are focused on worldwide, according to the report, are the promotion of solar and wind energy, the installation of energy-saving light bulbs (called advanced lighting initiatives in the report), investments in improving electric grids and the development of clean automobiles that run on batteries.
"We believe this trend toward greater regulation will provide crucial support to climate change industries during the current global economic downturn," the report said. "Coupled with increased government spending on key climate change initiatives as part of economic stimulus packages in countries such as the U.S. and the UK, this should provide a boost to 'green' industries in contrast to other sectors of the global economy affected by recession."
Contact Jennifer Byrd at jbyrd@pionline.com
http://www.pionline.com/apps/pbcs.dll/article?AID=/20090225/REG/902259997/1007
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