Carbon markets don’t motivate clean investment, says Deutsche Bank
28 October, 2009
Emissions trading has done little to encourage investment in renewable energy and energy efficiency, and governments should focus on introducing feed-in tariffs and mandates if they want to prevent the worst effects of climate change by 2020, according to analysis by Deutsche Bank’s Asset Management (DeAM) division.
“The carbon price is not forcing companies to change their behaviour,” said Kevin Parker, New York-based global head of DeAM. “There are aspects about cap-and-trade that are distorting supply and demand, and that’s going to delay implementation [of clean technologies],” for example, the giving away of allowances and volatility in the carbon price due to recession, he said.
He added that the credibility of carbon markets “is up for debate”.
The firm analysed 270 major climate policies in 109 countries and assigned each country a high, medium or low risk profile for investors. Countries with the lowest risk included Germany, while Italy was among those given a high risk rating – despite both countries being in the EU Emissions Trading Scheme, which caps greenhouse gas emissions.
“Carbon markets may provide policy support to investors in the long term,” said Mark Fulton, global head of climate change investment research at DeAM. “However, for the foreseeable future, investors will be focused on mandates and incentives.”
Feed-in tariffs, which provide renewable energy developers with a bankable revenue stream, have “demonstrated their ability to deliver scale”, he said, citing the examples of Spain and Germany which have developed world-leading renewable energy sectors.
DeAM also engaged Columbia University’s Earth Institute to calculate how current and proposed policies would impact emissions in 2020. The Institute found that even if such policies made their maximum possible impact, emissions would likely exceed the amount needed to limit world temperature increases to 2°C – by an amount equivalent to the current annual emissions of the US.
“Without a lot more work on regulation and a lot more [private] capital, we are going to pass 2°C,” said Parker. “What investors want is Transparency, Longevity and Certainty – ‘TLC’ – in policy regimes to mobilise capital.”
