Climate:

Deutsche Bank's Parker discusses impact of Copenhagen on private-sector investments

What is the short-term investment potential for natural gas and clean coal? How are private-sector investments expected to change once an international climate agreement is signed? During today's OnPoint, Kevin Parker, global head of Deutsche Bank's Asset Management division, discusses the role an international agreement will play in spurring global clean-energy investments. He also explains why he believes the Chinese government will make significant news at this year's U.N. climate meeting in Copenhagen.

Transcript

Monica Trauzzi: Welcome to the show. I'm Monica Trauzzi. Joining me today is Kevin Parker, global head of Deutsche Bank's asset-management division. Kevin, thanks for coming on the show.

Kevin Parker: Thanks for having me.

Monica Trauzzi: Kevin, despite the big focus on health care this fall Congress is still beginning to work on drafting a cap-and-trade bill in the Senate. They did so in the House already in the spring. What changes do you think need to be made from the House version to the Senate version particularly to spur investment in clean technologies?

Kevin Parker: Well, the passage of the bill in and of itself I think is this going to help move in the direction of creating greater interest in clean technologies, but I don't think it stops there. Europe, as you know, has had cap and trade for some time and really what you see is a pretty big variance from country to country in investments with respect to investments in renewable technologies. And we argue that the cap-and-trade bill is the start of a regulatory framework required to encourage capital formation around renewables it is not the end of the process it's just the beginning.

Monica Trauzzi: And in Europe, which countries have been most successful?

Kevin Parker: Well, our home country of Germany is absolutely in a leadership position. Spain has done a lot Denmark and so forth, but Germany has really I think crafted a regulatory environment that's very, very favorable for capital formation around the renewable sector and, indeed, the numbers are proving that that is indeed the case.

Monica Trauzzi: Since many of the technologies that will be needed in order to fulfill the requirements of the cap and trade are still unavailable, there's still a ways to go before they're fully implementable, are we moving too quickly on legislation? I mean is there a case you can make for slowing things down until the technology catches up?

Kevin Parker: Absolutely not. We, as you know, launched a carbon counter on June 18. It measures the metric tons of greenhouse gases in the atmosphere and clearly when you watch that counter and see 800 metric tons of greenhouse gases being emitted into the atmosphere every second of every day and the sheer amount of greenhouse gases, 3.7 trillion tons roughly, the time to act is now.

Monica Trauzzi: It seems that most venture capitalists and companies are already investing a lot of money in clean energy technologies. So do you foresee see a spike in those types of investments once legislation is passed or are people already putting in a significant amount of money?

Kevin Parker: Well, the number globally is about 150 billion. The IEA estimates a need of about one trillion so the absolute amount of capital being invested, relative to where it's needed to really mitigate climate change is still relatively small.

Monica Trauzzi: Natural gas, should that be viewed as a viable energy source for investors to be putting their money in? I mean are there some long-term opportunities there or is that really just a short-term bridge solution?

Kevin Parker: Well, we look at it as more of a long-term bridge solution because natural gas is, as you know, a lot cleaner than some of the other fossil fuels and we think that interest in this sector is going to increase over time as a viable option to coal and oil, both in stationary power and in transport.

Monica Trauzzi: Coal, a lot of money has been put towards R&D of carbon capture and storage technology. Is that a smart investment? Is that something that we're going to see in the future and that investors should be putting their money towards?

Kevin Parker: Well, our view is that the problem is so big that we don't want to take any options off the table. I think when you talk to the industry leaders I think most of them will tell you that carbon capture is not a silver bullet. It's not a technology that's going to be delivered on a commercial scale anytime soon and so it's really only appropriate for those investors that have a very long time horizon because I think it's probably a couple decades before it's commercially viable.

Monica Trauzzi: An international agreement in Copenhagen is looking unlikely for this year. What's the impact on the global carbon market if we do push an international agreement to next year or the year after?

Kevin Parker: Well, first off I'm not so negative on the Copenhagen talks. I think China is a wildcard. I think they are outperforming by even their goals in terms of rolling out renewable energy. I think there's a lot of misconception about what China's view of the problem is and the way we look at China is they are not necessarily delivering on their promises; they're over delivering on their promises. And so we think there's a possibility that China comes to Copenhagen with a much more attractive deal to put on the table. And if that is the case, then I think the U.S. faces the potential of being caught flat-footed here. So we're actually more optimistic about Copenhagen than I think most people are. Obviously, a delay is a disaster in our view. The scientists talk about a tipping point in greenhouse gases in the atmosphere. We're going to hit that tipping point in 15 years and so our window of mitigating the problem continues to get smaller and smaller. We don't think we have that time.

Monica Trauzzi: How much of an impact do you think the global financial crisis will have on those negotiations?

Kevin Parker: Well, interestingly, the drop-off in investment in renewables, although was large, we're still talking about relatively small numbers. Despite that I think the industry is roaring back. Interest has never been higher. In the five or seven years I've been following this closely I can tell you the interest levels are extreme. I think investors representing trillions of dollars are sitting on the sidelines waiting for the regulators to create a clear path, take away regulatory uncertainty. Regulatory uncertainty is the enemy of the investors and that's what we've got right now and as long as that's the case you're going to see only the bravest investors really wading into the sector. If regulators are serious about really solving the problem they're going to need the private sector to do that. This has got to come from private investors and private investors cannot price regulatory risk. They can price operating risk, they can price financing risk, they can price key man risk. Professional investors are used to putting a price and understanding all those risks, but when it comes to regulatory risk that gives professional investors pause. And until we sort that out I think we're going to see professional investors sitting on the sidelines.

Monica Trauzzi: Final question here. You mentioned the carbon counter that your group launched in New York City earlier this year, how successful has that been in bringing more urgency to this issue?

Kevin Parker: Well, we think it was one of the most successful days press wise in the bank's history. We were covered by 700 periodicals, 50 TV stations. This is global coverage in probably 30, 40 countries around the world. We've had requests from 14 cities to put a carbon counter in their city now. The web site is doing well. The traffic is picking up. People are interested. What the carbon counter does is it makes tangible the problem of climate change and the issue of climate change and before that we found it very difficult to really have a conversation about what this meant. We wanted to reduce it and make it a simple, tangible discussion. And now with the measurement of greenhouse gases in the atmosphere in real-time by MIT scientists I think it brings the point home that we've got a problem to contend with.

Monica Trauzzi: All right, we'll end it on that note. Thank you for coming on the show.

Kevin Parker: Thank you.

Monica Trauzzi: Thanks for watching. We'll see you back here tomorrow.

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