World Resources' Steer discusses impact of financial constraints on green investment

Will global financial constraints cause businesses to scale back their plans for sustainable investments? During today's OnPoint, Andrew Steer, president and CEO of the World Resources Institute, discusses the impact of the financial crisis on green investments. He also explains how rising global coal demand will affect emissions reduction goals.


Monica Trauzzi: Hello, and welcome to OnPoint. I'm Monica Trauzzi. Joining me today is Dr. Andrew Steer, president and CEO of the World Resources Institute. It's nice to have you back on the show.

Andrew Steer: Thank you very much.

Monica Trauzzi: Andrew, WRI has released its annual stories to watch for 2013, and the big story of 2012, and certainly moving into 2013, is going to continue to be the financial crisis that's plaguing the United States and other countries around the world. It has the potential to have serious implications on investments in sustainability. Many businesses have planned for certain investments, but that might start to change. How do you believe that the financial constraints that are being placed on businesses and investors could impact some of those green investments?

Andrew Steer: Well, there's no question that we now live in an economy in which investors are more risk averse, and lenders and financiers are more risk averse. And on top of that, you've got new regulations, Basel III, for example, that says if you want to make risky investments, then you have to cover those with more reserves. And the problem is, of course, that a lot of green investments, even though they're fantastic rates of return, quite often, they are more risky, risky for several reasons, technological risk, sometimes policy risk. We don't know whether the government policies will stay the same. But also the sort of profile of financing is different. You need more up front funding, and then less funding. And so risk management is incredibly important. Now we just got the numbers. Bloomberg New Energy Finance just issued their estimates of 2012, say for renewable energy, about $250 billion, down for the first time in eight years in terms of worldwide investment, still about half in the developing countries, half here. Estimate that they will increase a little bit. So nowhere near enough. And so we really should be looking for is whether or not there are mechanisms to help the private sector de-risk their investments in green infrastructure. Now some of that can come from innovations in the public sector. For example, the Green Climate Fund will be starting up this year. We should be watching to see whether or not it's going to play a role in de-risking. A number of private companies themselves also are doing innovative things to try and create a longer-term perspective. You know, Paul Polman of Unilever says, "I'm not going to give quarterly financial reports anymore. Why? Because that'll help us get several other sort of very interesting issues. So in our stories to watch, we focus on a number of specific issues in the financial sector that we should be watching to see whether or not this kind of ability to manage risk changes.

Monica Trauzzi: One of the main cases and concerns against acting on climate change are the negative economic impacts that some kind of emissions reduction policy could bring. As an economic development expert, how do you then make the case in this current climate for moving forward with aggressive emissions reduction targets and policies?

Andrew Steer: Mm-hmm. Well, it's certainly easier if you're growing to take bold measures, and that's why China, for example, can keep investing $50 billion a year in renewable energy. That's why it is choosing to put cap and trade systems in five of its cities and two of its states this year. It's going to nationwide with cap and trade, 2015. If you are growing, it's easier to say, "Right, we're going to take this seriously." So too Africa now is growing more rapidly than we ever did in our Industrial Revolution. So surprisingly, even in Africa you're starting to see some interesting initiatives. And one of the questions for Africa is will it use its growth to go in the right way or the wrong way? So it's certainly true that with a slower growth, it's going to be more difficult. But I think the economics is pretty convincing, that it doesn't take long before good investments, smart investments in low carbon development, pay for themselves. And many of the investments actually pay for themselves immediately. I mean, energy efficiency still can get us one-third of where we need to get to. That's like a whole bunch of, you know, $100 bills sitting on the sidewalk, and they're still there. No one's picking them up. And what we have to do is try and unlock the barriers that are preventing things which clearly are in everyone's interest, but we're not yet doing them.

Monica Trauzzi: How important do you believe it is to President Obama to have a legacy on climate and emissions reduction, and what are you really looking for? What are those top three things that you're looking for him to do on climate and energy in his second term?

Andrew Steer: Well, I'm sure he does want to have a legacy, because he's said that. He's said that if we ignore climate change, we do so at our peril. And we believe that. Now what does he need to do? Well, he's said already he's going to launch a conversation on climate change. It's a perfect time to do it. Look, the United States' drought at the moment is probably going to cost one percent of GDP. It may turn out to be the most costly natural disaster we've ever had in our history, and we all know about Hurricane Sandy. We know that Florida is potentially in significant trouble, and so on. So it's a perfect time to launch a conversation, but obviously, we need to go beyond the conversation. The United States doesn't have yet a really comprehensive climate strategy. Most other countries, significant countries do. So it would be a great time really to confront that. But we're bringing out a report in a couple of weeks looking at the United States' goal to achieve its 17 percent reduction in greenhouse gases by 2020. It will be possible, I believe, but it will require - even under existing authority, but it will require some measures where the EPA and other agencies will need to act in a bold way, will need to address the issue of existing power plants, a number of other specific measures, you know, that need to be addressed in the coming year. But beyond that, there needs to be a willingness to think slightly longer term. It's one thing to reach the 17 percent reduction by 2020, but remember, we need to get an 80 percent or 90 percent reduction by 2050, and each year we delay in the bigger structural reforms, they will cost more and more.

Monica Trauzzi: And a lot of the discussion here in the United States is centered around coal, but global demand for coal is surging, and WRI actually found that there are 1,200 proposed coal plants around the world. The U.S. is now exporting record levels of coal. So is there a place for coal in this more sustainably focused world?

Andrew Steer: Well, the US closed down about 50 coal-based power plants over the last year, still has 380-odd. You're right. Seventy-five percent of the newer ones are going to be in India and China. And the United States' exports of coal, of course, have tripled in the last - in the last eight years. Is there a role for coal? Well, I mean, I don't want to say coal is totally wicked, we should stop it today at all, but clearly we can't get to where we need to get to if fossil fuels continue to have the role that they have today. I mean, it's just arithmetically not possible. And so what we need to do is work with countries like India and China to think through what would change the incentive structure. And, you know, I think there's quite a lot of evidence that done right, with the right kind of investment in technology and so on, that we will be phasing out the use of coal over time.

Monica Trauzzi: You were at the World Bank before coming to WRI, and one of the things that's controversial there is the discussion on the role that the World Bank should play in coal loans. Now that you've stepped away from that role at the World Bank, what do you think the World Bank should be doing on coal?

Andrew Steer: Well, look, I think it's - I think it's vital that institutions like the World Bank become perceived and are leaders in financing, energy efficiency, and renewable energy, and I think there's good - there's good progress there. There could be more. And so I think that what one really wants to do is to tool up, to become the go-to place for renewable energy, because, you know, if you look at the data now, if you ask experts, so-called experts, is wind energy more expensive than coal, they'll all say, "Yes, yes, it is." In fact, if you do the analysis, it's not. Cost curves are shifting dramatically. And so institutions like the World Resources Institute need to be doing everything we can to demonstrate to everybody where the technology is and where it's going, and the World Bank needs to be in that position, too.

Monica Trauzzi: All right. We will end it right there. Thank you for coming on the show again.

Andrew Steer: Thank you very much, Monica.

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

[End of Audio]



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