Is the green bond market taking off?

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bright-bulb-close-up-1108572.jpgGreen bonds seem to be all the rage these days. January 2019 saw a record number issued, yet again drawing investor attention to this niche but growing asset class. According to an SEB report, green bond issuance rose to US$ 17.2bn in January this year, a 17% YoY increase. From its inception in 2007, with the issuance of the first green bond by the European Investment Bank, this market has grown to a record annual issuance of US$ 183bn in 2018.

With the term green bond now cropping up on a regular basis, this post will explore what actually is a green bond and what are the qualification criteria. It will also consider the growth potential of this asset class.

The simplest definition of a green bond is a bond whose proceeds are used to finance projects with positive environmental or climate benefits. Most green bonds are classified as “use of proceeds” or asset-linked bonds. This means that while the proceeds of such bonds are earmarked for green project, the bonds are backed by the issuer’s whole balance sheet. Green bonds have been issued by a whole range of players, from corporates to municipalities to supranational organisations. For example, 2019 has seen the telecoms industry entering the green bond market for the first time with issuances by both Telefonica (EUR 1bn) and Verizon (US$ 1bn).

With growing investor demand in green bonds, there is also a growing concern about greenwashing and the need for stricter standards, assurance and certification of genuine green bonds. The Climate Bonds Initiative, an international investor-focused not-for-profit, has established the Climate Bonds Standard and Certification Scheme, a FairTrade-like labelling scheme for bonds to enable investors to assess the green integrity of bonds. The Standard is backed by the Climate Bonds Standard Board of investor representatives which between them represent US$ 34tn of assets under management. The Standard consists of a certification process, pre-issuance requirements, post-issuance requirements and a number of sector-specific eligibility and guidance documents. Sector guidance is currently available for water infrastructure, solar, wind, low carbon buildings, geothermal energy, marine renewable energy and low carbon transport. Guidance for forestry, bioenergy and land use is awaiting final adoption by the board. However, although it is widely agreed that such objective standards are crucial to ensure the future growth and development of the green bond market, adhering to these standards imposes a high cost on issuers and may therefore hinder their entry onto the market.

These cost hurdles and the fact that the green bond market still represents only 2% of global fixed income issuance, leads some to question whether the green bond market will ever succeed in going mainstream. Indeed, it may be that the main role for the green bond market going forward is to encourage a higher level of transparency and ESG (environmental, social and governance) disclosure for all issued bonds. For example, a standard form ESG scorecard could be required for every bond issued, enabling investors to form a clearer idea about the ESG impact of their investment. A requirement to have such standardised ESG disclosures would have a profound effect on the way bond issuers address ESG issues, making them an integral part of the issuer’s strategy.

From its humble beginnings a decade ago, the green bond market has grown into a established, albeit niche asset class. It is likely that annual issuances of green bonds will continue to grow as new issuers experiment with green bonds and unlock alternative sources of finance for environmentally green projects. However, it also seems likely that the green bond market will have an increasingly more powerful role to play in holding the mainstream bond market to account on ESG matters by encouraging stricter transparency and ESG disclosures. The green bond market may be small, but it sure is mighty.

 

Put a price on it

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industry-611668_1920Having spent this summer interning at Equinor*, one of my key takeaways is about the importance of carbon pricing.

Prior to joining the Norwegian energy giant, carbon pricing was something I had only ever considered as part of my undergraduate economics degree. However, Equinor is a great example of how effective a carbon tax can be. In 2016, the company’s upstream oil and gas portfolio had a carbon intensity (i.e. the amount of carbon emitted per barrel produced) of 10kg of CO₂ per barrel of oil equivalent, compared to an industry average of 17kg. Equinor is aiming to reduce this to 9kg by 2020 and 8kg by 2030. Both targets look within reach.

In large part, Equinor’s high carbon efficiency is driven by the carbon tax that has been in place in Norway since 1991. According to the OECD’s Effective Carbon Rates 2016 publication, in 2012, in Norway, 38% of carbon emissions are subject to a price at or above EUR 30 per tonne of CO₂, 81% are subject to a price at or above EUR 5 per tonne of CO₂ and only 19% of carbon emissions are subject to no price at all. This compares to only 10% of emissions across all other countries being subject to a price at or above EUR 30 per tonne, 30% of emissions being subject to a price at or above EUR 5 per tonne and a massive 60% of emissions not being subject to any price at all. The highest carbon tax in Norway is EUR 56.

So what does carbon pricing mean and how does it actually work? Putting a price on carbon means putting a cost on the emission of carbon dioxide (and other greenhouse gases). This internalises the otherwise external and unpaid for cost of emissions (such as the cost of climate change) and puts the responsibility back on the emitter to either reduce emissions or pay for the right to emit. A carbon price creates an economic signal for emitters and enables them to incorporate the price into their financial planning. It encourages them to improve efficiencies and pursue clean technology innovations as the lower their emissions are, the less they are required to pay. Hence, Equinor’s low carbon intensity. It also informs investment decisions, promoting cleaner alternatives.

Carbon pricing can be introduced either in the form of a tax or an emissions trading system (ETS). A carbon tax puts a direct cost on each tonne of greenhouse gas emitted or on the carbon content of fossil fuels. This does not determine how much emissions will be reduced by, but it sets a firm price on carbon. An ETS caps the total permissible emissions within a given area. Low emitters are permitted to sell their carbon credits to higher emitters thereby establishing a market price for carbon. The cap ensures that overall emissions are reduced.

Carbon pricing initiatives are becoming more common and acceptable. In 2018, 20% of global greenhouse gas emissions are covered by carbon pricing initiatives, which have now increased to a total of 51 worldwide. These include:

  •  The EU introduced the world’s first international carbon trading system in 2005. It remains the world’s biggest carbon market, but it has been plagued since inception by problems of credit over-supply and a poor pricing mechanism. Nevertheless, a post-2020 reform plan has been agreed pursuant to which the cap on aggregate emissions will be lowered at a faster pace. The market surplus is set to fall by more than 1 billion tonnes (more than 60%) between 2019-2023. The allowance price has responded by increasing from 4-5 EUR per tonne of CO2 in April 2017 to a 12-14 EUR per tonne range one year later.
  • Countries across Central and South America have embarked on introducing a variety of carbon pricing mechanisms. Argentina adopted a carbon tax of US$ 10 per tonne of CO2 in December 2017, which is expected to cover about 20% of the country’s greenhouse gas emissions. Colombia has introduced a carbon tax on all liquid and gaseous fuels used for combustion. Revenues raised are being earmarked for the Colombia in Peace Fund to support ecosystem protection and coastal erosion management. Chile introduced a carbon tax in January 2017, which is intended to help the country meet its aim of cutting its greenhouse gas emissions by 20% below 2007 levels by 2020. In 2017, Mexico launched a year-long ETS simulation. On the back of this experience, it has now started a pilot ETS which is expected to be formally launched in 2022.
  • Countries in Asia are also looking into carbon pricing, most notably China, which launched a national ETS in December 2017. Once fully operational, this ETS is expected to be the largest in the world.

One notable exception to the general trend of adopting carbon pricing is the US. Last month, Carlos Curbelo, the Republican member of the House of Representatives proposed a bill to introduce a carbon tax of US$ 24 per tonne of CO2 to be levied on coal mines, refineries, gas processing plants and other industrial facilities. Revenues raised would be used to abolish a federal tax on petrol, invest in roads and bridges and smaller amounts would go towards grants for low-income families, flood protections and research into energy innovation. However, it looks very unlikely that Mr Curbelo’s bill will ever be adopted in law as the same week the House passed a resolution arguing that “a carbon tax would be detrimental to American families and businesses, and is not in the best interest of the United States”. Nevertheless, even if the US federal government does not seem in favour, individual states, including California, Washington and Massachusetts, have either introduced or scheduled the introduction of an ETS. This indicates that, just as the “We Are Still In” coalition in response to President’s Trump decision to withdraw from the Paris Agreement, action at the sub-national level in the US may yet introduce countrywide carbon pricing through the back door.

The final piece of the puzzle is the private sector. In recent years, internal carbon pricing has emerged as an effective mechanism to help companies manage the risks and evaluate the opportunities of embarking on the transition to low carbon. In 2017, 1300 companies disclosed that they currently use an internal price of carbon or intend to do so within two years. This includes over 100 Fortune Global 500 companies with combined annual revenues of approximately US$ 7 trillion. Incidentally, Equinor applies a US$ 50 internal price of carbon outside of Norway.

Momentum towards the introduction of carbon pricing across the board is clearly building – economists, business and many governments agree that this is an elegant and effective way of reducing emissions and dealing with climate change. However, huge emitters in the Middle East, Russia and India remain outside the fold, together with, of course, the US government. This does not prevent business from leading the way by introducing internal carbon pricing and focussing on investments into cleaner, more efficient solutions, which in turn will make them more profitable in the long-run. Time to take the baton!

*Disclaimer: All views expressed in this blog post are my own and are not intended to reflect or represent the views of Equinor or any of its employees.

What’s in a name?

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pinwheel-2222471_1920A lot it would seem, if you’re a large oil and gas company repositioning yourself as a low-carbon committed energy company. So, on 15 March, Statoil announced that it would be changing its name to Equinor, a name that signals equality and a return to its Norwegian roots. The proposed name change is now subject to a shareholder vote at the company’s AGM on 15 May but given the support of the Norwegian government, which is a majority shareholder, it is unlikely that there will be any dissent. The name change, which is rumoured to cost approximately US$32 million, will remove “oil” from the company’s name and fits nicely with its low carbon strategy unveiled last year. Will the new name embolden the company to accelerate its transition to a sustainable energy mix ahead of its current 2030 milestone? Time will tell.

Statoil’s name change comes after Orsted (previously Dong Energy) underwent a similar name transformation late last year. Orsted is a Danish energy company that started its existence with a heavy dependence on coal. It began its green transformation about a decade ago, phasing out coal consumption by 73% in 2017 and targeting a full withdrawal from coal by 2023. The company also divested all of its oil and gas assets in 2017 and is focussing on being a global leader in offshore wind. It currently holds a 25% market share in the industry, powering 9.5 million people. Its aim is to power 30 million people by 2025. The name Orsted is a homage to Hans Christian Orsted, a Danish scientist who discovered electromagnetism.

Full scale name changes are not the only ways the big oil and gas companies are trying to prove their commitment to the energy transition. Companies, such as Shell, are rebranding themselves as full service “energy” companies (not oil and gas companies). Indeed Shell is currently being pressed by an activist shareholder group to make a radical shift away from fossil fuels. This shareholder group, called Follow This, contends that Shell’s current commitment to reduce its carbon footprint by 50% by 2050 is not sufficient to meet Paris Agreement thresholds. A similar resolution brought by Follow This last year was rejected by 94% of Shell’s shareholders. However, with climate change, the Paris Agreement and global warming now regularly in the headlines, perhaps this  year the resolution will find more traction, especially following this week’s publication by Shell of the radical Sky Scenarios report. The report focusses on technically feasibly but challenging steps that need to be taken over the next 50 years to ensure the Paris Agreement targets are met. The seven key steps outlined in the report are:

“1. A change in consumer mindset means that people preferentially choose low-carbon, high-efficiency options to meet their energy service needs.

2. A step-change in the efficiency of energy use leads to gains above historical trends.

3. Carbon-pricing mechanisms are adopted by governments globally over the 2020s, leading to a meaningful cost of CO 2 embedded within consumer goods and services.

4. The rate of electrification of final energy more than triples, with global electricity generation reaching a level nearly five times today’s level.

5. New energy sources grow up to fifty-fold, with primary energy from renewables eclipsing fossil fuels in the 2050s.

6. Some 10,000 large carbon capture and storage facilities are built, compared to fewer than 50 in operation in 2020.

7. Net-zero deforestation is achieved. In addition, an area the size of Brazil being reforested offers the possibility of limiting warming to 1.5°C, the ultimate ambition of the Paris Agreement.”

Source: Sky Scenarios report, Shell

The increased activity among the large oil and gas companies to embrace transition is commendable. Whether they are doing this out of genuine concerns for the future of the planet or because investors are now rapidly starting to pull out of oil and gas stocks is debatable. Either way, though, provided the net effect is that we witness a sustainable realignment of the energy mix, all such news is good news.

 

 

Plastic un-fantastic

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So far in the UK, 2018 has been dominated by the topic of plastic.

In December 2017, China announced that it would cease importing most types of plastic waste for recycling, a move that has unnerved both the government and businesses in the UK. Previously, plastic was an “out of sight, out of mind” problem for the UK. But now with the Chinese ban in imports, the UK will have to address its plastic waste problem urgently as it currently does not have the means to recycle or deal with the amount of plastic waste it generates every year. According to Greenpeace, the UK has sent over 2.7 million tonnes of plastic waste to China and Hong Kong since 2012, amounting to 2/3 of the UK’s total export of plastic waste.

In response to the ban, Theresa May, the UK Prime Minister, yesterday unveiled a 25 year environmental plan which aims to tackle the UK’s plastic problem. The plan aims to eradicate all avoidable plastic waste in the UK by 2042. The key provisions are:

  • introduction of “plastic-free” aisles in supermarkets;
  • extension of 5p carrier bag charge to all retailers in England;
  • potential introduction of taxes on single-use, plastic takeaway containers;
  • establishment of government fund for plastics innovation; and
  • commitment to use UK aid to help developing nations tackle plastic waste and pollution.

Although the announcement was widely welcomed, environmental groups were not impressed that the promises are wooly and have no legal force. Many also baulked at the 25-year timeframe, criticising the lack of urgent action. There is the cynical view that the announcement was just a clever bit of electioneering to attract more young voters for whom the environment is an important issue. However, the plastic problem is a salient one and we can therefore only hope that each of these promises will be put into action sooner rather than later.

One positive piece of plastic-related news that has come out of the UK in the last few days is the coming into force of the plastic microbeads ban on 9 January. Initially the ban only covers manufacturing but as of July this year, it will also be extended to the sale of products with microbeads. Thousands of tonnes of plastic microbeads end up in the oceans each year, harming the flora and fauna and eventually ending up in the food that we eat. The UK is the first country to introduce a wholesale, robust ban and it is hoped that more will follow suit. Ireland is already looking to introduce its own ban in late 2018.

However, government “stick” is not the only way to achieve reductions in plastic waste. Companies should proactively review their plastic consumption and outputs and seek ways to improve efficiencies and reduce waste. For example, certain coffee shops in the UK already offer a 25p discount to people who bring in their own reusable coffee mugs or thermoses. However, this is poorly advertised. Starbucks is also planning to pilot a 5p surcharge on plastic cups in some London stores in February. These are positive steps forward. But are they enough?

Finally, on the back of the China ban, we may seem the emergence of a whole new local recycling industry. For example, Group Machiels, a waste management company, is planning to convert waste from landfill sites into energy and building materials using a technology called plasma. Eventually, the company aims to turn emptied landfill sites into local parks. Unfortunately, local support for such extensive landfill site excavations is currently low but this does sound like an innovative way to tackle one side of the problem.

One thing is for sure, plastic waste around the world is a catastrophic problem for our environment and ultimately for our health. The problem needs to be addressed both at source with a significant reduction in the generation of plastic products and through effective recycling of used plastics. The UK government’s 25 year plan is a positive step in the right direction, but it needs to be accelerated. Businesses and consumer attitudes also need to change. Plastic reduction must start today.

 

 

 

Sustain a Future’s 2017 Review

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design-2711676_19202017 was a year when sustainability, climate change and emissions reductions came to the fore on both private and public agendas. And so as we tumble towards 2018, I would like to do a run-down of the year’s developments that are helping to sustain a future.

Paris Agreement

One of the biggest developments early in 2017 was President Trump’s decision to pull out of the Paris Agreement (see blog). However, this only served to galvanise worldwide support for the agreement and as of today, 172 out of 197 countries have ratified it. The President’s actions also gave birth to the “We Are Still In” movement of over 2700 US companies, cities and states, together representing $6.2 trillion of the US economy, coming together to pledge allegiance to the Paris Agreement goals and ensure that America abides by its commitments, even when it withdraws from the agreement. The US withdrawal has also opened the door for Emmanuel Macron to become a leading voice in the fight against climate change, as evidenced at the One Planet Summit this December.

Electric vehicles

2017 also saw a reassessment of forecasts relating to electric vehicles. In a report published in July, Bloomberg New Energy Finance stated that it estimates that by 2040, 54% of new car sales and 33% of the global car fleet will be electric (see blog), a much more bullish forecast than it had issued just a year before. Added to this, a number of countries and car companies announced the ban or phase out of petrol-only vehicles. For example, Volvo announced that it would be going all-electric with every car in its range to have an electric train by 2019 and the UK and France announced a ban on the sale of new petrol and diesel cars from 2040.

Renewable power generation

Records were set in renewable energy generation in 2017. In the UK, low-carbon energy sources made up 52% of the energy mix throughout the year, making 2017 the “greenest” year on record for the UK. The country also succeeded in having a full 24 hours of coal-free power generation in May 2017 (see blog). Furthermore, in October 2017, wind power provided nearly a quarter of all energy generation in Europe as a whole. These records have been assisted by the continued falling costs of solar and wind power technology and renewed investment in renewable energy infrastructure. For example, earlier this year the world’s first floating wind farm came into operation offshore Scotland, operated by Statoil.

Business initiatives 

On the business side, the RE100 group of companies committed to 100% renewable power (see blog) grew again this year to 116 members including Google, Apple, Unilever,  Walmart, ABInv Bev…to name but a few! These huge, multinational companies have each set the goal of obtaining 100% of their electricity from renewable sources within the next decade or so. Traditional oil and gas companies have also embarked on the energy transition journey. Shell now commits $1 billion annually to investments in clean energy. BP is committed to a lower-carbon future with a move towards greater investments in gas and carbon capture and storage technology. Both companies are also members of the Oil and Gas Climate Initiative (see blog), which includes the world’s biggest oil and gas companies. These companies have committed US$1 billion of funding to be invested over the next decade in innovative technologies and start-ups which propose solutions to substantially reducing greenhouse gas emissions.

Plastic pollution

2017 also witnessed the first UN Ocean Conference, which highlighted the plight of our oceans due to growing plastic pollution and climate change (see blog). The Ocean Conference raised $5.24 billion in commitments to protect the oceans and created a Call for Action which affirmed the signatories’ “strong commitment to conserve and sustainably use our oceans, seas and marine resources for sustainable development”.  Greater awareness of the dangers of plastic pollution have also resulted in individual action to fight plastic pollution, including the Ocean Cleanup whose plastic waste collection system aims to remove half of plastic waste in the Great Pacific Garbage Patch in five years; Adidas teaming up with Parley to develop trainers out of plastic and Plastic Odyssey which has developed a boat that can be powered by plastic.

A look to the future…

So what are the predictions for 2018? I think that the key themes will be:

  • a broader conversation about peak oil, but due to falling demand rather than supply;
  • the role of gas in the future energy mix;
  • the use of blockchain to facilitate peer to peer energy transactions;
  • the rise of electric vehicle alternatives, such as the hydrogen motor; and
  • more innovative uses of existing technologies – such as the solar panelled motorway in China that intends to charge cars as they drive using wireless technology.

It’s been an eventful year and so for now, I wish you all a very happy and prosperous New Year!

COP23 Roundup

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downloadLast week, the latest UN Climate Change Conference was held in Bonn, Germany. It was the first such conference to take place since the US’s withdrawal from the Paris Agreement and with Syria becoming a signatory during the conference, the US is now the only country in the world not to be a party to the agreement.

The conference again brought the topic of climate change to the centre of the international political arena and amid the general calls for action and greater urgency, concrete commitments were made. I will discuss some of the key take-aways here.

1. Launch of Powering Past Coal Alliance 

The UK and Canada spearheaded the launch of a new initiative aimed at phasing out traditional coal power. Although there is no firm timeframe commitment, the alliance’s declaration states that traditional coal power needs to be phased out by no later than 2030 in the OECD and EU28, and no later than 2050 in the rest of the world.

The alliance was joined by more than 20 entities including Denmark, Finland, Italy, New Zealand, Ethiopia, Mexico, the Marshall Islands and the US states of Washington and Oregon. Michael Bloomberg also pledged $50m to expanding his anti-coal US campaign to Europe.

However, notable abstainees from the pledge included the US, China, India and Germany.

2. Launch of Ocean Pathway Initiative

With Fiji holding the rotating presidency at COP23, it was expected that there would be an initiative focussing on the oceans and climate change. As a Pacific Small Island Developing State (SIDS), Fiji is particularly vulnerable to the destructive effects of climate change on the oceans, through rising sea levels to overheating.

The Ocean Pathway initiative has reaffirmed the Call for Action issued at the UN Ocean Conference earlier this year and seeks funding for ocean health and maintenance of ecosystems from UN climate change funding initiatives. The initiative has also launched the Oceans Pathway Partnership to link existing ocean activities and promote cooperation.

3. Financing climate action

During the conference, a number of significant funding commitments were announced, including:

  • Adaptation Fund: This fund, established under the Kyoto Protocol, finances projects and programmes that help vulnerable communities in developing countries adapt to climate change. To date, it has committed US$462 million in 73 countries. This year, it was officially committed to serve under the Paris Agreement framework and country contributions have exceeds the 2017 target with contributions of EUR 50 million from Germany and EUR 7 million from Italy.
  • Norway and Unilever fund: US$400 million fund established for public and private investment in more resilient socioeconomic development. The fund will invest in business models that combine investments in high productivity agriculture, smallholder inclusion and forest protection.
  • Amazon rainforest fund: Germany and the UK have committed US$ 153 million to fight climate change and deforestation in the Amazon rainforest.
  • Initiative 20×20 investment: World Resources Institute announced a US$ 2.1 billion investment to restore degraded lands in Latin America and the Caribbean.

4. Launch of Below50 Initiative

The World Business Council for Sustainable Development (WBCSD) launched the below50 initiative, initially in North America, South America and Australia, to create greater demand and more markets for sustainable fuels, i.e. fuels that produce at least 50% less CO2 emissions than conventional fossil fuels. The initiative aims to bring together the entire value-chain for sustainable fuels and scale up their deployment.

Finally, despite US’ withdrawal from the Paris Agreement, Michael Bloomberg’s “We’re Still In” coalition of US cities, states and companies, was out in force at COP23, showing the world that large parts of America are still fully committed to the targets set out in the Paris Agreement.

And as the conference delegates begin to reflect on the week’s achievements, the biggest hope is that the commitments are kept and promises are delivered. With record levels of funding now being directed towards tackling climate change, there really is no excuse not to act.

 

 

 

Coming off the grid

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This year, we have watched in utter horror as hurricanes Harvey, Irma, Jose and Maria thrashed the Caribbean, the Gulf of Mexico and the southern United States. This hurricane season has had the highest number of storms since 2010 and the most accumulated cyclone energy since 2005. Damage from the hurricanes is now estimated to stand at US$186.7 billion!

But amid all of this destruction, flickers of hope emerge…

Late last week we learnt that Elon Musk, of Tesla, has been in conversation with the governor of Puerto Rico offering for Tesla to rebuild the island’s power grid with batteries and solar power. For Tesla, in addition to coming to the aid of an island in dire need of assistance, this provides a perfect platform to demonstrate its technological prowess.

The technology Tesla plans to use has already been deployed on a number of other smaller islands and according to Musk, there are no scalability issues. For example, the island of Ta’u in American Samoa is powered by a solar grid which can store enough electricity to power the entire island for three days without sun.

A Tesla-built Puerto Rico grid sounds like a brilliant option for the island and, with a promised 100 day turnaround, it couldn’t come quickly enough!

The rise of local renewable mini-grids or standalone grids has been a growing trend since 2016, spurred by falling solar technology costs, technological advances in battery storage capacity and the continued spread of innovative customer payment solutions. Standalone grids provide much-needed electrification to areas that are poorly accessible or that are far from established electric grid infrastructure. According to the IEA World Economic Outlook 2016, there are 1.185 billion people without access to electricity in the developing world, the majority of them in Africa. Mini-grids and standalone grids would be an energy efficient and affordable (from the consumer perspective) solution to this problem.

However, as with any disruptive technology, in order to scale up, it requires a regulatory regime that is fit for purpose and funding. Most regulatory regimes do not cater for the off-grid market and so it continues to operate in somewhat of a grey area. A more encompassing regulatory regime would pave the way for more market entrants. On the funding side, there have been some breakthroughs. Indeed, just yesterday M-Kopa Solar, a leader in the pay-as-you-go energy provision market, announced that it had secured commercial debt funding of US$80 million, proving that the off-grid electricity market can be financial viable. However, such announcements remain an exception, rather than the norm.

Perhaps Tesla’s involvement will spark a renewed interest in the off-grid market and will encourage greater investment…here’s hoping!

ChangeNOW!

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image1 (4)This weekend your blogger went along to the inaugural ChangeNow! conference in Paris. The conference describes itself as one of the first international events on the topic of “innovations for good”. It focussed on the UN Sustainability Goals in the fields of energy, circular economy, healthcare, education, sustainable cities and tech for good.

A couple of key take-aways from the conference:

Energy

On the topic of energy, we heard from a variety of speakers, including Jerome Schmitt, Senior VP Innovation and Energy Efficiency at TOTAL Gas and Power, Dr Michael Dorsey, full member at the Club of Rome, global energy expert and co-founder and principal at Around the Corner Capital, and energy industry disruptors Meteoswift, Echy and Zephyr Solar. A number of key themes emerged.

Firstly, Jerome Schmitt discussed the important role that traditional oil and gas companies should play in the energy transition. He acknowledged that companies such as TOTAL are not safe from renewable energy and clean tech distruptors. However, the cost and technology race in solar and wind power over the last few years has actually resulted in many start-up renewable energy companies going bankrupt. Schmitt believes that oil and gas companies should partner with renewable energy companies and provide the necessary funding to enable them to scale-up. For example, since 2011, TOTAL has owned a majority stake in Sunpower, a solar energy company.

Secondly, both Jerome Schmitt and Michael Dorsey discussed the trend of decentralisation in the energy supply industry with the rise of microgrids and the use of blockchain technology to permit peer-to-peer energy supply. However, Dr Dorsey contended that large utility companies may drag down such innovative progress by preventing third parties from supplying existing grids or by lobbying governments to introduce restrictive regulations.

Thirdly, one other way that the energy industry may evolve is through the development of innovative non-electricity reliant solutions. For example, Echy has developed technology to harness sunlight to light-up buildings with natural daylight. The technology results in electricity savings of approximately 68% as Echy lighting does not use electricity. Many of the speakers predicted that more and more such non-electricity reliant solutions will come to the fore in the next 5-10 years.

Tech for good

The theme of tech for good was prevalent throughout the entire conference. Ynse de Boer, Managing Director at Accenture, delivered the introductory talk on this topic.

De Boer proposed four ways to ensure that technology is used as a force for good. Firstly, companies using technological solutions must ensure that their customers are protected, supported and educated about how their data and information are used. Secondly, businesses and governments need to anticipate that the jobs of the future will not be the same as the jobs of today but instead of using technology to eradicate jobs, it should be used to complement them, improving productivity. Thirdly, technology should be directed towards delivering innovative products and services and used to solve largescale social issues. Finally, technology should be used to create transparent and inclusive value chains, facilitated through the use of mobile and digital technology.

According to de Boer, governments, business and not-for-profit organisations all need to work together to ensure that technology is used efficiently and always as a force for good.

Cleaning the oceans

The session on ocean clean-up introduced three different companies that are working on cleaning up our oceans – TheSeaCleaners, Adidas and Plastic Odyssey.

TheSeaCleaners work on removing rubbish from seas, harbours and oceans. Since 2002, their team has removed over 5.1 million litres of rubbish and they are continuing to gain momentum.

Adidas has recently teamed up with Parley to develop a range of trainers made from discarded plastic. According to Adidas, each pair of these trainers prevents approximately 11 plastic bottles from entering the oceans.

Finally, Plastic Odyssey are working to create innovative, small scale, local solutions to plastic waste. They are developing a boat that will spend three years travelling between Africa, Asia and South America, fuelled exclusively by plastic collected from the oceans and converted into fuel. The boat will stop off at numerous locations to work with local communities to understand their recycling needs and develop unique solutions.

The conference also included sessions on the future of agriculture, healthcare and the creation of sustainable cities.

It was heartening to see such enthusiasm and creative buzz for positive impact projects and issues. Governments and business can no longer ignore the need for purposeful investment and regulatory structures that are favourable to the social entrepreneur. The trend has started and it won’t be long before it really takes off! Are you ready?

Clean Britannia

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It’s been a busy week for the British clean energy industry.

On Monday, the business secretary, Greg Clark, announced the launch of phase one of a £246 million four-year Government investment in revolutionising the UK energy grid through the development and improvement of battery technology and storage. Phase one includes the creation of a £45 million “Battery Institute” competition to establish a centre for research into making battery technology more affordable and accessible. One of the longterm goals is the creation of giant battery facilities around the National Grid which would store excess wind and solar energy to be deployed at times of peak energy demand.

The investment, known as the “Faraday Challenge”, is part of the Government’s Industrial Strategy. It is split into three streams of research, innovation and scale-up and is being seen as a “game-changer” for the UK, enabling the UK to be a world leader in clean energy and transportation.

Responding to the announcement, Professor Philip Nelson, Chief Executive of the Engineering and Physical Sciences Research Council (EPSRC), said: “Batteries will form a cornerstone of a low carbon economy, whether in cars, aircraft, consumer electronics, district or grid storage. To deliver the UK’s low carbon economy we must consolidate and grow our capabilities in novel battery technology.”

Another aspect of the announcement is the introduction of new rules over the next year to enable households with solar panels to generate and store their own electricity with the help of new battery technology and to sell this electricity back to the National Grid. The rules would move away from the traditional tariff model which solar panel owners currently have to pay to import electricity from or export electricity to the National Grid. The new rules would also reduce energy costs for people and businesses that agree to use less electricity during peak times. Overall, the intention is to provide for greater flexibility in the electricity system. The Government and Energy regulator Ofgem estimate that consumers could save between £17 billion and £40 billion by 2050.

These developments will be facilitated by the roll-out of smart meters and the development and installation of smart gadgets and appliances, enabling a washing machine to be turned on by the internet during a period of high energy supply or a freezer being turned off for a few minutes to regulate demand. Tech companies, such as Google and Amazon, are already eyeing up opportunities in this new market to act as energy suppliers on the back of Ofgem agreeing to relax licencing and data sharing rules. This would give such companies direct control over appliances in a customer’s home, which has raised some serious concerns over privacy and security.

In other developments, earlier this week, the world’s first floating wind farm began trials off the coast of Scotland. Using revolutionary technology, this trial if successful, would enable wind energy to be generated in waters that are too deep for bottom-standing turbines, opening a new frontier for wind energy. Although currently much more expensive that traditional wind turbines, producers are hopeful that the cost of floating turbines will fall, just as it has for traditional turbines.

 

Finally, the UK has made a bold announcement to ban the sale of new petrol and diesel cars from 2040, following on from a similar announcement made by France earlier this month. Perhaps somewhat fortuitously, this announcement was followed by BMW announcing that it would start developing a fully electric Mini car at its plant in Oxford, UK.

After years of ignoring clean energy and environmental issues, it looks like the UK Government is finally starting to sit up and take notice. This week’s developments are an excellent step forward. However, much more investment and innovation is still needed for the UK to meet its 2030 Agenda commitments.

 

 

G20 2017 Climate and Energy Action Plan

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Among the many topics discussed at this year’s G20 Summit, was climate and energy. The summit culminated in the issue of a joint declaration summarising the agreements reached and the plans adopted by the G20 leaders. With respect to climate and energy, the declaration was decidedly split between the “G19” and the US, acknowledging the US’ desire to pull out of the Paris Agreement and its continued support for the use of fossil fuels, albeit “more cleanly and efficiently”.

As part of the summit, the G20 leaders also adopted the G20 Hamburg Climate and Energy Action Plan for Growth. The Action Plan  identifies six key areas of development, which include developing strategies for long-term low greenhouse gas emissions; creating a reliable and secure framework for the transition of the energy sector, which involves the promotion of energy efficiency and the scaling up of renewable and other sustainable sources of energy; realising access to modern and sustainable energy services for all; and aligning finance flows.

Although only the last-mentioned area of development specifically refers to finance, a recurring theme throughout the whole Action Plan is the need to secure more private and public investment. And this seems to be one of the biggest hurdles to meeting the Paris Agreement targets and to transitioning to clean energy.

The Action Plan identifies that significant levels of investment, both private and public, will be required to modernise infrastructure in line with the Action Plan’s goals and to continue the scaling up of renewable and sustainable energy. In addition to achieving climate and energy goals, such investment is likely to also generate local growth, employment and help with poverty eradication. Addressing several Sustainable Development Goals at the same time!

The Action Plan specifically notes the role played to date by Multilateral Development Banks (MDBs) in mobilising “climate finance” and calls on them to further enhance their involvement. In 2015, the following MDBs, the African Development Bank, the Asian Development Bank, the European Bank of Reconstruction and Development, the European Investment Bank, the Inter-American Development Bank and the World Bank Group, issued a joint statement at COP21 committing to work together to “substantially increase climate investments from public and private sectors to support”. This existing commitment is applauded but the Action Plan further encourages the MDBs to cooperate and coordinate efforts to finance ambitious energy and climate adaptation and mitigation projects and new technologies, and to identify how the private finance sector can assist with meeting the 2030 Agenda objectives and the Paris Agreement goals.

The investment question has also be considered in detail in the UN Green Finance Report published on 14 July 2017 by the UN Environment Programme (UNEP). The report identifies that the G20 in particular has made significant progress in mobilising private and public capital for climate and clean energy developments and initiatives. An example, is the recent joint commitment by eleven global banks to develop tools for assessing climate-related financial risks and opportunities; and to make more disclosures in relation to climate investments, making the sector more transparent. The banks are ANZ, Barclays, Bradesco, Citi, Itaú, National Australia Bank, Royal Bank of Canada, Santander, Standard Chartered, TD Bank Group, and UBS.

Commenting on the new Green Finance Report, the Executive Director of UNEP, Erik Solheim said: “This new research […] shows encouraging progress in this regard. From a record number of new green finance measures to ambitious plans for green finance hubs, we are seeing the smart money move to green financing.” He further added: “The challenge now is to rapidly increase capital flows to investments that will support our sustainable development objectives and create commercially viable green businesses for decades to come.”

The challenge has been set and the rewards are great economically, environmentally and socially. So let’s hope the investment starts to flow in the right direction!