Dec 13, 2011 - 7:00am
By John Connor, CEO, The Climate Institute
In the same week that China and the US finally decided to enter into negotiations with the rest of the world for a single, legally binding climate agreement by 2015, public and private investment in renewable energy, energy efficiency and low-carbon technology officially topped $US1 trillion ($980 billion).
Big ticket investments include bio-mass co-generation in Brazil, wind farms in China, Mexico and Europe, solar-thermal in Morocco, electric vehicles and solar thermal in the US, biodiesel in Germany and maturing renewable energy projects in India.
According to Bloomberg New Energy Finance, which has kept records since 2004, annual global investment has risen fivefold over seven years from $US52 billion to $US243 billion last year, with another record surge expected next year and beyond. In no small part this will be driven by emissions trading schemes starting in California, South Korea and seven Chinese provinces by 2015.
With so many countries now deeply invested, it is perhaps no coincidence that a global agreement to put the brakes on climate change is finally within reach. An overarching legal framework is a logical next step.
The old certainties are now under assault, with the inevitability of a single, binding agreement plus the recognition by all countries that stronger action needs to be taken to meet the common goals of keeping global warming to 2 or 1.5 degrees above pre-industrial levels.
Countries meeting in Durban noted with “grave concern” the dire reality that the total of all the world’s efforts to cut carbon pollution to date would not be enough to limit a temperature rise to 2 degrees or less.
The momentum arising from a pivotal week in climate negotiations brings with it greater uncertainty for the future of fossil fuel investment, already being outstripped by renewable energy investments.
High carbon investment becomes an increasingly risky business when estimates reveal that only 20 per cent of fossil fuel reserves on asset books can be used should the world get serious about the 2 degree goal, and technologies like carbon capture and storage are neglected. That’s some carbon bubble.
It is simply wrong to sit back with the old certainties that China and other countries aren’t taking action or seeing the opportunities in the emerging global clean energy economy. A trillion dollars has not been invested just to feel good.
As well as for concern about the climate, these investments are made for reasons of self-interest in local pollution, energy independence and for positioning in the global clean energy economy.
The cost curves on clean energy are dropping swiftly and the safe havens of times past exist on borrowed time.
Australia has made a solid start with the introduction of a carbon price that will morph into an emissions trading scheme by 2015 and begin to link up internationally with other schemes.
Both major parties are committed to reducing carbon pollution by 5 to 25 per cent by 2020, based on pollution levels in 2000.
Both had the 5 per cent in frame as an unconditional target if the rest of the world took no action. This is no longer credible. The Gillard government’s policy allows for a 25 per cent reduction, and Australia will need to explore ways to at least reach a target of 10 to 15 per cent, which has been deemed a fair contribution to current global efforts by the government’s climate change adviser, Ross Garnaut, and others.
The Coalition’s policy of direct action has very little hope of reaching a 5 per cent pollution cut in its current form.
There is a still a lot more work to be done on the home front to enhance our credibility as Australia angles for more secure, properly regulated carbon markets governed by an international agreement.
There is no question a global agreement will spur investment, but while we wait, the global network of domestic policies and investments are powering ahead. Whether we can collectively ramp them up quickly enough to avoid the effects of dangerous climate change is the challenge of this decade.
John Connor is CEO of The Climate Institute. Whilst qualified as a lawyer, John has spent over twenty years working in a variety of policy and advocacy roles with organisations including World Vision, Make Poverty History, the Australian Conservation Foundation and the NSW Nature Conservation Council. Since joining The Climate Institute in 2007 John has been a leading analyst and commentator on the rollercoaster that has been Australia’s domestic and international carbon policy and overseen the Institute’s additional focus on institutional investors and climate risk. John has also worked on numerous government and business advisory panels.