Funding A Cleaner World

By Green, Paula L. | Global Finance, September 2009 | Go to article overview

Funding A Cleaner World


Green, Paula L., Global Finance


Businesses, banks and governments are working together to create financing tools to fund the green revolution.

Cajoled, prodded and pushed by presidents, regulators, legislators and international diplomats, multinationals are slowly realizing the time has come to develop programs - and financing vehicles - to reduce their output of carbon and reduce the momentum of climate change. At the same time, the vexed question of where the money will come from to pay for the changes is beginning to be answered with the help of creative financing techniques, innovative publicprivate partnerships and old-fashioned government stimulus money aimed at helping companies slash their carbon emissions.

Industry observers say the ground rules being laid down by national governments and global negotiators, now slogging their way to a successor pact to the Kyoto Protocol, will give banks more confidence to lend money to developers of renewable energy projects and corporations sinking money into energy-saving ventures.

"Assuming that these are healthy banks, I would think that regulatory certainty and support would give confidence and safety to the banks to lend," says Ethan Zindler, head of North America research for New Energy Finance. He was referring, for example, to the legislation now in 30 states in the United States that requires a portion of electricity to be purchased from renewable energy sources. The potential for a national renewable energy requirement, wrapped in some federal legislation, would reinforce the regulatory certainty for lenders and corporations, he says.

China and India already have used regulatory frameworks to require utilities to buy some renewable power for their energy needs. Europe employs government incentive mechanisms to support die use of alternative energy, such as wind power. The governments of Germany and Spain, the world s second- and third-largest wind markets, use feed-in or so-called green tariffs to ensure a utüity will pay wind farm operators a set price for their electricity. This electricity can be more expensive than electricity generated by other sources.

In the United Kingdom, the Low Carbon Transition Plan provides financing packages for wind and wave energy and includes changes to planning procedures intended to ensure one-third of the country's electricity is generated from renewables by 2020

In the US, the Environmental Protection Agency (EPA) is proposing regulations aimed at reducing the emission of carbon dioxide and five other heat-trapping gases. In April the EPA formally declared the gases to be pollutants that threaten public health and welfare.

David Wyss, chief economist at rat- ing agency Standard & Poor's in New York, says corporations and their lenders will pay greater heed to national regula- tions and laws governing the output of carbon emissions, rather than interna- tional rules. Yet the international regu- lations, such as those being negotiated through the Kyoto Protocol, are important. "The international rules provide hope for continuity," says Wyss, adding that a global framework can provide a level playing field for corporations operating around the planet and not hand a multinational based in one nation an unfair advantage over its competitor on another continent.

An international agreement linked to the United Nations Framework Convention on Climate Change, the Kyoto Protocol's major feature is the creation of binding targets for greenhouse gas reductions for 37 industrialized nations and the European Union. The pact, adopted in Kyoto, Japan, in December 1997, entered into force early in 2005. The first phase of mandatory emissions reductions runs from 2008 to 2012. A successor pact is now being negotiated, and a global summit is slated for December in Copenhagen.

"Progress at Copenhagen will make a real difference to driving financing toward low-carbon companies and technologies," says Simon Thomas, chief executive officer at Trucost, a Londonbased environmental research organization. …

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