Climate Change- an Climate Change- an Opportunity for Business?Opportunity for Business?

The International Trade in The International Trade in Environmental Goods and Environmental Goods and

ServicesServices

Government Office for London

Current knowledge -Current knowledge -

there is there is unequivocalunequivocal evidence linking greenhouse evidence linking greenhouse gas concentrations to global mean temperatures.gas concentrations to global mean temperatures.

there is there is unequivocalunequivocal evidence that climatic evidence that climatic systems are driven by thermal energy.systems are driven by thermal energy.

Atmospheric CO2 rising at 2ppm per yearAtmospheric CO2 rising at 2ppm per year CO2 as of January 2009 are 386pmmCO2 as of January 2009 are 386pmm Once CO2 reaches 400ppm a 2oc rise in global Once CO2 reaches 400ppm a 2oc rise in global

mean temperature is inevitable.mean temperature is inevitable.

2 c means-

•Flooding

•Sea level rise- revised estimates of up to 1.5 meters by the end of the century

•Drought

•Heatwaves

•Extreme weather

IT IS NOT ABOUT POLAR BEARS!IT IS NOT ABOUT POLAR BEARS!Impacts will be felt across all sectors-Impacts will be felt across all sectors-

Social impacts-Social impacts- public health, mortality and morbidity, public health, mortality and morbidity, increased commodity prices, population migration, crime increased commodity prices, population migration, crime and anti-social behaviourand anti-social behaviour

Environmental impacts-Environmental impacts- biodiversity loss, smog, waste biodiversity loss, smog, waste management, pressure on water resources, loss of farm management, pressure on water resources, loss of farm land and costal erosion land and costal erosion

Economic impacts-Economic impacts- supply chain disruption, resource supply chain disruption, resource shortages, damage to physical assets and infrastructure, shortages, damage to physical assets and infrastructure, regulatory and fiscal riskregulatory and fiscal risk

However where there is risk, there is However where there is risk, there is reward…..reward…..

Opportunities are opening up in-Opportunities are opening up in- Eco-tech and engineeringEco-tech and engineering Agribusiness, including GMAgribusiness, including GM Water managementWater management Enhanced analytics (financial services)Enhanced analytics (financial services) Carbon TradingCarbon Trading Risk management and modelling (insurance)Risk management and modelling (insurance) Policy and business strategy development in the public and private sectorPolicy and business strategy development in the public and private sector Specialist scientific services (ecology, geomorphology, contaminated land Specialist scientific services (ecology, geomorphology, contaminated land

remediation, air pollution etc)remediation, air pollution etc) Spatial and land use planning Spatial and land use planning Transport planningTransport planning Waste management and recyclingWaste management and recycling Energy and carbon management (including IT)Energy and carbon management (including IT) Sustainable Construction and Property managementSustainable Construction and Property management

The market is immense and growing The market is immense and growing exponentially-exponentially-

The global market for Evironmental Goods The global market for Evironmental Goods and Services (ESG) has grown and Services (ESG) has grown exponentially over the last two decades, exponentially over the last two decades,

Conservative estimates of its global value Conservative estimates of its global value stand in excess of $600 billion stand in excess of $600 billion

The EU, US and China account for 94% of The EU, US and China account for 94% of market share which is expected to grow by market share which is expected to grow by 45% by 2015.45% by 2015.

Carbon Markets – a beginners guideCarbon Markets – a beginners guide• EU has set a cap on CO2 (20% below current levels)• Counties give permits to companies in certain types of polluting

industrial sector (e.g. power generation, steel and cement industries)

• End of each year companies in the scheme must surrender enough permits to cover their emissions. To do this companies can-

1. Cut production, and thus emissions

2. Introduce energy efficiency measures 3. Purchase EUAs from plants or factories across the EU who have

doneeither of the above and do not require all their EUAs4. Buy CDM credits from developing nations- Though only a

proportion of shortfall can be made up in this way

• Failure to surrender sufficient permits results in a fine of up to 100 euros per tonne missing.

Carbon trading the UK experienceCarbon trading the UK experience

The carbon market is a commodities market, allowing futures and The carbon market is a commodities market, allowing futures and options trading, spread-betting, hedging etc. options trading, spread-betting, hedging etc.

Modelled on NOx and SOx market established in Chicago in the late Modelled on NOx and SOx market established in Chicago in the late 1980’s which successfully combated Acid Rain. 1980’s which successfully combated Acid Rain.

Carbon Trading allows the market to decide the most efficient way of Carbon Trading allows the market to decide the most efficient way of cutting carbon cutting carbon

To buy permits customers need to go to a broker. To buy permits customers need to go to a broker.

City of London is the world centre for this type of trading- it is one of City of London is the world centre for this type of trading- it is one of the City's fastest growing areas of business. the City's fastest growing areas of business.

The Carbon market is likely to become the largest commodities market The Carbon market is likely to become the largest commodities market in the world. in the world.

However……However…… The carbon market is a political construct The carbon market is a political construct

and relies on a stable policy environment.and relies on a stable policy environment. With the current economic downturn With the current economic downturn

Governments must stand firm.Governments must stand firm. The price of carbon has crashed due to the The price of carbon has crashed due to the

economic down turneconomic down turn

But the future is brightBut the future is bright

Political leaders seem to be remaining resolute in Political leaders seem to be remaining resolute in their commitment to low carbon growth- US and their commitment to low carbon growth- US and Europe have tied financial aid to automotive sector Europe have tied financial aid to automotive sector with development of low carbon vehicleswith development of low carbon vehicles

The price of carbon will rally as the next phase of The price of carbon will rally as the next phase of permit issues from the EU will reduce supply.permit issues from the EU will reduce supply.

By placing a price on carbon CAT and CRT can be By placing a price on carbon CAT and CRT can be more accurately assessed for their commercial more accurately assessed for their commercial viability.viability.

It doesn’t matter whether you believe It doesn’t matter whether you believe in climate change………in climate change………

Climate change believes in you!Climate change believes in you!

Physical impacts on services, infrastructure Physical impacts on services, infrastructure and supply chains.and supply chains.

Regulatory and policy environment (national Regulatory and policy environment (national and international) does reflect existence of and international) does reflect existence of climate change.climate change.

Your business models must reflect this if Your business models must reflect this if you are to continue to be successful you are to continue to be successful

The London AccordThe London Accord

Making Investment Work for the Climate

“…while climate change may have reached a tipping-point of sorts in 2006 as far as perceptions of the problem are concerned, the same cannot be said for perceptions of the solution.”

Centre on International Cooperation & River Path Associates, “The State of the Debate”

Sleepwalking into disasterSleepwalking into disaster

The contextThe context

• Private sector investment is crucial to climate change investment (86% of capital investment = more than $600bn by 2030, according to UNFCCC )

• Pension funds and asset managers rely on analysis by the financial services sector for their decision making

• Frame this analysis within the context of climate change and the market will begin to find solutions

Why the London Accord is UniqueWhy the London Accord is Unique• The London Accord is the largest collaborative research

project the City has ever undertaken.

• It applies financial analysis to climate change investment.

• 20 of the world’s leading investment firms contributing research valued at approximately £7M ($15M)

• It is ‘open source’ – available to anyone free of charge

24 Reports24 Reports

ConclusionsConclusions• Climate change is a global problem and the temptation is

to look for a single global solution, or a few global solutions

• Create a portfolio of investment that matches technology with the natural and the regulatory environments.

• Forestry is a big unknown - the range of credible estimates for the real extent of abatement potential is broad, and the real costs of forestry projects which mitigate greenhouse gas emissions are unknown

• Wider sustainability issues matter in selecting options to combat climate change as, apart from being important in themselves, they are also often likely to be material to the commercial viability of an investment

Policy ImplicationsPolicy Implications

Focus on the Carbon MarketFocus on the Carbon Market - business investment follows the - business investment follows the carbon pricecarbon price

Support More Research:Support More Research:

– Quantify the Impact of ForestryQuantify the Impact of Forestry

– Assess Carbon Capture and Sequestration Assess Carbon Capture and Sequestration

Set International StandardsSet International Standards – product level, carbon intensity, – product level, carbon intensity, carbon offsetscarbon offsets

Set Higher Policy Standards to Realise Existing Positive Set Higher Policy Standards to Realise Existing Positive Abatement OpportunitiesAbatement Opportunities - lower consumption, and increase - lower consumption, and increase efficiency of existing energyefficiency of existing energy

Next StepsNext Steps

Wider social & ethical issuesWider social & ethical issues Service for financial industry to communicate to Service for financial industry to communicate to

policy-makers and NGOspolicy-makers and NGOs Incubation for new themesIncubation for new themes New reportsNew reports New members New members Increased support – DEFRA, BERRIncreased support – DEFRA, BERR

Simon MillsHead of Sustainable Development

PO Box 270GuildhallLondon EC2P 2EJ

simon.mills@cityoflondon.gov.uk

Home - www.london-accord.co.uk

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