SA
EU-topia a low-carbon economy?
This morning,
Nedbank and UNEPFI hosted a very informative discussion with some high-level
delegates that resulted in a lively discussion and great feedback.
For me personally,
I had the pleasure of having our Minister in the Presidency, who heads up South
Africa’s National Planning Commission, answer some long-asked questions,
unanswered during South Africa’s recent NPC Jam. Heads up to
Minister Manuel for his honest and thorough responses – and especially for his devotion
to the youth… as we need to hand over the climate torch to these generations to
follow – not necessarily in our footsteps.
For a rundown of the esteemed panellists and their
stimulating rhetoric, see below…
The orators:
Richard Calland - public finance legal
expert and enthusiast, who says green jobs and bank lending to green entrepreneurs
are mutually dependent on each other.
Thabani Jali, previously judge
investigating bank charges back in 2008, now actually heading up Nedbank's
Governance / Sustainability area, who says the world's problems today cannot be
solved by the same manner of thinking that created them (with thanks to Mr Albert Einstein).
Paul
Clements-Hunt who heads up UNEPFI and says the UN, 200 banks, insurers and
asset managers have been scratching their heads for 20 years now about how to
put their collective $60 trillion to best use - if we're to overcome the
systemic, political, financial crises facing the world's citizens today, we
must do it NOW.
“A low-carbon
economy, underpinned by technological advances unthought-of to date, is a non-negotiable,”
he says. “The Occupy Wall Street movement
is rejuvenating how our systems are governed and viewed. I challenge banks to
be at the epicentre of this transformation.”
Being a UN
representative means extensive world travel. Paul says whether in Tokyo, Brazil
or Washington, you can see flickers of change made possible by supportive
banks. “The buzz word? Responsible investment,” he says. “In the US, a ridiculous amount of public assets can be re-invested to lower the carbon footprint.”
What are the
disconnects in the financing mechanisms?
The troika of public
policy - private financing - low carbon supply chain.
The IEA calls 2
degrees "catastrophic"!
In 2005, the $150
billion loss predicted from environmental tragedies affecting the poorest
communities in 2000 was surpassed.
“Deforestation and
floods, mud slides and other natural disasters are by now proven and bagged -
banks need to take this into consideration and act accordingly,” says Paul. “Less
than $10 per ton of carbon on the market today, whereas the damage is worth at
least $85 per ton - this needs to be corrected.
He mentions that
the world market for non-essential goods (think jewellery and other human
consumption accessories) is worth $250bn
a year, whereas the renewable energy / carbon market needs $234bn: the need for a change in our value systems thus
becomes obvious – oi weh…
Banks are the
transmission mechanisms that take the engine of the investment market to the place
and assets that the high net worth markets do (and want to) control. The
conversation needs to change and in a sustainable way:
To illustrate the
progress, it was in 2007that Finance Ministers of the world for the first time organised
a meetings to discuss the finances of climate change at COPs. By 2010, 150 institutional investors worth $9
trillion sent messages to COP representatives with requests for
clarification. And this year, it has grown: the role of finance is now central
to the debate.
COP (the term
itself) can be confusing but is fundamentally about people and
brave political leadership. President Jacob Zuma’s presence is vital to
the global sustainability panel, but who is leading the rest?
Incidentally, even
Gordon Brown presented to President Zuma's panel in October, for it is
fundamental that for banking to succeed in 21st century, values and behaviour
need to adapt to the direst needs of the day.
A different kettle of fish
UNEPFI “soft launched” its Renewable
Energy Finance Report today. Innovatively, they left the Executive Summary page
blank – forcing you to read th whole report! They generated this report to open
a 6-week period of dialogue and negotiation to finalise the report with inputs
from everyone at COP - another very unique way of thinking banks
could do well to follow! The report looks at: What hasn't worked in the past,
and why? What does the private financial sector do wrong?
Minister Trevor Manuel,
also the global Co-Chair on Transitional Committee on design of a Green Climate
Plan, encourages all South Africans to read the National Development Plan (launched
on November 1st) thoroughly..
His intro: "What
we know needs to be done and what we need in the negotiations are worlds apart!
Why do Governments send people who are not serious about this change? I feel I
should take up a position at Speakers Corner today.” WOW
"We need $100 billion dollars a year to be transferred
from the rich to the poor, and we need a mechanism to transfer this money,”
Minister Manuel says. “We don't need perfection and we don't need ideology
because we know the outcomes if we don't do this.”
He cited the Philippines
as a prime example: the number of harsh climate incidents in the island state
has increased dramatically, each time taking out every piece of development put
in place and every time it has to re-built, which impoverishes every citizen
all over again... a vicious way for a developing nation to adapt to climate
change!
"Debating punctuation in communiqué’s, instead of
substance will be our downfall,” he says. “The science is now unimpeachable;
choices in leadership and finance shouldn't be so tough. Fast-start finance to
2013, with no ramp-up past that, just boggles the mind.”
Key issues
raised by Minister Manuel:
- The pricing of
carbon; examples include: a) world trade, b) tax (think Australia's $24 per ton,
and c) China’s informal method (already netting $29 per ton).
- But these prices
are insufficient to address governments' full responsibilities.
- The transition
is the major challenge, which will produce winners and losers. It is up to
Governments and the private sector to deal with what the impacts and timelines
will be.
Why will carbon
markets fail (according to Minister Manuel)?
a) Low carbon
technologies are exceedingly costly in the early phases, the battle on feeding
tariffs.
b) Payoff lines
are longer because of time to build up the capital loan period with realistic
returns.
c) National cash
flow to support R&D and innovation.
d) People in banks
are shy to talk. The regulatory environment (Basel III) has made it difficult
for banks to reflect lending in R&D on their balance sheets - how to
resolve the issue?
e) A more
appropriate price on carbon will only be devised once governments commit to
assist in capitalisation of projects with finance organisations: cooperation.
“We need to
develop together a predictable place for COP,” he says. “GDP per capita is a pretty
good indication of carbon already emitted and added to the stockpile by every
nation over the decades. Developing countries now need to help make their
development forecasts more predictable too.”
Minister Manuel did an
excellent job of connecting the dots between green climate fund, technology transfer,
finance, carbon pricing and infrastructure in layman’s terms.
A
selection of the panellists:
Dennis Dykes (Nedbank economist), who says that governments, having
lost reserves through the European and US financial implosion, need private
sector's money to get ahead. Banks' lending appetite should be encouraged by:
-
The
regulatory environment (looking at case studies from esp. Kenya where mitigation
projects are working, and even in SA where 53 projects worth R70 billion have
been granted in the 1st phase of renewable tenders),
-
Criteria
of power purchasers: need government backing),
-
Environmental
and social principles,
-
Governments
can reduce the risk by keeping the process transparent and predictable. Banks
can leverage funds from the green Climate Fund (really?)
Prof Wikus van Niekerk (who is Director at
the Centre for Renewable and Sustainable Energy Studies at Stellenbosch University)
: As a scientist, working on calculating the megawatts that can
be generated from renewable energy is what it's about for him. Looking at the calculations – against other
countries leading in this field (Netherlands, Spain and the US) – we have much
higher wind, solar and wave capacity, so for South Africa, it should be far
quicker to recoup the costs than in other countries that have already engaged with
renewables meaningfully. Economies of scale for renewables have halved
prices already and industry stimulation will only bring costs down.
Professor van
Niekerk says the argument that renewable energy must be competitive with the fossil
fuels argument does not hold ground. “Governments
the world over heavily subsidised fossil fuels for decades to make it the
attractive purchasing option to the market.”
Robert Hunt (of HSBC) says the
biggest growth will be in energy-efficiency among developing countries – but $10
trillion is needed to build this capacity. Clean energy and energy
development bond markets can generate millions of retrofit loans in the debt
market. Showing value for money for the taxpayer will be crucial to boosting
acceptance of banks' lending policies, Mr Hunt Believes. “Korea and China are leading in terms of funding green manufacture.”
It was mentioned
that a key issue in Africa is under-powering: per capita consumption of
electricity is a tenth of world average and 1 hundredth of developed world
average.
A first for Africa
Power sector reform is not liberalised – private sector
investment is still only at 4% in Africa. However, investment in utility-scale
renewables in other parts of the developing world (mostly China, India, Kenya,
Tanzania, Uganda) has surpassed the developed world, up from $1bn to $4bn. The REFIT
programme has mobilised SA's industrial industry and challenged financial innovation.
The Q&A session yielded these little nuggets from the
panelists:
- “Risks and
policies for renewable energy have to be re-written and a Venture Capitalist mind
set needs to be engendered in private institutions.”
- “Occupy Wall
Street IS the youth's voice! But banks need to be honest about where
they have been promiscuous in the past in terms of derivatives – why can't
renewables become an ‘arivative’ structure?”
- “Banks need to scale
up by for instance offering consumers financial reward for investing in
renewable technology in their homes; startups by rewriting policy and training
staff to lend to green entrepreneurial ventures.”
- “The South
African Government’s White Paper is a policy document, while the National
Development Plan has not been agreed to by all 26 Commissioners.”
By conclusion, I
would personally like to challenge the likes of NERSA and passionate folk like
Chris Yelland at EE Publishers to step up to the NDP and ask for assistance in
clarifying the drivers of change between banks and start-up finance versus government
energy pricing policy versus negotiating renewable tariffs with ESKOM. I rest
my case at this late hour…
