Private Investment Will Decide The World Of Tomorrow
In our previous blog, ‘The Green New Deal – A Small Price To Pay To Save Earth‘ we examined the role that governments need to play if we are to rise to the challenges posed by climate change. To decarbonise our economies rapidly and comprehensively, it’s essential that the right infrastructure is created to mobilise private sector investment.
What good are electric cars if charging points aren’t omnipresent? What good is distributed generation if the electricity grid is so underinvested and outdated that it can’t handle it? There is no doubt that the state has a vital contribution to make in transitioning our towns and cities away from fossil fuels. However, the complete decarbonisation of society will not occur until legislation is made to ensure that society is protected by safeguarding the environment.
Private investment has a pivotal role to play in transitioning to a sustainable economy by supporting innovative business models and providing seed-funding for next-generation technologies and services.
It is our belief that private investment is imperative to the success of the energy transition. This private investment must focus on a social return, bringing equal access to clean energy, while financing the development of new skills for a new labour market, based on environmentally sound, future proof technologies.
Investment Decisions; Cutting the Budget vs Cutting Emissions
For the past ten years, Government policy in the UK has been driven by ideological austerity with a focus on reducing expenditure, reducing investment in people and their well being by rolling back the state. At a time when scientists are warning the time is running out to address the climate crisis, the UK government has been slashing the financial support available to the clean energy industry, undermining initiatives by environmental and social entrepreneurs.
The last nail in the coffin being the UK Government’s recent withdrawal of all subsidies for solar power and it’s plans to end the Renewable Heat Incentive in 2021, justified by economic models created by the Treasury department that support the self serving policies that drive the fossil fuel industry. Because the environmental cost of fossil fuels have never been included in their price, cheap fuel has lead us to the unsustainable economic model that we have now. The cost of renewable energy has declined rapidly over the past 10 years, where now wind energy is the cheapest source of power. However, because the level of investment required to accommodate intermittent sources of power, like wind and solar, is so high and the market is skewed towards monopolies (national grid) and oligopolies (distribution network operators), this investment has been muted and insufficient.
It is therefore absolutely vital that new business models are introduced to encourage private investment in the energy infrastructure to ensure that the UK has a long term, affordable energy supply.
Indeed, many astute financial leaders around the world have already come to the conclusion that the smart money is on renewables.
Global Divestment Campaign; Taking Investments Out Of Fossil Fuels
Since the early 2010’s, environmental campaigners have been calling for the world’s wealthiest institutions to withdraw any holdings they may have in fossil fuels and reinvest them in more socially responsible investments.
Bill McKibben, the founder of climate change website 350.org, has been a leading proponent of the Divestment campaign, arguing that not only is investing in fossil fuels morally reprehensible, but that it’s economically reckless.
If the world is to keep within the threshold of 1.5oC of global warming, then we can only burn a maximum of 10% of the fossil fuel reserves that have been extracted to date. This means that 90% of existing fossil fuel reserves must be left unused, turning them into what economists call ‘stranded assets‘ (that is, worthless).’
The Bank Of England Warns Against Investing In Fossil Fuels
In April 2019, Mark Carney, the governor of the Bank of England, issued a stark warning to the global financial sector that it must adapt to the threats posed by climate change and start to support businesses which protect the environment, instead of funding ecologically dangerous fossil fuel activities around the world.
Mr Carney also warned that there was a significant risk to banks that had lent money to fossil fuel companies. As governments become more reactive to the threat of climate change and enact policies which curtail certain fossil fuel related activites, there is an increasing likelihood of businesses not being able pay back their loans as the predicted returns on their fossil fuel related investments may simply not be achieved.
Some estimates from Bank of England analysts suggest that up to £15.3 trillion of assets could be lost to climate change if investors fail to act on these warnings.
Private Investments In Clean Energy
It is clear that a combination of factors make clean energy initiatives an increasingly attractive proposition for private investors:
- an increase in consumer demand for clean energy
- no risk of stranded assets
- taking responsibility for reducing catastrophic climate events
- predominance of distributed energy networks
We believe that such a this set of circumstances provides a unique opportunity for private investment to step in and lead the way in the development of low carbon infrastructure projects.
By driving local clean energy initiatives, rather than waiting for national leadership from Government, there is a potential for communities to become deeply connected with the clean energy revolution.
Local communities understand their needs, their collective concerns, and the most appropriate route towards decarbonisation. Instead of waiting for leadership from above, communities themselves can become the leaders of the energy transition that our society so desperately needs.
When addressing climate change at a local level, there is an opportunity for everyone to contribute what they can, whether that be in the form of education, skills, time, or finance.
Conclusions - Investing In A Sustainable Future
The role of private investors in this transition cannot be understated. By choosing where to invest their finances, investors can decide what kind of future world they want to see – is it one that continues to be rooted in the destructive practice of burning fossil fuels for energy, or one that is driven by sustainable economic behaviour and a fundamental connection to society by lessening our impact on the environment and our wellbeing?
The decisions made by investors will impact financial markets and ultimately Governments themselves.
We have run out of time to delay action on climate change.
A complete transformation of the ways in which we generate, distribute, use, and purchase energy is essential for the future of our society, but it should begin at the community level.
Now is the moment to define the future we want.