Research Analyzes 270 Global Climate and Energy Policies to Drive Investment

October 26, 2009

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Investors can’t justify moving capital into clean-tech technologies until governments mitigate the financial risks involved by enacting climate-change policies that are transparent, long-term and certain, according to DB Climate Change Advisors (DBCCA)

To provide investors with an analysis of global climate change policies, Deutsche Bank’s Asset Management division (DeAM) has released (PDF) a new report that assigns a risk rating to 109 countries, states and regions based on key government mandates and supporting policy frameworks. The “Climate Tracker” report is designed to help investors identify the best risk-adjusted returns in climate-change investment opportunities around the world, said DBCCA.

The report, Global Climate Change Policy Tracker: An Investor’s Assessment, conducted by DBCCA, a member of the Deutsche Bank Group, and the Columbia Climate Center of the Earth Institute at Columbia University, incorporates results of a model prepared by Columbia Climate Center researchers that estimates the impact on carbon emissions of 270 major climate policies, and aggregates them at country, regional and global levels.

As an example, the report finds that even if current and select proposed policies were to make their maximum possible impact, emissions in 2020 would still exceed the amount needed to limit the average world temperature increase to 2 degrees C. In order to meet the goal, the study recommends that emissions would need to be reduced further, by an amount equivalent to the current annual emissions of the U.S. economy.

The study also indicates that more capital is required to mobilize climate-change industries, and more action by government is required to attract capital. Investors are most attracted to countries and regions with comprehensive, integrated government plans that are supported by strong incentives, such as feed-in tariffs, according to the report.

Governments also need to create transparent, long-term, and certain “TLC” policies to attract capital, and all countries have to do more to encourage investments in order to avoid catastrophic climate change, according to the study. While the carbon markets may offer long-term solutions, at present investors are driven by on-the-ground mandates and incentives, according to the report.

In addition, the report finds that investors want policies that introduce incentives that decrease over time as technologies move towards market competitiveness; eliminate non-economic barriers (grid access, administrative obstacles, lack of information, social acceptance); provide fair and open access to distribution channels (e.g. transmission grid); and are enforceable.

The report also notes that policies are generally developed with a goal or target. In the case of climate change, these targets aim to reduce emissions, increase the penetration of renewables, boost efficiency, or transform an industry or sector. The report finds that energy efficiency could help deliver significant reductions in emissions to meet climate-change goals. Since efficiency provides savings in the long-term, it is essential that governments address market failures to encourage capital deployment in this area, according to the report.

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