Environmental projects are already suffering in the recession, according to recent research. HSBC, the international banking group, forecasts that the market for wind energy will drop by 20 per cent in 2009, the first time in years that wind companies have seen anything but rapid growth.
New Energy Finance, a research company, says investment in clean energy last year reached $155bn, about 4.4 per cent higher than in 2007. But this masks a different trend – in the first half of last year, there was strong growth. In the second half, this dropped off dramatically, with asset finance for clean energy projects down 25 per cent on its peak level. NEF forecasts that this year will be flat, with about $150bn of investment in the sector.
Michael Liebreich, chief executive, says such levels would be insufficient to achieve the carbon reductions scientists say are needed: “This should be a real wake-up call. Something has to happen, [such as] restoring [bank] credit to clean energy projects.”
In Europe, the carbon price under the European Union’s emissions trading scheme has plummeted, providing little incentive to make the investments necessary to reduce companies’ greenhouse gas output, and many appear to have sold off their carbon permits in order to raise short-term cash.
Recycling has suffered a serious blow as the price of commodities has plunged, shrinking the profits from dealing with waste. Environmental consultancies are also facing a tough year, with growth flat at best, as clients question or scale back projects. And chief executives who a year ago liked to trumpet loudly their green credentials have fallen largely silent, although most companies with environmental plans say they have no intention of dropping them.
Yet, despite these portents of gloom, there are reasons to be cheerful for both businesses in the sector and companies looking to improve their environmental performance. One is that a large amount of money is about to enter the “green” economy, with the stimulus packages governments are concocting as a cure for the financial crisis. About $430bn of the planned $2,800bn of stimulus spending is likely to go on green measures, according to HSBC.
“There is going to be a very significant upscaling of investment in the whole of green technology in the next two or three years,” Tony Blair, former UK prime minister, told the FT in an interview. “This is good for jobs.” He said public sector money would stimulate “massive amounts” of private sector investment, which would “set the direction to a low-carbon economy”. Europe’s experiences in reducing emissions “show that it is possible to have economic growth [while tackling climate change]”, he said.
In the US alone, the beneficiaries of this “green new deal” will be many. Renewable energy companies will receive loan guarantees, and a new “smart” electricity grid, making it easier to incorporate renewable energy sources, will be built. The rail transport system will receive a $9bn upgrade, mainly for new high-speed inter-city links.
Another of the big targets is energy efficiency, with projects from the “weatherisation” of homes for low-income families to refurbishing federal buildings to a higher environmental standard. Energy efficiency projects are particularly popular as they are labour-intensive, employing people from the construction industry, which has been one of the worst hit by the recession. The manufacture of products such as solar panels also creates construction sector jobs. Both reduce energy use and produce cost savings in the medium term.
Governments, including China, South Korea and France, are also planning to send large amounts of their stimulus in green directions, in the form of tax breaks, subsidies and government-funded projects. Others, such as the UK and Japan, are likely to spend less, but will still be deploying substantial sums.
This largesse is warmly welcomed by the industries involved. Rob Rogan, senior vice president at eSolar, a US solar energy company, says: “This recovery package is great news for solar power.We’re hoping both the refundable investment tax credit and manufacturing tax credit will prove very stimulating.”
Moves to green the economy are coming at a vital time for international action on climate change. At a conference in Copenhagen in December, the world will negotiate a successor to the Kyoto protocol. The treaty will determine how the world tackles climate change for decades to come. Any new global framework is likely to require all companies, in all sectors, to start cutting their greenhouse gases – quickly and substantially, in the developed world and more slowly in poorer countries.
The election of President Barack Obama in the US is viewed by EU diplomats as the most positive change possible, after years of foot-dragging by George W Bush. In sharp contrast to the previous administration, the new president has made clear his determination to negotiate a treaty this year and commit the US to substantial cuts in emissions – of about 16 per cent by 2020 and 80 per cent by 2050, much of it to be achieved through a cap-and-trade system.
Several business leaders have welcomed the president’s commitment to tackling climate change, which will force companies in all energy-intensive sectors to monitor and reduce their emissions. Jim Rogers, chief executive of Duke Energy in the US, says: “Decarbonising our economy by 80 per cent between now and 2050 would be historic. The sooner we pass climate change legislation, the better off our economy and the world’s environment.”
However, he is concerned about some of the finer details of how a cap-and-trade system would work. If carbon was priced too high too quickly, it would raise electricity prices to consumers, which could give rise to a backlash. But, as the US government’s energy efficiency projects show, lower emissions do not have to mean higher costs. Cutting down on energy use saves money, as does being frugal with other resources.
“Will we see a correlation between those who come out of the recession strongest and those who continue to invest in sustainability? We believe so, but it won’t only be because of their sustainability performance: it’s the recognition of where risks and costs are in the business, and where value can be created,” says Malcom Preston, partner at PwC.
The combination of new environmental regulations in the US and continuing tightening of regulations elsewhere, government spending to expand the uptake of green goods and services, and the opportunities to cut costs through efficiencies, are likely to remain constants through the recession.
Graham Mackay, chief executive of SABMiller, the brewer, which is working to cut its water use and greenhouse gas emissions, adds that companies should resist the temptation to move the environment down the agenda during the recession. He says: “Those businesses that consider sustainable development a discretionary activity will undoubtedly see it as an area for savings, but that misses the point. Sustainable development is not discretionary – it is a core part of business and a critical enabler of commercial success. I do not see how we could remain competitive if we invested less in these core business activities during difficult economic times.”
