World's Largest Investor Groups Call for End to Fossil Fuel Subsidies

Investors Urging Governments to Enact Comprehensive Climate Change, Clean Energy Policies

Global carbon dioxide (CO2) emissions from energy production reached the highest level ever recorded in 2010, according to the International Energy Agency (IEA), yet investment and spending in low-carbon and clean energy systems are falling far short of what's required to address climate change. So say three organizations representing 285 of the worlds' largest global investment companies.

In their "2011 Global Investor Statement on Climate Change," they emphasized the escalating costs of climate change inaction, as well as the opportunities that would open up as a result of governments working together to formulate and enact common climate change action and clean energy investment policies that are clear, consistent, effective and long-term.

"Climate change presents major long-term risks to the global economy and to the assets in which we invest," they stated.

"At the same time, well designed and effectively implemented long-term climate change and clean energy policy ('investment-grade policies') will not only present significant opportunities for investors in areas such as cleaner and renewable energy, energy efficiency and decarbonization, but will also yield substantial economic benefits including creating new jobs and businesses, stimulating technological innovation, and providing a robust foundation for economic recovery and sustainable long-term economic growth."

The groups point out that as part of the 2010 Cancun Agreements, governments agreed to reduce global greenhouse gas emissions in an effort to keep the average global temperature increase below 2 degrees Celsius.

Realizing this outcome will require $13.5 trillion, around $500 billion annually, in clean energy investment and spending, between 2010 and 2035, the IEA has forecast. That's in addition to commitments that governments have already made.

Call to End Fossil Fuel Subsidies & Favoritism

The group's statement is unambiguous in its call for governments worldwide to end policies and practices favoring fossil fuel energy and enact policies that spur greater investment in clean energy development and climate change mitigation and adaptation.

"Private investment will only flow at the scale and pace necessary if it is supported by clear, credible and long-term policy frameworks that incentivize investments in low-carbon technologies rather than continuing to favor carbon-intensive energy sources," they state.

Their statement also highlights the positive, beneficial role that well thought out, clear, consistent long-term climate change action plans and clean energy investment policies are having on the economies of those countries that have enacted.

Conversely, they point out, the economies of countries with governments that have not been able to do so have struggled to attract investment and compete in a global marketplace that is increasingly placing a higher value on previously unaccounted for costs, such as greenhouse gas emissions.

Recommendations for Clear, Effective, Long-Term Policies

In order to promote and foster the shift from high- to low-carbon energy and spur private investment in doing so, the group advocates that governments:

Ensure that effective climate change and clean energy policies are integrated. They should include:

• 
  Clear short-, medium- and long-term greenhouse gas emission reduction objective and targets, and enforceable legal mechanisms and timelines for achieving them.


• Comprehensive energy and climate change policies that accelerate the deployment of energy efficiency, cleaner energy, renewable energy, green buildings, clean vehicles and fuels, and low- carbon transportation infrastructure.
• 
  Comprehensive policies directed at reducing greenhouse gas emissions from sources other than energy, for example waste, industrial emissions, fugitives, land-use change, deforestation and agriculture.
• Policies supporting investment in renewable energy generation, including measures that support the access for electricity generated from renewable energy sources to electricity transmission and distribution infrastructure.


• Financial incentives that shift the risk reward balance in favor of low-carbon assets. This includes strong and sustained price signals on carbon, well-designed carbon markets and other appropriate incentives to enable private investment in clean energy. An integral part of this should be the removal of fossil fuel subsidies.


• Adaptation measures to reduce unavoidable climate impacts.


• Corporate disclosure of material climate change-related risks.

Ensure that the policies are well designed. Experience with investing in renewable energy and energy efficiency suggests that investment-grade climate change and clean energy policy should:

• 
  Provide appropriate incentives to invest. Specifically, policy needs to recognize that investing in areas such as renewable energy and energy efficiency is not risk free, and therefore needs to be designed to allow investors to make appropriate returns relative to the risks that they are taking and the costs, risks and returns of other investment opportunities.
• Recognize that scale is critical to addressing risk and enabling low-carbon investment opportunities to be more cost-effective relative to high-carbon opportunities. Scale allows unit costs to be reduced and allows expertise in the development and deployment of new technologies to be gained.
• Be transparent. That is, it should be clear how the policy is designed and implemented (or intended to operate in the case of new legislation).

Heading for Durban

The three large investor groups - the Institutional Investors Group on Climate Change, Ceres' Investor Network on Climate Risk and the Investor Group on Climate Change - along with the UNEP Finance Initiative and support from the board of PRI, intend to take their case and present it to UN Framework Convention on Climate Change (UNFCCC) representatives from around the world at the UNFCCC's 17th Conference of Parties in Durban, South Africa in November-December.

The group's statement reads that as COP 17 approaches, "we wish to reiterate the calls we have made in previous Investor Statements about the importance of both domestic and international climate change policy in catalyzing the required levels of investment needed to transition to a low-carbon economy, and to outline the elements of 'investment-grade climate and energy policy' necessary to attract large scale investment in solutions to climate change."