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Focus on the Regional Economy and The Green/Carbon Economy Welcome Mary Ryan Nutter McClennen & Fish LLP Upcoming Programming May 9 – Regional Environmental Summit – Climate Change/Green Economy May 13 – EBC C & D Committee May 15 – EBC Wind Energy Development Committee May 19 – EBC RI Breakfast – US Senator Whitehouse May 22 – EBC Solid Waste Forum – Jim Colman May 29 – Land Based Wind Energy – 2nd Session June 5 – EBEE Awards Celebration June 20 – Breakfast Program w/ Deerin Babb-Brott June 23 – LID Conference July 11 – 3rd Annual EBC Ocean Management Conference - Climate Change Impacts on Ocean and Coastal Resources EBC Member Survey Regarding strategic issues/challenges, please rank each of the following in terms of importance to your company over the next three years. 1 - not important, 9 very important • Hiring/Recruiting/Retaining Staff 7.86 • Business Development 7.86 • Economy - Domestic 7.70 • Growth 7.18 • Energy Industry Trends 6.82 • Environmental Industry Trends 6.00 • Economy - Global 6.00 • Regulatory/Legislative Developments 5.27 • Company Operational Issues 5.00 Member Survey – Early 08 On a scale of 1 to 5, how strong was your company's business activity in 2007? WEAK STRONG 1. 0.0% 2. 5.9% 3. 23.5% 4. 41.2% 5. 29.4% On a scale of 1 to 5, how strong do you anticipate your company's business activity will be in the 1st quarter of 2008? WEAK 1. 0.0% 2. 8.7% 3. 17.4% STRONG 4. 52.2% 5. 21.7% The New England Regional Economic Outlook Bo Zhao Economist Federal Reserve Bank of Boston Regional Economic Overview Bo Zhao, Senior Economist New England Public Policy Center Federal Reserve Bank of Boston Presented to the Environmental Business Council of New England The “Focus on the Regional Economy and the Green/Climate Change Economy” Event May 8, 2008 The views expressed in the presentation are not necessarily those of either the Federal Reserve Bank of Boston or the Federal Reserve System. Overview • Job market • Personal income • Housing market • Prices and consumer confidence • Economic outlook New England employment slipped I Monthly Employment Change in New England Thousands of Jobs 30 20 10 0 -10 -20 -30 Mar01 Sep01 Mar02 Sep02 Mar03 Sep03 Mar04 Sep04 Mar05 Sep05 Source: U.S. Bureau of Labor Statistics. Mar06 Sep06 Mar07 Sep07 Mar08 9 The year-over-year employment growth was small Percent Change from Year Earlier 4 3 United States 2 1 0 -1 New England -2 -3 -4 -5 -6 Apr-90 Apr-92 Apr-94 Apr-96 Apr-98 Apr-00 Source: U.S. Bureau of Labor Statistics. Apr-02 Apr-04 Apr-06 Apr-08 10 Rhode Island is experiencing large job losses Percent Change from Year Earlier Maine Rhode Island 4 4 2 2 0 0 -2 -2 -4 -4 -6 Last 12 months: -2.0% -8 Mar-92 Mar-94 Mar-96 Mar-98 Mar-00 Mar-02 Mar-04 Mar-07 Mar-08 -6 Last 12 months: +0.1% -8 Mar-92 Mar-94 Mar-96 Mar-98 Mar-00 Mar-02 Mar-04 Mar-06 Mar-08 Source: U.S. Bureau of Labor Statistics. 11 CT’s and VT’s labor markets are weakening Percent Change from Year Earlier Vermont Connecticut 4 4 2 2 0 0 -2 -2 -4 -4 -6 Last 12 months: +0.6% -8 Mar-92 Mar-94 Mar-96 Mar-98 Mar-00 Mar-02 Mar-04 Mar-06 Mar-08 -6 Last 12 months: +0.08% -8 Mar-92 Mar-94 Mar-96 Mar-98 Mar-00 Mar-07 Mar-07 Mar-07 Mar-08 Source: U.S. Bureau of Labor Statistics. 12 MA and NH have continuing and steady job growth Percent Change from Year Earlier Massachusetts New Hampshire 4 4 2 2 0 0 -2 -2 -4 -4 -6 Last 12 months: +0.7% -8 Mar-92 Mar-94 Mar-96 Mar-98 Mar-00 Mar-07 Mar-04 Mar-07 Mar-08 -6 Last 12 months: +1.5% -8 Mar-92 Mar-94 Mar-96 Mar-98 Mar-00 Mar-02 Mar-04 Mar-07 Mar-08 Source: U.S. Bureau of Labor Statistics. 13 Employment growth by industry: mixed results Percent Change, March 2007 – March 2008 (Seasonally Adjusted) Construction -4.6 United States -1.8 -2.2 Manufacturing New England -1.4 -0.1 -0.2 Trade, Transportation, & Utilities 1 -0.7 1 Information 2.5 -1.3 Financial Activities -1.3 0.9 Professional & Business Services 1.1 3.0 Private Education & Health Services 2.2 2.5 Leisure and Hospitality 0.7 0.7 Other Services -0.6 1.1 Government 1.1 -5 -4 -3 -2 -1 0 1 2 3 4 1 New England data for CT, MA, and NH. Seasonally adjusted data are not available for ME, RI, or VT. Source: U.S. Bureau of Labor Statistics. 14 NE unemployment rate increased, but was still below the national average Percent 9 8 7 United States 6 5 New England 4 3 2 1 0 Apr-94 Apr-95 Apr-96 Apr-97 Apr-98 Apr-99 Apr-00 Apr-01 Apr-02 Apr-03 Apr-04 Apr-05 Apr-06 Apr-07 Apr-08 Source: U.S. Bureau of Labor Statistics. 15 Unemployment rates within New England 4.4 United States 5.1 Mar-07 Mar-08 4.4 New England 4.8 4.4 Connecticut 5.3 4.6 Maine 5.0 4.6 Massachusetts 4.4 3.8 New Hampshire 3.9 4.9 Rhode Island 6.1 4.0 Vermont 4.6 0 1 2 3 4 5 6 7 Percent Source: U.S. Bureau of Labor Statistics. 16 Job postings in print ads were down Help Wanted Index Index 1987 =100 100 80 60 United States 40 20 New England 0 Mar-99 Mar-00 Mar-01 Mar-02 Mar-03 Mar-04 Source: The Conference Board. Mar-05 Mar-06 Mar-07 Mar-08 17 Online job postings fell sharply Percent change in total online postings, April 2007 – April 2008 0 -5 -10 -12.5 -15 -16.4 -18.1 -20 -25 -24.8 -30 United States New England Boston Source: Bureau of Economic Analysis. NE less Boston 18 Personal income growth slowed Percent Change from Year Earlier 15 10 United States 5 0 New England -5 90Q1 91Q3 93Q1 94Q3 96Q1 97Q3 99Q1 00Q3 Source: Bureau of Economic Analysis. 02Q1 03Q3 05Q1 06Q3 08Q1 Personal income growth within the region: mixed performance Percent Change, Q4 2006 – Q4 2007 7 6 6.6 5.9 5.6 5.6 5.7 5.7 5 4.1 4 2.9 3 2 1 0 United States New England Connecticut Maine Massachusetts Source: Bureau of Economic Analysis. New Hampshire Rhode Island Vermont Per capita personal income levels and growth State Per capita personal income (dollars) Rank in the U.S. Percent change 2006-2007 Rank of percent change 2006 2007 2006 2007 U.S. 36,714 38,611 CT 50,762 54,117 1 1 6.6 4 ME 32,095 33,722 36 35 5.1 27 MA 46,299 49,082 3 3 6.0 8 NH 39,753 41,512 7 8 4.4 39 RI 37,523 39,463 17 17 5.2 23 VT 34,871 36,670 22 23 5.2 25 5.2 Source: Bureau of Economic Analysis. House prices continued to be soft Percent Change from Year Earlier OFHEO House Price Purchase Only Index 20 15 United States 10 5 0 New England -5 -10 Feb92 Feb93 Feb94 Feb95 Feb96 Feb97 Feb98 Feb99 Feb00 Feb01 Feb02 Feb03 Source: Office of Federal Housing Enterprise Oversight / Haver Analytics. Feb04 Feb05 Feb06 Feb07 Feb08 Boston had a smaller decrease in home prices than some major metro areas S&P Case-Shiller Home Price Index Percent Change, February 2007 – February 2008 Composite 10 -13.6 Composite 20 -12.7 Boston -4.6 Chicago Denver -8.5 -5.5 -22.8 Las Vegas Los Angeles Miami -19.4 -21.7 New York -6.6 San Diego -19.2 San Francisco -17.2 Washington -24 -13.0 -22 -20 -18 -16 -14 -12 -10 Source: S&P Case-Shiller / Haver Analytics. -8 -6 -4 -2 0 23 NE single-family housing permits continued to fall Index, 1988 = 1 2.0 1.5 United States 1.0 0.5 New England 0.0 Feb-84 Feb-86 Feb-88 Feb-90 Feb-92 Feb-94 Feb-96 Source: U.S. Census Bureau Feb-98 Feb-00 Feb-02 Feb-04 Feb-06 Feb-08 NE multi-family housing permits were down even more Index, 1988 = 1 2.5 2.0 1.5 United States 1.0 0.5 0.0 New England -0.5 Feb-84 Feb-86 Feb-88 Feb-90 Feb-92 Feb-94 Feb-96 Source: U.S. Census Bureau Feb-98 Feb-00 Feb-02 Feb-04 Feb-06 Feb-08 Boston inflation rate was lower than the national average Percent Change from Year Earlier Consumer Price Index 6 United States 5 4 3 2 1 Boston 0 Mar92 Mar93 Mar- Mar94 95 Mar96 Mar97 Mar- Mar98 99 Mar00 Mar01 Mar- Mar02 03 Source: U.S. Bureau of Labor Statistics. Mar04 Mar05 Mar- Mar06 07 Mar08 Price changes in major expenditure categories Consumer Prices Percent Change, March 2007 – March 2008 4.0 All Items United States 2.9 Boston 4.5 Food 3.0 2.9 Shelter 0.2 6.5 Fuel & Utilities 10.1 8.2 Transportation 5.6 4.6 Medical Care 4.7 1.3 Recreation 2.7 3.1 Education and Communication 9.4 2.4 All Items, Less Food and Energy 1.4 0 1 2 3 4 5 Source: U.S. Bureau of Labor Statistics. 6 7 8 9 10 11 27 Consumer confidence remained weak 1985 U.S. Average = 100 180 160 140 United States 120 100 80 New England 60 40 20 0 Mar-86 Mar-88 Mar-90 Mar-92 Mar-94 Mar-96 Mar-98 Mar-00 Source: U.S. Bureau of Labor Statistics. Mar-02 Mar-04 Mar-06 Mar-08 Outlook for the New England employment: slow growth Average Annual Change: 2006-11 Total Employment 1.8 1.7 1.6 1.4 1.2 1.1 1.0 1.0 0.8 0.7 0.8 0.7 0.6 0.5 0.6 0.4 0.2 0.0 NH US RI NE Source: NEEP MA CT VT ME Summary • The New England economy is slipping throughout the first quarter of 2008, mostly in line with national patterns. • Economic conditions vary considerably across the six New England states. • CPI inflation in the Boston area continues to run lower than the national average. • NEEP forecast that the region’s outlook is “slow growth, below the national average.” Outlook for the New England housing market 2001-2011 Median House Price Annual Percentage Change 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 MA NH 2008-09 2009-10 -5.0% -10.0% US CT ME Source: NEEP RI VT 2010-11 Backup slides Employment Growth by Industry1 Percent Change, March 2007 – March 2008 (Seasonally Adjusted) 2 MANUFACTURING: Durable Goods Nondurable Goods TRADE, TRANSPORTATION AND UTILITIES: 3 Wholes ale Trade Retail Trade Trans portation, Warehous ing, & Utilities FINANCIAL ACTIVITIES:4 Finance and Ins urance Real Es tate & Rental & Leas ing PROFESSIONAL & BUSINESS SERVICES: Profes s ional, Scientific & Technical5 Management of Companies and Entrerpris es Adminis trative & Was te Management EDUCATION & HEALTH SERVICES: Educational Services6 Health Care & Social As s is tance LEISURE & HOSPITALITY: Arts , Entertainment & Recreation Accommodation & Food Services GOVERNMENT:7 Federal State Local -4.0 1 United States -2.4 -1.3 -2.0 -2.1 New England 1.2 0.9 -0.7 -0.6 -3.1 -2.1 0.0 -1.0 -0.6 3.3 3.1 0.0 0.0 -1.2 -0.3 1.6 Source: U.S. Bureau of Labor Statistics. 3.1 2.9 2.6 2.6 2.4 0.0 0.8 -0.1 -0.1 1.1 1.8 1.3 1.1 -3.0 -2.0 -1.0 Industries selected based on the availability of seasonally adjusted data for the New England states. Data not available for CT. 3 Data not available for RI and VT. 4 Data not available for ME, NH, RI and VT. 5 Data not available for CT,ME, NH, RI and VT. 6 Data not available for ME. 7 Data not available for ME, RI and VT 2 0.4 0.0 1.0 2.0 3.0 4.0 Initial Claims for Unemployment Insurance Index 1995 = 1 1.4 United States 1.2 New England 1.0 0.8 0.6 Feb-99 Feb-00 Feb-01 Feb-02 Source: U.S. Employment and Training Administration. Feb-03 Feb-04 Feb-05 Feb-06 Feb-07 Feb-08 Personal Income Percent Change from Year Earlier 15 United States 10 5 0 New England -5 89Q4 91Q4 93Q4 95Q4 97Q4 99Q4 01Q4 03Q4 05Q4 07Q4 Total Wage and Salary Disbursements Percent Change from Year Earlier 15 New England 10 5 0 United States -5 89Q4 91Q4 93Q4 Percent Change from Year Earlier 95Q4 97Q4 99Q4 01Q4 03Q4 05Q4 07Q4 Percent Change, Q4 2007 – Q4 2008 7 6 5 4 3 2 1 0 Unit e d S t a t e s N e w E ngla nd C o nne c t ic ut M a ine Pe rs on al In com e Source: U.S. Bureau of Labor Statistics. M a s s a c hus e t t s N e w H a m ps hire W age an d S al ary Di s bu rs e m e n ts R ho de Is la nd V e rm o nt Coincident Indexes Each State’s Post-Recession Trough = 1 1.20 NH CT US MA 1.15 RI 1.10 VT ME 1.05 1.00 0.95 Mar00 S ep00 Mar01 S ep01 Mar02 S ep02 Mar03 S ep03 Mar04 S ep04 Mar05 Note: The Rhode Island index does not have a post-recession trough. It is equal to 1 at the U.S. trough. Source: The Federal Reserve Bank of Philadelphia. S ep05 Mar06 S ep06 Mar07 S ep07 Mar08 Consumer Confidence 1985 U.S. Average = 100 180 160 140 United States 120 100 80 60 New England 40 20 0 Mar-86 Mar-88 Mar-90 Mar-92 Mar-94 Mar-96 Mar-98 Mar-00 Mar-02 Mar-04 Mar-06 Mar-08 New England Present Situation and Future Expectations 1985 Average = 100 240 200 Present Situation 160 120 80 40 Future Expectations 0 Mar-86 Mar-88 Mar-90 Mar-92 Mar-94 Mar-96 Mar-98 Mar-00 Mar-05 Mar-05 Mar-06 Mar-08 150 Index (1985 U.S. Average = 100) 135 139 Mar-07 130 Mar-08 120 108 105 91 89 90 88 79 75 60 65 64 57 48 43 45 30 15 0 Consumer Confidence US NE Present Situation US NE Future Expectations US NE Massachusetts Indicators 8 74 U M ass Le ading Inde x (Le ft Axis) AIM Busine ss Confide nce (Right Axis) 6 68 4 62 2 56 0 50 -2 44 -4 Mar-01 38 S e p-01 Mar-02 S e p-02 Jan -03 S e p-03 Mar-04 S e p-04 Mar-05 S e p-05 Source: Associated Industries of Massachusetts and the University of Massachusetts. Mar-06 S e p-06 Mar-07 S e p-07 Mar-08 Single-Family Housing Permits 2.0 Index, 1988 = 1 1.5 1.0 United States 0.5 New England 0.0 Feb-84 Feb-86 Feb-88 Feb-90 Feb-92 Feb-94 Feb-96 Feb-98 Feb-00 Feb-02 Feb-04 Feb-06 Feb-08 Multi-Family Housing Permits 2.5 Index, 1988 = 1 2.0 1.5 United States 1.0 0.5 0.0 New England -0.5 Feb-84 Feb-86 Feb-88 Feb-90 Feb-92 Feb-94 Feb-96 Feb-98 Feb-00 Feb-02 Feb-04 Feb-05 Feb-08 Source: U.S. Department of Commerce, Construction Statistics Division. Dollar Value of Residential Construction Contracts 4.0 3.5 United States Index, 1988 = 1 3.0 2.5 2.0 1.5 1.0 0.5 New England 0.0 Mar-84 Mar-86 Mar-88 Mar-90 Mar-92 Mar-94 Mar-96 Source: McGraw-Hill Information Systems Company, F.W. Dodge Division. Mar-98 Mar-00 Mar-02 Mar-04 Mar-06 Mar-08 The Green & Climate Change Economic Outlook Andrew Paterson Director of Economics Econergy International Corporation Climate Policy Outlook and Carbon Management Business Opportunities New England Environmental Business Council Westborough, MA May 2008 Andrew D. Paterson Director – North America, Economics & Finance Consulting Washington, DC 202-822-4980 [email protected] ECONERGY’S BUSINESS (“ECG” on London AIM) OFFICES & PROJECTS Boulder (CO) London Cambria Washington D.C. Renewable Power Production Monterrey San Jose Fortaleza Cochabamba Belo Horizonte Rio de Janeiro São Paulo Office Project CleanTech Fund • Build, own and operate an asset base of renewable energy projects • Scope, opportunity and inhouse expertise to become a leading developer of clean energy assets • Wind & hydro in Latin America • Biomass in U.S. • Raising capital for small-scale Carbon Services generation projects • Broker carbon credits in Latin America in regulated and • Invested in 3 voluntary markets projects • Carbon project Consulting identification and • Access deal flow development support • Provide intellectual capital to company and clients Raised $100M on London AIM in Feb. 2006 • Support development of $25M in revenues for 2007, from $3M in 2005. U.S. Strategy 42 Climate Policy: Good News / Bad News Good News: • No matter the results of the election in 2008, the federal political landscape will improve dramatically for legislation on GHGs. – Democrats will likely gain +15 in the House, +5 in Senate in 2008. – All three presidential candidates will sign climate legislation • Voluntary efforts, early action, and state initiatives are underway already. Bad News: • A primary excuse for failing to pass GHG legislation vanishes in 2009. • Regional differences within US are physically vast, making consensus on environmental policies very elusive, and with clear leaders and laggards. • China and India + ROW will continue to pump GHGs into the global airshed faster than we curb emissions… without massive infrastructure overhaul. • The federal deficit poses a huge barrier to funding new incentives. • Policy models are not focused well on scale of the fossil economy challenge. Overview: Environmental Business Opportunities A. Environmental Market Update – Progress and plateaus; Growth Markets vs. Large Markets B. Politics 2008: Impact on Policy Outlook – Democrats will gain in Congress… plus the White House (?) – But, the country will remain divided: Red vs. Blue C. Carbon Policy Options & Financing Issues – Supreme Court: Impact of Mass v. U.S. EPA (April 2007) – U.S. and Global Carbon Emission Outlook – The scale of the fossil economy is daunting worldwide – Socolow’s Wedges as a basis for Business Strategy – The WBCSD Framework (long-term) vs. Kyoto (short term) – The Bond Market: The critical market for financing clean energy U.S. Environmental Market Growth Rides on Resources Environmental legislation in 1970s and 1980s helped drive growth, but economic recovery, manufacturing excellence in the 1990s became larger drivers as cleanup markets topped out. Exports comprise about 10% of the total market, concentrated in air, water equipment. Global growth draws on resources. U.S. Environmental Market 1970-2010 Services Equipment Global Growth, Energy demand Resources $350 Economic Growth, Redevelopment $Billions (nominal) $300 $250 Environmental Legislation: RCRA, SF $200 $150 $100 NEPA, CAA $50 $1970 1980 1990 2000 2010 projected Some Service Sectors Declining; Water, Energy Growing Backend treatment services – remediation, hazardous waste management, analytical labs and related consulting peaked in the 1980s and plateaued. Energy and water niches, process technologies grow with demographic and economic drivers. Environmental Industry Segment Services Analytical Services Wastewater Treatment Works Solid Waste Management Hazardous Waste Management Remediation/Industrial Services Consulting & Engineering Equipment Water Equipment and Chemicals Instruments & Information Systems Air Pollution Control Equipment Waste Management Equipment Process & Prevention Technology Resources Water Utilities Resource Recovery (recycling) Environmental Energy Sources U.S. Totals: 1970 70-80 1980 Growth 80-90 1990 Growth 90-00 2000 Growth 00-10 2010 Growth 0.1 4.3 3.2 0.1 0.1 0.3 0.4 9.2 8.5 0.6 0.4 1.5 300% 116% 164% 550% 550% 367% 1.5 314% 19.8 116% 26.1 208% 6.3 921% 8.5 1813% 12.5 761% 1.6 30.0 42.0 8.0 10.0 18.0 7% 52% 61% 27% 18% 44% 1.9 44.5 58.8 9.7 13.7 28.8 20% 48% 40% 21% 37% 60% 3.2 0.1 1.0 2.0 0.0 6.9 0.2 3.0 4.0 0.1 117% 100% 196% 105% 259% 13.5 2.0 10.7 10.4 0.4 20.0 4.0 18.0 9.6 1.2 48% 100% 68% -8% 200% 32.6 6.0 19.1 11.5 2.0 63% 50% 6% 19% 70% 5.7 1.2 0.3 $21.4 11.9 4.4 1.5 $52.6 67% 42.3 37% 25.5 733% 38.2 56% $334.6 28% 42% 155% 46% 109% 19.8 283% 13.1 420% 1.8 145% $146.4 95% 820% 258% 159% 418% 67% 33.0 197% 18.0 15% 15.0 178% $228.4 Source: Environmental Business Journal Market Traits (Growth, Size) Affect Financing Options • Different market traits – growth rate, competitive dominance, nature of purchasing decisions – call for different financing approaches, incentives. • Clean energy and instruments offer much higher growth rates (>20% per year) to allow recovery of equity investments (Group A). • Larger markets, like water treatment and resource recovery with steadier growth rates, that match the economy and demographic trends, allow for some debt funding and project finance, often with some public finance (Group B). Municipal ownership is high in these sectors precluding venture capital. Tax exempt bonds, international lending are more typical. • Declining markets, like remediation and consulting, must rely on asset conversion, e.g. brownfield development or facility turnaround, to generate returns since losses on operations are common (Group C). • For international markets, project debt financing is a paramount factor since markets and enforcement mechanisms are not well-developed. U.S. Enviro Markets 2010 Forecast: Growth vs. Size (I) A) Small markets growing faster: Process Technology, Instruments, Energy, Water B) Large markets growing basically with the economy: Infrastructure, Services C) Shrinking markets: Traditional backend Cleanup and Remediation U.S. Environmental Markets 2010: Growth vs. Size 160% A Clean Energy Market Growth 2000-2010 140% 120% 100% 80% 60% Process Tech Consulting Instrum ents Water Equip A 40% 20% 0% $- Rem ed HazW Waste Mgt.Eq A.Labs $10 Wastew ater Treatm ent C AirPC $20 Solid Waste Resource Recovery $30 B Drinking Water $40 $50 $60 Market Size in 2010 ($Billion) Source: EBI U.S. Enviro Markets 2010 Forecast: Growth vs. Size (II) A) Small markets growing faster: Process Technology, Instruments, Energy, Water B) Large markets growing basically with the economy: Infrastructure, Services C) Shrinking markets: Traditional backend Cleanup and Remediation U.S. Environmental Markets 2010: Growth vs. Size A 80% Process Tech Clean Energy Market Growth 2000-2010 70% 60% A Water Equip Consulting Instrum ents Wastew ater Treatm ent Resource Recovery 50% B 40% Rem ed 30% HazW 10% 0% $- Drinking Water C 20% A.Labs Waste Mgt.Eq $10 Solid Waste AirPC $20 $30 $40 $50 $60 Market Size in 2010 ($Billion) Source: EBI Drivers & Multi-media Linkage 1. Even with changeover in Congress, traditional environmental legislation is on a slow track (e.g., no RCRA, Superfund bills). 2. High market segment growth (>2x-3x GDP) drives returns needed to recover costs and risks of technology innovation. 3. Many environmental sectors are mature and driven by GDP and demographics: water resources, solid waste, land use. 4. Back-end cleanup, e.g., remediation, air, hazardous waste, are not high growth niches. Much work has been completed (USTs). 5. Redevelopment of aging infrastructure is becoming a bigger driver, including energy and grid, water, urban transport, gov’t. 6. Interest rates are low, allowing ample financing for infrastructure. 7. Water shortages have appeared, but have not triggered large scale budget increases yet, which will be needed for innovation. 8. Linkage: Innovative energy technologies look to be a high growth niche, creating higher water demands, affected by GHG policy. 9. Regulatory uncertainty freezes investment and market growth. 10. Better long-term policies mobilize more private capital. U.S. Regional Differences Remain Sharp into 2008 Difficult to frame national solutions when country remains divided. • Sharp regional differences drive water resource and environmental policies, led by Governors / states: – – – – – Energy use patterns, electricity prices, and transmission constraints Levels of urbanization, air pollution, vehicle use Availability of renewable resources (hydro, biomass, wind, solar) Water use and supply, and agricultural (“CAFO”) priorities Land use management and pressures for suburban development • Political leadership at state and local level will differ from federal agencies regardless of party affiliation. • Priorities for urban states diverge from suburbs and rural states. • Federal policy (e.g., EPA, FERC, DOI) and funding of key programs will struggle to balance regional priorities. “Producers” vs. “Consumers”. • Hurricane recovery, climate change will aggravate regional differences. Different regions, different policies States: “Red” (Bush) vs. “Blue” (Gore/Kerry) Different priorities will alter market and technology opportunities. • • • • • • • Red States Petrochemicals & NASCAR! Producer states: Opportunities for expansion of energy infrastructure (pipelines, LNG) Roads & suburbs; SUVs, soccer Transportation and siting projects More energy exploration State PUCs approve “clean coal” plants (with scrubbers, CCS) Water + drought management Real estate development and more access to federal lands • • • • • • • Blue States High-tech & Hockey User states: Need upgrades of energy infrastructure: pipelines and transmission, urban load Mass transit, traffic congestion Hybrids and “clean fleets” More EE, “green energy” policies More lawsuits on coal power plants (feud over NSR) Water infrastructure makeovers “Restoration Economy” and land use conservation B. Race for President: 2008 Outlook Late Bulletin (from The Onion)… Bill Clinton: 'Screw It, I'm Running For President' February 20, 2008 | Issue 44•04 CHARLESTON, SC—After spending four months accompanying his wife, Hillary, on the campaign trail, former president Bill Clinton announced Monday that he is joining the 2008 presidential race, saying he "could no longer resist the urge.“I have to.“Clinton told reporters Tuesday that seeing so many "Clinton '08" posters "really got [him] thinking," and said that the fact that he was already wearing a suit, and smiling and waving on the campaign trail was an added motivator. "My fellow Americans, I am sick and tired of not being president," said Clinton, introducing his wife at a "Hillary '08" rally. "For seven agonizing years, I have sat idly by as others experienced the joys of campaigning, debating, and interacting with the people of this great nation, and I simply cannot take it anymore. I have to be president again. He continued, "It is with a great sense of relief that I say to all of you today, 'Screw it. I'm in.'" Bill Clinton then completed his introduction of Hillary Clinton, calling her a "wonderful wife and worthy political adversary,". Poll: Many Americans Still Unsure Whom To Vote Against 2004 Result: “Red” (Bush) vs. “Blue” (Kerry or Gore) The U.S. remains sharply divided after 2004 election…in Congress also. Result in 2000 Bush: 271 Gore: 267 2000 Census + 7 for red Result in 2004 Bush: 286 Kerry: 252 Only +8 shifted, net http://www.2001inaugural.com/2000-election-map.html 2008 Election is the Democrats to lose… States Won in 2004 Results in 2004 Total Electoral Votes Needed Likely switches in 2008: OH, IA More shifts in 2008 ?: MO, NM, NV, VA Possible Result for 2008: Dems 19+DC 252 270 +27 +39 318 GOP 31 286 270 -27 -39 220 Alternative Scenario: Puts Election in New House [Each state gets 1 vote] Results in 2004 252 286 Likely switches in 2008: OH + IA = + 27 279 259 McCain counterpunch: WI or MN = -10 269 269 (or GOP keeps OH, but loses IA, NM, WV) 2004 Results with Voting Tendencies The electoral battle will be focused on just a few “edge” states. There are plausible scenarios for a tie: 269 – 269 in EC. Dems: IA+NM+NV Dems: OH +IA, less MN or WI http://www.electoral-vote.com/ UPDATE: Scenarios for 2008 Face-off SCENARIOs A) “Camelot restored” Obama wins out, Hillary loses Democrats (not chosen VP) B) “We Were Soldiers” Obama survives against Hillary -doubts emerge. Economy holds up. C) “There will be Blood” Clinton selected by Super Delegates – Obama leads protest (Chicago 1968 ?) Democrats: Republicans: Huge momentum and turnout. “Yes we can” rivals March Madness 70% Blue Victory: Low GOP turnout with “liberal” nominee, GOP suffers all over. Elevated turmoil in Gulf region brings security issue back. GOP surprise: 25% Democrats lose some voters in struggle for nomination. McCain pulls in OH, PA, WI. Outrage: “Million Voter March”. Black vote stays home. Chaos. Divided Gov’t: 5% Clinton unites Conservatives. McCain garners Independents 3:2. Dems keep Congress. Open Market Trading (4/12/08) on “Presidential Futures” (Iowa Biz) Obama Surges after Super Tuesday Obama wins Iowa Hillary rallies in N.H. 80% Establishment Democrats break for Hillary Obama internet money train kicks in Obama on fire in Super Tuesday 20% Outlook on Carbon Policy: 2009+, not 2008 • • • • • • • • Differences are wide just between Democrats in House vs. Senate. Regional differences are significant, creating winners and losers. Recall: Clean Air Act took 12 years (to 1990) – consensus is difficult. House is less responsive to international pressure vs. district issues. “Pay-as-you-go” rules in House pose a real fiscal challenge. – Curbing oil and gas tax benefits to create funds is not easy. – Possible opportunity with expiration of RE credits at end of 2008. – Industry not enthusiastic about carbon funds going to Treasury. – Allocating carbon allowances creates a huge battle. Next White House will be more disposed toward a climate bill, no matter what happens in presidential election, but terms vary. Democrats will pick up seats in House and Senate, so environmental groups already see they can get a better carbon reg deal in 2009. Wildcards: More storm damage, oil supply disruptions, heat wave or drought aggravating electricity prices, a terror attack in Gulf. C. Energy & Carbon Policy Outlook EIA recently raised its forecast for more coal use in the wake of rising natural gas prices. Congress v. WH Key Agencies Energy / Climate 2008 Campaign International Capital Mkts Situation Briefing: U.S. Energy • • • • • • • • Declining on-shore U.S. oil production for three decades Moratoriums intensified for off-shore drilling (e.g., Florida, California) Tighter regional clean air regulations in major urban areas Currently importing >60% of oil consumption, most of it from unstable – or even hostile regimes, who explicitly limit supply – Very grave terrorist threats at supply sources or choke points (2/26/06) – Steady erosion of global swing capacity of oil production and refining – No new refineries built in U.S. since 1976; (just expansion at sites) – Balkanized gasoline markets: 11 formulas in 3 grades = >30 fuels Global oil consumption hit a record high in 2007: 84 M bbl/day Substantial local resistance to more LNG capacity Demand driven by weather, commuting patterns, growth… not price Carbon regulations on the horizon, but very uncertain terms and timing Therefore: Energy Security & Reliability >> End-use Market Pricing After Supreme Court Ruling, no turning back All blue states • • • • Mass v. EPA – “ripple effect” 1. States have standing 2. CO2 is a pollutant under CAA 3. EPA must determine harm • GHG regulation is coming – no longer if but: • What will it look like? • When will it happen? • Whom will it effect? • Energy from fossil fuels, remains the dominant source: who will pay ? Key Players Massachusetts et al. v. EPA (U.S. Supreme Court Case No. 05-1120) Petitioners: the Commonwealth of Massachusetts, the states of California, Connecticut, Illinois, Maine, New Jersey, New Mexico, New York, Oregon, Rhode Island, Vermont, and Washington, the District of Columbia, American Samoa Government, New York City, Mayor and City Council of Baltimore, Center for Biological Diversity, Center for Food Safety, Conservation Law Foundation, Environmental Advocates, Environmental Defense, Friends of the Earth, Greenpeace, International Center for Technology Assessment, National Environmental Trust, Natural Resources Defense Council, Sierra Club, Union of Concerned Scientists, U.S. Public Interest Research Group. Respondents: the U.S. Environmental Protection Agency, the Alliance of Automobile Manufacturers, National Automobile Dealers Association, Engine Manufacturers Association; Truck Manufacturers Association, CO2 Litigation Group; Utility Air Regulatory Group, and the States of Michigan, Texas, North Dakota, Utah, South Dakota, Alaska, Kansas, Nebraska, and Ohio. Projected CO2 Emissions, 1990 – 2030 “Major Emitters” (Top 10) matter most. U.S.+China = 50% in 2030 Kyoto signers were 55% in 2002; but will only be 35% in 2030. 1990 2010 2030 EIA: U.S. CO2 Emissions by Sector, 2010 rev EIA trimmed emission projections only a bit due to higher gas prices. Source: EIA, AEO 2008 600 500 2010 400 300 200 100 NGas Petro Coal Transport Industrial Commercial Residential 0 Electricity Tons of Carbon emitted 700 Coal Petro NGas EIA: U.S. CO2 Emissions by Sector, 2030 EST Absent a massive turnover in equipment, CO2 emissions keep rising. Source: EIA, AEO 2008 600 500 2030 400 300 200 100 NGas Petro Coal Transport Industrial Commercial Electricity broken out by end-use sector. Residential 0 Electricity Tons of Carbon emitted 700 Coal fired electricity continues to rise in total because of higher gas prices. Coal Petro NGas “Where are the U.S. CO2 Emissions” Baseline: U.S. CO2 Emissions by Sector, 2000 Source: EIA, AEO 2003 600 500 400 300 2000 200 100 0 Coal Transport Industrial Petro Commercial Electricity broken out by end-use sector. Residential NGas Electricity Tons of Carbon emitted Power sector drew early attention, but transportation is crucial also. Difficulty in dealing with transport sector emissions plagues EU as well. Coal Petro NGas Driver: “Life, Liberty & Pursuit of Happiness” In U.S.: Drivers Vehicles 1960 87m 74m -13m 1980 145m 156m +11m 2000 190m 220m +30m Mass Transit ridership: 10b trips, rising slowly Public transit use peaked in 1946, when Americans took 23.4 billion trips on trains, buses and trolleys, said Donna Aggazio, spokeswoman for the American Public Transportation Association. By 1960, it dropped to 9.3 billion, and it declined further as roads and car culture gripped the nation. In 1972, transit ridership hit rock bottom at 6.5 billion trips. Since then, it seesawed until 1995, when it began steadily climbing. Ridership in 2007 reached 10.7 billion trips. “Getting the carbon price right” is more important to investors than consumers Consumer Energy / Electric Use NOT based on Price Price signals are not effective in driving consumption, but do affect investment. Lifestyle, weather, sprawl are bigger factors. New York Times, March 30, 2007 Drivers Shrug as Gasoline Prices Soar … As Americans enter the sixth year of rising oil and gasoline prices, their shift in driving habits this time has been much less extensive. What’s more, in recent weeks, gas consumption has gone up, not down, and drivers are changing their daily driving habits only slightly. “I don’t think about gas prices at all,” said Michael Machat, 48, a lawyer in West Los Angeles, where gasoline prices are among the highest in the country. As he filled up his BMW with super unleaded at $3.39 this week, he added, “I guess maybe if it was $10 a gallon, I’d think about it.” A recent study that Christopher Knittel, an economics professor at the University of California, Davis, helped write showed that every time from November 1975 to November 1980 that gasoline prices went up 20 percent, consumers changed their driving behavior by cutting gas consumption by 6 percent per capita nationwide. But from March 2001 to March 2006, drivers reduced consumption just 1 percent when prices rose 20 percent. Prices swung up and down seasonally during both periods, but Mr. Knittel said the two periods were comparable because regular gasoline prices increased in both periods by about 66 percent, to $2.50 from $1.50 in real terms, set at 2000 dollars. Prices falling Prices rising Per capita use steady 1980s 1990s 2000s Transportation Sector Vital, but Difficult with Growth “I am proposing $1.2 billion in research funding so America can lead the world in developing clean, hydrogen-powered automobiles.” President Bush, Jan. 2003 “We have a serious problem: America is addicted to oil.” President Bush, Jan. 2006 FORD HYBRID TOYOTA PRIUS EPAct 2005 • Biofuels Standards and tax subsidies • Loan Guarantees for fuel plants and Auto manucturing facilities EIA: Energy Trade Balance… Unsustainable EIA: Monthly Energy Review, March 2008 Hitch: recession related to 9/11 Energy imports aggravate the US trade balance deficit. Curbing Carbon Emissions is Smart Anyway… • • • • • • Resource reserves: We are using up resources within several decades that took millions of years for the planet to generate. Fossil fuel resources are NOT renewable. Conservation is vital. War & Terrorism: Because of where fossil fuels are located, rising prices end up providing funds for terrorist networks. Some believe resource wars are already underway… again (See Human History). Water: Oil and chemical spills threaten vital water supplies and wildlife; mercury from coal accumulates in lakes and streams. Urban pollution: As humans increasingly live in cities pollution from burning fossil fuels is killing us with pollution and vehicle accidents. So, curbing fossil fuel use or finding more innovative ways to utilize it efficiently without causing damage to our air and water makes sense. This will require multiple decades (two generations) to complete a transition to an economy based on low-carbon sources. EPRI “Carbon Constrained” Scenario for Electricity 3500 Reaching lower carbon goals requires many technologies: 3000 U.S. Electric Sector CO2 Emissions (million metric tons) EIA Base Case 2007 2500 2000 Technology EIA 2007 Reference Target Load Growth ~ +1.5%/yr Load Growth ~ +1.1%/yr 30 GWe by 2030 70 GWe by 2030 12.5 GWe by 2030 64 GWe by 2030 No Existing Plant Upgrades 40% New Plant Efficiency by 2020–2030 150 GWe Plant Upgrades 46% New Plant Efficiency by 2020; 49% in 2030 CCS None Widely Deployed After 2020 PHEV None 10% of New Vehicle Sales by 2017; +2%/yr Thereafter < 0.1% of Base Load in 2030 5% of Base Load in 2030 Efficiency 1500 Renewables Nuclear Generation 1000 500 Advanced Coal Generation DER 0 1990 1995 2000 2005 2010 2015 2020 2025 * Achieving all targets is very aggressive, but potentially feasible. 2030 U.S. Electricity Sources (2006) – over 24 hours Natural gas accounts for most growth since 1990; overall demand +33% U.S. Electricity Sources - 2006 (indexed to 24 hrs) Coal Petro N.Gas CHP Nuclear Pumped Hydro Wood (14m) Waste (6m) Geo Solar/PV (0.2m) Wind (9m) (5m) CHP Nuclear (4.7h) N.Gas (4.8h) RE = 34 minutes a day Pumped Wood (14m) Hydro (1.7h) Petro (22m) RE Waste (6m) Geo (5m) Solar/PV (0.2m) Wind (9m) Coal (11.8h) 4,038 TWh OUTLOOK ON U.S. CLIMATE POLICY TIMING: UTILITY EXECS (2007) Challenge: New capacity is needed before federal legislation is expected to be resolved and litigated. themselves Source: Survey by GF Energy of Utility Executives in North America, April 2007 “Stabilization Wedges: Solving the Climate Problem for the Next 50 Years with Current Technologies” Opportunity Built on Princeton CMI Wedges “Carbon emissions from fossil fuel burning are projected to double in the next 50 years (Figure 1), keeping the world on course to more than triple the atmosphere’s carbon dioxide (CO2) concentration from its pre-industrial level. In contrast, if emissions can be kept flat over the next 50 years (orange line), we can steer a safer course. The flat path, followed by emissions reductions later in the century, is predicted to limit CO2 rise to less than a doubling and skirt the worst predicted consequences of climate change.” Robert Socolow, Steve Pacala in Science (Aug. 2004) Figure 1 “Keeping emissions flat for 50 years will require trimming projected carbon output by roughly 7 billion tons per year by 2054, keeping a total of ~175 billion tons of carbon from entering the atmosphere (yellow triangle). We refer to this carbon savings as the “stabilization triangle.” “Stabilization Wedges: Solving the Climate Problem for the Next 50 Years with Current Technologies” Technology Vital to Business Opportunities Princeton Carbon Mitigation Initiative EPA Role Category Technology for savings of 1 GigaTon/Year Electricity Fuel Heat Carbon Sink Worldwide results by 2054 Efficiency 1 Major Efficient vehicles (double mpg worldwide) 2 Minor Reduced use of vehicles (e.g., telecommuting) 3 Major ? 4 Major X 60 mpg vs. 30 x 2Bil vehicles X X Curb VMT 50% to 5,000 m/yr Efficient buildings and industrial facilities X X Lighting, heating, cooling Efficient baseload coal plants X 60% efficiency vs. 30%; 13K TWh Decarbonization of power 5 Minor Gas baseload power for coal baseload power X 1400 GW of gas vs. coal 6 Major Capture CO2 at baseload power plant X 800 GW of coal with CCS 7 Little Nuclear power for coal power X 700 GW of reactors vs. coal 8 Little Wind power for coal power X 2000 GW of wind (2 M turbines) 9 Little PV power for coal power X 4000 GW of PV v. gas; 40K sq.km Decarbonization of fuel 10 Major Capture CO2 at H2 plant X 400 Mt of H2 (vs. 40 Mt today) 11 Major Capture CO2 at coal-to-synfuels plant X 30M bpd with CCS 12 Little Wind H2 in fuel-cell car for gasoline X 4000 GW of wind 13 Minor Biomass fuel for fossil fuel X 1000 B liters of ethanol (100x today) Forests & Soils 14 Minor Reduced deforestation, plus reforestation X 6m hectares; zero burning 15 Minor Conservation tillage X Low tillage to all cropland Carbon Cap from Various Proposed Bills Several bills call for moving below 1990 levels by 2030 or sooner. How’s Europe doing on Carbon Emissions ? Recent economic growth and transport fuel use is reversing early GHG savings from economic contraction and shift from coal to gas. How’s Europe doing on Carbon Emissions ? Recent economic growth and transport fuel use is reversing early GHG savings from economic contraction and shift from coal to gas. Early savings in Germany have been in shutting down massive inefficiencies in old East German facilities and shifting to gas. Public sector “gaming” Turmoil in EU Carbon Market (May 2006) Europe hopes to avert a false economy in carbon By Fiona Harvey, June 28 2006 19:38 | Financial Times of London “What came close to putting the scheme on life support was data released between late April and midMay which showed that last year – the first the scheme had been in operation – businesses covered by it had been given more permits than they needed because member states had overestimated demand.” Several EU states over estimated the allowances they might need as economic growth and demographics came in below projections, and national bureaus also wanted to create “headroom” in their estimates for their industry to reduce the impact of carbon compliance costs. Lower future demand for allowances led to a sudden selloff. http://www.ft.com/cms/s/b03dbc7a-06cf-11db-81d7-0000779e2340.html The next “credit” crisis: carbon credits ? (March 2008) UK Regulator (FSA) Posts Risks on Carbon Trading UK watchdog warns on carbon trading / March 2008 By Fiona Harvey and Ed Crooks Published: March 31 2008 22:05 | Financial Times of London The fast-growing market in carbon dioxide emissions poses risks that could threaten other commodities markets, the FSA, Financial Services Authority, warned on Monday. The watchdog said problems including investors being sold unsuitable products, confusion over the regulation of emissions traders, and insufficient official data created risks to both the fledgling global emissions markets and to related commodities such as gas and electricity. EU traders in fossil fuels and electricity, for instance, factor carbon permit prices into their deals, which can hit consumers. “Cap and trade” systems, which place a limit on the amounts of carbon that companies produce, are widely seen as one of the most promising ways of curbing greenhouse gas emissions at the lowest cost, and have been embraced since 2005 by the EU. In the EU the market is regulated by the European Commission. The FSA does not have a direct hand in regulating the market, and said it had no plans to do so. But it said in a paper published on Monday that “the emissions markets justifiably demand the FSA’s continued attention”. The emissions markets have been beset by difficulties, for example in 2006 when it was revealed that more carbon permits had been issued for the first phase of the EU’s scheme than were needed. This led to a steep fall in the price of the permits. Among problems cited by the FSA is that some companies authorised for other financial markets may have misled customers by citing their FSA authorisation in relation to carbon trading. The paper warned: “Aside from being misleading and leading to potential enforcement action, this type of behaviour undermines confidence in the market.” There was a strong reputational risk to the carbon market from unsuitable products being sold to investors, the FSA said. U.K. FSA lists risks of carbon trading: The Financial Services Authority does not govern the carbon market but the watchdog listed risks in a report on carbon regulation this week: • The lack of links between emissions trading markets globally; • Some companies authorized for other financial markets may have misled customers by citing FSA authorization; • Unsuitable products being sold to investors, which could "potentially lead to damage to consumers or to disorderly trading, and a lack of confidence in market"; • The potential lack of appropriate experience among practitioners; • The quality of information available about emission quantities and allowances; • The lack of market liquidity. (also on p.A1 of WSJ, April 12, 2008) http://www.ft.com/cms/s/b03dbc7a-06cf-11db-81d7-0000779e2340.html Budget Challenge in USA for U.S. EPA EPA Budget Declining… not funded to regulate CO2 Source: EPA Budget in Brief, 2009 $7.6? $7.1 The Game: White House OMB cuts state water grants and earmarks, knowing Congress will restore them. Congress will likely boost climate budget also… in 2010. Drivers in EU vs. USA… and how to engage Asia ? EU is committed to a cap because: • They can’t harmonize 27 national tax systems (social contracts) • A cap is a policy mandate needed to prop up coalition parliaments • They need CDM as a means to channel funds to emerging nations • They are shifting from coal to gas, with market pricing of electricity, rather than regulated pricing • EU economies face demographic decline, and are stagnant • EU is casting energy security on Russian/FSU gas, and they want to tax profits from fossil economy – some interest in coal with CCS. USA can choose and engage Asia: • We have a common federal tax system (and clever tax lawyers) • State incentives can supplement and help tailor approaches • U.S. will be at 50% coal for power, and China, India are using more coal • USA and Asia are still growing ! But, U.S. growth is concentrated in “Red” states; …“Blue” states are older, colder and losing young people • Asia leads in building new reactors and we have big stake in nuclear for national security… and GHG gains • Our future requires baseload and RE, including PHEVs (electrify transport) WBCSD Module: Pathways to 2050 World Business Council for Sustainable Development Pathways to 2050 - Energy and Climate Change Pathways to 2050 - Energy & climate change builds on the WBCSD’s 2004 Facts and Trends to 2050: Energy and Climate Change and provides a more detailed overview of potential pathways to reducing CO2 emissions. The pathways shown illustrate the scale and complexity of the change needed, as well as the progress that has to be made through to 2050. Our “checkpoint” in 2025 gives a measure of this progress and demonstrates the urgency to act early to shift to a sustainable emissions trajectory. www.wbcsd.org The WBCSD has chosen to continue to illustrate the challenges associated with one particular trajectory, consistent with the discussion already presented in Facts and Trends ( 1.9 MB). This document therefore looks closely at the changes needed to begin to stabilize CO2 concentrations in the atmosphere at no more than 550-ppm (see glossary), which relates to the “9 Gt world” described in Facts and Trends. As such, and based upon simplified assumptions and extrapolations, we have made many choices, some arbitrary, to present this single illustrative story. It is neither a fullyfledged scenario nor does it recommend a target. Moreover, this document does not discuss policy definitions or options, topics that need to be dealt with separately. WBCSD: Opportunity starts at national / sectoral level A. Opportunity Wedges (National) B. National/Sectoral Goals & Targets (Developed Country Example) Buildings – adopt new country building standards, design awareness 1000 CO2 Emissions, MT per annum C. National Policies Efficiency Buildings Industry xx % p.a. Domestic through to 20xx 800 Industry – Sectoral agreements, emissions trading, technology standards Domestic – carbon labeling, increased product standards (e.g. standby energy) Renewable Energy – renewables targets. 600 Power Renewables xx MW p.a. by 20xx Generation CCS xx tonnes CO2 p.a. 400 Mobility National CO2 trajectory 200 0 2005 Target Vehicle Efficiency Renewable Power Buildings Domestic 2050 Mobility - Fuels Mobility Choice CCS Industry Other Actions CCS – funding for infrastructure, tax cuts on capital investments, price signals for carbon via emissions trading Biofuels – targets, support for Bio-fuels xx litres p.a. by 20xx manufacturing, CO2 labeling Efficiency xx mpg by 20xx Choice Hybrid / Diesel uptake Vehicle Efficiency - support technology, incentives, sectoral agreements Mass transit Mobility Choice - consumer incentives, promote public/private partnerships for transport networks 87 GHG markets are expanding globally CDM evolves to includes sectors CDM Linkages develop between all systems and more systems appear Japan technology standards Canadian LFE-ETS Expanding EU-ETS EU-ETS 2000 2005 Pre-Kyoto 2010 Kyoto 2015 2020 Linkage framework is implemented US NE-States ETS Danish-ETS UK-ETS 2025 California vehicle CO2 & ETS Australian states ETS 88 A future framework – What is needed? 1. A long-term goal (>2040)… geared to capital markets Established by 2010 Described in terms of carbon equivalent emissions 2. Technology development and deployment framework Expanded support for R&D Global standards Technology transfer driven by standards Risk management 3. Emissions management at national and sectoral level Bottom-up approach aligned with energy policy Sector by sector Expanded project mechanism Progressive inclusion of all countries 4. Linkage framework to encourage international trading WBCSD Framework vs. Kyoto Protocol Kyoto – 2008-2012 WBCSD Revised Framework Top down reduction obligations Bottom-up – National / sector policies and commitments Short term (5 year) compliance obligation Longer term (50 year emissions trajectory) Allocation of a reduction obligation – equitable allocation difficult to achieve politically National opportunities and policies aligned with energy security and climate change priorities Least cost compliance – not enough certainty for large investments in new technologies Technology development and deployment focus Emissions market Deeper engagement of capital markets and greater influence over allocation of capital driven by a wide range of policies and a broad based emissions market. Targets –tons reduced relative to a baseline Targets still in terms of carbon reductions – but aligned to specific actions with GHG benefits – e.g. XX MW of wind power by 20XX. Bond Market Viewpoints (32 responses; > $2 Trillion under management) Energy Policy Survey in Lehman Roundtable at NARUC Strongly Disagree 1.0 Least variance (high agreement) 2.0 2.5 3.0 Strongly Agree 3.5 4.0 4.5 5.0 1) Able to meet most U.S. needs with EE RE 2) New nuclear on-line by 2020 (EPAct 2005) 3) New GHG bill enacted by 2012 4) GHG regs likely from EPA by 2015 5) Cap-and-trade better than carbon tax 6) Can handle near-term with natural gas 7) CCS needed at outset for coal plants Most variance 1.5 Maybe; not sure 8) CCS costs can be covered by rates 9) States best to regulate CCS liability 10) State RPS standards better than Fed RPS Observations: • Wide agreement that EE / RE will not offer enough. • New nuclear is possible. • GHG legislation likely, though regs may take longer than 2015. • Not clear that cap-and-trade is better than tax. Lot of policy confusion. • Just building gas will likely fall short of demand. • CCS terms, liability, and recovery of cost not clear yet. Policy unsettled. • State RPS clearly better than federal RPS. Strong Outlook for Clean Energy Investing Rapid growth is forecast for investment in clean energy niches. Source: Clean Edge Clean Energy Trends - 2007 “Since the publication of our first Clean Energy Trends report in 2002, we’ve provided an annual snapshot of both the global and U.S. clean-energy sectors. In this, our sixth edition, we find markets for our four benchmark technologies — solar photovoltaics, wind power, biofuels, and fuel cells — continuing their healthy climb. Annual revenue for these four technologies ramped up nearly 39% in one year — from $40 billion in 2005 to $55 billion in 2006. We forecast that they will continue on this trajectory to become a $226 billion market by 2016.” Climate & Clean Energy Business Opportunities Different opportunities emerge at varying paces with varying impact. A. 1 2 3 B. C. CARBON MANAGEMENT APPROACHES Energy & Sequestration Energy Efficiency (Practices / Equip) - Buildings: residential, commercial, community-scale - Industrial efficiency and co-generation; on-site power - Smart transmission and distributed generation - Expanded demand side mgmt.; consumer campaigns Low Carbon Power Generation - Power from coal or gas with carbon capture - storage - More nuclear power - Renewable power: wind, biomass, solar, geothermal Transportation - Vehicles and motors - Non-grain Biofuels - Electrified transport (plug-in hybrids) - Hydrogen fuels (from nuclear or renewables) - Telecommuting, traffic flows Sinks and Resource Management (CO2 + Methane) Aggressive forestry Agricultural soil management Landfill gas capture Livestock management Adaptation Coastal building and community measures Community preparation & Emergency response systems Now to 2010 2010 - 2020 2020 - 2030 M M L L M M M L H M H M L L L M L L M H M L L L L L M M L L L H H H M L L L L L L L L L M L L L Wrap-up: Capital Incentives First, + Long-cycle Cap (2040) • Accelerating turnover of huge capital stock from carbon intensive assets to lowcarbon, efficient systems is the #1 issue; curbing consumption won’t be enough: – – – – • • • • Capital incentives stimulate economic growth, which is needed to fund innovation and regional infrastructure, and change how energy is used. Capital incentives create demand for engineering / tech services and products. North American capital markets are largest, most responsive, already in place. Cap & trade creates bureaucratic inefficiencies and incentives for “gaming” and widespread difficulties for enforcement in both public and private sectors. – – • • • Power generation (and sequestration) and grid upgrades (300 GW of coal) Fuel refineries, vehicles, transport infrastructure (300m vehicles; 150B gal.) End-use efficiency in wide array of buildings (design, use, “smart” systems) Industrial manufacturing and fuels production in a vast economy Economy-wide enforcement costs are extensive; bond market is more liquid. Uneven impact creates large scale winners and losers by region, sector. Natural sources of carbon and climate drivers are immense and not “capped” Investment incentives engage big developing economies (BRIC); caps don’t. A long-term (~2040) cap / permit system geared to the capital cycle is feasible. Take-Home Message: Policy Approaches Still in Flux • Aim “price signals” at capital markets first, then consumers • A massive >$3 Trillion investment ($100B+ a year to 2040) is needed to overhaul both power and transport sectors. • A short-term cap (2020) will trigger more volatility of fuel and power prices, chilling the investment needed. • Gearing a CO2 emissions limit to the capital cycle (30 years+) enables the economy to pay the “mortgage”… (recommended by WBSCD) • Capital incentives can be funded with fuel taxes, fossil royalties, CO2 injection fees – all currently used ! • Alternative fuels and renewables curb our unsustainable import addiction, while damping oil / gas price volatilities. • Technology and market factors need risk-based policies. Questions & Discussion Andrew Paterson Director – Economics & Finance Consulting / North America ECONERGY www.econergy.com 202-822-4981 x311 [email protected] Environmental Market data: www.ebiusa.com BACKGROUND: ECONERGY COMPANY FOCUS • Renewable Project Development – – • Energy and Carbon Consulting – – – • Latin America: Acquisition and development of hydroelectric and wind power projects in Bolivia, Brazil, Mexico, Costa Rica and Chile United States: Renewable energy and carbon offset project development Completed over 250 assignments in more than 70 countries Perform market studies, technology assessments, fuel/feedstock resource assessments and investment performance reviews Advise corporations, utilities, energy developers, banks, governments and multilateral institutions on carbon savings and project potential Carbon Markets – – Originate CERs and VERs from Econergy investments and investments of partners and clients Contribute to the development of programs that foster investment in high-quality GHG emission reduction projects domestically and internationally 96 Open Discussion Thank You for attending and Thank you to our Speakers and sponsor