Energy Investors Seek Strong, Green Signal from Stimulus

By Mindy S. Lubber and Kevin Parker

As Congress nears final approval of an economic stimulus package, it should be clear on one point: Major investors want a bold, green plan that will spark clean energy investment and allow America to shape its financial and energy future.

The bottom line is that emerging clean-tech industries such as renewable energy and energy efficiency need the support of economic stimulus and other long-term government policies to thrive in the low-carbon global economy evolving in response to man-made climate change.

Investors need the reassurance that strong market signals from Congress will provide.

Even as other sectors of the economy sink, a green stimulus package will send a strong market signal to investors that clean energy will be a critical component of America’s future. For example, the wind industry has been hamstrung by tax credits that Congress has been renewing nearly every year. If a green stimulus package could extend the credits by five years or more, investors will be more confident placing funds in this burgeoning industry.

Green incentives that foster energy efficiency also will provide a boost to company bottom lines — and investor returns. A study last year by the McKinsey Global Institute, the economics research arm of McKinsey & Co., concludes that major investments in energy efficiency in the coming years could earn double-digit rates of return for investors while cutting energy demand growth by at least half. That boost would mean substantially lower energy bills for U.S. companies. It would also help this country avoid having to build hundreds of new and costly fossil-fuel power plants.

To be fully effective for investors, though, a green stimulus plan must be accompanied by comprehensive national legislation with mandatory limits on greenhouse gas emissions. Such a mechanism that leads to a price on carbon emissions will enable solar, wind and other alternative energies to become economically competitive with fossil fuels.

By providing these incentives, Congress could achieve two goals: assert America’s leadership in the emerging clean-tech global economy and create millions of jobs.

Other countries are already in the starting block of this great green race that will bring enormous financial rewards to its winners. Asia and Europe are home to the world’s largest solar and wind turbine manufacturers. Japan’s per capita consumption of energy is nearly half that of the United States. President Barack Obama understands this challenge, noting shortly before he was inaugurated, that other countries “are surging ahead of us, poised to take the lead in these new industries.”

Major investors also understand this issue. In January, the nation’s largest pension funds and dozens of other investors sent a letter to Congress calling for strong support of energy efficiency, renewable energy and other green provisions in the recovery bill.

So why are investors pushing for a green stimulus bill and mandatory limits on greenhouse gas emissions? Is it altruism or coldblooded capitalism? It’s a combination of both.

These investors recognize that the climate threat is real and that huge investments will be needed to reduce global warming pollution to the levels climate scientists — and President Obama — say are necessary to avert potentially severe climatic disruptions.

To have a chance of limiting average increases in global temperatures to 2 degrees in this century, a level that a growing number of scientists already consider unsafe, the Intergovernmental Panel on Climate Change — a scientific body set up by the World Meteorological Organization and by the United Nations Environment Program — believes we’ll need to limit greenhouse gas concentrations in the atmosphere to 450 parts per million. This limit will require reducing global carbon dioxide emissions by a range of 50% to 85% from 2000 emission levels by 2050.

The scale of the investments needed to achieve these reductions is eye-popping. The International Energy Agency’s World Energy Outlook 2008 estimates around $9.3 trillion — or about $460 billion a year — needs to be invested globally in renewable energy, energy efficiency and other clean-energy technologies between 2010 and 2030 if we are to limit CO2 concentrations to 450 ppm.

While it’s encouraging that clean-tech investments have grown exponentially in recent years — peaking around $150 billion in 2007 alone, before last year’s financial credit meltdown — it’s only the tip of the iceberg of what is needed. And that’s where the economic stimulus bill and Congress come into play.

The nation is at a rare crossroads. With the right direction and boost from Washington, American businesses and investors can take a lead role in the global clean-energy future.

Mindy Lubber is president of Ceres, a coalition of institutional investors, environmental organizations and other public interest groups, and director of the Investor Network on Climate Risk. Kevin Parker is global head of Deutsche Asset Management, New York, and a member of Deutsche Bank’s general executive committee.