Climate Change- an Opportunity for Business?

1. Government Office for London Climate Change- an Opportunity for Business? The International Trade in Environmental Goods and Services

2. Current knowledge - • there is unequivocal evidence linking greenhouse gas concentrations to global mean temperatures. • there is unequivocal evidence that climatic systems are driven by thermal energy. • Atmospheric CO2 rising at 2ppm per year • CO2 as of January 2009 are 386pmm • Once CO2 reaches 400ppm a 2oc rise in global mean temperature is inevitable.

3. 2 c means- • Flooding • Sea level rise- revised estimates of up to 1.5 meters by the end of the century • Drought • Heatwaves • Extreme weather

4. IT IS NOT ABOUT POLAR BEARS!Impacts will be felt across all sectors- • Social impacts- public health, mortality and morbidity, increased commodity prices, population migration, crime and anti-social behaviour • Environmental impacts- biodiversity loss, smog, waste management, pressure on water resources, loss of farm land and costal erosion • Economic impacts- supply chain disruption, resource shortages, damage to physical assets and infrastructure, regulatory and fiscal risk

5. However where there is risk, there is reward….. Opportunities are opening up in- • Eco-tech and engineering • Agribusiness, including GM • Water management • Enhanced analytics (financial services) • Carbon Trading • Risk management and modelling (insurance) • Policy and business strategy development in the public and private sector • Specialist scientific services (ecology, geomorphology, contaminated land remediation, air pollution etc) • Spatial and land use planning • Transport planning • Waste management and recycling • Energy and carbon management (including IT) • Sustainable Construction and Property management

6. The market is immense and growing exponentially- • The global market for Evironmental Goods and Services (ESG) has grown exponentially over the last two decades, • Conservative estimates of its global value stand in excess of $600 billion • The EU, US and China account for 94% of market share which is expected to grow by 45% by 2015.

7. Carbon Markets – a beginners guide • EU has set a cap on CO2 (20% below current levels) • Counties give permits to companies in certain types of polluting industrial sector (e.g. power generation, steel and cement industries) • End of each year companies in the scheme must surrender enough permits to cover their emissions. To do this companies can- • Cut production, and thus emissions • Introduce energy efficiency measures • Purchase EUAs from plants or factories across the EU who have doneeither of the above and do not require all their EUAs • Buy CDM credits from developing nations- Though only a proportion of shortfall can be made up in this way • Failure to surrender sufficient permits results in a fine of up to 100 euros per tonne missing.

8. Carbon trading the UK experience • The carbon market is a commodities market, allowing futures and options trading, spread-betting, hedging etc. • Modelled on NOx and SOx market established in Chicago in the late 1980’s which successfully combated Acid Rain. • Carbon Trading allows the market to decide the most efficient way of cutting carbon • To buy permits customers need to go to a broker. • City of London is the world centre for this type of trading- it is one of the City's fastest growing areas of business. • The Carbon market is likely to become the largest commodities market in the world.

9. However…… • The carbon market is a political construct and relies on a stable policy environment. • With the current economic downturn Governments must stand firm. • The price of carbon has crashed due to the economic down turn

11. But the future is bright • Political leaders seem to be remaining resolute in their commitment to low carbon growth- US and Europe have tied financial aid to automotive sector with development of low carbon vehicles • The price of carbon will rally as the next phase of permit issues from the EU will reduce supply. • By placing a price on carbon CAT and CRT can be more accurately assessed for their commercial viability.

12. It doesn’t matter whether you believe in climate change………Climate change believes in you! • Physical impacts on services, infrastructure and supply chains. • Regulatory and policy environment (national and international) does reflect existence of climate change. • Your business models must reflect this if you are to continue to be successful

13. The London Accord Making Investment Work for the Climate

14. Sleepwalking into disaster “…while climate change may have reached a tipping-point of sorts in 2006 as far as perceptions of the problem are concerned, the same cannot be said for perceptions of the solution.” Centre on International Cooperation & River Path Associates, “The State of the Debate”

15. The context • Private sectorinvestment is crucial to climate change investment (86% of capital investment = more than $600bn by 2030, according to UNFCCC ) • Pension funds and asset managers rely on analysis by the financial services sector for their decision making • Frame this analysis within the context of climate change and the market will begin to find solutions

16. Why the London Accord is Unique • The London Accord is the largest collaborative research project the City has ever undertaken. • It applies financial analysis to climate change investment. • 20 of the world’s leading investment firms contributing research valued at approximately £7M ($15M) • It is ‘open source’ • – available to anyone free of charge

18. 24 Reports

19. Conclusions • Climate change is a global problem and the temptation is to look for a single global solution, or a few global solutions • Create a portfolio of investment that matches technology with the natural and the regulatory environments. • Forestry is a big unknown - the range of credible estimates for the real extent of abatement potential is broad, and the real costs of forestry projects which mitigate greenhouse gas emissions are unknown • Wider sustainability issues matter in selecting options to combat climate change as, apart from being important in themselves, they are also often likely to be material to the commercial viability of an investment

20. Policy Implications • Focus on the Carbon Market - business investment follows the carbon price • Support More Research: • Quantify the Impact of Forestry • Assess Carbon Capture and Sequestration • Set International Standards – product level, carbon intensity, carbon offsets • Set Higher Policy Standards to Realise Existing Positive Abatement Opportunities - lower consumption, and increase efficiency of existing energy

21. Next Steps • Wider social & ethical issues • Service for financial industry to communicate to policy-makers and NGOs • Incubation for new themes • New reports • New members • Increased support – DEFRA, BERR

22. More Information… Simon Mills Head of Sustainable Development PO Box 270 Guildhall London EC2P 2EJ simon.mills@cityoflondon.gov.uk Home -www.london-accord.co.uk