The Stern way of thinking captures banking business

It is not often that banks use the word "revolution" in a positive context. The Barclays Capital Equity Gilt study, however, does. (see quote below).

It is clear that The Stern-Review and its projection, of energy system improvements needed to halt the climate change, and that this should be an injection the world economy, has had an impact.

Barclays themselves has embarked the road to the future and to live as they learn by signing up for 50% green energy to their premises and buy from EdF. This information however raises some doubts over the "greenness". Is it green or just carbon-free, i.e. is it renewable or are there some radiant particles from nuclear in the delivery?

And to further emphasise their intentions they offer green energy investment portfolios to their customers. We could say that all this was already in the deck, but it nevertheless seems as if Sir Sterns report has provided the confidence to many that they are on the right track. But when it comes to the composition of the portfolio it does not look as straightforward in alternative energy as one should expect. There is a lot of oil, gas, coal and nuclear in there:

• Gamesa in Spain (equipment for wind and solar energy)
• Florida Power and light (mostly nuclear, oil, coal and gas. Some efforts on efficiency though)
• Scottish and Southern Energy (more than 80% of the capacity in coal and gas)
• Iberdrola in Spain (traditional but with a heavy turn towards wind and biofuels)
• Fortum in Finland and Sweden (Roughly 1/3 renewables for heat. Electricity roughly divided equal between nuclear and hydro)
• Archer Daniels Midland Company (call themselves “the world leader in BioEnergy")
• Praxair (into gas-equipment and -production)
• Air Products and Chemicals Inc.

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Quote:

Chapter 1 – The energy revolution
We examine the relationship between the energy market and climate change policy. Our thesis is that the energy infrastructure of the global economy is prone to radical restructuring in the years ahead, a process that could be described as an energy revolution.

The driving forces are twofold. First, the spiral higher in energy prices since 2002 has revealed that current energy supply is likely to prove insufficient in light of current demand trends. The world therefore needs a sizeable increase in capacity to accommodate the energy ambitions of both industrialised and industrialising economies. Second, public opinion in the OECD has reached an inflection point on climate change, with the political path now open for establishing an international agreement on emissions reduction.

We discuss the difficulty of simultaneously increasing energy supply by 50% over the next 25 years, while also lowering dependency on hydrocarbons, which currently provide 80% of the world’s energy needs. The likely effects on asset markets and modes of financing are expected to be sizeable and could dominate other fundamental factors. Investors need to place the nexus of climate change policies and energy scarcity at the centre of their asset allocation process. We conclude that the impending energy revolution may – contrary to consensus expectations – prove highly stimulatory for the global economy.