Green investing and policy support

A report by the World Economic Forum

The Investors Community at the World Economic Forum Annual Meeting in Davos of January 2008 mandated a Green Investing report. This report was to be presented at the next Annual Meeting in January 2009. The remit of the report was to explore the potential engagement by leading investors in addressing climate change.

Huge investments required

The report starts by sketching the scale of the challenge. It points out that green energy is often considered a luxury. Nevertheless, a huge volume of investment will be required to avoid catastrophic climate change and ensure our future energy security. Various experts all place the estimated cost in the range of US$500 billion per year.

Fortunately, the investment in green energy in the past five years has already been substantial. According to the report, 'Clean energy technologies are becoming increasingly cost-competitive with fossil-based energy. A carbon price will eventually level the playing field, but in the meantime clean energy solutions require support from policy makers.'

Maintain the momentum

The principal challenge the report sees for policy makers is to 'maintain the extraordinary momentum of the clean energy industry in these difficult times' (of global economic crisis). According to the report, dropping global interest rates was a very good first step, generating an enormous stimulus for renewable energy investments. Renewable energy projects have a high initial capital cost but are not subjected to volatile fuel costs during operation. This means they benefit more from reductions in effective interest rates than natural gas or coal.

In addition to short term measures to overcome the current economic crisis, the report sees the need for 'smart policies' stimulating green energy investments. Those policies should be tailored to each geographic situation and to the technological maturity of each sector.

Moreover, there is a need for simplicity (avoiding bureaucratic costs) and stability (long lasting regulation) in green energy policy making.

Enforcing energy efficiency standards

The report also makes a number of specific recommendations for policy makers. A first recommendation — mainly addressed to Europe — is to further develop favourable conditions for venture investment. Secondly, the report recommends that policy makers create markets for clean energy investments through public procurement. And last, but by no means least, the report argues strongly in favour of enforcing energy efficiency standards.