In late June, the United Nations Conference on Sustainable Development was held in Rio de Janeiro, Brazil, two decades after its predecessor, the 1992 Earth Summit, was held to advance sustainable development through international cooperation. The "Rio+20? event drew the attendance of more than 100 Heads of State, and the top-level negotiated result from the conference was captured in a 53-page document called "The Future We Want."
As widely expected, the document reaffirmed prior commitments and articulated a common ground for continued negotiations, it was without a major breakthrough, but did capture the importance of Energy in Sustainable Development. Additionally, a great many informal (e.g. non government to government) commitments were made at Rio+20, many of which reflect the global trends that are shaping the clean energy and clean tech industries today, trends that SRI and impact investors should keep a close eye on.
A Maturing Clean Energy Industry
The bottom line is that the clean energy industry has grown up. Back in 2004, for instance, global investment in clean energy totaled $53 billion, but that figure ballooned to $280 billion in 2011, according to Bloomberg New Energy Finance. Clean energy investment has set new records every year since 2004, showing growth even through the recession.
Renewable energy is becoming a significant part of the energy mix in many countries. As an example, on one sunny Friday in May, solar power provided 22 gigawatts of electrical power into Germany’s power grid, meeting about half of the country’s peak power load. Wind power provides significant shares in Denmark, Spain, Portugal and many parts of the United States. In Iowa and South Dakota, wind power now provides more than 20 percent of the state’s electricity demand. And on one windy day in October 2011, Colorado’s biggest utility, Xcel Energy, used wind power to supply more than 50 percent of its power load. As a result of success stories like these, renewable energy’s role in state and national energy mixes, and in the global energy mix, has never been more strongly recognized.
Rio+20 marked a major milestone for energy — particularly clean, efficient, and accessible energy. Never before has energy been a core priority of the global development discussion. This year, United Nations Secretary-General Ban Ki-moon launched and strongly promoted his Sustainable Energy for All initiative. As a result, energy services are now recognized as a critical element for sustainable development, a creator of jobs and economic development, and a source of energy security.
Achievements at Rio+20: The Major Players
In Ban Ki-moon’s vision statement for Sustainable Energy for All, he declares that, “to defeat poverty and save the planet, we can and must achieve sustainable energy for all by the year 2030,” and he further identifies three goals: ensuring universal access to modern energy services, doubling the rate of improvement in energy efficiency, and doubling the share of renewable energy in the global energy mix.
At Rio+20, Secretary-General Ban Ki-moon announced that more than 50 governments engaged with the Initiative and are developing energy plans and programs. That includes the U.S. government, which plans to provide $2 billion in grants, loans, and loan guarantees. As part of that, Secretary of State Hilary Clinton announced an effort in which the State Department, the Overseas Private Investment Corp., and the U.S. Trade and Development Agency will provide $20 million in grants to business owners in Africa to help leverage hundreds of millions of dollars in private financing. “This new initiative is part of an across-the-board push by the United States to make clean energy and energy security cornerstones of our foreign policy,” said Secretary Clinton at the launch of the initiative.
In addition, businesses and investors committed more than $50 billion to achieve the initiative’s three objectives; by one tally, more than 156 voluntary commitments were made in support ofSustainable Energy for All. Microsoft is one of those businesses, having pledged to become carbon neutral by the end of 2013. Microsoft will also institute an internal fee on carbon emissions, with the aim of driving greater advances in energy efficiency in its data centers and buildings, increasing its procurement of renewable energy, and reducing its travel-related emissions.
Banks are also playing an important role in the initiative, as multilateral development banks have committed more than $30 billion towards achieving the three objectives. The European Bank for Reconstruction and Development, for example, has committed $8 billion in energy efficiency projects in Eastern Europe and Central Asia over the next three years. Private banks are also involved, as the Bank of America has set a ten-year, $50 billion environmental business goal, much of which is expected to support clean energy projects. Based on historical performance, BofA conservatively estimates that this should equate to approximately $35 billion in Sustainable Energy for All‘s focus areas.
What can green investors conclude from these commitments? First, the idea of clean and sustainable energy is gaining in political prominence. Second, a great many businesses and investors are determined to invest large sums of money in clean energy. Some companies, like Microsoft, are even internalizing this investment strategy to make sure that their business operations take advantage of the available opportunities. And governments have realized that their investments can serve as magnets to help attract the private investment dollars that gain more momentum with each passing day.
Outside the Big Tent: Rio+20 Side Events
While the major announcements at Rio+20 took the headlines, a number of so-called “side events” at the conference represented trends in thinking that will have an impact on the future growth of clean energy. For instance, the Global Green Growth Institute (GGGI) was converted into an international organization during Rio+20. The GGGI is dedicated to pioneering and spreading a new model of economic growth that simultaneously targets key aspects of economic performance and environmental sustainability. A related effort is the Low Emissions Development Strategies (LEDS) Global Partnership, a network of more than 50 countries, international agencies, and technical institutes working together to advance low-emissions development, including comprehensive approaches that highlight the key role of energy.#rewpage#
Other efforts seek to change how the global economic system handles environmental challenges; these changes could provide some support for clean energy. For instance, the Natural Capital Declaration, launched at Rio+20, aspires to properly value the environment in financial transactions. In addition, the United Kingdom announced at Rio+20 that all 1,800 companies on the London Stock Exchange’s Main Market will be required to report their greenhouse gas emissions. Some groups are even calling for a replacement for the Gross Domestic Product, such as the Inclusive Wealth Index, which would provide a definition of wealth that encourages sustainable economic and social development.
These actions all represent an attempt to change the rules of the economic game: to place a dollar value on natural capital, to redefine what we mean by growth and prosperity, and to link economic performance with environmental sustainability. To the extent that these actions succeed, they will open more doors to clean energy investment and growth.
Assessing the Present and the Future of Energy
Rio+20 demonstrated one fact that energy experts have long known: energy is at the root of many sustainable development goals. Energy is also intertwined with land and water and comes into play when considering food production, conservation, purification, and distribution of water, and land use issues.
But as we try to look toward the future of global energy systems, we first need a clear assessment of where we are now and where we’re going. That’s the thinking behind the Global Energy Assessment (GEA), the result of a significant scientific effort over the course of four years. Released at Rio+20 by the International Institute for Applied Systems Analysis (IIASA), with significant contributions from authors at the National Renewable Energy Laboratory (NREL) and the Joint Institute for Strategic Energy Analysis (JISEA) authors, the GEA finds that shifting the global energy economy to one based on clean energy is economically viable, and the co-benefits to human health and the environment more than balance the up-front investments needed to bring about this transformation.
Within the deep analysis, the GEA provides a roadmap for realizing the Sustainable Energy for Allgoals and beyond. Strategically placed investments would enable the delivery of clean, sustainable energy to the 1.4 billion people living without electricity and to the 3 billion without access to modern cooking fuels or devices. This could be achieved without additional increases in greenhouse gas emissions.
The GEA analysis indicates that a rapid transformation to clean energy technologies would require an increase in annual investments from present levels of about $1.3 trillion per year to $1.7 trillion, which would be about two percent of current world gross domestic product. The difference corresponds roughly to the current energy subsidies that are often impeding the needed transformational change.
The GEA is indicative of the evolving framework needed to understand the future role of energy. With energy issues intertwined in issues of land use, water use, and food production, any analysis of energy requires a holistic approach. That’s also the thinking behind JISEA, of which I’m the executive director.
Operated by the Alliance for Sustainable Energy on behalf of NREL, the University of Colorado-Boulder, the Colorado School of Mines, Colorado State University, the Massachusetts Institute of Technology, and Stanford University, JISEA elucidates key insights in realizing a sustainable energy system and charting viable pathways across the value chains.
Seeing the future is never easy for investors or analysts. But a holistic approach to energy, environment and economics gives us the best chance of seeing our energy future clearly, which is essential to understanding the future of this planet.
Lead image: Wind turbines via Shutterstock