The environmental and policy contextfor crowd-funding in the UK

LSE Seminar on Crowd-Funding for Renewables2 May 2013

Sam FankhauserGrantham Research Institute and CCCEPLondon School of Economics

Overview

• A vision for a green economy

• Green investment needs

• The policy environment

The UK climate and renewables targets • Legally binding carbon targets

• Long-term (2050) target of an 80% cut• Binding 5-year carbon budgets set 12 years ahead

• Legally binding renewables targets• 15% of energy use by 2020• Mostly to be achieved in electricity generation

Under the 2008 Climate Change Act and EU Renewable Energy Targets

Implication of carbon targets by sector

Source: Committee on Climate Change (2010)

Decarbonisation starts in the power sector

Electric power emissions

Source: Committee on Climate Change (2010)

Electricity generation needs to be all but carbon-free in 20 years

Implications for renewable electricity

Source: Committee on Climate Change

Sharp ramp up in investment (mostly wind)

on-shore wind off-shore wind

Some renewables in domestic energy useBut initial priority is energy efficiency

Overview

• A vision for a green economy

• Green investment needs

• The policy environment

Large green investment needsGreen investment rising from £8-10bn to £30-50 billion p.a. by 2020

Source: Vivid Economics (indicative numbers)

Investment needs dominated by windSector decomposition (maximum scenario)

Source: Vivid Economics (indicative numbers)

At a time of severe investor cautionUK aggregate investment is at a low, relative to GDP

Source: Zenghelis (2012)

Overview

• A vision for a green economy

• Green investment needs

• The policy environment

Decarbonisation requires policy intervention

Put a priceon carbon

Support low-carbon technology

Remove barriers to energy efficiency

Source: Stern 2007

Address climate change externality

Address market failures related to RDD&D

Address market and behaviour issues related to energy use

A very complex policy landscapeFor example, UK carbon policies aimed at business

CCL: Climate Change Levy on fossil fuels (most larger businesses)CCA: Climate Change Agreement (voluntary standard resulting in a discount on the CCL)CRC EES: Carbon Reduction Commitment Energy Efficiency Scheme (services and public entities)EU ETS: European Union Emissions Trading Scheme (electricity and heavy industry)

Source: Bowen and Rydge (2011)

Key new policies: electricity market reform

0

50

100

150

200

250

300

350

400

2020

2021

2022

2023

2024

2025

2026

2027

2028

2029

2030

gCO

2/kW

h Risky market, no carbon price certaintyMedium scenario

Current arrangements do not deliver the required emission cuts

What market may deliver

Required path

• Low-carbon support through long-term Contracts for Difference (replacing renewable energy obligation)

• New capacity market to address intermittency issues of wind• Emission Performance Standard (gCO2 / kWh)

Key new policies: green investment bankNew institution to overcome problems in accessing finance

• Initial equity of GBP 3 billion, no commercial borrowing until 2015• Focus on off-shore wind, non-domestic industrial energy efficiency, waste• Offering both commercial and (eventually) state aided products

Gre

en in

vest

men

t nee

ds

Key new policies: carbon price floorEU Emissions Trading Scheme provides insufficient price signal

• Recession means EU ETS cap is increasingly loose• Unilateral floor price rising from GBP16 in 2013 to GBP 30 by 2020• EU-wide effect is constant emissions, lower prices, higher

compliancecosts

There are clear policy risks

“I want a Conservative Treasury to be in the lead of developing the low carbon economy” UK Shadow Chancellor George Osborne, November 2009

“We're not going to save the planet by putting our country out of business”UK Chancellor George Osborne, October 2011

Conclusions

• The UK remains at the forefront of global efforts to decarbonise the economy

• Low carbon investment needs are massive at a time of low capital availability

• But policy (and other risks) can be substantial

The environmental and policy contextfor crowd-funding in the UK

LSE Seminar on Crowd-Funding for Renewables2 May 2013

Sam FankhauserGrantham Research Institute and CCCEPLondon School of Economics