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This week, business and non-profit leaders will meet in New York, for ClimateWeekNYºC, calling for bold climate action to secure a cleaner, greener, more prosperous future.
As they gather, this much is evident: Government and the general public do not believe that climate change solutions can scale to meet the problem, nor do they accept that reducing our carbon emissions by the 17 gigatons necessary to stabilize global temperatures won't harm economic growth. So, to build the political will and garner public consensus, we need to convince them that it isn't a choice between the economy and the environment.
As CEO of the Carbon War Room, I see ClimateWeekNYºC as a tremendous opportunity for us to convene as a community, identifying the best path for a transition towards a low-carbon economy. By expanding our efforts to focus on new financial and economic tools we can capitalize on the largest wealth creation opportunity of our lifetime.
Today, there are cost-effective climate change solutions capable of reducing 17 gigatons of carbon from our atmosphere which at the same time save people money and stimulate the economy. In fact, as reported by McKinsey & Company, 50 percent of all carbon reductions can be achieved without adding any undue burdens to consumers. Unfortunately, market failures are preventing capital from flowing to more sustainable low carbon solutions.
While comprehensive policy has worked in the past, it will NOT in this case. Even if policy is enacted, the tools to scale and diffuse the solutions are not ready to go. We must begin to add the skills necessary to work with capital sources and entrepreneurs to scale existing solutions that work within existing policy frameworks.
In the shipping industry, for example, customers of shipping services have no convenient way to choose efficient ships from inefficient ships. It is astounding to think that the simple inability to choose the most efficient ships is causing customers to miss out on cost savings of at least 15 percent. The right standards can ensure that these ships are upgraded and financial products that rely on savings can help pay for the available upgrades.
The formula of complementing policy with trusted financial products should be replicated across all sectors of the clean economy from building retrofits and industrial efficiency to alternative-fuel vehicles, shipping and aviation. If we can achieve this, it will instill the confidence needed to pass policy that levels the playing field for everyone.
But we need to set new priorities.
Next Page: Priorities for a cleaner, greener economy.
Innovation from the financial sector
Jigar is absolutely right – complementing policy with trusted financial products can and must be replicated across multiple sectors. The opportunity to create “climate wealth” in energy efficiency retrofits has been hindered by multiple participants and the failure of a good model to emerge that enables those actors to work successfully together. In short, utilities have struggled to find ways to make energy efficiency work that don’t destroy shareholder value, buildings owners often don't have or won't deploy the capital to invest in energy efficiency projects. Financial players have not found a creditworthy off-taker for energy efficiency product or a reliable method to segregate the efficiency savings and to measure the success of energy efficiency investments.
As Jigar describes, the solution to this market disconnect will be helped by selective changes in policy, but in the end the meaningful change will come from within the private sector. The innovation necessary to transform the efficiency space will come from the financial community – and will be built to scale as soon as the benefits of the efficiency can be measured and proven to utilities, regulators, and building owners.
Regulators need to get behind the process of discovery of these enabling financial tools. The private sector can develop solutions if given the right regulatory encouragement and framework. In energy efficiency retrofits, this includes standards requiring utilities to meet a portion of new demand through efficiency, aligning efficiency with utility companies’ shareholder benefits, and efficiency targets with penalties. More thoughts on energy efficiency policy here: www.en-rm.com.
Need to unlock the private sector's capital ability
until we innovate the right alignment of incentives and returns, we cannot unlock private sector capital's ability to fuel/fund these changes.
this will take collaboration between creative financiers and regulators. in effect, PUCs have always been about regulating the capital flow into the energy industry in accordance with public policy objectives.