Some carbon and energy goals set out by the UK, Spain and Greece earn poor risk ratings in terms of investment potential in a new report from Deutsche Bank (DB).

Produced by DB Climate Change Advisors, the “Global Climate Change Policy Tracker: An Investor’s Assessment” provides investors with an analysis of climate change policies and assigns a risk rating to 109 countries, states and regions based on key government mandates and support policies. The rating is based on each region’s relative attractiveness to investors based on risk-adjusted returns in climate change investment opportunities.

For example, the UK’s legislated goal of generating 10 per cent of its electricity from renewables by 2010 earned an overall risk rating of 3 (with 1 = lower risk, 2 = moderate risk, 3 = higher risk), largely because of problems with incentives, enforcement, monitoring and actual results so far.

The Deutsche Bank analysis stated: “The UK’s 2007 Energy White Paper contained a number of proposals designed to speed up the planning system for major infrastructure projects to meet the 2010 renewable target. However, the plan
has been criticised for failing to offer substantial new solutions to meet the 2010 target.” It also noted the UK had managed to generate just 5.5 per cent of its electricity from renewables as of 2008.

Other highlights of the reports include:

• Even if current and select proposed policies achieved their maximum possible impact, emissions in 2020 would still exceed the amount needed to limit the average world temperature increase to 2 degrees C. To meet such a goal, emissions would need to be reduced further, by an amount equivalent to the current annual emissions of the US economy.
• More capital is needed to mobilise climate change industries, and more action by government is required to attract capital. Investors are most attracted to countries and regions with comprehensive, integrated government plans that are supported by strong incentives, such as feed-in tariffs.
• Governments must create transparent, long-term and certain policies to attract capital. While the carbon markets may offer long-term solutions, investors are currently driven by on-the-ground mandates and incentives.
• Energy efficiency could help deliver significant reductions in emissions. Because efficiency provides savings in the long term, it’s essential that governments tackle market failures to encourage capital deployment in this area.

“What investors want is transparency, longevity and certainty — “TLC” — in policy regimes to mobilise capital,” said Kevin Parker, global head of Deutsche Bank’s Asset Management division. “Many major emitters such as the US and the UK do not have enough ‘TLC’ in their policy frameworks. Our rankings show that China has a lower risk for climate change investors, as does Germany, but the research also shows that in order to avoid catastrophic climate change, all countries will have to do more to encourage investment.”

Mark Fulton, global head of Climate Change Investment Research at Deutsche Bank’s Asset Management division, added: “Carbon markets may provide policy support to investors in the long term. However, for the foreseeable future, investors will be focused on mandates and incentives. We believe that appropriately-designed and budgeted feed-in tariffs have demonstrated their ability to deliver scale.”

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