Shift away from fossil fuels will be wrenching, risky, ‘ugly’ and ultimately necessary — author

Source: Daniel Cusick, E&E reporter • Posted: Friday, May 2, 2014

BOSTON — Shifting the global economy from its long dependence on fossil fuels will not follow a smooth trajectory where corporations, financial markets and other stakeholders systematically and logically adjust to new realities, regulations and economic pressures.

Rather, it will be the kind of “chaotic, messy, ugly and effective” transformation that characterized almost all past market upheavals, author and climate activist Paul Gilding told several hundred climate-conscious investors gathered here this week.Gilding, former head of Greenpeace International and author of the 2011 book “The Great Disruption,” offered a sobering and at times searing critique of the coal, oil and gas industries, which he said must be effectively dismantled over the next several decades to avoid irreparable harm to the climate from greenhouse gases.

“We’ve got to get away from the idea that this is going to be a gentle process,” the Australian climate activist told several hundred people gathered for the annual sustainability conference sponsored by Ceres, the 25-year-old nonprofit dedicated to promoting social and environmental causes within the business and finance sectors. “A lot of people will lose along the way,” including some of the world’s most powerful energy companies, he said.

But there will be winners, too, as financial markets respond to mounting concern about climate change and investors begin steering billions of additional dollars toward renewable energy development, energy efficiency programs, and other products and technologies to help reduce the amount of heat-trapping gases emitted into the atmosphere.

The looming challenge for nonprofits like Ceres and its private-sector partners is finding a way to leverage a projected $36 trillion by 2050 — or roughly $1 trillion per year — that the International Energy Agency has said will be necessary to place the world’s energy economy on an environmentally sustainable path.

Green bonds work

In a report issued earlier this year, Ceres senior fellow and economist Mark Fulton laid out a 10-step plan to achieve what the organization has dubbed “the Clean Trillion.” The action items include mobilizing private corporations to quickly scale up clean energy technologies through direct investment, as well as tapping more deeply into the emerging “green bond” market that was pioneered by international development banks in the late 2000s and has since spilled over into the private sector.

Last November, Bank of America Merrill Lynch issued its first green bond, a $500 million senior bond with funds to be used specifically for investments in projects like wind, solar and geothermal plants as well as energy efficiency projects.

Among the early beneficiaries of the Bank of America debenture was the city of Los Angeles, which retrofitted more than 141,000 streetlights with high-efficiency LED bulbs. The project, backed by a $40 million loan, is expected to save the city more than $7 million per year in reduced energy costs while offsetting 47,000 metric tons of carbon annually.

Suzanne Buchta, managing director of debt capital markets for Bank of America Merrill Lynch, told conference attendees that the half-million-dollar debenture “helped set the pace” for green bonds in the United States, and that other banks are poised to follow suit.

In fact, 25 major investment banks — among them U.S.-based Bank of America, Citigroup, JPMorgan Chase, Morgan Stanley and Goldman Sachs — declared their support for a new set of “green bond principles” that provide guidelines and help lending institutions navigate issues of transparency and disclosure and promote integrity in the development of the green bond market.

Yet even with an emerging debt market and rising private investment, experts say meeting the IEA’s $37 trillion goal for clean energy spending will require wholesale shifts in thinking about energy-sector finance.

In its “Investing in the Clean Trillion” report, Ceres also calls for greater scrutiny of fossil-based energy producers’ risk exposure and support for government policies “that result in a strong price on carbon pollution from fossil fuels and a phase out of fossil fuel subsidies.”

Such tax measures — including offshore royalty relief, percentage depletion allowances for oil and gas wells, and intangible costs of drilling and development — amount to hundreds of millions of dollars annually for traditional energy companies, according to Taxpayers for Common Sense.