Green energy investor returns rise as carbon bubble looms

Falling costs of renewables, green bonds growth and prospect of UN climate deal driving confidence in clean energy sector

New funding for clean energy welcomed, but US coal emissions are still rising (Pic: Roland Peschetz/Flickr)

(Pic: Roland Peschetz/Flickr)

By Gerard Wynn

Investment in low-carbon energy is becoming a steadily safer bet than fossil fuels, because of a combination of policy and technology trends, according to the head of the Investor Group on Climate Change Australia and New Zealand.

Trends favouring low-carbon technologies included a small but steadily growing coal divestment movement and falling solar power costs. In addition, climate policies favoured support for renewable energy and carbon pricing, and cuts in fossil fuel subsidies.

“Because of the growing costs of emissions, low-carbon activities such as renewable energy and green buildings are a safer bet than many carbon- intensive ones,” said Nathan Fabian, in a comment article in the journal Nature.

“The prospect of unburnable fossil-fuel reserves makes many new coal and tar-sands projects too risky to invest in,” he wrote.

“There are more than ten government-funded green investment banks around the world that co- invest with the private sector to reduce risk and improve financial returns. By contrast, fossil-fuel commodity markets are volatile and threatened by political instability.”

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The world is poised to agree a climate deal in Paris at the end of the year, which may further tilt the energy balance away from fossil fuels if countries can agree on binding carbon emissions commitments.

Central bankers and former heads of treasuries have recently warned of possible parallels between the recent global financial crisis and a carbon bubble of fossil fuel investments which could turn sour, if countries introduced tougher climate policies.

For example, the deputy head of the British financial regulator Prudential Regulation Authority, Paul Fisher, this week said that insurers should be aware of risks to fossil fuel assets.

“One live risk right now is of insurers investing in assets that could be left stranded by policy changes which limit the use of fossil fuels,” Fisher said.

Writing in the journal Nature, Fabian said that investor engagement in a UN climate summit in New York last September showed growing investor engagement in a low-carbon economy.

Fabian calculated that low-carbon investment announcements at the summit totalled more than $600 billion over various timescales, from insurance companies, pension funds, commercial banks, philanthropic foundations and university endowments.

The issuance of green bonds, which are used to raise finance for low-carbon projects on capital markets, had grown especially steeply, and more than three-fold in 2014, to $36.6 billion in 2014 from $11 billion in 2013, he said.

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