The environmental and policy context for crowd-funding in the UK LSE Seminar on Crowd-Funding for Renewables 2 May 2013 Sam Fankhauser Grantham Research Institute and CCCEP London 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 use But initial priority is energy efficiency

Overview A vision for a green economy Green investment needs The policy environment

Large green investment needs Green investment rising from £8-10bn to £30-50 billion p.a. by 2020 Source: Vivid Economics (indicative numbers)

Investment needs dominated by wind Sector decomposition (maximum scenario) Source: Vivid Economics (indicative numbers)

At a time of severe investor caution UK 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 price on 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 landscape For 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 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 bank New 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 Green investment needs

Key new policies: carbon price floor EU 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 context for crowd-funding in the UK LSE Seminar on Crowd-Funding for Renewables 2 May 2013 Sam Fankhauser Grantham Research Institute and CCCEP London School of Economics