Two major global challenges – the financial crisis and climate change – make it urgent to rally the world behind the idea of a “green new deal” or a “global green recovery.” The financial crisis puts renewable energy projects and business at particular risk. The recession has caused a drop in energy and carbon prices that reduces the market competitiveness of clean technologies. In addition, the tightening credit markets mean that cleantech initiatives, which frequently face high capital costs and higher risk premiums, are struggling to find the necessary funding.
The risk of stagnation is especially disruptive to the cleantech industry as it comes on the heels of a rapid growth period prior to the financial crisis. In Germany, the cleantech sector grew 27% between 2005 and 2007, employed almost 1.8 million people, and now accounts for more than 5% of industrial production. From 2002 to 2007, global new investment in sustainable energy grew nearly 16-fold, from an annual US$7.1 billion to US$112.6 billion. The financial crisis created a severe investment shock in the cleantech sector, with new-investment levels in the first quarter of 2009 just under half what they were one year earlier.
This is absolutely the wrong time for a lull in cleantech investment. The International Energy Agency estimates that about 540 billion US dollars must be invested annually in renewable energy and energy efficiency if climate change is to be maintained at or below a 2°C increase in global average temperature. A significant expansion in investment will be required to reach these levels, with about 80% of the investment needed in just three key sectors: electrical power, transportation and buildings.
Several proven policies for expanding cleantech investment already exist, including feed-in tariffs, risk-mitigation policies, green-procurement policies, and government R&D spending, to name just a few. The key challenge for policy makers in trying to support the establishment of clean-technology markets is how to accelerate the implementation of these measures by obtaining the necessary funding and spending public monies wisely in a way that leverages the private sectors’ capability to shoulder the bulk of the needed investment.
To help G20 nations overcome these challenges, the German Federal Foreign Office asked Atlantic Initiative – a think tank on international politics and globalization based in Berlin and Washington, DC – to develop specific and actionable policy recommendations on how to provide effective international support to green technology markets and push the issue in the G20 framework. It was suggested that Germany, the UK and the US should be the main targets of these recommendations as they are well positioned to take a joint leadership role in setting the right incentives for a global green recovery and future growth path building on the idea of the Transatlantic Climate Bridge and taking into account London’s role as the G20 host. I was a co-author of the report. Please find it here.