New research from Deutsche Bank's Asset Management division indicates governments stay committed to climate change despite economic environment
Governments around the world have stepped up the pace of new climate change regulation over the last eight months, underscoring their commitment to fight global warming despite the global economic downturn, according to research published today by DB Climate Change Advisors, Deutsche Asset Management’s institutional climate change investment business. The report comprehensively refutes the notion that tough economic conditions are forcing governments to withdraw from action on climate change.
The report tracks 250 new regulations that support renewable energy and climate change mitigation across the world as well as “green” initiatives amounting to more than $200 billion in global stimulus packages. These provide climate change investors with a set of attractive opportunities across key sectors and themes.
Most recently, the $787 billion American Recovery and Reinvestment act of 2009 has committed about $106 billion - or 13.5% of the total - for “green”, climate change-related initiatives1. Of this amount, $85 billion is allocated to direct spending measures (including $18 billion for mass transit) and $21 billion is for renewable energy tax breaks2. This reflects the determination of the Obama Administration and the 111th US Congress to address climate change.
According to Mark Fulton, Global Head of Climate Change Investment Research at DB Climate Change Advisors, “Globally, policy remains a key driver for investment returns in both public and private markets.” He added, “We believe this trend towards greater regulation and stimulus spending will provide crucial support to climate change industries during the current global economic downturn, helping to offset the impact of weaker debt markets over time.”
Key investment themes:
- In the US, the extension of tax credits, the conversion of these credits into cash refunds, discussions about implementing feed-in tariffs, the expansion of Renewable Portfolio Standards, and the proposed federal Renewable Energy Standard appear to be pushing America towards generating 20-25% of its electricity from renewable resources by 20253.
- In Europe, France has implemented some of the most generous feed-in tariffs in the world for solar power, with the aim of increasing penetration of this renewable 400-fold, and the UK has announced its intent to roll-out feed-in tariffs in the recently-passed Climate Change Bill.
- Stress in debt markets remains a constraint in scaling up projects. The US stimulus plan provides $6 billion of loan guarantees for renewable projects4 and we remain of the opinion that developing responsive and well-managed loan guarantee programs can be of great benefit.
Bright future for advanced lighting:
- Government mandates to phase-out incandescent and poor-performing light bulbs in the US and EU, as well as the state-sponsored distribution of energy-saving light bulbs in China, make the advanced lighting sector particularly attractive in the mid-to long-term;
Energy efficient buildings:
- Nearly $54 billion of allocations in the EU and US stimulus packages will prompt significant growth in energy efficient buildings and the products and services going into them5;
‘Smart grid revolution’:
- With about $12 billion of investments targeted to the smart electric grid in the EU and US as well as a $70 billion grid upgrade in China, there is the potential to unleash a ‘smart grid revolution’6.
Clean autos, driven by batteries:
- Governments around the world are keen to encourage the development of hybrid and electrical cars, heavily dependent on even more efficient electric batteries. $26 billion of support is being provided in the global stimulus packages for battery development, fleet purchase and retooling of manufacturing7.
Scale-up of solar and wind:
1Committee on Appropriations, “Summary: American Recovery and Reinvestment – Conference Agreement,” February 13, 2009. http://appropriations.house.gov/; DeAM Analysis, 2009.
2 Committee on Appropriations, “Summary: American Recovery and Reinvestment – Conference Agreement,” February 13, 2009. http://appropriations.house.gov/; Senate Finance, House Ways & Means Committees, “The American Recovery and Reinvestment Act of 2009, Full Summary of Provisions,” February 12, 2009; DeAM Analysis, 2009.
3 Environmental and Energy Study Institute, February 2009; DeAM Analysis, 2009.
4 Committee on Appropriations, “Summary: American Recovery and Reinvestment – Conference Agreement,” February 13, 2009. http://appropriations.house.gov/.
5 DeAM Analysis, 2009.
6 DeAM Analysis, 2009.
7 DeAM Analysis, 2009.
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About Deutsche Asset Management
With approximately $655 billion in assets under management globally (as of 30 December 2008), Deutsche Bank’s Asset Management division is one of the world's leading investment management organizations, not just in size, but in quality and breadth of investment products, performance and client service. The Asset Management division provides a broad range of investment management products across the risk/return spectrum.
About DB Climate Change Advisors
DB Climate Change Advisors is DeAM's climate change business focusing on alternative investments for institutional and high net worth investors. It is an investment industry thought-leader with a world-class in-house research team providing expertise on a broad range of climate change dynamics. DeAM is one of the leading climate change investors in the world, with approximately $7 billion under management, as of September 2008, and with fund managers who have a proven track record.