Renewable Energy Capital, UK
1. Climate change can still make the headlines
Climate change has regularly made the front page during 2012 both at home and abroad. The UK suffered its 2nd wettest year on record despite a drought prevailing for much of the first half of the year. The US also suffered one of its worst droughts last summer particularly in the Midwest farm belt. Just as the country returned to a degree of normality Hurricane Sandy struck wreaking havoc across much of the eastern seaboard. Similarly in many other parts of the globe people experienced both record droughts and floods in a year defined by extreme weather events, including the perverse scenario in the UK where warnings about water shortages were being issued just as floods were inflicting millions of pounds of damage. Inevitably, public awareness of climate science is on the rise and more and more businesses are taking climate risk management seriously.
2. Corporates go green
The march of ambitious sustainability programmes continued in 2012 with an increasing numbers of global corporates committing to genuine sustainable practices by 2020. Unilever took its already impressive commitment to sustainability to new levels, IKEA pledged to generate all its own energy needs and Sainsbury’s revealed a wide-ranging plan to slash both its emissions and environmental impacts. The economic backdrop might be tough, but the world’s most successful retailers, corporates and property owners actually increased their commitment to sustainability.
3. The green economy continues to stoke political fires
One green political story has dominated this year: the collapse of the Conservative modernisation project and support at the highest levels of the party for ambitious environmental action. A brave band of green Tories have sought to fight back, mindful of the environmental and political damage a reversal of Cameron’s green programme would do. But with the recently appointed environment secretary, Owen Paterson, and junior energy minister, John Hayes, playing Tory Pantomime Villains in their respective fields, it is evident the Conservative leaderships green ambitions are wilting. The election of the climate sceptic oil man Peter Lilley to the Energy and Climate Change Select Committee, is further evidence of this trend. However, most tellingly it is Chancellor George Osborne’s decision to promote a rival carbon-intensive energy strategy that makes it clear a number of influential Conservatives are keen on ditching certain aspects of the coalition’s green agenda. The economic impact of this political posturing has been a loss of investor confidence in the UK government’s commitment to long term green policy and the axing of marginal renewable energy projects due to increased investor hurdle rates.
4. The UK’s Energy policy landscape is finally coming together
For all the squabbles the coalition ended 2012 with a reasonably balanced and deliverable Energy Bill in place, albeit without a 2030 decarbonisation target and still missing some crucial numbers that are expected in 2013. The much anticipated Bill, currently making its way through parliament, promises a significant boost in new financial support for low-carbon energy, effectively bans new unabated coal-fired power and introduces the notion of a capacity mechanism to help the electricity system cope with increasing amounts of intermittent generation on the grid. This new regulatory framework is expected to deliver increased investment certainty for funders and will help boost investment levels in new energy infrastructure in the years ahead. In a further boon to investors the confusion over feed-in tariff incentives has largely been resolved, the Green Deal and mandatory carbon reporting rules are expected to be in place within months and significantly the renewable heat incentive will be rolled out in the wider market. It is now time for industry to respond and help deliver on the government’s desire to attract over £200bn of investment to update and renew the UK’s ageing energy infrastructure.
5. It’s proving to be a rocky road for carbon markets
2012 has been another year of contradictions and crises for the concept of carbon markets. In the credit column, we’ve seen numerous countries make progress with new carbon pricing plans, including South Korea, Australia, Vietnam and the most recently in the state of California. Similarly the UN-backed Clean Development Mechanism (CDM) continued to set new records in terms of participation and emissions saved. But at the same time the debit column has continued to grow with carbon prices in the EU emissions trading scheme (ETS) and the CDM at a record low. This failing has been coupled with inadequate political efforts to tackle the surpluses of carbon allowance that continue to undermine the effectiveness of these flagship schemes.