Frost & Sullivan Growth, Innovation and Leadership eBulletin Vol. 4 Issue 4
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  April 2011 | Vol. 4 Issue 4  CONNECT

Creating Wealth by Reducing Carbon
  By Jigar Shah
Carbon War Room

Investors and U.S. policymakers today face a historic choice: invest in energy infrastructure now or wait for economic recovery. Certainly, the world faces serious challenges to both capital markets and the global economy as the effects of the financial crisis unfold, but this is not an “either/or” issue. Green investment is not a luxury that we cannot afford, as some commentators say. Rather, investing in clean energy infrastructure is a business and environmental necessity that we cannot afford to postpone.

Reducing carbon emissions by the 17 gigatons necessary by 2020 to stabilize global temperatures can go hand in hand with economic growth. Separately, clean energy innovation is the largest wealth creation opportunity of our lifetime. Without the clean energy revolution, emerging markets will industrialize using 20th century technologies, becoming highly energy-intensive societies dependent on fossil fuels. As their demand for energy-intensive products—cars, planes, air conditioning and imported goods—rises, their thirst for oil, coal and natural gas will become unquenchable, leading to higher levels of carbon emissions.

How do we break this cycle and slow the de-stabilizing shift in the world’s climate?

Governments, intergovernmental organizations, the modern environmental movement and the scientific community have focused on reversing this trend during the last 15 years. But despite international policy breakthroughs like the Kyoto Protocol, greater consensus on the science, and ambitious national and regional climate programs, we still find ourselves struggling to de-couple emissions from economic growth in the minds of the general public.

Today, the vast majority of the philanthropic investment in climate change solutions goes to efforts supporting a price on carbon. This must be expanded to include more diverse initiatives. We can create real momentum and move the $550 billion needed annually in less than five years to develop tangible solutions that will bring about an absolute reduction of 17 gigatons of CO2e by 2020.

To shift the collective mindset, we must develop a more balanced, diversified approach to addressing global climate change. Specifically, a broader set of priorities is needed:

1. Focus on the co-benefits of clean tech solutions

By pushing for a comprehensive CO2e negotiation, we have deliberately shifted the conversation away from co-benefits. People care about clean air, clean water, reduced health impacts, lower bills, good jobs, economic development and other co-benefits; people don’t care directly about CO2e. By refocusing on the good work already being done, we will gain more uniform support without the rancor surrounding greenhouse gas emissions.

2. Create new financial products

The 1 percent shift in private capital allocations can be accomplished by investing in profitable opportunities that already exist. We have invested heavily in educating the financial sector, but still have not created the suite of financial products necessary to achieve a 1 percent shift in investment. These financial products need to exist, and if the investment banking community chooses not to create them, entrepreneurs must. With more than $125 trillion of the investment capital in private hands, we must bridge this gap now.

3. Pursue opportunistic, incremental policy victories

Long term, focused policy can accomplish great things, but it isn’t the only option. Many interim policy initiatives can build success. We need small wins to bring about the economic change at the required speed and scale. Every day we have opportunistic moments, or “moments of truth,” to make choices and exert our influence: a large oil spill in the Gulf of Mexico; a new coal plant that needs a water permit; a new building being constructed; a new leader emerging in Nigeria; Ghana developing an economic development plan; or conceiving a new transportation plan. To date, these moments have been missed opportunities at the local level, but each is a real opportunity for wins that can have a huge impact collectively.

4. Account for “True Costs”

Closing information asymmetries to address market failures and eliminating fossil fuel subsidies will level the playing field and further drive capital to climate solutions. Currently, the playing field is based on incomplete accounting of costs. The billions of dollars in explicit subsidies for fossil fuels are known but not transparent. Other explicit costs born elsewhere, such as health care costs from pollution, are not included in the calculation of expenses. Our inability to transition away from a carbon-intensive economy is driven by our misguided measurement of national and international wealth and progress. Indeed, we have been conducting our affairs with only an eye on the income statement (measured in GDP), with little consideration of the effect of our decisions on the balance sheet (finite and diminishing stock of natural assets and growing environmental/health liabilities). It is precisely these liabilities that jeopardize long-term worldwide economic prosperity.

Additionally, our inability to transition away from a carbon-intensive economy is also driven by our misguided measurement of national and international wealth and progress. For example, India is building more coal plants in the face of acute water shortages and a lack of a stable coal resource—clearly a bad activity based on bad data. As another example, the United States now imports more than 60 percent of its oil, and there is still no credible plan to change this trajectory.


Investing in the environment will create wealth and jobs while tackling carbon emissions, but capital and infrastructure are badly needed. The tools of capitalism must complement existing efforts to harness the power of entrepreneurial energy to unlock market-driven solutions to climate change. And while capital sources are eager to invest in climate change solutions, they need tested, financial products in which to invest—not just climate education.

We need to drive economic choices. Every year, trillions of dollars are invested in infrastructure. If we ask pension funds, high net-worth individuals, sovereign funds and retail money holders what financial products they want to buy, and then collect the data necessary to provide them confidence, they will be more inclined to shift their money to lower risk, clean climate solutions.

We must also begin to work with capital sources and entrepreneurs to scale existing solutions that work within existing policy frameworks. If we can accomplish this, it will create wealth and give governments/civil society the confidence needed to pass bolder policy to level the playing field—not mandate the outcome.

This moment of uncertainty and transition is our great opportunity, and now is the time to shift our focus.
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