Investment Research

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DB Climate Change Advisors has published its fourth Global Climate Change Policy Tracker report. Our new consistent historical analysis of maximum potential policy impact on abatement shows continued improvement since the major impact of the Copenhagen Accord. On the best case global outlook, emissions peak in 2016 in line with economic growth in emerging economies and decline slowly to 2020 but still leave a 5.8Gt "gap" compared to a 450ppm stabilization pathway.

Upgrading and replacing energy-consuming equipment in buildings offers an important capital investment opportunity, with the potential for significant economic, climate, and employment impacts.  In the United States alone, more than $279 billion could be invested across the residential, commercial, and institutional market segments.  This investment could yield more than $1 trillion of energy savings over 10 years, equivalent to savings of approximately 30% of the annual electricity spend in the United States.

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China's 12th Five Year Plan sets out ambitious goals for de-carbonizing China's electricity supply, emphasizing a concerted effort to expand all dimensions of renewable and low-carbon electricity sources.  In our October 2011 report "Hydropower in China: Opportunities and Risks" we examined China's hydropower ambitions. In this report we examine the wind power and solar power sectors.

Twenty eleven has been a year of remarkable political and economic volatility.  Political and civil unrest in much of the Middle East (the "Arab Spring"), Japan's earthquake and tsunami and subsequent nuclear crisis, the European sovereign debt crises, and vast current and projected growth in demand for energy (and other commodities) from emerging economies have all combined to impact  markets, including energy, in fundamental ways.  Oil prices have reached levels not witnessed since 2008, and there has been significant volatility in these prices, and countries such as Germany and potentially Japan are looking at abandoning nuclear power.

The December 2011 UN Climate Change Conference in Durban (Conference of the Parties, or COP-17), once again brought together representatives of the world's governments, international organizations and civil society.  The discussions sought to advance the implementation of the Kyoto Protocol and the Bali Action Plan and Cancun Agreements.  On December 11^th, the conference reached an agreement and program to set a new course of action for the global fight against climate change.

DB Climate Change Advisors contributed to the DB Research publication, Durban must clear the path for more low carbon investment.  Key findings of the report are as follows:

• The private sector is a critical partner for success.
• A price on carbon is essential and negotiations must not close off this road.
• Durban outcomes must pave the way for greater progress in Rio.

The UK possesses some of the richest offshore wind renewable energy resources in the world with Round 3 offshore wind capacity factors expected to be over 40%. There is currently an installed capacity of ~1.5 GW and in total, under leases conducted to date (Rounds 1, 2, 3, Round 2 extension and Scottish Territorial Waters zones), ~54 GW of potential capacity has been awarded by The Crown Estate for development. The Government has made clear its commitment to offshore wind and in its 2011 Renewable Roadmap sets out an ambition to achieve 18 GW of installed offshore wind capacity by 2020.

Chinese Summary Here PDF / 147.00 kB
 
By 2020, in line with the 12th Five Year Plan (FYP), we believe China will have installed hydropower capacity of approximately 348 GW, with the potential of producing 15% of the nation’s annual electricity needs. This level of hydropower development would reflect use of approximately 86% of the economically feasible hydropower resources in China.

Repowering America: Creating Jobs focuses on the job impact of the DBCCA Electricity Power Forecast for the US. The DBCCA Electric Power Forecast for the U.S. calls for a scale up in natural gas and renewable energy (RE) as coal plants are retired and energy efficiency (EE) reduces the rate of growth in electricity demand over the next 20 years. (Detailed analysis of the DBCCA Electric Power Forecast is included in the companion white paper: Natural Gas and Renewables: The Coal to Gas and Renewables Switch is on!) Based on this, we have estimated job forecasts  using and expanding a modeling methodology developed at the University of California, Berkeley (henceforth referred to as "WPK"), that was selected after a detailed review of leading U.S. research reports looking at job creation and energy related investments or initiatives.

In late 2010, DBCCA published an analysis concluding that (1) natural gas and renewable energy can play complementary roles in displacing coal-fired generation and lowering greenhouse gases (GHGs) emissions from the US electricity sector through 2030; and (2) at present a gas and renewables combination represents the most logical, politically acceptable, and economically feasible low-carbon energy pathway for the United States. On the supply side, the shale gas revolution remains front and center of this energy transition and continues to gather momentum.

DB Climate Change Advisors recently contributed to the DB Research publication "Mitigating climate change through agriculture: an untapped potential", published on September 19^th, 2011.

On 7 September the State Council issued the "12th Five Year Comprehensive Work Plan for Energy Conservation and Emission Reduction" (the "Work Plan") which sets forth implementation guidelines for energy conservation and emissions reductions.

Post Fukushima crisis, Japanese society is seeking ways to dramatically reduce or eliminate nuclear generation while maintaining carbon budgets and improving energy security.  Logically, this can only be achieved using conservation and efficiency measures and natural gas as a transition fuel as renewable energy capacity is aggressively built.

Research conclusion and key messages - natural gas offers greenhouse gas advantages over coal: Natural gas has been widely discussed as a less carbon-intensive alternative to coal as a power sector fuel. In April 2011, the U.S. Environmental Protection Agency released revised methodologies for estimating fugitive methane emissions from natural gas systems.  These revisions mostly affected the production component of the natural gas value chain (namely, gas well cleanups), causing a very substantial increase in the methane emissions estimate from U.S. natural gas systems.  This large increase in the upstream component of the natural gas value chain caused some to question the GHG advantage of gas versus coal over the entire life-cycle from source to use. As a result of this renewed attention, while it remains unambiguous that natural gas has a lower carbon content per unit of energy than coal does, several recent bottom-up studies have questioned whether natural gas retains its greenhouse gas advantage when the entire life cycles of both fuels are considered.

During 2010 and to date in 2011 the leaders in climate policy continued to maintain their position, while others have lagged behind or moved backwards.

• Countries such as Germany, China and increasingly the UK continue to develop strong domestic policies that contribute to global climate change mitigation,
• Whilst others, such as the US, Russia, Spain and Canada (Ontario) either fail to initiate, or in some cases, even reverse or threaten to reverse, crucial climate policy initiatives.
• Thus, some policy regimes have succeeded while others have failed, and the key for investors is to identify the winning policy structures which reduce uncertainty.  Within this context, we continue to develop our 'best-in-class' climate policy framework, with emphasis on policies directed at clean energy technologies and efficiency.

On June 20, 2011 the U.S. Supreme Court issued its much-anticipated decision in American Electric Power v. Connecticut.  This is the second climate change case to be decided by that court and the first to concern common law claims, where the plaintiffs claimed that the greenhouse gases (GHGs) from power plants constitute a common law nuisance, and asked the court to issue an injunction requiring the plants to reduce their emissions.

Germany is poised for continued renewable energy market growth through 2020 and beyond in order to meet binding renewable electricity targets and compensate for its upcoming nuclear power phase out. The German government has convened a commission to discuss the feasibility of accelerating the phase out of nuclear energy all together by 2017-2025. The preliminary findings from the government's study are expected to be released in June 2011 and could further support the development of solar energy beyond the projections discussed in this report. We believe that Germany exhibits best in class climate and renewable energy policy structures. We project that photovoltaics (PV) will grow to more than 7% of national electricity supply by the end of the decade. Investment in the German PV sector will be determined by the transparency, longevity, and certainty (TLC) of the national feed-in tariff (FIT) policy. Of particular interest is the way in which the policy is linked to national and EU-level renewable energy and climate policies and the mechanisms that the government uses to manage progress towards those goals.

Energy transitions are inherently lengthy but can be accelerated by material changes in economics, security, public sentiment and regulatory responses to human health, safety and the environment. The world has been battered in 2011 by two very important events that could combine to create an inflection point in energy choices.  First, we are currently experiencing an oil price shock reflecting both long-term supply/demand trends, as well as important security issues in the Middle East and North Africa.  Second, the disaster at the Fukushima Daiichi nuclear plant in Japan has drawn attention to all of the human health and safety, and environmental issues surrounding nuclear energy, and dampened its outlook as a low carbon energy option.

GET FiT was first conceived in January 2010 when the United Nations Secretary General's Advisory Group on Energy and Climate Change (AGECC) invited Deutsche Bank Climate Change Advisors (DBCCA) to present new concepts to drive renewable energy investment in developing regions. DBCCA responded with the Global Energy Transfer Feed-in Tariffs Program or "GET FiT" program, a proposal to support both renewable energy scale-up and energy access through the creation of new international public-private partnerships.

Over the past year at DBCCA we have written about and commented upon emerging Chinese leadership in the climate and renewable energy world. This comes in the form of the policy momentum and ambition of China's efforts to create a low carbon economy and improve its energy security through ambitious goals in terms of energy intensity targets and renewable energy deployment, backed up by strong incentives encouraging the development of green industries and jobs.

In late 2010, DBCCA and Worldwatch separately published analysis concluding that natural gas and renewable energy can play complementary roles in lowering greenhouse gas (GHG) emissions from the United States' electricity sector by displacing coal-fired generation. Both groups also analyzed the environmental risks associated with the development of natural gas, especially from shale, and concluded that while well-designed and strongly enforced regulations and industry best practices can minimize these risks, such regulations and practices were not yet in place at all operations in all states.

A DB Climate Change Advisors (DBCCA) report released today, "Investing in Climate Change 2011", examines the risks associated with climate change investing across different asset classes and provides a framework to understand how asset managers can manage these risks.

With climate legislation off the table for at least two years in the U.S. Congress, and the international climate talks in Cancun concluding with some progress but no final global emissions deal, attention is increasingly turning to the courts in the United States. On December 6 the U.S. Supreme Court agreed to hear a case called Connecticut v. American Electric Power. The outcome may have significant bearing on major emitters of greenhouse gases (GHG's) (and those who propose low-carbon substitutes), but it is too early to tell which way this will go.

DBCCA has released the first comprehensive review of the UK's renewable energy program since the UK's Comprehensive Spending Review (CSR). The report discusses the current state of renewable policy in the UK and potential challenges policy makers face in achieving the renewable energy scale outcome required to meet 15% renewable energy by 2020. The UK derived just 3.1% of energy needs from renewables in 2009, with just 7% of power needs and 1% of heat demand from renewable sources. The coalition government has demonstrated strong commitment to addressing challenges in the renewable sector. The CSR did not significantly alter the structure of renewable policy, which we believe increasingly reflects our key investor criteria of Transparency, Longevity and Certainty (TLC). However, it is important that the policy regime remains stable in coming years without major changes.

With a Republican controlled House of Representatives, we can now expect a significant change in approach to US energy policy for at least the next two years. There is likely to be, for instance, more resistance to renewable energy incentives in a constrained budget environment. Attention is likely to focus on expanding the use of natural gas which President Obama has identified as an area of bipartisan agreement. The ideas outlined in this report could, we believe, deliver a realistic, low carbon energy pathway over the next 20 years, with a mix of natural gas, renewables, and nuclear replacing old and inefficient coal plants. This energy plan provides a credible, low risk and affordable way for America to achieve a 44% reduction in CO2 emissions from the power sector by 2030 from 2005 emissions levels.

In the absence of federal legislation regulating greenhouse gas emissions, litigation is playing an increasingly important role in interpreting government power under existing law to address the climate problem.  On one hand, activists and some state and local governments are prodding federal agencies to expand their reach; on the other hand, industries and other states are arguing that the federal agencies are going too far.  The courts are in the middle of these fights, and (barring legislative intervention) will make the final decisions.

On September 22, 2010, Mark Fulton presented testimony on "The Global Clean Energy Race" in a hearing held by the US House of Representatives Select Committee on Energy Independence and Global Warming, chaired by Chairman Edward J. Markey (D-Mass).  In addition, as cited in his testimony, Mark Fulton and Steven Taub from GE Energy Financial Services are primary authors of a new whitepaper published by the U.S. Partnership for Renewable Energy Finance (US PREF), titled "Impact on Jobs through the Extension of the ARRA 1603 Cash Grant."

The purpose of this paper is to examine the many claims and counter-claims being made in the public debate about climate change science.

Feed-in tariffs (FiTs) continue to be the driving force behind many renewable energy deployments globally, and are an effective policy tool for catalyzing the large investment flows needed to achieve 2020 emissions reduction targets and clean energy mandates. European countries continue to lead the way in creating the transparency, certainty and longevity (TLC) needed to attract sustainable capital investment, although the momentum has spread to Asia, Canadian provinces and some US states and municipalities.

There is a great deal of pessimism that a comprehensive US energy and climate bill can be passed ahead of the midterm elections in November.  As investors, we believe that delivering a comprehensive energy and climate bill in 2010 -- complete with policies that exhibit Transparency, Longevity and Certainty (TLC) -- is a critical outcome.  Successful legislation this year will help define whether America is competing in the green race for jobs and growth, or ceding it, to countries such as Germany and China which have already committed to TLC. However, we believe that there still is a workable pathway in the US Senate based on current proposed legislation, which we call ACELA 1-2-3, that while if not the best case scenario in all areas, nevertheless would provide sufficient incentives and transparency to stimulate large scale investment in low carbon energy and demand-side efficiency, and could form the basis for negotiation with the US House of Representatives.  Here is how the rabbit can still be pulled out of the hat, acknowledging just how much political will this could take.  As of yet, the politics are too complex to surmise which pieces of the "1-2-3" approach will add or subtract votes.  In any case, ACELA is a good starting point for achieving an outcome. The oil spill will play into the political negotiations, in terms of the desire to reduce dependence on oil on the one hand and addressing producer states' support for offshore drilling on the other. Senate Majority Leader Harry Reid, in a letter to Senate committee chairmen on June 4th, strongly emphasized the oil spill while stating his intention to bring "comprehensive clean energy legislation" to the Senate floor this summer.

The Kerry-Lieberman "American Power Act" (KL) bill released on May 12th is the 2010 start of a political process to piece together comprehensive U.S. energy policy.  We see the legislation as a good first step--but far from the last.

The world faces two interrelated energy challenges that require serious capital mobilization: global CO2 must be stabilized to avoid catastrophic climate change, and access to affordable, reliable and clean energy must be extended to the 1.5 billion people of the developing world in rural areas without grid connection to alleviate poverty and drive economic development. Renewable energies can help achieve these goals, in tandem with complementary efforts focusing on funding for energy efficiency, other low carbon energy options, and electricity grid expansion.

Active support from businesses and investors for government to tackle climate change and incentivize clean technology continues to grow rapidly, both globally and in the US. Asset owners representing more than $10 trillion have publicly signaled their support. At the same time, governments around the world are stepping up the pace of legislation and regulation to encourage the development of a low carbon economy, ensure energy security and help create new jobs. The key to success is to attract large-scale private investment into climate change industries.

The climate change summit in Copenhagen in December produced no international agreement but it is clear now that it was also no failure. Copenhagen served to raise awareness of the problem all over world, and that in turn forced governments to focus on the issue. The net effect has been to catalyze a rush of new policy announcements that has dramatically improved the outlook on limiting greenhouse gas emissions.

The scale-up of renewable energy can satisfy a number of policy and economic goals including: emissions targets, energy security and job creation in the green sector. Investors want Transparency, Longevity and Certainty - "TLC" in order to deploy capital. Building on our work on German feed-in tariffs (FiTs) and our Global Climate Change Policy Tracker, we further look at how renewable energy policy regimes can achieve an optimal mix of TLC at the "right price" in this new report.

This report, "Global Climate Change Policy Tracker: An Investor's Assessment" (Climate Tracker), provides investors with an analysis of climate change policies and assigns a risk rating to 109 countries, states and regions based on key government mandates and supporting policy frameworks. The report was produced by DBCCA, working with the Columbia Climate Center at the Earth Institute, Columbia University...

Infrastructure funds are increasingly targeting renewable energy investments. Such renewable assets cover a wide range of low carbon emitting sources of energy including wind, solar, biomass and hydropower. In collaboration with RREEF Research, DB Climate Change Advisors finds in our recently published paper "Infrastructure Investments in Renewable Energy" that the investment rationale is compelling given the macroeconomic environment surrounding the energy market in general.

In the face of climate change science and energy security considerations, governments around the world have recognized the need to take the lead in providing a framework that will mobilize the massive amounts of private investment required to move the world to a low-carbon economy.

DB Climate Change Advisors (DBCCA), Deutsche Asset Management's (DeAM) institutional climate change investment and research business, today published a new report, "Investing in Agriculture: Far-Reaching Challenge, Significant Opportunity: An Asset Management Perspective."  The report explores the question of how to sustainably meet the growing energy and food demands of a global population approaching nine billion people in 2050 in a sector affected by climate change.

A detailed review of new regulation put in place in many countries around the world since the middle of last year reveals a clear and encouraging trend: Governments have been stepping up the pace of legislation designed to help and support "green" industries. The burst of activity on this front by the new Obama Administration in the US is particularly visible and will provide welcome leadership and focus to similar efforts across the globe.

Three key drivers - the environmental impact of climate change, energy security, and the financial crisis - are interlinked. Fossil Fuels impact the environment through carbon emissions and, in some cases, are less secure in terms of long-term supply. Many countries are currently discussing the merits of stimulus packages in the face of the economic crisis, and some, like China, have already announced significant packages. We believe this confluence opens up an historic opportunity for a new US administration and Congress to take a global leadership position on the issue of the environment and energy security, while addressing current financial problems.

There have been significant and meaningful developments since we published Investing in Climate Change: An Asset Management Perspective in 2007, but climate change remains a large and growing investment opportunity. In the midst of the credit crisis, this whitepaper argues that governments should not be deflected by the global market downturn from making major investments in climate change mitigation and adaptation.  New scientific evidence has established that "carbon in the atmosphere has reached an 800,000 year high," and without concerted action over the next decade by governments, investors, the business community and individuals, we are likely to lock in dangerous, irreversible levels of warming.

Climate change is a real issue. This has been particularly well documented by the Inter-Governmental Panel on Climate Change.