GREEN DEALS: Everybody's talkin'

It is commonly believed that the key to funding the massive investment required in low-carbon technology is to try and unlock the flow of capital from the private sector. But what if they don't want to come to the party? Mark Rogers, an infrastructure specialist at Colonial First State Global Asset Management told the Climate and Business conference in Sydney that while everyone talked about the trillions of dollars locked up in the asset management industry, the reality was that very little was available to infrastructure – 5 per cent at best with some progressive firms – and even less to renewables. “We're trying to convince clients that infrastructure is a smart investment place. We might be able to get more (money), but it won't be a quantum leap. (These trillions) are not going to come from us necessarily,”  he said.

“I'm very disappointed to hear that,” said National Australia Bank's executive director of finance Mark Joiner. “Because it is not going to come from us either.” Joiner said institutions such as NAB would not be able to bring large licks of clean energy investment onto its balance sheet, and it would need to find its way to institutions, partly as equity and mostly as debt. Rogers added that equity investors were skittish about technology, and had great fears of making the wrong bets, highlighting the major issue for developers of emerging technologies, along with policy uncertainty.

That's clearly an issue for debt financiers too, and one of the major concerns about funneling either debt or equity towards these projects was the question of risk – be it technology risk, policy risk, or another sort. Baker & McKenzie partner Martijn Wilder said fund managers were simply putting such investment into the too hard basket. “There is universal support for renewables in principal but not in action,” he said, adding that significant regulatory change was required, along with significant public finance.

Storm warning

Some of the significant issues for insurers – and the source of direct flow-on costs for customers – were highlighted by Alison Ledger, the head of group strategy at IAG. Ledger said it was clear from the data-base maintained by both IAG and other insurers such as Munich Re that small changes in climate were causing greater variability in the weather, and storms were posing a significant threat to profits. Costs from the largest weather-related claims were 10 times larger than the biggest non-weather related claims, but unlike theft, for instance, the frequency of events was highly variable from year to year.

“Given what we know about  the potential impacts of small changes in climate, any changes in intensity of the storms will have serious consequences and is incredibly concerning for insurers such as IAG,” she said. She said there were two ways to respond – one was changes in insurance costs, the other was in adaptation – at home (by making houses more resilient and less reliant on water), in business (through new products and diversity in supply chains), in infrastructure and at a national level. (IAG has invested in a “hail gun” to test different size hailstones on different types of roofing). Ledger said the implications of the latest IPCC report are clear, at least from an insurer's point of view: “We must all develop solutions to adapt to climate change because mitigation will not be enough.

Milking efficiency

Some businesses are finding strong motivation to cut emissions even without a carbon price. Murray Goulburn Co-operative, the largest processor of milk in Australia and the largest exporter of processed food, has set itself a target of a 25 per cent cut in its current non-farm emissions of 650,000 tonnes a year by 2020. Patten Bridge, the co-op's head of sustainability, says the business case for this is rising energy prices, and the company did not need the added incentive of a carbon price, even if one is inevitable down the track.

Bridge noted that even though coal accounted for just 19 per cent of its energy use and was cheap, it accounted for 75 per cent of its emissions. Murray Goulburn has decided that initiatives such as making sure their pumps and other motors run efficiently has a four-year payback, and the introduction of co-generation facilities and conversion of treated waste to biogas would generate a two-and-a-half year payback, even without a carbon price. They are also converting the transport fleet to LNG and boilers will use briquettes.

“We are operating on the positive side of the abatement curve,” he said. However, while a carbon price would likely make the payback on those investments even quicker, the co-op was circumspect about a carbon price because of the potential impact on its farmer members. Farming activities account for 85 per cent of the co-op's total emissions of more than 4.5 million tonnes a year.

Earning the hard way

Other businesses also have similar opportunities, but are not taking them up – much to the frustration of John Thwaites, the former deputy premier of Victoria and now chairman of research group ClimateWorks Australia. Thwaites said too many businesses simply didn't recognise energy as a variable business cost, which is why he argues for a national scheme similar to that of Victoria Environment and Resource Efficiency Plan, which not only requires businesses to measure energy consumption and identify efficiency measures, but makes it a requirement that they put those measures into action if they have a better than a three-year payback. This means that all such investments get at least a 33 per cent return, but it seems some boards need to be told to act rather than seize opportunities on their own.

-- Giles Parkinson