A paper released last week (30 September) by the Institutional Investors Group on Climate Change (IIGCC) identifies changing legal frameworks as the biggest obstacle to private investment in technologies needed to create the shift to a low-carbon economy.
90% of asset managers surveyed for the paper by international law firm Norton Rose said that changing policy and so-called retrospective legislation, without providing guarantees for existing investments, halt investment in renewable energy.
For instance, Spain's decision to reduce its feed-in tariffs for solar installations has alarmed investors who are concerned about indications that Madrid is now considering a retroactive reduction of tariffs, the paper says.
In addition, 55% of the interviewees identified permitting and planning problems and 45% singled out grid access and infrastructure issues as barriers to investment.
The survey also suggested that the EU's emissions trading scheme (EU ETS) is not yet capable of shifting investment towards less carbon-intensive products. Less than 10% of respondents said the EU's flagship climate instrument provides long-term price signals.
"Investment should only happen if the business case is airtight," said Ole Beier Sørensen, head of strategy and research at Danish pension fund ATP and chairman of the IIGCC, at the launch of the research in Brussels. He added that the scale of investment required is "so great that it doesn't really make sense to come up with a number".
The investors also called on the EU to set out steps to 2030, considering that investments in renewable energy tend to be long-term.
Michael Starbaek Christensen, deputy chief of staff for Climate Action Commissioner Connie Hedegaard, said that the EU executive would start the debate on 2030 targets in the context of its 2050 roadmap to a low-carbon economy.
The UN Framework Conference on Climate Change (UNFCCC) estimates that some 85% of the capital needed to put the world on a low-carbon path will have to come from the private sector.
When it comes to investing in clean technologies in developing countries, though, public funding will continue to dominate, the experts said.
"Getting private money to poor countries will remain a challenge," said Tom Murley, head of renewable energy at private equity firm HgCapital. Private investors will demand a return, which means that the poorest countries will continue to rely on aid, he added.
Emerging economies like China, India and Brazil are more likely to attract private investors, the experts said. The low-carbon strategies of China and India in fact create a more attractive framework for low-carbon investment, although currency and in China's case lack of transparency continue to pose problems, they said.