Uncertain energy policy is undermining investor confidence. That means that the sooner the EU agrees clear policies, the sooner investors can start planning for complex investments which can last for decades, writes Stephanie Pfeifer.
Stephanie Pfeifer is chief executive of the Institutional Investors Group on Climate Change which represents 88 European investors worth a combined €7.5 trillion.
Europe is facing an energy investment shortfall. According to the European Commission, the EU needs €1 trillion of investment by 2020, and policy makers are looking to private investors to provide the bulk of this capital.
However, uncertain policy is undermining investor confidence, with the impact on investment levels plain to see. According to Bloomberg New Energy Finance, investment in clean energy in Europe last year fell 40% from 2012 to just $54 billion. Shrinking investment threatens Europe’s energy security and the EU’s vision of a low-carbon economy.
Tomorrow, European leaders can change this situation. By accepting the proposals for Europe’s climate and energy policy to 2030 as outlined by the Commission last month, they can show the urgency and leadership that will get investment going.
The sooner the EU agrees on clear policies, the sooner investors can start planning for complex investments which can last for decades. Delaying now, as some have argued, just as policy which could plot a route out of the crisis is on the table, would keep the brake on investment.
European leaders should prioritise agreement on a 40% emissions target. Delaying agreement on a target would not only discourage much-needed investment. It would make it more difficult for the EU to influence global climate talks. A 40% target is the minimum needed to keep Europe on a cost-effective course for a low-carbon economy. Investors would therefore encourage a more ambitious target once a global climate deal has been agreed to in Paris next year. A strong target would clearly signal Europe’s commitment to a low-carbon future, and is in line with what science says is needed to avoid dangerous climate change.
A key plank of the 2030 proposals is reform of the Emissions Trading Scheme. A high and stable carbon price signal is essential to drive low-carbon investments, because it enables investors to cost these over the long-term. The Commission’s plans are an important first step. However they do not end the uncertainty.
There is some concern about what will happen when allowances, temporarily withheld to boost the price, come back on the market. The suggestion is that the introduction of the proposed market stability reserve – which will regulate the number of allowances in circulation from 2021 – be brought forward to absorb any excess surplus. Reform is critical to ensure the ETS can stimulate low-carbon investment in the way it was designed.
Some have argued that the EU’s climate and energy policies harm Europe’s competitiveness, and a higher carbon price could force businesses to relocate. As shareholders in all the major listed industrial companies in Europe, our members take genuine competitiveness concerns related to “carbon leakage” seriously, and support leakage protections where necessary.
However, this is a complex issue, with competitiveness not determined by a single factor, but by a host of structural factors such as relatively high natural gas prices and the cost of imported energy. The World Economic Forum has said that a country’s innovation environment, rather than its energy prices, is the most important indicator of competitiveness.
Good climate policy can spur innovation. A strong climate and energy framework is central to Europe’s future competitiveness, not a drag on it. A robust and reliable carbon price is part of this.
A critical juncture on climate and energy policy has been reached. The choice facing leaders tomorrow is between delay or action. Delay, which would create further uncertainty and risk the energy investment Europe urgently needs. Or action, which would stimulate low-carbon investment and guarantee Europe’s future energy security.