Policy Structure and Financing for the Shift to Sustainability: Energy Projects

1. Ian Mallory Policy Structure and Financing for the Shift to Sustainability: Energy Projects ACCL/Princeton Symposium Managing the Challenge of Scarcity Princeton, NJ 5-6 November 2009

2. How to get there from here • Transportation revolution • Urban transit (displaces cars) • Regional rail (displaces flights) • Partial de-globalization of trade (displaces shipping) • Continued conversion to natural gas • Gasify developing world • Link islands by marine CNG • Expand LNG • Expansion of nuclear power • Clean-up of heavy oil and coal • Implementation of carbon capture and sequestration (CSS) projects • Expansion of renewables • Relentless drive for energy efficiency • Smaller, more efficient vehicles • Distributed generation (reduce transmission) • “Smart grids” (manage demand)

3. Imperative to have most countries aligned • Participation of the BRICs essential soon • International institutional architecture doesn’t exist • Intergovernmental financing initiatives to date have helped, but will not resolve problems • Available amounts of capital will be insufficient • Governments never good at “picking winners” • International organizations often slow in processing projects and disbursing funds • Focus intergovernmental efforts on goals, inclusion (particularly the BRICs), standards, and monitoring, not financing • Do not set up another international financial entity for sustainable projects!

4. So who’s got the role? • Countries and companies can mobilize the means • They are surprisingly nimble when given a clear and robust policy framework • Global capital markets are more than adequate to fund the required changes • Many banks actually find well-structured environmentally-driven projects to be attractive • International institutions’ financial resources should be targeted to: • Providing quality economic and social analysis • Facilitating demonstration projects • Funding poorest countries • To kick-start (occasional) very high-value project

5. National/regional action very effective • National leadership can begin to change the game • California’s emission standards have expanded globally • Focus on carbon critical, but most measures we should be doing anyway (other emissions, land-use, cost) • Expanding circles of countries and regions • Adopt similar standards, leaving implementation up to national or state governments (like an EU directive) • Messy patchwork inevitable, but regional “bottom-up” will meet international “top-down” eventually • Countries best to legislate and enforce standards • Set disincentive “sticks” and incentive “carrots” • Enforce “level playing field” • Streamline project permitting processes • Overcome public resistance to change

6. Key measures in government policy framework • Price energy to reflect real environmental cost • Use tax system to channel flow of capital • Credits and depreciation for desired category of activity • Mandate specific desired outcomes • Renewable energy purchases, emissions standards • Government procurement as catalyst • New technologies, new nuclear plants

7. Key measures in government policy framework • Be activist umpire • Fast and focused • Set sectoral targets/enforcement • Streamline project permitting • Establish robust national carbon offset regime • Fraught with significant political, technical, accounting, legal issues • Huge range in quality of international offsets/credits • Carbon credits have driven few significant projects • Can’t expect a large liquid international market soon

8. Necessary specific energy measures • Transportation: Cars and planes to be taxed (congestion charge, fuel, engine size) and plowed into expansion of urban transit and regional rail. • Natural gas: Facilitate expansion in natural gas pipeline grids, power plants, gas-directed E&P, marine LNG/CNG, and NGV. • Nuclear power: Governments will have to step in to mobilize resources by clearing the permitting path, resolving liability/security questions, and in many cases providing long-term power purchase guarantees.

9. Necessary specific policy measures • Renewable energy: Mandate appropriate RES, expand tax credits for commercialization (not just research) of new technologies. • Energy efficiency: Deploy tax system to favor energy efficiency measures (by credits or accelerated depreciation on installation of new equipment, technologies) and discourage consumption. • Offsets: Establish national regime to ensure carbon offsets are valid and high quality (science, accounting, legal).

10. Relentless gradualism is the only way If most of these measures are implemented by a leading core group of countries, their new energy projects will be well grounded, and can be readily financed. __________ These best practices will eventually spread – by example and political pressure – globally. __________ The global regulatory architecture will be built painfully piece by piece: likely to be an ugly edifice, with many different spaces and levels, but basically functional and eminently inhabitable.