World leaders should tax carbon emissions if they want institutional investors to commit their assets toward clean energy projects, according to a top environmental adviser to U.S. money managers.
Mindy Lubber, president of Ceres, a nonprofit group that pushes investors to pay attention to the financial risks of climate change, said forecasts of energy-related investments over the next few decades demonstrate why this is important. In a sign of the energy industry's priorities, the sector is forecast to invest more money in oil and gas supply over the next 25 years than in projects that would increase energy efficiency, according to the International Energy Agency.
Lubber's call comes as Wall Street looks to capitalize on the growing interest in climate change-focused investments and the Obama administration increases its outreach to the business community in an effort to boost investments in environmental initiatives.
Goldman Sachs, the nation's fifth-largest bank by assets, said in a securities filing this week it would launch an exchange-traded fund that would exclude fossil fuel-heavy industries. Meanwhile, the Department of the Interior separately announced the formation of a Natural Resource Investment Center that the White House hopes will spur investments that would eventually reduce water usage by up to 33 percent and annual carbon dioxide emissions by up to 1.5 percent.
About 190 governments are forecast to spend $16.5 trillion over the next 15 years, or about $1.1 trillion annually, on clean energy-related technology under pledges made for the recent United Nations climate talks in Paris, the IEA said.
Negotiators in Paris agreed to try to reduce pollution to the point that average global temperatures rise no more than 2 degrees Celsius above pre-industrial levels, a move President Barack Obama said “sends a powerful signal that the world is firmly committed to a low-carbon future.”
But the immense cost is unlikely to be shouldered by governments alone, especially in developed nations like the U.S. that are assuming the costs of aging populations and limited taxpayer resources amid mounting concerns over their debt levels.
That’s why Lubber believes policymakers should propose new measures to encourage private sector investors to finance new clean energy-related projects and technologies.
“Generally, when there is a need for a new market and a new opportunity, Wall Street can fill it,” she said.
The most impactful moves senior policymakers could take, Lubber said, would be to put a price on carbon and increase subsidies to the still-developing clean energy industry.
“Investors have been looking for a market signal that the economy is moving to a new direction,” she said. “Putting a price on carbon accomplishes that. It says to investors that the fossil fuel companies won’t prevail.”
Estimates from the IEA appear to support Lubber’s central point.
Just 15 percent of total investment in global energy supply over the next 25 years will be devoted to renewable energy sources, according to the IEA. Meanwhile, governments around the world gave about $490 billion in subsidies to the fossil fuel industry in 2014 alone.
“There are unmistakable signs that the much-needed global energy transition is underway, but not yet at a pace that leads to a lasting reversal of the trend of rising [carbon dioxide] emissions,” the IEA said in a report this year.
Lubber said that unless policymakers make investing in clean energy industries more attractive, the energy sector will continue to devote more than half a trillion dollars a year to developing fossil fuel energy sources -- money that could be put to better use by advancing renewable energy projects or increasing the energy efficiency of buildings.
In addition to her work for Ceres, Lubber directs the Investor Network on Climate Risk, a group of about 115 institutional investors that collectively manage $13 trillion in assets. This gives her unique insight into the needs of investors who want to back environmentally friendly projects.
Investors need to be wary of backing projects that ultimately increase pollution, Lubber said. “Continuing to invest in more fossil fuels is foolhardy at this point,” she said. “It’s no longer a good business bet to drill in the Arctic or develop tar sands in Canada.”
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