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As crisis looms, investment opportunities bloom in Africa

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Investors are rushing to Africa, as the continent seeks to capitalise on its vast clean energy resources. Chris Loker writes how people can help decide the fate of the planet and its inhabitants by investing wisely today.

“The trend is your friend” in finance and the money-men seem to have noticed the trend of climate change. UBS, Deutsche Bank, Goldman Sachs and Nedbank locally are targeting alternative energy and discussing the consequences of a carbon asset bubble.

The overwhelming majority of scientists say the Earth is warming, humans have caused it and the consequences may be catastrophic if it continues unabated. As President Obama said recently, this is no time for a meeting of the Flat Earth Society.

September 2013 was the 343rd consecutive month of above average global temperatures and we have already breached the 400 parts per million (ppm) carbon limit that we were warned about. This must shift the focus in capital markets from short-term gains toward long-term consequences and give rise to the mother of all asset bubbles for carbon producing industries.

The Carbon Tracker Initiative estimates that between 50-80% of known coal/oil/fossil fuels should be left unused to prevent temperature rises over 2C, which the International Panel on Climate Change suggests is prudent.

The impact on business valuations is enormous, even before another UNEP sponsored report’s assertion that none of the top 20 industrial regions/sectors would be profitable if environmental costs were accounted for. The report puts the unpriced natural capital cost at $7.3 trillion per annum, 10% of global GDP, a cost not presently accounted for and the biggest culprit is coal power production.

These challenges represent a massive opportunity if the flow of money can be altered.

Traditionally, investment houses allocate capital based on returns and do not account for the positive and negative externalities created by the businesses employing this capital. In the last few decades, therefore, many financial institutions have tended to focus mainly on the demands of shareholders, to the detriment of other stakeholders, such as local communities, employees and the environment. Often projects with negative social and/or environmental impacts have received capital, while projects offering measurable benefits to society have not been allocated much-needed capital.

Chasing yield in the short-term has often been detrimental to shareholders in the long run anyway. Even though the local banking industry dodged the sub-prime bullet, it is no stranger to asset bubbles, funding microlending, dotcom, contracts for difference, unsecured lending, property and other sectors with negative consequences.

This, at the same time that social enterprises targeting sustainability outcomes as well as profit, are battling to raise capital due to perceived higher risk. But ‘sustainability’ has evolved from a social movement into a market opportunity through the growth of new market options that are healthier, cleaner and more efficient. This is broader than environmentalism, encompassing social justice and economic prosperity.

South Africa (correctly) trumpets the 50 billion rand invested in the first round of the Independent Power Producer’s programme aimed at delivering 20% of electricity from alternative sources by 2030, but this needs to be compared with the 300 billion rand being spent on coal-fired power plants. This, at a time when both the US government and the World Bank are significantly cutting financing for coal.

We need to ask, what is the true cost of carbon producing power (including externalities) and what happens when the carbon tax is introduced in 2015? This as the cost of alternative energy plummets. Compare this to California where all new power generation will come from renewables this year and Germany where 50% of power was delivered by renewables at a point and perhaps we are thinking too small.

Jason Drew, one of rising breed of local ‘ecopreneurs’, talks often of Africa’s potential to leapfrog the developed world by investing in future-proof technology rather than trying to ‘catch up’. In the same way that the continent skipped landline telephony and went straight to mobile (there are an estimated 700m cell phones in Africa), we have an opportunity to take a leadership position with farsightedness, and at the same time, “repair the future”.

President Obama reinforced this notion for the continent during his recent visit. After all, the solar energy alone hitting Earth in a year is 20,000 times more than what the whole of humanity consumes annually, and South Africa is the third best solar location in the world with one of the highest and most stable solar radiations.

Investors are rushing to Africa, lured by new markets and consumers, resources, growth and infrastructure opportunities – at this inflection point we can choose our future by investing wisely today. Will it be in coal, mining, arms, oil, nuclear, chemicals, casinos, consumptive manufacturing or in organic farming, renewables, entrepreneurs, energy efficiency, water and affordable housing?

Money is finite and on the cusp of a post-carbon revolution that could be as big as the fossil-fuel-fueled Industrial Revolution, with an underdeveloped infrastructure, there would be significant advantage to investing in job-intensive, clean technology that enhances food and water security as well as advancing health benefits. In the future, water, food, conservation and renewable energy could be worth more than diamonds, gold and coal.

Sustainability is a megatrend that can deliver long-term competitiveness through better management of risk and incorporating the broadest notion of stakeholders and it’s not a fad because:

– The climate crisis is real

– The energy crisis is permanent

– New technology is changing the game

– Investors are starting to care

– Consumer purchasing behaviour is changing

– Inequality/poverty/unemployment need to be addressed

– Media coverage is increasing

– Politicians are reacting

– It’s personal

If 1% of conventional global assets were to move to companies already addressing challenges in water management, ecological conservation, pollution, waste, poverty, transport alternatives, health, entrepreneurial development and innovation, that would represent 10 times total annual foreign aid.

In the UK (population: 60 million) there are over 600 alternative financial providers which move savers’ monies transparently to enterprises focused on positive outcomes as well as profitability. On the entire African continent (population: 1 billion) there are a handful.

But this is changing and so it should; sustainable finance makes sense for individuals, communities, the country, continent and the planet. It also makes financial sense – even the money-men are starting to see that, and why shouldn’t money be a force for good?

Chris Loker is a financial services strategy consultant and founder of a sustainable finance company. He tweets at @waterfinancial.

Further reading:

UN: rural women have ‘great potential’ in climate change response

Bob Geldof warns climate change might cause mass extinction by 2030

South African gold miners protest over “slave wages”

Deforestation in Africa is slowing, says study

UN agency reports on ‘decade of climate extremes’

Economy

Will Self-Driving Cars Be Better for the Environment?

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self-driving cars for green environment
Shutterstock Licensed Photo - By Zapp2Photo | https://www.shutterstock.com/g/zapp2photo

Technologists, engineers, lawmakers, and the general public have been excitedly debating about the merits of self-driving cars for the past several years, as companies like Waymo and Uber race to get the first fully autonomous vehicles on the market. Largely, the concerns have been about safety and ethics; is a self-driving car really capable of eliminating the human errors responsible for the majority of vehicular accidents? And if so, who’s responsible for programming life-or-death decisions, and who’s held liable in the event of an accident?

But while these questions continue being debated, protecting people on an individual level, it’s worth posing a different question: how will self-driving cars impact the environment?

The Big Picture

The Department of Energy attempted to answer this question in clear terms, using scientific research and existing data sets to project the short-term and long-term environmental impact that self-driving vehicles could have. Its findings? The emergence of self-driving vehicles could essentially go either way; it could reduce energy consumption in transportation by as much as 90 percent, or increase it by more than 200 percent.

That’s a margin of error so wide it might as well be a total guess, but there are too many unknown variables to form a solid conclusion. There are many ways autonomous vehicles could influence our energy consumption and environmental impact, and they could go well or poorly, depending on how they’re adopted.

Driver Reduction?

One of the big selling points of autonomous vehicles is their capacity to reduce the total number of vehicles—and human drivers—on the road. If you’re able to carpool to work in a self-driving vehicle, or rely on autonomous public transportation, you’ll spend far less time, money, and energy on your own car. The convenience and efficiency of autonomous vehicles would therefore reduce the total miles driven, and significantly reduce carbon emissions.

There’s a flip side to this argument, however. If autonomous vehicles are far more convenient and less expensive than previous means of travel, it could be an incentive for people to travel more frequently, or drive to more destinations they’d otherwise avoid. In this case, the total miles driven could actually increase with the rise of self-driving cars.

As an added consideration, the increase or decrease in drivers on the road could result in more or fewer vehicle collisions, respectively—especially in the early days of autonomous vehicle adoption, when so many human drivers are still on the road. Car accident injury cases, therefore, would become far more complicated, and the roads could be temporarily less safe.

Deadheading

Deadheading is a term used in trucking and ridesharing to refer to miles driven with an empty load. Assume for a moment that there’s a fleet of self-driving vehicles available to pick people up and carry them to their destinations. It’s a convenient service, but by necessity, these vehicles will spend at least some of their time driving without passengers, whether it’s spent waiting to pick someone up or en route to their location. The increase in miles from deadheading could nullify the potential benefits of people driving fewer total miles, or add to the damage done by their increased mileage.

Make and Model of Car

Much will also depend on the types of cars equipped to be self-driving. For example, Waymo recently launched a wave of self-driving hybrid minivans, capable of getting far better mileage than a gas-only vehicle. If the majority of self-driving cars are electric or hybrids, the environmental impact will be much lower than if they’re converted from existing vehicles. Good emissions ratings are also important here.

On the other hand, the increased demand for autonomous vehicles could put more pressure on factory production, and make older cars obsolete. In that case, the gas mileage savings could be counteracted by the increased environmental impact of factory production.

The Bottom Line

Right now, there are too many unanswered questions to make a confident determination whether self-driving vehicles will help or harm the environment. Will we start driving more, or less? How will they handle dead time? What kind of models are going to be on the road?

Engineers and the general public are in complete control of how this develops in the near future. Hopefully, we’ll be able to see all the safety benefits of having autonomous vehicles on the road, but without any of the extra environmental impact to deal with.

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Economy

New Zealand to Switch to Fully Renewable Energy by 2035

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renewable energy policy
Shutterstock Licensed Photo - By Eviart / https://www.shutterstock.com/g/adrian825

New Zealand’s prime minister-elect Jacinda Ardern is already taking steps towards reducing the country’s carbon footprint. She signed a coalition deal with NZ First in October, aiming to generate 100% of the country’s energy from renewable sources by 2035.

New Zealand is already one of the greenest countries in the world, sourcing over 80% of its energy for its 4.7 million people from renewable resources like hydroelectric, geothermal and wind. The majority of its electricity comes from hydro-power, which generated 60% of the country’s energy in 2016. Last winter, renewable generation peaked at 93%.

Now, Ardern is taking on the challenge of eliminating New Zealand’s remaining use of fossil fuels. One of the biggest obstacles will be filling in the gap left by hydropower sources during dry conditions. When lake levels drop, the country relies on gas and coal to provide energy. Eliminating fossil fuels will require finding an alternative source to avoid spikes in energy costs during droughts.

Business NZ’s executive director John Carnegie told Bloomberg he believes Ardern needs to balance her goals with affordability, stating, “It’s completely appropriate to have a focus on reducing carbon emissions, but there needs to be an open and transparent public conversation about the policies and how they are delivered.”

The coalition deal outlined a few steps towards achieving this, including investing more in solar, which currently only provides 0.1% of the country’s energy. Ardern’s plans also include switching the electricity grid to renewable energy, investing more funds into rail transport, and switching all government vehicles to green fuel within a decade.

Zero net emissions by 2050

Beyond powering the country’s electricity grid with 100% green energy, Ardern also wants to reach zero net emissions by 2050. This ambitious goal is very much in line with her focus on climate change throughout the course of her campaign. Environmental issues were one of her top priorities from the start, which increased her appeal with young voters and helped her become one of the youngest world leaders at only 37.

Reaching zero net emissions would require overcoming challenging issues like eliminating fossil fuels in vehicles. Ardern hasn’t outlined a plan for reaching this goal, but has suggested creating an independent commission to aid in the transition to a lower carbon economy.

She also set a goal of doubling the number of trees the country plants per year to 100 million, a goal she says is “absolutely achievable” using land that is marginal for farming animals.

Greenpeace New Zealand climate and energy campaigner Amanda Larsson believes that phasing out fossil fuels should be a priority for the new prime minister. She says that in order to reach zero net emissions, Ardern “must prioritize closing down coal, putting a moratorium on new fossil fuel plants, building more wind infrastructure, and opening the playing field for household and community solar.”

A worldwide shift to renewable energy

Addressing climate change is becoming more of a priority around the world and many governments are assessing how they can reduce their reliance on fossil fuels and switch to environmentally-friendly energy sources. Sustainable energy is becoming an increasingly profitable industry, giving companies more of an incentive to invest.

Ardern isn’t alone in her climate concerns, as other prominent world leaders like Justin Trudeau and Emmanuel Macron have made renewable energy a focus of their campaigns. She isn’t the first to set ambitious goals, either. Sweden and Norway share New Zealand’s goal of net zero emissions by 2045 and 2030, respectively.

Scotland already sources more than half of its electricity from renewable sources and aims to fully transition by 2020, while France announced plans in September to stop fossil fuel production by 2040. This would make it the first country to do so, and the first to end the sale of gasoline and diesel vehicles.

Many parts of the world still rely heavily on coal, but if these countries are successful in phasing out fossil fuels and transitioning to renewable resources, it could serve as a turning point. As other world leaders see that switching to sustainable energy is possible – and profitable – it could be the start of a worldwide shift towards environmentally-friendly energy.

Sources: https://www.bloomberg.com/news/articles/2017-11-06/green-dream-risks-energy-security-as-kiwis-aim-for-zero-carbon

https://www.reuters.com/article/us-france-hydrocarbons/france-plans-to-end-oil-and-gas-production-by-2040-idUSKCN1BH1AQ

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