US president Barack Obama’s new proposals to fight climate change and slash carbon emissions from coal-fired power plants could boost investment in the renewables and nuclear sector.
Earlier this week, Obama and the US Environmental Protection Agency (EPA) announced tighter emission restrictions with the aim of cutting power plant emissions by up to 30% by 2030, which the EPA says will bring net climate and health benefits of up to $82 billion (£48bn). It is also hoped that the move will deliver the “certainty” that private investment is looking for.
Speaking to the Sydney Morning Herald, Faith Birol, chief economist at the International Energy Agency (IEA), explained that Obama’s plan was a “good example” of policy and action that could shift investment, at least in the US, away from fossil fuels and towards cleaner alternatives. However, he added that change in energy investment would be slow and further global policy would be needed.
Birol said, “Let’s not forget that the global energy system is juggernaut. It cannot change direction sharply or quickly so unless other countries follow suit it is unlikely to dramatically alter the breakdown of investment needs at the global level.”
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Investors have previously been warned about the risk of ‘stranded’ carbon assets when climate change and emission targets are factored in. If other countries follow the US’s lead, this risk could increase, as the majority of fossil fuels need to be left in the ground to avoid dangerous levels of warming. In addition, coal companies will face extra costs because of the proposed rules.
Despite this, US coal companies saw their shares remain relatively stable, although commentators have pointed out that the announcement was expected and the changing energy structure has long been a concern for the industry and its investors.
It has also been noted that the proposals could be watered down.
Claudia Quiroz, investment director at asset manager Quilter Cheviot, commented, “While the announcement is very positive from an environmental viewpoint, there is a year of consultation ahead of us and we would expect change to the initial proposal suggested by the Obama administration.
“The proposal targets coal-burning power plants, so the scale of the move to lower carbon emissions in the US is significantly below that of Europe, which include various industries, as well as the utilities, in its carbon reduction programme. Nevertheless it should be a boost for renewable sources, like wind and solar power, as well as for nuclear.”
As a result of this, Quiroz added that there should be positive movement in the share prices of companies operating in the renewable and nuclear sectors. However, she noted that prior to the announcement the US was already moving away from coal-based power to favour cheaper and more abundant shale gas.
Investors worth $800 billion wrote letters of support to the Obama administration on Tuesday, co-ordinated by the sustainability network Ceres.
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