Ed Crooks The credit crunch hits energy companies’ investment, and the fight against climate change

A survey of global utility company executives from PWC, the professional services group, released on Thursday morning, gives a sobering view of the impact of the global recession and the credit crunch on energy companies’ investment plans, and also on the fight against climate change.

It is further evidence of how governments hoping to deliver steep reductions on carbon dioxide emissions still have a great deal more to do.

Two thirds of the power utility executives surveyed – from 65 companies in 39 countries – said the credit crunch was having a high or very high impact on their business. Almost four fifths felt that the recession would slow down responses to climate change.

A crisis is also an opportunity, as the cliche has it, but those responses show how governments trying to use the economic and financial crisis as an opportunity to restructure the energy industry are fighting uphill.

A survey of energy companies in the UK, from the German utility RWE, recently delivered a similar message. Fears about the impact of the credit crunch on energy companies that emerged last year are now being realised, and as a result efforts to fight climate change are slipping down the agenda.

The report quotes a cri de coeur from Jurgen Grossmann, the chief executive of RWE:

Industrial energy consumption is on the decline, and customers are experiencing difficulty in making payments. Financing costs are on the rise and politicians are increasingly inclined to regulate functioning market processes more intensely

The firmer grip of regulation emerges particularly strongly as a theme: 93 per cent of the executives said regulation was forcing them to respond with initiatives such as restructuring and cost-cutting, up from 76 per cent in 2007.

However, regulation specifically to cut greenhouse gas emissions seems much less effective. A substantial minority – 38 per cent – of the executives worldwide said actual or proposed emissions reduction legislation and carbon pricing regimes such as the EU’s emissions trading scheme were having an effect on their capital spending decisions. Even in the EU, where the ETS has been in operation since 2005 and the regulations are more developed than anywhere else in the world, a third of executives said the framework had no effect on their investment plans.

Even more troublingly for efforts to stop climate change, three fifths of the executives felt that their renewable energy investment programmes were being affected by the lack of clarity from governments on targets and financial support for renewable energy. Unsurprisingly, only 28 per cent of executives believe that renewable power can compete with fossil fuel generation without subsidies. (Indeed, the surprise may be that the figure is as high as 28 per cent.)

PWC concludes:

The most important factor underlining all of this, as our survey respondents make clear, will be an effective regulatory framework that provides the long-term certainty and
incentives required to move to more energy secure, low carbon power production. Past cycles of one-off, short-term solutions must be broken and give way to a long-term planning horizon—30 years or more. That will not just require an effective agreement at Copenhagen in December 2009 but needs to embrace other regulatory policies as well. Policies
that govern such matters as consumer and buildings energy efficiency and the permitting of sites for power generation, LNG re-gasification terminals and other vital infrastructure
must also be aligned with energy security and low carbon goals.

The fall in energy use caused by the recession is helping reduce carbon dioxide emissions, and many countries are now making more progress towards their emissions reduction objectives than had been expected. But without fundamental changes to the global energy industry, that progress can be sustained only if economies are flattened forevever.