Kiran Stacey HSBC: 2011 a good year for climate investment

Last year was not a good one for investment in green projects and technologies. The combined effect of the recession and the hangover from the failure of the Copenhagen talks saw investment levels drop sharply.

But this year is looking rosier, according to HSBC. Their analysts say in a new report:

Doubts about science have been replaced by the realities of extreme events and rising commodity prices. The shocks to European renewables incentives sparked by the fiscal crisis appear to have run their course, and efforts to drive energy efficiency will be intensified in the EU in the next 12 months.

Emerging market demand

Most of the demand for investment will come from the emerging world, the report says. China’s next five-year plan will provide a major boost to everything from rail infrastructure to energy efficiency schemes (although HSBC doesn’t expect a national cap-and-trade scheme yet).

India meanwhile, is looking much more attractive for green investors, thanks to its voluntary target to reduce emissions 20-25 per cent below 2005 levels by 2020. The Green Bank and renewable energy certificates will both help it to achieve that.

Even South Korea is getting involved, with a plan to achieve $40bn of renewable energy exports by 2015.

Developed world stability

The signs are less positive from industrialised countries, however. There is at least stability in the EU, with no further major change to incentives expected after the German nuclear tax and the Spanish cuts to solar subsidies. HSBC does not expect, however, that the EU will increase emissions reduction target from 20 per cent to 30 per cent, as currently being advocated by the UK, Germany and France.

The US is also stable, but remains a less friendly place for green investment. The report states:

There is now no chance of passing federal climate legislation in this session of Congress – and the new Congress is likely to make suspending EPA authority to regulate carbon a priority.

As with almost every economic sector at the moment, this leaves green investment heavily dependent on growth in Chinese demand – at least in HSBC’s view. At which point it is probably worth pointing out that the bank started a low carbon equity fund in China last year (H/T Fraser Tajima). Make of that what you will.