October 22, 2010
Deutsche Bank’s Parker: Senate Clean Energy Policy Failure Driving Investor Exodus
By Devon Swezey and Jesse Jenkins
The failure of the U.S. Senate to pass clean energy and climate legislation has caused investment giant Deutsche Bank to take its clean energy dollars elsewhere, according to Kevin Parker, Global Head of Asset Management for the firm.
"They're asleep at the wheel on climate change, asleep at the wheel on job growth, asleep at the wheel on this industrial revolution taking place in the energy industry," said Parker.
Deutsche Bank manages over $700 billion in funds with $6 to $7 billion invested in clean energy markets worldwide.
These blunt comments from the global investment firm have cap and trade advocates renewing the argument that a price on carbon would have made the United States a world leader in clean energy technology.
Yet according to Deutsche Bank's own reports, cap and trade and carbon pricing would have done little to change the investment outlook in the United States relative to its competitors.
In a report released last October, after the passage of the House's Waxman-Markey climate and energy bill (HR 2454), Deutsche Bank ranked the United States as a "moderate-risk" nation for private investment in clean energy since it relied on "a more volatile market incentive approach" and "has suffered from a start-stop approach in some areas."
By contrast, countries like China, Germany, and Japan were "low-risk" nations for investors because they each rely on "a comprehensive and integrated government plan supported by strong incentives."
Mr. Parker is correct that the Congress remains "asleep at the wheel" as international competition for clean energy markets heats up.
The fact that the Senate got nothing done on climate and energy this year is outrageous, and continued policy uncertainty will ensure that the U.S. will keep lagging further and further behind economic competitors in the global clean energy race.
But let's be clear. The cap and trade legislation that Congress spent the better part of two years debating would have had, at most, a modest impact on America's standing in global clean energy markets, and would have been wholly insufficient to keep the U.S. in the game with economic competitors in Asia and Europe.
Is Carbon Pricing Really the Key?
We issued precisely that warning last November when the Breakthrough Institute and ITIF published "Rising Tigers, Sleeping Giant." The comprehensive report documented that the United States already lagged China, Japan, and South Korea in the production of virtually all clean energy technologies, and was poised to be out-invested three to one over five years by the three Asian 'Clean Tech Tigers,' even if the House-passed cap and trade bill had become law.
Deutsche Bank themselves clearly acknowledge that while carbon pricing may be important in the long-term, it is not what is helping governments around the world attract private investment and build domestic clean economies in the near-term.
According to Deutsche Bank's Parker and Global Head of Climate Change Investment Research Mark Fulton:
"While emissions targets express an intention and carbon markets might deliver a price signal in the long-term, governments must strengthen underlying mandates and incentives immediately if capital is to be deployed to cover the gap, creating more investment and jobs."
Deutsche Bank's conclusions are consistent with other analyses of the impacts of cap and trade legislation in the United States. According to the U.S. Environmental Protection Agency (EPA), under the House's Waxman-Markey bill:
"allowance prices are not high enough to drive a significant amount of additional [deployment of] low- or zero-carbon energy (including nuclear, renewables, and CCS) in the shorter-term, excluding the technologies with specific financial incentives (e.g. CCS)."
Similarly, the EPA concludes that the cap and trade system's impacts on transportation markets would be negligible. With potential carbon prices the equivalent of just 10 or 20 cents per gallon of gasoline, "the increase in gasoline prices that results from the carbon price ... is not sufficient to substantially change consumer behavior in their vehicle miles travelled or vehicle purchases..."
What Really Matters
What really matters to create a new clean energy economy and stimulate private investment in the near-term are policy regimes that employ direct and targeted public investments to cover the cost gap between higher-cost clean energy and fossil fuels.
Indeed, China has surpassed the United States as the largest beneficiary of private clean energy investments without a price on carbon. Rather, China, along with Germany, Japan, and other "low-risk" nations, has implemented generous, technology-specific deployment incentives that reduce regulatory risks and are much more attractive to investors, and are backed by aggressive, long-term national targets for clean energy deployment.
China has targeted procurement policies for clean energy, and a variable feed-in tariff for wind power. In Germany, Deutsche Bank credits the nation's generous feed-in tariff policy, not the carbon markets of the European Emissions Trading Scheme (ETS), for Germany's world-leading solar energy sector. These incentives have "demonstrated their ability deliver renewable energy at scale," according to the bank.
If the United States wants to avoid being permanently relegated to the backwaters of the global race for clean energy investment, it needs a new clean energy competitiveness strategy that, like those of its competitors, prioritizes large and sustained public investment in clean energy technology.
That strategy should include robust and long-term investments in areas such as research and innovation, manufacturing, market creation, workforce training and education, and the development of new, globally competitive industry clusters.
Time is short, and the next several years will see first-movers establish dominant positions across a range of clean energy sectors. Already the U.S. is failing to attract significant private-sector investment in clean energy markets, losing out on a key opportunity to grow American jobs, build new high-tech, export-oriented industries, and capitalize on the economic opportunity of a fast-growing clean energy sector.
If Washington continues to ignore this growing economic imperative, the U.S. will remain behind in clean energy investment and will wind up importing the vast majority of the clean energy products needed to satisfy U.S. markets.
Almost as dangerous, however, would be a continued reliance on cap and trade and the modest carbon prices it would establish as they key to building America's clean energy industries.
The message from clean energy investors like Deutsche Bank and the model provided by our global competitors are both quite clear: what the U.S. needs is not cap and trade but a comprehensive clean economy strategy. And it needs one now.
Devon Swezey is Project Director and Jesse Jenkins is Director of Climate and Energy Policy at the Breakthrough Institute. Both are co-authors of "Rising Tigers, Sleeping Giant: Asian Nations Set to Dominate the Clean Energy Race by Out-Investing the United States"