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Climate change is the greatest economic opportunity

Climate change is the greatest economic opportunity

Climate change is the greatest economic opportunity

José María Figueres was President of Costa Rica from 1994 to 1998. In 2000, he became the first CEO of the World Economic Forum. He is now President of Sir Richard Branson’s Carbon War Room, an independent non-profit organisation focused on the global transition to a low-carbon economy.

for mankind to put in place technologies that will increase the efficiency of how global trade and cities operate, boosting economies in the process.  Ever the optimist, I see the challenges of climate change not as inhibitors to the creation of a better world but as exciting opportunities. Far from being the biggest threat, I believe climate change is the greatest economic opportunity of our generation.

It is a fact that 50 per cent of the solutions to climate change are already within our grasp, and can be achieved under existing policy using existing technology – all of which amounts to trillions of dollars of business.

Every day, I am amazed by the calibre of entrepreneurs that I meet and the ingenuity of their innovative business models and technologies. From skysails on cargo ships to renewable jet fuels made from algae, proven technologies exist today that can move our world towards a low-carbon economy. What is currently lacking is a greater market demand for these technologies and the capital to  bring them to significant scale.

The market barriers are many and varied. They include a lack of information (for example on the fuel efficiency of ships, or the quality of renewable jet fuel on the market), outdated contracts (the shipping industry is a notable example) and distribution barriers (in aviation, for instance, where many international airports’ oil companies own the fuel-supply infrastructure, resulting in a dearth of access to competitive renewable fuels).

However, such hurdles are not impossible. So how do we create greater market demand and shift capital across more industries? Recently, I took on this challenge. In March, I became the President of Sir Richard Branson’s Carbon War Room, a global entrepreneurial initiative that seeks to accelerate business solutions that deploy scalable, profitable clean technologies. You could say it’s a non-profit fixated by other people’s profit. It focuses on creating new demand for proven solutions and devising financial mechanisms to move new capital to pay for them. That could be to encourage the movement of new finance to develop energy efficiency and maritime shipping; speed up the access to market information in aviation; or to attract capital to island economies to help them introduce renewable energy and become energy independent. In each instance our aim is the same: to create unstoppable momentum in the market for the demand of clean technologies.

Currently, the team works in four industries and sectors – maritime shipping, renewable jet fuels, building efficiency and island economies – and is looking at many more. Each has the potential to deploy scalable technologies at profit under existing policy and save up to a billion tonnes in carbon per year.

Take maritime shipping. This sector emits one billion tonnes of carbon dioxide from 100,000 vessels every year. Some of the vessels are fuel-efficient, but most are not. The market opportunity is huge and there is a lot of money to be saved. In fact, ship owners can save upwards of US$70bn on fuel every year, which would reduce the sector’s emissions by 30 per cent. But for this to happen, imaginative fuel-efficient technologies need to be retrofitted to the vessels. Some of these include, but are not limited to, low-friction paint to stop additional drag on the ship’s hull, new and innovative propeller designs, and next-generation sails.

So what is the problem? The problem is that most of the cargo crossing the ocean is on ships chartered by big retailers and importers who pay the fuel bill. The customers do not know how efficient the vessels they charter are, and because they pay the fuel bill there is no incentive for the ship owner to fit fuel-saving technologies. The first market barrier is information on vessel fuel-efficiency. We wanted to remove that barrier.

In 2010, the Carbon War Room introduced the world’s first fuel-efficiency A-G rating system, the Existing Vessel Design Index. The website provides a global online platform that gives ship owners and charterers the information they need to make informed decisions. Since its launch in 2010, the website, which holds data for 55,000 vessels, has had more than 65,000 visitors. It was our intention in publishing the data to show the market that it has a real choice in which vessels it uses. More than 500 of these vessels have verified and corrected their data and a score of shipping customers have already put internal policies in place to avoid G-rated ships.

Now that the market has information on fuel efficiency and demand is starting to emerge, we move our attention to shifting capital. Throughout 2012, the shipping team has been working hard on the creation and implementation of a practical, market-based, economically viable financing solution that can be effectively applied to enable the retrofitting of eco-efficient technologies to existing ships. The team has been working with a consortium of industry partners – ship owners, technology companies and insurers – to test and verify the effectiveness of fuel efficiency technologies. I am thrilled to announce that in February 2013 our first pilot ship will be heading to a dry dock in China to be fitted with the first of two technologies. This will be followed by the second in July, in France. This ship will set a precedent in the industry, which I hope will send a signal to the market that we have moved from blackboard theory to reality, which will unlock millions of dollars for charterers and owners worldwide.

Hopefully, it will also create jobs in leading ports such as Dubai, Singapore and Hong Kong. The Carbon War Room will then work on brokering other consortia for self-financing mechanisms in other regions, in order to help move these deals to deployment of technologies on ships, at ports and shipyards.

We also see massive opportunities in aviation. The industry is highly vulnerable to fuel-price fluctuations, with fuel typically representing 25 to 40 per cent of an airline’s operating costs. Hedging in a volatile fuel market can be both risky and costly. High prices, coupled with tremendous instability, have made identifying new fuels a priority for the industry. The renewable jet fuels market can achieve significant scale by 2020. In 2011 alone, airlines spent US$140bn on kerosene-based jet fuel, and US$200bn is projected for 2012.

Yet alternatives are available. Two types of renewable jet fuels have been approved for use in the past 18 months and several more are in the testing and certification pipeline. In addition, the first few commercial renewable jet (and diesel) fuel-production facilities came online this past year. Most importantly, there is growing momentum behind renewable jet fuels. However, significant market barriers remain. Renewable-fuel producers are struggling to meet capital requirements partly because of investor uncertainty in such a complex technology and the market landscape. There are concerns surrounding the entire value chain, the scale-up risk, technology status, environmental and carbon impact and availability of raw materials, as well as perhaps the most critical: the cost.

With all these barriers inhibiting the scale-up of biofuels, there is currently no publicly available source of information documenting or comparing these factors across companies.

Our strategy is to address these barriers and kick-start the market. We aim to dismantle the market failures by allowing strategic buyers (in this case, the airlines) to place the right bets on an affordable, scalable, sustainable future fuel choice. To solve the first barrier – information – we teamed up with Elsevier (an Anglo-Dutch Fortune 500 company and the world’s largest scientific publisher) to build an online database of companies.

In December last year, the Carbon War Room created the website, which evaluates and ranks companies using criteria based on their economic viability, scalability and sustainability. There are now more than 100 companies that our team is tracking in the database, which is cross-checked and curated by industry experts. This provides the market with information, so that airlines can choose the best fuel suppliers and make an advance-purchase commitment to a renewable-fuel producer (who on the basis of that commitment can get finance to build production plants).

Over the next three years, the team aims to educate the market-place by promoting strong, credible sustainability standards and plans to help provide producers with access to capital and work to get renewable fuels from the production location to the airports and into aircraft.

Our operations are also focusing on bringing financing to cities for retrofitting buildings at scale for energy efficiency. Launched in 2010 at the Winter Olympics in Vancouver, Operation GreenCapital convened mayors and sustainability executives from 15 world cities who wanted to learn about energy efficiency retrofits and the positive impact that retrofits could have on their cities. The Carbon War Room – along with corporations such as Energi Insurance Services, Inc, Abundant Power, Metrus Energy, SCI Energy, Building Energy, SRS, Retroficiency, Lockheed Martin, and others – hosted energy-efficiency “deal days” (matching technology and finance providers with commercial property owners) in Copenhagen, London, and Washington DC, resulting in dozens of new partnerships and potential deals.

In 2011, the Carbon War Room assembled a group of complementary energy-efficiency service providers to address commercial property retrofits. The PACE Commercial Consortium (PCC), is a first-of-its-kind consortium that partners an engineering company (Lockheed Martin), with an insurance company (Energi Insurance Services, Inc), a Property Assessed Clean Energy (PACE) administrator (Ygrene Energy Fund), and financial institutions and construction companies for an end-to-end solution. It was launched with a US$650m warehouse line for commercial energy-efficiency programmes in Miami and Sacramento, and will begin deploying capital in the first quarter of 2013. The consortium estimates that these programmes could stimulate up to US$2.3bn in economic activity, and create more than 17,000 new jobs.

Our latest operation is Smart Island Economies, small, discrete economies with similar energy challenges. The effects of climate change and increasing petrol prices mean communities on islands are paying high prices for electricity. By reducing the dependence of a country on fossil fuels through the generation of energy from natural resources, island nations will be more resilient to price shocks and keep a greater proportion of GDP spent within the economy. With the costs of renewable energy coming down and the prices of fossil fuels so high on islands, transitioning an island economy off fossil fuels is now commercially viable.

The team will work with pilot nations and interested corporates to implement a transparent process to flip whole economies off fossil fuels by 2020. We are taking our lead from the UAE clean-energy firm Masdar, which is working with the Seychelles on the introduction of a major new wind farm.The Carbon War Room launched its Smart Islands Economies Operation in June 2012 with the announcement that Aruba will be the first pilot island nation to transition to 100 per cent renewable energy. This partnership will make Aruba the world’s first sustainable-energy economy. It is the first of three islands the Carbon War Room is targeting over the next three years.

Sustainability and low-carbon plans are not new to island economies, but successful implementation is. The Carbon War Room’s operation aims to develop a low-carbon model that can be replicated in other Caribbean and Pacific islands. It plans to attract top-tier tech companies to work on Aruba and hopes to attract philanthropic funding at the early stages to catalyse private investment. The Carbon War Room will develop an island-economies platform that aggregates the private investment opportunities in energy infrastructure, new renewable generation, waste management, water/desalination, infrastructure, IT and transportation. These choices will undergo an extensive  community consultation process to ensure the selected solutions are appropriate and meet community approval. When the commercial opportunities have been selected (totalling US$100m or greater), they will be opened up to the private sector through a tender and procurement process.

A series of two-day conventions will decide the next area of focus for the Carbon War Room. In the Creating Climate Wealth Summit series, a mix of executives, investors, entrepreneurs and private- and public-sector leaders will meet in a series of workshops around the globe, focused on fast-tracking the wealth-creation opportunity found in reducing carbon in our industrial systems. The workshop structure is designed to uncover and test ideas that generate innovative business solutions, advance the work of existing Carbon War Room operations and incubate and test new ones.  It may be the government that sets the mandates on carbon, but only entrepreneurs, business and the market can bring about these reductions.

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