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February 2, 2010

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Stimulus 'green' funding still needed

February 2, 2010, Tuesday | Print Edition

IN response to the financial crisis, almost every major government worldwide announced a fiscal stimulus package, and in almost every case a significant portion was earmarked for "green" initiatives.

HSBC (Hongkong and Shanghai Standard Banking Co) estimated that around the world, governments allocated more than US$430 billion in fiscal stimulus to "climate change themes."

However, this total includes rail, water and electricity infrastructure that is not specifically dedicated to clean energy. Once these are stripped out, an estimated total of US$177 billion of stimulus funding has been allocated to renewable energy, energy efficiency, advanced transport, smart grid and other core clean energy technologies.

For the most part the spending is dominated by efficiency, renewable energy, electrical grid, general R&D and transportation. Energy efficiency, generally in the form of grants for the improvement of public sector buildings and for weatherizing homes, is set to take the largest slice of clean energy stimulus funds with US$42 billion globally.

It is seen as a sector that not only can have a significant impact on emission reductions and reduce household energy expenditure, but can also be quickly ramped up and, critically, create local unskilled and semi-skilled "green jobs."

Grid improvements are also earmarked for a significant amount of stimulus spending, at US$32 billion, particularly in China and the US where they are being supported by loans and grants respectively.

The Chinese funding is largely earmarked for grid extension to some of the areas where excess renewable energy is currently being produced, while much of the US spending is for the deployment of smart grid technology.

A key weakness of the stimulus approach, however, is that only around US$25 billion - 14 percent of the total allocated - actually reached clean energy technology providers or project developers in 2009.

The flow of stimulus spending will strengthen to around US$60 billion this year, which will almost certainly drive overall investment in clean energy into record territory, perhaps reaching as much as US$200 billion. Stimulus funding will then remain at around US$60 billion for 2011, before receding.

One of the most urgent questions facing policy makers in clean energy as elsewhere is how to close the stimulus funding taps in due course without causing the industry to collapse.

There is also some concern that as the global economy emerges from recession, governments will reconsider their spending plans, faced by increasing public debt and concerns over the state of their finances, and that money for green schemes may be diverted elsewhere.

(The article is adapted from the report titled Green Investing 2010 by the World Economic Forum. )

Green investment The United States

The American Recovery and Reinvestment Act (ARRA) was signed into law by President Obama in February 2009. US$67 billion out of a total stimulus package of US$788 billion was set aside to promote clean energy.

China

Early in 2009, China's National Development and Reform Commission unveiled a US$60 billion low-carbon stimulus package. Overall the Chinese stimulus is likely to flow faster than European or US packages because much of the money will take the form of loans rather than grants.

Europe

Of all the European green stimuli, the community-level one (US$12.7 billion) is likely to be the fastest in reaching the sector.

Offshore wind developers are expected to benefit first.

(The article is adapted from the World Economic Forum's report titled Green Investing 2010.)

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