2.9 trillion euro needed to deliver low carbon economy in Europe say Barclays & Accenture03/02/2011
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Banking Sector Will Be Pivotal to Financing Europe's 2.9 trillion euro Low Carbon Transition, Finds Accenture and Barclays Report
The banking sector will be pivotal to Europe's low carbon transition, and will finance and intermediate the vast majority of the 2.9 trillion euro capital required to implement low carbon infrastructure, according to a report published by Accenture (NYSE: ACN) and Barclays (LON: BARC). Banks will play an increasing role in the financing of the transition, primarily through intermediating institutional capital, but stable and long-term government incentives and policies will remain critical.
The study finds that development, procurement and implementation of 15 commercially viable low carbon technologies will require 2.9 trillion euro in funding from 2011 - 2020, helping to enable Europe to bring its emissions to 83 percent of 1990 levels by 2020, representing a carbon abatement of 2.2 Gt CO2e. Where existing studies forecast capital requirements against assumed adoption rates needed for Europe's 2020 targets, this report's forecasts are based on calculations of realistic actual adoption rates of low carbon technologies.
"The path to a low carbon Europe has largely depended on government initiatives," said Peter Lacy, Managing Director, Sustainability Services, Europe, Africa and Latin America, Accenture. "High public sector debt and maturing technology now mean that private sector capital, primarily intermediated by banks, must be provided to accelerate the investment we need to meet our 2020 goals. However, governments must still play a role to stimulate demand and stabilize carbon markets with transparent and long term policy commitments. This report will help banks and policy makers identify the costs of commercially viable low carbon technologies and suggest new ways to finance them."
Of the 2.3 trillion euro of procurement capital identified, seventy-three percent (1.65 trillion euro) will need to be funded externally, creating unprecedented demand for private capital and associated bank products and services. The largest share will be debt to finance the development of low carbon technology assets. Asset leasing will be required to support consumer adoption of micro-generation and energy efficient equipment by spreading the upfront cost over its lifespan and using the energy savings to cover lease payments.
The report calculates that securitization of the debt into "green bonds" - low carbon technology asset-backed securities - could provide access to secondary markets for 1.4 trillion euro of capital required, providing new products for pension funds, individual and other institutional investors.
"Banks in Europe are facing the challenge of capital lending constraints, uncertain carbon markets and myriad local policies," said Rupesh Madlani, Head of Renewables and Clean Technology Equity Research, Barclays Capital. "In order to limit the burden on their balance sheets and to mitigate risks, they must create credit products that meet the risk and return appetite of investors. The low carbon transition presents a major opportunity for innovation in financial products and services to meet this challenge."
Justin Keeble, Director, UK/I Sustainability Services firstname.lastname@example.org
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