HSBC - Green New Deal


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HSBC - Green New Deal

  1. 1. abc Climate Change Global Global Research A Climate for Around the world, governments have allocated more than USD430bn in fiscal Recovery stimulus to key climate change investment themes. China and the US The colour of stimulus goes green lead the way Key beneficiaries include rail transportation, water infrastructure, grid expansion and improved building efficiency. Renewable energy has received limited support to date, except in the USA We believe that these commitments are but the first instalment of further efforts by governments to use low-carbon growth as a key lever for economic recovery, as part of both the G-20 recovery talks and the Copenhagen climate negotiations As governments struggle to revive their economies, they are also seeking to lay the foundations for the next phase of growth. Increasingly this is being linked with the climate change agenda, with a sizeable slice of fiscal stimulus plans 25 February 2009 allocated to launching a low-carbon recovery. Nick Robins* We have analysed more than 20 economic recovery plans Analyst and categorised the spending and tax-cutting measures HSBC Bank plc +44 20 7991 6778 according to the 18 investment themes identified in the HSBC Climate Change Index. This reveals that around 15% Robert Clover* Analyst of the USD2.8trn in fiscal measures can be associated with HSBC Banks plc investments consistent with stabilising and then cutting +44 20 7991 6741 global emissions of greenhouse gases. Charanjit Singh* Analyst We have identified five key questions that need to be HSBC Bank plc answered: is the green stimulus large enough, when will it +91 80 3001 3776 materialise, is it really green, how many jobs will be created View HSBC Global Research at: and how effective will it be in mobilising private investment?. *Employed by a non-US affiliate of HSBC Securities (USA) Inc, We believe that the momentum behind this agenda will grow and is not registered/qualified pursuant to NYSE and/or NASD regulations through 2009 and expect further green stimulus initiatives linked to the G-20 economic recovery summit in April and the Issuer of report: HSBC Bank plc Copenhagen conference in December, particularly in Japan, Disclaimer & Disclosures the UK and the USA. This report must be read with the disclosures and the analyst certifications in the Disclosure appendix, and with the Disclaimer, which forms part of it
  2. 2. abc Climate Change Global 25 February 2009 Summary We have identified over USD430bn in fiscal stimulus for key climate change themes, with China and the USA in the lead We believe the construction and capital goods sectors will be primary beneficiaries as governments expand green infrastructure We expect the emphasis on a low-carbon recovery to intensify as part of the G-20 process and Copenhagen negotiations Money on the table We estimate more than USD430bn out of nearly USD2.8trn in tax cuts, credits and extra spending Governments are facing a triple crisis of economic are aligned with the key investment themes downturn, energy insecurity and climate change. contained in the HSBC Climate Change Index. Across the world, they are responding by allocating a sizeable proportion of their fiscal stimulus packages to investments consistent with a low-carbon economy. A Climate of Recovery? The climate change investment dimension of economic stimulus plans Country Fund Period Green Fund % Green Fund Low-Carbon Power _ _______ Energy Efficiency (EE)________ Water/Waste USDbn Years USDbn Renewable CCS/Other Building EE Lo C Vech+ Rail Grid Asia Pacific Australia 26.7 2009-12 2.5 9.3% - - 2.48 - - - - China 586.1 2009-10 221.3 37.8% - - - 1.50 98.65 70.00 51.15 India 13.7 2009 0.0 0.0% - - - - - - - Japan 485.9 2009 onwards 12.4 2.6% - - 12.43 - - - - South Korea 38.1 2009-12 30.7 80.5% 1.80 - 6.19 1.80 7.01 - 13.89 Thailand 3.3 2009 0.0 0.0% - - - - - - - Sub-total Asia Pacific 1,153.8 0.0 266.9 23.1% 1.8 0.0 21.1 3.3 105.7 70.0 65.0 Europe European Union 38.8* 2009-10 22.8 58.7% 0.65 12.49 2.85 1.94 - 4.85 - Germany 104.8 2009-10 13.8 13.2% - - 10.39 0.69 2.75 - - France 33.7 2009-10 7.1 21.2% 0.87 - 0.83 - 1.31 4.13 - Italy 103.5 2009 onwards 1.3 1.3% - - - - 1.32 - - Spain 14.2 2009 0.8 5.8% - - - - - - 0.83 United Kingdom 30.4 2009-12 2.1 6.9% - - 0.29 1.38 0.41 - 0.03 Other EU states 308.7 2009 6.2 2.0% 1.9 - 0.4 3.9 - - - Sub-total Europe 325.5 0 54.2 16.7% 3.5 12.5 14.7 7.9 5.8 9.0 0.9 Americas Canada 31.8 2009-13 2.6 8.3% - 1.08 0.24 - 0.39 0.79 0.13 Chile 4.0 2009 0.0 0.0% - - - - - - - US EESA 185.0** 10 Years 18.2 9.8% 10.25 2.60 3.34 0.76 0.33 0.92 - US ARRA 787.0 10 Years 94.1 12.0% 22.53 3.95 27.40 4.00 9.59 11.00 15.58 Sub-total Americas 1,007.8 114.9 11.4% 32.8 7.6 31.0 4.8 10.3 12.7 15.7 Total 2,796 436 15.6% 38.0 20.1 66.8 15.9 121.8 91.7 81.6 (*Only EUR30bn from direct EU contribution considered for calculation as the rest (EUR170bn) is contributed by member states; **USD700bn under TARP not considered for calculation as the fund is mainly for bank bailouts not for fiscal stimulus) + Low Carbon Vehicles Source: HSBC estimates 2
  3. 3. abc Climate Change Global 25 February 2009 stabilisers in Europe has meant that the EU According to HSBC’s latest economic forecast, stimulus is so far smaller in size. However, the global economic activity is expected to fall 1.4% climate change dimension is greater than in the in 2009, a worse outcome by far than any other USA, due to a focus on low-carbon investment in post-war recession. Among our economists, there France, Germany and at the EU level. is some hope that the pace of deterioration will slow and, perhaps, that activity will pick up later Green stimulus theme allocation in the year as a result of the various stimulus Energy packages (Stephen King and Stuart Green, Over Efficiency Buildings the edge, 23 February 2009). 68% Water 15% 19% China and the USA in the lead Lo C Vech 4% Other Low China and the USA dominate the landscape in Rail Carbon terms of both the size of their overall stimulus plans 27% 5% Grid as well as the extent of the green dimension. With 21% Renew able sizeable financial reserves and a tradition of long- 9% term planning, in November 2008, China launched its RMB4,000bn (USD584bn) package. Almost Source: HSBC estimates 40% of this is allocated to “green” themes, most Boosting green infrastructure notably rail, grids and water infrastructure, along with dedicated spending on environmental Laying the foundations to underpin future growth improvement. Elsewhere in Asia, South Korea has is a core element of most stimulus plans, and the introduced a dedicated Green New Deal, with more bulk of climate dimension is allocated to a suite of than 80% allocated to environmental themes. green infrastructure options, notably buildings, grids, rail and water. The construction and capital The new American Recovery and Reinvestment goods sectors are therefore likely to be the major Plan commits USD787bn to kick-start the beneficiaries, along with an indirect effect for economy, with USD94bn for renewables, building power, rail and water utilities. efficiency, low-carbon vehicles, mass transit, grids and water. Although the green component is smaller than China’s, it is more broadly based, and the only plan with a real boost to renewables. The existence of substantial automatic fiscal Green stimulus regional ranking (USDbn) Green stimulus regional ranking as a % of total stimulus UK Spain 2 6% Aus 2 UK 7% Canada Canada 8% 3 France 7 Aus 9% Japan US 12% 12 Germany 14 Germany 13% EU France 21% 23 S. Korea 31 China 38% US EU 59% 112 China 221 S. Korea 81% 0 50 100 150 200 250 0% 20% 40% 60% 80% 100% Source: HSBC estimates Source: HSBC estimates 3
  4. 4. abc Climate Change Global 25 February 2009 Estimated timing of green stimulus spending (USDbn) Estimated timing by theme (USDbn) 250 150 143 204 200 88 100 150 121 48 40 77 50 100 22 21 14 15 12 10 4 4 50 19 0 0 2009 2010 2011 2012 2009 2010 2011 2012 Low Carbon Energy Efficiency Water/Waste Source: HSBC estimates Source: HSBC estimates We have used these estimates from the IMF to Timing the delivery analyse the green stimulus, and estimated an We expect the impact to be muted in the first half average multiplier of just over 1 for the total green of 2009 – except perhaps in China – with a pick- component of the global stimulus package. This up in the second half. As a result, we estimate that results in a multiplier of USD460bn in the next three-quarters of green stimulus spending will be two years, resulting in a total level of spending of disbursed in 2009 and 2010, with the bulk some USD890bn. impacting the economy in 2010. However, this The next instalment? timetable could slip in the implementation phase. Multiplying the impact This year, 2009, will not be a normal one either for the global economy or for climate change. Typically, the range of multipliers for government Designing a low-carbon recovery will be on the spending varies from less than one to more than agenda of the forthcoming G-20 summit in April four, depending on the economic assumptions en route to the pivotal climate negotiations this chosen, the type of fiscal policy and the country December in Copenhagen. At the national level, concerned. Multipliers also depend on the type of we expect further action in Japan with the launch instruments used, the level of trade openness, of its own Green New Deal, a federal Renewable borrowing constraints, the response of monetary Portfolio Standard in the USA and a Low Carbon policy and long-term sustainability. Manufacturing strategy in the UK. Multiplier effects of fiscal stimulus Note: In the analysis that follows, we draw on the Measures ____________Range_____________ latest economic forecasts published by Stephen Lower Upper King and Stuart Green in their note, Over the Tax cuts 0.3 0.6 Infrastructure investment 0.5 1.8 Edge (23 February 2009). We also provide a Other* 0.3 1 climate change profile for each country. Emission Source: IMF 2009, Group of Twenty Meeting of the Deputies Feb 2009; (* Transfers to state govt, assistance to small and medium-sized enterprises and housing markets) data for industrialised countries is cited in GHG terms (mtCO2e) controlled under the Kyoto Protocol, whilst for emerging economies we quote only emissions of carbon dioxide primarily from energy and cement manufacturing (mtCO2). 4
  5. 5. abc Climate Change Global 25 February 2009 Contents Summary 2 Italy 29 Money on the table 2 United Kingdom 30 China and the USA in the lead 3 Europe: summary 32 Boosting green infrastructure 3 The Americas 33 Timing the delivery 4 Canada 33 Multiplying the impact 4 USA 35 The next instalment? 4 Global 39 The green deal gets real 6 Theme analysis 40 From margin to mainstream 6 Allocating the stimulus 41 Targeted, timely, temporary… 7 Low-carbon power 42 …and transformative 7 Renewables 42 Climate categorisation 9 CCS and others 42 Five questions for green deals 10 Energy efficiency 42 Water, waste and pollution control 44 Regional Analysis 12 Asia Pacific 13 Disclosure appendix 46 Australia 13 Disclaimer 47 China 15 India 18 We gratefully acknowledge the assistance of D Saravanan, India 18 S Goel and R Chaturvedi from the HSBC Climate Change Centre of Excellence in the preparation of this report. Japan 19 South Korea 20 European Union 22 Germany 25 France 27 5
  6. 6. abc Climate Change Global 25 February 2009 The green deal gets real Policymakers are increasingly favouring a strong climate component in economic recovery plans This could help frontload the investment required to slow, stabilise and then reduce greenhouse gas emissions Questions remain over size, timing, environmental effectiveness, job creation potential and multiplier effects From margin to mainstream The recent sharp rise in energy prices – and their subsequent collapse – has provided a strategic Over the past six months, the deepening global warning of the importance of reinforcing energy economic downturn has propelled ideas that were security, notably through a substantial once on the margins of economic policy into the improvement in the efficiency with which heart of decision-making: bank nationalisation, energy is used in homes, businesses and quantitative easing and, the focus of this report, transport, and through the mobilisation of free, low-carbon recovery. In July 2008, a group of far- inexhaustible renewable energy resources. sighted pioneers in the UK proposed a “Green New Deal” as a way of reviving demand, creating The low-carbon economy can also be a job-rich jobs and accelerating the transition to an economy economy at a time of soaring unemployment, consistent with the need to dramatically reduce particularly through enhancing building greenhouse gas (GHGs) emissions over the efficiency, either via retrofit or new coming decades1. construction, and improving mass transit. Advocates of a low-carbon stimulus now exist at the There is growing acceptance that the next wave highest levels in government and business across the of productivity and innovation could well come globe. The reasons for this shift are five-fold: from smart technologies that enable a growing world economy to thrive in the context of Policymakers realise there are powerful deepening carbon as well as other natural symmetries between the systemic failures of resource constraints, most notably water. risk management that have led to the current financial crisis and those that threaten There is the importance of protecting the dangerous climate change if GHG emissions climate itself, which all major world leaders are left unchecked. accept as a global imperative. The science is secure, impacts are already present and negotiations are underway for a new global climate treaty, scheduled to be completed this December in Copenhagen. 1 New Economics Foundation, A Green New Deal, July 2008 6
  7. 7. abc Climate Change Global 25 February 2009 This agenda is by no means uncontested. ‘sustainable’, it is not using the term in the Commercial and political concerns that environmental sense. Nevertheless, it does environmental action in a recession is an spotlight the value of ‘a few high profile unaffordable luxury certainly remain. Indeed, the programmes, with a good long-run justification European Union’s Climate Package was the target and strong externalities (for example, for of a sustained assault to reduce the cost of carbon environmental purposes) can also help, directly curbs in December 2008. Yet, in spite of pressures and through expectations’. to water down its climate commitments, the Past and projected global emissions (1970-2050) (GtCO2e) package came through largely intact. What has 80 changed is the content of the climate investment 70 narrative, moving away from an emphasis on the 60 costs of confronting global warming change to a 50 focus on clean-growth opportunities. 40 30 Targeted, timely, temporary… 20 10 Governments are currently preoccupied with 0 confronting the twin crises of financial collapse and 1970 1980 1990 2000 2010 2020 2030 2040 2050 economic slowdown, and are responding with interest rate cuts, bank rescue plans and an array of Source: Netherlands Environmental Assessment Agency, IPCC SRES A1FI, HSBC fiscal measures to get demand moving again. More …and transformative than 20 governments have introduced emergency economic stimulus packages to cut taxes and The long-run justification for determined action on increase spending. Most of these efforts are inward- climate change is clear. The globe’s leading looking, focusing on expanding the domestic scientists concluded in 2007 that global GHGs – economy. But there is growing awareness of the most notably carbon dioxide – would need to fall by need for international coordination through the 50-85% by 2050 from 1990 levels if the world was Group of 20 leading economies. to stand a reasonable change of avoiding dangerous and irreversible impacts in the form of storms, The International Monetary Fund has floods, droughts, heat waves and sea-level rise3. recommended that ‘the optimal fiscal package should be timely, large, lasting, diversified, The 2008 G-8 summit in Hokkaido committed the contingent, collective and sustainable’2. Others world’s leading countries to hitting the lower end have shortened the list to a simpler trinity of of this range. With Barack Obama now in the ‘targeted, timely and temporary’ measures, White House, the USA has pledged to cut its highlighting the importance that government emissions by 80% by mid-century, reflecting the action should be seen as a passing phase in policy, disproportionate share that the industrialised which does not result in the build-up of world must take as a result of their historic unbearable levels of debt that would constrain emissions and greater capacity to act. medium-term prospects. When the IMF underscores the importance of the package being 2 Antonio Spilimbergo, Steve Symansky, Oliver Blanchard and Carlo Cottarelli, Fiscal Policy for the Crisis, IMF Staff Position Note, 3 IPCC, Fourth Assessment Review, 2007 December 2008 7
  8. 8. abc Climate Change Global 25 February 2009 Hitting these targets is made all the more difficult Changing course on climate change will require a by the fact that emissions of GHGs are heading in transformation in the global economy, a precisely the wrong direction. The UN transformation that is certainly unprecedented but Framework Convention on Climate Change one that is both highly achievable and comes with (UNFCCC) was agreed in June 1992, and a suite of spin-off benefits in terms of security, bolstered in 1997 with the Kyoto Protocol, which innovation and growth. The International Energy set binding targets on the industrialised world to Agency (IEA) has concluded that an ‘energy cut its emissions by 5% by 2008-12 from 1990 revolution’ is needed to halve emissions by 2050 levels. But rather than stabilising and then falling, through a mix of measures that cut the energy emissions have actually accelerated through a intensity of growth as well as the carbon intensity of energy4. combination of a rapidly expanding world economy and increasing carbon intensity as coal To take one example, in the global power plays an ever-larger role in the global energy mix, generation sector, the average carbon intensity of rising from 24% in 2002 to 29% in 2007. energy needs to fall by nearly 90% by 2050 from The economic downturn is certainly set to slow around 500gCO2/kWh to just 60gCO2/kWh. In this growth in emissions in 2009 and 2010 – a the UK, which has recently committed itself to an reality reflected in the precipitous fall in the 80% emission cut by 2050, the consequences are European carbon price from EUR21 in February even more profound. By 2035, emissions from 2008 to just EUR8.4 today. But as evidence from power generation will need to fall from the Great Depression shows, emissions will rise 560gCO2/kWh to 52gCO2/kWh, requiring a once again when the economy recovers, unless substantial boost to renewable power and heat as structural action is taken in the meantime to well as the roll-out of pivotal technologies such as change the content of growth. carbon capture and storage (CCS). Carbon emissions and the Great Depression (mtCO2/annum) 6000 4763 5000 4433 4187 4371 4198 4143 3894 3905 3861 3568 3766 3557 3531 3575 3604 4000 3447 3417 3106 3274 2944 3098 3000 2000 1000 0 1920 1921 1922 1923 1924 1925 1926 1927 1928 1929 1930 1931 1932 1933 1934 1935 1936 1937 1938 1939 1940 Source: CIDAC, HSBC 4 IEA, Energy Technology Perspectives, June 2008 8
  9. 9. abc Climate Change Global 25 February 2009 Tighter standards for the energy efficiency of Reducing power generation carbon intensity (gCO2 / kWh) buildings, vehicles and appliances. 600 Global Av erage OECD 500 Preventive investments to adapt to the impacts of climate change, particularly in developing 400 countries. 300 ~90% 200 Policies to expand natural carbon sinks as well 100 as reduce emissions from deforestation and degradation (REDD), especially in the tropics. 0 2005 2050 (BLUE Map) Scaled-up financial support for developing, transferring and deploying clean technologies Source: IEA-ETP 2008 in emerging economies. Globally, the IEA estimates that annual The UN estimates that more than 80% of required investments in clean energy systems for electric investments will normally come from the private power, heat and cooling, industry and transport sector such as consumers and business5. However, need to surge 18 times from current levels to an in the extraordinary circumstances of the current average of USD1.3trn between 2005 and 2050. crisis, a higher proportion could well come from IEA also estimates that these investments will the state. Allocating extra public spending to yield net fuel savings over the same period of green recovery plans should not be seen as a USD5trn. The fear of energy policymakers, substitute for taking tough decisions about however, is that the current slowing of capital strategic policy frameworks. But this extra public investments risks an energy supply crunch when spending can play a critical function in first growth rebounds. The IEA estimates that if ensuring that the positive momentum in climate growth is restored on its carbon-intensive status investments is not lost in the recession, and quo ante then emissions would resume their second in ‘building the foundations for sound, upward path, reaching levels 45% higher than in sustainable and strong growth in the future’.6 The 2006 by 2030. result could be akin to killing a flock of birds with The timing of climate investments is just as one or two stones. important as their scale and allocation. Scientists Climate categorisation at the IPCC have indicated that global emissions need to peak by 2015, making action in the next In the pages that follow, we analyse the “green” few years vital to change the emission trajectory. or climate change components of 20 national and This is the focus of the forthcoming Copenhagen regional recovery plans. We go into greater depth climate summit, which aims to achieve an and refine the initial analysis contained in our international consensus on the actions over the January report, Green Rebound. To structure our medium term to 2020 and long term to 2050. Key analysis, we have used the 18 climate change elements of a global climate strategy include: investing themes identified by the HSBC Climate An effective price on carbon, for example, through emission trading and green taxes. 5 UNFCCC, Investment and Financial Flows to Address Climate Change, 2007. 6 Incentives for the expansion of low-carbon Alex Bowen, Sam Fankhauser, Nicholas Stern and Dimitri Zenghelis, An outline of the case for a ‘green stimulus’, Grantham Institute on energy power such as renewables and CCS. Climate Change and the Environment, February 2009. 9
  10. 10. abc Climate Change Global 25 February 2009 Change Index and classified relevant expenditures investable – in other words it is not yet at accordingly (see Joaquim de Lima and Vijay commercial scale and therefore is not associated Sumon, Climate Change December 2008 for the with sufficient revenue generation. Finally, we latest analysis of the Index). have found no fiscal allocations at present to carbon finance. The HSBC Climate Change Index identifies four Five questions for green deals main clusters of investment opportunity: Overall, more than USD430bn, or approximately Low-carbon energy production, including 15% of the total stimulus package (USD2.8trn), is renewable sources such as geothermal, hydro, allocated to climate change investment themes. wind and solar, along with nuclear power. For business, investors and taxpayers, five key Energy efficiency & energy management, questions need to be asked about the relationship including goods and services that enhance between the current crop of economic recovery building, industrial and transport efficiency plans and climate change, for which we only have (such as fuel-efficient vehicles and modal preliminary answers at present: shift) as well as energy storage. Are plans allocating enough resource to the Water, waste and pollution control, including green stimulus? There is no magic proportion water conservation, treatment and supply. that should be targeted to climate change. The Grantham Institute in the UK has suggested a Carbon finance, most notably associated with 20% benchmark, resulting in ‘a “ball-park” carbon markets. figure of USD400bn of extra public spending on We have found considerable diversity in the plans “green measures” over the next year or so’. A that been issued to date. Many of the plans have report commissioned for the UN Green crucial details over timing and allocation still to Economy Initiative has proposed that the be finalised. We have therefore attempted to be G-20 should spend 1% of GDP on reducing conservative in our analysis, and have produced a carbon recovery over the next two years, provisional set of estimates for the climate change equivalent to USD460bn.7 These numbers are dimension. We believe that these estimates will also in line with recommendations of the IEA’s change as greater precision is given over the 2008 World Energy Outlook, which estimates direction of the stimulus plans – and as the plans that clean energy investments of USD465bn per themselves are updated or superseded. year need to be made from 2010-30. In our analysis, we have found a number of When is the green stimulus likely to materialise? themes emerging as major beneficiaries. These Much is made of the need to focus on “shovel- include sub-themes such as rail infrastructure, ready” projects in a stimulus plan, and for which is part of the broader transport efficiency investors, asset valuations of potentially affected theme, as well as grid infrastructure, which is sectors will depend on the precise timing of included in the Index’s industrial efficiency these measures taking effect. One concern is theme. We have also identified areas of spending that fine-sounding plans could fail to have the currently outside the Index, most significantly desired impact in the implementation phase. around carbon capture and storage (CCS). CCS is clearly a potentially pivotal technology, but is currently not included in the Index as it is not 7 Edward Barbier, A Global Green New Deal, UNEP, February 2009 10
  11. 11. abc Climate Change Global 25 February 2009 This makes it imperative that governments How effective is the green stimulus at are crystal clear about the administration mobilising private investment? Estimates vary of delivery. of multiplier effects of government expenditure in the wider economy. The IMF How green is the Green New Deal? At this cites existing studies that suggest a range of stage, our assessment has focused on scoping fiscal multipliers from less than one to more out the many contours of the global green than four, depending on assumptions, type of stimulus. However, there is no necessary policy and country. Germany’s first stimulus reason why a policy that is badged green will package, for example, includes generous actually result in progress towards a low- amortisation rules for companies and carbon economy. Indeed, there is a risk of incentives for climate-friendly home “green camouflage” with extra subsidies renovation. Together, these will cost being targeted to industrial favourites without EUR12bn over two years and are expected to any real pressure for carbon transformation. trigger EUR50bn in private investment, Equally, it is important that climate factors according to the IMF, implying a multiplier are integrated throughout economic recovery effect of four times. Across the globe, our plans to ensure that good “green” measures estimates suggest an average multiplier for are not blotted out by carbon-intensive the green stimulus of just over 1, yielding spending elsewhere. USD460bn in extra spending. How many jobs will be created in the short All five of these questions point to the need for and medium term? Money invested in clean the vast sums now being allocated to stimulus energy is estimated to create twice as many plans, green or otherwise, to be made to work jobs per dollar invested compared with hard for the economy, jobs and the environment. traditional fossil fuel-based energy8. What is This is requires attention to detail as well as important here is not just the job creation transparency – all of which is especially important potential of “green” public works projects, as we believe that what has emerged to date is which by nature will come to an end, but the only the first instalment of plans for green degree to which the stimulus actually builds economic stimulus through 2009 and 2010. the base for sustained employment in low- carbon industries in the upturn9. 8 Center for American Progress, Green Recovery, September 2008 9 UNEP, ILO, IOE, ITUC - Green Jobs: Towards Decent Work in a Sustainable, Low-Carbon World, 2008 11
  12. 12. abc Climate Change Global 25 February 2009 Regional Analysis 12
  13. 13. abc Climate Change Global 25 February 2009 ASIA PACIFIC Australia’s GHG emissions (mtCO2e) Australia 700 700 600 600 Economic backdrop 500 500 400 400 Australia’s economy has slowed considerably, yet 300 300 HSBC forecasts a moderate 1.0% GDP growth in 200 200 2009 and a rebound in 2010. 100 100 0 0 Australia’s real GDP growth (%) 1990 1992 1994 1996 1998 2000 2002 2004 2006 5.0 Australia Ky oto Target Source: 4.0 3.0 Australia is also planning to introduce the Carbon Pollution Reduction Scheme on 1 July 2010, a “cap 2.0 and trade” system similar to EU ETS. The scheme 1.0 will be Australia’s primary policy tool to drive 0.0 reductions in emissions of greenhouse gases11. The 2005 2006 2007 2008 2009e 2010e scheme will cover around 75% of Australia’s emissions and involve mandatory obligations for Source: IMF World Economic Outlook Database, October 2008; HSBC estimates around 1,000 entities. As part of the Mandatory Climate change profile Renewable Energy Target (MRET), Australia committed in 2007 to sourcing 20% of electricity Australia has recently rejoined the international supply from renewable energy by 2020. consensus on climate change. As part of the 1997 Kyoto Protocol, the Federal government Troubled stimulus successfully negotiated a 108% emission target In February 2009, the Australian government from 1990 levels to 2008-12. However, Australia unveiled its AUD42bn (USD27bn) Nation then refused to ratify the Protocol, a position that Building and Jobs Plan. Initially rejected in the was reversed in December 2007 when the new Senate, the revised plan will create a cAUD22.5bn Rudd Administration came into office. The lack deficit in the year ending 30 June, the first of assertive policy frameworks over the past shortfall in seven years. The stimulus package decade has meant that Australia’s emissions grew plans to distribute AUD12.7bn in cash to families by approximately 35% between 1990 and 2004 and low-income earners and spend AUD28.8bn and are projected to rise 50% above 1990 levels on schools, roads, hospitals and energy efficiency. by 201010. Australia has now set itself a long-term However, the package does not allocate spending target to reduce GHGs by 60% from 2000 levels to lower carbon power or water management by 2050, with a medium-term target to reduce emissions by between 5% and 15% below 2000 levels by the end of 2020. 10 Australian Government, Analysis and recent trends of greenhouse indicators 1990-2004 11 13
  14. 14. abc Climate Change Global 25 February 2009 Energy efficiency About 9% of the package is dedicated to building efficiency through the provision of free ceiling insulation to around 2.7 million Australian homes, cutting average fuel bills by AUD200 per year. In turn, this measure could cut GHGs by around 49.4tCO2e by 2020, equivalent to taking more than 1 million cars off the road12. The plan has been welcomed by an innovative coalition of environmental, business and labour groups that includes the Australian Institute of Superannuation Trustees, the Australian Green Infrastructure Council and the Property Council of Australia, along with the Australian Conservation Foundation and the Australian Council of Trade Unions. In a statement issued in December, the group highlighted, ‘Super funds stand ready to partner with Government on this agenda, and can provide a significant contribution to the funding requirements around sustainable infrastructure’13. Following the government’s package, the group has called for ‘further green economic stimulus measures at a scale and scope that is comparable to the investments being made in both the USA and China.’14 12 2009/008.htm 13 20081202.pdf 14 SCCCPlus_EconomicStimulus9Feb09.pdf 14
  15. 15. abc Climate Change Global 25 February 2009 China realisation that it has recently overtaken the USA as the world’s largest emitter of greenhouse gases. Economic backdrop Although China’s contribution remains low by China’s Q4 2008 GDP dropped sharply to a historical and per capita stands, its emissions’ seven-year low of 6.8% y-o-y from 9% y-o-y in trajectory remains on an upward curve. The IEA Q3 2008. HSBC expects growth to slow to 7.8% estimates that China’s energy-related CO2 in 2009 ─ the lowest in nine years ─ before emissions rose by more than 250% between 1990 bouncing back to around 9% in 2010. and 2006 to 5.65GtCO215. Under the IEA’s “business as usual” scenario, China’s emissions China’s Real GDP growth (%) may double again by 2030 to 11.71GtCO2, which 14.0 would be twice the level of the USA. 12.0 China’s CO2 emissions (mtCO2) 10.0 8.0 8000 7000 6.0 6000 4.0 5000 2.0 4000 0.0 3000 2005 2006 2007 2008 2009e 2010e 2000 1000 Source: IMF World Economic Outlook Database, October 2008; HSBC estimates 0 1990 1993 1996 1999 2002 2005 2010 Climate change profile China has demonstrated a rapidly growing Source: Netherlands Environmental Assessment Agency; International Energy Outlook 2008 commitment to climate change. In 2007, it China’s emerging “high-growth, low-carbon” published its National Climate Change strategy is underscored by recent policy decisions: Programme (CNCCP), followed in October 2008 with its first White Paper. Improving energy China lifted export tax rebates on labour- efficiency remains at the core. The target within intensive and high value-added products four the current 11th Five Year Plan is to cut energy times in H2 2008 but kept export rebates on use per unit of GDP by 20% from 2005 levels by energy-intensive and polluting products unchanged. 2010. China has already reduced energy intensity by 1.6% in 2006 and 3.7% in 2007 and is China raised fuel consumption tax on gasoline expected by the US Energy Information Agency five-fold to RMB1 from RMB0.2 per litre and to hit the 20% target on schedule. China is also the tax on diesel eight-fold to RMB0.8 from expanding its renewable sector rapidly. In 2008, RMB0.1 per litre. China doubled its installed wind capacity, making China has initiated not just the largest it the world’s second-largest market for new wind stimulus package to date, but also the plan installations after the USA. We expect China to be with the largest amount dedicated to climate the world’s biggest market for wind in 2009. change themes. China’s policy position rests on growing awareness of the country’s vulnerability to the mounting impacts of global warming and the 15 IEA, World Energy Outlook 2008 15
  16. 16. abc Climate Change Global 25 February 2009 China’s stimulus package carbon power such as renewables. Industry sources expect the wind sector to ‘nearly double China’s tradition of long-term planning enabled it again’ in 2009, according to the Chinese to respond rapidly to the worsening economic Renewable Energy Industry Association16. climate by bringing forward construction work on planned projects. Launched on 9 November 2008, Energy efficiency & energy management China’s stimulus package of RMB4trn Low-carbon vehicles: Apart from the RMB4trn (USD586bn) over two years is equivalent to stimulus package, China also issued a plan for 13.4% of 2008e nominal GDP. Since then, its auto sector in January 2009. This included a provincial governments have been racing to cut in the sales tax from 10% to 5% for cars produce their own investment plans that together with engines smaller than 1.6 litres. In addition, total over RMB10trn. Not all of the planned the package promises RMB10bn (USD1.5bn) in investment will be new spending, but HSBC subsidies over the next three years for estimates that at least 30-40% of the central automakers to develop alternative-energy government’s RMB4trn plan will be new money, vehicles as Beijing wishes to promote the mass implying an annual stimulus of 2-4% of GDP in production of electric cars for urban areas. 2009 and 2010. Rail: China is aiming to spend RMB1trn on The plan is focused on boosting investment in expanding inter-province trunk railway lines. railways, roads, public housing and rural RMB50bn was spent in December 2008, with a infrastructure as well as environmental protection. target of completing RMB600bn of investments Beijing also promised to increase subsidies for by the end of 2009. Between 2009 and 2010, the farmers and cut taxes. Winter is normally a slow aim is to complete the construction of 16,000km season for construction and we expect the bulk of of lines, covering mainly passenger services. the new spending to filter through starting in Q2 This extra investment builds on the upward 2009 (see Qu Hongbin, China’s New Deal, curve of rail investment from RMB252bn in December 2008). The priorities of the plan are 2007 to RMB350bn in 2008. Overall investment also aligned to the long-term development of a in railways by 2020 is set at RMB5trn, a big low-carbon economy, most notably for rail. jump from the last target set in 2005 of only RMB1.5trn (see Ken Ho, Elaine Lam and Low-carbon power Khushbu Agarwal, China Infrastructure Currently, there is limited visibility over how the Construction, 22 January 2009). plan will underpin further expansion of low- Grids: More flexible and sophisticated grid Stimulus package breakdown (RMB4trn) infrastructure enables greater use of renewable energy sources and helps cuts Env iro Grid transmission losses. China has committed 8% 25% Housing RMB1.1trn to expand power lines and build 20% out transmission over 2009-11, of which we expect RMB0.5trn in 2009-10.17 Airport Ports 9% 2% Highw ay Rail 16 GWEC, US and China in race to the top of the global wind industry, 2 14% 22% February 2009 17 WRI, Green Lining China’s Economic Stimulus Plans, 2008 Source: HSBC, various ministry websites 16
  17. 17. abc Climate Change Global 25 February 2009 Looking forward, we believe that the potential for Waste, water and pollution control As part of the stimulus plan, China has pledged green innovation in China’s economic stimulus RMB350bn (or USD50bn)18 for biological package far exceeds what has been announced to conservation and environmental protection. date. For example, the RMB900bn allocated to Although the broad investment contours are yet to low-income housing could be allocated in ways emerge, China’s Ministry of Environmental that conserve energy use, thereby contributing to Protection has stated that the stimulus will ‘not be the country’s long-term energy efficiency goals. spent in the energy and resource-intensive Encouraging signs are emerging, with the industries or high-pollution industries’. Improved Ministry of Environmental Protection announcing sewage treatment is one of the focal areas of the in January19 that it has granted approval to 153 ports and waterways component of the plan. projects worth RMB470bn as part of the stimulus Two batches of central government stimulus package, including water conservation. The funds worth RMB230bn had been released by national environmental watchdog has also rejected the end of January 2009. We estimate 11 energy-intensive and polluting projects worth approximately 10% of the first and second RMB43.8bn. However, there is also likely to be batches will be spent on environmental projects. pressure from many fronts to cast aside environmental controls, and there are reports20 As the implementation of the plan develops, this could mean important allocations to renewables that environmental impact assessments in China and energy saving in buildings. are being hurried through. Signs of recovery On 5 March, the National People’s Congress will meet, at which the fiscal package could be According to HSBC’s latest economic outlook, expanded further. the signs are already emerging that the stimulus is working (see HSBC, China Economic Spotlight, 22 January 2009). Not only have banks begun to respond positively to the monetary easing, but local governments have also commenced construction of their infrastructure projects. As a result, HSBC estimates that the bulk of the stimulus will filter through starting in Q2, lifting GDP growth to over 8% in H2 2009. The multiplier effect of the stimulus package is likely to be well above 1, probably around 1.5-2 times that of the government-sponsored spending. 19 t20090112_133477.htm 20 18 Sticking-to-a-truly-green-stimulus 17
  18. 18. abc Climate Change Global 25 February 2009 India India's CO2 emissions, 1990-2010 (mtCO2) 1600 Economic backdrop 1400 India’s GDP growth fell to 6.6% in Q3 2008/09, 1200 and the economy is set to slow further to 6.2% in 1000 2009, before recovering to 8% in 2010. 800 600 India’s real GDP growth (%) 400 200 12 0 10 1990 1992 1994 1996 1998 2000 2002 2004 2010 8 Source: CIDAC, HSBC 6 4 One aspect of potential interest is the provision 2 for the Indian Infrastructure Finance Company 0 (IIFCL) to borrow INR300bn (0.6% of GDP) via 2006 2007 2008 2009e 2010e tax-free bonds. This is three times the amount provided for in the 7 December package. The Source: IMF World Economic Outlook Database, October 2008; HSBC estimates entire sum would be leveraged to provide about INR1trn of low-cost resources to projects, mainly Climate change profile in ports, roads and railways. Further details are India is a low-carbon economy, with per capita required to identify the potential for boosting emissions among the lowest in the world. mass transit and other rail systems. Nevertheless, absolute emissions are rising, and in 2008, the government issued its National Action An interim budget was released by the UPA Plan on Climate Change (NAPCC) (see HSBC, government in February, which faces national Wide Spectrum of Choices, 27 November 2008). elections by May 2009. This identified eight priority areas for the country, including improving energy efficiency and boosting solar power. Economic stimulus India has announced two general stimulus packages so far, both with a very limited climate dimension. In December, the Central Bank cut interest rates and the government eased its fiscal policy. HSBC estimates the measures to be worth a maximum of INR400bn (0.7% of GDP), of which around INR300bn (0.5% of GDP) will show up in the budget deficit. The second package to boost liquidity and economic activity was released in January, with further rate cuts, reinforcing liquidity measures and providing modest support to the export, auto and real estate sectors. 18
  19. 19. abc Climate Change Global 25 February 2009 Japan Japan’s GHG emissions, 1990-2010 (MtCO2e) 1400 1400 Economic backdrop 1200 1200 Japan’s economy slowed dramatically in Q4 2008, 1000 1000 and we expect growth to decline by 6.5% in 2009, 800 800 before staging a modest recovery in 2010. 600 600 400 400 Japan’s real GDP growth (%) 200 200 4.0 0 0 1990 1992 1994 1996 1998 2000 2002 2004 2006 2.0 Japan Ky oto Target 0.0 Source: Green House Gas Emission in Japan, Kiko Network, May 2008, IEA 2008, HSBC -2.0 -4.0 Japan’s Ministry of Economy aims to expand this -6.0 to JPY24bn in FY2009. -8.0 A green stimulus in the making? 2006 2007 2008 2009e 2010e In December 2008, the Japanese government announced its JPY43trn (cUSD486bn) package of Source: IMF World Economic Outlook Database, October 2008; HSBC estimates Measures to Support People’s Daily Lives. The Climate change profile package focuses mainly on creating jobs and Home to the Kyoto Protocol, Japan has stabilising financial markets, with very limited historically had an energy-efficient and low- stimulus for climate-related investments. Tax cuts carbon economy. However, the country has found of JPY1.1trn (USD12.2bn) include the immediate it difficult to curb its GHGs over the past decade. depreciation of investment in energy-saving and Recently, the extended shutdown of some nuclear new energy equipment, but the actual proportion remains unclear21. plants meant that Japan’s GHG emissions rose 2.3% to hit a record high in the year ended March The Japan Ministry of the Environment is, however, 2008, 8.7% above the country’s Kyoto base year. in the process of formulating a “Green Economy and In June 2008, Japan presented its proposals for a Social Reform” plan, which would, in effect, be the Low Carbon Economy, indicating a commitment country’s dedicated Green New Deal. to a global cap of 50% by 2050, with Japan itself The plan is scheduled for release in March, and is reducing emissions by 60-80%. The country’s likely to focus on: climate advisory panel has recently published six Solar PV scenarios for cutting GHGs in the medium term by 2020, with a final proposal expected in April. Hybrid vehicles Initially a pioneer on solar energy, new PV Energy-efficient appliances installations peaked in 2005, when subsidies were However, political uncertainty and a possible removed. The country remains committed, dissolution of the Diet (Japanese parliament) in however, to a 10-fold expansion of solar PV by April could interrupt the schedule; a general 2020 and a 40-fold expansion by 2030. In the election is required at the latest by September. current financial year, the government has earmarked just JPY9bn (USD92m) for installing solar panels for households up to March 2009. 21 19
  20. 20. abc Climate Change Global 25 February 2009 South Korea South Korea’s CO2 emissions, 1990-2010 (mtCO2) 600 Economic backdrop 500 Korea suffered its second-biggest contraction on record in Q4 2008, pushing the economy towards 400 its first recession since the Asian financial crisis. 300 HSBC forecasts that growth will decline by 3.2% 200 in 2009 before rebounding to 4% in 2010. 100 South Korea’s real GDP growth (%) 0 1990 1992 1994 1996 1998 2000 2002 2004 2010 6.0 Source: CIDAC, IEA, HSBC 4.0 The greenest new deal? 2.0 On 19 January 2009, South Korea launched its 0.0 Green New Job Creation Plan, a KRW50trn (USD36bn) package to be spent over the next four -2.0 years. The plan essentially combines and -4.0 streamlines a range of projects across different 2005 2006 2007 2008 2009e 2010e ministries, and aims to create 960,000 jobs, of Source: IMF World Economic Outlook Database, October 2008; HSBC estimates which 149,000 jobs will be realised in 2009, mainly in construction. The plan has nine core Climate change profile projects organised in four main themes: South Korea is the world’s 10th largest emitter of Conservation: green cars, clean energy GHGs. But under the rules of the UNFCCC, it is still classified as a developing country and so does not and recycling yet have binding emission caps. Nonetheless, the Quality of life: green neighbourhoods Ministry of the Environment has tabled plans to cap and housing emissions at 2005 levels over the first Kyoto period (2008-12). South Korea also piloted the world’s first Environmental protection: revitalising four system for labelling carbon through the product major rivers and securing water resources lifecycle in 2008. The government is planning to Preparing for the future: IT infrastructure and pass a Climate Change Act this year which will green transport networks include a plan for reducing emissions by 3.2% from 2005 levels by 2012. Korea also plans to announce a We estimate that more than 80% of the plan is medium-term carbon target for 2020 this year.22 allocated to climate-related investment themes. The government also plans to expand usage of We estimate, the proposed spending in 2009 renewable energy from 2.3% in 2006 to 5% in (KRW6.2trn) under this Green New Deal would 2011 and 11% in 203023, which includes specific be would cost less than 1% of Korea’s GDP in targets for various renewable energy technologies 2009 and the total stimulus is expected to amount like solar, wind and biodiesel. to 3.5% of 2009 GDP. Low-carbon power South Korea has committed to achieve 5% of 22 energy from renewables by 2011. To move 23 20