Peter Schwartz<br />July 23, 2009<br />
SHORT TERM SHOCKS<br />
The global financial system went thru a shock and appears to have stabilized<br />The TED Spread Through the Financial Cri...
Fed and European Central banks coordinate emergency rate cut
Dow Jones has worst week in its 112 year history</li></ul>Oct. 13, 2008<br /><ul><li>US Financial institutions accept $250...
European governments put hundreds of billions of dollars into banks</li></ul>Aug. 17, 2007Fed cuts the rate it lends to ba...
AIG is rescued
money market stress leads to further liquidity interventions by the Fed</li></ul>July 31, 2007Two Bear Stearns hedge funds...
What appeared as a mini-crisis in U.S. subprime housing… <br />Percentage of U.S. Delinquent Mortgages by Mortgage Type, 1...
World Stock Market Capitalization, US$ Tr<br />Source:   World Federation of Exchanges<br />Grew into a worldwide systemic...
What happened? Explosive growth in financial,  facilitated by an expansive shadow banking system…<br />Total hedge fund as...
Speculative units: Cash flows can meet interest payments only
Ponzi units: Cash flows are insufficient to cover the repayment of either principal or interest
Credit grows rapidly, with shadow banking system in the lead
Asset prices – houses, buyout valuations , etc. – inflate</li></ul>Source:   World Federation of Exchanges, Hennessee Grou...
Now the great deleveraging is underway<br />Collateralized loan obligation issuance, in $USbn<br />August 2007<br />2008 -...
Credit growth reverses (flow) and deleveraging begins with fire sales of existing assets (stock).
Monetary authorities try to reflate the economy by stepping into credit provision and low interest rates </li></ul>Source:...
The decline appears to be easing<br />Source: bea.gov  <br />
Boosted by unprecedented levels of economic stimulus<br /><ul><li>Size of stimulus packages
Percentage of GDP</li></ul>1,124<br />Saudi Arabia<br />China<br />1,008<br />Malaysia<br />Mexico<br />United States<br /...
a<br />… and robustness in developing economies<br />…but from a relatively small base<br />Developing nations still growi...
Commodity prices are up, in part in anticipation of future growth<br />World Natural Resource Prices, 2007-2009<br />Food ...
More shocks quite plausible<br />Housing Market<br />Economic Conditions<br />Financial System<br /><ul><li>More interdepe...
Unexpected further debt write downs
$ deflation or hyperinflaiton
National debt levels proof to be unsustainable
Prolonged high unemployment in US / EU
Effectiveness of auto bail-outs
Sudden commodity price hike squashing  recovery
Effectiveness of stimulus
Further drop  in U.S. housing prices below trendline
Rapid drop of other asset classes; Commercial real estate, credit cards</li></ul>External Factors<br />
At best half of estimated financial sector losses have been realized, how that does happen will be crucial <br />Total los...
US home prices have further to fall<br />US Months Supply<br />12<br />11<br />10<br />US Existing Home Sales<br />US Home...
US job losses continue to outpace recent recessions, can Europe continue to cushion the blow?<br />US Unemployment rate co...
Globalization has suffered a set-back<br />Monthly World Trade Volumes<br />“Trade volumes have fallen much faster than in...
Significant financial reregulation policy initiatives<br />EU Ideas<br />US Ideas<br />Systemic risk<br /><ul><li>Fed with...
Creation of a systemic risk council to provide oversight</li></ul>Bank capital<br /><ul><li>Wondering whether to run stres...
Higher capital requirement and tighter international regulation</li></ul>Consumer protection<br /><ul><li>Creation of cons...
Stricter rules of custodians of retail investment funds</li></ul>OTC derivatives<br /><ul><li>Considering letting “standar...
Expected changes broadly in line with Washington</li></ul>Hedge funds<br /><ul><li>Require managers to register with the SEC
Considering imposing strict new disclosure rules</li></ul>Source:  Financial Times<br />
Not necessarily with the appropriate level of international alignment<br />
New financial scenarios for the next 2-3 years<br />No more shocks<br />Scenario 1:<br />Looking after No. 1<br />Scenario...
Other possible short term shocks<br />Pandemic<br />Food shock<br />Terrorist attack<br />Cyber attack<br />Geo-political ...
Food shocksThe world population is growing rapidly<br />…UN median projection is 9.2  billion people by 2050, from 6.7 bil...
Food shocks…our diets change as we get richer<br />Meat consumption and per capita income, 2002<br />Calories consumed per...
Food shocksNumber of food crises rising globally<br />
Cyber attackInternet security is increasingly threatened<br />124countries use the Internet for web espionage operations<b...
Climate change will remain a dominant issue<br />
,<br />Recent observations suggest greater climate sensitivity than IPCC projections<br />Arctic sea ice (annual minimum)<...
Arctic sea ice coverage decreased an unprecedented 2 million km2 in 2007</li></ul>Source:, U of Copenhagen, Climate Change...
The Climate Will Be increasingly Variable and Extreme<br />
Water will be the key factor<br />Water problems could affect up to 250 million people in Africa by 2020 and more than one...
Water for food: how much does it take?<br />1,650 – 2,200 liters of water<br />1 kilo of soybeans<br />50,000 – 100,000 li...
%<br />Developing world has surpassed the developed world in CO2 emissions…and is growing rapidly<br />CO2 Emissions from ...
BAU means carbon lock-in<br />
a<br />Copenhagen– “Mitigation Agreement” on long term objective but misalignment on short term path<br />International al...
,<br />Cap and trade compromise winds its way through US Congress<br /><ul><li>US Domestic CO2 emissions – American Clean ...
China recognizes the climate change threat and has taken action in the last 2 to 3 years<br /><ul><li>Renewable electricit...
Goal is to generate 10 percent of its electricity renewably by 2010, and 15 percent by 2020
Emission cuts
Planning to reduce GDP energy intensity by 20 percent below 2005 levels by 2010, the effort has fallen behind schedule
Investments in energy technology
Invested $12 billion in renewable energy in 2007, second only to Germany
In addition to the already approved $221bn cleantech stimulus, rumored to unveil additional spending ($440bn - $660bn) ded...
Energy-efficiency initiatives
Accounted for 2/3rd of world demand – 40 million units - for solar-water heaters in
Transportation
Plans to spend more than $1 trillion to expand its railway network by 50% by 2020
Fuel economy standard of 36.7 miles per gallon and is considering raising it to 42.2 mpg by 2015</li></ul>Source: Center f...
The next scientific revolution<br />More Scientific Anomalies<br />New Tools & Computing Power<br />More Funding<br />More...
100<br />10<br />1<br />0.1<br />0.01<br />The great leap in biology…new human biology<br />Cost per Base of Sequencing an...
The great leap in biology… synthetic biology and regenerative medicine<br />Regenerative Medicine<br />Synthetic Biology<b...
Interesting Problems: Intellectual Challenges <br />Dark Energy<br />Complexity<br />Meaning of DNA<br />The Brain, etc.<b...
NRC Report on Grand Challenges<br />
The frontiers of information technology<br /><ul><li>Very hard problems inaccessible to conventional computer
Factoring machine image and signal processing
Drug design—”very large molecules”
Medical tools
All optical computing
Extreme bandwidth communication
Souped-up laptops, PDAs
Totally new computer paradigms</li></ul>APPLICATIONS<br /><ul><li>New architecture for computer storage/logic combined “O”...
Molecular structure~100 Qubits—condensed matter physics
Quantum strategy-coordinator games —”2bit Qubit” (1-3 Qubits)
Repeater long distance  (3 Qubits)
QKD—superposition
Write nanoscale lithographic lines
Sense single molecules
All Optical transistor</li></ul>TECHNOLOGY<br /><ul><li>New forms of semiconductor/magnetic storage</li></ul>Nanophotonics...
Plasmonics—Optical frequencies with X-ray wavelengths - match wavelength to device size on silicon
Scaling magnetic bits to dimensions less than 30 nanometers
Use magnetic domain walls for very high density magnetic storage
Utilizing novel properties of spin momentum transfer to generate microwave sources of electromagnetic radiation 10’s to 10...
Coherence and entanglement purification
High fidelity Qubits—99.99% visibility
Robust Qubits</li></ul>SCIENCE<br />TIME<br />
Geo-engineeringBroad range of ideas have been created so far<br />HOT<br />TOPIC!<br />HOT<br />TOPIC!<br />Ocean Seeding<...
Geo-engineeringSunlight control<br />Sulfur Injection<br />Venetian Space Blinds<br />HOT<br />TOPIC!<br />Cost: USD 5 tri...
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2009 Inevitable Surprises

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Presentation delivered by Peter Schwartz to IE Singapore's senior management on 23 July 2009

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  • “SOFT” INTRODUCTIONThe global financial systems appears to have stabilized after having been very close to the brinkThere is a new normal with a structurally higher premium for risk in developed marketsFor developing countries, the new normal is less clear since risk premiums were also high a decade ago on the tail end of the currency crisis and the market is less liquid as a whole
  • Three distinct income-debt relations for economic units, which are labeled as hedge, speculative, and Ponzi finance, can be identified. Hedge financing units are those which can fulfill all of their contractual payment obligations by their cash flows: the greater the weight of equity financing in the liability structure, the greater the likelihood that the unit is a hedge financing unit. Speculative finance units are units that can meet their payment commitments on ‘income account’ on their liabilities, even as they cannot repay the principal out of income cash flows. Such units need to ‘roll over’ their liabilities (e.g., issue new debt to meet commitments on maturing debt).…For Ponzi units, the cash flows from operations are not sufficient to fulfill either the repayment of principal or the interest due on outstanding debts by their cash flows from operations. Such units can sell assets or borrow. Borrowing to pay interest or selling assets to pay interest (and even dividends) on common stock lowers the equity of a unit, even as it increases liabilities and the prior commitment of future incomes.…It can be shown that if hedge financing dominates, then the economy may well be an equilibrium-seeking and -containing system. In contrast, the greater the weight of speculative and Ponzi finance, the greater the likelihood that the economy is a deviation-amplifying system. The first theorem of the financial instability hypothesis is that the economy has financing regimes under which it is stable, and financing regimes in which it is unstable. The second theorem of the financial instability hypothesis is that over periods of prolonged prosperity, the economy transits from financial relations that make for a stable system to financial relations that make for an unstable system.In particular, over a protracted period of good times, capitalist economies tend to move from a financial structure dominated by hedge finance units to a structure in which there is large weight to units engaged in speculative and Ponzi finance. Furthermore, if an economy with a sizeable body of speculative financial units is in an inflationary state, and the authorities attempt to exorcise inflation by monetary constraint, then speculative units will become Ponzi units and the net worth of previously Ponzi units will quickly evaporate. Consequently, units with cash flow shortfalls will be forced to try to make position by selling out position. This is likely to lead to a collapse of asset values.”
  • The rate of economic decline is slowingThis is in line with recent IMF statements:““The recovery is coming,” said Olivier Blanchard, IMF chief economist. But he cautioned “it is likely to be a weak recovery” and said policy-makers needed to guard against ongoing economic and financial risks”“The IMF now forecasts global growth of 2.5 per cent next year, up from 1.9 per cent in April, led by strong growth in China and India, a rebound in Japan and positive but sub-trend growth in the US. It upgraded its forecasts for Europe too, but still expects the eurozone to contract 0.3 per cent next year, with Germany declining 0.6 per cent.The Fund inched down its forecast for global growth this year to minus 1.4 per cent.”
  • POSSIBLE QUESTIONS FOR VOICE OVER:Definition of Stimulus – as used by HSBC – is additional programs dedicated to economic recovery. Some Mena government are spending more to stimulate economy but that’s not labeled Stimulus
  • A significant number of assets on balance sheets are still overvaluedThis is a key uncertainty and possible source of future shocksIf Goldman Sachs is right the banking system may be able to absorb these further writedowns with recapitalization and future retained earningsIf Roubini is right, further losses may exceed the capacity to cope -> further shock Latest statement by IMF in FT (07/07/09) when adjusting guidance for 2010 upwards:“The IMF did not update its estimates for losses facing banks. However, José Viñals, IMF financial counsellor, said it would be reasonable to guess that the figures would end up being lowered. He said markdowns on securities “would be likely to be somewhat better now” following the improvements in financial markets”
  • Liquidity is picking up but conventional wisdom is that prices have at least another 10% to dropWill the prices overshoot the trend line is another critical uncertaintyIf they do’ we’re in for another shock
  • US job losses are outpacing previous recessions.Two weeks ago was a disappointing jobs report, anotherJob losses have been relatively contained in Europe to date due to active policies like furlows, labor time reduction, etc but if the recession last longer the blow may still come (reference to economist article 06/20/09)
  • It is more likely than not that we’ll see more shocks, given all the uncertainties with regards to (a) unrecognized losses on the bank’s balance sheets, (b) bottom of the housing market (c) level and new role of speculation (d) other, yet undiscovered, financial interdependencies and liabilities (e) possibility of other shocks (food, pandemic, geo-political,…)The jury is out with regards to globalization, although there have been few outright protectionist measures there has definitely been (a) a protectionist slant to stimulus measures (b) a precipitous drop in trade and (c) the process of coordinated new regulation appears to be stalling
  • Note: A PUP (potentially unwanted program) includes spyware, adware, and dialers.Source: 2008 McAfee Virtual Criminology Report
  • Note: The range of numbers represents variations of the environment, harvesting method, and methods of water delivery
  • Chart on left:U.S. long-term securities include U.S. Treasury and Government agency bonds and notes, and U.S. corporate bonds and stocks as reportedto the Treasury International Capital (TIC) reporting system. Europe does not include the United Kingdom.Asia includes: China Mainland; Hong Kong; India; Indonesia; Japan; South Korea; Malaysia; Philippines; Singapore; Taiwan; Thailand
  • 2009 Inevitable Surprises

    1. 1. Peter Schwartz<br />July 23, 2009<br />
    2. 2. SHORT TERM SHOCKS<br />
    3. 3. The global financial system went thru a shock and appears to have stabilized<br />The TED Spread Through the Financial Crisis<br />Oct. 6-11, 2008<br /><ul><li>Fed will buy debt to fund operations of banks and ordinary businesses
    4. 4. Fed and European Central banks coordinate emergency rate cut
    5. 5. Dow Jones has worst week in its 112 year history</li></ul>Oct. 13, 2008<br /><ul><li>US Financial institutions accept $250bn direct equity investment from TARP
    6. 6. European governments put hundreds of billions of dollars into banks</li></ul>Aug. 17, 2007Fed cuts the rate it lends to banks the so-called discount rate to 5.75%<br />Oct.3, 2008The US House of Representatives approves the $700bn economic rescue package<br />Feb. 7, 2007HSBC says it set aside $10.6bn for bad loans, including subprime<br />Dec,12, 2008The White House says it will consider tapping TARP funds to aid the automakers. <br />Oct. 24, 2007Merrill Lynch announces $7.9bn in subprime write downs for the third quarter, eclipsing Citi’s $6.5bn<br />Sep. 15-17, 2008<br /><ul><li>Lehman Bros. goes bankrupt
    7. 7. AIG is rescued
    8. 8. money market stress leads to further liquidity interventions by the Fed</li></ul>July 31, 2007Two Bear Stearns hedge funds file for bankruptcy<br />Dec,17, 2008Fed cuts rate to virtually zero<br />Elevated risk premium, what is the new normal?<br />80 bps<br />Mar. 16, 2008JPMorgan offers to buy Bear for $2 a share; discount rate cut to 3.25%<br />Mar. 11, 2008Fed agrees to lend troubled banks as much as $200bn<br />Note: The TED spread is calculated as the difference between the 3-month T-bill interest rate and 3-month USD LIBOR<br />Source: British Banking Association, Federal Reserve, Businessweek, washingtonpost.com, Monitor analysis<br />
    9. 9. What appeared as a mini-crisis in U.S. subprime housing… <br />Percentage of U.S. Delinquent Mortgages by Mortgage Type, 1998-2007 <br />
    10. 10. World Stock Market Capitalization, US$ Tr<br />Source: World Federation of Exchanges<br />Grew into a worldwide systemic crisis<br />
    11. 11. What happened? Explosive growth in financial, facilitated by an expansive shadow banking system…<br />Total hedge fund assets, in US$ trillions<br />August 2007<br />2003-2007<br />Forward<br />Minsky Journey<br />Quality of loans made<br />Open interest in crude oil futures & futures-equivalent options, in millions<br /><ul><li>Hedge units: Cash flows of the borrower are sufficient to repay principal and interest on the loan
    12. 12. Speculative units: Cash flows can meet interest payments only
    13. 13. Ponzi units: Cash flows are insufficient to cover the repayment of either principal or interest
    14. 14. Credit grows rapidly, with shadow banking system in the lead
    15. 15. Asset prices – houses, buyout valuations , etc. – inflate</li></ul>Source: World Federation of Exchanges, Hennessee Group, Commodity Futures Trading Commission, Pimco<br />
    16. 16. Now the great deleveraging is underway<br />Collateralized loan obligation issuance, in $USbn<br />August 2007<br />2008 - ?<br />Reverse<br />Minsky Journey<br />August 2007<br />2008 - ?<br />Reverse<br />Minsky Journey<br />Reflation<br />Asset backed securitized loan issuance<br /><ul><li>Inflated asset prices become clearer and values decline
    17. 17. Credit growth reverses (flow) and deleveraging begins with fire sales of existing assets (stock).
    18. 18. Monetary authorities try to reflate the economy by stepping into credit provision and low interest rates </li></ul>Source: Pimco, J.P. Morgan<br />
    19. 19. The decline appears to be easing<br />Source: bea.gov <br />
    20. 20. Boosted by unprecedented levels of economic stimulus<br /><ul><li>Size of stimulus packages
    21. 21. Percentage of GDP</li></ul>1,124<br />Saudi Arabia<br />China<br />1,008<br />Malaysia<br />Mexico<br />United States<br />China<br />New Zealand<br /><ul><li>US$ Bn</li></ul>Hungary<br />Phillipines<br />634<br />Argentina<br />US<br />Australia<br />Germany<br />Other<br />EU<br />Thailand<br />Chile<br />Japan<br />Canada<br />Germany<br />Japan<br />Italy<br />United Kingdom<br />South Africa<br />Indonesia<br />Asia<br />Europe<br />Americas<br />5% of annual world GDP will be injected over the next few years as economic stimulus<br />Note: What constitutes additional stimulus vs regular budget spending is defined differently by various studies<br />Source: HSBC global research, International Institute of labor studies <br />
    22. 22. a<br />… and robustness in developing economies<br />…but from a relatively small base<br />Developing nations still growing in 2009<br />Contribution to Global GDP growth, PPP Basis (3year moving averages)<br />4<br /><ul><li>US$ Bn</li></ul>2<br />0<br />1970<br />2000<br />2010<br />1990<br />1980<br />Rest of the world<br />China<br />United States<br />Other advanced economies<br />US<br />India<br />China<br />Japan<br />EU<br />Gross Fixed Capital Formation<br />Private Consumption (2008 GDP component)<br />Source: imf.org, CEIC, SCB Global Research<br />
    23. 23. Commodity prices are up, in part in anticipation of future growth<br />World Natural Resource Prices, 2007-2009<br />Food Price Index (2000-2002 = 100)<br />Oil Price, $ per barrel<br />FAO Food Price Index<br />Oil Price<br />Jul-09<br />Source: U.N. Food and Agriculture Organization, U.S. Energy Information Agency<br />
    24. 24. More shocks quite plausible<br />Housing Market<br />Economic Conditions<br />Financial System<br /><ul><li>More interdependencies emerge and unravel
    25. 25. Unexpected further debt write downs
    26. 26. $ deflation or hyperinflaiton
    27. 27. National debt levels proof to be unsustainable
    28. 28. Prolonged high unemployment in US / EU
    29. 29. Effectiveness of auto bail-outs
    30. 30. Sudden commodity price hike squashing recovery
    31. 31. Effectiveness of stimulus
    32. 32. Further drop in U.S. housing prices below trendline
    33. 33. Rapid drop of other asset classes; Commercial real estate, credit cards</li></ul>External Factors<br />
    34. 34. At best half of estimated financial sector losses have been realized, how that does happen will be crucial <br />Total loss forecasts<br />Realized losses to date<br />3.5x<br />2x<br />Source: Goldman Sachs, IMF, RGE Monitor, Bloomberg Finance L.P, T2 Partners <br />
    35. 35. US home prices have further to fall<br />US Months Supply<br />12<br />11<br />10<br />US Existing Home Sales<br />US Home prices need to fall another 13% to reach trend line<br />9<br />7.5<br />8<br />Million<br />7<br />220<br />7<br />6.5<br />6<br />200<br />5<br />6<br />Million<br />4<br />180<br />5.5<br />3<br />1999<br />2004<br />2009<br />5.0<br />Real Home Price Index (1990=100)<br />160<br />445<br />140<br />4.0<br />1999<br />2004<br />2009<br />120<br />100<br />1950<br />1970<br />1990<br />2009<br />Source: www.econ.yale.edu/~shiller/data<br />
    36. 36. US job losses continue to outpace recent recessions, can Europe continue to cushion the blow?<br />US Unemployment rate compared to other recessions<br />US vs EU-27 Unemployment<br />1974-6<br />EU-27<br />9.5% in June<br />1980<br />US<br />1981-3<br />1990<br />2001<br />2007-present<br />Unemployment Rate (index 1=peak employment before recession)<br />Unemployment Rate (index Nov 2007)<br />7/1/08<br />1/1/09<br />1/1/08<br />7/1/09<br />Quarter after employment peak<br />Source: Bureau of Labor Statistics, bea.gov <br />
    37. 37. Globalization has suffered a set-back<br />Monthly World Trade Volumes<br />“Trade volumes have fallen much faster than in the Great Depression and it’s unclear exactly why”<br />World Trade<br />World Trade Volumes (2000 average = 100)<br />2009<br />2008<br />2007<br />2006<br />2005<br />2004<br />2003<br />2002<br />2001<br />2000<br />Source: Netherlands Bureau for Economic Policy Analysis, Findata<br />
    38. 38. Significant financial reregulation policy initiatives<br />EU Ideas<br />US Ideas<br />Systemic risk<br /><ul><li>Fed with an oversight board monitors large interconnected financial institutions
    39. 39. Creation of a systemic risk council to provide oversight</li></ul>Bank capital<br /><ul><li>Wondering whether to run stress tests similar to the US
    40. 40. Higher capital requirement and tighter international regulation</li></ul>Consumer protection<br /><ul><li>Creation of consumer financial protection agency
    41. 41. Stricter rules of custodians of retail investment funds</li></ul>OTC derivatives<br /><ul><li>Considering letting “standardized” OTC contracts go through clearing house
    42. 42. Expected changes broadly in line with Washington</li></ul>Hedge funds<br /><ul><li>Require managers to register with the SEC
    43. 43. Considering imposing strict new disclosure rules</li></ul>Source: Financial Times<br />
    44. 44. Not necessarily with the appropriate level of international alignment<br />
    45. 45. New financial scenarios for the next 2-3 years<br />No more shocks<br />Scenario 1:<br />Looking after No. 1<br />Scenario 2:<br />The Long Boom 2.0<br />De-globalization<br />Facilitation of globalization<br />Scenario 3:<br />Depressionary<br />Scenario 4:<br />All in this Together<br />More Shocks<br />
    46. 46. Other possible short term shocks<br />Pandemic<br />Food shock<br />Terrorist attack<br />Cyber attack<br />Geo-political tension<br />Explosive clean energy growth<br />
    47. 47. Food shocksThe world population is growing rapidly<br />…UN median projection is 9.2 billion people by 2050, from 6.7 billion now<br />Global Population, 1750 - 2050<br />Estimates and projections (billions)<br />8<br />6<br />4<br />2<br />Developed nations<br />Developing nations<br />0<br />2000<br />2050<br />1900<br />1800<br />1750<br />We are one of the few generations to witness a doubling of population in our lifetime <br />Source: UN population division<br />
    48. 48. Food shocks…our diets change as we get richer<br />Meat consumption and per capita income, 2002<br />Calories consumed per day, 1965 – 2030<br />kg<br />120<br />2500<br />Highest growth<br />80<br />2000<br />40<br />1500<br />1000<br />40k<br />30k<br />20k<br />10k<br />0<br />2002 US$ Purchase power parity<br />Americans eat 2.5 times as much meat as the average Chinese person<br />500<br />0<br />1965<br />1998<br />2030<br />Source: FAO 2008, FAOSTAT 2009, World bank 2006<br />
    49. 49. Food shocksNumber of food crises rising globally<br />
    50. 50. Cyber attackInternet security is increasingly threatened<br />124countries use the Internet for web espionage operations<br />Source: 2007 McAfee Criminality Report<br />
    51. 51.
    52. 52. Climate change will remain a dominant issue<br />
    53. 53. ,<br />Recent observations suggest greater climate sensitivity than IPCC projections<br />Arctic sea ice (annual minimum)<br />Global sea level change (cm)<br />1979<br />Recent observations<br />Observed long term trend<br />2007<br />IPCC envelope<br />1970<br />1980<br />2000<br />2009<br />1990<br /><ul><li>Sea level rise of 3.1 mm/yr, could rise 1m (+-0.5m) by 2100, double IPCC projections
    54. 54. Arctic sea ice coverage decreased an unprecedented 2 million km2 in 2007</li></ul>Source:, U of Copenhagen, Climate Change, Global Risks, Challenges and Decisions; NSTC, Global Climate Change, Impacts in the US<br />
    55. 55. The Climate Will Be increasingly Variable and Extreme<br />
    56. 56. Water will be the key factor<br />Water problems could affect up to 250 million people in Africa by 2020 and more than one billion people in Asia by 2050.<br />Tibetan Plateau Water System<br />Source: Center for environmental systems research, University of Kassel<br />
    57. 57. Water for food: how much does it take?<br />1,650 – 2,200 liters of water<br />1 kilo of soybeans<br />50,000 – 100,000 liters of water<br />1 kilo of grain-fed beef<br />170,000 liters of water<br />1 kilo of clean wool<br />Source: Commonwealth Scientific and Industrial Research Organization<br />
    58. 58. %<br />Developing world has surpassed the developed world in CO2 emissions…and is growing rapidly<br />CO2 Emissions from hydrocarbon use and cement production by country/region <br />(1990, 2000, 2007, 2008)<br />1990<br />2000<br />+5%<br />2007<br />2008<br />CAGR<br />-3%<br />Annual<br />Emission<br />(Pg1)<br />-2%<br />+2%<br />+7%<br />0%<br />+6%<br />China<br />India<br />Russia<br />Brazil<br />Japan<br />EU15<br />USA<br />1 1012 kg<br />Source: Netherlands Environmental Agency<br />
    59. 59. BAU means carbon lock-in<br />
    60. 60. a<br />Copenhagen– “Mitigation Agreement” on long term objective but misalignment on short term path<br />International alignment to limit warming to 2°C at recent G8 meeting in Italy requires emissions to peak before 2020<br />Difficulty in securing sufficient developed nation reduction commitments and in agreeing on the nature of short term responsibilities for developing nations<br />Communicated 2020 Annex 1 reduction targets (compared to 1990 emissions)<br />Long term global emissions trajectories for energy-related CO2 emissions<br />Long-Term Goal<br />450ppm-eq<br />Baseline<br />400ppm-eq<br />550ppm-eq<br />-4%<br />-5%<br />-8%<br />Gt CO2/yr<br />Probability that warming is contained to 2°C:<br />-20%<br />-25%<br />IPCC target range<br />-30%<br />~15%<br />~50%<br />-40%<br />-40%<br />Considerations<br />Demands<br />~75%<br />Negative Emissions<br />India<br />China<br />Aus. (Joint)<br />Aus.<br />Japan<br />USA<br />EU (Joint)<br />EU<br />Source: Monitor Analysis; solveclimate.com; EPA.gov, LA times, U of Copenhagen, Climate Change, Global Risks, Challenges and Decisions<br />
    61. 61. ,<br />Cap and trade compromise winds its way through US Congress<br /><ul><li>US Domestic CO2 emissions – American Clean Energy and Security (ACES) Act</li></ul>Emissions with ACES Act<br />2005 baseline<br />1990 baseline<br />4% below 1990<br />(17% below 2005)<br />Gigatons CO2<br />Allowed leeway for reducing domestic emission by making maximum use of international offsets, reserves and other “safety valves”<br />83% below 2005<br />2011<br />2050<br />2015<br />2040<br />2025<br />2030<br />2035<br />2020<br />2045<br />Note: The Act will have to approved in the Senate as well and be signed by the president before becoming law<br />Source: Breakthrough.org <br />
    62. 62. China recognizes the climate change threat and has taken action in the last 2 to 3 years<br /><ul><li>Renewable electricity standard
    63. 63. Goal is to generate 10 percent of its electricity renewably by 2010, and 15 percent by 2020
    64. 64. Emission cuts
    65. 65. Planning to reduce GDP energy intensity by 20 percent below 2005 levels by 2010, the effort has fallen behind schedule
    66. 66. Investments in energy technology
    67. 67. Invested $12 billion in renewable energy in 2007, second only to Germany
    68. 68. In addition to the already approved $221bn cleantech stimulus, rumored to unveil additional spending ($440bn - $660bn) dedicated entirely to new energy development over the next decade
    69. 69. Energy-efficiency initiatives
    70. 70. Accounted for 2/3rd of world demand – 40 million units - for solar-water heaters in
    71. 71. Transportation
    72. 72. Plans to spend more than $1 trillion to expand its railway network by 50% by 2020
    73. 73. Fuel economy standard of 36.7 miles per gallon and is considering raising it to 42.2 mpg by 2015</li></ul>Source: Center for American progress, reuters<br />
    74. 74.
    75. 75. The next scientific revolution<br />More Scientific Anomalies<br />New Tools & Computing Power<br />More Funding<br />More Scientists<br />Science Degrees per Capita<br />Note: Natural Science and Engineering Degrees per 100 24 Year Olds<br />
    76. 76. 100<br />10<br />1<br />0.1<br />0.01<br />The great leap in biology…new human biology<br />Cost per Base of Sequencing and Synthesis<br />U.S. Life Expectancy<br />Years, at Death<br />Cost per Base Synthesized (USD)<br />1990<br />1995<br />2000<br />2005<br />2010<br />1985<br />Year<br />Cost per Base Sequenced<br />Cost of Short Aligo Synthesis<br />Cost of Gene Synthesis<br />Source: Robert Carlson<br />Source: UN Data World Population Prospects 2006, medium variant<br />
    77. 77. The great leap in biology… synthetic biology and regenerative medicine<br />Regenerative Medicine<br />Synthetic Biology<br />Human Enhancement<br />
    78. 78. Interesting Problems: Intellectual Challenges <br />Dark Energy<br />Complexity<br />Meaning of DNA<br />The Brain, etc.<br />Human psychology and behavior<br />
    79. 79. NRC Report on Grand Challenges<br />
    80. 80. The frontiers of information technology<br /><ul><li>Very hard problems inaccessible to conventional computer
    81. 81. Factoring machine image and signal processing
    82. 82. Drug design—”very large molecules”
    83. 83. Medical tools
    84. 84. All optical computing
    85. 85. Extreme bandwidth communication
    86. 86. Souped-up laptops, PDAs
    87. 87. Totally new computer paradigms</li></ul>APPLICATIONS<br /><ul><li>New architecture for computer storage/logic combined “O” latency</li></ul>MRAM<br /><ul><li>Megamode fibers—1010 increase in bandwidth
    88. 88. Molecular structure~100 Qubits—condensed matter physics
    89. 89. Quantum strategy-coordinator games —”2bit Qubit” (1-3 Qubits)
    90. 90. Repeater long distance (3 Qubits)
    91. 91. QKD—superposition
    92. 92. Write nanoscale lithographic lines
    93. 93. Sense single molecules
    94. 94. All Optical transistor</li></ul>TECHNOLOGY<br /><ul><li>New forms of semiconductor/magnetic storage</li></ul>Nanophotonics<br /><ul><li>Low loss propagation of light on silicon chip—new dielectric waveguides
    95. 95. Plasmonics—Optical frequencies with X-ray wavelengths - match wavelength to device size on silicon
    96. 96. Scaling magnetic bits to dimensions less than 30 nanometers
    97. 97. Use magnetic domain walls for very high density magnetic storage
    98. 98. Utilizing novel properties of spin momentum transfer to generate microwave sources of electromagnetic radiation 10’s to 100’s of GHz
    99. 99. Coherence and entanglement purification
    100. 100. High fidelity Qubits—99.99% visibility
    101. 101. Robust Qubits</li></ul>SCIENCE<br />TIME<br />
    102. 102. Geo-engineeringBroad range of ideas have been created so far<br />HOT<br />TOPIC!<br />HOT<br />TOPIC!<br />Ocean Seeding<br />Sunlight Control<br />CO2 Level Control<br />Synthetic Trees<br />Sulfur Injection<br />Artificial Cloud<br />Radiation Angle Varier<br />Seawater Alkalization<br />Venetian Space Blinds<br />Recombinant Forest<br />Antarctica Wrapping<br />Non-Methanation Fodder<br />Source: United Nations Environment Program, Wired Vision, Scientific American, Bioenergy News<br />
    103. 103. Geo-engineeringSunlight control<br />Sulfur Injection<br />Venetian Space Blinds<br />HOT<br />TOPIC!<br />Cost: USD 5 trillion<br />Cost: USD 2~3 billion per year<br /><ul><li>Injects SO21 particles into stratosphere to scatter sunlight, preventing from reaching the surface
    104. 104. Reenact volcano eruption of Mt. Pinatubo
    105. 105. Unknowns:
    106. 106. Is ongoing injection of particles feasible?
    107. 107. What are impacts beside scattering sunlight?
    108. 108. Places trillions disk fliers in solar orbit, avoiding tampering with the earth’s atmosphere
    109. 109. Unknowns:
    110. 110. As fixed-satellite, on which part of orbit do we place disks?
    111. 111. How can we collect disks if low or no efficacy vs. additional space debris? </li></ul>1 Sulfur Dioxide<br />Source: United Nations Environment Program, Wired Vision, Scientific American, Time Magazine, Monitor Analysis<br />
    112. 112. Geo-engineeringCO2 level control<br />Alkalized Seawater<br />Ocean Seeding<br />HOT<br />TOPIC!<br />Cost: USD 20 million <br /><ul><li>Fertilize ocean with Fe1 or CO (NO2)22 will generate artificial red tide to consume CO2
    113. 113. CO2 will be trapped inside dead planktons
    114. 114. Unknowns:
    115. 115. Risk of acidizing ocean due to huge amount of CO2 consumption?
    116. 116. Best location - coast line filled with red wave?
    117. 117. Split seawater into NaOH3 (leave in ocean) / HCl4 (store on land)will result seawater becoming more alkaline causing more CO2 dissolution into water
    118. 118. Unknowns:
    119. 119. Effects on marine life or current?</li></ul>1 Iron, 2 Urea, 3 Sodium Hydroxide, 4 Hydrochloric Acid<br />Source: United Nations Environment Program, Wired Vision, Scientific American, Living on Earth<br />
    120. 120.
    121. 121. %<br /><ul><li>1952
    122. 122. 1958
    123. 123. 1988
    124. 124. 1999</li></ul>The rise of Asia is the greatest force at work in the world today…China<br /><ul><li>Composition of China’s Workforce, %</li></ul>Owners of private enterprises<br />Administrative/office/<br />Business/service<br />Technicians/Specialists<br />Manufacturing workers<br />Agricultural workers<br />Un/underemployed<br />Source: “Report on a study of contemporary China’s social state,” January 2002<br />
    125. 125. The rise of Asia is the greatest force at work in the world today… India<br /><ul><li>Indian Population by Income Bracket, Rupee 000’s, 2000 prices</li></ul>&gt;1000<br />500-1000<br />200-500<br />90-200<br />&lt;90<br />Note: Annual Household Income Bracket, Rupees, 000s, 2000 pricesSource: McKinsey Global Institute<br />
    126. 126. The impact of the next two billion middle class consumers… on energy and environment<br /><ul><li>Forecast Annual Global Energy Consumption
    127. 127. Average Annual Growth (%) in CO2 Emissions 2005-2030
    128. 128. High economic growth
    129. 129. Reference</li></ul>Low<br />economic growth<br />Quadrillion Btu<br />Source: 2005-EIA International energy Annual 2005 (June-October 2007); 2030-EIA, World Energy Projections Plus (2008)<br />Source: US EIA<br />
    130. 130. The role of crime and illicit activities<br />Parasitical autonomous zones. Illicit drug, organ, waste, and wildlife trade<br />Taliban<br />Movement for the Emancipation of the Nigerian Delta <br />Hezbollah<br />Sinaloa & Gulf Cartels<br />Fuerzas Armadas Revolucionarios de Colombia (FARC)<br />Ogaden Guerillas<br />Primeiro Comando da Capital (PCC)<br />Source: Transparency International, Corruption Perceptions Index 2007<br />
    131. 131. More and more products are becoming free<br />Free MP3 Downloads<br />Music Industry Revenues<br />Free Online Classified Ads Sites<br />Newspaper Ads Revenues<br />vs.<br />vs.<br />42<br />20<br />18<br />18<br />35<br />49%<br />221<br />212<br />40%<br />181<br />32%<br />30%<br />128<br />22%<br />37<br />17<br />2008<br />2007<br />2006<br />2005<br />2004<br />2003<br />2008<br />2007<br />2006<br />2005<br />2004<br />Global recorded-music sales, US$ bn<br />US newspaper advertising revenue, US$ bn<br />Global mp3 player shipments, millions<br />Users of online classified ads sites in US (% of internet users)<br />Source: International Federation of the Phonographic Industry, iSuppli Corp, US Newspaper Association of America , Pew Internet & American Life Project Survey<br />
    132. 132. Falling marginal costs of business<br />Cross-subsidizing<br />Free Mail Storage<br />FREE<br />FREE<br />FREE<br />+<br />+<br />+<br />Expensive<br />Expensive<br />Expensive<br />Free Directory Assistance<br />1895<br />2009<br />Falling marginal cost of doing business<br />Free Air Travel?<br />Free DVR /CDs?<br />Source: Anderson, Chris – “Free! Why $0.00 is the future of business? “<br />
    133. 133.
    134. 134. Great geopolitical uncertainty<br />Rising BRICs<br />Shocks (finance, food, cyber security)<br />New actors (NGOs, terrorists, criminals) <br />Possible climate deal<br />Extreme integration<br />Protectionism<br />Business as usual<br />Vs.<br />450 ppm<br />
    135. 135. The privatization of foreign policy<br />RichardBranson<br />PierreOmidyar<br />GeorgeSoros<br />Sergey<br />Brin<br />Larry<br />Page<br />BillGates<br />
    136. 136. What about international institutions, non-state actors, NGOs, and others?<br />
    137. 137. -103,842<br />A rebalancing of power<br />Chinese Holdings of U.S. Assets (November 2008)<br />In US$ billions<br />Net Purchases of Long-Term U.S. Securities – <br />In US$ hundred millions<br />$1.7 TRILLION<br />Short-term bank deposits<br />Treasury bonds (incl. short term)<br />Agency bonds (incl. short term)<br />Corporate bonds<br />Equities<br />Source: CFR working paper, ‘China’s $1.7 trillion bet.’ Numbers come from CFR estimates, U.S. Treasury International Capital, and People’s Bank of China<br />Source: U.S. Treasury<br />
    138. 138. Nigeria vs. Singapore: a resource vs. knowledge economy<br />GDP per Capita (1990$), 1950-2005<br />Singapore<br />Republic of Singaporefounded<br />Nigeria<br />Source: &quot;The Conference Board and Groningen Growth and Development Centre, Total Economy Database, January 2007 (Geary Khamis methodology)<br />
    139. 139. Knowledge Driven Growth<br />Global/Regional Plague<br />IncreasingScience & Technology<br />Collapse of Socialism/market <br />reform<br />Carrying<br />Capacity<br />Religious<br />Extremism<br />NetworkedIT<br />Social<br />Stresses<br /> Financial <br />Crisis<br />MoreIntegration<br />Better Governance<br />Knowledge driven growth predetermined<br />Prosperity & Shared Interests<br />
    140. 140. Critical Uncertainty 1 - Era of ShocksComplex, closely coupled systems may be shock prone<br />Specialization and interconnection to maximize efficiency and utilization<br /><ul><li>Example; Financial derivatives grew 9.5x to over 12x world GDP in 1998-’08</li></ul>Shock<br /><ul><li>Example; the collapse of Lehman Bros</li></ul>Potential<br />Back to stability and resilience<br />Actors disappear, new ones emerge <br /><ul><li>Example; deleveraging</li></ul>Connectedness<br />Resilience<br />Source: Homer-Dixon, Our panarchic future; Bank for international settlements; <br />
    141. 141. 2<br />Critical Uncertainty 2 - Form of International RelationsEbb and flow<br />US signs bilateral nuclear deal<br />North-Korea withdraws from NNPT<br />Interests & Alliances<br />West Germany enters NATO<br />US does not ratify Kyoto protocol<br />Berlin Wall torn down<br />Warsaw Pact<br />WW 2<br />WW 1<br />US intends to never join ICC<br />Doha rounds break down<br />NATO<br />1900<br />2000<br />‘20<br />‘40<br />‘60<br />‘80<br />Laws & Institutions<br />European Economic Community, precursor to EU<br />WTO emerges from GATT<br />International Criminal Court<br />EU Expands to 27 member countries<br /> Foundation of the United Nations, World Bank<br />Kyoto protocol<br />Geneva Convention<br />Nuclear non-proliferation treaty<br />IMF, IRBD & GATT founded at Bretton Woods<br />
    142. 142. Critical Uncertainty 3 - Structure of national powerIs democracy inevitable as countries modernize?<br />New modernization1 theory suggest that economic and technological development bring a coherent set of social, cultural, and political changes that are particularly conducive to democratization <br />Industrialization<br />Shift from traditional to secular-rational<br />Difficult to avoid democratization, repressing calls for openness becomes increasingly costly<br />Economic growth<br />Growth of the Middle Class<br />Sense of security, focus shifts to<br />self-expression<br />Postindustrial, knowledge society promotes independent thinking, appreciation of free choice<br />Note: Modernization is not synonymous to Westernization<br />Source: Ronald Inglehart , Christian Welzel, How Development Leads to Democracy, What We Know About Modernization<br />
    143. 143. Critical Uncertainty 3 - Structure of national power…or is the modern non-democratic state possible<br />What if non-democratic states are able to offer a climate that is;<br /><ul><li>Open
    144. 144. Meritocratic
    145. 145. Competent and
    146. 146. Participatory</li></ul>and thus gain legitimacy and satisfy needs for self-expression?<br />World values survey respondences1 to statement “Hard work brings success”<br />United States<br />Sweden<br />China<br />Russian Federation<br />9<br />8<br />7<br />6<br />5<br />4<br />3<br />2<br />In the long run, hard work usually brings a better life<br />Hard word does not generally bring success, it’s more a matter of luck and connections<br />1China [2007], Russian Federation [2006], Sweden [2006], United States [2006]<br />Source: Worldvaluessurvey.org <br />
    147. 147. ,<br />Critical Uncertainty 4 – Role of the U.S. in the world<br />US recovers<br />US in Decline<br />US balance on the current account ($Bn)<br />Real GDP growth forecasts (%)<br />200<br />0<br />-200<br />-400<br />-600<br />-800<br />1980<br />2014<br />1980<br />2010<br /><ul><li>Innovation
    148. 148. Flexibility
    149. 149. Entrepreneurship
    150. 150. Top universities
    151. 151. New leadership
    152. 152. Deficits
    153. 153. Education
    154. 154. Infrastructure
    155. 155. Military overstretch</li></ul>America’s perception<br />China’s perception<br />Source: imf, bea.gov <br />
    156. 156. Possible scenariosThree main possibilities<br />Modern Non-Democratic States<br /><ul><li>World of alliances
    157. 157. Modern non-democratic states
    158. 158. U.S. in decline</li></ul>New Game<br />U.S. in Decline<br />Both / And<br />Interests and Alliances<br />Laws<br />and<br />Institutions<br /><ul><li>World of laws and institutions
    159. 159. Modernization and democracy go hand-in-hand
    160. 160. U.S. recovers</li></ul>Continuous Evolution<br />U.S. Recovers<br />Modern Democracies<br />Note: <br />Source: <br />
    161. 161. Possible scenariosWith the additional possibility of shocks<br />Modern Non-Democratic States<br />New Game<br />No<br />Shocks<br />Shocks<br />U.S. in Decline<br />Both/And<br />Interests and Alliances<br />Laws<br />and<br />Institutions<br />No<br />Shocks<br />Shocks<br />Continuous Evolution<br />U.S. Recovers<br />Shocks<br />No Shocks<br />Modern Democracies<br />Note: <br />Source: <br />
    162. 162. Continuous Evolution<br /><ul><li>US recovers
    163. 163. China rises and moves toward democracy
    164. 164. New institutions arise such as GEPA, Asian Economic Community
    165. 165. Robust growth
    166. 166. Few shocks -> slow evolution
    167. 167. Many shocks ->rise to the challenges </li></li></ul><li>New Game<br />China<br /><ul><li>US in decline
    168. 168. China as a modern non-democracy
    169. 169. Regional alliance of China and India
    170. 170. Near anarchy globally
    171. 171. Booms & busts
    172. 172. Few systemic shocks -> China centric World
    173. 173. Many Shocks -> high potential for conflict</li></li></ul><li>Both/And<br /><ul><li>US recovers and authoritarian China rises
    174. 174. New international laws but no new institutions
    175. 175. Strong growth with intense competition
    176. 176. Little global collaboration
    177. 177. Few Shocks -> constant rivalry
    178. 178. Many Shocks -> great potential for conflict</li></li></ul><li>Peter Schwartz<br />Peter_Schwartz@gbn.com<br />Logo Here<br />
    179. 179. BACK UP<br />
    180. 180. *<br />Government is expanding <br />“At this particular moment, only government can break the vicious cycle that is crippling our economy.”<br />- President Barack Obama<br />Total amount allocated for economic rescue<br />$10.8 TRILLION<br />Total federal spending, in FY200 US$ bn<br />Source: Outlays from FY 2009 Historical Tables, Budget of the United States Government, Table 8.1<br />
    181. 181. Exacerbated by the economy is a highly interconnected system<br />Housing Market<br />Economic Conditions<br />Financial System<br />
    182. 182. U.S. Housing Market: Reset Schedule will Test Prices Further<br />Monthly Mortgage Rate Resets (First reset in Billions of USD)<br />Source: IMF Financial Stability Report, April 2008, Credit Suisse<br />
    183. 183. Tight surplus production in OPEC led to high oil prices<br />Source: John Cook, Director, EIA Petroleum Division, “Next Stop for Oil Prices: $100 or $150?”, June 11, 2008<br />
    184. 184. Threats to globalization<br /><ul><li>Protectionism
    185. 185. Further pressure on the auto industry or other national champions could increase internal protectionist pressures
    186. 186. The DOHA rounds could stall/fail again despite recent G8 pledge in Italy to reach an agreement
    187. 187. Countries could impose tariffs on imports from regions with perceived laxer carbon regulation, as is currently written into the US House of Representatives ACES Act
    188. 188. Further decline of trade volumes
    189. 189. World trade has dropped more precipitously than GDP, over 20% from its peak. Further declines could reduce the importance of trade in national economies
    190. 190. Re-calibration of global supply chains
    191. 191. Supply chains could become more local as a result of protectionist barriers and/or higher transportation cost due to higher energy/carbon prices
    192. 192. International coordination financial industry regulation falters
    193. 193. Ambitions plans have been announced to reshape financial regulation, there is a risk for these measures not to be well internationally coordinated
    194. 194. Renewed volatility in energy and other commodity prices</li></li></ul><li>Food prices and food emergencies are on the rise<br />As global food prices have risen 83%<br />over the last three years…<br />…Over60countries faced food emergencies<br />FAO food price index<br />Causes of food emergencies, 1981 - 2007<br />FAO food price index<br />2008<br />2007<br />2006<br />2005<br />2002-2004=100<br />Food prices are likely to increase in the next decade<br />Source: FAO; Chatham House<br />
    195. 195. New coal plant emissions equal all historic coal CO2<br />27% of remaining budget for 450 ppm<br />1751-2000 Total Coal<br />New Coal Plants Lifetime Emissions <br />– China, India, and U.S.<br />Source: ORNL, CDIAC; IEA, WEO 2004<br />
    196. 196. Technologies of Today: Pacala & Socolow<br />Pacala and Socolow demonstrated in their seminal work that currently available technologies could help dramatically reduce GHG emissions <br />Efficient vehicles<br />Reduced use of vehicles<br />Efficient buildings<br />Efficient baseload coal plants<br />Gas baseload power for coal baseload power<br />Capture CO2 at baseload power plant<br />Capture CO2 at H2 plant<br />Capture CO2 at coal-to-synfuels plant / Geological storage<br />Nuclear power for coal power<br />Wind power for coal power<br />PV power for coal power<br />Wind H2 in fuel-cell car for gasoline in hybrid car<br />Biomass fuel for fossil fuel<br />Reduced deforestation, plus reforestation, afforestation, and new plantations.<br />Conservation tillage<br />While some technologies are far from the commercialization phase, most of them are already available for scaling up and deployment<br />Source: “Stabilization Wedges: Solving the Climate Problem for the Next 50 Years with Current Technologies,” Pacala & Socolow, Science, 205, 968 (2004); Wikipedia<br />
    197. 197. 9<br />To achieve low carbon economic growthCleantech will have to live up to its promise<br />Cleantech VC investment by Technology<br />Global investment in Clean Energy ($USbn)<br />25%<br />29%<br />73%<br />54%<br />59%<br />5%<br />155<br />Solar<br />148<br />Third Party Investment<br />93<br />Transportation<br />Biofuels<br />S/RP, corp RD&D, gov R&D<br />60<br />35<br />27<br />22<br />Wind<br />Smart Grid<br />Water<br />Agriculture<br />2008<br />2007<br />2004<br />2003<br />2002<br />2006<br />2005<br />Q209<br />Q109<br />Q408<br />Q308<br />Q208<br />Q108<br />Q407<br />.. but growth rate slowed from 59% to 5% impacted by the macro economical climate<br />Smart money moving to transportation and demand side technologies<br />Source: cleanedge.com; cleantech venture network; UNEP, Global Trends in Sustainable Energy Investment 2009<br />
    198. 198. Green stimulus as government initiated growth measure<br />Green Stimulus by Region<br />US green stimulus<br />Green Stimulus Regional Spending ($US Billions)<br />Green Stimulus Breakdown(TARP & American Recovery Plan) USD112bn<br />UK<br />Low Carbon<br />Rail<br />5%<br />Australia<br />9%<br />Energy Efficiency<br />Grid<br />32%<br />Canada<br />11%<br />France<br />14%<br />Water Waste<br />29%<br />Japan<br />Renewable<br />Germany<br />China green stimulus<br />EU<br />Stimulus Package Breakdown (RMB4 Trillion)<br />S. Korea<br />Port<br />Environment<br />US<br />Grid<br />Airport<br />China<br />25%<br />2%<br />14%<br />Highway<br />22%<br />Total additional spending of $430bn, 2.5x the total 2008 sector investment<br />20%<br />Rail<br />Housing<br />Source: HSBC<br />
    199. 199. Sovereign Wealth Funds <br />SOVEREIGN WEALTH FUNDS, IN US$ BILLIONS<br />SWF DEALS BY TARGET REGION – 2008<br />$58 billion<br />$26 billion<br />100%<br />Rest of<br />World<br />$590<br />BRIC<br />8%<br />North<br />America<br />80%<br />40%<br />$79<br />G7<br />Middle East &<br />Africa<br />43%<br />$1,400<br />Middle East<br />60%<br />$700<br />Asia Pacific<br />Asia Pacific<br />Asia Pacific<br />40%<br />41%<br />17%<br />$360<br />Other Europe<br />TOTAL<br />$3.2 <br />TRILLION<br />20%<br />Europe<br />31%<br />Europe<br />19%<br />$110<br />Rest of World<br />0%<br />2Q08<br />1Q08<br />Source: European Institute, Sovereign Wealth Funds Survey 2008, Oliver Wyman, Monitor Group<br />
    200. 200. 2<br />The Future of SWFs<br />SWF asset allocation: 2007 and 2012 (forecasted)<br />38%<br />32%<br />27%<br />25%<br />20%<br />2007<br />2012<br />16%<br />15%<br />12%<br />5%<br />5%<br />4%<br />1%<br />Fixed Income<br />Cash<br />Other Alternatives<br />Real Estate<br />Private Equity<br />Equity<br />Source: European Institute, SWF Institute, OECD, Oliver Wyman, Bloomberg<br />
    201. 201. Growing complexity and evolution to fill new economic niches<br />Source: The Origin of Wealth, Eric D. Beinhocker, 2007<br />
    202. 202. What will it take for Latin America and Africa to get on the wave?<br />Corruption Perception Index, 2007<br />
    203. 203. The new physics/chemistry<br />Physics of the Very Small<br />Dark Energy<br />Precision Chemistry<br />
    204. 204. Tools<br />Recent past<br />Hubble Telescope<br />Atomic Force Microscope<br />MRI machines<br />
    205. 205. Tools<br />New Space Telescopes<br />Large Hadron Collider and its successors<br />Imaging live cells?<br />Quantum Computers<br />New ways of asking questions<br />Metagenomics<br />SETI at home<br />Petabytes and beyond<br />Manipulating very fast things<br />Many new forms of sensors<br />
    206. 206. Biology<br />Fundamental Shift from Empirical to Rational Science<br />Neurobiology<br />Genetics<br />Stem cells<br />Synthetic biology <br />Systemic science of disease<br />Mathematical biology <br />It’s all Physics + Water ! <br />
    207. 207. WHY SCENARIOS<br />
    208. 208. The Role of Mental Maps<br />
    209. 209. Emergent Strategy<br />EnvironmentForces<br />Intended strategy<br />Emergent strategy<br />
    210. 210. IBM projections<br />
    211. 211. Spirit of surprise<br />
    212. 212.
    213. 213. Scenario planning is rooted in the concept of Multiple Possibilities<br />
    214. 214. Test of a Good Scenario<br />Not right or wrong Leads to better decisions<br />
    215. 215. DecisionMaking<br />Scenarios<br />ExistingStrategies<br />KnowledgeCreation<br />EmergentStrategies<br />The Strategic Conversation and Strategic Options<br />Strategic conversation creates these flows and keeps these relationships healthy as an art, not a science <br />
    216. 216. How Scenario Thinking is Used<br />A tool for strategic alignment and communication across the organization<br />A means of improving the “strategic conversation”<br />A means of refining and testing assumptions for quantitative modeling decision making<br />A “windtunnel” for existing strategy<br />A means of developing and ranking strategic options<br />
    217. 217. Scenario Thinking to overcome decision Traps <br />Over confidence <br />Thinking inside out<br />Not seeing the whole story <br />Framing the problem wrong<br />Not asking the right questions<br />
    218. 218. <ul><li>Key Factors &</li></ul> Environmental Forces<br /><ul><li>ScenarioFrameworks
    219. 219. CriticalUncertainties</li></ul>Steps to Developing Scenarios<br /><ul><li>Focal Question
    220. 220. Indicators and Signposts
    221. 221. Implicationsand Options
    222. 222. Scenario Stories</li></li></ul><li>What are Indicators and Signposts?<br />… events or developments that can be measured and monitored, and which are thought to be indicative of a particular path, dynamic, or scenario outcome evolving<br />Signposts can take the form of either current observablesor plausiblefuture indicators … the best scenario approaches and indicator systems examine and employ both.<br />
    223. 223. Core<br />Robust<br />Satellite<br />Satellite<br />Satellite<br />Four approaches to placing Betsacross the Scenarios<br />Bet the Farm<br />Scenario A<br />Scenario B<br />Scenario D<br />Scenario C<br />

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