Policymakers in the world’s major developing countries are achieving mixed results in their efforts to stimulate clean energy investment, the Carbon Disclosure Project (CDP) has found. The research was commissioned by the Renewable Energy and Efficiency Partnership (REEEP) to identify corporate best practices in promoting energy efficiency measures and the use and development of renewable energy in Brazil, China, India and South Africa, known as the BASIC countries.
The report maps the extent to which corporations in BASIC countries are investing in these areas, investigates the drivers of this investment and specifically evaluates how national government policy affects private investment and what lessons can be learned from national approaches to policy.
"Tackling climate change will require massive private sector capital flows into energy efficiency and renewable energy,” notes Marianne Osterkorn, REEEP’s Director General, “so it is very important to understand what government policies are most effective in enabling this to happen.”
All the four countries have framework legislation which sets out principles and aspirations for greater energy efficiency and use of renewable energy. Yet, more detailed policy measures are also needed in order to give investors confidence and the extent to which these are successful can vary widely between different countries and between different socio-economic contexts. The report reveals that corporations have constructive ideas about how regulatory actions and policy can assist in changing behaviour and encouraging investment in their country.
One intriguing finding from the report is that while the impact of policy on investment decisions can vary depending on national circumstances, companies consistently state that their own internal policies are crucial to investment decisions. This may suggest that companies from the large emerging economies are operating in a global market place where their operating environment is shaped not only by government requirements but also by the expectations of customers and competitors.
James Cameron, Executive Director and Vice Chairman, Climate Change Capital comments: “This report provides data for a story which is unfolding, that is literally world changing. In a world where energy demand is rising and there is an absolute imperative to reduce greenhouse gas emissions, given the right policy frameworks and the capacity to take science and engineering skills and attach them to huge domestic as well as global markets, there is every chance that the technological breakthrough that the world requires will emerge from these so called developing countries.
“The findings show that here are plenty of grounds for optimism and that private sector investment flows are being directed towards clean energy (both generation and efficiency savings). They also show that the theory that policy and regulation has an effect on corporate behaviour is correct, and that effect is largely positive.”
Specific country findings
Strong regulatory requirements for the energy sector are having an effect on corporate investment. Companies would also like to see good performance recognised such as through a corporate energy efficiency index or individual efficiency contracts with government. Biofuels policy and CDM have encouraged investment by companies in Brazil. The cost of investment in renewable energy can be high, and many policy suggestions made by companies are focused on bringing down the cost of renewable power generation, e.g. through a special tariff, renewable energy credits, or reduced transmission costs for smaller renewable energy generators. Companies expect to see new renewable energy policy measures resulting from Brazil’s National Action Plan on Climate Change.
High-level policy signals have been effective in stimulating investment. However there is an appetite for more specific regulation which applies to a larger number of companies. Green finance measures have been effective in shifting investment flows at a large scale and, as in Brazil, companies would like to see measures that provide incentives or recognition for good energy efficiency performance. National policy on renewable energy has provided a clear signal to companies and has stimulated investment. CDM has acted as a spur to corporate investment, both directly (e.g. for project development) and indirectly (e.g. new business areas for service companies). Companies would like to see innovation in energy market structure and demand management, e.g. a renewable energy generation obligation, a renewable energy or emissions trading market, generation-based subsidies.
Regulation is a strong driver of corporate energy efficiency investment, and companies expect to see new measures resulting from the National Enhanced Energy Efficiency Mission. CDM also plays an important role in driving investment for some companies. Companies would like to see government create more energy efficiency standards and product efficiency ratings. Regulation plays a particularly strong role as a driver for investment in this area, and companies expect to see new measures resulting from the National Solar Mission. Investments are being made by a wide range of industrial sectors, and not only by the power generation sector. Companies would like to see more government support for the full range of the technology cycle, including Research and Development (R&D) support, capital subsidies, generation incentives and standards.
Energy efficiency is a high priority for South African companies, and energy security and cost reduction are key drivers for this. The voluntary Energy Efficiency Accord appears to have worked well in setting expectations for corporate behaviour but may have been insufficiently ambitious. Companies are making preparations for the emergence of a new energy efficiency tax incentive and for the proposed Power Conservation Program. Some companies anticipate that the Renewable Energy Feed-in Tariff (REFIT) generation incentives will change their investment patterns, however there is uncertainty about how this regulation will be applied. CDM is an important driver for investment by some companies. Companies would like to see R&D support, simplification of planning consents, renewable energy targets and in-country support for CDM project development. Technology-specific measures are not favoured.
CDP was assisted in the project by partner organisations; Fabrica Ethica in Brazil, Syn Tao in China, WWF India and Confederation of Indian Industry ITC Centre of excellence for Sustainable Development in India, and National Business Initiative in South Africa.
The full report is available for download below in English, Chinese and Portugese.
- Clean energy trends in emerging markets (English).pdf
- Clean energy trends in emerging markets (Chinese).pdf
- Clean energy trends in emerging markets (Portugese).pdf