Fears are growing over the outlook for the environmental technology sector in the face of the global economic slowdown, rising unemployment, and big falls in commodity prices.
It is easy to forget, however, that 2009 is shaping up as a crucial year for environmental policy.
In America, the new administration must decide what will feature in terms of alternative energy, pollution control and global warming policies it will pursue.
President-elect Barack Obama recently announced a plan to build a green energy policy spending $150billion, creating 5million jobs over 10 years, in part to reduce the US dependency on foreign oil. The US Treasury’s $700billion bailout plan included measures designed to boost clean energy, including the solar and wind industries, plus carbon capture and storage.
The EU is in the process of finalising the 2020 climate and energy directives that aim to reduce emissions, and boost renewable energy and energy efficiency. In Britain over the next 12 years, up to 7,000 wind turbines are expected to be built, with a £100billion energy budget, in an effort to meet an EU target of producing 15% of energy from renewable sources by 2020. Recently three new acts of parliament have been passed challenging householders and drivers to save energy and cut their carbon emissions by 80% by 2050.
Elsewhere, Australia has signed up to the Kyoto Protocol and has plans for an emissions-trading scheme by 2010.
The “political will” appears to be strong to provide legislation, and adapt to global, regional and national policies to provide a robust platform for future investment.
According to the Intergovernmental Panel on Climate Change – the body of the world’s leading climate scientists convened by the UN – the probable effects of a warming climate include more droughts, floods, fiercer storms and heatwaves and to less rainfall in some places, but more in others.
These effects will cause serious problems for countries’ infrastructures.
Sea levels will rise, threatening coastal cities and low-lying countries. If sea-level rises are at the upper end of predictions, coastal cities such as New York and Hong Kong will be threatened with inundation when storms strike. Of the world’s 20 biggest cities, 13 are located on a coast.
Food production will also be threatened by a changing climate. Agriculture will become more difficult, and perhaps impossible, in large swathes of the world.
Share prices in renewable-energy stocks have suffered heavily in recent weeks as concerns rise that funding for many firms will dry up, given the current restricted access to capital. Alternative-fuel firms have seen a similar decrease in value based upon the dramatic fall in crude oil prices, because these types of stocks have a high correlation to movements in the price of oil.
Analysis of green technology stocks – including collective funds and exchange-traded funds (ETFs) – has highlighted a breakdown of the close correlation following the oil price peak this year, but these green funds have not been exempted from stock market weakness over recent weeks.
The slowdown has brought input costs back down, as the steep falls in steel and copper prices will cut the cost of wind turbines, for example. But some sectors will fare better than others. For example, the biofuel industry has fallen from grace with many firms burdened with high levels of debt, rising input prices and lowering output value.
Investing into this sector is not without risks, especially if investing in a single company. Spreading of the risk into managed funds, investment trusts or the passive ETFs is a more cautious approach, but detailed understanding of the underlying mix of technologies within these funds is necessary, because they may be weighted more towards various sectors such as wind, hydro, solar or even biofuels.
Many have said we should have seen the financial crisis coming and instituted tighter controls ahead of the now-disastrous consequences. We know the risks associated with rising greenhouse gases; perhaps the time is now ripe for change.
William Wordie is with broker Redmayne-Bentley’s Highland branch. He can be contacted on 01667 455577