“The great challenges for this generation are the need to tackle climate change and poverty across the world.” Chancellor Alistair Darling, in his Pre-Budget Report to the House of Commons on Tuesday. “Climate change is the greatest market failure the world has ever seen.” Government adviser Sir Nicholas Stern, in his testimony to the US Senate Committee on Energy and Natural Resources, in February.
These two statements sum up the problems with environmental investment: until recently, companies have had little incentive to stop emitting greenhouse gases, so equity markets have presented investors with little opportunity to back climate change projects.
Legislation has led, but markets have had little reason to follow. This week, the chancellor proudly announced that, “we are already the only country to have met our Kyoto obligations”. This moral exclusivity, however, betrays the lack of financial necessity.
Without US participation in the Kyoto Protocol, there’s no imperative for the companies of the world’s largest economy to operate profitable environmental schemes. Similarly, in Europe, the chancellor says “we need to move further and faster on the next stage of the European Emissions Trading Scheme”.
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