Mobilizing Capital For the Environmental Economy

Rotman School of ManagementNovember 21, 2007

“We either don't see, don't experience, or chooseto ignore the impacts our lives have.”

"We are drawing down resources that took millionsof years to create in order to supplement currentconsumption."

Tragedy of the commons

Tragedy of the commons

Tragedy of the commons

Tragedy of the commons

Tragedy of the commons

“Each man is locked into a system that compelshim to increase his herd without limit…in a world

that is limited. Ruin is the destination towardwhich all men rush, each pursuing his own best interest

in a society that believes in the freedomof the commons”

Garrett Hardin,1968

We need a shift in thinking

Short Term

Me “ism”

Consumption

Instant Gratification

Low Capital - High Operating

Entertainment

Long Term

We “ism”

Savings/Investment

Long-term Health

Low Operating - Higher Capital

Education

We need a shift in thinking

Short Term

Me “ism”

Consumption

Instant Gratification

Low Capital - High Operating

Entertainment

Long Term

We “ism”

Savings/Investment

Long-term Health

Low Operating - Higher Capital

Education

Leadership

Concentrated Elite Distributed and Collaborative

People will choose how far and how fast?

Capital

Consumer

Governments

Business

Voter Investor

Policy - “What is the most critical issuefacing the country?”

Source: Globe and Mail, January 26

Canadians are ready to pay the price

91% of Canadians believe individuals will need to make changesin their lifestyle to reduce their production of climate changinggases

72% feel it will be necessary to increase the cost of the types ofenergy that contribute most to climate change.

80% favors raising taxes on these energy sources to discourageuse if tax revenues would be devoted to promoting energyefficiency and developing alternative energy sources.

81% favor raising taxes on energy sources that cause climatechange if other taxes would be reduced by the same amountso that their total taxes would remain the same.

Source: GlobeScan IncorporatedJuly 26th, 2007

Environmental Fiscal Reform

“We need a predictable and consistent marketthat recognizes the true, full costs of doingbusiness and reassigns them to the marketplace,where they belong.”

• Tax Shifting

• Cap and Trade Programs

• www.sustainableprosperity.ca

Consumers: Expanding Consciousness

“the cash register is the daily voting boothin democratic capitalism.”

• Energy– Alternative energy, energy conservation– Reduction in high carbon products: packaging

• Water– Water conservation

• Food– Local– Healthy

“If not now, then when? And if not us, then who?”

Greg Payne Summary

Environmental Economy Drivers

Emerging Industries

Investment Considerations

Three driving forces will create historicchallenges and economic opportunities

EnvironmentalStresses

ResourceScarcity

Demographics

Demographics

Source: UNEP

Billions

Globalization and Demographics: enormousenvironmental pressures

3x today’s amounts of energy consumedEnergy

2.5x the total amount of meat consumedMeat

4x the number of cars on the roadCars

EffectGood/Commodity

Source: WRI

Effect of equalization with developing world

Emissions Continue to Grow

Source: EPA, New Scientist, IEA

Stern Recommendation

Resource Scarcity - Peak Oil

Source: UNEP

Crude Oil

Source: Moore Research Centre

The Environmental Economy

Pollution reduction and mitigation

Renewable energy and resources

Efficiency and conservation

Pollution Control and Mitigation$1.3 Trillion by 2030

Air pollution control– Coal scrubbers– Industrial emissions

cleaning

Water treatment– Municipal systems– Industrial discharge

Carbon control– Carbon capture and

sequestration (CCS)– Carbon trading or carbon

tax

Pollution Control and Mitigation Market

($US billion)

$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

Today 2030

Air Pollution Control Water Treatment Carbon Capture

Sources: Government ofCanada, Siemens Inc., IPCC,IEA

Renewable Energy$600 Billion by 2030

2% of global electricity today– <1% of global energy

IEA expects 6% by 2030– New additions already more

than 10%

Stern calls for 60% ofelectricity carbon free by 2050

Wind competitive, solar costsfalling

Renewable Energy Market

($US billion)

$0

$100

$200

$300

$400

$500

$600

$700

Today 2030

Wind Solar Other

Source: IEA, Solarbuzz,Vestas Wind

Efficiency and Conservation$600 Billion by 2030

Low-hanging fruit– High returns– Immediate results

Utility metering and smart tariffs

Building insulation, heating and cooling

Auto fuel economy (hybrids)

Recycling and waste-to-energy

Grid and pipe upgrades

Source: Itron, Badger, WhartonSchool, Waste-to-Energy.Net,Tomsa

Adding It UpA massive $2.5 trillion industry by 2030

Booz Allen: “Globalinfrastructure needs $40trillion over 25 years”

ASCE: “Americaninfrastructure $1.6 trillionover 5 years

Cleantech Group: “Waterinvestment $20 trillion over25 years”

Total Environmental Sectors Market

($US billion)

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

Today 2030

Pollution Control Renewable Energy Efficiency and Conservation

Source: IMF

Where Will We Get $2.5 trillion?

In context– 5% of global GDP of nearly $50 trillion– 25% of global investment of $10 trillion

Potential for investment to be diverted– Residential structures– Commercial structures– Transportation, infrastructure, technology

It’s time for an investment mentality

Source: IMF

Energy Return on Energy Invested (EROEI)

Source: ASPO, EROEI.com, The OilDrum, Energy Bulletin.Net

70s 80s 90s 00s 2010

Big Oil-North Sea-Alaska-Gulf

Japan-LBO-Real estate

Technology-Internet-Biotech

BRIC-Credit-Housing

Environment-Investeco sectors

Tight commodity marketsRising inflationExcessive credit

Large trade imbalancesShifting economic powers

Capital’s next home?

GlobalizationFinancial expansion

Asset inflation

“Anyone who thinks that infinite growth is possible in a finite universe is either a

madman or an economist”

Kenneth Boulding

Building companies that matter

www.investeco.com