More development, Less CO2, Missing Answers

The Shell Dialogues debate in Cape Town was a useful touchpoint on the debate around sustainable finance and alternative energies. Following up on yesterday’s post, the SHELL logo sat uncomfortably in the middle of the background, between the Mail & Guardian logo and the podium with Robben Island Museum logo. I wonder where the government minister was to have sat . Shell’s representative presented a structured pitch on policy options, Dr Wolfgang Heidung, who was in SA for a carbon capture & storage conference. With his German accent, he epitomized the scientific/industrial position, and he preferred to think of the UNFCCC in Copenhagen as an auction of the right to pollute globally . Prof Kevin Bennett offered the view that the challenge comes from urbanization more than the people of many emerging and frontier markets suddenly generating negative through developed world power infrastructure. He referenced the wood economies, many societies are still in the wood stage, while developed countries have already moved to more sophisticated stages.

Controversially Prof Bennett introduced the thoughts of skeptics on carbon emissions. He argued perhaps forcefully for a distributed power system with smaller provision with distributed power and use of wind and solar technologies. Reality check is SASOL’s Secunda plant is the world’s single largest carbon dioxide emitter on the planet . Emerging markets make up around 6% of global emissions, Africa around 2.5% and South Africa the largest part of it. The comments kept tripping over the definitions of developed, developing and other markets. The decisions around size of economies, and how countries have negotiating power around climate change. kept coming up as an issue needing clarity. News for carbon traders from the podium was that we have bets both ways on what will or will not happen in Copenhagen: a market in outcomes, sounds like the marketplace to me?! See post on carbon scenrios

I enjoyed Mr Raubenheimer’s approach to being “risk averse”. Maybe that will be a more useful approach to the conversation on investment in new technologies, partly because most humans are mostly risk averse anyways – check out any defined contribution retirement fund investment choice distribution: most retirement fund members adopt a default or risk averse approach. As the debate unfolded, the merits of carbon trading came up. The proposition for carbon trading is about allegedly internalizing externalized costs. recently covered the uneasiness about carbon trading , trading which the UNFCCC Copenhagen meeting may ramp up by simplifying and globalizing rules of trading carbon credits. As an investment guy and ESG architect, I was mostly interested in hearing the live audio clips of traders in action. The snippet also covered the negative reaction of environmentalists who see carbon trading as ultimate smoke and mirrors. And as all conversations about new investment in power generations inevitably do, the conversation came to nuclear power. SA has a small bet around pebble bed modular reactor which has burned around ZAR 12,5 billion with no deployable technology. A small debate-within-a-debate erupted about the real costs of coal, nuclear and solar - need someone to read their Platts.

I posed the first question, on how to join the dots between those in the audience – they are investors in some way, whether through their pension funds or unit trust funds – drew a muted response. Mr Worthington marched a little down the road, but did not pull it through to some basics like investment say in the WWF International mutual fund, the Living Planet Fund. I will have to bring that up with the WWF LPF team when next in Switzerland. Mr Worthington did press on trying to answer the question of polluter-pays principle, by pointing to cost increases, including carbon taxes. The debate closed leaving me with some better sense of the dialogue around policy options, and hoping that the "media of distractions" in South Africa could maintain a serious thread to the discussion. I was reminded why Judge Dennis Davis is respected for his candour . Together with the comments from the audience about the humanity in Khayelitsha, a poor shanty town near the airport, the evening at the M&G Critical Thinking Forum/Shell Dialogues pretty much summed up where we are with sustainable finance: talking out loud.