HSBC's five steps to a green recovery.

Designing a Green Exit May 2012: Annual investment in all energy will need to rise from $1.3trn to £1.8bn to fund a low carbon future, according to the UN. We need to free up the vast sums of money wasted on inefficient use of fossil fuels, and escape dependency on a diminishing number of fossil-fuel exporters, and can only realistically do this by investing in low-carbon energy. The EU’s cost of importing oil and gas increased from 1.5% of GDP in 2001 to 2.6% in 2010 – amounting to c $424bn in 2010. If oil stays at recent price levels, the EU will spend 3.3% of GDP per year on crude oil alone, more than double 2001 levels. The EU is failing to meet its energy efficiency ambitions – but the proposed Energy Efficiency Directive (EED) has been stalled by fears that it would add cost at a time of austerity. The reverse is true: from 2011 – 2020 reduction in fuel use and supply side CAPEX outweigh investments in improved efficiency. Currently fully €270bn is wasted annually on energy consumption in EU buildings.Public finance institutions – such as development banks and export credit agencies – need to expand their efforts in sustaining investment in renewables and energy efficiency. The UK’s Green Investment Bank compares miserably for example to Germany’s KfW. Each euro of KfW’s efficient building programme leverages two and a half euros in private investment, and returns 2-5 euros to the state through job creation. Establishing a post-2020 Renewable’s Directive plan as soon as possible is vital for investor confidence, which has taken multiple hits in multiple nations of late, not least the UK. A communication on this is expected in June, and the EU energy commissioner has stated he wants to put a post-2020 policy in place by 2014. The UK needs to play a leadership role with a strong domestic 2030 renewables target. Europe’s grid infrastructure needs improved connectivity and smart grids are needed to manage intermittent renewables and enable the roll-out of vehicle electrification. But Basel III potentially discourages banks from holding longer-term project finance debt on their balance sheet. A full project bond programme could start in 2014, and the UK can lead both in advocating this, and in instigating domestic bond programmes.