A lot can change in one year’s time! At the beginning of the now expiring year it seemed the world was on the brink of collapsing. In the U.S. lived great fear for the survival of such giants as Citigroup, Bank of America, General Motors and Chrysler. In the Netherlands Finance Minister Wouter Bos, had to rescue the large national banks from failing with billions of Euros. The EU announced to set aside EUR 500 billion in order to prohibit that Europe-wide the financial system would implode and could carry the rest of the economy in its downturn.
DoomsayersIt is inevitable that in these times of seemingly endless battle against economic and financial bad luck penalty preachers who spread their message of ever growing doom and gloom steal the show. In the U.S., the ever-gloomy Stephen Roach and "Dr. Doom" Roubini became media heroes. In the Netherlands Willem Middelkoop enjoyed respect as the prophet of crisis and depression. Mohammed El-Erian, chief strategist of Pimco, predicted even a "new normalcy". The structural economic growth would go down, unemployment would remain high and the welfare of large populations in the West would be severely corroded. Recovery?! What recovery?! The common theme in all these considerations was that happy days would never return to the U.S. and to a lesser extent, the message was the same for the EU. But how long is ‘never’?. Already in the second half of 2009, the picture started to change, to brighten up a little. This was reflected in the letters that were used to indicate the possible economic recovery. They went from L to U to W to √ and finally to V and the latter may still be called a surprise. Because that points to an old-fashioned strong recovery! Take the Dutch example: one year ago the Central Buro for economic Planning (CPB) predicted for 2010 an economic growth 0% or less, accompanied by a strong rising unemploymency reaching perhaps a level of 900.000. Much has changed and the scenario looks a lot rosier now. In the coming year, the Netherlands may enjoy economic growth of around 1.5% while unemploymency will not rises above 600 000. The real optimists are already starting to warn for an impending labour shortage in this country. Mmmm, this smacks of over optimism. ... ... .. And where does it come from? Where does the recovery come from? It seems likely that the many hundreds of billions of dollars and Euros, which central banks and governments all around the world have pumped in the economy during 2009 have not missed their effects. Is this really so? Especially many American economists are less enamoured of these massive injections of liquidities and dispute the beneficial effects. As a rule of thumb the recovery of the economy in the countries of the European Union has to come from outside this continent. This time the recovery is not depending on the U.S., but from the East and to be more precise from China. This country saw an economic growth of 9.6% in 2009 and has already calculated a growth rate of 8% for 2010. As a result of this fast growth China will pass Japan in 2009 as the second economy in the world after the U.S. Incidentally, those who think China will overtake the US as the number One economy of the world, are wrong. The U.S. economy is sized about $ 14 trillion and this number dwarfs China’s $ 4.75 trillion economy. Nevertheless, the fact remains that the strong growth of China and indeed of the entire Pacific region has given Europe the opportunity to export away the crisis. More good news in storeThere is a reasonable chance that Europe may fare even better in 2010 than is expected so far. This can and will happen when the locomotive of world economy, the U.S., comes on steam in 2010. According to many this is no longer to be excluded. Dean Maki, the best predictor of economic weather in 2009, now sees the U.S. economy grow 3,5% in 2010. The growth is due to the strong recovery in financial markets, which provides many Americans with more financial spending power. If consumers are starting to spend again in 2010 businesses will have to invest, so says Maki. Many companies have reduced their inventories in 2009 reduced to the bare minimum. The chief economist of Barclays Capital disagrees therefore fundamentally with the earlier mentioned Mohammed El-Erian. In his view there is little reason for a "new normalcy" . Barton Biggs and Marc Faber, who in March of this year advised clients to sell their bonds in favour of equities, endorse the optimism of Dean Maki. They foresee a rise in the dollar against Euro and Yen by 5% to 10%. The stock markets may rise at least 10% in both 2010 and 2011. The big surprise of 2010 however could turn out to be the U.S. housing market. Brian Wesbury, an economist from Chicago, points out that in 2009 only 550 000 houses have been taken under construction, but that the increase in population demands up to 1.5 million new homes under construction annually. Wesbury speaks even of an impending housing shortage. By the way, his nickname is Mr. Sunshine. A decade to forget The world will be say goodbye to the first decade of the 21st century without shedding a tear. This decade began with the explosion of the Internet Bubble and ended with the almost collapse of the financial markets. In the intervening years many people bought a house that was far too expensive and in many cases has fallen sharply in value. And to add insult to injury: investments in the past decade delivered nothing. In 2000 the AEX reached a peak of 701 points. Since then the stock market has almost halved. So much for your nest eggs and your pension plans!
I wish everybody a happy and sound 2010, but, hé let’s be careful, it’s dangerous outside!
woensdag 30 december 2009
maandag 14 december 2009
Is Copenhagen really that important?
Just two week ago the bishop of Den Bosch, a town in the southern part of the Netherlands
blessed 200 electric scooters, which were about to travel to Copenhagen. Copenhagen must
turn into a success and there are more than sufficient resources to make it a success. That is
the message the scooter ride wants to express. The whole campaign exudes an almost
childlike naive faith in the possibilities of politics and government. It also indicates that
"climate change" is beginning to turn into something like a religion.
The chance that a conference with more than 190 participating countries will be a success is
low. A meeting of this size is too complex, too large and too bureaucratic. But is it really crucial whether Copenhagen will be a success or not?
Opportunities and threats
When we in the Netherlands and perhaps elsewhere in Europe talk about important and
necessary initiatives, then there is an unmistakable tendency to look to the government for
help and guidance. Europeans tend to look at government as a sort of fountain of salvation.
But is that right? Are we looking in the right direction when we want action to combat
climate change? According to Ernst & Young, it is better to look at what the business is doing and what kind of initiatives is being taken in that respect. The consultants claim that, the theme of climate change has in one year’s time moved from place 9 to place 4 in the CEOs’ agenda. There has clearly grown a sense of urgency and this applies both to the big
international companies and for SMEs. "Climate change" has become a strategic issue
and top management is forced to take into consideration the possibility of (new) regulations
when planning new projects.
Behind this changed corporate attitude naturally there is more business than moral
consideration. According to AT Kearny share prices of companies that link their strategy to
sustainability fare 15% better than the industry average. This improved share price
performance is directly related to government policy. Worldwide, governments and tax
incentives last year totalled USD 430 billion. Governments are not only promoting, but also enforcing. Between July 2008 and February there were more than 250 global force
regulations. In the end we witness here a typical example of a "stick and carrot" policy.
A momentum of its own
The role of government is one of creating conditions. According to Goldman Sachs regulatory changes are starting to pay off. The time is not far away that the attitude of a
company relative to climate change will be decisive for his business achievements. The
investmentbank expects that in a not so far away future, 60% of the cash flow of CO2-intensive companies like utilities can pass from companies that have spent little or nothing on curbing their CO2 emissions to companies that have invested heavily in new technologies. The motto is: invest or go broke!
But isn’t that the precise reason why Copenhagen matters? Copenhagen should make sure
That the right decisions are taken when determining the balance in the “stick and carrot
policy. Maybe, but maybe not. What matters is the 'tipping point', the turning point, as
Goldman Sachs calls it. And it looks like this turning point is near. Whatever the outcome of
Copenhagen investment in "renewable energy" world-wide will increase by 50% to USD 200
billion. Regardless of Copenhagen the U.S. doubled its 2010 spending on green energy to $
60 billion, with the U.S., China and a dozen other countries will set up a fund of $ 177 billion for their joint green energy initiative.
National Grid, the electricity network in the United Kingdom shapes its policies according to
European and British regulatory requirements. Copenhagen will have little or no influence on this policy.
It seems that "climate change" is developing a momentum of its own and is moving towards the 'take-off phase. The effect will be that accelerating technological progress and mass production at low cost are within reach.
Is Copenhagen therefore a waste of time and money? ? That is a simplification of what happens. As the International Energy Agency announced in November, international policy is necessary to combat the effects of desertification, long periods of drought and counter the rising sea levels in many parts of the world.
The climate train has already left the station and an increasing number of industries are trying to jump onboard. And that is exactly how it should be done.
Sources:
[1] Ernst & Young, The business response to climate change. Choosing the right path, 2009
[1] A.T. Kearny Management Consultants, Green winners-the performance of sustainability focused companies
during the financial crisis, 2009
[1] HSBC Global Research, The green rebound. Clean energy to become an important component of the global
Recovery plan, 2009
[1] Deutsche Bank, Global climate change regulation policy developments. July 2008 – February 2009. February 2009
[1] Goldman Sachs, Change is coming. A framework for climate change- a defining issue of the 21st century. May 2009
Bloomberg, Copenhagen defied by$ 200 billion green investments, 2 december 2009
blessed 200 electric scooters, which were about to travel to Copenhagen. Copenhagen must
turn into a success and there are more than sufficient resources to make it a success. That is
the message the scooter ride wants to express. The whole campaign exudes an almost
childlike naive faith in the possibilities of politics and government. It also indicates that
"climate change" is beginning to turn into something like a religion.
The chance that a conference with more than 190 participating countries will be a success is
low. A meeting of this size is too complex, too large and too bureaucratic. But is it really crucial whether Copenhagen will be a success or not?
Opportunities and threats
When we in the Netherlands and perhaps elsewhere in Europe talk about important and
necessary initiatives, then there is an unmistakable tendency to look to the government for
help and guidance. Europeans tend to look at government as a sort of fountain of salvation.
But is that right? Are we looking in the right direction when we want action to combat
climate change? According to Ernst & Young, it is better to look at what the business is doing and what kind of initiatives is being taken in that respect. The consultants claim that, the theme of climate change has in one year’s time moved from place 9 to place 4 in the CEOs’ agenda. There has clearly grown a sense of urgency and this applies both to the big
international companies and for SMEs. "Climate change" has become a strategic issue
and top management is forced to take into consideration the possibility of (new) regulations
when planning new projects.
Behind this changed corporate attitude naturally there is more business than moral
consideration. According to AT Kearny share prices of companies that link their strategy to
sustainability fare 15% better than the industry average. This improved share price
performance is directly related to government policy. Worldwide, governments and tax
incentives last year totalled USD 430 billion. Governments are not only promoting, but also enforcing. Between July 2008 and February there were more than 250 global force
regulations. In the end we witness here a typical example of a "stick and carrot" policy.
A momentum of its own
The role of government is one of creating conditions. According to Goldman Sachs regulatory changes are starting to pay off. The time is not far away that the attitude of a
company relative to climate change will be decisive for his business achievements. The
investmentbank expects that in a not so far away future, 60% of the cash flow of CO2-intensive companies like utilities can pass from companies that have spent little or nothing on curbing their CO2 emissions to companies that have invested heavily in new technologies. The motto is: invest or go broke!
But isn’t that the precise reason why Copenhagen matters? Copenhagen should make sure
That the right decisions are taken when determining the balance in the “stick and carrot
policy. Maybe, but maybe not. What matters is the 'tipping point', the turning point, as
Goldman Sachs calls it. And it looks like this turning point is near. Whatever the outcome of
Copenhagen investment in "renewable energy" world-wide will increase by 50% to USD 200
billion. Regardless of Copenhagen the U.S. doubled its 2010 spending on green energy to $
60 billion, with the U.S., China and a dozen other countries will set up a fund of $ 177 billion for their joint green energy initiative.
National Grid, the electricity network in the United Kingdom shapes its policies according to
European and British regulatory requirements. Copenhagen will have little or no influence on this policy.
It seems that "climate change" is developing a momentum of its own and is moving towards the 'take-off phase. The effect will be that accelerating technological progress and mass production at low cost are within reach.
Is Copenhagen therefore a waste of time and money? ? That is a simplification of what happens. As the International Energy Agency announced in November, international policy is necessary to combat the effects of desertification, long periods of drought and counter the rising sea levels in many parts of the world.
The climate train has already left the station and an increasing number of industries are trying to jump onboard. And that is exactly how it should be done.
Sources:
[1] Ernst & Young, The business response to climate change. Choosing the right path, 2009
[1] A.T. Kearny Management Consultants, Green winners-the performance of sustainability focused companies
during the financial crisis, 2009
[1] HSBC Global Research, The green rebound. Clean energy to become an important component of the global
Recovery plan, 2009
[1] Deutsche Bank, Global climate change regulation policy developments. July 2008 – February 2009. February 2009
[1] Goldman Sachs, Change is coming. A framework for climate change- a defining issue of the 21st century. May 2009
Bloomberg, Copenhagen defied by$ 200 billion green investments, 2 december 2009
maandag 7 december 2009
The long road from Copenhagen, going forward
The upcoming climate conference in Copenhagen casts its shadows clearly ahead. Miscellaneous non-governmental organizations (NGOs) see the opportunity to put forward their views on climate change. But it's not just NGOs that try to draw attention. A financial boutique like the Swiss asset manager Sam also makes use of "Copenhagen" to bring its message to the attention of potential investors. Too much focus on CO2 reduction A special plea comes on the part of the Centre for Global Development. This NGO assumes that the outcome of Copenhagen will be a near total failure. The debate surrounding CO2 will probably lead to continued bickering over the distribution of the financial contributions to cover the costs of the climate change. Indeed, the core of the discussion is to establish global rules for a balanced reduction of greenhouse gas emissions. This probably calls for revolutionary changes in the manner of production and consumption on a scale that is historically unprecedented. That may be too much asked for, the centre assumes.According to the NGO it is not unlikely that any decision made will not be favourable for the average citizen in developing countries. The real danger is that people in developing countries will be pushed at or below subsistence level. It is therefore perhaps better to shift the focus of the discussion. The question should not be what developed and developing countries have to do to cut emissions. The question ought to be how inhabitants of the developed world can help developing countries to gain access to various forms of energy needed. The knife should cut both ways here. Energy security should help raise the quality of life of the average citizen to a decent level. At the same time this should be done with new energy efficient technologies that fit the development of countries concerned and that can be integrated quickly and easily into the existing social and economic organization. The stringent but gradual introduction of these new energy-efficient technologies can make a major contribution to reducing CO2 emissions in developing countries, thus claims the NGO. Water, challenge and opportunity A theme that undoubtedly will be discussed in Copenhagen is the growing lack of clean water in ever more parts of the world. The problems surrounding water and water supply may be well known by now. In most emerging countries, the water scarcity is due to the unholy combination of population growth, urbanization and a growing urban population aspiring to a Western standard of living. A lack of water constitutes a threat to economic growth. And if there is enough water, then a lack of an infrastructure is a problem and for sure not a small one. It is calculated that over the next 20 years some 350 million people will move from the countryside to the city. Everyone can see that huge investments are needed to build and maintain proper sanitation facilities for these urban crowds.
Private investment The question is whether governments are willing to pay for the investments needed. More than 90% of the utilities in the world today cannot function without government support. Although privatization has lost much of its lustre, it is too easy to sweep aside this option. Experiences in the Philippines show that privatization can work to the satisfaction of all parties involved. The quality of the network improved, the level of the supply of fresh, clean water went up and larger numbers of consumers had access to good quality water at reasonable prices. The privatized water company makes an attractive profit. There are more areas where private capital is doing useful work. The Chinese industry is not known for its environment friendly policies. This has resulted in widespread contamination of surface and groundwater. The pollution is so great that it affects economic growth. The government therefore has started a comprehensive initiative to improve wastewater infrastructure. The scope of this initiative is $ 60 billion and it provides opportunities for local but also international companies to invest in wastewater systems. Besides, the Chinese public is increasingly concerned about the quality of tap water. The growing popularity of devices to ensure the required quality is proof to that. Less irrigation, higher returns An effective policy of saving water is impossible without improving savings in agriculture. This sector consumes 70% of the water used annually. Especially in countries like India with continued strong population growth it is of utmost importance to significantly lower the share of agriculture (86%) significantly. The combination of high population growth and haphazard irrigation results in more and more regions in the depletion of water resources and a sharp decline in the groundwater level. Wells with a depth of 400 meter are no longer the exception. In addition, the expected climate change will probably further threaten and damage traditional water resources. It is time for new and smarter irrigation techniques that drastically reduce the use of water. The drop technology provides the best results so far, with water usage going down by 80%. Copenhagen offers opportunities It is yet unclear how Copenhagen will end. Far-reaching decisions are not expected. Copenhagen is just a station on a long road. But it is obvious that new policies will be outlined. Given the weak financial position of many governments, it is obvious that a part of this new policy will be outsourced to private companies and investors. Without private efforts there will be no new energy efficient technologies, no new irrigation systems and no new water treatment technologies. And, be honest, these are very interesting markets, both in the developed countries and in the developing countries. The Chinese water market is worth $ 40 billion with an annual growth of more than 10%. Who can say no to such a proposition?
Sources:
Birdsall N. and Arvind Subramanian, Energy needs and efficiency, not emissions: re-fraiming the climate change narrative. Center for Global development, working paper 187. November 2009.
[1] Sam Insight, Water Crisis: Challenges and Opportunities in Emerging Markets. November 2009
Private investment The question is whether governments are willing to pay for the investments needed. More than 90% of the utilities in the world today cannot function without government support. Although privatization has lost much of its lustre, it is too easy to sweep aside this option. Experiences in the Philippines show that privatization can work to the satisfaction of all parties involved. The quality of the network improved, the level of the supply of fresh, clean water went up and larger numbers of consumers had access to good quality water at reasonable prices. The privatized water company makes an attractive profit. There are more areas where private capital is doing useful work. The Chinese industry is not known for its environment friendly policies. This has resulted in widespread contamination of surface and groundwater. The pollution is so great that it affects economic growth. The government therefore has started a comprehensive initiative to improve wastewater infrastructure. The scope of this initiative is $ 60 billion and it provides opportunities for local but also international companies to invest in wastewater systems. Besides, the Chinese public is increasingly concerned about the quality of tap water. The growing popularity of devices to ensure the required quality is proof to that. Less irrigation, higher returns An effective policy of saving water is impossible without improving savings in agriculture. This sector consumes 70% of the water used annually. Especially in countries like India with continued strong population growth it is of utmost importance to significantly lower the share of agriculture (86%) significantly. The combination of high population growth and haphazard irrigation results in more and more regions in the depletion of water resources and a sharp decline in the groundwater level. Wells with a depth of 400 meter are no longer the exception. In addition, the expected climate change will probably further threaten and damage traditional water resources. It is time for new and smarter irrigation techniques that drastically reduce the use of water. The drop technology provides the best results so far, with water usage going down by 80%. Copenhagen offers opportunities It is yet unclear how Copenhagen will end. Far-reaching decisions are not expected. Copenhagen is just a station on a long road. But it is obvious that new policies will be outlined. Given the weak financial position of many governments, it is obvious that a part of this new policy will be outsourced to private companies and investors. Without private efforts there will be no new energy efficient technologies, no new irrigation systems and no new water treatment technologies. And, be honest, these are very interesting markets, both in the developed countries and in the developing countries. The Chinese water market is worth $ 40 billion with an annual growth of more than 10%. Who can say no to such a proposition?
Sources:
Birdsall N. and Arvind Subramanian, Energy needs and efficiency, not emissions: re-fraiming the climate change narrative. Center for Global development, working paper 187. November 2009.
[1] Sam Insight, Water Crisis: Challenges and Opportunities in Emerging Markets. November 2009
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