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Surviving climate change: Government must support clean tech investments

Surviving climate change: Government must support clean tech investments
New York City, USA - October 31, 2012: In the aftermath of Hurricane Sandy work crews including units of the FDNY use pumps to extract water from flooded basements of office buildings in the Lower Manhattan Financial District.

It’s hard to deny the importance of mitigating climate change when its effects are literally to be found at the steps of your home and place of business. “With the last storms that hit New York I saw the financial district - the heart of the financial activity in the United States - under water, and the effect it had on our whole economy ” shared Kenneth Kramer, managing director of Rushton Atlantic, LLC.

Mr. Kramer told EcoSeed that not only did he see the effects of megastorms on New York and local coastal areas, but even in his own home, having to shelter family and friends from financial district flooding for the second time in two years.

“And now it’s pretty clear that these weather events, which before were extremely rare, are going to continue to hit us now every few years,” he said.

While Mr. Kramer had believed intellectually in climate change, recent events have brought emotional immediacy to the issue, as the effects are coming fast and leaving their mark in places that previously remained untouched.

With harsher weather becoming the “normal phenomena,” dealing with climate change becomes increasingly unavoidable. As a result of delays in doing so, it will now be necessary to both deal with changes in weather patterns that have already occurred, and to continue to focus on clean technologies to reduce the future emission of greenhouse gases.

Some technologies, like energy efficiency, will both reduce G.H.G. emissions and provide a positive investment return without subsidies. Renewable generation will be necessary to reduce the carbon footprint as well, but may require subsidies until the cost of clean power can be made competitive with conventional power, primarily gas-fired generation.

As a founding partner of valuation consulting firm Rushton Atlantic, Mr. Kramer has not only seen the business potential of clean tech investments, but also their importance in climate change mitigation.  In addition to technological advancement, however, he believes that greenhouse gas emitters must be made to bear the full external costs of burning fossil fuels.

“That’s why government needs to be involved,” explained Mr. Kramer. “To not only assist in the transition to renewable power generation, but also to assure that operators continuing to burn fossil fuel bear the full costs of doing so.”

Government involvement, through funding support for research as well as through incentives and regulations, will impact how clean tech – from renewable generation technology to energy efficiency solutions - is financed, and will facilitate its widespread adaption.

For example, Mr. Kramer told EcoSeed that a carbon tax, or emissions trading scheme, would result in emissions reductions in the business sector, by incenting businesses to incorporate emissions reduction measures and technologies into their operations.

“Policies should be put in to establish emissions reduction targets, but the means of reaching those targets should be left to the free market” he said.

Another mechanism to consider, that has had considerable success in Europe, is the feed-in-tariff.

“F.I.T. works very efficiently, because, unlike U.S.-style tax incentives, it provides subsidized revenues directly to the project owners, which facilitates access to the well-established, liquid and competitively priced project financing market,” Mr. Kramer pointed out. The U.S. system of tax-based subsidies necessitates the use of a limited number of financial intermediaries, providing expensive capital, to monetize the available tax incentives.

In the U.S., the highest profile projects are the utility scale wind and solar generation projects, although incentives and financing options are available for both utility-scale projects and those for residential and commercial use.

One of the most encouraging developments for small-scale renewable power generation in the U.S. is solar leasing, through which a residential or commercial building owner can pay a monthly fee to lease rooftop solar equipment, and use the energy produced to reduce monthly electric bills. Excess energy can be sold back to the grid.

In a similar vein, the solar condo is a freestanding ground mount solar farm whose units are individually owned, and can be financed with mortgages. Their output is metered and fed into the grid, and can be offset against the unit owners’ residential electric bills, even though the solar condo is located remotely from the owner’s residences.

On the commercial and utility scale end of the spectrum, there are ongoing initiatives to modify U.S. financial structures, including real estate investment trusts and master limited partnerships, to allow investors in these vehicles to own renewable energy projects, resulting in a lower cost of capital than available through alternatives such as tax equity. These publically traded vehicles enjoy a broad and well established investor base, and eliminate corporate level taxation, avoiding the double taxation of corporate dividends.

Incenting and supporting the clean tech sector has already proven to pay off in growing renewable power generation, and additional investments in complementary sectors such as energy efficiency and biofuels should continue to make the power sector cleaner and greener. However, it will require not only technological and financial advances to continue to make progress on climate change, but societal commitment and political will as well.

Ken Kramer is co-founder and Managing Director of Rushton Atlantic, LLC, a boutique valuation advisory firm specializing in the energy, infrastructure, manufacturing and transportation sectors. The firm provides specialized valuation services supporting structured and project financings, acquisition due diligence, insurance placement, financial reporting and tax compliance. The Rushton Atlantic team has performed engagements in all major sectors of renewable energy, including wind, solar, hydro, biomass and geothermal.

He is a member of the Renewable Energy & Energy Efficiency Advisory Committee to the U.S. Secretary of Commerce, and has over 30 years’ experience in the structured asset finance field, in valuation consulting, banking and corporate treasury. Ken holds a BS in mechanical engineering from Cornell University, and an MBA from Columbia University and has made numerous speeches and guest lectures in the United States and Europe on renewable energy, due diligence in structured finance and mergers and acquisitions, and has written articles for a variety of financial industry publications.

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