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FEATURE: The world is hotting up and mankind is to blame. Accurate or not, emissions reduction is a high priority for the nations of the world, and for investors the door is opening to a new investment opportunity. Graeme Davies points the way
December 3, 2009

In the eyes of many, the United Nations Climate Change Conference (Cop-15) in Copenhagen next week represents something of a last-chance saloon to reach a global consensus on emissions reduction targets.

This may or may not be true but what Cop-15 will do is illustrate the growing global momentum towards carbon reduction and the sheer weight of investment required for the countries of the world to meet the ambitious emissions reductions targets required. And, with hundreds of billions of dollars required to be spent on carbon reduction over the coming decades as the world seeks to replace a portion of the fossil fuels currently used, investors are potentially looking at the investment opportunity of the century – but, as always, only if they choose their investment wisely.

If the world is to achieve a genuine shift in its energy use away from fossil fuels of even a few per cent, the funds required will be huge. Of course we remain at a very early stage of this process but the threat of climate change to the global economy appears to be galvanising governments around the world into action. The nature of energy generation investment means that returns in this sector will be longer term, but when they come they should be predictable and generous.

Sir Nicholas Stern, when charged with producing a review of the economics of climate change for the UK government in 2007, predicted that stabilising emissions by 2050 at a level 25 per cent below current levels would cost around 1 per cent of global GDP at the time. To put this in context, global GDP in 2008 was $60.6 trillion (£37 trillion) according to World Bank figures.

Indeed, in the past two weeks, China and the US, previously among the most intransigent countries on climate change, have revealed their hands before Copenhagen begins. The US is aiming for a modest cut in emissions in the region of 17 per cent by 2020, although this will then accelerate to 83 per cent of 2005 levels by 2050. China has committed to reducing its carbon intensity by 45 per cent by 2020. This is not a true reduction but it means its future growth will be achieved with much less carbon intensity and represents a significant first step towards genuine reductions.

With President Obama and Chinese Premier Wen Jiabao both now attending, the conference suddenly looks to have some momentum. But the real horse trading is still to be concluded, especially over financial figures that could stretch into the hundreds of billions of dollars.

And the speed of change will have to be quicker than anything previously seen, with many scientists saying global emissions must be stabilised within the next 10 years if we are to have any hope of keeping global warming within a 2C range by 2050. Beyond this level, scientists warn, the dangers and costs to human life could accelerate wildly. To put the 2C rise in context, the planet is currently only 5C warmer than it was in the last ice age.