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Climate Policy Uncertainty Poses Investment Risks
Future world power supplies cannot be assured unless substantial investment takes place, according to a new report.
Future world power supplies cannot be assured unless substantial investment takes place, according to a new report.
The International Energy Agency (IEA) World Energy Outlook (WEO) 2006 estimates that power generation investments to meet projected demand between 2005 and 2030 must exceed $3.1 trillion under an alternative scenario which takes into account policies proposed to reduce CO2 emissions.
A number of risks could cause the delay of necessary investment. One critical uncertainty is the future form and stringency of climate policy, which could affect investment behavior in the power sector.
The IEA began a multi-stage project in 2006 to explore the various ways in which climate policy uncertainty influences the timing of energy investment decisions.
The IEA’s report “Climate Policy Uncertainty and Investment Risk” is the initial stage in the project. Its findings include:
- Climate policy uncertainty poses a threat as any other uncertainties, but it can be reduced with predictable policies.
- Climate policy uncertainty, all other premises being equal, slows down the introduction of new technologies when compared to conventional ones, because it adds an additional risk to other large existing ones.
- Companies will generally be confident in committing capital to projects, even in an uncertain environment, as long as they can establish a competitive advantage over other market players.
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