Tiina Kähö: Towards Carbon Neutral Economy

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Towards carbon neutral economy Tiina Kähö, Senior Lead LUT, Cleaner Technologies and Markets 18th February 2015

Transcript of Tiina Kähö: Towards Carbon Neutral Economy

Towards carbon neutraleconomyTiina Kähö, Senior LeadLUT, Cleaner Technologies and Markets18th February 2015

Sitra Tiina Kähö 18.2.2015

Our duty is to promote Finland's:

• stable and balanced development;

• quantitative and qualitative economic growth;

• international competitiveness and co-operation.

Act on Sitra, the Finnish Innovation Fund (717/1990)

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Heading for the future

Sitra is a fund operating directly under the Finnish Parliament. We finance our operations from the returns on our endowment capital and venture capital investments.

As an independent societal actor, we offer training and bring together experts who seek solutions to systemic challenges, which may even be applicable on an international basis.

We anticipate change and its impact on the Finnish people. We try out new operating models and accelerate business activities aimed at generating sustainable well-being.

We influencesocietal structures and promote changesthat increase well-being.

An independent

societal game changer

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Sitra as a Change Agent

Venture capital and societal trainingFunding R&D Societal change agent

?

Global service society

Closedindustrialsociety

1990

2000

2014

1970

1980

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Resource-wise and carbon-neutral society

Sitra creates the conditions for a resource-wise, carbon-neutral society and for business operationschasing this goal.

Preparing for the impact of climate change and its proactive prevention call for systemic and phased long-term action.

Concern about the scarcity of natural resources and the need to improve our resource efficiency is beginning to guide consumption habits and production activities.

However, increasing our resource efficiency will not be enough – we also need to find alternative materials, services and solutions, and learn to let go of old practices.

We are moving towards a carbon-neutral society based on the principles of one planet living. Our focus is on the opportunities presented by this change.

We promote business activities that solve ecological, social and well-being challenges

We help Finnish companies to expand abroad and further their growth and competitive strength.

We speed up testing and introduction of new business and funding models.

We actively participate in developingthe business of the companies in which we invest in and support their success.

We invest in growth companies that promote sustainable well-being.

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Inter-dependency is increasingCommunities

are empowered

Europe's structures

are crumbling

Skills are challenging information

Human lifespans are

increasing

Technology is being

integrated into everyday

life

Job stability is

disappearing

Power relationships are shifting

Inequality is growing

The roles of cities are growing The effects of

climate change are broadening

Ecological footprints are outgrowing our “shoes”

Well-being is becoming

more important

Megatrends | Sitra 2014/2015

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Growth is weak across the world economy

OECD countries

Still recovering from

financial crisis – loss of

fiscal flexibility

Slower productivity growth

Infrastructure renewal

challenge

Income inequality

China

Looking to restructure its

economy and reduce

energy intensity

Excess financial

leverage

Significant pollution

problems

Low-income countries

Too dependent on

commodity

exports/cycle

Capital constraints

Remaining deep

poverty, including lack

of access to energy,

water, health, food

Middle East

Excess dependency

on hydrocarbon

exports

Insufficient private

sector employment

Middle Income countries

Need escape from “middle

income trap”

Two speed economies with

large productivity gaps

India

Significant

infrastructure gap

Regulatory

complexity

New chance to

catch up

Source: New Climate Economy, 2015Sitra Tiina Kähö 18.2.2015

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Climate Change poses both Threats and Opportunitiesto the Global Economy

Sources: World Bank, OECD, IEA World Energy Investment Outlook 2014, Ministry of Employment and the Economy

OECD: 0.7%-2.5% Global GDP Loss by 2060 – Effects of Climate Change

World Bank: GDP Growth $1.8-2.6 trillion a Year by 2030 – Climate Change Mitigation

IEA: $48 trillion in Energy Investments over the Period to 2035$

Ministry of Employment and Economy: Global Cleantech Market €1600bn€

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Climate performance off track: next 15 years critical

Source: IPCC Sitra Tiina Kähö 18.2.2015

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Next stepsThe Global Commission recommends 10 transformative actions

Source: NCE. For details please see the NCE Global Action Plan (2014)

1 Integrate climate risk into strategic decisions

Secure a strong international climate agreement

End subsidies for the high-carbon economy

Price carbon to send a clear market signal

Scale-up low-carbon innovation

Reduce the cost of capital for low-carbon investment

Move toward connected and compact cities

End deforestation

Restore degraded lands

Phase out unabated coal fast

2

3

4

5

6

7

8

9

10

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Key drivers of growth and climate performance

RESOURCE

EFFICIENCY

INNOVATION

INFRASTRUCTURE

INVESTMENT

HIGH QUALITY, RESILIENT, INCLUSIVE = BETTER GROWTH

ENERGYLAND

USECITIES

WIDER

ECONOMY

Source: New Climate Economy, 2014 Sitra Tiina Kähö 18.2.2015

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Carbon risk and divestments are stepping up on the investors’ agenda

HS 18.2.2015

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Carbon risk and divestments are stepping up on the investors’ agenda

Sitra Tiina Kähö 18.2.2015

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• Carbon Tracker: To reduce the chance of exceeding 2°C warming to 20%, the global carbon budget for 2000-2050 is 886 GtCO2, of which already 36% was burned by 2011.

• In order to stay within the carbon budget, up to 80% of current reservesshould never be dug up and burned

Sources: Carbon Tracker Initiative: Unburnable Carbon, The Economist

All currently known fossil fuelreserves cannot be burned if

we are to limit global warmingto 2 degrees

Carbon Risk: A Carbon Bubble in the Financial Markets?

• The share prices of oil, gas and coal companies depend in part on their reserves, but what if some of those reserves can never be dug up and burned?

15Sources: Carbon Tracker Initiative: Unburnable Carbon, The Economist,

McKinsey&Carbon Trust

Carbon Risk: A Carbon Bubble in the Financial Markets?

• Carbon Tracker: All currently known fossil fuel reserves cannot be burned if we are to limit global warming to 2 degrees. In order to stay within the World’scarbon budget, up to 80% of current reserves should never be dug upand burned

• If energy consumption continues unfettered, unburnable carbon will be reached in just 16 years (according to the latest IEA projections of energy-related fossil fuel CO2 emissions)

Regulation

Financing

Public Opinion

Other external factors

?

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Carbon Risk: A Carbon Bubble in Energy Sector?

• The fossil fuel reserves held by the top 100 listed coal, oil and gas companies represent potential emissions of 745 GtCO2

• Given only 20% of the total reserves can be used to stay below 2°C, then only 149 GtCO2 can be used unabated

Sources: Carbon Tracker Initiative: Unburnable Carbon, The Economist

17Sitra • Tiina Kähö • 18.2.2015 •Sources: Nordea

Towards a Low-Carbon World?

…boost transition towards clean energy while investments in high-emissions projects lose their appeal.

Carbon Price and Taxes

…in wind, solar and energy efficiency erode the competitiveness of fossil fuels.

Technological Development

…and increased attention to climate issues affects the operating environment of fossil fuel companies.

Consumer and Investor

Behavior

All this puts pressure on fossil fuels but also createsopportunities for new business

Jouni18

“If a petrochemical

firm can do this,

anybody can ”

CEO Ray Anderson,

2009

Interface carpets; pioneer in low-carbon transformation and resource efficiency

Source: Jouni Keronen, 2014 Sitra Tiina Kähö 18.2.2015

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Source: Tesla motors website, scdigest.com, autonews.com

Triggering competitive

response

Transforming the auto industry

Tesla market cap: $26bn

~25,000 cars sold in 2013

GM market cap: $54bn

~9.7 million cars sold in 2013

Promoting new

materials

Pioneering batteries

and energy storage

Tesla motors is challenging the status quo in many industries,

and creating huge wealth in the process

Sitra Tiina Kähö 18.2.2015

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Google is becoming one of the biggest “clean tech” companies

on the planet

Source: Google, Greentech Media Sitra Tiina Kähö 18.2.2015

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Finland’s performance in different global cleantech and environmental policy rankings varies from poor to great

Index

The Global Cleantech

Innovation Index 2014

The Global GreenEconomy Index

2014

Environmental Performance Index

The Climate Change

Performance Index 2015

EY Renewable energy country attractiveness

index (9/2014)

Index provider

Cleantech Group, WWF, Tillväxtverket

Dual Citizen LLC Yale UniversityGermanwatch & Climate Action

Network EuropeEY

Index description

Assessment of countries’ potential and conditions for

developing cleantech

innovations.

Assessment of countries'

performance in Green Economy.

Country assessmentbased on 20 national

environmental indicators.

Assessment of countries’ climate

policy and success in tackling climate

issues.

Assessment of the attractiveness of

countries’ renewable energy investment and deployment opportunities.

Finland’s ranking

2./40 8./60 18./17832./61

(Grade: Poor)37./40

Top3 –countries

1. Israel 2. Finland3. USA

1. Sweden2. Norway3. Costa Rica

1. Switzerland2. Luxembourg3. Australia

1. Denmark (4.)2. Sweden (5.)3. UK (6.)*

1. China2. USA3. Germany

Countriesranked next to Finland

Sweden (4.), Denmark (5.), UK (6.), Canada (7.), Switzerland (8.), Germany (9.)

Switzerland (6.), Austria (7.), Iceland (9.), Spain (10.),Ireland (11.), New Zealand (12.)

New Zealand (16.)Portugal (17.)Ireland (19.)Estonia (20.)Slovakia (21.)

Italy (22.)

Ukraine (30.), India (31.),Latvia (33.),Croatia(34.),Greece (35.),Austria (36.)

Philippines (34.), Saudi Arabia (35.), Kenya (36.), Russia (38.), Indonesia (39.), Ukraine (40.)

*None of the countries achieved positions one to three.Sitra Tiina Kähö 18.2.2015

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Finnish Companies have managed to turn Climate Change into Business Opportunities

Energy Efficiency and Related Solutions

Energy Efficient Use of Resources

The role of public risk

capital

• Traditionally most economists argue that the government should focus on the

framework conditions in supporting innovation, and let innovation and

business flourish in the free market

• However, promising or societally important innovations may not appear

tempting to private capital due to substantial risks, capital intensity or the

time horizon from innovation to cash flows – a sort of market failure often seen

with for example radical new medicines or energy sources

• This is where long-term public risk capital can step in, assuming the risks

and uncertainty associated with innovation that would otherwise not find financing

from the private sector

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Slush

• Slush is a non-profit event organized by a community of entrepreneurs,

investors, students and music festival organizers, supported by

seasoned entrepreneurs and venture capitalists

• In the past three years, Slush has grown from a local, 300-person event

to become one of the leading tech and startup events in the world

• In 2014, Slush brings together 10.000 attendees and more than 2500

companies for the two-day event, which takes place on November 18-

19th in Helsinki

Copyright: Slush

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NegaWattEnergy

Efficiency Fund

• NegaWatt Energy Efficiency Funds utilizes an innovative investment model in financing

investments in the built environment, all with the aim of increasing efficient energy use.

• Business rationale: Investment financed by the fund and savings from these energy

efficiency investments are shared between the investor (fund) and the asset owner for a

period of time. After this the benefits flow to the asset owner.

• Funds financially profitable technological measures which achieve material

improvements in the energy efficiency of across buildings, infrastructure and industry.

• Financing for example geothermal heat systems, extensive lighting modernizations, heat

recovery, solar power and many other energy efficiency solutions.

• A prime example of Sitra’s investment target: potential to contribute to improving the

national economy’s competitiveness and reducing both dependency on imported energy

and carbon dioxide emissions.

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CleantechInvest

• Investment fund investing in companies that do profitable business in generating

clean energy and providing solutions for efficient natural resource use

• Energy production

• Energy storage, quality, transfer and efficiency

• New materials and recycling

• Clean water and air

• Operates between cleantech growth companies and large industrial corporations as

a pathfinder, combining the innovative powers of entrepreneurship with industrial

scalability

• Sitra an early investor, IPO in 2014. Stock listing enables also retail investors to

invest in a portfolio of cleantech ventures through the stock market.

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AW-Energy

• AW-Energy Ltd is a Finnish company developing the WaveRoller concept to utilize

ocean wave energy

• WaveRoller has passed the proof of concept stage through extensive marine

testing in Peniche, Portugal as well as in Orkney, Scotland.

• The evidence from the marine testing indicates that WaveRoller has the potential

for becoming a significant driver in making wave energy a mainstream energy

source.

• Sitra amongst the first investors; a strong strategic fit to Sitra’s vision

• A good example about the role of public risk capital: capital intensive, long-term

development project with many uncertainties but immense potential

Sitra accelerating industrial transformation towards a carbon-neutral society

• 5-10 leading corporations commit to developing solutions to challenges posed by climate change

• Large corporations lead the industrial transformation

• Building home markets and ecosystems

• 1-3 national pilot projects

• Policy recommendations

Sitra • Tiina Kähö • 18.2.2015 •

Carbon-neutralindustry

Targeted results

Transformation

has acceleratedthe energy transition

of the whole society, and large companies

lead the way

Increasedcompetitiveness

secures the success of the businesses in the future

Pilot projects and areas

add informationand build the home market

Recommendations

support a functioningbusiness environment

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Sitra prepares Finnish industry for a carbon neutralityjourney

Awareness

•Backgroundstudies

Understanding

•Discussions on selected issueswith group of companies

Acceptance

•Developmentprojects withselectedcompanies

Commitment

•Building blocks for everyone to use

• Carbon neutrality transformation building blocks are generic

• Sitra facilitates cross company co-operation

• Sitra promotes reference areas and pilot projects

• Sitra wants to reach the Finnish industry and help them in thetransformation

Sitra Tiina Kähö 18.2.2015

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Building blocks for carbon neutrality transformation

Strategy

Leadership & Culture

Carbon Efficiency

New CleantechBusiness

Carbon neutrality

Resource wisdom

Bu

sin

essS

ocie

ty

Sitra • Tiina Kähö • 18.2.2015 •

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In addition, carbon neutrality should be understood in a wider context

Strategy

Leadership & Culture

Carbon Efficiency

New Cleantech Business

Carbon neutrality

Resource wisdom

Bu

sin

essS

ocie

ty

Eco

syste

ms

Value chain and carbon hand print

Corp

ora

te

citize

nsh

ip

Sitra • Tiina Kähö • 18.2.2015 •

Industry cases

Generictopics

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Building blocks in Carbon neutral industry focus area

Strategy

Study: How carbonneutrality is

changing the globalbusiness?

Industry workshop

Carbon neutralityrisks

Tools and methodsfor climate and

carbon risk analysis

Industry workshop

Building blocks for Carbon neutral industry transformation

Carbon neutrality opportunities

Industry workshop

New cleantechbusiness and

financing modelsreview

Industry workshop

Cleantech innovationsreview

Next best ecosystem Next best value chainNext best carbon

hand print

Next best leadershippractises

Next best innovationpractises

Next best business models

Next best carbonneutrality LCA

Sitra • Tiina Kähö • 18.2.2015 •

Climate Leadership Council

Main projects

• Low carbon roadmap/building block development

for companies

• Supporting the clean tech developments in the

capital area of Finland

• Supporting World Bank Carbon Price initiative

• Development and piloting climate and carbon risk

analysis methods

• CLC utilises the results of Sitra Carbon-neutral

Industry Focus Area: and develops collaboration

with relevant national and international partners

J Keronen, Climate Leadership CouncilSitra • Tiina Kähö • 18.2.2015 •

J Keronen, Climate Leadership CouncilSitra • Tiina Kähö • 18.2.2015 •

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”Business and goverment must work together to design effective policy to support the transition to green economy ”

Lähde: KPMG, Sustainable Insight, 2012.

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@SitraFund

@tiinakaho

Thank you!

Building a successful Finland for tomorrow