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Climate Change
Global
Global Research
A Climate for Around the world, governments have
allocated more than USD430bn in fiscal
Recovery stimulus to key climate change
investment themes. China and the US
The colour of stimulus goes green lead the way
Key beneficiaries include rail
transportation, water infrastructure, grid
expansion and improved building
efficiency. Renewable energy has
received limited support to date, except
in the USA
We believe that these commitments are
but the first instalment of further efforts
by governments to use low-carbon
growth as a key lever for economic
recovery, as part of both the G-20
recovery talks and the Copenhagen
climate negotiations
As governments struggle to revive their economies, they are
also seeking to lay the foundations for the next phase of
growth. Increasingly this is being linked with the climate
change agenda, with a sizeable slice of fiscal stimulus plans
25 February 2009 allocated to launching a low-carbon recovery.
Nick Robins*
We have analysed more than 20 economic recovery plans
Analyst
and categorised the spending and tax-cutting measures
HSBC Bank plc
+44 20 7991 6778 nick.robins@hsbc.com according to the 18 investment themes identified in the
HSBC Climate Change Index. This reveals that around 15%
Robert Clover*
Analyst of the USD2.8trn in fiscal measures can be associated with
HSBC Banks plc
investments consistent with stabilising and then cutting
+44 20 7991 6741 robert.clover@hsbcib.com
global emissions of greenhouse gases.
Charanjit Singh*
Analyst We have identified five key questions that need to be
HSBC Bank plc
answered: is the green stimulus large enough, when will it
+91 80 3001 3776 charanjit2singh@hsbc.co.in
materialise, is it really green, how many jobs will be created
View HSBC Global Research at: http://www.research.hsbc.com
and how effective will it be in mobilising private investment?.
*Employed by a non-US affiliate of HSBC Securities (USA) Inc,
We believe that the momentum behind this agenda will grow
and is not registered/qualified pursuant to NYSE and/or NASD
regulations through 2009 and expect further green stimulus initiatives
linked to the G-20 economic recovery summit in April and the
Issuer of report: HSBC Bank plc
Copenhagen conference in December, particularly in Japan,
Disclaimer & Disclosures
the UK and the USA.
This report must be read with the
disclosures and the analyst certifications
in the Disclosure appendix, and with the
Disclaimer, which forms part of it

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Climate Change
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25 February 2009
Summary
We have identified over USD430bn in fiscal stimulus for key
climate change themes, with China and the USA in the lead
We believe the construction and capital goods sectors will be
primary beneficiaries as governments expand green infrastructure
We expect the emphasis on a low-carbon recovery to intensify as
part of the G-20 process and Copenhagen negotiations
Money on the table We estimate more than USD430bn out of nearly
USD2.8trn in tax cuts, credits and extra spending
Governments are facing a triple crisis of economic
are aligned with the key investment themes
downturn, energy insecurity and climate change.
contained in the HSBC Climate Change Index.
Across the world, they are responding by
allocating a sizeable proportion of their fiscal
stimulus packages to investments consistent with
a low-carbon economy.
A Climate of Recovery? The climate change investment dimension of economic stimulus plans
Country Fund Period Green Fund % Green Fund Low-Carbon Power _ _______ Energy Efficiency (EE)________ Water/Waste
USDbn Years USDbn Renewable CCS/Other Building EE Lo C Vech+ Rail Grid
Asia Pacific
Australia 26.7 2009-12 2.5 9.3% - - 2.48 - - - -
China 586.1 2009-10 221.3 37.8% - - - 1.50 98.65 70.00 51.15
India 13.7 2009 0.0 0.0% - - - - - - -
Japan 485.9 2009 onwards 12.4 2.6% - - 12.43 - - - -
South Korea 38.1 2009-12 30.7 80.5% 1.80 - 6.19 1.80 7.01 - 13.89
Thailand 3.3 2009 0.0 0.0% - - - - - - -
Sub-total Asia Pacific 1,153.8 0.0 266.9 23.1% 1.8 0.0 21.1 3.3 105.7 70.0 65.0
Europe
European Union 38.8* 2009-10 22.8 58.7% 0.65 12.49 2.85 1.94 - 4.85 -
Germany 104.8 2009-10 13.8 13.2% - - 10.39 0.69 2.75 - -
France 33.7 2009-10 7.1 21.2% 0.87 - 0.83 - 1.31 4.13 -
Italy 103.5 2009 onwards 1.3 1.3% - - - - 1.32 - -
Spain 14.2 2009 0.8 5.8% - - - - - - 0.83
United Kingdom 30.4 2009-12 2.1 6.9% - - 0.29 1.38 0.41 - 0.03
Other EU states 308.7 2009 6.2 2.0% 1.9 - 0.4 3.9 - - -
Sub-total Europe 325.5 0 54.2 16.7% 3.5 12.5 14.7 7.9 5.8 9.0 0.9
Americas
Canada 31.8 2009-13 2.6 8.3% - 1.08 0.24 - 0.39 0.79 0.13
Chile 4.0 2009 0.0 0.0% - - - - - - -
US EESA 185.0** 10 Years 18.2 9.8% 10.25 2.60 3.34 0.76 0.33 0.92 -
US ARRA 787.0 10 Years 94.1 12.0% 22.53 3.95 27.40 4.00 9.59 11.00 15.58
Sub-total Americas 1,007.8 114.9 11.4% 32.8 7.6 31.0 4.8 10.3 12.7 15.7
Total 2,796 436 15.6% 38.0 20.1 66.8 15.9 121.8 91.7 81.6
(*Only EUR30bn from direct EU contribution considered for calculation as the rest (EUR170bn) is contributed by member states; **USD700bn under TARP not considered for calculation as the fund is mainly for bank bailouts not for
fiscal stimulus) + Low Carbon Vehicles
Source: HSBC estimates
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25 February 2009
stabilisers in Europe has meant that the EU
According to HSBC’s latest economic forecast,
stimulus is so far smaller in size. However, the
global economic activity is expected to fall 1.4%
climate change dimension is greater than in the
in 2009, a worse outcome by far than any other
USA, due to a focus on low-carbon investment in
post-war recession. Among our economists, there
France, Germany and at the EU level.
is some hope that the pace of deterioration will
slow and, perhaps, that activity will pick up later
Green stimulus theme allocation
in the year as a result of the various stimulus
Energy
packages (Stephen King and Stuart Green, Over Efficiency
Buildings
the edge, 23 February 2009). 68%
Water 15%
19%
China and the USA in the lead Lo C Vech
4%
Other Low
China and the USA dominate the landscape in Rail
Carbon
terms of both the size of their overall stimulus plans 27%
5%
Grid
as well as the extent of the green dimension. With
21%
Renew able
sizeable financial reserves and a tradition of long-
9%
term planning, in November 2008, China launched
its RMB4,000bn (USD584bn) package. Almost Source: HSBC estimates
40% of this is allocated to “green” themes, most
Boosting green infrastructure
notably rail, grids and water infrastructure, along
with dedicated spending on environmental Laying the foundations to underpin future growth
improvement. Elsewhere in Asia, South Korea has is a core element of most stimulus plans, and the
introduced a dedicated Green New Deal, with more bulk of climate dimension is allocated to a suite of
than 80% allocated to environmental themes. green infrastructure options, notably buildings,
grids, rail and water. The construction and capital
The new American Recovery and Reinvestment
goods sectors are therefore likely to be the major
Plan commits USD787bn to kick-start the
beneficiaries, along with an indirect effect for
economy, with USD94bn for renewables, building
power, rail and water utilities.
efficiency, low-carbon vehicles, mass transit,
grids and water. Although the green component is
smaller than China’s, it is more broadly based,
and the only plan with a real boost to renewables.
The existence of substantial automatic fiscal
Green stimulus regional ranking (USDbn) Green stimulus regional ranking as a % of total stimulus
UK Spain
2 6%
Aus 2 UK 7%
Canada Canada 8%
3
France 7 Aus 9%
Japan US 12%
12
Germany 14 Germany 13%
EU France 21%
23
S. Korea 31 China 38%
US EU 59%
112
China 221 S. Korea 81%
0 50 100 150 200 250 0% 20% 40% 60% 80% 100%
Source: HSBC estimates Source: HSBC estimates
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25 February 2009
Estimated timing of green stimulus spending (USDbn) Estimated timing by theme (USDbn)
250 150 143
204
200
88
100
150 121
48
40
77 50
100
22
21 14 15
12 10
4 4
50 19
0
0 2009 2010 2011 2012
2009 2010 2011 2012 Low Carbon Energy Efficiency Water/Waste
Source: HSBC estimates Source: HSBC estimates
We have used these estimates from the IMF to
Timing the delivery
analyse the green stimulus, and estimated an
We expect the impact to be muted in the first half average multiplier of just over 1 for the total green
of 2009 – except perhaps in China – with a pick- component of the global stimulus package. This
up in the second half. As a result, we estimate that results in a multiplier of USD460bn in the next
three-quarters of green stimulus spending will be two years, resulting in a total level of spending of
disbursed in 2009 and 2010, with the bulk some USD890bn.
impacting the economy in 2010. However, this
The next instalment?
timetable could slip in the implementation phase.
Multiplying the impact This year, 2009, will not be a normal one either
for the global economy or for climate change.
Typically, the range of multipliers for government
Designing a low-carbon recovery will be on the
spending varies from less than one to more than
agenda of the forthcoming G-20 summit in April
four, depending on the economic assumptions
en route to the pivotal climate negotiations this
chosen, the type of fiscal policy and the country
December in Copenhagen. At the national level,
concerned. Multipliers also depend on the type of
we expect further action in Japan with the launch
instruments used, the level of trade openness,
of its own Green New Deal, a federal Renewable
borrowing constraints, the response of monetary
Portfolio Standard in the USA and a Low Carbon
policy and long-term sustainability.
Manufacturing strategy in the UK.
Multiplier effects of fiscal stimulus
Note: In the analysis that follows, we draw on the
Measures ____________Range_____________
latest economic forecasts published by Stephen
Lower Upper
King and Stuart Green in their note, Over the
Tax cuts 0.3 0.6
Infrastructure investment 0.5 1.8
Edge (23 February 2009). We also provide a
Other* 0.3 1
climate change profile for each country. Emission
Source: IMF 2009, Group of Twenty Meeting of the Deputies Feb 2009; (* Transfers to state
govt, assistance to small and medium-sized enterprises and housing markets)
data for industrialised countries is cited in GHG
terms (mtCO2e) controlled under the Kyoto
Protocol, whilst for emerging economies we quote
only emissions of carbon dioxide primarily from
energy and cement manufacturing (mtCO2).
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Contents
Summary 2 Italy 29
Money on the table 2 United Kingdom 30
China and the USA in the lead 3 Europe: summary 32
Boosting green infrastructure 3 The Americas 33
Timing the delivery 4 Canada 33
Multiplying the impact 4 USA 35
The next instalment? 4 Global 39
The green deal gets real 6 Theme analysis 40
From margin to mainstream 6 Allocating the stimulus 41
Targeted, timely, temporary… 7 Low-carbon power 42
…and transformative 7 Renewables 42
Climate categorisation 9 CCS and others 42
Five questions for green deals 10 Energy efficiency 42
Water, waste and pollution control 44
Regional Analysis 12
Asia Pacific 13
Disclosure appendix 46
Australia 13
Disclaimer 47
China 15
India 18
We gratefully acknowledge the assistance of D Saravanan,
India 18
S Goel and R Chaturvedi from the HSBC Climate Change
Centre of Excellence in the preparation of this report.
Japan 19
South Korea 20
European Union 22
Germany 25
France 27
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The green deal gets real
Policymakers are increasingly favouring a strong climate
component in economic recovery plans
This could help frontload the investment required to slow, stabilise
and then reduce greenhouse gas emissions
Questions remain over size, timing, environmental effectiveness,
job creation potential and multiplier effects
From margin to mainstream The recent sharp rise in energy prices – and their
subsequent collapse – has provided a strategic
Over the past six months, the deepening global
warning of the importance of reinforcing energy
economic downturn has propelled ideas that were
security, notably through a substantial
once on the margins of economic policy into the
improvement in the efficiency with which
heart of decision-making: bank nationalisation,
energy is used in homes, businesses and
quantitative easing and, the focus of this report,
transport, and through the mobilisation of free,
low-carbon recovery. In July 2008, a group of far-
inexhaustible renewable energy resources.
sighted pioneers in the UK proposed a “Green
New Deal” as a way of reviving demand, creating The low-carbon economy can also be a job-rich
jobs and accelerating the transition to an economy economy at a time of soaring unemployment,
consistent with the need to dramatically reduce particularly through enhancing building
greenhouse gas (GHGs) emissions over the efficiency, either via retrofit or new
coming decades1. construction, and improving mass transit.
Advocates of a low-carbon stimulus now exist at the There is growing acceptance that the next wave
highest levels in government and business across the of productivity and innovation could well come
globe. The reasons for this shift are five-fold: from smart technologies that enable a growing
world economy to thrive in the context of
Policymakers realise there are powerful
deepening carbon as well as other natural
symmetries between the systemic failures of
resource constraints, most notably water.
risk management that have led to the current
financial crisis and those that threaten There is the importance of protecting the
dangerous climate change if GHG emissions climate itself, which all major world leaders
are left unchecked. accept as a global imperative. The science is
secure, impacts are already present and
negotiations are underway for a new global
climate treaty, scheduled to be completed this
December in Copenhagen.
1
New Economics Foundation, A Green New Deal, July 2008
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This agenda is by no means uncontested. ‘sustainable’, it is not using the term in the
Commercial and political concerns that environmental sense. Nevertheless, it does
environmental action in a recession is an spotlight the value of ‘a few high profile
unaffordable luxury certainly remain. Indeed, the programmes, with a good long-run justification
European Union’s Climate Package was the target and strong externalities (for example, for
of a sustained assault to reduce the cost of carbon environmental purposes) can also help, directly
curbs in December 2008. Yet, in spite of pressures and through expectations’.
to water down its climate commitments, the
Past and projected global emissions (1970-2050) (GtCO2e)
package came through largely intact. What has
80
changed is the content of the climate investment
70
narrative, moving away from an emphasis on the
60
costs of confronting global warming change to a
50
focus on clean-growth opportunities. 40
30
Targeted, timely, temporary… 20
10
Governments are currently preoccupied with
0
confronting the twin crises of financial collapse and
1970 1980 1990 2000 2010 2020 2030 2040 2050
economic slowdown, and are responding with
interest rate cuts, bank rescue plans and an array of Source: Netherlands Environmental Assessment Agency, IPCC SRES A1FI, HSBC
fiscal measures to get demand moving again. More
…and transformative
than 20 governments have introduced emergency
economic stimulus packages to cut taxes and
The long-run justification for determined action on
increase spending. Most of these efforts are inward-
climate change is clear. The globe’s leading
looking, focusing on expanding the domestic
scientists concluded in 2007 that global GHGs –
economy. But there is growing awareness of the
most notably carbon dioxide – would need to fall by
need for international coordination through the
50-85% by 2050 from 1990 levels if the world was
Group of 20 leading economies.
to stand a reasonable change of avoiding dangerous
and irreversible impacts in the form of storms,
The International Monetary Fund has
floods, droughts, heat waves and sea-level rise3.
recommended that ‘the optimal fiscal package
should be timely, large, lasting, diversified,
The 2008 G-8 summit in Hokkaido committed the
contingent, collective and sustainable’2. Others
world’s leading countries to hitting the lower end
have shortened the list to a simpler trinity of
of this range. With Barack Obama now in the
‘targeted, timely and temporary’ measures,
White House, the USA has pledged to cut its
highlighting the importance that government
emissions by 80% by mid-century, reflecting the
action should be seen as a passing phase in policy,
disproportionate share that the industrialised
which does not result in the build-up of
world must take as a result of their historic
unbearable levels of debt that would constrain
emissions and greater capacity to act.
medium-term prospects. When the IMF
underscores the importance of the package being
2
Antonio Spilimbergo, Steve Symansky, Oliver Blanchard and Carlo
Cottarelli, Fiscal Policy for the Crisis, IMF Staff Position Note, 3
IPCC, Fourth Assessment Review, 2007
December 2008
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Hitting these targets is made all the more difficult Changing course on climate change will require a
by the fact that emissions of GHGs are heading in transformation in the global economy, a
precisely the wrong direction. The UN transformation that is certainly unprecedented but
Framework Convention on Climate Change one that is both highly achievable and comes with
(UNFCCC) was agreed in June 1992, and a suite of spin-off benefits in terms of security,
bolstered in 1997 with the Kyoto Protocol, which innovation and growth. The International Energy
set binding targets on the industrialised world to Agency (IEA) has concluded that an ‘energy
cut its emissions by 5% by 2008-12 from 1990 revolution’ is needed to halve emissions by 2050
levels. But rather than stabilising and then falling, through a mix of measures that cut the energy
emissions have actually accelerated through a intensity of growth as well as the carbon
intensity of energy4.
combination of a rapidly expanding world
economy and increasing carbon intensity as coal
To take one example, in the global power
plays an ever-larger role in the global energy mix,
generation sector, the average carbon intensity of
rising from 24% in 2002 to 29% in 2007.
energy needs to fall by nearly 90% by 2050 from
The economic downturn is certainly set to slow around 500gCO2/kWh to just 60gCO2/kWh. In
this growth in emissions in 2009 and 2010 – a the UK, which has recently committed itself to an
reality reflected in the precipitous fall in the 80% emission cut by 2050, the consequences are
European carbon price from EUR21 in February even more profound. By 2035, emissions from
2008 to just EUR8.4 today. But as evidence from power generation will need to fall from
the Great Depression shows, emissions will rise 560gCO2/kWh to 52gCO2/kWh, requiring a
once again when the economy recovers, unless substantial boost to renewable power and heat as
structural action is taken in the meantime to well as the roll-out of pivotal technologies such as
change the content of growth. carbon capture and storage (CCS).
Carbon emissions and the Great Depression (mtCO2/annum)
6000
4763
5000 4433
4187 4371
4198 4143
3894 3905 3861
3568 3766
3557 3531 3575 3604
4000 3447
3417
3106 3274
2944 3098
3000
2000
1000
0
1920 1921 1922 1923 1924 1925 1926 1927 1928 1929 1930 1931 1932 1933 1934 1935 1936 1937 1938 1939 1940
Source: CIDAC, HSBC
4
IEA, Energy Technology Perspectives, June 2008
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Tighter standards for the energy efficiency of
Reducing power generation carbon intensity (gCO2 / kWh)
buildings, vehicles and appliances.
600
Global Av erage OECD
500 Preventive investments to adapt to the impacts
of climate change, particularly in developing
400
countries.
300
~90%
200
Policies to expand natural carbon sinks as well
100 as reduce emissions from deforestation and
degradation (REDD), especially in the tropics.
0
2005 2050 (BLUE Map)
Scaled-up financial support for developing,
transferring and deploying clean technologies
Source: IEA-ETP 2008
in emerging economies.
Globally, the IEA estimates that annual
The UN estimates that more than 80% of required
investments in clean energy systems for electric
investments will normally come from the private
power, heat and cooling, industry and transport
sector such as consumers and business5. However,
need to surge 18 times from current levels to an
in the extraordinary circumstances of the current
average of USD1.3trn between 2005 and 2050.
crisis, a higher proportion could well come from
IEA also estimates that these investments will
the state. Allocating extra public spending to
yield net fuel savings over the same period of
green recovery plans should not be seen as a
USD5trn. The fear of energy policymakers,
substitute for taking tough decisions about
however, is that the current slowing of capital
strategic policy frameworks. But this extra public
investments risks an energy supply crunch when
spending can play a critical function in first
growth rebounds. The IEA estimates that if
ensuring that the positive momentum in climate
growth is restored on its carbon-intensive status
investments is not lost in the recession, and
quo ante then emissions would resume their
second in ‘building the foundations for sound,
upward path, reaching levels 45% higher than in
sustainable and strong growth in the future’.6 The
2006 by 2030.
result could be akin to killing a flock of birds with
The timing of climate investments is just as one or two stones.
important as their scale and allocation. Scientists
Climate categorisation
at the IPCC have indicated that global emissions
need to peak by 2015, making action in the next In the pages that follow, we analyse the “green”
few years vital to change the emission trajectory. or climate change components of 20 national and
This is the focus of the forthcoming Copenhagen regional recovery plans. We go into greater depth
climate summit, which aims to achieve an and refine the initial analysis contained in our
international consensus on the actions over the January report, Green Rebound. To structure our
medium term to 2020 and long term to 2050. Key analysis, we have used the 18 climate change
elements of a global climate strategy include: investing themes identified by the HSBC Climate
An effective price on carbon, for example,
through emission trading and green taxes. 5
UNFCCC, Investment and Financial Flows to Address Climate
Change, 2007.
6
Incentives for the expansion of low-carbon Alex Bowen, Sam Fankhauser, Nicholas Stern and Dimitri Zenghelis,
An outline of the case for a ‘green stimulus’, Grantham Institute on
energy power such as renewables and CCS. Climate Change and the Environment, February 2009.
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Change Index and classified relevant expenditures investable – in other words it is not yet at
accordingly (see Joaquim de Lima and Vijay commercial scale and therefore is not associated
Sumon, Climate Change December 2008 for the with sufficient revenue generation. Finally, we
latest analysis of the Index). have found no fiscal allocations at present to
carbon finance.
The HSBC Climate Change Index identifies four
Five questions for green deals
main clusters of investment opportunity:
Overall, more than USD430bn, or approximately
Low-carbon energy production, including
15% of the total stimulus package (USD2.8trn), is
renewable sources such as geothermal, hydro,
allocated to climate change investment themes.
wind and solar, along with nuclear power.
For business, investors and taxpayers, five key
Energy efficiency & energy management,
questions need to be asked about the relationship
including goods and services that enhance
between the current crop of economic recovery
building, industrial and transport efficiency
plans and climate change, for which we only have
(such as fuel-efficient vehicles and modal
preliminary answers at present:
shift) as well as energy storage.
Are plans allocating enough resource to the
Water, waste and pollution control, including
green stimulus? There is no magic proportion
water conservation, treatment and supply.
that should be targeted to climate change. The
Grantham Institute in the UK has suggested a
Carbon finance, most notably associated with
20% benchmark, resulting in ‘a “ball-park”
carbon markets.
figure of USD400bn of extra public spending on
We have found considerable diversity in the plans
“green measures” over the next year or so’. A
that been issued to date. Many of the plans have
report commissioned for the UN Green
crucial details over timing and allocation still to
Economy Initiative has proposed that the
be finalised. We have therefore attempted to be
G-20 should spend 1% of GDP on reducing
conservative in our analysis, and have produced a
carbon recovery over the next two years,
provisional set of estimates for the climate change
equivalent to USD460bn.7 These numbers are
dimension. We believe that these estimates will
also in line with recommendations of the IEA’s
change as greater precision is given over the
2008 World Energy Outlook, which estimates
direction of the stimulus plans – and as the plans
that clean energy investments of USD465bn per
themselves are updated or superseded.
year need to be made from 2010-30.
In our analysis, we have found a number of
When is the green stimulus likely to materialise?
themes emerging as major beneficiaries. These
Much is made of the need to focus on “shovel-
include sub-themes such as rail infrastructure,
ready” projects in a stimulus plan, and for
which is part of the broader transport efficiency
investors, asset valuations of potentially affected
theme, as well as grid infrastructure, which is
sectors will depend on the precise timing of
included in the Index’s industrial efficiency
these measures taking effect. One concern is
theme. We have also identified areas of spending
that fine-sounding plans could fail to have the
currently outside the Index, most significantly
desired impact in the implementation phase.
around carbon capture and storage (CCS). CCS is
clearly a potentially pivotal technology, but is
currently not included in the Index as it is not 7 Edward Barbier, A Global Green New Deal, UNEP, February 2009
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This makes it imperative that governments How effective is the green stimulus at
are crystal clear about the administration mobilising private investment? Estimates vary
of delivery. of multiplier effects of government
expenditure in the wider economy. The IMF
How green is the Green New Deal? At this
cites existing studies that suggest a range of
stage, our assessment has focused on scoping
fiscal multipliers from less than one to more
out the many contours of the global green
than four, depending on assumptions, type of
stimulus. However, there is no necessary
policy and country. Germany’s first stimulus
reason why a policy that is badged green will
package, for example, includes generous
actually result in progress towards a low-
amortisation rules for companies and
carbon economy. Indeed, there is a risk of
incentives for climate-friendly home
“green camouflage” with extra subsidies
renovation. Together, these will cost
being targeted to industrial favourites without
EUR12bn over two years and are expected to
any real pressure for carbon transformation.
trigger EUR50bn in private investment,
Equally, it is important that climate factors
according to the IMF, implying a multiplier
are integrated throughout economic recovery
effect of four times. Across the globe, our
plans to ensure that good “green” measures
estimates suggest an average multiplier for
are not blotted out by carbon-intensive
the green stimulus of just over 1, yielding
spending elsewhere.
USD460bn in extra spending.
How many jobs will be created in the short
All five of these questions point to the need for
and medium term? Money invested in clean
the vast sums now being allocated to stimulus
energy is estimated to create twice as many
plans, green or otherwise, to be made to work
jobs per dollar invested compared with
hard for the economy, jobs and the environment.
traditional fossil fuel-based energy8. What is
This is requires attention to detail as well as
important here is not just the job creation
transparency – all of which is especially important
potential of “green” public works projects,
as we believe that what has emerged to date is
which by nature will come to an end, but the
only the first instalment of plans for green
degree to which the stimulus actually builds
economic stimulus through 2009 and 2010.
the base for sustained employment in low-
carbon industries in the upturn9.
8 Center for American Progress, Green Recovery, September 2008
9 UNEP, ILO, IOE, ITUC - Green Jobs: Towards Decent Work in a
Sustainable, Low-Carbon World, 2008
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Regional Analysis
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ASIA PACIFIC Australia’s GHG emissions (mtCO2e)
Australia 700 700
600 600
Economic backdrop 500 500
400 400
Australia’s economy has slowed considerably, yet
300 300
HSBC forecasts a moderate 1.0% GDP growth in
200 200
2009 and a rebound in 2010.
100 100
0 0
Australia’s real GDP growth (%)
1990 1992 1994 1996 1998 2000 2002 2004 2006
5.0 Australia Ky oto Target
Source: http://www.ageis.greenhouse.gov.au
4.0
3.0
Australia is also planning to introduce the Carbon
Pollution Reduction Scheme on 1 July 2010, a “cap
2.0
and trade” system similar to EU ETS. The scheme
1.0
will be Australia’s primary policy tool to drive
0.0 reductions in emissions of greenhouse gases11. The
2005 2006 2007 2008 2009e 2010e scheme will cover around 75% of Australia’s
emissions and involve mandatory obligations for
Source: IMF World Economic Outlook Database, October 2008; HSBC estimates
around 1,000 entities. As part of the Mandatory
Climate change profile Renewable Energy Target (MRET), Australia
committed in 2007 to sourcing 20% of electricity
Australia has recently rejoined the international
supply from renewable energy by 2020.
consensus on climate change. As part of the 1997
Kyoto Protocol, the Federal government Troubled stimulus
successfully negotiated a 108% emission target
In February 2009, the Australian government
from 1990 levels to 2008-12. However, Australia
unveiled its AUD42bn (USD27bn) Nation
then refused to ratify the Protocol, a position that
Building and Jobs Plan. Initially rejected in the
was reversed in December 2007 when the new
Senate, the revised plan will create a cAUD22.5bn
Rudd Administration came into office. The lack
deficit in the year ending 30 June, the first
of assertive policy frameworks over the past
shortfall in seven years. The stimulus package
decade has meant that Australia’s emissions grew
plans to distribute AUD12.7bn in cash to families
by approximately 35% between 1990 and 2004
and low-income earners and spend AUD28.8bn
and are projected to rise 50% above 1990 levels
on schools, roads, hospitals and energy efficiency.
by 201010. Australia has now set itself a long-term
However, the package does not allocate spending
target to reduce GHGs by 60% from 2000 levels
to lower carbon power or water management
by 2050, with a medium-term target to reduce
emissions by between 5% and 15% below 2000
levels by the end of 2020.
10 Australian Government, Analysis and recent trends of greenhouse
indicators 1990-2004 11 http://www.climatechange.gov.au/whitepaper/summary/index.html
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25 February 2009
Energy efficiency
About 9% of the package is dedicated to building
efficiency through the provision of free ceiling
insulation to around 2.7 million Australian homes,
cutting average fuel bills by AUD200 per year. In
turn, this measure could cut GHGs by around
49.4tCO2e by 2020, equivalent to taking more
than 1 million cars off the road12.
The plan has been welcomed by an innovative
coalition of environmental, business and labour
groups that includes the Australian Institute of
Superannuation Trustees, the Australian Green
Infrastructure Council and the Property Council of
Australia, along with the Australian Conservation
Foundation and the Australian Council of Trade
Unions. In a statement issued in December, the
group highlighted, ‘Super funds stand ready to
partner with Government on this agenda, and can
provide a significant contribution to the funding
requirements around sustainable infrastructure’13.
Following the government’s package, the group
has called for ‘further green economic stimulus
measures at a scale and scope that is comparable
to the investments being made in both the USA
and China.’14
12 http://www.treasurer.gov.au/DisplayDocs.aspx?doc=pressreleases/
2009/008.htm
13 http://www.unep.org/greeneconomy/docs/Green_New_Deal_statement_
20081202.pdf
14 http://www.aist.asn.au/Pages/PolResAdv/SubPage_Media/documents/
SCCCPlus_EconomicStimulus9Feb09.pdf
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China realisation that it has recently overtaken the USA
as the world’s largest emitter of greenhouse gases.
Economic backdrop
Although China’s contribution remains low by
China’s Q4 2008 GDP dropped sharply to a historical and per capita stands, its emissions’
seven-year low of 6.8% y-o-y from 9% y-o-y in trajectory remains on an upward curve. The IEA
Q3 2008. HSBC expects growth to slow to 7.8% estimates that China’s energy-related CO2
in 2009 ─ the lowest in nine years ─ before emissions rose by more than 250% between 1990
bouncing back to around 9% in 2010. and 2006 to 5.65GtCO215. Under the IEA’s
“business as usual” scenario, China’s emissions
China’s Real GDP growth (%)
may double again by 2030 to 11.71GtCO2, which
14.0
would be twice the level of the USA.
12.0
China’s CO2 emissions (mtCO2)
10.0
8.0 8000
7000
6.0
6000
4.0
5000
2.0
4000
0.0
3000
2005 2006 2007 2008 2009e 2010e 2000
1000
Source: IMF World Economic Outlook Database, October 2008; HSBC estimates
0
1990 1993 1996 1999 2002 2005 2010
Climate change profile
China has demonstrated a rapidly growing Source: Netherlands Environmental Assessment Agency; International Energy Outlook 2008
commitment to climate change. In 2007, it
China’s emerging “high-growth, low-carbon”
published its National Climate Change
strategy is underscored by recent policy decisions:
Programme (CNCCP), followed in October 2008
with its first White Paper. Improving energy China lifted export tax rebates on labour-
efficiency remains at the core. The target within intensive and high value-added products four
the current 11th Five Year Plan is to cut energy times in H2 2008 but kept export rebates on
use per unit of GDP by 20% from 2005 levels by energy-intensive and polluting products
unchanged.
2010. China has already reduced energy intensity
by 1.6% in 2006 and 3.7% in 2007 and is China raised fuel consumption tax on gasoline
expected by the US Energy Information Agency five-fold to RMB1 from RMB0.2 per litre and
to hit the 20% target on schedule. China is also the tax on diesel eight-fold to RMB0.8 from
expanding its renewable sector rapidly. In 2008, RMB0.1 per litre.
China doubled its installed wind capacity, making
China has initiated not just the largest
it the world’s second-largest market for new wind
stimulus package to date, but also the plan
installations after the USA. We expect China to be
with the largest amount dedicated to climate
the world’s biggest market for wind in 2009.
change themes.
China’s policy position rests on growing
awareness of the country’s vulnerability to the
mounting impacts of global warming and the
15 IEA, World Energy Outlook 2008
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25 February 2009
China’s stimulus package carbon power such as renewables. Industry
sources expect the wind sector to ‘nearly double
China’s tradition of long-term planning enabled it
again’ in 2009, according to the Chinese
to respond rapidly to the worsening economic
Renewable Energy Industry Association16.
climate by bringing forward construction work on
planned projects. Launched on 9 November 2008,
Energy efficiency & energy management
China’s stimulus package of RMB4trn
Low-carbon vehicles: Apart from the RMB4trn
(USD586bn) over two years is equivalent to
stimulus package, China also issued a plan for
13.4% of 2008e nominal GDP. Since then,
its auto sector in January 2009. This included a
provincial governments have been racing to
cut in the sales tax from 10% to 5% for cars
produce their own investment plans that together
with engines smaller than 1.6 litres. In addition,
total over RMB10trn. Not all of the planned
the package promises RMB10bn (USD1.5bn) in
investment will be new spending, but HSBC
subsidies over the next three years for
estimates that at least 30-40% of the central
automakers to develop alternative-energy
government’s RMB4trn plan will be new money,
vehicles as Beijing wishes to promote the mass
implying an annual stimulus of 2-4% of GDP in
production of electric cars for urban areas.
2009 and 2010.
Rail: China is aiming to spend RMB1trn on
The plan is focused on boosting investment in
expanding inter-province trunk railway lines.
railways, roads, public housing and rural
RMB50bn was spent in December 2008, with a
infrastructure as well as environmental protection.
target of completing RMB600bn of investments
Beijing also promised to increase subsidies for
by the end of 2009. Between 2009 and 2010, the
farmers and cut taxes. Winter is normally a slow
aim is to complete the construction of 16,000km
season for construction and we expect the bulk of
of lines, covering mainly passenger services.
the new spending to filter through starting in Q2
This extra investment builds on the upward
2009 (see Qu Hongbin, China’s New Deal,
curve of rail investment from RMB252bn in
December 2008). The priorities of the plan are
2007 to RMB350bn in 2008. Overall investment
also aligned to the long-term development of a
in railways by 2020 is set at RMB5trn, a big
low-carbon economy, most notably for rail.
jump from the last target set in 2005 of only
RMB1.5trn (see Ken Ho, Elaine Lam and
Low-carbon power
Khushbu Agarwal, China Infrastructure
Currently, there is limited visibility over how the
Construction, 22 January 2009).
plan will underpin further expansion of low-
Grids: More flexible and sophisticated grid
Stimulus package breakdown (RMB4trn) infrastructure enables greater use of
renewable energy sources and helps cuts
Env iro Grid
transmission losses. China has committed
8% 25%
Housing
RMB1.1trn to expand power lines and build
20%
out transmission over 2009-11, of which we
expect RMB0.5trn in 2009-10.17
Airport
Ports
9%
2%
Highw ay
Rail 16 GWEC, US and China in race to the top of the global wind industry, 2
14%
22% February 2009
17 WRI, Green Lining China’s Economic Stimulus Plans, 2008
Source: HSBC, various ministry websites
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Looking forward, we believe that the potential for
Waste, water and pollution control
As part of the stimulus plan, China has pledged green innovation in China’s economic stimulus
RMB350bn (or USD50bn)18 for biological package far exceeds what has been announced to
conservation and environmental protection. date. For example, the RMB900bn allocated to
Although the broad investment contours are yet to low-income housing could be allocated in ways
emerge, China’s Ministry of Environmental that conserve energy use, thereby contributing to
Protection has stated that the stimulus will ‘not be the country’s long-term energy efficiency goals.
spent in the energy and resource-intensive
Encouraging signs are emerging, with the
industries or high-pollution industries’. Improved
Ministry of Environmental Protection announcing
sewage treatment is one of the focal areas of the
in January19 that it has granted approval to 153
ports and waterways component of the plan.
projects worth RMB470bn as part of the stimulus
Two batches of central government stimulus package, including water conservation. The
funds worth RMB230bn had been released by national environmental watchdog has also rejected
the end of January 2009. We estimate 11 energy-intensive and polluting projects worth
approximately 10% of the first and second RMB43.8bn. However, there is also likely to be
batches will be spent on environmental projects. pressure from many fronts to cast aside
environmental controls, and there are reports20
As the implementation of the plan develops, this
could mean important allocations to renewables that environmental impact assessments in China
and energy saving in buildings. are being hurried through.
Signs of recovery On 5 March, the National People’s Congress will
meet, at which the fiscal package could be
According to HSBC’s latest economic outlook,
expanded further.
the signs are already emerging that the stimulus is
working (see HSBC, China Economic Spotlight,
22 January 2009). Not only have banks begun to
respond positively to the monetary easing, but
local governments have also commenced
construction of their infrastructure projects. As a
result, HSBC estimates that the bulk of the
stimulus will filter through starting in Q2, lifting
GDP growth to over 8% in H2 2009. The
multiplier effect of the stimulus package is likely
to be well above 1, probably around 1.5-2 times
that of the government-sponsored spending.
19 http://english.mep.gov.cn/News_service/media_news/200901/
t20090112_133477.htm
20 http://www.chinadialogue.net/article/show/single/en/2696-
18 http://www.chinadaily.com.cn/bizchina/2008-11/27/content_7246713.htm Sticking-to-a-truly-green-stimulus
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India India's CO2 emissions, 1990-2010 (mtCO2)
1600
Economic backdrop
1400
India’s GDP growth fell to 6.6% in Q3 2008/09, 1200
and the economy is set to slow further to 6.2% in 1000
2009, before recovering to 8% in 2010. 800
600
India’s real GDP growth (%)
400
200
12
0
10
1990 1992 1994 1996 1998 2000 2002 2004 2010
8
Source: CIDAC, HSBC
6
4
One aspect of potential interest is the provision
2 for the Indian Infrastructure Finance Company
0 (IIFCL) to borrow INR300bn (0.6% of GDP) via
2006 2007 2008 2009e 2010e tax-free bonds. This is three times the amount
provided for in the 7 December package. The
Source: IMF World Economic Outlook Database, October 2008; HSBC estimates
entire sum would be leveraged to provide about
INR1trn of low-cost resources to projects, mainly
Climate change profile
in ports, roads and railways. Further details are
India is a low-carbon economy, with per capita
required to identify the potential for boosting
emissions among the lowest in the world.
mass transit and other rail systems.
Nevertheless, absolute emissions are rising, and in
2008, the government issued its National Action An interim budget was released by the UPA
Plan on Climate Change (NAPCC) (see HSBC, government in February, which faces national
Wide Spectrum of Choices, 27 November 2008). elections by May 2009.
This identified eight priority areas for the country,
including improving energy efficiency and
boosting solar power.
Economic stimulus
India has announced two general stimulus packages
so far, both with a very limited climate dimension. In
December, the Central Bank cut interest rates and
the government eased its fiscal policy. HSBC
estimates the measures to be worth a maximum of
INR400bn (0.7% of GDP), of which around
INR300bn (0.5% of GDP) will show up in the
budget deficit. The second package to boost liquidity
and economic activity was released in January, with
further rate cuts, reinforcing liquidity measures and
providing modest support to the export, auto and real
estate sectors.
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Japan Japan’s GHG emissions, 1990-2010 (MtCO2e)
1400 1400
Economic backdrop
1200 1200
Japan’s economy slowed dramatically in Q4 2008,
1000 1000
and we expect growth to decline by 6.5% in 2009, 800 800
before staging a modest recovery in 2010. 600 600
400 400
Japan’s real GDP growth (%)
200 200
4.0 0 0
1990 1992 1994 1996 1998 2000 2002 2004 2006
2.0
Japan Ky oto Target
0.0
Source: Green House Gas Emission in Japan, Kiko Network, May 2008, IEA 2008, HSBC
-2.0
-4.0
Japan’s Ministry of Economy aims to expand this
-6.0 to JPY24bn in FY2009.
-8.0
A green stimulus in the making?
2006 2007 2008 2009e 2010e
In December 2008, the Japanese government
announced its JPY43trn (cUSD486bn) package of
Source: IMF World Economic Outlook Database, October 2008; HSBC estimates
Measures to Support People’s Daily Lives. The
Climate change profile package focuses mainly on creating jobs and
Home to the Kyoto Protocol, Japan has stabilising financial markets, with very limited
historically had an energy-efficient and low- stimulus for climate-related investments. Tax cuts
carbon economy. However, the country has found of JPY1.1trn (USD12.2bn) include the immediate
it difficult to curb its GHGs over the past decade. depreciation of investment in energy-saving and
Recently, the extended shutdown of some nuclear new energy equipment, but the actual proportion
remains unclear21.
plants meant that Japan’s GHG emissions rose
2.3% to hit a record high in the year ended March
The Japan Ministry of the Environment is, however,
2008, 8.7% above the country’s Kyoto base year.
in the process of formulating a “Green Economy and
In June 2008, Japan presented its proposals for a Social Reform” plan, which would, in effect, be the
Low Carbon Economy, indicating a commitment country’s dedicated Green New Deal.
to a global cap of 50% by 2050, with Japan itself
The plan is scheduled for release in March, and is
reducing emissions by 60-80%. The country’s
likely to focus on:
climate advisory panel has recently published six
Solar PV
scenarios for cutting GHGs in the medium term
by 2020, with a final proposal expected in April. Hybrid vehicles
Initially a pioneer on solar energy, new PV Energy-efficient appliances
installations peaked in 2005, when subsidies were
However, political uncertainty and a possible
removed. The country remains committed,
dissolution of the Diet (Japanese parliament) in
however, to a 10-fold expansion of solar PV by
April could interrupt the schedule; a general
2020 and a 40-fold expansion by 2030. In the
election is required at the latest by September.
current financial year, the government has
earmarked just JPY9bn (USD92m) for installing
solar panels for households up to March 2009. 21 http://www5.cao.go.jp/keizai1/2008/081224summary-english.pdf
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South Korea South Korea’s CO2 emissions, 1990-2010 (mtCO2)
600
Economic backdrop
500
Korea suffered its second-biggest contraction on
record in Q4 2008, pushing the economy towards 400
its first recession since the Asian financial crisis. 300
HSBC forecasts that growth will decline by 3.2% 200
in 2009 before rebounding to 4% in 2010.
100
South Korea’s real GDP growth (%) 0
1990 1992 1994 1996 1998 2000 2002 2004 2010
6.0
Source: CIDAC, IEA, HSBC
4.0
The greenest new deal?
2.0
On 19 January 2009, South Korea launched its
0.0
Green New Job Creation Plan, a KRW50trn
(USD36bn) package to be spent over the next four
-2.0
years. The plan essentially combines and
-4.0
streamlines a range of projects across different
2005 2006 2007 2008 2009e 2010e
ministries, and aims to create 960,000 jobs, of
Source: IMF World Economic Outlook Database, October 2008; HSBC estimates
which 149,000 jobs will be realised in 2009,
mainly in construction. The plan has nine core
Climate change profile
projects organised in four main themes:
South Korea is the world’s 10th largest emitter of
Conservation: green cars, clean energy
GHGs. But under the rules of the UNFCCC, it is still
classified as a developing country and so does not and recycling
yet have binding emission caps. Nonetheless, the
Quality of life: green neighbourhoods
Ministry of the Environment has tabled plans to cap
and housing
emissions at 2005 levels over the first Kyoto period
(2008-12). South Korea also piloted the world’s first Environmental protection: revitalising four
system for labelling carbon through the product major rivers and securing water resources
lifecycle in 2008. The government is planning to
Preparing for the future: IT infrastructure and
pass a Climate Change Act this year which will
green transport networks
include a plan for reducing emissions by 3.2% from
2005 levels by 2012. Korea also plans to announce a We estimate that more than 80% of the plan is
medium-term carbon target for 2020 this year.22 allocated to climate-related investment themes.
The government also plans to expand usage of
We estimate, the proposed spending in 2009
renewable energy from 2.3% in 2006 to 5% in
(KRW6.2trn) under this Green New Deal would
2011 and 11% in 203023, which includes specific
be would cost less than 1% of Korea’s GDP in
targets for various renewable energy technologies
2009 and the total stimulus is expected to amount
like solar, wind and biodiesel.
to 3.5% of 2009 GDP.
Low-carbon power
South Korea has committed to achieve 5% of
22 www.eng.me.go.kr/docs/news/hotissue/hotissue_view.html?seq=48
energy from renewables by 2011. To move
23 www.iea.org/textbase/pm/?mode=cc&id=4189&action=detail
20