A new department is born

Breaking news – I'll not get say that often in a weekly newsletter! We have a new Department of Energy and Climate Change to be headed by Ed Milliband. The new Department (DECC) has snaffled responsibility for energy from BERR and climate change from Defra. The formation of DECC has been welcomed by several key organisations including CBI and SDC.

So after the excitement it's back to what I was going to talk about. This week I thought I would return to the subject of how the credit crunch affects low carbon technologies. I heard wonderful quote at the superb Earthscan Sustainability 2.0 event earlier this week that summed up the differences between the financial and low carbon technology sectors that went something along the following lines:

When you are talking 2050 for low carbon technologies you mean the middle of the century, when you say 2050 in the banking sector you mean ten to nine tonight.

So what else have we learned about the impacts of the credit crunch over the last couple of weeks? Firstly I'd like to come back to my open question about its effects on public spending. Barack Obama has admitted that the proposed bailout may impact his ambition to free the United States from reliance on Middle East oil imports within 10 years. He has been quoted as saying "I'm not willing to give up the need to do it, but there may be individual components of it that we can't do". On the flip side of this, the bailout package has been sweetened by the extension of several tax relief schemes, including tax credits for business R&D and also renewable energy incentives both of which are probably good news for the low carbon technology sector. Curiously the package also includes a measure to exempting wooden practice arrows used by children from an excise tax of 39 cents per arrow. I suspect that this is a feature of what happens when things get rushed.

There has been further analysis on how the credit crunch is going to effect particular energy technologies. In the US, the booming wind sector could be hit badly. Large companies, including the bankrupt Lehman Brothers, have previously invested in wind power to take advantage of the tax credit mentioned above. However, this is not an investment without risk and under the current climate, risk is something that investors are not actively seeking.

The solar power industry may also be adversely affected, particularly those with projects in the pipeline that need dramatic scale up and hence investment. There has been a scale back in Initial Public Offerings (first opportunities to buy a company's stock as it goes onto the public market) for solar and other energy companies. Once again the collapse of Lehman Brothers is cited as a problem because the bank has become a principal underwriter for solar energy companies raising money or financing debt to build factories and solar farms. There is a fear that in the short term there may be a consolidation of companies. Fortunately, for those companies that survive the picture is rosier in the long term (2010 onwards – the year not the time).

The credit crunch may also dent the ambitions of the biofuels industry, for many of the same reasons as cited in the two examples above.

The upshot of what I have read this week is that progress in some of the key low carbon technologies is going to be slowed in the short term. By how much is unclear, but there may well be knock-on effects to goals, such as the 2020 UK 15% renewable energy target. The prognosis in the longer term seems to be good – always assuming the financial markets don't meltdown completely.