TODAY’S STUDY: CHECK THE SCOREBOARD – NEW ENERGY IS WINNING!

2014 Green Transition Scoreboard Report: Plenty of Water!

Hazel Henderson, Rosalinda Sanquiche, Timothy Jack Nash, March 2014(Ethical Markets Media)

Executive Summary

For 2014, the Green Transition Scoreboard® (GTS) is focused on water, which added $484 billion to the overall total of $5.3 trillion of private investments tracked since 2007 in Q4 of 2013, 9% of the overall total and more than either the Green R&D or Cleantech sectors. Global policy makers, businesses and civic society are realizing that water is critical to environmental, social and human capital, and must be integrated into financial markets rather than overlooked as an externality.

In addition to Water, the GTS tracks Renewable Energy, Green Construction, Energy Efficiency, Green R&D and Cleantech, representing broad areas of investment in green technologies. Including Water, each covers an area of substantial capital investment in technologies which Hazel Henderson's years of research as a science advisor and which the Ethical Markets Advisory Board expertise indicate are continuing to contribute to the growing green economy.

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The upward trend we’ve reported since 2009 aligns with our recommendation that investing at least 10% of institutional portfolios directly in companies driving the global Green Transition appropriately updates strategic asset allocation models both as opportunities and as risk mitigation. This transition strategy is recognized in the 2012 report by Mercer which suggested 40% of portfolios should be in Green Transition sectors. This consensus validates models indicating that investing $1 trillion annually until 2020 can scale green innovations and reduce costs in material and energy efficiencies; wind, solar, geothermal and other renewable energy; sustainable land-use and forestry; smart infrastructure, transport, building and urban re-design.

Even omitting government and institutional investments, increasingly focusing on growing greener economies, $5.3 trillion in private investments and commitments puts private investors growing green sectors globally on track to reach $10 trillion in investments by 2020.

Our definition of 'green' is quite strict, omitting areas such as nuclear, clean coal, carbon capture & sequestration, and biofuels from feedstock other than sea-grown algae. We look closely at nanotech, genetic engineering, artificial life-forms and 3D printing on a case by case basis. Fossilized sectors are becoming increasingly stranded assets as their perverse subsidies are targeted, as low-carbon regulations are implemented and as oil, coal and gas reserves become more costly and harder to exploit. Green technologies and systems investments are the next evolution in finance as we learn more from earth systems science and the satellites tracking the condition on planet Earth.

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GTS data sources include, among many others, well-respected Cleantech, Bloomberg, Yahoo Finance, Reuters; new UN and other international studies; NASA and individual company reports. Sources of financial data are screened by rigorous social, environment and ethical auditing standards. They can be found in indexes such as Calvert, Domini and Pax World, the PowerShares Cleantech Portfolio, Dow Jones Sustainability Indexes, London's FTSE4GOOD, NASDAQ OMX Green Economy Global Benchmark Index, ASPI Eurozone and the many newsletters and stock reports from around the world we post daily at www.ethicalmarkets.com.

Renewable Energy – As installation costs decrease, growth in megawatts brought online continue to increase, out-pacing most conventional energy sources.

Energy Efficiency – The lowest hanging fruit and a “hidden energy source,” efficiency includes lowering energy needs, using less energy than comparable products/processes or more efficiently using or lessening materials use.

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Green Construction – Even as definitions tighten and this sector continues to be conservatively under-reported, only counting green construction materials and excluding labor, Green Construction continues to grow steadily.

Water - Despite being the most important commodity of life on this planet, investment opportunities in water are often overlooked, and the bulk of water on the planet, being saline, is largely ignored. Even so, those paying attention are funding steady growth.

Green R&D - Significant Green R&D shows sustainability integrated into a company’s core strategy, a strong futures indicator for investors. A global commitment to sustainability is shown in the up-swell in green patents as those for fossil-fueled technologies remain flat.

Cleantech – One of the best performing sectors in private markets globally, extreme pollution in China, Korea’s play for supply chain leader internationally and Japan’s energy transition creating a demand for homeland solutions are driving cleantech as a high priority in Asia…

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Water in a Global Context By Hazel Henderson

The issue of providing water for our still growing human population is reaching crisis levels. Water is vital for agriculture and also key in energy production, as well as thousands of industrial processes worldwide. Floods and droughts in every region from Asia and Latin America to Europe and the USA accompanied unprecedented typhoons and winter storms. While none of these specific events could be linked directly to climate change, the debate surfaced as mainstream media began to cover these issues from a broader perspective. Accelerating the global transition to green economies, agreed to at Rio+20 by 191 countries in 2012, not only protects human health and the environment, but also can ease many geopolitical tensions over fossil fuels, including in the Middle East, China, India and recent crises in Ukraine involving Russia, the EU and the USA.1 Multiple research reports confirm that renewable energy can continue growing even as subsidies are withdrawn and continue to favor fossil and nuclear power.2 Influential NGOs pressured the World Bank and the European Investment Bank to phase out their coal plant financing, and also influenced similar restrictions on fossil fuel financing by the US Export-Import Bank, OPIC and the Nordic countries. Recently, ECA Watch’s NGO campaign on Export Credit Agencies nudged the OECD to phase out its subsidies to fossil fuels.3 Even ExxonMobil has acceded to shareholders and agreed to disclose the risks associated with its fossil fuel reserves.4

In this 2014 Green Transition Scoreboard® Report: “Plenty of Water!”, we focus on water so vital for humans and all life on Earth. In our latest total of $5.3 trillion now privately invested in green sectors since 2007, 9% of these investments are in water management and conservation, well ahead of Green R&D and Cleantech. To date, most of the world’s attention has focused on supply, protecting water sources from pollution, curbing wasteful use, and recycling the 3% of fresh water on our planet. Yet 97% of the water on Earth, which is saline, our oceans as well as salty lakes and brackish wetlands have been ignored in most policy, finance, business and public debates. At last, long unnoticed research on the 10,000 salt-loving halophyte plants which can grow in deserts and thrive on seawater is coming to light. Our Green Transition Scoreboard® (GTS) has reported frequently on the research and promise of saline agriculture,5 noting that halophyte plants can provide humans with food, fiber, edible oils and biofuels. Indeed, the only biofuels that meet our GTS criteria are those based on algae grown on seawater.

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Which Biofuels?

While many early biofuels start-ups in the US have failed, new companies with new methods and feedstocks have emerged. Some are using genetically engineered organisms and enzymes; others have gone public or linked up with old oil company giants. Most still overlook the most abundant resources available for producing biofuels as well as edible oils, food and fiber for humans: desert lands, sunlight and seawater! AltEnergyStocks’s report “10 Hottest Trends in Algae” lists India’s Reliance Industrial Investments in Algae Tec, Algenol and Aurora Algae, while noting Sapphire Energy’s joint development agreement with Philips 66 and Synthetic Genomics’ agreement with ExxonMobil.6 Solazyme’s fermentation process is hooked up with Archer-Daniels-Midland to produce a variety of biofuels products. Heliae licenses its production technology to generate fuels, chemicals, nutraceuticals, proteins and enzymes for use in agriculture, retail and other markets. French firm Sofiproteol teamed up with Fermentalg to produce nutraceuticals including Omega-3 oils. In the US, Kentucky-based Martek Bioscience, now owned by Alltech, is also producing nutraceuticals and 1,800 tons of algae per year. Aurora Algae’s commercial-scale plant in Australia grows an optimized strain of saltwater algae. This deep, well researched report includes how algae is used for scrubbing toxics out of wastewater, to utilize CO2 and is highly recommended. Highlights from NASA’s Dr. Dennis Bushnell’s comments: “converting biomass into fuels is not the major issue; the major issue is raw capacity and interference with effects on arable land, fresh water, food, fodder, etc. Cyanobacteria and halophytes solve these concerns affordably and quickly.”

Indeed, under-utilized, overlooked plants also mine more metals than all human mining activities, as I pointed out in Creating Alternative Futures in 1978. Today, plants’ abilities to mine metals, phytomining, while simultaneously cleaning land polluted by toxic mining operations are finding new promoters. For example, some 400 known plants capable of hyper-accumulating nickel and other metals are being commercialized for water-saving production of metal and remediation of lands. Patents which locked up such phytomining expire in 2015, allowing new facilities to begin operation.7

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Water-Energy-Food Links

Today, as water-related risks reach crisis levels, they are changing traditional risk analysts’ focus on financial risk. In the World Economic Forum’s “Global Risk in 2014”, water rose to third place behind fiscal crises in key economies and structurally high unemployment/underemployment.8 The UN General Assembly Open Working Group on Sustainable Development Goals (SDGs) cited water and drought issues high on its agenda while many countries’ delegates voted to make oceans a stand-alone focus of the SDGs.9 The International Renewable Energy Agency (IRENA) provides a welcome global focus on the needed transition to renewable energy,10 many forms of which will conserve water as well as provide electricity and better methods of desalination and treatment. Fossil-fueled and nuclear power plants are prodigious gulpers of water11 – another reason for the shift to renewables. Additional risk factors focus on rising ocean levels and acidification as CO2 emissions are absorbed by oceans which are heating faster than previous models predicted. This has led to renewed interest in ocean thermal energy conversion (OTEC) differentials as a source of electricity12 along with ocean currents and wave energy technologies.

Embracing this broader view, the 14th Delhi Sustainable Development Summit connected the dots in February 2014: “Attaining Energy, Water and Food Security for All.”13 The International Conference on Sustainability in the Water-Energy-Food Nexus, May 19-20, 2014, in Bonn, Germany, takes the same systems approach. A NASA-backed research project at the US National Socio-Environmental Synthesis Center (SESYNC) presents an even broader view of a new post-carbon era based on analysis of the rise and fall of past civilizations.14

The Earth System Science program at NASA is the most comprehensive approach to understanding how our planet processes the daily free photons from the Sun, through the atmosphere and ocean currents, which combined with geothermal energy from Earth’s core, create the conditions for life. A breakthrough in direct tapping of geothermal from high-temperature magma has been achieved in Iceland, feeding this energy directly into existing power facilities.15 We have covered the recent rise in use of geothermal energy, and now reports show growing adoption in emerging economies.16 This daily real-time data on how our planet functions and our human effects on it must now be cranked into all financial and business risk- analysis models, as I outline in Mapping the Global Transition to the Solar Age: from Economism to Earth Systems Science, with Foreword by NASA Chief Scientist Dr. Dennis Bushnell, who is also an expert on halophyte plants and saline agriculture…

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Renewable Energy

Investments in Renewable Energy include private technology development, equipment manufacturing, project finance and M&A activity. The sector is divided into current investments by year of funding and future commitments. Many of the current investment numbers are based on global trends reporting by Bloomberg New Energy Finance under contract with UNEP81 as well as other international studies. This is the largest sector in this report which from 2007 to 2012 reached $2.6 trillion in investments and commitments.

Perceived declines in the Renewable Energy sector are due to changes in commitments as projects come online with lower-than-budgeted installation costs or are abandoned. For example, the $542 billion Desertec project (a Club of Rome initiative to provide 15% of energy needs to the European Union from the Sahara) is included in the commitments section even as work is now proceeding in Saudi Arabia, Morocco, Tunisia and the “Asian Supergrid” promoted by Japan, and will be modified as projects come to fruition.

Commitment numbers have been compiled project by project from daily monitoring by Hazel Henderson, online research and other sources, posted at www.ethicalmarkets.com on our Green Prosperity, Energy Efficiency, GreenTech, SRI News, Trendspotting and Earth Systems Science pages. Future commitments include those from big US banks such as Bank of America, Goldman Sachs and Wells Fargo which have committed $50, $40 and $30 billion respectively.83

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Good News for Growth

Important to the Renewable Energy sector is the growth of renewable energy in developing countries, as the percentage of investments in Europe and the US steadily decline.84 A huge number of renewable energy auctions in emerging economies support the growth trend. For example, in countries and regions such as Brazil, South Africa, Japan, the Caribbean and the Middle East, a government will commit to a certain capacity, say 200MW of offshore wind, and accept the most competitive bid.85

Particularly for solar, the Green Transition is having the affect predicted by the models used in our research. While dollar amount investments in solar have declined, the number of installed megawatts has increased significantly because installation is significantly cheaper. In the US, for example, more solar has been installed in the last 18 months than in the previous 30 years. Installed solar PV in 2013 was up 41% over 2012 and nearly fifteen times the amount installed in 2008.86 Globally, two-thirds of solar PV capacity worldwide has been installed since January 2011, and the price for solar PV modules has fallen 62%.

A Zogby Analytics poll of US homeowners in January 2014 found 88% believe renewable energy is important to America’s future; 69% want more options; while 75% disagree that electric utilities should be able to block customers from installing solar power, energy storage and other onsite systems.88 Corroborating these findings, 91 communities in Illinois provide 100% renewable electricity to their residents.89 Asset managers, particularly at pension funds are being stressed by labor unions and student movements to redeploy their portfolios from big fossil-fuel and nuclear projects to renewable energy companies. Retraining for such portfolio managers in ESG and “triple bottom line” analyses is now offered at Scotland’s St. Andrews University and other courses. Ethical Markets-Endobility research conferences, Finding Ethical Alpha, deepen information for asset managers in earth systems science and biomimicry.

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Fossil Fuels Slow Decline

Despite support for reducing subsidies voiced by David Lipton of the IMF noting “subsidy reform can lead to a more efficient allocation of resources, which will help spur higher economic growth over the longer term,”90 mal- investments in petroleum, coal and gas continue, which the IMF estimates at $1.9 trillion worldwide through direct subsidies, consumer rebates and avoided taxes on pollution.91 Concentrated mostly in the Middle East, Asia, Central Europe and countries of the former Soviet Union, subsidies have risen 40% in the Ukraine since 2007. The IMF projects that removing energy subsidies will “strengthen incentives for research and development in energy- saving and alternative technologies,” allowing private investments to “crowd-in.”92 The tremendous waste of capital to fossil-fuel subsidies due to theory-induced blindness will continue until energy efficiency and exergy are included in economic models (see Water in a Global Context), pollution taxes, including on carbon, take hold and external costs are fully reflected in financial models, corporate balance sheets and national accounts, as is happening in Indonesia and Malaysia and being considered in Egypt and India.93 Metrics are slowly changing at all levels as science-based research replaces theoretical models based on outdated economic assumptions. Coal faces encroachment from hydroelectric, solar PV, onshore wind, biofuels and geothermal which, together with other renewables, provide 20% of global power generation and are predicted to provide 25%, according to the International Energy Agency, by 2018.94 BP predicts that renewables will continue to be the fastest growing energy sector, outpacing natural gas, the fastest growing fossil fuel, and supplying more of the world’s demand than nuclear will by 2025.95 Geothermal technologies are being redesigned to respond to the need for flexibility, addressing the question of intermittency, without imposing significant cost.96

Investments in renewable energy are expected to grow significantly in the next several years, in large part thanks to the inherent financial, manufacturing and functionality flaws of fossil fuels. Corporations are acknowledging the hit to the fossil fuel industry. Goldman Sachs cautions that coal mining and infrastructure “projects will struggle to earn a positive return,” based on environmental regulations discouraging coal-fired generation, energy efficiency improvements and strong competition from gas and renewables, for example, recognizing onshore wind power as a mature technology.97 Cloud Peak Energy recently passed on the lease to an estimated 149 million mineable tons, stating that “in combination with prevailing market prices and projected costs of mining the remaining coal, we were unable to construct an economic bid.”98 Existing nuclear infrastructure is threatened, less due to often mentioned safety concerns, but because many nuclear reactors face “economic abandonment.”99 In the US, four nuclear reactors have been retired: one for lack of competitiveness and three others because of excessive costs of repair.100

The promise of “100 years” of shale gas is based on misrepresentation of recoverable shale gas, much of which is only potentially recoverable. Shale gas production has plateaued since December 2011. According to energy industry expert Bill Powers, cheap gas, the increase in industrial, commercial and residential demand and the electric power industry’s switch from coal to natural gas as feedstock will send shale gas prices soaring, leading renewables to “grow substantially as technology improves and gas prices rise.”101 Other analysts see US shale gas as a bubble.102 An example is the Bakken field in North Dakota where 25,000 new wells must be drilled annually to maintain production levels (see Part One – Overview). The US military is opting for solar over shale gas as often as possible, as life-saving (deadly convoys), back-saving (solar cells embedded in backpacks) and cost saving measures,103 and major players BP, England’s BG Group and Canada’s Encana have taken write-downs on their assets…

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