Over the past few months there has been a lot of press about the cost and benefit brought on by the energy crisis. An even earlier report released in 2006 by Lord Stern of Brentford for the British government laid out the economic effect of climate change and global warming. In that report the figure of 1% of gross domestic product (GDP) was promoted as the cost of investments required to move the globe away from fossil fuels to renewable sources. The cost if we don't take steps would result in a hit of 20% reduction in GDP. Later the investment figure was raised to 2% global GDP.
There is a good article and book preview published last month on the web. Ostensibly a review of the book, "Profit from the Peak:The End of Oil and the Greatest Investment Event of the Century" by Brian Hicks and Chris Nelder, the writer, one the of the authors of the book does a good job and even handed job of weighing the options. He then goes on to point to the companies that he thinks are providing solutions - or from his perspective are companies worth looking at from an investment perspective.
A report released by McKinsey breaks down things further. The price tag, $170 billion in invesments to boost energy efficiency will reduce demand by 50% by2020. They compute the average internal rate of return (IRR) of these investments to be 17%. All investments would return at least 10%. Dollar estimates in terms of saving, $900 billion by 2020 or about .4% GDP.
Where should the investments be placed? Their formula, 50% in industrial, 25% in residential and 25% in commercial and transportation sectors. Additionally, about two thirds of these dollars would be targeted at developing economies where the cost of abatement is more than a third lower than in developed countries.
This is not the last of prescriptive ideas for solving our energy woes. I am sure that these ideas will get further embellished and refines. BUT the investment community cannot do it alone. We're going to need some very far reaching public policy changes to allow for the revamping of our energy generation, production and transmission systems. Here's an example of what some of the North American policy makers are doing.
There is a good article and book preview published last month on the web. Ostensibly a review of the book, "Profit from the Peak:The End of Oil and the Greatest Investment Event of the Century" by Brian Hicks and Chris Nelder, the writer, one the of the authors of the book does a good job and even handed job of weighing the options. He then goes on to point to the companies that he thinks are providing solutions - or from his perspective are companies worth looking at from an investment perspective.
A report released by McKinsey breaks down things further. The price tag, $170 billion in invesments to boost energy efficiency will reduce demand by 50% by2020. They compute the average internal rate of return (IRR) of these investments to be 17%. All investments would return at least 10%. Dollar estimates in terms of saving, $900 billion by 2020 or about .4% GDP.
Where should the investments be placed? Their formula, 50% in industrial, 25% in residential and 25% in commercial and transportation sectors. Additionally, about two thirds of these dollars would be targeted at developing economies where the cost of abatement is more than a third lower than in developed countries.
This is not the last of prescriptive ideas for solving our energy woes. I am sure that these ideas will get further embellished and refines. BUT the investment community cannot do it alone. We're going to need some very far reaching public policy changes to allow for the revamping of our energy generation, production and transmission systems. Here's an example of what some of the North American policy makers are doing.
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