Center for Market Transformation

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Center for Market Transformation
Making markets work for the environment through
business leadership and policy innovation
September 18, 2007
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Key messages

• We can solve global warming at a modest cost if
  we muster the will to rapidly implement
  comprehensive policies
• Establishing US leadership on climate will
  require fundamental transformation of our economy
• NRDC is working with business and government to
  make this process as painless as possible
• Capital markets are starting to adjust in advance
  of climate regulations, but faster and deeper
  adjustments are needed

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Source McKinsey
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Meeting expected emissions reduction targets will
require fundamental transformation of the US
economy over the next few decades
Major corporations are calling for sharp cuts in
US emissions starting as soon as possible
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Structural market failures are encouraging
greenhouse gas emissions causing the climate
crisis
Up to 10?F global warming by 2100

• Price signals to investors and end users do not
  factor in environmental costs, e.g.,
• No price on CO2 emissions in the U.S. or China
• Subsidized access to natural resources

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• End users do not have sufficient information
  about or interest in energy efficiency
  opportunities, e.g.,
• Split incentives between builders, landlords
• Consumers do not know enough to demand cost
  effective efficient products
• End-users under-invest in efficiency due to
  unreasonably fast pay-back expectations

• Innovators do not have enough incentive to invest
  in new solutions, particularly for the energy
  sector, e.g.,
• Investors are reluctant to invest in scaling up
  carbon capture and storage since innovation
  spillovers to fast followers limits long-term
  upside
• Emerging technologies such as solar photovoltaics
  require support to ensure they come down the
  learning curve to become broadly competitive

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Source Emissions projections from Pacala and
Socolow
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NRDCs Center for Market Transformation works
with the private and public sectors to accelerate
deployment of clean market-based solutions

• New research to guide overall market
  transformation strategy

Transformational sourcing
Operational efficiency
Transformational marketing
Corporate engagement to innovate around market
failures
Corporate support for improved policies
Pricing pollution accurately
Overcoming energy efficiency barriers
Clean energy innovation support
CO2 emissions growth reversed, containing the
threat of global warming
Government engagement to reduce market failures
through better policies
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Capital markets are beginning to adjust to the
new paradigm

• Wave of new investment in coal power to get new
  capacity grandfathered into emissions baseline
  prior to climate regulations

Market failure

• Negotiated with leading private equity firms KKR
  and TPG during their recent buyout effort for TXU
  (a major Texas utility)

NRDC solution

• TXU to eliminate 8 of 11 planned conventional
  coal-fired power plants as part of buyout
• CO2 costs from impending regulations increasingly
  factored into power plant investment decisions
  nationwide

Benefits