London Low Carbon Capital

THE LOW CARBON CAPITALLONdON As A gLOBAL LEAdER Of THE LOW CARBON ECONOmy

Proposals for the Low Carbon Capital have been developed in partnership with London Councils, and with the support of Ernst and Young LLP.

The Low Carbon Capital report will be available on the London Development Agency website (www.lda.gov.uk). Email us on [email protected] if you would like to get involved, or if you have comments and further suggestions on realising the vision of London as a global leader of the low carbon economy.

The Low Carbon Capital 1

fOREWORd

Tackling climate change now is critical for the welfare of our planet. It will also be key to solving another vital issue: the need to renew the health of our economy. We are committed to placing London at the forefront of the national and global transition to a more sustainable future to help us secure this recovery.

The capital’s existing track record as a global economic centre proves that London has the assets and expertise to be a leading provider of finance, business services, and innovation within the emerging low carbon economy.

To demonstrate leadership and ensure London’s sustainable future, the Mayor of London, Boris Johnson is committed to challenging carbon reduction targets. We estimate that it will cost around £40 billion investment and create a workforce of 225,000 people to achieve these ambitious goals.

The London Development Agency is delivering programmes to attract private sector investment and enable successful businesses to thrive in a sustainable manner. A thriving low carbon economy coupled with a drive for energy efficiency will create jobs, demand for new skills and opportunities for London’s businesses.

We have set out a robust strategic plan which lays out the key short, medium and long-term initiatives that will build on London’s existing strengths and areas of advantage in capturing and developing the nascent low carbon economy. Investors will find themselves spoilt for choice in the range of ‘green’ investment opportunities that are on offer, making for a prosperous and bright future for Londoners.

We believe London is at the forefront of the technological and economic changes that will define the next century. Our comprehensive plan to create a Low Carbon Capital shows us how we can capture the economic prize.

Isabel DedringMayor’s Advisor on the Environment May 2010

A thriving low carbon economy coupled with a drive for energy efficiency will create jobs, demand for new skills and opportunities for London’s businesses.

2 The Low Carbon Capital

Rebalancing the global economy towards a more sustainable future will help us address both the economic crisis and the need to become more energy smart to climate change. Several leading economies have announced significant economic stimulus packages that incorporate a low carbon focus.

We face significant challenges over the coming decades, to maintain secure and affordable energy supplies, to meet our renewable energy goals and to meet climate change targets.

In response to this, the green economy is expected to grow strongly – driven by necessity, regulation and consumer preference. By taking action now we will meet legally binding energy and environmental targets, deliver a greener London for residents and take our place as a major competitive force in the global low carbon market.

“ Despite the efforts of the UN and other international and regional institutions, nearly 90% of the funds needed to address global warming will derive from the private sector.”

United Nations, General Assembly President

A LOW CARBON fuTuRECAPTuRINg THE mARkET, CuTTINg EmIssIONs

In July 2009 the G8* agreed to cut global emissions by 80% by 2050. The collective cost is estimated at US$3 trillion. Explosive growth in the green sector will generate millions of jobs globally.

* The G8 is the forum of the eight most industrialised nations in the world


LOW CARBON CAPITALsEIzINg THE gREEN OPPORTuNITy fOR LONdON

To realise the full benefits of the low carbon economy London must undergo a transition away from the use of carbon intensive fuels towards a more energy efficient future. This shift presents a significant economic opportunity for businesses, inward investors and Londoners. We must ensure fertile conditions are in place to generate jobs, foster knowledge and create wealth for London and the UK economy through nurturing and building upon London’s strengths in the low carbon economy. London could attract between £40bn to £140bn of investment spend in the low carbon economy and create a ‘green’ workforce of over 200,000 people over the coming decades.

The Mayor of London has set some of the world’s most challenging carbon reduction targets, the delivery of which will place London at the forefront of the national and global transition to a more sustainable future.

The strategic action being taken by the Mayor and London’s public sector is laying the foundations for new low carbon markets. However, only by galvanising private sector support and investment will we create a flourishing green sector and move towards a low carbon future.

The Mayor plans to establish London as a world-leading low carbon capital.

£40bnthE InvEstmEnt oPPortunItY

200,000+workforCE


BuILdINg ON LONdON’s sTRENgTHsPROmOTINg THE RIgHT INITIATIvEs

London’s areas of strength will drive its low carbon economy success and comparative advantage internationally.

Financial services: London, one of the world’s leading financial centres, is extremely •well positioned to enable innovation in the financing of low carbon investment.

Scale: London’s size combined with its depth of financial expertise provides a unique •combination to stimulate markets for low carbon goods and services.

Research and Development: London is favourably positioned versus other leading •capital cities to realise the benefits of an innovative low carbon research and development environment.

Business services: London is already world leading in many business services. It is •ranked first in Europe and second overall to Hong Kong in the MasterCard Centres of Commerce Business Centre ranking.

Leadership: London has committed to ambitious targets for carbon reduction, •sending a global signal that London champions the low carbon economy.

We have identified London’s strengths and competitive advantages in leading the low carbon economy. Success will be achieved by focussing on initiatives that build on these strengths and our existing low carbon programmes.


CREATINg THE CONdITIONs fOR suCCEssfOCussINg ON THE RIgHT PRIORITIEs

Research across the public, private and third sectors explored the barriers, the enablers and the opportunities. Eight core projects have been prioritised to accelerate London’s transition to a leading global Low Carbon Capital. These projects are aligned to the Mayor’s ambitions for London and will work alongside existing programmes to drive inward investment.

1 Securing London’s low carbon prosperity.

2 London showing the way.

3 London setting the standard.

4 Making London’s size count.

5 Export London’s low carbon solutions.

6 Attract the ‘green pound’ to London.

7 London as a low carbon innovator.

8 London government setting a good example.

By facilitating links between key stakeholders in London’s low carbon economy, the Mayor will work with public and private sector partners to take forward a range of actions that together, will position London as a global leader in the low carbon economy.


EIgHT CORE PROjECTsACCELERATINg LONdON’s TRANsITION TO A LEAdINg gLOBAL LOW CARBON CAPITAL


1. sECuRINg LONdON’s LOW CARBON PROsPERITy

London leads the world in carbon trading. Furthermore, London houses the London Stock Exchange (LSE). LSE is one of the world’s leading stock exchanges and hosts the Alternative Investment Market (AIM) for smaller growing companies. Since its launch in 1995, over 3,000 global companies have joined AIM. The LSE has found that every £1 in listing revenues generates £1,000 in revenue for business services such as professional fees, so growth in the markets provides real economic benefit to London and the UK.

In June 2009, the FTSE Environmental Opportunities Index was launched to complement the existing Environmental Technology Index series and to help investors identify and gain exposure to firms in the environmental and renewable energy sectors.

Together, London’s carbon trading strength, LSE, the FTSE environmental markets index series and AIM continue to position London as a leading destination for low carbon finance.

suPPortIng LonDon’s LEaDIng PosItIon In Low Carbon fInanCE wILL:

Drive investment into the low carbon economy by providing a route to national and •international finance for new and fast-growing low carbon enterprises

Enable the development of new technologies•

Provide a platform for leadership in carbon management (see below)•

Position London as a leader in the global low carbon economy•

Provide vehicles for institutional investors to access low carbon companies•

Provide an exit route for early stage venture capital investors •

Drive revenue for London’s professional services sector.•

aCtIons for ChangE Work with the London Stock Exchange to promote the Environmental Indices, •starting with their re-launch in September 2010.

Support FTSE in promoting the Indices to pension funds and institutional investors.•

Network with venture capital firms to raise awareness of the Environmental Indices •as an investment and exit route.

Work with Government to ensure London’s leadership is protected, including •exploring the need for tax incentives to attract further investment.

London’s ongoing leadership in low carbon finance will put the UK at the forefront of generating investment in the low carbon economy. This will build London’s leadership and protect its premier position in carbon trading.

Potential impact to 2025

£1bnInvEstmEnt Into LonDon

500,000Co2 savIng (tonnEs)


2. LONdON sHOWINg THE WAy

London already occupies a leadership position in carbon finance, trading two thirds of all global transactions in carbon emissions permits. However, as this is a relatively young but growing market, with countries such as Australia and Japan likely to adopt the cap and trade scheme, London is ideally placed to develop systems for carbon management, auditing, measurement and accounting to support the lead in carbon financing by offering a ‘complete package’ for carbon management.

One example is in relation to systems for managing organisations’ carbon footprint, where no single approach exists. London’s public sector could demonstrate leadership by adopting a single approach which would manage information centrally, evaluate the success of actions and therefore support carbon mitigation plans.

Further opportunities exist in relation to carbon management across the value chain (the range of activites that contribute to the end product) for infrastructure projects. Again, the public sector can demonstrate leadership by managing carbon in pre-design, design and construction activities, whilst continually considering the carbon that arises during the maintenance, operation, use and decommissioning of the asset. The London 2012 Olympic and Paralympic Games aim to be the first sustainable games and provide an example of carbon management for infrastructure projects.

unLoCkIng thE fuLL PotEntIaL of LonDon’s LEaDErshIP In Carbon fInanCE wILL:

Enable London’s businesses to export solutions globally•

Help protect and diversify London’s leadership in carbon trading by presenting •a complete solution to carbon management here

Improve efficiency in the carbon management value chain as economies of scale •are created and solutions are inevitably standardised

Drive carbon emissions reduction through improved information generation and •effective carbon management.

aCtIons for ChangE Evaluate the business case and potential for the standardisation of energy emissions •footprint tools across London’s public sector.

Assess the findings from existing studies on the carbon management for infrastructure •projects and develop recommendations for carbon management for Greater London Authority group infrastructure projects (including Transport for London, the London Development Agency, the London Fire and Emergency Planning Authority and the Metropolitan Police Authority).

Showcase internationally how the London 2012 Olympic and Paralympic Games •address sustainability challenges.

Promote networks that share and develop best practice between the public and •private sector on carbon management.

Encourage businesses to adopt best practice carbon management through existing •London Development Agency business support programmes such as the Better Buildings Partnership.

By developing consistent and robust systems for managing, trading and auditing carbon, London will develop a model that others can replicate.


£180mInvEstmEnt Into LonDon

1.3mCo2 savIng (tonnEs)


3. LONdON sETTINg THE sTANdARd

The National Physical Laboratory (NPL) and National Measurement Office (NMO) have proposed the establishment of a London-based Centre for Carbon Measurement. The vision is that London sets the standard for the measurement of carbon, in the same way as the capital is synonymous with the measurement of time through Greenwich Mean Time. With better information, the business community can make better decisions on what low carbon technologies to use and purchase. Working with partners, the proposed Centre will address the following three areas:

Low Carbon technology •Providing measurement support and independent performance assessment, calibration and validation of low-carbon technologies (such as carbon capture and storage, wind and marine power, photovoltaics, fuel cells, building materials).

Carbon trading/Pricing •Establishing measurement and standards infrastructure to support existing and emerging national, regional and global trading, tax and regulatory schemes for carbon pricing and reporting.

• Climate Data Bringing measurement expertise to climate data, particularly where it is an input to modelling – reducing the uncertainty in climate projections and placing policy for climate change mitigation and adaptation on a firmer footing.

The Centre would create new knowledge and skills in these areas and plug into the international measurement community. This will provide a strong platform from which to influence the standardisation of carbon accounting internationally.

PosItIonIng LonDon as a gLobaL LEaDEr In Carbon mEasurEmEnt anD aCCountIng wILL:

Complement London’s leadership position in low carbon finance•

Position London as a leader in the global low carbon economy•

Enable value for money low carbon decisions through accurate information •and evidence

Support low carbon businesses by helping them get their technology verified •and accepted by the market

Benefit London’s businesses working globally by promoting standardisation •of international carbon accounting practices.

aCtIons for ChangE Work with stakeholders, including Government and inward investment agencies, •to realise the Centre’s creation – NPL and NMO are working with potential partners on a business case.

Promote London’s leadership position in technical verification of carbon trading •through its expertise in measurement and standards.

Work with public and private sector partners to bring forward the standardisation •of international carbon accounting.

Establishing the world’s leading centre for research in carbon measurement and verification would provide a strong platform for standardisation of carbon accounting and strengthen London’s position as a leader in carbon financing and trading.





4. mAkINg LONdON’s sIzE COuNT

Access to finance is the key barrier to delivering London’s low carbon ambition. Strong project pipelines are now in place for decentralised energy, waste and energy efficiency projects in London. This is a huge opportunity for investment in London, and London’s role as a major centre for business and finance will be vital in delivering this investment. New financing models are now being developed to meet this demand and London’s financial institutions must develop new propositions for funding these green investments.

LonDon’s ProgrammEs foCus on thrEE maIn arEas:1. Decentralised energy – generating more energy locally to reduce dependence

on the national grid and to capture and utilise waste heat – a by-product of energy generation.

2. Waste – using London’s waste as a fuel to generate energy, developing waste to energy plants using technologies like anaerobic digestion and gasification (as opposed to incineration).

3. Energy efficiency – making London’s homes and workplaces more energy efficient – enabling London’s businesses and residents to make significant saving off their fuel bills as well as saving carbon.

The London Development Agency is running a series of energy efficiency programmes focussed on saving energy across all of London’s building stock including London’s business, its public sector buildings and London’s homes. These programmes are now being introduced at scale across London. For example, there is a growing pipeline of 60 public sector organisations for the RE:FIT public sector building retrofit programme. In the Greater London Authority (GLA) Group, the first tranche of 42 buildings has achieved savings of £1million per annum. The RE:NEW homes retrofit programme has installed energy saving measures in nine London boroughs, reaching 8,500 homes as part of the first wave of implementation. By 2012 this programme will reach at least 200,000 homes and the aim is to retrofit 1.2 million homes by 2015.

In workplaces, these measures include the latest in energy efficient lighting and improvements to heating, ventilation and air conditioning. Significant savings are also being realised from improved building management control systems. Delivering measures with both short paybacks and longer paybacks together is allowing building owners to invest in renewable technologies such as solar photovoltaic cells and combined heat and power generation.

In homes, the RE:NEW programme is installing a series of ‘easy measures’ including energy saving light bulbs, power-down switches to reduce the amount of energy wasted by electronic items in standby mode, radiator panels and water saving measures such as tap aerators. Where the house type allows, the programme is also installing loft and cavity wall insulation, and in future will extend to renewables as the market develops.

With an investment opportunity of £8 billion and scope for implementing energy efficiency measures in every building in London; we need to work with the finance community to develop fundable investment models for energy efficiency measures.





Financing is however a key barrier to action across decentralised energy, waste and energy efficiency. The London Development Agency on behalf of the Mayor is establishing the London Green Fund. The aim is for the London Green Fund to attract private sector investment into London. It is estimated that £500 million of private investment could be leveraged through this structure where £114 million of London Development Agency seed fund would be invested as equity and/or guarantees in energy efficiency, waste and decentralised energy projects.

The London Green Fund will also unlock investment in decentralised energy, waste and in commercial and public sector buildings. These areas provide investors in the fund with clear tangible assets in the case of decentralised energy and waste projects. Commercial and public sector buildings retrofitted through the RE:FIT model will be attractive to investors as they provide a financially guaranteed payback on the energy saving measures installed.

However, unlocking investment required to deliver energy efficiency measures to London’s homes, particularly the more expensive measures, needs a ‘Pay As You Save’ model. This type of model will provide upfront financing to the householder, and repayments are made from the resulting energy savings. National government has indicated their support for such a scheme and London provides an ideal opportunity to pilot new funding mechanisms as the home delivery model is already in place through London’s RE:NEW programme. This type of model could also be made available to London’s plethora of smaller organisations where the RE:FIT approach may not be appropriate.

PromotIng LonDon as a tEst bED for sCaLabLE fInanCIng moDELs wILL:

Drive the development of the low carbon economy in London by stimulating markets •for retrofit

Demonstrate the financial attractiveness of investment in decentralised energy, waste •and energy efficiency

Make a significant reduction in London’s carbon footprint•

Reduce spending on energy bills for all of London’s business and residents•

Enhance London’s low carbon skill base and deliver new green jobs.•

aCtIons for ChangE Work closely with London’s financial institutions to make the London Green Fund •attractive to private investment.

Work closely with Government and financial institutions to develop and trial green •investment models in London, including a scalable ‘Pay As You Save’ model.

Approach likely funders to test the financing options and to gain broad agreement •to the most appropriate green investment models.


5. ExPORT LONdON’s LOW CARBON sOLuTIONs

London’s challenges are also its strengths. London’s scale with over 300,000 businesses, 3.2 million households and over 7 million residents creates both a vibrant market for goods and services but also a complex and intensive business environment. While London is one of the world’s leading finance centres, this puts pressure on the infrastructure that supports the city and Canary Wharf. There is an opportunity for London businesses to develop solutions to low carbon economy challenges in a major world city and export these internationally.

One example is the data centre market. Data centres underpin most business and government applications and are particularly important to sectors key to the low carbon economy such as financial services, utilities and telecommunications. The UK has the largest share of the expanding European data centre market (16%); growth in the low carbon economy will require the necessary infrastructure; and data centres are energy intensive with high carbon emissions. Many data centres would like to expand their London operations but encounter two barriers: lack of low carbon power generation and issues with planning and land availability. There is a risk that lack of data centre capacity may start to be a barrier to growth. Furthermore, increasing competition from other cities and the obligations of the Carbon Reduction Commitment could mean that existing data centres shrink their business in London or even close as the cost of meeting the targets overrides expected revenues.

ExPortIng InnovatIvE soLutIons that CataLYsE Low Carbon growth In a bIg CItY wILL:

Enable London to retain its leading position in key sectors in the face of •international competition

Decarbonise London’s business activities.•

aCtIons for ChangE Consult with the data centre industry to establish barriers to growth and how London •government can support the sector in addressing these.

Carry out analysis on potential locations for data centres, particularly addressing the •perception of flood risk as a barrier.

Work with inward investment agencies such as UKTI and Think London to support •new data centres.

Broker further partnerships and collaboration between the data centre industry and •universities on low carbon data centre design and retrofit measures.

By demonstrating that their low carbon products and services work in a big city setting, London’s businesses will be well-placed to export them nationally and internationally.





6. ATTRACT THE ‘gREEN POuNd’ TO LONdON

Geographical clustering is a key driver of inward investment. London has had significant success in encouraging sector agglomeration, for example in creative industries, legal and financial sectors, in which London is a global leader. These already demonstrate key strengths in the low carbon economy, having diversified their offer to respond to the growing demand across the value chain for green goods and services.

There are also a number of developing geographical clusters specialising in low carbon industries. Industrial land areas in London present opportunities for inward investment by target sectors such as automotive, energy efficient buildings, waste management, wind power component manufacture and servicing and low carbon housing systems. The Green Enterprise District in East London has been identified as a focus area for investment by low carbon enterprise.

London’s inward investment agencies are already working with a pipeline of over 50 low carbon companies interested in locating in London. These could generate in excess of 3,000 jobs.

PromotIng thE growth of CLustErs to DrIvE thE Low Carbon EConomY wILL:

Enable businesses to export products and services globally, using London’s leadership •position in specific clusters

Present a powerful case for inward investment from companies interested in •capitalising on the market opportunity and aligning themselves to London’s existing success stories.

aCtIons for ChangE Implement proposals for the Green Enterprise District in East London under •the following themes: attracting green enterprise to East London; decarbonising enterprise and stimulating demand; positioning the District at the forefront of low carbon innovation and maximising the potential of green and open spaces and the District’s waterways.

Proactively target inward investment in clusters that support the low carbon economy •through London’s inward investment agencies and business support programmes.

Map energy, transport, waste and heat infrastructure and demand across London •to identify potential clustering opportunities.

Facilitate networks between private sector, research institutions and planners •in priority clusters.

Consider the scope for specific incentives, including land based incentives, to •promote growth of clusters.

We will attract investment in the low carbon economy and encourage innovation in low carbon technologies by promoting clustering.





7. LONdON As A LOW CARBON INNOvATOR

London is a centre for UK innovation with London-based companies responsible for more than half of the total UK R&D (Research & Development) spend of £21bn. Four of the world’s top ten leading universities are located in the Greater South East, of which two are in London (University College London and Imperial College). No other city in the world has more than one top ten leading university in its region.

London is already a world leading research centre for carbon capture and storage (CCS), with the largest CCS research programme in the UK advanced concepts of photovoltaics and in the development of bio-fuels.

London has a natural strength for low carbon R&D and innovation as a result of these factors combined with the concentration of businesses and financial institutions and the potential to demonstrate solutions at scale. In 2008, the UK hosted 34 private venture capital backed clean technology companies with a cumulative total of £186m invested in them; of these over 90% were located in London. Germany followed with 25 companies with £123m invested and France had 12 companies with £30m invested.

However, new low carbon technology companies find it difficult to access funding, and those that are funded often do not reach commercialisation. There is little funding for suppliers at the R&D stage of the project life cycle. Venture capital funding is not spread evenly across the supply chain and tends to be concentrated in proven technologies. There is a risk that key low carbon technologies could be developed elsewhere and pull highly skilled people to these centres.

suPPortIng Low Carbon r&D wILL: Further strengthen the UK innovation base and the academic institutions’ •profile internationally

Establish London and the Greater South East as a leader in low carbon research•

Drive London’s carbon reduction through the testing and commercialisation of R&D.•

aCtIons for ChangE Address information failures so new low carbon technology companies can engage •with the investment market.

Consider the scope for ‘bending’ existing public sector grant programmes towards low •carbon R&D.

Support and build upon existing low carbon networks to ensure organisations •involved in low carbon R&D have access to potential funders.

By supporting the deployment of less proven technologies, we can strengthen London’s position as a location to finance, develop, demonstrate and commercialise innovative low carbon solutions.





8. LONdON gOvERNmENT sETTINg A gOOd ExAmPLE

London’s local authorities alone are responsible for a supply chain worth over £9bn. Together with the GLA group and the health sector, this presents a huge opportunity to stimulate low carbon markets and drive carbon emissions reduction through the public sector’s procurement activities. However, the public sector landscape in London is extremely complex and a number of organisations are already addressing joint procurement initiatives. Therefore, actions concentrate on building upon this work to bring forward low carbon procurement.

CataLYsIng growth In thE Low Carbon EConomY through thE PubLIC sECtor’s own ProCurEmEnt wILL:

Promote inward investment in the low carbon economy, creating a demand for •local labour

Achieve economies of scale which will, in turn, incentivise low carbon procurement•

Demonstrate leadership in the low carbon economy•

Drive down London’s carbon emissions•

Stimulate low carbon R&D by demonstrating and de-risking low carbon •purchasing solutions.

aCtIons for ChangEIdentify priority areas and strategic goals for public sector low carbon procurement. •

Evaluate international models of best practice and consider replicating successful •models in London.

Identify and support lead boroughs and steering groups to champion/research new •low carbon category business cases and tests.

Consider establishing a panel of private sector and leading London research •institutions to work with the public sector to develop and bring to market low carbon solutions.

Establish a way of recognising best practice and innovation in municipal procurement •of low carbon technologies.

This project aims to harness the spending power of London’s public sector organisations to drive low carbon markets.





THE WAy fORWARd

strEngthLondon will build on its considerable existing strengths, its capacity to attract investment, its sizeable skilled low carbon workforce, its strong appetite for transition and its favourable geographic and demographic endowment.

CommItmEntOur commitment to transforming London into a world leading low carbon capital and a champion for the low carbon economy is a strategic priority. We have set ambitious targets and a suite of strategies and plans is already bringing low carbon opportunities to people and businesses across London.

aCtIonFor London to succeed in claiming its position as global Low Carbon Capital, we need to focus on the right delivery vehicles and on financial and human resourcing excellence. The Mayor’s office will play an important role in setting the direction and building a framework for change.

We will concentrate on the eight core projects outlined.•

The Mayor’s leadership, coordination and resources will accelerate these activities. •He will work across the Mayoral bodies, boroughs, inward investment agencies, academia, central Government and London’s businesses.

The London Development Agency will establish a governance and delivery function •to define and maintain standards that will manage low carbon actions and projects.

suCCEssDriving these proposals forward successfully will make London’s business environment second to none for low carbon focused investment, growth and skills development. Transforming our city into the world’s leading Low Carbon Capital will improve the quality of life for London’s residents, businesses and visitors.

London is well-placed to lead the drive towards a stronger more sustainable global economy, to establish itself as an international centre of excellence and the Low Carbon Capital of the world. This will bring wealth, economic opportunity and jobs to our city.

Printed on Evolution Text a 100% recycled paper, manufactured without the use of chlorine. NAPM and ISO 14001 certified.

THE LOW CARBON CAPITALLondon Development Agency Palestra 197 Blackfriars Road London SE1 8AA

T 020 7593 8000 E [email protected]

www.lda.gov.uk

Textphone 020 7593 8001