Pressure Grows On Government To Up Green Spending

Environmentally-friendly spending looks to have taken a back seat to the financial meltdown, with many companies scaling back on alternative energy spending. And, just like the economic crisis, it looks like governments will have to jump in and help.

Spain's Iberdrola Renovables plans to cut sharply its investment in renewable energy, while BP and Shell are also trimming green budgets.

As a result, environmentalists, as well as some officials, say that governments should step in to pick up the slack, and thus avoid an environmental crisis that may be even more severe than the financial one.

Plus, they argue, investing in green issues now will help take the world out of recession by creating sustainable jobs and a cleaner environment.

"These private companies have their own social responsibility but at the same time it's the governments that have to act, if (companies) fail their responsibility," Joris den Blanken, Greenpeace EU climate and energy policy director, told CNBC.com.

In the European Union alone 14 countries have suffered water shortages since 1998, while 100 major cases of flooding have left about 700 people dead and half a million displaced, causing a total of 25 billion euros ($33 billion) of water damage, according to EU Environment Commissioner Stavros Dimas.

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Seen by some as the leader in the governmental fight to combat climate change, the EU has agreed to cut greenhouse gas emissions by 20 percent from their 1990-levels by 2020 and to raise the target to 30 percent if the rest of the developed world agrees to do the same.

Meanwhile, the US appears to be stepping up its commitment under President Barack Obama.

Obama, who pledged billions of dollars for clean energy in his economic stimulus plan, also pushed for US greenhouse gas emissions cuts of 14 percent from 2005-levels by 2020 and more than 80 percent by 2050.

The United Nations estimates up to 20 million new jobs could be created worldwide in the renewable energy sector by 2030, while improving energy-efficiency in buildings alone has the potential to create up to 3.5 million green jobs in Europe and the United States.

Too Little, Too Late

Dimas, however, has warned it may be too little, too late.

"Our economies will recover in a few years but the environmental damage we are causing will take generations to repair," he said in a recent speech. "We must work hard to reduce carbon emissions, but even with the emission reductions we are committed to achieving, some amount of climate change is inevitable."

Governments need to provide both short-term incentives such as tax breaks for eco-firendly investment, as well as a long-term framework that will instill confidence in investors in such projects, den Blanken said.

Sharon Lorimer Protesters asked governments to invest in green energy ahead of the G20 meeting in London.

More importantly, a deal must be reached to help developing countries—which are racing to catch up with living standards in richer nations—to put in place ways to reduce greenhouse gases and deal with the impact of climate change, he added.

To do this, developing states need at least 110 billion euros a year by 2020 from rich countries, according to Greenpeace. This would mean 35 billion euros per year from the European Union, and any country with capita GDP above $15,000 should chip in, den Blanken said.

"These countries have the responsibility for creating the climate crisis," he said.

The funds, for example, would be used to help developing countries switch to low emissions or slow or stop deforestation.

Regulation Also Important

The EU has tripled the amount allocated to environmental projects to 105 billion euros for the 2007-2013 budget period; the money would promote environmentally-friendly products, invest in railways, water and waste management, as well as nature protection. The EU, however, has yet to earmark funds to help the developing world in these areas.

Some analysts say more than money is needed.

"I think they should increase regulation and enforcement of regulation. Regulation requires spending by companies. That's more efficient," Kimberly Tara, CEO, FourWinds Capital Management, told CNBC.com.

"You need to put the regulation in place today but leave enforcement for later, in three to five years," Tara added.

Investors wondering if there is a future in green projects should mainly look at the water and waste management areas, says Tara.

"I think it's a long-term investment. The cost of investing today is low and the growth is significant going forward," she said.

© 2009 CNBC.com