The Economics of Hype: Rio+20

Photo by Ivan Herman. Some rights reserved.

In June, the UN Conference on Sustainable Development will be held in Rio de Janeiro, Brazil. Known as Rio+20 because it aims to address similar issues to the 1992 Earth Summit in Rio, its official discussions will focus on building a green economy to lift people out of poverty and improving international coordination for sustainable development.

Environmental Finance highlights the opportunities the conference will create for investors. Increased attention to Rio+20’s issues will focus public scrutiny on sustainability and countries’ policies, generating what Citigroup’s analysts call “green sentiment” in the markets. In addition to its effects on investment, media coverage might increase pressure on politicians to strengthen climate policies.

To illustrate this possibility, the analysts suggest that European politicians might leave the conference embarrassed about the low price of carbon dioxide permits in Europe and seek to raise prices through legislation back home. This would stimulate the carbon dioxide market and boost the low-carbon investments that depend on it, especially those made by alternative energy companies.

The U.S. wind industry, for example, depends heavily on government support, and is in the trenches of a campaign to pressure Congress to extend the production tax credit that expires at the end of this year (see our post on the topic here). Increased visibility of climate change on the global agenda could propel the issue, causing major uncertainty in the industry, to the top of legislators’ concerns.

Finally, Citigroup’s analysts say that sustainability reporting will boost engagement between companies, governments, and activists. At the very least, there will be a lot of journalists willing to go to Rio on business.

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