Priming Banks for Green Loans
Potential Boon Ahead
Green energy needs more access to financing. That’s why the banking industry will be critical to its growth. But government support remains vital.
That’s the conclusion of a study by Barclays and Accenture. The issuance of so-called green bonds would be the mechanism, or the means by which primary loans could be packaged and re-sold in secondary markets to pension funds, institutional investors and individuals. While the results of that study pertain solely to Europe’s transition to a low-carbon society, their findings are also pertinent to renewable energy markets both in the United States and around the world.
“The path to a low carbon Europe has largely depended on government initiatives,” says Peter Lacy, managing director of sustainability services, Europe, Africa and Latin America, Accenture. “High public sector debt and maturing technology now mean that private sector capital, primarily intermediated by banks, must be provided to accelerate the investment we need to meet our 2020 goals.”
That would enable Europe to bring down its carbon emissions to 83 percent of 1990s levels by 2020. To push those countries, the European Commission has set a goal of cutting the continent’s carbon emissions 20 percent below 1990 levels. It has renewable energy standard of 20 percent by 2020.
Accenture goes on to say that the European nations would assume too much risks if they tried to do it alone. Literally, trillions must be financed. Having said that, it says that governments must still play a role to stimulate demand and stabilize carbon markets, which is best done through policies that remain certain and transparent.
Investment could be made available to a number of ventures: Making energy efficiency retrofits to commercial properties; creating the kind of transportation energy infrastructure that will be necessary to support alternatively-fueled vehicles and building out a smart grid that could reduce carbon emissions by 13 percent.
But perhaps the biggest investments would be targeted to the creation of solar and wind installations, which would comprise about two-thirds of the money loaned out. Solar, both Accenture and Barclays say, would likely remain the most capital intensive. But those prices should fall as the technology spreads and the cost of production declines.
It’s an idea that has the general endorsement of the World Bank. In 2009, it launched its first “green bonds” initiative to support low carbon activities. The goal behind it is to help stimulate and coordinate new public and private-sector financing for climate action, the bank says.
“Tackling climate change is going to take immense resources that will only come from a well-orchestrated flow of public and private finance,” says Robert Zoellick, head of the World Bank. “This transaction is an important early effort to show one way in which this can be done,” referring to partnership with several Scandinavian institutional investors that raised $350 million.
Similar ideas have been floated in the United States. The selling point that advocates of green bonds make is that such financing would help put the country out front in terms of innovation. They say that China is actively involved in trying to build up its green energy sector while Europe has set mandates.
An ad hoc group calling themselves The Coalition for Green Bank is pushing for a U.S. agency that would provide a comprehensive range of financing support to qualified clean energy and energy efficiency projects. It espouses a green bank to be capitalized with $10 billion through the issuance of green bonds. The bonds would be issued by the U.S. Department of Treasury, not to exceed $50 billion.
The federal bank would supplement those loans made in the private sector. Among the supporters: Florida Power & Light, General Electric and the American Wind Energy Association.
“Green Bank is a critical step towards facilitating green power development while meeting the primary objectives of carbon reduction and economic stimulus," says Todd Filsinger, co-chair of the group and Global Head of PA Consulting Group's Energy Capital Markets. "The environmental benefits are unprecedented and have the potential to drive US emissions to 1990 levels by 2020.”
Green banks, generally, are not about funding unworthy projects. They are about giving good ideas the push they need to make it commercially. To obtain loans for renewable energy projects, developers must be able to demonstrate to lenders that they have locked-up most of the available capacity in advance of construction so that they can pay back the loans.
Green bonds will have a part in the acceleration of renewable energy projects. The government’s role will be to create the certainty that developers need to go forth. Early on, the public sector will participate. But as the industry wins market share, those projects could later become a boon to private lenders.
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Comments
A Tax Is a Tax No Matter What It Is Called
If the US government issues bonds from the Treasury to fund a Green Bank, that adds to the debt which must eventually be repaid with interest. If wind and solar need those government funds to be competitive, then they require subsidies. The US government's debt must eventually be paid by taxpayers meaning more taxes must be collected or some other expenditure of tax monies must be stopped.
If we develop a carbon credit market, the requirement to purchase carbon credits is essentially a tax on the CO2 producer. That tax is then a cost which the CO2 producer must pass on to his customers in order to stay in business. If the customer is a business, he will have to pass that cost on down to his customers if he is to stay in business or else he closes business here and opens it up somewhere else where he does not have to contend with so many taxes and can make his products less expensively. Eventually, the costs roll down to the final consumer, the individual or family. Since there are those among us who cannot pay higher costs, there will then be a government assistance program paid for with taxpayer dollars and since there are some 47% of American taxpayers who do not actually pay any income tax, the burden will settle on the 53% who still do. Voila! Income redistribution through taxation.
I wish renewables proponents would quit pointing to China as an example of leadership in green energy. In the first place, the forward projections for their electrical generating industry show a far, far greater construction of coal-fired generating capacity to be constructed over the coming years than wind and very little solar. And, if I recall correctly, they claim they should not be held to the standards developed countries would be held to under the various CO2 accords so, no CCS for them. They captured a large part of the wind and solar market worldwide through currency manipulation, government subsidies, and technology piracy. They are putting in just enough wind to goad other governments into renewable energy standards that will result in still more massive cash flow into China. For the Chinese leadership it is strictly business--they are out-capitalizing the capitalists.
As long as the US exists under the present Constitution and way of life that allows for freedom and entrepreneurship, there will be citizens of Red China (and other totalitarian governments) that want to emigrate to this country or have conditions similar to America in Red China. The only way for the Communist leadership of China to squash that desire if for the US to lose its place in world leadership and become a big brother government kind of like Red China.
If green power proponents can convince all the citizens of the US to want more green power and all be willing to pay higher prices for it, then go for it! But using mandates that only part of the citizenship have to pay for is not right and will result in us becoming a second rate nation through federal debt and business flight. The key to a booming economy is producing things people want to buy and are willing to pay an extra premium for not gouging them for things they need.
STOP IT
When all else fails, "climate change" is trotted out as if the "science" was unquestioned. This is so tiresome.
There's a reason why green financing is a problem: the whole "industry" is build on a house of cards and totally dependent on the whim of flaky politics. Real venture capitalists are interested in ROI, not some interpretation of tree rings or an altruistic sense for "saving the plant".
Fact is, the biggest problem with the "industry" is easy government (taxpayer) money: it suppresses real innovation. If the hurdles were higher, the "industry" would have to snap to attention or perish. Either would be good. Wasting time and money chasing rainbows on the taxpayer nickel must come to an end.