[LINK] Electricity prices
stephen at melbpc.org.au
stephen at melbpc.org.au
Sat Mar 24 20:44:33 EST 2012
Mike sensibly writes
> .. it is with some faith in the authorities on economics that I argue
Good on you Mike. However, I say we need more global-fire-in-the-belly.
In my opinion you make reasonable points. But we need more imagination.
Allow one to present another energy perspective especially with respect
to global economics and the environment. It is obvious that yes, indeed
energy costs have risen dramatically, and certainly will in future, and
that Au politicians believe this is the way for environmental action or
non-action. This is certainly one simplistic answer. If it's bad tax it.
Or surely don't do anything to perhaps reduce dramatically rising costs.
Tobacco causes cancer? Simple. Tax it out of contention. Energy use may
cause global warming? Tax it to reduce usage. Surely we do need answers
but to me the increase-tax answer is simply lazy and basically pathetic.
How about this as another way forward for example .. (eg, John Mathews)
"No one argues that it was capitalism that created the global warming
But hardly anyone takes the next step to argue that it must therefore be
capitalism that will solve the problem. How will it solve it? The answer
is -- by financing the transition to a clean energy economy.
The Kyoto Protocol process framed the issue as a public problem that
called for government solution and public financing, that is, tax-based
environmental financing. (Sound familiar?)
The whole process fell apart at the Copenhagen conference in December
2009. Even the limp gesture of a Green Climate Fund amounting to $100
billion (a sum which falls far short of the investments in clean
technology required) has not been honoured.
Yet the investments in clean energy needed to really address climate
change the renewal of the entire energy system over the course of the
next three to four decades will dwarf these sums.
So where are the funds going to come from?
The answer is that they will have to come from the bond markets the
true engines of capitalism.
The scale of these markets is awesome. The Bank for International
Settlements states that the total size of the global debt securities
market (domestic and international securities) was about $100 trillion as
of June 2011.
Almost all of those funds are invested ultimately in projects that uphold
the fossil fuel economy drilling new oil wells, building coal-fired
power stations, pipelines and all the rest of it.
Yet the institutional investors (pension and superannuation funds,
insurance funds, sovereign wealth funds) which are the dominant players
in these markets, are deeply unhappy about making such carbon-exposed
investments with all their uncertainties such as possible exposure to
rising carbon taxes, or future punitive actions.
But the funds are not flowing to alternative eco-investments as yet.
In fact, compared to the level needed, the scale of financing of green
energy so far is puny. Bloomberg New Energy Finance estimates that there
are $243 billion outstanding fixed-interest securities that meet their
definition of green finance, up from $186 billion in 2009. It sounds
impressive until you realize that investments in a clean energy economy
will call for trillions.
There is a group of financial markets activists based in London that are
trying to do something about this.
They are called the Climate Bonds Initiative↑ (Disclosure: I am a member
of this group.)
So far, the Initiative has issued a standard to be used to certify bonds
issued as climate bonds with the emphasis on certifying that funds
really are directed at low-carbon projects.
Think for a moment what a difference an active climate bonds market
Governments would no longer be able to spout green rhetoric that they
would reach, say, a 10% reduction in emissions by some target date. With
climate bonds, they would be held to account, and would be forced to
invest the sums raised in projects that would really reduce emissions. If
they failed to do so, the bonds would lose value, and the government
would face a Greek like crisis.
Some caveats. You might think that the whole international finance system
is so dodgy that climate change action should have nothing to do with it.
That was the Kyoto approach. But in reality, institutional investors
would stabilize the financial system by being able to invest in green
projects that carry authentication and certification. By tying investment
to real carbon emissions reduction processes, the scope for engaging in
byzantine financial schemes like CDOs would be drastically reduced.
Wouldnt climate bonds issued by, say, the Greek government have to carry
an impossibly high penalty coupon rate? Yes they would so the Greek
government would not be a likely candidate under current circumstances.
Projects financed by climate bonds would be expected to carry lower
interest charges than those for conventional infrastructure projects
because their prospects improve over time and so the projects that they
designate stand a far greater chance of being implemented.
Some questions obviously present themselves.
If climate bonds and green finance are so good, why are institutional
investors not already crowding into this space?
The answer is that the potential bonds targeted at eco-investment are not
yet being offered at scale or in sufficiently attractive form to attract
major investors. Sean Kidney, head of the CBI, was at Davos last month
talking up the issue, and laying out a framework for accelerating the
entry by institutional fund managers into eco- or green investment. Some
of his points: the projects offered need to have scale; they need to be
structured simply and transparently; and they need to come certified as
being able to guarantee that funds raised will indeed be invested in the
Secondly, are governments the only agents who could offer, and
underwrite, climate bond issues?
Certainly not; indeed the whole idea is that development banks should get
in on the act as a means of accelerating the uptake of green projects
around the world. Development banks operating in Brazil, India or
southern Africa would be prime candidates to issue such bonds
particularly if they have insurance backing from the World Banks
Multilateral Insurance Guarantee Agency (MIGA).
Already the World Bank (in partnership with the Scandinavian SEB) have
tested the market, issuing small-scale green bonds↑ , and found a
Third, the bond markets with their colossal scale represent one option
for green finance but not the only one. There are also the equity
markets, where stocks and shares in corporations are traded. Globally
they amount to around $55 trillion, as opposed to $100 trillion for
bonds. But institutional investors got badly burned through their
investments in equity markets during the 2008/09 global financial crisis,
and they are not rushing back to these markets.
Bonds are the way to go.
These approaches to financing the emergent clean energy economy need to
be sharply distinguished from carbon finance.
It is a beguiling idea that carbon markets the trading of certificates
that represent carbon pollution in some form (whether saved or emitted)
will provide a means to mitigate emissions.
Behind the long-running debate over cap and trade schemes for dealing
with carbon emissions, there stands this ultimate rationale for such
approaches, namely the operation of markets for carbon credits (or
pollution credits) of various kinds. They are difficult enough to
regulate in a national setting, but international carbon markets
constitute a financial bubble waiting to happen.
The world will not solve its carbon emissions problem by inflating carbon
balloons. But of course the carbon markets would make a lot of City and
Wall Street investment banks and their clients a lot of money which is
why they are promoted so assiduously.
The next great transformation of capitalism needs to be focused with
laser-like precision on changing the energy markets (from fossil fuels to
renewables), the resource and commodity markets (from resource intensity
and waste disposal to circular economy resource-linkage), and above all
the finance markets to drive the transformation.
Until the bond markets are seriously involved, at the scale of tens of
trillions of dollars, the transition cannot be said to be seriously under
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