We have over 200 people signed up for our first Paris Climate Bonds seminar tomorrow with CDC Climat! If you can't join us by the Seine (it's going to be a beautiful 20C and sunny!) then you can listen in remotely via http://www.eyedo.com/en/WhiteBoard/Evenement/4002. 14:30-16:30 CEST.
This is a sneak preview of my remarks tomorrow:
Steering Capital towards a Low Carbon Economy
The International Energy Agency estimates that some $36 trillion of investment above ‘Business As Usual’ will be needed by 2050 to make the global shift a low carbon economy.
The key word is investment; these are not sunk costs, they are energy and infrastructure investments that can be structured to provide a decent return on capital.
But investment must happen quickly; emissions are increasing to a relentless drumbeat. Existing finance mechanisms, such as carbon markets, are not going to achieve the rapid change we need.
But there are other options.
Governments have throughout history used various forms of “capital steerage” to shift investment into areas of urgent policy priority. For instance, most of the urban infrastructure that developed countries take for granted – from sewers to railways to aviation and to highways – depended on active government steps to ensure necessary capital investment.
Capital steerage has involved tools ranging from policy and regulation to credit enhancement, guarantees, and tax credits. At times it has involved special deals, like agreeing real estate concessions in mid-19th century America so railroad companies had the extra incentive to connect the West Coast (a model copied for the Copenhagen Metro only a few years ago). In the 1990s the German government tweaked regulation of the Pfandbrief market to promote bank lending to housing and public sector projects in newly integrated East Germany.
Bonds: covered, asset-backed, sovereign, housing, war, highway, railroad — even sewer bonds — have been the recurring financial instrument of choice underpinning such capital steerage.
The use of bond finance has been enormously successful. Vast infrastructure projects have been completed; hundreds of thousands of unemployed people or de-mobbed soldiers have been re-integrated into economies; finance has been democratized in many sectors.
We now face the defining challenge of our times: a global switch away from carbon-dependency to a rapid transition to a low-carbon and climate resilient world.
Our opportunity is that this is about investment, not cost.
Government’s role is not to fully fund, but to sort out economic and energy planning and then to reduce key risks — notably government-related policy risk — enough to deliver secure long-term investment returns. That's how to channel private capital towards low carbon investment: Capital Steerage.
