Private Initiatives, Public Policies

Sound public policies are necessary to enable large shifts of private sector funds into clean tech/green energy. But some financial instruments can be employed today, even in the absence of clear market signals. Most of the “low hanging fruit” are cost-saving (McKinsey 2007b).

Creative financial instruments are needed to turn High Cap/Low Op options into “no-regrets” solutions that generate profitable enterprises. Intermediary financial units and firms can purchase technologies with high capital expenditures (“Cap Ex”), and lease them to individuals and businesses; the costs amortized over the pay-back periods (e.g., approximately 7 years for ground source heat pumps).

Financial institutions such as banks, other institutional investors, brokerage houses, rating agencies and regulators can help shift investments into promising sources of real (not transient, paper) wealth. This process has begun. In 2007, investments in clean technologies reached $117 billion, up 35% from 2006 (NEF 2008). Such “socially-responsible investing” must be complemented by tailoring lending guidelines to influence industrial practices. Some banks have begun to do both.

The insurance sector, which shares with public health the “precautionary principle” for reducing risks (within manageable bounds), can play a pivotal role through such measures as: 1. Reducing premiums for builders of (safe) green buildings and drivers of hybrids; 2. Rewarding directors and officers whose firms adequately address climate change; 3. Promoting new building and zoning codes; and 4. Advocating for wetland and barrier island protection.

All firms can promote sound public policies.

The public sector must provide the guidelines, financial incentives and infrastructure for the clean energy transformation. Setting a price for carbon to aid longterm planning can be accomplished with: 1. A cap-and-trade system; 2. A downstream carbon tax for all users; or 3. An upstream carbon tax for the energy sector.

But such [[market]] mechanisms are designed to achieve the least-cost solutions. Additional incentives, funds and regulations (e.g., renewable energy portfolios; progressive efficiency standards) are needed to promote more costly technologies, such as solar and geothermal.

Generating Global Funds

All three methods above (if cap-and-trade permits are auctioned), would generate substantial funds that could prime and sustain the development of clean technologies. The 2006 Stern Review on the economics of climate change calculated that 1% of world output per year ($350 billion; the total being $35 trillion) for an initial period would be needed for climate stabilization. This contrasts with the potential for non-linear climate impacts (e.g., large forest diebacks; widespread crop failures; coral reef collapse) that could cause damages of 5-20% of world output (up to $7 trillion) per year.

The relative figures are key; and the differential would be even greater if one replaced the discount rate with an “appreciation rate” for Earth’s life support systems.

An historical note: A technology transfer fund was needed to realize the 1987 Montreal Protocol to phase out stratospheric ozone-depleting chemicals.

As a cost to one is revenue (and potential investment) for another, this level of allocation of global finances may be viewed as an investment in our common future; one that would bring many health, ecological and economic returns.