Financing the Green New Deal

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Financing the Green New Deal

• Eoin McLoughlin
• Policy Analyst

Friday 17th July, 2009 Workshop on Financing the
Green New Deal
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Presentation Structure

• Background
• Green New Deal Project
• Financing the Green New Deal
• Overview
• Finance mechanisms
• Institutional arrangements
• Key Questions

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Comhar SDC Green New Deal

• Included as priority area in Comhar Work
  Programme 2009-2012.
• GND Ad-Hoc Working Group formed.
• First phase of project
• Provide a clear vision of what a Green New Deal
  means for Ireland and deliver concrete
  recommendations for action.

4-year window  to make the transition from
conventional to innovative sustainable low-carbon
economy and society.
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Why a Green New Deal?

• Economic challenges
• Rising unemployment
• Government deficit
• Environmental challenges
• Climate change
• Ecosystem degradation
• Energy challenges
• Security of supply
• Affordability
• Sustainability
• Green New Deal addresses all of the above.

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Key Elements of a GND
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Financing the GND

• Public mechanisms
• Direct expenditure
• Fiscal policy
• Auctioning revenue
• Green bonds
• Asset-backed finance
• Carbon finance

• Private mechanisms
• Project finance
• Venture capital
• Equity finance
• Micro-finance
• Insurance
• Angel investors

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Finance Continuum
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Finance Continuum - Ireland
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Green Bonds

• Government guaranteed bond issues targeted
  directly at low-carbon investments
• Returns linked to revenues from the investment
• Funds raised through the bond could be managed by
  a government backed Green Investment Bank or
  alternatively banks could bid for capital to
  invest in projects
• Short (5yrs) and long-term (15yrs) bonds could
  be issued to cater for different types of
  investors

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Benefits of Green Bonds

• Helps finance the move to a low-carbon economy
• Removes the dependency on the private sector
  where the financial crisis has reduced the amount
  of debt capital available
• Investment vehicle for pensions and savings
• Create assets with secure and distinct future
  revenue streams
• Reduces risk as if government guaranteeing the
  bond then its more likely to provide policies
  that give business the certainty it needs

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Green Bonds - Examples

• EU Climate Awareness Bond
• Issued by the European Investment Bank
• Funds used for investment in RE and EE projects
• Return on the bond is linked to the performance
  of the FTSE4Good Environmental Leaders Europe 40
  Index
• World Bank Green Bond
• Funds used for mitigation/adaptation projects in
  DCs
• Participants include Swedish institutional
  investors and State of California
• Interest rate payable is 0.25 above Swedish
  government bond rates

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Innovative Mechanisms pay as you save

• Cost of energy efficiency measures funded through
  future savings made on that households energy
  bills
• Addresses multiple barriers such as upfront costs
  and principle-agent problem
• Key is that householder saves more each month
  than they pay back and also that the monthly
  charge is on the property not the person

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Pay as you save
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Institutional Arrangements

• Clean Energy Bank (Clean Energy Deployment
  Administration) included as part of Waxman-Markey
  Bill
• To be housed within the Energy Department
• Finance clean energy and EE technologies
• National Decarbonisation Fund
• Funded through revenues raised from climate taxes
  (CO2 levy) and bond issues
• Targeted at climate change measures

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Key Questions

• What are the most important finance mechanisms in
  the short and long-term for making the transition
  to a smart green economy?
• Role of public sector vs. private sector finance
  mechanisms?
• What institutional arrangements are required?
• What are the current main barriers/gaps to
  financing projects in this sector?