October 7, 2008

Climate right for green bonds

CANADA - The International Energy Agency warned last week that 50 per cent of global electricity supply will need to come from renewable energy sources by 2050 if we hope to "minimize significant and irreversible climate change impacts."

"Governments need to take urgent action," said Nobuo Tanak, executive director of the agency. "Governments need to do more. Setting a carbon price is not enough."

What's interesting about this particular warning is that comes from an agency that, in the past, has been accused of paying only lip service to renewables as part of its broader energy mandate, which has traditionally been dominated by fossil fuels.

Indeed, the organization was founded during the early 1970s directly in response to the 1973 Arab oil embargo.

Here in Canada, Tanak's "do more" message likely fell on deaf ears. The federal Conservative government is more focused on ways to clean up the image of the western oil sands so that development there can continue unabated. Provinces such as Ontario, Quebec and British Columbia have taken leadership, but at a federal level there's no green vision for Canada — just a laundry list of half-measures aimed at creating a perception of action.

Given the Conservative lead in the polls, Canadians must be buying it. The only other explanation is that four in 10 voters don't care about the environment, climate change or how we leave the world for future generations. Not enough, anyway, to sway them toward the Liberals, NDP or Green Party.

It gets worse.

The collapse of Wall Street has severely tightened lending markets. There's a global credit crunch, and those looking to spend big bucks on wind, hydroelectric, solar and biomass projects will find it much more difficult — and expensive — to obtain debt financing.

The bottom line: the knee-jerk reaction to the financial crisis will lead to less, or slower action on the climate crisis.

"These are capital-intensive projects," says Tom Rand, director of Toronto-based VCi Green Funds Inc., a private-equity fund that invests in technologies that reduce greenhouse-gas emissions. "And we need renewable-energy production to step up tomorrow."

Rand has spent the past year promoting the creation of a government "green bond" that, during the current credit crunch, makes more sense than ever.

The idea is that Canadians could purchase tax-free green bonds in the same way they can purchase Canada Savings Bonds, earning about 4 per cent a year. But the money, potentially billions of dollars, raised from the bond issue would be devoted to infrastructure projects that promote deployment of renewable energy.

"Renewables have to get built, that's a priority, and our plan steps in to provide that liquidity, that cheap debt capital," explains Rand, adding that the bond money could also be used to backstop low-interest bank loans so homeowners have an affordable way to pay for energy retrofits.

"Canadians get a safe investment vehicle, and companies get guaranteed access to low-cost capital over a long period of time. They don't have to worry about that credit crunch biting them in the ass. It's the best of both worlds."

Jobs get created. Clean energy capacity gets built. And Canadians who purchased the bonds get a safe return on their investment and a chance to boost — for themselves, and for their children — development of a green economy.

Liberal leader Stéphane Dion is a strong advocate of the green bond concept.

Last month, Dion said if elected he would create a federal infrastructure bank that would use money raised from green bonds to provide low-cost financing for major clean-energy projects.

A week earlier, NDP leader Jack Layton announced similar plans for a climate-change bond.

The Conservatives, initially receptive to the idea, ended up backing away.

"Mainly because I don't think they want to engage Canadians on climate-change issues," Rand says. "Because once Canadians are engaged and they have something at stake, their psychology changes and suddenly people want real action."

Europe introduced green bonds last year and within three months about $1.5 billion was raised.

The public appetite is enormous for this kind of investment vehicle, says Rand, who plans to shift gears if the Conservatives get re-elected and start pitching the idea to the provinces.

Why wait? Ontario should be looking into the green bond approach today. If Energy and Infrastructure Minister George Smitherman is serious about increasing the province's targets for renewables, then reaching those targets in an environment of tight credit will require some creative financing.

A green bond could fit that bill.

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