efficiency is a good example: most projects are too small to be investable on an
individual basis, but mechanisms to reduce information asymmetries and enable
diversified access to such investments do not exist in the form needed. Third, as
described above, financial institutions aim to maximize risk-adjusted returns.
Renewable energy investments that generate modest returns will therefore only
be attractive if risks are also low. For many investors, the fact that returns are
dependent on continuing public subsidy creates significant risk. This brings us to
the fourth reason: the long-term commitment to a ‘green transformation’ of many
governments is not sufficiently trusted, making the risks of investing high.
16
How would the financing needs of the other transformation in Table 10.5 differ?
Proponents of ‘light-green and red’ (LGR) transformations have similar environmental goals, but also seek a more equitable distribution of income and wealth,
both between and within countries. One way of improving intercountry inequality
would be through a global carbon market based on equal per capita emission
rights. There is nothing incompatible with this and the financial system we have.
Indeed, some of the strongest advocates for a global carbon market have been large
financial institutions. This is unsurprising, as the creation of such a market would
represent a new financial asset class that financial institutions could manage and
trade.
Reducing intracountry inequality would require deep changes. As well as
mechanisms such as a wealth taxes,
17 reducing inequalities of income and wealth
would require a relative reduction of ‘returns to capital’
18 and a more equal distribution of wages. From a financing perspective, lower returns to capital would be
likely to reduce financial returns as private sector profitability fell. More equality
in terms of wages, perhaps achieved through higher marginal tax rates on top
incomes, would impact directly on financial market actors, of course.
Although ‘light-green’ transformations with a social element would most likely
be opposed by financial actors, this is still evolution rather than revolution: a financial
system compatible with this form of transformation would still be recognizable to
what we have today. What happens when our transformations turn a darker shade
of green?
The most fundamental difference between light- and dark-green visions of
transformation is their attitude to growth. From a light-green perspective, ‘green
growth’ is the solution. Proponents of dark-green transformations consider
consumerism to be the issue, whatever its colour, and argue for limits to growth
or ‘degrowth’. While ‘light-green’ transformations are broadly compatible with the
financial system we have, this is not so for ‘dark-green’ versions, which see finance,
particularly debt-finance, as at the heart of the problem.
In mainstream finance, capital should be invested where the greatest increases
in output and productivity can be achieved. Proponents of ‘dark-green’ trans -
formation would fundamentally disagree. The need for investments to produce a
return greater than the cost of finance (i.e. the rate of interest) leads to an expansion
in economic output and productivity. This is the problem, and the principal reason
why economic systems based on interest-bearing debt must continue to grow, and
Financing green transformations 161
individual basis, but mechanisms to reduce information asymmetries and enable
diversified access to such investments do not exist in the form needed. Third, as
described above, financial institutions aim to maximize risk-adjusted returns.
Renewable energy investments that generate modest returns will therefore only
be attractive if risks are also low. For many investors, the fact that returns are
dependent on continuing public subsidy creates significant risk. This brings us to
the fourth reason: the long-term commitment to a ‘green transformation’ of many
governments is not sufficiently trusted, making the risks of investing high.
16
How would the financing needs of the other transformation in Table 10.5 differ?
Proponents of ‘light-green and red’ (LGR) transformations have similar environmental goals, but also seek a more equitable distribution of income and wealth,
both between and within countries. One way of improving intercountry inequality
would be through a global carbon market based on equal per capita emission
rights. There is nothing incompatible with this and the financial system we have.
Indeed, some of the strongest advocates for a global carbon market have been large
financial institutions. This is unsurprising, as the creation of such a market would
represent a new financial asset class that financial institutions could manage and
trade.
Reducing intracountry inequality would require deep changes. As well as
mechanisms such as a wealth taxes,
17 reducing inequalities of income and wealth
would require a relative reduction of ‘returns to capital’
18 and a more equal distribution of wages. From a financing perspective, lower returns to capital would be
likely to reduce financial returns as private sector profitability fell. More equality
in terms of wages, perhaps achieved through higher marginal tax rates on top
incomes, would impact directly on financial market actors, of course.
Although ‘light-green’ transformations with a social element would most likely
be opposed by financial actors, this is still evolution rather than revolution: a financial
system compatible with this form of transformation would still be recognizable to
what we have today. What happens when our transformations turn a darker shade
of green?
The most fundamental difference between light- and dark-green visions of
transformation is their attitude to growth. From a light-green perspective, ‘green
growth’ is the solution. Proponents of dark-green transformations consider
consumerism to be the issue, whatever its colour, and argue for limits to growth
or ‘degrowth’. While ‘light-green’ transformations are broadly compatible with the
financial system we have, this is not so for ‘dark-green’ versions, which see finance,
particularly debt-finance, as at the heart of the problem.
In mainstream finance, capital should be invested where the greatest increases
in output and productivity can be achieved. Proponents of ‘dark-green’ trans -
formation would fundamentally disagree. The need for investments to produce a
return greater than the cost of finance (i.e. the rate of interest) leads to an expansion
in economic output and productivity. This is the problem, and the principal reason
why economic systems based on interest-bearing debt must continue to grow, and
Financing green transformations 161