Designing Green Investment Schemes to work

The approach to green investment schemes risks being like winning the lottery. Bang! A hundred million squillion quid hits my bank account, what do I do with it? Spend it, man! Or like those TV shows when someone has two minutes to buy whatever they can in a supermarket and a pile of frustrated housewives go careering down the aisles chasing their trolleys grabbing whatever they can from the shelves. Dignity? Gimme gimme gimme!!!

But what if we forget about the money for a while? Remember that it is there, in the back of your mind. Or in the bank, chilled and nicely frothed up with interest, like the beer you will get at the end of the run. But you have to do the running first, and the starting place is elsewhere. The thing with GIS is first to have a vision as to how the country will move to a low carbon economy.[1]

Sit back and start imagining. Imagine how we will live in the low carbon economy – with emissions at say 20% or 30% of today’s levels. Take your time, because the more you imagine, the more your mind can spill out of the box and shed light on darker areas outside the box, the more likely you are going to come up with some useful answers. Will we be able to take it really easy? Will it be fun? Will there be more time for sex? Will I be able to see ivory-billed woodpeckers from the kitchen window in Budapest? Will our cat be able to open its food tin by itself at half past three in the morning? Will my boss be Chinese?

So the starting point of GIS is a portrait of the low carbon economy. While we paint a big picture with lots of blue sky, we must at the same time avoid falling into the big-scheme trap. Big schemes don’t work[2]. They always have unintended consequences, often ones which cause greater problems than the ones the scheme was intended to solve. GIS cannot be used to fund compulsory castration of car-drivers, genetic re-engineering of every single farm animal on the planet to stop it belching, forcible rehousing in mudhuts or anything else stalinistic, nasty, or vicious.

So while we do have to think big and think vision, we have to remember that the vision is very unlikely to pan out as we want … and could well backfire. Small examples might be promotion of biofuels in Europe leading to even destruction of South American and Asian rainforests. Or carbon taxes causing widespread inflation rather than stimulating behavioural changes. Either, it starts with vision because if you are going to spend money you have to know where you are going.

Pragmatists might say: “Hey come on, get back to the real world, I just want to see green projects happen, forget this long-term stuff. You can’t shape a society to your taste through a Green Investment Scheme anyway.”

Hold in pragmatists. Check out the numbers. If the CEE countries have five or six billion AAUs in surplus, then there is perhaps fifty billion Euro to spend if it’s nicely greened, recycled into additional reductions which themselves can be sold, if there is a continuation of Kyoto with tough targets, if banking is allowed, and say one more big emitter comes on board.

With fifty billion Euro you are making decisions which really impact things for quite some time. With that you could rebuild Poland’s entire electricity generation capacity from scratch … and Hungary’s … and still have some change. So if your GIS is influencing big capital projects, then your decisions will still be around in thirty or forty years. So you had jolly well better think about the long-term vision. It sounds like a cliché and it looks like one (so it probably is a cliché – and it probably won’t ever happen), but now there is a chance to do things differently!

So let’s drop bottom-up for a while – we can always come back to it. We should push ourselves really hard to think if there is not some better, cleverer, smarter way to spend fifty billion Euros … better than just funding 50,000 MW of power plant capacity. If there is not, that’s fine. But if there is ever a time to do that thinking, just to check, just to see, then now is the time.

A second strand to getting GIS right is the old conundrum of governments spending money. Today we are all capitalists, free marketeers. We know that governments can’t spend money, hey this is Central and Eastern Europe we are talking about. Central and Eastern Europe are the very most archetypical Proof of the Pudding there ever was, practically swimming in brandy and clogged with sixpences.

Here is fifty billion Euro on its way into government coffers, and we all know in our heart of hearts that it is going in the wrong direction. Are we happy about that? The last of the socialists is delighted. He’s ordered twenty cases of Bollinger in special pink. But he’s not going to have many people to drink that with.

We do need vision and leadership, so of course there is a deadly serious role for government here. The whole thing will fail without effective politics and policy and policing. But we probably have to find a way, somehow, to trickle the funds into the “market” to get them used as effectively as possible.

Let’s go straight to the shopping list. We sell fifty million AAUs, cash down now thank you, and what do we do with half a billion Euro? This is it in bullet points:

  • €100 million coinvestment fund for energy efficiency projects (a corporation or entrepreneur has to coinvest into each deal to ensure there’s someone who can’t sleep at night)
  • €100 million coinvestment fund for funding switch from food to energy production in agriculture
  • €100 million coinvestment fund for housing modernisation and fighting energy poverty
  • €75 million endowment fund for supporting miners who want to retrain or enter hardship because of cuts in coal consumption
  • €50 million venture capital fund for investing in low-energy building technologies
  • €50 million fund for promoting distance working – probably the best thing you can do to nip transport demand in the bud, and Microsoft might be persuaded to coinvest
  • €50 million endowment for energy efficiency research at the top engineering university. This could fund a professorship, some scholarships, and some running costs
  • €50 million endowment for children’s education on environmental issues and climate change
  • €25 million for training environmental ministry people in economics, business, languages, law, communication, presentation and negotiating skills

We have actually gone over budget by a hundred million. Any volunteers?

It all seems a bit flat to me. Sure, there will be private sector fund managers with great CVs and “track records”. There will be coinvestment to ensure that there’s always someone with something to lose if the project goes wrong. There will be a very wise but flexible board overseeing the whole thing, comprising elected officials, international experts, and TV personalities. But I am still missing something.

Actually, the reason why is tastes to bland is that I am missing two vital ingredients: policy, and “champions and followers” (for want of a better term).

I won’t write about policy here. It goes without saying that unless the policies and regulations are right, all these investments will fail. We will be throwing seeds onto barren ground, and they will not bear fruit. They might grow, they might sprout a few flowers, but there will be no next generation. Unless the investment environment is right, either the funds will not be able to spend their money, or the projects will start but later fail. It would be a scandal but nothing new (for some reasons governments love doing this) if the money were used to cover up for regulatory failings – i.e. we subsidise projects to the hilt so that they have to be successful even if the regulatory environment is a disgrace.

But the second ingredient, champions and followers, gets less coverage, so here are some thoughts. It seems to me that social change is a lot about people: about champions – people who do amazing things and lead the way, and followers – the herds of us who do little new but slowly but surely amble over to graze where the champions were.

Where do champions come from? Why do people risk domestic well-being, professional reputation, their own health and wealth, to put up windmills, to plant energy crops, to campaign for indigenous peoples, to protect rivers and mountains from iniquitous gold-miners. It’s a kind of entrepreneurial drive and it has many forms. It’s not just people who want to make money – it can be teachers, men or women of the cloth, people working quietly and persistently for decades in a government office or a science lab, it could even be politicians. They are driven by some passion which transforms them from being little grey people into angels of change, into champions.

What’s driving them: it could be greed, lust for power, glory, fame, justice, revenge. It could be passion, patriotism, survival, fear. There are these very powerful primeval motivations which make people into high-achievers. And I think that it is these highly driven high-achievers who can make a difference in society.

I wonder if we can harness these basic driving forces and train them on the sustainability challenge, using AAU proceeds to make that happen. Let’s not make the money itself the driver (by funding projects) but let’s see the money as a catalyst for these much more powerful drivers. The money should be the fuse not the bomb itself, the mechanism to unleash the forces.

EU ETS is an example of such a mechanism which is already working. How much was spent by governments setting it up? A couple of hundred million Euro spread over 25 countries? But it has stimulated well over a billion of equity investment in carbon funds. Why has it had this effect? Partly because it has created structures which fire up the bare-knuckled, panting, greed of traders, bankers, and American hedge fund investors. Actually some of the brightest and most driven people there are. You might not like them, but they want to be at the top of the pile and drive change. They want to be the best.

Another mechanism to pick and motivate champions is prizes – using an amount of money which is highly motivational for an individual although small at a macro-economic level. What effect would a fifty million dollar prize have on scientific research into improving the efficiency of laying pipes (to allow for the cheap, swift, and unintrusive installation of district heating networks)? You’d have some of the most obsessive, most ambitious, cleverest engineers in the world scrambling each other to a pulp to come up with a new world of distributed CHP. Five million AAUs is nothing.

Or what if we had a national ten million dollar prize for the miner who sets up the small business which employs the most people in his town?

There must be more mechanisms, well known in education, politics, and economics. They might need dusting and repainting, but someone will already have thought of them. The common feature is that they don’t cost so much and can have a big impact.

Looking at the followers, what are the motivators which change their behaviour? Conformity, security, fashion, envy, aspiration to look or feel or smell or perform like a champion.

Check out the combination of a hero and the media. Jamie Oliver and Delia Smith can make everyone of us go out and buy a Jerusalem Artichoke first thing tomorrow. Bob Geldorf made us all think about Africa much more. Beckham is responsible for millions of haircuts. Shouldn’t GIS funds be used to pay Salma Hayek to turn down the heating, put on her thermals, and prove it? Sounds daft, but it’s probably more effective than spending the same two million Euro on a windmill. The most cost effective route to greening is to redefine cool.

This is not an all-encompassing solution. But it is the beginning of an alternative approach to GIS: psychoanalysis should come before pyrolysis. We should use the funds to attract and motivate the very best minds, the most driven entrepreneurs, the most talented individuals in all walks of life, and channel their supercharged efforts towards blazing a trail, creating lasting sustainable improvements in our economy. We should use funds to move the masses by redefining cool. It’s by definition elitist. It’s terribly incorrect politically and definitely not fair. It is a long way from the world of funding lists of stale projects many of which should happen by themselves if only the regulations were put right. Oh, and it’s fun.

[1] To quote Adriaan Korthuis of Climate Focus. Credit where credit’s due.
[2] Read Seeing Like a State by James C. Scott (Yale University Press).

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7 Responses to Designing Green Investment Schemes to work

  1. Nad says:

    Very amusing and very right, especially like the point about retraining the Ministries, using the cash to create the system and then let people do the rest etc

    How do you sell these ideas? I was looking at GIS and in particular how to ensure the right policy frameworks, examples of good policy, analysis of good policy impacts.

    Then specifically in terms of creating a good conference – how to get a room full of the relevant ministries: environmental, industry and finance as often battles seem to be between the branches of the government.

    May be something in getting UNEP and focus onthe Environment ministries to develop policy and a way of marketing the policy to the industry ministry for job creation and the finance ministry for positive tax returns etc.

    Amongst all the ifs and buts with GIS – when do you think they will be set up?



  2. James Atkins says:

    Thanks for taking the time to read it. Ground work is being done now for GIS in several countries including at least Bulgaria, Czech Republic, and Ukraine. The first transactions are expected to happen sometime this year. Probably the first investments will be, pragmatically, straightforward projects aimed at kick-starting things.

  3. James Atkins says:

    Selling the ideas is the tough one. I guess if you plug away, eventually someone with cash and influence will listen.

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