Revisiting Green Investment Schemes II (How to spend it)

Every two weeks the Financial Times loses its pink blush of modesty to reveal to us the luxurious, indulgent world of the super-rich. A dizzying whirl of minimalist architecture, adventures to tropical islands, truffles and chateaux, vintage cars, impossible gadgets, and delicious soft-porn adverts of intoxicating perfumes and silky dresses. The supplement is called: How to Spend It.

Soon the grim, grey streets of Budapest 8th district, and the shabby tower blocks of Katowice will too be able to enjoy untold wealth, as Green Investment Schemes will pour hundreds of millions of Euro into the economies of Central and Eastern Europe. And the governments of this region face a similar dilemma to the titans of the City.

The amounts of money are possibly so large that they can make a difference if well spent. One hundred million AAUs could raise a billion Euros. There is a risk that the money will be spent unwisely. This is because spending decisions are motivated more by considerations of political risk than economic and ecological good sense.

Buyers and sellers insist on something nonsensically and deceptively called “hard greening”: funding physical projects where, with ease and certainty, you can calculate and verify that the amount of emission reductions equals the number of AAUs sold.

What could be wrong with this? At least four things. First, political risk aversion means that they want to spend money solving problems which are better solved in other ways. Money should not be spent on subsidising renewable energy projects: rather, tight National Allocation Plans should stimulate investment in renewables. Government money should not necessarily be spent subsidising energy efficiency measures which anyway have negative or very low marginal abatement costs.

Spending money shows that policy-makers are doing things. It is a safe way of solving problems. They don’t need to use smart policy, creativity, and political leadership to remove barriers to investment and market failures. They spend their way out of the problem. This is bad economics.

Second, they don’t plan to spend money on things which really would make a difference, like media and education which are incredibly powerful tools for changing behaviour. Because, in their view, the impact is not measurable. And it has to be measurable to be politically acceptable.

Third, focus is on one-off measures rather than systemic measures. One-off measures are individual programmes or projects and they are popular because the resulting emission reductions are easy to measure. That’s fine in itself but it creates one-off spots of sustainability and does not necessarily stimulate systemic, long-term improvements, which should be the aim if ecological benefits and value for money are the priorities.

Giving Mr Tóth a grant to build a windmill for his garden gnomes is a one-off measure. A measure becomes systemic, and therefore much more worthwhile, if, without paying them a lot of money, it also encourages his neighbour Mr Horváth to install solar panels for the collection of stone frogs around the pond, and old Rácz round the back to heat the bird feeder with geothermal.

Finally, political risk taking is exactly what should be encouraged, not avoided. Today we have very poor understanding how to make people reduce emissions. We have no idea how far we can push emission reductions without leading to material reductions in quality of life. Political resistance to curbing emissions is based on fear of the unknown, not on reasoned and enquiring assessment of impacts. So it is time to get to know the unknown. Exploring unknown areas of policy means taking risk. To take risk you need capital. And that is what Green Investment Schemes are offering us in sackfulls.

So here is a great opportunity to learn how to solve the most critical problems of our day. And instead we are throwing money at things which we already understand and just have not got the guts to address them in more sensible ways.

The old excuse is that “We cannot sell it to our taxpayers”. That should be taken as an admission of ineptness in selling, not as a reflection on the quality of the underlying proposition.

There is a risk that Green Investment Schemes will be squandered because of being too conservative. It would be terrific if policy-makers could be more thoughtful, more creative, and bolder. Hundreds of millions of Euros of taxpayers’ money deserve more respect.

A practical note. Several countries have made studies of the areas into which GIS funds would be deployed. The best consider in detail and with academic rigour the marginal abatement cost of a wide-range of measures, allowing policy makers to determine where money can be spent most cost-effectively. The worst give a list of pet projects.

Regular, public communication between countries establishing green investment schemes would be helpful. It would allow the best ideas to be promoted, and the worst to be dumped. And it would allow the public to judge the level of debate. After all, it is their money and their lives we are playing with.

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2 Responses to Revisiting Green Investment Schemes II (How to spend it)

  1. I agree the billions from AAU sales should not be spent on investments that are funded otherwise already. On the other hand leaving it to the public is as idle an idea. Who is “the public” that will comment on governments’ calls for public inputs? Problably some routined NGOs that are looking for simple showcases to make their point. Democracy in Europe has not developed that far that the public is participating closely in public debates on energy efficiency, I am afraid. So in the end the discussion should be with politicians in parliament, the imperfect they may be. And the politicians should better read this blog more often.

  2. Anonymous says:

    “The” public can be given control through tax refunds or exemptions for green upgrades or investments. let the free market decide.

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