Green bonds

I have a go at them in the comments here:

Oh dear God. I\’d hope for rather better from a banker than this tripe.

Look, there\’s a very good reason why \”green bonds\” won\’t work at present. Because the \”green investment projects\” don\’t work at present. The numbers just don\’t add up. Without subsidy all these projects lose money: so there\’s no money available to pay the bondholders back, let alone pay them interest.

So, we get this:

efforts to improve our relatively expensive renewables subsidy regime (for example through a feed-in tariff and a carbon floor price) could reduce policy risk and improve the revenue certainty of low-carbon assets.

Yes, quite. These green projects will only make money if there are subsidies guaranteed.

Now take the next step. Let\’s say that we do get these subsidies guaranteed (not that I\’m in favour mind, just pretend I am for the moment though).

So, why do we need green bonds? We\’ve got a series of investment projects which have nice, stable and high returns (the feed in tariffs for example guarantee an 8% return on capital invested for 25 years). Who needs special bonds to finance that? This is the sort of thing that any City investment house could raise tens of millions for in an afternoon. The bigger ones hundreds of millions by lunchtime.

In short, you need the green bonds because the projects without subsidy suck. But if you\’ve got the subsidy set up and guaranteed then you don\’t need the green bonds. Just plain old vanilla ones will do just fine.

Which means that green bonds will only work when you\’ve already rigged the system so that you don\’t need green bonds.

1 thought on “Green bonds”

  1. Buying green bonds for currently unsubsidised projects (at a junk rating) could be a way of betting that the subsidies will actually occur — sort of like buying desert land where you think the government’s going to build a railway…

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