My Finance for the Future partner, Colin Hines, has this letter on the work we are doing in The Guardian this morning:
Business Green's editor, James Murray, is correct that to undermine the claims of the pro-fossil fuel Net Zero Scrutiny Group, it is vital to explain how the enormous upfront costs of the transition to net zero can be met, but not at the expense of the poor (‘It's all a bit cynical': the politicians behind the Tory attack on net zero agenda, 8 February).
The fact is that a just transition to net zero is easily affordable, and poorer people and the increasingly squeezed middle class won't have to suffer in the process. Of course, a windfall tax on Shell's and BP's present licence to print money is a key first step, but the question is, where will the bulk of the many tens of billions that are required come from? The key to answering this is to realise that the entire cost of tackling the Covid crisis was funded by a £450bn expansion of the quantitative easing programme. This money creation programme now needs to be expanded again to fund a post-Covid recovery that tackles not just the climate emergency, but also the cost-of-living crisis and the inequality of social provision.
Also crucial will be the use of government incentivised savings, such as pensions and ISAs, and a fairer taxation system to help achieve these goals.
Colin Hines
Convener, UK Green New Deal Group
There is more on this here.
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My back of envelope is $2-3 trillion a year globally – 3% of global GDP. but important to understand a) done well this is not sunk cost but investment with significant economic return (in real economy, jobs and real prosperity for less well off, not paper malarkey) and b) up front investment in fossil fuels reached $1.5-2 trillion a year in the 2010-14 period – so by no means unprecedented.
Agreed
And of course prevention is cheaper than the cure.
Interesting paper. The problems faced by the UK are very similar to those faced by the EU and, repeating, split into to two broad funding categories: renewables and energy efficiency. The former has a business case which to large part rotates around the weighted average cost of capital – WACC, the latter is open to some financial engineering – matching long run benefits to up-front CAPEX.
WACCs tend to be composed of debt + equity with a bias towards the former. Rising interest rates leading to rising WACCs and thus more difficult business cases (or rising elec prices paid for – natch’ – by the peasants). One proposal made by our John the Baptist group is for the EIB (European Investment Bank) to issue project bonds that are bought by the ECB. The EIB then uses the cash to fund projects in EU member states. No projects, no money. This approach could cover both RES & EE projects. Interest rates could be “advantageous”. Volumes could be Euro60bn per month (look ma! – same as QE – but properly focused).
UK has no equivalent to EIB (it used to have one, but Gidiot sold it off to Macarie) so no means to channel potentially low-cost BoE money to projects. Pity. If it did start to fund projects (that have a return) this begs the question of how the gov balance sheet looks and the risk profile on the balance sheet. Keeping in mind these would be assets with yields.
I see that Reeves/Liebore has not considered the above and is in corner shop/Jack & Jill land with respect to finance (Brown II? – when will off-balance sheet PFI make a showing?). So far, so predictable.
On the tech front – & found at random yesterday: new non-precious metal electrodes for electrolysers producing hydrogen (i.e. no need for platinum) and an all-electric primary steel process (no need for H2) – Boston Steel (investor; BMW). Plenty of good stuff out there, engineering mostly done, politicos so far behind the curve as to be unfit for anything beyond cleaning the bogs. If you happen to speak to Reeves, tell her I have an open position that will suit her “talents”: door-stop.
We need a new Green Investment Bank…
Maybe just a Green Bank. Today’s ‘investment’ banks do nothing of the kind – they are all about speculation, financialisation and wealth extraction.
We need organisations who will lend or invest (in the true sense of the word), for the long term and for returns that are not just narrowly financial.
Every time I see abandoned and rusting hulks littering the planet, I ask myself, can’t we create some money to provide employment in clearing this mess up? There are derelict buildings, abandoned, empty, rusting hulks of giant ships beached on foreign (to us) shores and under the seas. I assume they’re allowed to rot as there’s no profit to be made from clearing them up so commercial entities will have no interest, but as there’s profound social improvements here which can be made easily enough, isn’t this the job of responsible government? Couldn’t we genuinely be world-beating in using QE to clean up our increasingly grubby planet?
Wouldn’t an injection of that kind of money into the economy be inflationary? My – admittedly poor – understanding of MMT is that only when there is spare labour capacity can such investments be made without causing inflation. My impression from the number of unfilled vacancies is that we are currently somewhere near full employment. And with Brexit discouraging the influx of additional labour, where would the necessary additional workers come from?
We are nowhere near full employment – many people have dropped out of the market and many more are massively underemployed
And if it is inflationary, what would you rather? We die instead?
If we need to create the resources to do this MMT says we tax more
Wow. My question was a genuine one, from someone not well versed in economics and just trying to understand MMT and its consequences. I care deeply about climate change, have done more than most to reduce my own carbon footprint, and am critical of all the major political parties for their woefully inadequate climate policies. And now Twitter has deemed that I’m a total idiot. I guess I should known better than to ask such a question.
Apologiues
Anyone asking questions like that is a troll until proved otherwise, I am afraid
If you are not, I am sorry
After a week of being abused perhaps I am not very tolerant right now
But I am still not sure what the relevance of the question is
Alan, we aren’t anywhere near full employment. Gov figures state around 1.6 million out of work. This is an understatement as won’t take into account those not working and not claiming any benefits. It is another tory myth. They want everyone to think they have succeeded in super job creation. The jobs they create are low paid and menial mainly. Oh and as far as I can see it is precisely those who think they are knowledgable about economics that generally cannot see the wood for the trees.
There’s also the issue of purchasing power. Benefits had, I believe, more than twice the current purchasing power back in the 60s they now have and I don’t recall us being precipitated into hyperinflation back then… so why not address that with an increase to bring them up to today’s equivalent, giiving the overall economy a much needed stimulus in the process?
Interesting article in todays Grauniad
https://www.theguardian.com/society/2022/feb/11/architects-call-for-mass-insulation-of-englands-interwar-suburbs
And details of what these houses are like at th emoment
https://www.theguardian.com/business/2022/feb/11/absolutely-freezing-life-in-englands-draughty-1930s-homes
Which comes with health costs borne by the NHS
All issues a Green New Deal could fix
Agreed
It’s affordable I’d agree but just not convenient for the usual suspects unfortunately.