Public policy is an uncertain business, especially in areas such as climate change that have a global dimension. In the last few months, rapidly rising world prices for grain and oil have swept over Canadian policy-makers like a tsunami, throwing plans for biofuels and carbon taxes into disarray.
But recently, a new proposal has been diffusing into Ottawa. It's a plan for "Green Bonds" financial instruments modelled on Canada Saving Bonds but designed to raise capital specifically for renewable energy production.
Developed by five young members of the Vancouver-based Action Canada program, the Green Bonds proposal proves the value of a "fresh eyes" approach.
When the Action Canada five began studying climate change policy, they soon realized that the experts were avoiding some of the toughest issues.
Reductions in greenhouse gas emissions can be achieved in a number of ways, ranging from regulations and penalties to taxes and subsidies. The real challenge is to develop policies that generate public support, promote technological innovation, and harness the market forces needed to move an entire economy beyond fossil fuels without seriously diminishing the national treasury.
In other words, how do we leverage limited government involvement into a broad-based social, technological and economic revolution?
In the European Union, a "climate awareness bond" initiated in 2007 has already raised more than $1.5 billion for renewable energy projects. Inspired by that model, the idea of Canadian "Green Bonds" was born.
Like Canada Savings Bonds, Green Bonds would be backed by the federal government, ensuring a minimal rate of return. The potential for a higher rate of return might be achieved by linking the rate of return to the price of carbon as cap-and-trade programs are implemented.
The principal attraction of Green Bonds is that they will enable individuals to invest in an environmentally sustainable future.
In a poll conducted by Nanos Research, 81.8 per cent of Canadians supported the Green Bonds initiative, with 62.2 per cent saying they would purchase the new instruments themselves if they provided an interest rate similar to Canada Savings Bonds.
Unlike Canada Savings Bonds, which simply support government liquidity, Green Bonds would focus on supporting "threshold technologies" that are unable to secure capital at normal commercial lending rates.
They would thus address the funding paradox that bedevils technological entrepreneurs. Although money is often available for research into new technologies, a "valley of death" separates the development and implementation phases.
In short, the costs of raising capital for commercial scale production are so high that many potentially important technological innovations never make it into the marketplace.
Green Bonds are designed to bridge the valley of death, enabling entrepreneurs to demonstrate the commercial viability of their product. Once the technology has proven itself, the market will take over, and the investment made through Green Bonds will be returned and reinvested in other promising technologies.
Commercial lenders charge higher rates for threshold technologies because the risk of failure is considerable and unpredictable. Governments, in contrast, can and should weigh the long-term social and economic benefits of innovation against the short-term risks.
The Action Canada fellows estimate that a Green Bonds program would reduce greenhouse gas emissions at a cost, to the federal government, of between $1 and $13 per tonne. If these numbers are anywhere close to being accurate, Green Bonds are a no-brainer.
A Green Bonds program would also create jobs, promote high-tech exports and engender a national sense of common purpose on a very important issue.
Loans made through the Green Bonds program would be privately managed and fully repayable. The risk to the public purse could be limited through liens on assets, careful oversight and an initially small bond issue.
Green Bonds are everything that Canada Savings Bonds are and more. They're about investing in a future that is both economically secure and environmentally responsible.
Above all, Green Bonds make political sense. Canadians rank the environment as their top concern. They want leadership on climate change. And they want to be involved.
Michael Byers holds the Canada Research Chair in Global Politics and International Law at the University of British Columbia. He is the author of Intent for a Nation: What is Canada For?
