By Roy Morrison* – EcoCivilization
In the midst of the covid-19 pandemic a new economic global market tool, Sustainability Credits (SCs), promises to help kick start both national and global renewable economic development.
Globally, the sale of oil has dropped by $1 trillion and a wave of bankruptcies afflicts the fracking industry. Renewable investment continues to slowly increase. But that’s not enough.
The use of a new market tool Sustainability Credits (SCs) offers a potent value proposition that will encourage productive investment in renewable energy on a trillion dollar scale.
“This is the tool that’s needed for a Green New Deal,” said solar developer Roy Morrison, Managing Partner of Renewable Sun Partners. “Sustainability Credits are a tool for China, India, the European Union, the United States to build the infrastructure for an ecological civilization.”
A Sustainability Credit is not a tax. It will not raise prices like a carbon tax. It does not require major government spending. It’s a way of monetizing on balance sheets of Green Banks the ecological value of the displacement of tons of carbon dioxide by renewable energy.
The U.S. National Academy of Sciences (N.A.S.) has determined that the ecological value of displacing a metric ton of CO-2 emissions by renewable generation is $100.
The ecological value of displacing carbon-dioxide becomes the source of investment capital to be further invested in more renewables that create more Sustainability Credits.
“This is a value proposition that can drive ecological global economic growth, making economic growth mean ecological improvement and the creation of millions and millions of Green jobs,”said Morrison. “Ecological improvement can be the new store of value, the new gold”, added Morrison.
The good news is that Sustainability Credits based on current global solar investment of $27.8 billion a year can quickly generate the $50 trillion dollars needed to be invested in a 100% global renewable energy system from 2020 to 2050 estimated by Morgan Chase.
Investment banking using SCs in support of ecological economic growth and green profit can become our ecological savior. Who would have thought?
SCs and the Magic of Investment Banking
Investment banks for every dollar they own, can lend ten dollars to businesses. For every one million in sustainability credits, a Green Bank can loan ten million for building more renewable energy systems to produce more renewable energy, more jobs, and more SCs that leads to more renewable investment. This is the virtuous circle of investment supporting a Green New Deal.
The steps needed to make this happen are easy and cost almost nothing but are enormously beneficial.
First, Sustainability Credits are established by government as a regulatory asset similar in kind, for example, to solar renewable energy credits (SRECS). But SCs are quite different than SRECs which raise prices for energy users.
SCs are used for productive investment producing energy and jobs. SRECS have arbitrary values set by states to subsidize solar and must be bought by energy suppliers to meet minimum renewable energy requirements unfortunately raising energy prices. Sustainability Credits will help finance additional zero fuel cost solar with capital cost already falling an average of 18% a year.
Second, the SCs are monetized on the books of any bank pursuing green investment. If my local Sugar River Savings Bank or Morgan Chase and Goldman Sachs or the Industrial and Commercial Bank of China (ICBC) wants to participate let them. The bank certifies the displacement of carbon dioxide by the solar or wind farm and the creation of SCs based on average of one pound of carbon dioxide per kilowatt hour. This is easy to calculate since renewable systems meter each kilowatt generated and sold. SC facilities go into a national data base to prevent double dipping.
Third, SCs become paid in capital on the right side of the bank balance sheet and cash on the left side of the balance sheet. Each dollar in cash can become ten dollars in renewable energy investment development loans. Each year produces a new round of SCs. The numbers show many trillions are generated by year after year production of renewable energy and reinvestment by banks in building more and more systems. SCs can be produced not just by big solar developers, but also by the poor with one solar panel working with community associations or coops.
For example, there were $27.8 billion invested globally in solar finance in 2019, up 20% from 2018, according to Mercom Capital. At a conservative $2 million capital cost per megawatt this would build 13,900 megawatt of solar. With a conservative 1.5 million kilowatt hours output per MW this would displace 680 metric tons of carbon dioxide per megawatt creating SCs valued at $68,000 per megawatt with a total yearly SC value of $945 million on books of Green Banks.
The $945 million in SCs reinvested in the next year by investment banks to finance about $10 trillion in more solar. In year three more than $100 trillion would be available for investment in Quickly, the financial resources would be available for a complete transformation not only in energy, but agriculture, industrial ecology, forestry, aquaculture, carbon sequestration in sol and biomass to build a prosperous and just global ecological civilization.
The problems will not be capital, but to orderly build the future ecological infrastructure.
SCs are Not Helicopter Money or Inflationary
First, funds created by SC investment are based on real ecological value of displacement of carbon-dioxide.
Second, they represent productive investment used to build solar and wind and produce energy that is sold as well as creating large numbers of jobs.
Third, the dollars created through SCs will be monitored and controlled by the Fed or other Central banks using normal means to shrink or expand the money supply.
SCs do not raise taxes, require big government expenditures, oruse market means for ecological ends. SCs are a new idea, a good idea whose time has come. Now is the time to help kick start the covid-19 recovery and ecological transformation.
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Fact check
The $100 value has been most recently used in proceedings of the U.S. National Academy of Science (NAS) climate change analysis in “Declining CO-2 Price Paths”.
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In the U.S., on average a kWh of electricity produces a bit more than 1-pound carbon dioxide per kWh.
Impact of weighted average cost of capital, capital expenditure, and other parameters on future utility?scale PV levelised cost of electricity
Eero Vartiainen,Gaëtan Masson, Christian Breyer,David Moser, Eduardo Román Medina
First published: 29 August 2019 https://doi.org/10.1002/pip.3189
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RENEWABLE POWER: SHARPLY FALLING GENERATION COSTS. International Renewable EnergyAgency
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Solar industry gets $27.8 billion in corporate finance for company building and projects in 2019, PV Magazine
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SCs can exist as assets outside of the BOC. It would be possible for developers, for example, to sell 25 years of SCs forward to purchasers at a discounted NTP (Notice to Proceed.) SCs projects need to be approved by the BOC, but the ownership and use of SCs can spread throughout the banking system to help accelerate the renewable energy transformation and attain sustainability goals. SCs must be used as investment capital in new renewable or related systems, but as a store of value, they can be traded.
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The advantage of accounting for SCs as capital on balance sheets and as cash asset:
• SCs are easily measured by elimination of metric tons of carbon dioxide emissions by renewable energy systems.
• The value of SCs starting at $100 a ton per metric ton of carbon emissions is based on estimates of consequences of carbon emissions and dollar value of a putative carbon tax to discourage carbon dioxide pollution.
• SCs, instead of a tax on carbon, are assets certified by investment banks (BOC), created by elimination of carbon dioxide pollution that is booked by those who undertake this activity.
• SCs represent the ability for future investment by the BOC or other financial banking institutions in renewable energy (at the start).
• SCs are tradable instruments with real value that be turned into dollars/value through investment in new sustainability projects, as well as being sold forward and in a secondary market.
• SCs will represent and emerge as a store of value and a measure of ecological conduct and ultimately as part of the proper pursuit of the future ecological nature of fiduciary responsibility, which is essential for the future of free markets.
• SCs are essentially a crucial transition step for allowing markets to aggressively and effectively pursue a successful, timely, and prompt resolution of the climate crisis.
• SCs represent an ecological tweaking of the accounting systems as opposed to a much more comprehensive transformation to value ecological consequences in all aspects of production, consumption, investment.
• SCs by simple change in FASB and IASB rules, and corresponding international accounting changes will create a new ecological asset class and stream of value, encourage and reward investment in carbon dioxide elimination and to do so in a matter that is focused on the key goal of carbon dioxide emissions elimination.
SCs can be managed by the Federal Financing Bank (FFB) and regulated by the Federal Reserve as they do any type of banking and financial asset or institution by adjusting interest rates, reserve requirements, purchasing SCs from increasing pollution levels resulting from too rapid development in an overheated economy or alternatively encourage more project development in a slowing economy.
The numbers are startling. The value of each year’s operation of the $1.6 trillion investment in SCs (at $100 per metric ton carbon dioxide displaced is $.114 trillion. On the books of Green banks. But this can become 1 trillion in loans in year two.
However, this operation is not a one time, one-year transaction. The existing systems keep adding $.114 trillion a year of SCs since they must keep operating to displace carbon dioxide. Thus, year four represents 10 years of carbon displacement operation valued at $ 1.14 trillion.
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* Roy Morrison is director of the Office for Sustainability at Southern New Hampshire University. He is working on the development of renewable energy hedges and on a new utility revenue model to encourage efficiency and distributed generation. His books on ecological transformation and economic development include We Build the Road as We Travel: Mondragon, A Cooperative Social System (1991), Ecological Democracy (1995), Ecological Investigations (2001), Eco Civilization 2144 (2005), and Markets, Democracy and Survival (2007). Roy Morrison is Managing Partner of R&R Renewables, www.RenewableSunPartners.com His next book forthcoming is The Green Republic. roy.morrison114@EcoCivilization.info – www.EcoCivilization.info