Earlier this year, planet Earth had its hottest January since records began. Australia’s bushfires were finally drenched but rational people know that the next climate disaster is just around the corner. And now on top of the climate and biodiversity emergencies, we have the pandemic, an economic meltdown and the need to plan Canada’s economic recovery. Will it be back to business-as-usual, or forward to something better?
Today’s climate impacts are the result of our emissions 40 years ago. And it’s not our emissions as such that are the problem, it’s our accumulated emissions. By the time we reduce our global emissions to zero the atmosphere will contain a 300 gigaton surplus of carbon, every molecule of which will continue to trap heat, bringing chaos, and needing urgent sequestration in forests, farms, peatlands and marine ecosystems.
When the alarm bells rang for the COVID-19 emergency everyone jumped to it, knowing that we were under an immediate threat. For the climate crisis, however, there is still a reluctance to act at sufficient scale or with sufficient urgency. There is wide support for wind, solar and electric cars, but until workers see the prospect of actual green jobs they cling to the security of their known jobs, even when those jobs entail building pipelines intended to increase our carbon emissions. It’s Alice in Carbonland.
Might it be that our politicians don’t understand the powers of central and public banks? In the aftermath of the 2008 financial crisis the Bank of England, U.S. Federal Reserve and European Central Bank pumped trillions of dollars into their economies through a program known as quantitative easing, in a successful attempt to prevent an economic meltdown. In February, the People’s Bank of China pumped $172 billion of digital money into its economy to forestall an economic recession brought on by the coronavirus. On March 23, faced with a global financial calamity, America’s Fed conjured up $375 billion to buy Treasury Securities and $250 billion to buy mortgage securities. Congress set aside $454 billion to cover Fed losses, enabling it to generate more than $4 trillion in loans. In the final days of March, as Adam Tooze reports, the Fed was buying at-risk securities at the rate of $1 million per second.
Where does such money come from? Out of thin air, based on trust in the nation. In an emergency, central banks can do that. They just print it digitally. The risk is inflation, but the trillions that were created to head off a collapse in 2008 had no general inflationary impact outside of the financial and housing markets. So if central banks can do whatever it takes for one emergency, why not do the same for another, within the limits posed by the risk of inflation? Adam Tooze certainly thinks that they should.
I have worked on the climate crisis for more than twenty years, including writing two books on climate solutions, but until I began an in-depth study of economics three years ago I did not understand the powers inherent in banking. In January, realizing that the 2020s were the most critical decade in the history of our civilization, I published a major paper that integrates my understanding of banking and finance with my understanding of climate solutions, titled Climate Emergency: A 26-Week Transition Program for Canada.
I chose five methods to finance a program of rapid change that would cost $59 billion a year. The first is Climate Action Bonds worth $8.3 billion a year, issued by the government and purchased by the Bank of Canada. They are used to finance measures that don’t offer a financial return, including $1.5 billion a year for a two-year $50K Transition Income Guarantee for fossil fuel workers whose jobs disappear, $1 billion in bikeway infrastructure grants, $960 million for 1.5 million home energy audits, $1 billion in electric vehicle incentives and $1.25 billion for 50,000 Sustainable Building Skills Training Placements.
The second method requires a network of public banks to be established across Canada, one in each province and one for the northern territories. When a private bank advances you a loan, they don’t use their reserves. Instead, they create it digitally, charging interest on it. For every $1 million in reserves, they might be allowed to create $10 million, though Canada has no requirements as such. A public bank managed by professional bankers for the public benefit can do the same without the need to charge interest in order to generate profits for shareholders.
Public banks all over the world create money for social purpose. In Germany, Sweden, Denmark, Italy, Spain and France, community and state-owned banks serve as much as 64% of the banking market. Germany’s Sparkassen banks’ 15,600 branches have a return on capital several times greater than Germany’s private bank sector. Among other things, they provided 72% of the financing for Germany’s solar and wind installations. In Bangladesh, the Infrastructure Development Company financed the installation of three million solar panels. In Germany, the Kreditanstalt fuer Wiederaufbau has been the main source of financing for building retrofits and energy efficiency loans to manufacturers.
In my paper, public banks create $7.1 billion in interest-free loans a year to finance $3.5 billion in loans to replace all energy-zombie modular homes, $2.5 billion in district heat loans and $500 million in green freight investment.
The third method is $19.5 billion a year in PAYS and PACE loans. PAYS stands for Pay-As-You-Save, and it’s used by Hydro Manitoba to link loan repayments for a home retrofit to a home’s utility bill. PACE stands for Property Assessed Clean Energy, which originated in the States, where it has been used to finance 237,000 home and commercial retrofits worth $6.7 billion.
When it comes to the task of retrofitting Canada’s 15 million homes with deep efficiency upgrades and air-source or geothermal heat-pumps, PAYS and PACE finance can come from utilities or the private sector. In my paper, $15 billion a year is mobilized for home retrofits and $4.5 billion a year for solar installations, both of which pay for themselves over time. To add stability to the loans, the Bank of Canada commits to be the buyer of last resort, a role recommended by the world-renowned economic historian Adam Tooze.
The fourth type of finance is $13.8 billion a year in 5% Green Bonds, financed by the public, which are used to finance industrial and commercial building retrofit loans worth $4.8 billion, community renewable energy loans worth $5 billion, and Climate Smart investment loans to small businesses worth $4 billion. To add security to the investment, the Bank of Canada commits to be the buyer of last resort, guaranteeing the 5% rate of return.
The final type of finance involves using the $10 billion a year that’s currently being spent on fossil fuel subsidies within Canada and by Export Development Canada to finance $2 billion in transit infrastructure grants, $1.6 billion for free bus passes for young people, $500 million for a Green Prairies Futures Fund, $4 billion for the UN Green Climate Fund and $1.7 billion for 40,000 local Climate Action Coordinators. Each of the Coordinators will help 1,000 people transition to 100% renewable energy and climate and ecologically-friendly lifestyles over ten years, in a scale of effort similar to the organizing that occurred during World War II.
In all, the paper contains 164 policy proposals, including giving the Bank of Canada the mandate to tackle emergencies, the power to issue credit guidance and barring banks from extending credit to climate-harmful ventures. This is the kind of action that an emergency calls for and it’s akin to barring banks from financing an enemy’s arms production during a war.
For Alberta and Saskatchewan, which depend so heavily on fossil fuel production, the paper includes a $50K a year Transition Income Guarantee, free college education or training and business or cooperative start-up support, nine Prairie Solutions Citizens Assemblies and a $5 billion ($500 million a year) Green Prairies Futures Fund to support the transition to a post-carbon economy.
The paper also recommends extensive investments in ecological restoration as well as changed forestry and farming practices. It proposes that the government write off its investment in the Trans-Mountain Pipeline, end all support for LNG, phase out coal by 2027 and natural gas by 2035 and deny approval for any further fossil fuel expansion projects.
The investments would generate 550,000 direct jobs. Private sector investments in solar and wind would generate a further 238,000 jobs in addition to the associated indirect and induced jobs. This comes to a surplus of 519,000 direct jobs after the phasing out of fossil fuel jobs. For a green COVID-19 recovery, it’s exactly what we need.
COVID-19 and the climate emergency both pose a big challenge and Canada can meet them both if we are willing to combine big vision with big finance.
Guy Dauncey is author of The Climate Challenge: 101 Solutions to Global Warming and Journey to the Future: A Better World is Possible and other books.