How to balance the ethics and the economics of energy development?
The opportunity is clear for developing countries to forge their own energy infrastructure path, and the question, then, is whether or not they will be empowered to do so with the support of international capital markets.
You see, the banks were not at COP21. In the plenary, we spoke of capitalism’s amorality, and the need to build the playing field to guide the system; currently, argued the panelists “imperialism” hides behind the notion of risk. The risk of funding a energy infrastructure project in a developing country—something everyone agreed was an easy cash flow win if done right—is the risk of a pension fund trusting an institution in a developing country. The fear is that the opportunity is not being realised from the perception, but not the existence, of risk, leading to the paralysis of passive money instead of productive capital.
Of the $300 billion spent last year on clean technology infrastructure, only $22 billion went to developing countries. If we really want to meet the energy needs of developing countries and mitigate climate change with an aim to stay below 2 degrees, that $22 billion need to ratchet up to $500 billion, a multiple of 25x.
This requires transformational solutions. At Skoll, we heard World Bank President Jim Kim refer to the Development Finance Institution industry as a “cottage industry” as he explained how the Bank is working to change its internal incentive structure. He spoke of how to leverage money through the Bank at a 5x rate. While a useful vehicle to enable progress, that 5x multiple comes with the bureaucracy that prevents Kim, a trained doctor, from talking about coal, even though overwhelming evidence now shows that coal should not have a future in the 21st century—in climate, we have already built enough coal power plants that, if they run for their lifetime, will alone put us beyond the ambition of 1.5 degrees; in health, we know that the local costs to health alone from the pollution of a coal power plant are triple its economic benefits over 10 years; economically, renewables are now cost competitive in technology-agnostic auctions across the world and will continue to push coal into the uneconomic realms of generation merit order; and, as we see increased variability in heat waves and droughts, coal power plants will shut down under heat duress and compete with local communities for water access. 5x with bureaucracy is not the 25x we need.
We heard Citi’s Global Head of Environmental Finance and Sustainability outline how the underlying purpose of the two dominant incentives for clean energy infrastructure developed in the US (PURPA) and Germany (FiTs) was to provide a proxy long-term off-taker guarantee, and that to see the take off of energy infrastructure supported by capital markets will require a similar mechanism moving forward. This is the inspired market thinking we need to compliment the socio-political pressure promoting 21st century energy infrastructure jobs.
While calling the banks a cadre of imperialists uninspired to invest in productive change may ring normatively true, it is up to leaders to build the rules, frameworks, and enabling environments through which to pull the uninspired from the passive cubicles of the Street or the City to build the inspiration of billions to have the capabilities to build lives powered by cheap, distributed, and clean electricity.
- Seth Collins
Seth Collins, Oxford MBA Candidate 2016-17 at the Saïd Business School gives his perspective on the Skoll World Forum session (April 7, 2017)
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