Last week, details of the Ontario government’s new $7 billion Climate Change Action Plan were leaked to praise and criticism--arguably both well deserved.
First, the praise. Unlike a lot of hot-air rhetoric, this is a real plan that proposes real action. It respects climate science and is honest about the scale of action needed to honour our international commitments to reduce GHG emissions. Premier Wynne and Environment Minister Glen Murray should be commended for what is a courageous policy.
Unfortunately, good intentions and good execution don’t always go hand in hand. Governments have lots of tools in their policy toolkit. In this draft plan we see tension between two competing strategies, charting two very different courses that Ontario could take to achieve (or not achieve) its ambitious targets.
Here’s our analysis of the two strategies that we see in the current draft and potential outcomes resulting from each.
Strategy #1: Carrot and stick, command and control, winners and losers.
The first strategy is the one getting most of the press and most of the criticism. The Globe and Mail’s critical take, for example, focuses on the fact that most of the proposed programs are designed to “cajole or financially bribe Ontarians into or out of various forms of energy.”(1)
It’s the 21st century equivalent to the old chicken in every pot: an electric vehicle in every driveway! A geothermal system in every backyard! A retrofit for every commercial building!
While elements of this vision are achievable, it’s unlikely to come to fruition via the $3.8 billion “carrot”-- the subsidies, rebates and grants that make up the cornerstone of the draft plan--and the “stick”, i.e. regulations making it illegal to heat new homes with natural gas after 2030.
As we know from the experience of other jurisdictions, top-down approaches, especially in energy efficiency, areexpensive and often ineffective; administering large programs can also be costly. While subsidies and rebates have their place, as the foundation of the climate plan, these programs will fall short of the transformational shift the government is trying to achieve.
Strategy #2: A Green Bank: unlocking capital for climate solutions.
When thinking about what strategy could catalyze a transformational shift, it’s helpful to ask, what should the provincial government be trying to achieve with this policy? The goal is not simply to reduce emissions by X amount; it is to move us definitively from fossil fuel-powered status quo A to low carbon economy status quo B.
The part of Ontario’s plan that has the power to achieve this is one that we’re hearing very little about: the establishment of a Green Bank, a government financing authority designed to use limited public resources to leverage mainstream massive private investment in clean energy projects (while investing in companies can be risky, investing in green infrastructure projects is a much safer pursuit).
A well-designed Green Bank can do three things to help increase the flow of private capital into a clean energy transformation:
- Reduce risk for investors: One of the problems facing new clean energy companies is that while the risks around clean energy projects themselves may be well understood, the perceived risk is not. By providing credit guarantees and other instruments that help protect investors’ capital, a green bank can absorb or diversify some of the risk currently keeping mainstream investors out of the market.
- Increase rewards: Green Banks can lend money to projects at attractive (read lower) rates, this increases the potential reward for private investors who end up taking on more risk.
- Help aggregate: The size of the transactions are too small for most major investors.A green bank could aggregate smaller projects until the pool is big enough for Bay Street to be interested.
This strategy is achieving real success elsewhere, like New York State. The New York Green Bank is putting hundreds of millions to work backing solar, small wind, and energy saving projects, in all cases leveraging and unlocking private capital.
We’re in a great place. We have a multi-billion dollar investment opportunity to transition our homes and buildings to run on next-generation clean technology, a government keen to get us there, and a plan that has the seeds of a transformational policy. Carrot and stick policies alone will leave a gap between intention and impact, a gap that can be filled by a green bank that harnesses the power of private capital to catalyze climate solutions.
(1) Why is Ontario’s green plan powered by so much central planning?, Globe and Mail Editorial, Tuesday, May 17, 2016.
(2) New York Green Bank Website, Portfolio and Pipeline.
(3) Photo credit: Hiromichi Torihara, Creative Commons Licensed.
Tags: Ontario climate plan - Clean energy canada - CoPower Green bonds - Social impact investing