Financing green growth

Abstract

The UCL Institute for Innovation and Public Purpose (IIPP) aims to develop a new framework for creating, nurturing and evaluating public value in order to achieve economic growth that is more innovation-led, inclusive and sustainable.We intend this framework to inform the debate about the direction of economic growth and the use of mission-oriented policies to confront social and technological problems. Our work will feed into innovation and industrial policy, financial reform, institutional change, and sustainable development.A key pillar of IIPP's research is its understanding of markets as outcomes of the interactions between different actors. In this context, public policy should not be seen as simply fixing market failures but also as actively shaping and co-creating markets. Re-focusing and designing public organisations around mission-led, public purpose aims will help tackle the grand challenges facing the 21st century.IIPP is housed in The Bartlett, a leading Global Faculty of the Built Environment at UCL, with its radical thinking about space, design and sustainability. AbstractThis paper surveys the current state of financing green growth in the energy sector, based on the insight that there are different qualities of finance. In past transformational changes in other sectors, public monies played a key role across the innovation landscape. Public financing was central also in a number of past national energy transitions, as reviewed here for Iceland (from fossil to geothermal energy), Norway (from mainly non-electricity energy to hydroelectricity), France (from oil to nuclear) and the United States (from conventional to shale gas). In the current transition to low-carbon energy supplies, there is much public activity, most directed and concerted in China, but also reasons to doubt it is enough and applied in the right places to be able to finance the transition to a low carbon sector on time scales consistent with current climate change mitigation targets. A discussion of opportunities and challenges to a more central role for public financing concludes, drawing also on insights from the recent mission-oriented innovation literature.

Low‐carbon transition risks for finance

“…Consideration of sunrise industry risks, on the other hand, is absent from the debate. While observer bias and timing may help explain some of this neglect (for instance, before the 2007–2008 crash few commentators pointed to a looming housing crisis), there is also some hard evidence to cite: investment in low‐carbon technologies has been increasing in recent decades, but it is still far away from the scale necessary to compensate for the phase‐out of fossil‐based technologies under a 1.5°C scenario (CPI, 2019; McCollum et al, 2018; Semieniuk & Mazzucato, 2019). Nor are the investments yet expected to be vastly more profitable—support policies have so far been required to attract private investors even in the advanced power supply sector (Mazzucato & Semieniuk, 2018; Polzin, Egli, Steffen, & Schmidt, 2019).…”

Neither crowding in nor out: Public direct investment mobilising private investment into renewable electricity projects

“…In addition, the direction of investments has to radically shift towards low-carbon energy (across the energy supply, not just in power), with gross investments into low-carbon sources to overtake that into fossil fuels as soon as 2020 (McCollum et al 2018, Figure 5). These developments require a large uptick in low-carbon energy supply investments (Semieniuk and Mazzucato 2019). In addition, IPCC projections rely on optimistic forecasts about low future energy demand (Loftus et al 2015;Semieniuk 2018;, so the investment estimates can be considered conservative.…”

Greener and cheaper: green monetary policy in the era of inflation and high interest rates

“…Central banks could also resort to the capitalisation or purchase of bonds issued by development banks or green investment banks. This option would serve to increase the credit supply for activities currently not privately financed because they are considered too risky, too long term, or unprofitable (Campiglio, 2016;Dikau & Ryan-Collins, 2017;Gabor et al, 2019;Geddes et al, 2018;Grauwe, 2019;Semieniuk & Mazzucato, 2019). Finally, fiscal policies designed to promote ecological transformation could be directly financed by central banks.…”