Green bank — a tool for a low carbon future?
How and why did the concept of a ‘green’ bank emerge? Did it help reduce the pace of climate change? Have any results been achieved so far?
Hi there! My name is Anna. I am an environmentalist with a scientific profile (MSc in Applied Ecology, and BSc in Environmental Science), and I am in charge of keeping the Ecognize blog alive.
While working on my Master thesis I realized that the world of science is somewhat disconnected from the ordinary world. The feeling that there was a lack of communication between these two worlds pushed me into environmental journalism, where I felt that I belong.
At the time, I was sure that each and every change in behavior, every individual converted into an environmentally-conscious creature, would be impactful enough to eventually slow down the rate of climate change and the deterioration of the environment.
I was quite motivated and believed that the course of my actions was right. I was convinced that people are fully responsible for the mess they’ve created. All until I stumbled upon research that compared the impacts of household vs industry on greenhouse gas (GHG) emissions. There I learned that, according to the statistics released by Eurostat, households in Europe are responsible for only 20% of GHG emissions, while the remaining 80% are due to the industries. Moreover, a shocking two thirds of man-made global warming emissions are caused by just 90 companies, according to the Guardian.
Our individual efforts of minimizing our carbon footprint COUNT. They are, however, just a drop in the ocean.
That understanding led me a path to search for more powerful instruments and mechanisms of change.
Nearly 2 years ago, my career took an unexpectedly adventurous turn that made me discover the field of environmental finance. I would have never imagined that a person like me could end up working at a bank, and yet — here I am, right in the epicenter of a ‘green’ bank. It’s high time to share what I’ve learned so far.
So, what exactly is a ‘green’ bank?, how does it work?, and is it efficient?
A Green Bank is a public or quasi-public financial institution, or –less often- a non-profit entity, which facilitates private investment into domestic low-carbon, climate-resilient infrastructure, and into clean energy technologies, according to OECD.
A Green Bank is there to promote 1) lower energy prices, 2) private sector investment, and 3) a transition to a low carbon economy.
What is a low carbon economy?, You might ask.
Easy! It’s an economy based on low-carbon power sources that have a minimal output of greenhouse gases, those buddies that are held accountable for climate change.
It’s about the transition from the so-called brown economy (based on fossil fuels, like coal and oil) to a green one (based on alternative means of energy generation, like the sun, water, wind, biomass, and geothermal).
The Green Bank appeared as a financial mechanism in response to the pressing social and environmental challenges of today.
The irreversible changes that unfold before our own eyes.
1. Severe weather conditions. Over 20 people were reported dead after the polar vortex hit Chicago last week, according to Reuters.
2. Acute climate change and the rise of water levels globally. Thwaites Glacier, a Florida-sized hunk of frozen water, is melting at an unprecedented pace. It was reported to have a huge cavity inside, which is bad news since — the void accelerates the melting of the ice as warm air and warm water easily enter it. This one solo glacier is already responsible for 4% water rise globally and annually; after it melts entirely, it will cause the World Ocean to rise by 65 centimeters.
Read the fascinating story by Wired about Thwaites Glacier, I promise you won’t regret it.
3. Biodiversity loss. According to a report produced by WWF, between 1970 and 2014, humanity has reduced the earth’s biodiversity by a whopping 60%. If we were talking about the human population, that would be equivalent to emptying both Americas, Africa, Europe, China, and Oceania.
Instead of knocking on one door after another, trying to reach out to every individual, jumping with ‘Excuse me, sir, do you have a moment to talk about biodiversity loss? Do you know that you are responsible for that?’, the way to influence big players must be found.
The big player is the industry, and it desperately needs an engaging push.
Which language does the industry understand?
Where is the idea of a green bank coming from?
The idea of a green bank was developed by Reed Hundt and Ken Berlin, as part of the efforts of the 2008 Obama-Biden Transition Team to promote the development of clean energy and give a feasible and, easy-to-apply mechanism to facilitate the transition to a low-carbon economy.
How does it work?
It gives consumers long-term loans at low-interest rates for them to implement alternative energy and energy-efficiency projects.
This is the main difference and competitive advantage of a green bank, compared to a regular bank.
The concept is still new and fresh. The very first green bank appeared in Connecticut in 2011.
On the 4th year of its existence, in just 1 year, Connecticut Green Bank has invested $663.2 million (!) into clean energy projects. This number seems hard to imagine, so here’s the comparison for you: $663.2 mln is the equivalent of the GDP of Switzerland, according to the World Bank ranking as per 2017. And Switzerland is by no means a poor country.
After 2011, Green banks started to appear in the UK, Australia, Japan, and Malaysia.
How is the green bank different from other banks?
The green bank drives a positive change in the economy and society, takes the environment into account when making decisions, and incorporates best international practices and standards while investing in clean renewable energy.
Eight years into the green finance practice, what has been achieved so far?
- Since its inception, the Connecticut Green Bank has enabled the reduction of an estimated 1.4 million tonnes of CO2 emissions over the life of the projects it has funded(Connecticut Green Bank, 2015b)
- In 2014–15, the UK Green Investment Bank’s estimated average annual GHG emission reduction reached 4.2 million tonnes of CO2 emitted, equivalent to taking 1.9 million cars off the road for a year. The UK GIB’s estimate of the average annual renewable power generation associated with the projects it funds reached 16.3 TWh, enough to power 3.9 million homes.
- Since 2010, the Green Technology Financing Scheme operated by GreenTech Malaysia has funded 165 projects which have avoided close to 2.4 million tonnes of CO2 equivalent.
[All the above-mentioned statistics are taken from the OECD Environment Policy Paper ‘Innovative Public Financial Institutions Scaling-Up Private Low-Carbon Investment Policy Reform’, January 2017 no.06]
Investments in renewable energy and energy efficiency are growing, and there is hope to get the world on track to achieve zero net greenhouse gas emissions globally by the end of this century.
Will financial tools like the green bank be effective for governments to achieve ambitious climate objectives? With the right domestic political and governmental context, I think, it can work.
