Jeffrey Simpson of the Globe suggests (behind a pay wall) that the next federal budget might create “Green Bonds,” federally backed securities aimed at providing financial support for cutting-edge green technologies, particularly in the energy sector:
Green Bonds would be marketed privately, through financial institutions, and supervised by an arm’s-length group. The government would guarantee a rate of return akin to that of [Canada Savings Bonds] to reduce investor risk, because there would be high risk involved.
The target, Simpson writes, would be technologies that can get seed funding from government programs and venture capitalists but need more support to get to market. This would make them nearly the opposite of traditional federal government bonds, which are inherently safe because governments have access to a nearly unlimited resource: tax revenues. If things go terrifically out of whack with government finances, governments that borrowed money from their own people can just hike taxes.
For investors looking for a safe way to make a few bucks, Green Bonds would be perfectly sensible. As an environmental measure for a government, they’re downright bizarre.
The government (through an “arm’s-length group” of the party-in-power’s cronies) takes risks with private investors’ money, but guarantees them a miserly rate of return no matter how badly they screw up, so it’s supposed to be OK. The whole point would be to support ventures that traditional sources of capital are unwilling to touch, keep in mind.
If a government wanted to do such a thing, why not just spend the money directly in subsidies? The government could, if it felt it needed to, filter the cash through the same arm’s-length crony council. Why the extra step? Green Bonds would plunk that vast ocean of security behind otherwise high-risk investments because … uh, apparently because they’d be popular. In what I’m sure is a total coincidence, a news release binged into my box this afternoon from Nanos Research, trumpeting the factoid that “eight of ten Canadians support or somewhat support the concept of a Green Savings Bond.” (Numbers here, PDF.) Six in 10, Nik Nanos finds, would consider buying one.
Worse yet, the government itself would be in a position to influence the returns on such bonds, in how it regulates the carbon market Environment Minister John Baird is pretending to want to set up. On environmental grounds, getting the government entangled in Green Bonds would give it an incentive to be tougher on carbon restrictions, pushing the return on green investments up. On financial grounds, of course, that would make Green Bonds a worse investment for individuals looking for somewhere to put their money, since the government would presumably cream off the excess.
Presumably part of the appeal for the government is that Canada Savings Bonds aren’t needed as badly as they used to be, given that the feds are running surpluses so high they’re stuffing cash into every mattress and under every rug they can find. Voters like government-backed investments, but now the Canadian government needs to find a new mechanism for providing them. Green bonds would fit the bill.
Simpson himself is lukewarm on the idea:
Green Bonds would be a niche product. No one should oversell their capacity to wean an economy from carbon. But the idea is intriguing.
Only as a gimmick. In sum, Green Bonds would add even more complexity and government involvement in a sector already horrifically complex and dominated by government, and create vested interests for governments to meddle even more.