Climate Change: What If We Can’t Get There From Here?

By Guest Contributor, Michael Curley plants are our single largest source of greenhouse gases. Reducing emissions from power plants is a big part of our effort to meet our climate change goals. Direct regulation has a major role to play. But, we can’t get there from here with regulation alone. We have to rely on other strategies such as urban mass transport, energy efficiency and renewable energy too. And to work, these programs need to be cost-effective, delivering the greatest amount of climate benefits at the lowest possible cost.

According to the Asian Development Bank, transport in Asia is the fastest growing emitter of C02 of any sector in any part of the world. Cars, tuk-tuks, motorbikes – the cities of Asia are choked with them. They need to be replaced – to the greatest extent possible – by mass transport.

Money for mass transport comes from two primary sources: fares and subsidies. If mass transport projects are expensive, either fares or subsidies must go up. If subsidies go up, other areas of public support – housing, health care, education – suffer. If fares go up, the traveling public sticks with their polluting tuk-tuks and motorbikes. High fares mean low ridership: shooting ourselves in the foot.

Although private equity is only warranted in very limited circumstances, it has figured heavily in many urban mass transport projects. Even the Prince of Wales’ initiative to spur private investment in climate change was awash in it. This is unfortunate because private equity is the most expensive money on the planet. Typical returns to private equity investors are in the 15-40% range. Contrast this with a 5% return in the international bond market. This means that interest costs can be three to eight times higher with private equity. It poisons climate change projects. Private equity needs to butt out and the international development banks – especially the Asian Development Bank – need to butt in and take over this role.

The international development banks like to congratulate themselves for co-financing these types of projects, side-by-side with commercial banks, insurance companies and other “safe” private lenders. Wrong. They need to step up and replace private equity to drive down the cost and drive up the ridership of urban mass transport projects.

In the U.S., clean energy finance programs have demons too. The big selling point for these programs is savings. “Invest in an energy efficiency device or solar panels, and you will save on your electricity bill.” Politicians tend to announce grandiose programs like these and congratulate themselves on having public/private partnerships with banks or electric utilities to provide the loan funds. These private concerns understandably want their money back sooner rather than later. So they keep loans terms as short as possible. Now $10,000 worth of home insulation will last as long as the house. So, it could be financed for 30 years, just like a home mortgage. The monthly payment on a 30-year loan (at a 5% interest rate) is $54.21. The monthly payment on the same loan with a 5-year term is $192.48. If the monthly savings on this project is only $100 – and only 5-year loans are available – most people won’t join. Banks and utilities have stockholders too; so they’re not going to do any favors on interest rates, either. The municipal bond market, on the other hand, can provide 30-year terms and the lowest interest rates available. That should be the source of funds for clean energy programs.

That said, would anyone want their grandmother to invest in a municipal bond whose source of repayment is hundreds of small loans to homeowners and small businesses?  No. The risk of non-payment of these loans needs to be buffered before it’s safe for grandma. This too can be done, if only the politicians would clue themselves in.

New York is the only state in the U.S. that has buffered the risk of loss on clean energy bonds. They did this in a brilliant and innovative way. The New York State Environmental Facilities Corporation pledged the $5.2 billion of net assets in its Clean Water State Revolving Fund to guaranty bonds for small clean energy projects. Their guaranty resulted in a triple-A rating on the bonds, which meant the lowest possible interest rates.

Clean Water programs financing clean energy projects? Yes, air pollution is a major contributor to water pollution. Reducing energy consumption from fossil fuels reduces the air pollution that contributes to water pollution. So, the 51 Clean Water State Revolving Funds in the U.S. can finance clean energy programs that reduce water pollution.

But can these 51 Clean Water State Revolving Funds afford to do this? Will their efforts result in reduced funds for traditional clean water projects? Yes to the first question; no to the second. These revolving funds have combined net assets of over $40 billion. They conservatively have the capacity to guaranty over $1 trillion of bonds. They have plenty of money for both clean water and clean energy.

Getting from here to there with our climate change goals means more than pious announcements and good intentions. “It’s the money, dummy!” If we don’t start paying attention to how we’re going to pay for climate change, we’ll never meet our goals.


About the Author

Michael Curley joined ELI as a Visiting Scholar in 2013.  He is a lawyer who has spent the majority of his career in project finance and the last 25 years in environmental project finance. He is the author of The Handbook of Project Finance for Water and Wastewater Systems, published by Times/Mirror and Finance Policy for Renewable Energy and a Sustainable Environment, which will be published by Taylor & Francis on March 27, 2014. He has also published over 40 articles, has contributed to the Huffington Post, and is a member of the American Society of Journalists and Authors and the National Press Club, where his sits on the Book & Author Committee.

In 1990, Mr. Curley was appointed to the Environmental Financial Advisory Board at the U.S. Environmental Protection Agency, where he served for 21 years under four Presidents. Over the last 20 years, he has taught environmental finance and law at the Johns Hopkins and George Washington Universities as well as Vermont Law School. He founded the Environmental Finance Centers at the University of Maryland, Syracuse University and Cleveland State University.

In the early 1980’s, he raised the venture capital for, founded, and served as president and CEO of the third financial guaranty insurance company in the world and the first to insure economic development projects.  He was also a partner in the New York City law firm of Shea & Gould.

Mr. Curley has also served in several roles in government. First, as Deputy Commissioner & General Counsel of the New York State Department of Economic Development; and then as President and CEO of the New York Job Development Authority (JDA), the State’s bank for economic development. He was also the General Counsel of the JDA and General Counsel of the New York State Science & Technology Foundation, the State’s venture capital agency. Prior to that, Mr. Curley served as Parliamentarian of the New York State Assembly and Associate Counsel to the Speaker and was also an Assistant to Congressman Richard D. McCarthy (D-NY) in Washington, DC. He also served as Adjunct Professor of Banking & Finance at New York University teaching Venture Capital and Capital Markets and was appointed to the Board of Directors of the United Nations Development Corporation by New York City Mayor Ed Koch.

For the U.S. Environmental Protection Agency, Mr. Curley developed national municipal bond banks for water, wastewater, district heating and other municipal infrastructure for both the Russian Federation and Ukraine, designed a revolving fund for safe drinking water for the Ministry of the Environment in the Republic of Georgia and built fifteen rural water systems and developed the national model for rural water finance in the Republic of Kazakhstan.