1 00:00:00,120 --> 00:00:04,000 Speaker 1: Welcome to zero. I am Akshadrati this week? Did we 2 00:00:04,080 --> 00:00:19,319 Speaker 1: get climate finance wrong? It's been ten years since the 3 00:00:19,320 --> 00:00:21,919 Speaker 1: Paris Agreement and the world has spent more than ten 4 00:00:22,040 --> 00:00:25,880 Speaker 1: trillion dollars trying to cut emissions, and yet, as you 5 00:00:25,920 --> 00:00:28,880 Speaker 1: all know, it's not been enough. The world needs to 6 00:00:28,920 --> 00:00:32,720 Speaker 1: spend a lot more. The trouble is with government pursus 7 00:00:32,800 --> 00:00:36,239 Speaker 1: tight and tightening, most of it will have to come 8 00:00:36,280 --> 00:00:40,400 Speaker 1: from private sources, and so far the attempts, which have 9 00:00:40,520 --> 00:00:45,440 Speaker 1: mostly involved nudging and cajoling financial institutions, haven't really worked. 10 00:00:46,600 --> 00:00:49,680 Speaker 1: So have we got our approach to climate finance wrong? 11 00:00:50,600 --> 00:00:54,920 Speaker 1: Lisa Sachs thinks so. She's the director of Columbia University's 12 00:00:55,080 --> 00:00:58,840 Speaker 1: Center on Sustainable Investment, and if she is right, we 13 00:00:58,880 --> 00:01:02,520 Speaker 1: are in deeper trouble than we think. The current climate 14 00:01:02,520 --> 00:01:05,399 Speaker 1: finance regime was born just months before the Paris Agreement 15 00:01:05,520 --> 00:01:08,280 Speaker 1: was signed. It was created by a speech given in 16 00:01:08,319 --> 00:01:12,360 Speaker 1: September twenty fifteen by then Bank of England Governor McCartney, 17 00:01:13,080 --> 00:01:16,120 Speaker 1: the same McCartney who is now Prime Minister of Canada. 18 00:01:16,920 --> 00:01:21,720 Speaker 2: Climate change is a tragedy of the horizon. We don't 19 00:01:21,760 --> 00:01:24,200 Speaker 2: need an army of actuaries to tell us that the 20 00:01:24,240 --> 00:01:28,120 Speaker 2: catastrophic impacts of climate change will be felt beyond the 21 00:01:28,160 --> 00:01:32,520 Speaker 2: traditional horizons of most actors. It will impose costs on 22 00:01:32,600 --> 00:01:36,640 Speaker 2: future generations that the current one has little direct incentive 23 00:01:36,800 --> 00:01:37,279 Speaker 2: to fix. 24 00:01:38,640 --> 00:01:41,480 Speaker 1: The speech title The Tragedy of the Horizons made the 25 00:01:41,480 --> 00:01:45,720 Speaker 1: case that financial institutions must take climate action more seriously 26 00:01:45,920 --> 00:01:50,240 Speaker 1: and act urgently, for if they wait till it's obvious 27 00:01:50,320 --> 00:01:53,720 Speaker 1: that climate change is going to have disastrous consequences on 28 00:01:54,000 --> 00:01:57,960 Speaker 1: financial stability, it will be too late to prevent deep 29 00:01:58,000 --> 00:02:01,680 Speaker 1: damages to the global economy. And Carnie's answer to that 30 00:02:01,760 --> 00:02:05,040 Speaker 1: problem has led to the current regime of corporate climate 31 00:02:05,120 --> 00:02:10,520 Speaker 1: plans and financial institutions setting net zero goals. But emissions 32 00:02:10,520 --> 00:02:14,200 Speaker 1: from these companies or banks have mostly not fallen in 33 00:02:14,240 --> 00:02:17,600 Speaker 1: line with the targets they've set. Neither has there been 34 00:02:17,639 --> 00:02:22,000 Speaker 1: a drastic reduction in lending that these financial institutions make 35 00:02:22,080 --> 00:02:25,400 Speaker 1: to fossil fuel companies, something that must occur if the 36 00:02:25,440 --> 00:02:29,480 Speaker 1: world is to avoid catastrophic heating. That's why Lisa's answer 37 00:02:29,720 --> 00:02:34,160 Speaker 1: that climate finance has it all wrong is worrying, because 38 00:02:34,520 --> 00:02:38,520 Speaker 1: finance underpins every discussion about how to implement climate solutions. 39 00:02:39,080 --> 00:02:42,000 Speaker 1: So this week on Zero, I ask Lisa why she 40 00:02:42,040 --> 00:02:45,640 Speaker 1: thinks Carneie's approach to climate finance isn't working and what 41 00:02:45,760 --> 00:02:49,560 Speaker 1: financial institutions should be doing instead. By the way, if 42 00:02:49,560 --> 00:02:52,520 Speaker 1: you have feedback for Zero or get suggestions, please write 43 00:02:52,520 --> 00:02:59,720 Speaker 1: to Zero pod at Bloomberg dot net. Lisa, welcome to 44 00:02:59,720 --> 00:03:00,000 Speaker 1: the show. 45 00:03:00,000 --> 00:03:01,680 Speaker 3: Oh, thank you so much. 46 00:03:01,800 --> 00:03:05,040 Speaker 1: So we celebrated the tenth anniversary of the Paris Agreement 47 00:03:05,200 --> 00:03:08,480 Speaker 1: and plenty was talked about, but I think there was 48 00:03:08,560 --> 00:03:12,920 Speaker 1: a bigger anniversary, at least for you, that was celebrated 49 00:03:12,960 --> 00:03:16,080 Speaker 1: a few months before that. I'm talking about a speech 50 00:03:16,160 --> 00:03:21,040 Speaker 1: that a former Bank of England governor gave here in 51 00:03:21,080 --> 00:03:25,320 Speaker 1: London in September twenty fifteen. Tell us about that speech 52 00:03:25,360 --> 00:03:27,080 Speaker 1: and why it's such a big deal. 53 00:03:27,320 --> 00:03:30,120 Speaker 3: Yeah, thank you, and actually I'm coming to you right 54 00:03:30,160 --> 00:03:32,079 Speaker 3: now from the Bank of England. So what a way 55 00:03:32,120 --> 00:03:35,400 Speaker 3: to commemorate that speech ten years ago? That was Mark 56 00:03:35,440 --> 00:03:39,320 Speaker 3: Carney's speech called the Tragedy of the Horizon, and Mark 57 00:03:39,360 --> 00:03:45,480 Speaker 3: Harney was warning, especially the financial community, that climate risk, 58 00:03:45,720 --> 00:03:48,440 Speaker 3: which we already knew of course ten years ago, well 59 00:03:48,600 --> 00:03:50,440 Speaker 3: well before that, we knew it to be a major risk, 60 00:03:50,960 --> 00:03:54,120 Speaker 3: was going to be a financial risk. But in the future, 61 00:03:54,520 --> 00:03:57,360 Speaker 3: that's the tragedy of the horizon. So we better wake 62 00:03:57,480 --> 00:04:00,440 Speaker 3: up to it today and address it today to TechEd 63 00:04:00,480 --> 00:04:04,120 Speaker 3: the future financial system. And that speech, at least how 64 00:04:04,120 --> 00:04:07,480 Speaker 3: it was interpreted, has defined how the finance sector has 65 00:04:07,520 --> 00:04:12,600 Speaker 3: approached and how the climate community has approached climate finance 66 00:04:12,640 --> 00:04:13,480 Speaker 3: for the past decade. 67 00:04:13,600 --> 00:04:16,000 Speaker 1: And it is a powerful speech, especially making it at 68 00:04:16,040 --> 00:04:18,840 Speaker 1: a time when the Paras Agreement hadn't been signed. So 69 00:04:18,880 --> 00:04:22,440 Speaker 1: he says, look, by the time you feel the impacts 70 00:04:22,520 --> 00:04:25,200 Speaker 1: on your balance sheet, it will be too late to act, 71 00:04:25,240 --> 00:04:28,720 Speaker 1: and you will suffer losses for much longer than if 72 00:04:28,800 --> 00:04:31,640 Speaker 1: you start to act now. That's the first part of 73 00:04:31,680 --> 00:04:35,359 Speaker 1: the speech, really well made case. Most people don't recall 74 00:04:35,400 --> 00:04:38,480 Speaker 1: the second part of the speech, which was okay, so 75 00:04:38,640 --> 00:04:40,960 Speaker 1: I'm telling you you've got this risk that you're not 76 00:04:41,080 --> 00:04:44,800 Speaker 1: considering right now, and the way to address that risk, 77 00:04:45,160 --> 00:04:48,279 Speaker 1: Carnie said, was to try and get companies to disclose 78 00:04:48,360 --> 00:04:52,839 Speaker 1: information about their climate risk, about their emissions, allowing these 79 00:04:52,839 --> 00:04:57,560 Speaker 1: investors to then take those risks on their balance sheets 80 00:04:57,560 --> 00:05:00,520 Speaker 1: and thus as a result start to put money toward 81 00:05:00,640 --> 00:05:04,280 Speaker 1: solutions that will tackle the problem. Is that happening. 82 00:05:04,800 --> 00:05:08,279 Speaker 3: It is happening. And it's not tackling the problem. I 83 00:05:08,320 --> 00:05:14,279 Speaker 3: think the fundamental misunderstanding of financial risk is that by 84 00:05:15,320 --> 00:05:19,840 Speaker 3: getting better information and managing financial risk that the economy 85 00:05:19,960 --> 00:05:25,040 Speaker 3: will reallocate capital towards solutions. That was the mistake everything 86 00:05:25,040 --> 00:05:29,000 Speaker 3: else about what he was saying that as climate risk 87 00:05:29,080 --> 00:05:33,000 Speaker 3: and climate impacts intensify, the financial sector will feel it, 88 00:05:33,040 --> 00:05:36,640 Speaker 3: but on a delayed trajectory. That's correct. But by the way, 89 00:05:36,680 --> 00:05:39,760 Speaker 3: we're already seeing some effects in the economy and some 90 00:05:39,800 --> 00:05:42,960 Speaker 3: effects in some financial assets, so we better be attentive 91 00:05:43,000 --> 00:05:45,360 Speaker 3: to and manage those risks. But if we want to 92 00:05:45,400 --> 00:05:48,360 Speaker 3: reduce the underlying risks, it is a different set of 93 00:05:48,400 --> 00:05:49,479 Speaker 3: mechanisms altogether. 94 00:05:50,160 --> 00:05:55,240 Speaker 1: But the translation of that problem became the structure of how, 95 00:05:55,360 --> 00:05:57,920 Speaker 1: at least for the past decade, the world has been 96 00:05:58,040 --> 00:06:00,760 Speaker 1: trying to tackle this problem. And we don't even need 97 00:06:00,800 --> 00:06:02,760 Speaker 1: to get to the political side of you know, right 98 00:06:02,800 --> 00:06:07,240 Speaker 1: wing populism or policy changes. It's really the basic logic 99 00:06:07,440 --> 00:06:12,479 Speaker 1: of the operation came from the speech. Came from the 100 00:06:12,520 --> 00:06:15,680 Speaker 1: Paris Agreement. Right we had a target under the Paris 101 00:06:15,760 --> 00:06:19,200 Speaker 1: Agreement that wanted to keep temperatures below one point five 102 00:06:19,200 --> 00:06:22,880 Speaker 1: degrees celsius. That was translated by scientists as the world 103 00:06:23,000 --> 00:06:26,080 Speaker 1: needs to reach net zero by twenty to fifty carbon 104 00:06:26,120 --> 00:06:30,880 Speaker 1: dioxide emissions, and then corporations took that on heart, saying, well, 105 00:06:30,960 --> 00:06:32,800 Speaker 1: that means all of us, at least the big ones, 106 00:06:33,120 --> 00:06:36,640 Speaker 1: all need to get to net zero, and that would 107 00:06:36,680 --> 00:06:39,960 Speaker 1: allow investors, who also have not just their own emissions 108 00:06:40,000 --> 00:06:43,000 Speaker 1: from their little operations and offices and flying around, but 109 00:06:43,200 --> 00:06:46,840 Speaker 1: like major emissions that are connected to them financing these 110 00:06:46,960 --> 00:06:49,400 Speaker 1: corporations to go, Yes, we need to be net zero, 111 00:06:50,880 --> 00:06:54,320 Speaker 1: and we didn't make very much progress. What went wrong? 112 00:06:54,400 --> 00:06:57,560 Speaker 1: Because that feels like a clear logical pathway that the 113 00:06:57,560 --> 00:06:58,919 Speaker 1: world should have followed exactly. 114 00:06:58,960 --> 00:07:01,320 Speaker 3: Well, I hope that ten years on we really can 115 00:07:01,360 --> 00:07:05,320 Speaker 3: take stock about whether that theory of change held or 116 00:07:05,360 --> 00:07:08,920 Speaker 3: what we got wrong about it. What is needed to 117 00:07:09,080 --> 00:07:14,080 Speaker 3: transition any system and our economy in this case, which, 118 00:07:14,120 --> 00:07:17,200 Speaker 3: by the way, the transition that's needed is a compelling 119 00:07:17,240 --> 00:07:20,800 Speaker 3: case economically and for energy resilience and affordability and security. 120 00:07:20,840 --> 00:07:25,080 Speaker 3: This is hardly even about climate now, but that's changing 121 00:07:25,200 --> 00:07:28,520 Speaker 3: the real economy. Instead, if we look at this as 122 00:07:28,560 --> 00:07:32,040 Speaker 3: a financial risk, then the set of tools that we 123 00:07:32,120 --> 00:07:35,160 Speaker 3: have to engage in that is financial regulation, which are 124 00:07:35,200 --> 00:07:39,520 Speaker 3: disclosures and risk assessments. That is not how you change 125 00:07:39,520 --> 00:07:42,400 Speaker 3: the real economy. So that was I think where the 126 00:07:42,480 --> 00:07:47,560 Speaker 3: split was. Then there are other underlying fallacies in what 127 00:07:47,600 --> 00:07:50,880 Speaker 3: you just described. I'll say one basic one, which is 128 00:07:50,920 --> 00:07:56,200 Speaker 3: that the concept of net zero being an atmospheric concept 129 00:07:56,480 --> 00:08:01,360 Speaker 3: cannot be achieved by individual entities setting their own net 130 00:08:01,440 --> 00:08:04,640 Speaker 3: zero targets, which is the direction we went in, because 131 00:08:05,080 --> 00:08:09,440 Speaker 3: individual entities are part of systems, energy systems, transport systems, 132 00:08:09,480 --> 00:08:14,000 Speaker 3: built environment, and they can't shape those systems on their own. 133 00:08:14,200 --> 00:08:16,200 Speaker 3: They can influence them, but they can't shape them on 134 00:08:16,240 --> 00:08:19,160 Speaker 3: their own. So setting a net zero target for an 135 00:08:19,280 --> 00:08:22,880 Speaker 3: entity is a fallacy. It's impossible, and it has led 136 00:08:22,920 --> 00:08:28,640 Speaker 3: to a lot of accounting maneuvers and disclosure oddities to 137 00:08:28,840 --> 00:08:34,560 Speaker 3: try to project some reductions that are disconnected from what's 138 00:08:34,559 --> 00:08:38,160 Speaker 3: happening in the real economy and the real atmospheric concentrations. 139 00:08:39,080 --> 00:08:42,320 Speaker 1: So what is the solution then, if companies should really 140 00:08:42,360 --> 00:08:45,600 Speaker 1: not be aiming for net zero but they should be 141 00:08:45,640 --> 00:08:48,560 Speaker 1: trying to shape the system, Well, we know they can 142 00:08:48,679 --> 00:08:51,960 Speaker 1: because they have labbying powers, etc. But they've never lobbied 143 00:08:52,040 --> 00:08:55,880 Speaker 1: for green policies. They've lobbied for their self interest. Now 144 00:08:55,920 --> 00:08:58,840 Speaker 1: you're asking them to change the system in the interest 145 00:08:58,880 --> 00:09:01,720 Speaker 1: of the rest of the world, and you're asking them 146 00:09:01,760 --> 00:09:04,240 Speaker 1: to lobby in the interest of the rest of the world. 147 00:09:05,040 --> 00:09:07,000 Speaker 1: That is not something they're set up to do anyway. 148 00:09:07,160 --> 00:09:10,200 Speaker 1: So what could be an alternative that would allow for 149 00:09:10,240 --> 00:09:11,840 Speaker 1: corporations to be a part of the solution. 150 00:09:12,640 --> 00:09:15,360 Speaker 3: Believe it or not, I will tell you as someone 151 00:09:15,480 --> 00:09:20,440 Speaker 3: I think I am probably more existentially concerned about climate 152 00:09:20,520 --> 00:09:23,439 Speaker 3: change than anyone, and yet what I think is the 153 00:09:23,559 --> 00:09:26,400 Speaker 3: solution set I do think is in the self interest 154 00:09:26,520 --> 00:09:30,120 Speaker 3: of economic actors. And when I talk to companies and 155 00:09:30,160 --> 00:09:34,199 Speaker 3: the financial institutions, what I'm saying to them resonates more 156 00:09:34,280 --> 00:09:39,200 Speaker 3: than this structure that we've created that misunderstands incentives and 157 00:09:39,280 --> 00:09:43,440 Speaker 3: possibilities and levers the different institutions have. So I just 158 00:09:43,480 --> 00:09:46,200 Speaker 3: want to say that what you've described as being difficult, 159 00:09:46,280 --> 00:09:48,680 Speaker 3: I don't think is so difficult. So what I would 160 00:09:48,720 --> 00:09:51,760 Speaker 3: say is, first of all, what Mark Carney described as 161 00:09:51,800 --> 00:09:57,360 Speaker 3: financial risk, that's true. So every entity and financial institution 162 00:09:57,800 --> 00:10:03,640 Speaker 3: should understand real evolving climate risk, which there are. That's 163 00:10:03,880 --> 00:10:07,520 Speaker 3: prudent risk management. That doesn't solve the climate crisis. But 164 00:10:07,559 --> 00:10:11,920 Speaker 3: it is true that we are facing extreme heat, floods, 165 00:10:12,320 --> 00:10:16,400 Speaker 3: heat that affects labor productivity. The insurance prices are going up. 166 00:10:16,679 --> 00:10:19,880 Speaker 3: So there are real effects in the economy of climate 167 00:10:19,960 --> 00:10:23,200 Speaker 3: change that should be managed from a risk management perspective. 168 00:10:23,240 --> 00:10:26,079 Speaker 3: And by the way, companies better do that too, because 169 00:10:26,120 --> 00:10:29,440 Speaker 3: companies that are in flood zones or that rely on 170 00:10:29,920 --> 00:10:33,760 Speaker 3: supply chains from regions that are very vulnerable, so from 171 00:10:33,840 --> 00:10:37,040 Speaker 3: good risk management that is important, but we should not 172 00:10:37,160 --> 00:10:39,839 Speaker 3: conflate that with the solution set. The reason why I 173 00:10:39,840 --> 00:10:42,480 Speaker 3: think the solution set is in the interest of companies 174 00:10:42,520 --> 00:10:46,160 Speaker 3: and of the financial sector is that now more than ever, 175 00:10:46,600 --> 00:10:52,400 Speaker 3: the transitions that are necessary to create efficient, secure, resilient, 176 00:10:52,600 --> 00:10:57,520 Speaker 3: affordable energy systems that can support new types of industry 177 00:10:57,720 --> 00:11:02,560 Speaker 3: and industrial innovation, and built environments that are efficient and 178 00:11:02,600 --> 00:11:06,840 Speaker 3: can have cost savings. All of this actually is compelling 179 00:11:07,000 --> 00:11:12,319 Speaker 3: for economic reasons. These are financiable. Sometimes they're so obviously 180 00:11:12,360 --> 00:11:16,160 Speaker 3: financiable that finance is driving them. The largest installed solar 181 00:11:16,160 --> 00:11:18,800 Speaker 3: capacity in the US is in Texas, not because anybody's 182 00:11:18,880 --> 00:11:22,280 Speaker 3: lobbying for climate policies in Texas, but because the economics 183 00:11:22,640 --> 00:11:25,720 Speaker 3: makes solar capacity the most compelling, and we see that 184 00:11:25,920 --> 00:11:28,840 Speaker 3: in all parts of the world that there are clean 185 00:11:28,920 --> 00:11:34,280 Speaker 3: solutions now that are already the more affordable solutions where 186 00:11:34,320 --> 00:11:39,440 Speaker 3: they're not yet financiable is because we need to create 187 00:11:39,679 --> 00:11:44,800 Speaker 3: the market and connect users, the downstream consumers with the producers, 188 00:11:44,920 --> 00:11:47,440 Speaker 3: and adjust the utilities and the way that the grids 189 00:11:47,440 --> 00:11:50,679 Speaker 3: are managed to be able to optimize these benefits. As 190 00:11:50,720 --> 00:11:55,240 Speaker 3: one example, if different industries can save money by storing 191 00:11:55,320 --> 00:11:58,720 Speaker 3: some of their own energy and having better demand response, 192 00:11:59,080 --> 00:12:02,360 Speaker 3: that's saving for the industry, but the utility needs to 193 00:12:02,400 --> 00:12:06,160 Speaker 3: be able to manage that flexibility on the grid. When 194 00:12:06,200 --> 00:12:11,280 Speaker 3: we can solve those market structures in these solutions become 195 00:12:11,840 --> 00:12:15,679 Speaker 3: compelling for the companies and compelling from the finance perspective. 196 00:12:15,920 --> 00:12:19,400 Speaker 1: That has certainly played out in the renewable sector rit large, 197 00:12:19,440 --> 00:12:22,760 Speaker 1: not just solar, but win also batteries and now increasingly 198 00:12:22,840 --> 00:12:26,160 Speaker 1: electric cars. You know, plenty of developing countries now have 199 00:12:26,840 --> 00:12:29,880 Speaker 1: more electric car sales in their share of new vehicles 200 00:12:29,920 --> 00:12:34,360 Speaker 1: sold than many of the most developed economies. That's happened 201 00:12:34,920 --> 00:12:40,679 Speaker 1: through a set of government coordinating mechanisms where there's been 202 00:12:40,800 --> 00:12:43,040 Speaker 1: either a target set to try and reach a certain 203 00:12:43,040 --> 00:12:46,520 Speaker 1: amount of renewables in the grid, initially to there being 204 00:12:46,679 --> 00:12:49,520 Speaker 1: incentives in terms of subsidies, which is the sort of 205 00:12:49,679 --> 00:12:52,480 Speaker 1: formula that the US uses mostly to try and fund 206 00:12:52,520 --> 00:12:56,440 Speaker 1: these technologies that the governments think the world needs but 207 00:12:56,559 --> 00:13:00,000 Speaker 1: are expensive and need to start to compete with the alternative. 208 00:13:01,440 --> 00:13:04,640 Speaker 1: But we are now also in that place where given 209 00:13:04,720 --> 00:13:08,800 Speaker 1: the politics and given the policy changes, people are looking 210 00:13:08,840 --> 00:13:14,040 Speaker 1: towards investors as the driver of change because these financial 211 00:13:14,080 --> 00:13:17,920 Speaker 1: risks are real. So last year, Norge's Bank Investment Management, 212 00:13:18,000 --> 00:13:20,840 Speaker 1: which is the world's largest manager. You know, all the 213 00:13:20,840 --> 00:13:23,880 Speaker 1: oil money that Norway has earned has gone into this 214 00:13:24,240 --> 00:13:27,319 Speaker 1: huge part that the government uses for all sorts of things, 215 00:13:27,679 --> 00:13:31,360 Speaker 1: invests in pretty much every investable company in the world 216 00:13:31,400 --> 00:13:34,200 Speaker 1: with like one or two percent of their stake, said 217 00:13:34,240 --> 00:13:38,040 Speaker 1: last year that they believe the financial sector's conventional approach 218 00:13:38,080 --> 00:13:42,840 Speaker 1: to estimating the physical risk of climate change is hugely 219 00:13:43,000 --> 00:13:46,480 Speaker 1: understating the problem. So they're kind of confirming what Conny 220 00:13:46,559 --> 00:13:49,880 Speaker 1: said ten years ago and saying it in twenty twenty 221 00:13:49,880 --> 00:13:53,319 Speaker 1: five with greater urgency. So when they were asked, okay, 222 00:13:53,440 --> 00:13:58,559 Speaker 1: then what should NBIm do as a result of understanding 223 00:13:58,679 --> 00:14:03,360 Speaker 1: this US risk, shouldn't they be investing more aggressively in 224 00:14:03,440 --> 00:14:07,480 Speaker 1: climate solutions? They said, no, that's not their mandate. The 225 00:14:07,520 --> 00:14:12,120 Speaker 1: mandate comes from the Norwegian government and it currently is 226 00:14:12,160 --> 00:14:14,960 Speaker 1: not the government's mandate. So what is the solution here? 227 00:14:15,040 --> 00:14:17,760 Speaker 1: Is it to go back and try and essentially create 228 00:14:17,840 --> 00:14:21,200 Speaker 1: a political movement that would put the right leaders in government. 229 00:14:22,080 --> 00:14:24,400 Speaker 3: I think the solution is easier, but that that's a 230 00:14:24,560 --> 00:14:27,720 Speaker 3: perfect example of what the solution is not. That was 231 00:14:27,760 --> 00:14:33,000 Speaker 3: a perfect example that even though financial risk may be real, 232 00:14:33,480 --> 00:14:36,200 Speaker 3: that that in and of itself is not the motivation 233 00:14:36,760 --> 00:14:41,000 Speaker 3: to go finance new solutions. And whether the mandate comes 234 00:14:41,000 --> 00:14:43,480 Speaker 3: from the government of Norway or from beneficiaries that are 235 00:14:43,520 --> 00:14:47,320 Speaker 3: expecting returns on their portfolio, anyone invested in the markets 236 00:14:47,400 --> 00:14:51,560 Speaker 3: is expecting financial returns. They don't want their companies to 237 00:14:51,640 --> 00:14:54,480 Speaker 3: go out and be financing things that might be loss 238 00:14:54,480 --> 00:14:57,360 Speaker 3: makers or that will be loss makers because there's no 239 00:14:57,480 --> 00:15:00,720 Speaker 3: market for them. They want to be maximizing the risk 240 00:15:00,720 --> 00:15:04,040 Speaker 3: adjusted returns in the current economy. And by the way, 241 00:15:04,120 --> 00:15:07,320 Speaker 3: let me just note that as long as our consuming 242 00:15:07,440 --> 00:15:12,480 Speaker 3: sectors consume fossil fuels, the demand for fossil fuels will remain. 243 00:15:12,840 --> 00:15:16,240 Speaker 3: The solution is not to say stop financing the fossil 244 00:15:16,240 --> 00:15:20,120 Speaker 3: fuel sector. The solution is phase out the demand by 245 00:15:20,160 --> 00:15:26,040 Speaker 3: making the alternatives cheaper, more affordable, more accessible, which is happening. 246 00:15:26,560 --> 00:15:29,360 Speaker 3: As we do that, even more the demand for fossil 247 00:15:29,400 --> 00:15:32,440 Speaker 3: fuels phases out and then the financing stops. So we 248 00:15:32,480 --> 00:15:36,640 Speaker 3: should understand the levers. So what is the solution now 249 00:15:36,680 --> 00:15:40,160 Speaker 3: more than ever, as I was saying, the investments that 250 00:15:40,200 --> 00:15:45,760 Speaker 3: are needed to create a clean, efficient economy, are billions, 251 00:15:45,960 --> 00:15:51,680 Speaker 3: if not trillions of dollars of investment opportunities that Norges 252 00:15:51,760 --> 00:15:55,840 Speaker 3: Bank and other financial institutions will want to invest in 253 00:15:56,040 --> 00:16:01,720 Speaker 3: when we make them financible. That is the challenge, which 254 00:16:01,760 --> 00:16:03,840 Speaker 3: I don't think is such a big challenge, but it 255 00:16:03,880 --> 00:16:06,680 Speaker 3: is also the solution set. So what can the finance 256 00:16:06,680 --> 00:16:11,160 Speaker 3: sector do because they can't lead on making markets that 257 00:16:11,200 --> 00:16:15,960 Speaker 3: don't exist financiable, but they have unique expertise in understanding 258 00:16:16,200 --> 00:16:20,000 Speaker 3: what is financiable. How do they perceive different types of 259 00:16:20,120 --> 00:16:25,600 Speaker 3: risk market risk, off take risk, technology risk, political risk, 260 00:16:25,960 --> 00:16:30,440 Speaker 3: regulatory risk, construction risk, so that we can in the 261 00:16:30,480 --> 00:16:34,440 Speaker 3: real economy, using other types of tools, the export credit 262 00:16:34,440 --> 00:16:38,640 Speaker 3: agencies and the development banks that have concessional finance and 263 00:16:38,760 --> 00:16:43,960 Speaker 3: guarantee mechanisms and other risk sharing tools can address the 264 00:16:44,080 --> 00:16:48,240 Speaker 3: risks so that they become financiable by the private sector 265 00:16:48,480 --> 00:16:51,120 Speaker 3: with real returns. That's why I think that this is 266 00:16:51,160 --> 00:16:55,960 Speaker 3: in the financial sector's interest to help create these financiable investments. 267 00:17:00,040 --> 00:17:02,840 Speaker 1: After the break, I ask Lisa whether China's approach to 268 00:17:02,840 --> 00:17:06,560 Speaker 1: climate finance can be reproduced in Western countries. And if 269 00:17:06,560 --> 00:17:09,040 Speaker 1: you're enjoying this episode, please take a moment to read 270 00:17:09,080 --> 00:17:12,800 Speaker 1: and review the show on Apple Podcasts, Spotify, and YouTube. Recently, 271 00:17:12,880 --> 00:17:16,760 Speaker 1: Liney Chevri wrote simple but deep. I love the analysis 272 00:17:16,800 --> 00:17:32,800 Speaker 1: of this podcast. Thanks Lina. The biggest place where finance 273 00:17:32,880 --> 00:17:36,760 Speaker 1: is not flowing a must flow is developing countries where 274 00:17:37,280 --> 00:17:42,080 Speaker 1: we know the opportunity of having cleaner energy and the 275 00:17:42,160 --> 00:17:46,200 Speaker 1: benefits are far greater as a result, and the risks 276 00:17:46,240 --> 00:17:50,720 Speaker 1: of actually investing from an investor perspective are also greater. 277 00:17:51,200 --> 00:17:53,040 Speaker 1: So how do you solve that problem? 278 00:17:53,160 --> 00:17:54,919 Speaker 3: Yes, that is what I spend a lot of my 279 00:17:55,040 --> 00:17:59,359 Speaker 3: time thinking about. Not only are the clean energy opportunities 280 00:17:59,440 --> 00:18:05,320 Speaker 3: in emerging markets huge, but frankly so much infrastructure development 281 00:18:05,600 --> 00:18:10,359 Speaker 3: in emerging markets, in clean industry, in mobility solutions, in 282 00:18:10,359 --> 00:18:14,280 Speaker 3: information and communication technologies, the digital hubs. These are great 283 00:18:14,359 --> 00:18:19,000 Speaker 3: investment opportunities. But emerging markets are perceived as risky, and 284 00:18:19,359 --> 00:18:24,760 Speaker 3: when they are risky, either by mandate, some institutional investors 285 00:18:24,800 --> 00:18:28,919 Speaker 3: cannot invest in them, or even those who aren't driven 286 00:18:28,920 --> 00:18:31,760 Speaker 3: by mandate, the private credit markets don't want to invest 287 00:18:31,840 --> 00:18:34,800 Speaker 3: in places that are risky. So we are trying to 288 00:18:35,119 --> 00:18:38,879 Speaker 3: unpack that risk because some of the risk is a 289 00:18:38,920 --> 00:18:42,399 Speaker 3: misperception of risk by not understanding because people are not 290 00:18:42,480 --> 00:18:46,520 Speaker 3: familiar with emerging markets. Some of the risk are real risks. 291 00:18:46,760 --> 00:18:51,320 Speaker 3: Risks like currency risk because the developing countries borrow in 292 00:18:51,400 --> 00:18:55,160 Speaker 3: hard currency but they have their revenues in their own currency, 293 00:18:56,760 --> 00:19:00,400 Speaker 3: or some types of political risk if the utilities may 294 00:19:00,400 --> 00:19:05,280 Speaker 3: not be reliable off takers, or liquidity risks because when 295 00:19:05,560 --> 00:19:09,399 Speaker 3: debt becomes due, developing countries don't have large reserves like 296 00:19:09,440 --> 00:19:13,080 Speaker 3: the developed countries do. So each of these risks has 297 00:19:13,600 --> 00:19:16,679 Speaker 3: determinants factors that are leading to these risks. If we 298 00:19:16,760 --> 00:19:20,520 Speaker 3: can understand why these risks exist in emerging markets, we 299 00:19:20,600 --> 00:19:23,560 Speaker 3: can solve them structurally, We can solve them with new 300 00:19:23,800 --> 00:19:27,679 Speaker 3: risk sharing tools, and we can help investors understand that 301 00:19:27,800 --> 00:19:31,560 Speaker 3: some of the perception is actually not correct. 302 00:19:32,040 --> 00:19:34,400 Speaker 1: Is there an example of a place where that's happening. 303 00:19:34,200 --> 00:19:37,960 Speaker 3: Yes, So one recent publication that starts that helps, but 304 00:19:38,119 --> 00:19:40,720 Speaker 3: much more needs to be unpacked, is that after a 305 00:19:40,720 --> 00:19:45,560 Speaker 3: lot of advocacy, the development finance community released their data 306 00:19:45,680 --> 00:19:49,720 Speaker 3: on default rates across their portfolios and it's called the 307 00:19:49,840 --> 00:19:52,959 Speaker 3: GEMS database. And what the GEMS database showed is that 308 00:19:53,040 --> 00:19:57,480 Speaker 3: the default rates in low income countries is much lower 309 00:19:57,520 --> 00:20:02,800 Speaker 3: than what their risk ratings would imply. That was already helpful, 310 00:20:03,119 --> 00:20:05,720 Speaker 3: it needs to be much further unpacked because this is 311 00:20:06,359 --> 00:20:11,000 Speaker 3: financing from development finance institutions, which of course has more 312 00:20:11,040 --> 00:20:16,400 Speaker 3: protections than private investment does. But private investment can co 313 00:20:16,480 --> 00:20:20,320 Speaker 3: invest with development finance and benefit from those guarantees. And 314 00:20:20,480 --> 00:20:23,840 Speaker 3: in developed countries too, a lot of financing is benefits 315 00:20:23,840 --> 00:20:27,040 Speaker 3: from public sector guarantees or supports, So we need to 316 00:20:27,160 --> 00:20:29,400 Speaker 3: unpack that. But that's at least one area. 317 00:20:29,480 --> 00:20:32,640 Speaker 1: But all of this request coordination and coordination often comes 318 00:20:32,680 --> 00:20:36,600 Speaker 1: from governments. When it cannot because of the politics or 319 00:20:36,680 --> 00:20:40,560 Speaker 1: because of their physical capacity. Who else can step in? 320 00:20:40,720 --> 00:20:45,240 Speaker 3: Yeah? Absolutely, so many other actors can step in. The 321 00:20:45,760 --> 00:20:50,720 Speaker 3: appropriate financing stack or the financing solutions to d risk 322 00:20:51,160 --> 00:20:54,040 Speaker 3: can involve a number of different financial entities that have 323 00:20:54,080 --> 00:20:58,720 Speaker 3: an interest in coordinating with other financial entities. So yesterday 324 00:20:58,720 --> 00:21:02,960 Speaker 3: I was at a wonderful workshop up on export credit 325 00:21:03,000 --> 00:21:06,240 Speaker 3: agencies and the role that export credit agencies can play 326 00:21:06,320 --> 00:21:10,040 Speaker 3: in de risking critical investments. But export credit agencies have 327 00:21:10,119 --> 00:21:15,000 Speaker 3: an interest in collaborating with other development finance institutions, the 328 00:21:15,080 --> 00:21:20,080 Speaker 3: multilateral development banks, with local commercial banks that can bring 329 00:21:20,080 --> 00:21:24,479 Speaker 3: additional local currency finance. So even different actors within the 330 00:21:24,480 --> 00:21:29,280 Speaker 3: financial sector, not one financial entity that wants to make 331 00:21:29,320 --> 00:21:32,199 Speaker 3: a market, but to work with the other types of 332 00:21:32,240 --> 00:21:35,320 Speaker 3: financial actors to create a financing stack. 333 00:21:35,520 --> 00:21:40,240 Speaker 1: And development banks are big, there are many, but they 334 00:21:40,280 --> 00:21:43,719 Speaker 1: are not as big as private financial institutions are. There 335 00:21:43,760 --> 00:21:46,920 Speaker 1: examples where private and financial institutions have stepped up. 336 00:21:47,000 --> 00:21:49,719 Speaker 3: There are, they're not enough because and I think this 337 00:21:49,800 --> 00:21:52,280 Speaker 3: goes to the question of the perception, because the more 338 00:21:52,400 --> 00:21:54,920 Speaker 3: data that we can have that shows what good investments 339 00:21:54,960 --> 00:21:56,760 Speaker 3: there are, the more that we'll see. But there are 340 00:21:56,880 --> 00:22:00,440 Speaker 3: a few. The way that the private sector usually comes 341 00:22:00,440 --> 00:22:04,119 Speaker 3: in to emerging markets where there really are assessed risks, 342 00:22:04,160 --> 00:22:08,200 Speaker 3: whether they are real or perceived, is together with an 343 00:22:08,480 --> 00:22:12,040 Speaker 3: entity that can take on that first risk or that 344 00:22:12,080 --> 00:22:14,080 Speaker 3: can help to de risk it. So there are co 345 00:22:14,200 --> 00:22:19,560 Speaker 3: investments with development finance institutions or blended finance vehicles where 346 00:22:19,720 --> 00:22:24,040 Speaker 3: either a philanthropy or a other type of catalytic fund, 347 00:22:24,040 --> 00:22:28,359 Speaker 3: a guarantee mechanism, or a development finance institution, or in 348 00:22:28,400 --> 00:22:31,639 Speaker 3: the case of Singapore, the monetary authority puts in some 349 00:22:32,040 --> 00:22:37,440 Speaker 3: initial capital and on that basis the traditional institutional large 350 00:22:37,480 --> 00:22:41,359 Speaker 3: private investors feel more confident because there's a mechanism to 351 00:22:41,400 --> 00:22:44,240 Speaker 3: take on the first loss. One region in which I'm 352 00:22:44,359 --> 00:22:46,680 Speaker 3: quite interested in what this could look like is in 353 00:22:46,760 --> 00:22:51,600 Speaker 3: Southeast Asia, which from a climate perspective for the world, 354 00:22:52,040 --> 00:22:55,480 Speaker 3: is a very important region. It has the second largest 355 00:22:55,600 --> 00:23:00,000 Speaker 3: growth in energy demand after India. If that energy demand 356 00:23:00,000 --> 00:23:06,119 Speaker 3: and is met with clean energy, that will save the planet, 357 00:23:06,240 --> 00:23:09,240 Speaker 3: and if it's not, then that will lead to massive overshoot. 358 00:23:09,359 --> 00:23:13,280 Speaker 3: From the region's perspective, actually the driver of the clean 359 00:23:13,400 --> 00:23:16,840 Speaker 3: energy transition is not climate. It's that to meet their 360 00:23:16,880 --> 00:23:22,320 Speaker 3: growing energy demand in the most resilient, secure, affordable, independent 361 00:23:22,760 --> 00:23:26,440 Speaker 3: way and to support the growth of clean industries within 362 00:23:26,640 --> 00:23:30,639 Speaker 3: their economy and by the way, to decrease congestion in 363 00:23:30,680 --> 00:23:34,879 Speaker 3: their roads and to clean their air. They have an 364 00:23:34,920 --> 00:23:41,760 Speaker 3: interest in an integrated clean grid that requires connecting different 365 00:23:41,840 --> 00:23:47,440 Speaker 3: sources of clean energy generation, which is located throughout Southeast 366 00:23:47,480 --> 00:23:51,800 Speaker 3: Asia with all throughout the region, because in order to 367 00:23:51,880 --> 00:23:56,359 Speaker 3: make the clean energy reliably available and affordable, you need 368 00:23:56,400 --> 00:23:57,959 Speaker 3: to be able to move it from where it is 369 00:23:58,000 --> 00:23:59,800 Speaker 3: to where it's needed. And by the way, the country 370 00:23:59,800 --> 00:24:04,320 Speaker 3: that this the most is Singapore, because Singapore can't generate 371 00:24:04,359 --> 00:24:08,240 Speaker 3: its own clean energy, so its ability to truly decarbonize 372 00:24:08,280 --> 00:24:12,880 Speaker 3: its economy will depend on its being able to reliably 373 00:24:12,920 --> 00:24:16,560 Speaker 3: secure adequate clean energy from the region. So the whole 374 00:24:16,640 --> 00:24:20,919 Speaker 3: region knows that they will benefit from a clean integrated 375 00:24:21,040 --> 00:24:23,760 Speaker 3: energy system. Why hasn't that happened. 376 00:24:24,160 --> 00:24:25,840 Speaker 1: Yeah, well, I mean that seems like it's in their 377 00:24:25,840 --> 00:24:26,520 Speaker 1: self interest. 378 00:24:26,680 --> 00:24:29,119 Speaker 3: It's in their self interest, and it's a great investment. 379 00:24:29,720 --> 00:24:33,320 Speaker 3: This is going to be a huge energy market. One 380 00:24:33,400 --> 00:24:36,359 Speaker 3: basic starting point is that until this year, there wasn't 381 00:24:36,400 --> 00:24:39,000 Speaker 3: even a scenario in the region for what does this 382 00:24:39,080 --> 00:24:41,719 Speaker 3: clean energy system look like. So if you were an 383 00:24:41,840 --> 00:24:44,760 Speaker 3: energy investor and you wanted to go invest in the 384 00:24:44,800 --> 00:24:47,720 Speaker 3: fastest one of the fastest growing energy regions in the world, 385 00:24:47,960 --> 00:24:51,280 Speaker 3: from an investment perspective, it's not even clear where you 386 00:24:51,359 --> 00:24:54,960 Speaker 3: make that investment because there's no scenario. Then the cost 387 00:24:54,960 --> 00:24:57,879 Speaker 3: of capital, as we were discussing in emerging markets is 388 00:24:58,000 --> 00:25:02,000 Speaker 3: very high for clean energy. When the cost of capital 389 00:25:02,040 --> 00:25:07,760 Speaker 3: is high, the levelized cost of energy is higher than 390 00:25:07,840 --> 00:25:11,280 Speaker 3: fossil fuel production. So on a competitive basis, clean energy 391 00:25:11,480 --> 00:25:15,679 Speaker 3: is not competitive only because of the higher cost of 392 00:25:15,720 --> 00:25:18,280 Speaker 3: capital in emerging markets. And then the final point I 393 00:25:18,280 --> 00:25:21,600 Speaker 3: would say is that for an integrated energy system, if 394 00:25:21,640 --> 00:25:25,359 Speaker 3: you have cross border infrastructure, then the investors need some 395 00:25:25,720 --> 00:25:29,040 Speaker 3: assurance that they're going to be able to trade power 396 00:25:29,080 --> 00:25:30,919 Speaker 3: across borders. How do you do that when you have 397 00:25:30,960 --> 00:25:35,159 Speaker 3: different energy systems, different markets or so on. So until 398 00:25:35,160 --> 00:25:38,919 Speaker 3: this year, there wasn't a plan. Now we're putting we're 399 00:25:39,160 --> 00:25:43,200 Speaker 3: supporting the wonderful institutions in the region, especially the Ausion 400 00:25:43,280 --> 00:25:46,440 Speaker 3: Center for Energy and the Member States, to say, oh, 401 00:25:46,480 --> 00:25:48,280 Speaker 3: you know what, it would be good to have a 402 00:25:48,320 --> 00:25:50,520 Speaker 3: plan for what this looks like. And when we have 403 00:25:50,600 --> 00:25:53,840 Speaker 3: a plan, we can identify where they're good investment opportunities. 404 00:25:54,280 --> 00:25:57,040 Speaker 3: And then the finance comes, which is how do we 405 00:25:57,080 --> 00:26:00,359 Speaker 3: make this all financiable? And so we have been speaking 406 00:26:00,400 --> 00:26:04,639 Speaker 3: with both public and private financial institutions. Of course, the 407 00:26:04,680 --> 00:26:09,080 Speaker 3: Asian Development Bank is already involved, the IFC is involved, 408 00:26:09,359 --> 00:26:11,959 Speaker 3: and most recently we've been speaking with JP Morgan as 409 00:26:12,000 --> 00:26:15,680 Speaker 3: one of the many interested private sector entities who sees 410 00:26:15,800 --> 00:26:20,159 Speaker 3: opportunities in financing, and we've been saying with JP Morgan, 411 00:26:21,040 --> 00:26:23,520 Speaker 3: let's figure out how we can make this grid financibal. 412 00:26:23,680 --> 00:26:27,800 Speaker 3: Then it'll unlock a lot of financing opportunities in the region. 413 00:26:28,119 --> 00:26:31,639 Speaker 3: So together with JP Morgan, we are organizing a series 414 00:26:31,680 --> 00:26:35,399 Speaker 3: of workshops that will bring together these public and private 415 00:26:35,440 --> 00:26:40,240 Speaker 3: sector financial institutions, also together with some of the utilities 416 00:26:40,280 --> 00:26:42,920 Speaker 3: and the regulators, to say what is needed to make 417 00:26:42,960 --> 00:26:46,640 Speaker 3: this all financible, and when it's financible, it will unlock 418 00:26:46,800 --> 00:26:49,320 Speaker 3: a lot of important investment opportunities. 419 00:26:49,800 --> 00:26:52,520 Speaker 1: So this is the case where a technology that now 420 00:26:52,600 --> 00:26:55,480 Speaker 1: has been at least globally shown to be de risk 421 00:26:55,560 --> 00:26:59,159 Speaker 1: but is facing this problem of cost or capital is 422 00:26:59,200 --> 00:27:04,359 Speaker 1: being addressed by bringing in this coordination mechanism. You're saying, 423 00:27:04,359 --> 00:27:08,600 Speaker 1: it's not driven by climate, so it is driven by 424 00:27:08,600 --> 00:27:11,520 Speaker 1: other factors. And the way to think about it from 425 00:27:11,560 --> 00:27:15,399 Speaker 1: a corporations perspective is, obviously they have to deal with 426 00:27:15,440 --> 00:27:18,399 Speaker 1: the risks they face today, but they also have a 427 00:27:18,480 --> 00:27:21,720 Speaker 1: risk in the future of just not knowing where their 428 00:27:21,760 --> 00:27:23,640 Speaker 1: business is going, and so they have to keep an 429 00:27:23,680 --> 00:27:27,199 Speaker 1: eye out for future business opportunities, And you're saying, the 430 00:27:27,240 --> 00:27:31,480 Speaker 1: coordinating mechanism here is not climate, is actually the future 431 00:27:31,840 --> 00:27:36,439 Speaker 1: business opportunities. And JP Morgan, as a big financier, wants 432 00:27:36,480 --> 00:27:39,600 Speaker 1: to make sure that they are tapping into this future 433 00:27:39,640 --> 00:27:44,879 Speaker 1: business opportunity. That's great, that works for renewables. That is 434 00:27:45,280 --> 00:27:48,359 Speaker 1: maybe fifty percent of the problem. Fifty percent of the 435 00:27:48,440 --> 00:27:52,280 Speaker 1: problem is technologies that are not yet financiable, that are 436 00:27:52,320 --> 00:27:56,119 Speaker 1: not yet cheap, that require a bunch of rich governments 437 00:27:56,240 --> 00:27:59,440 Speaker 1: to do something about it. Typically, But if those governments 438 00:27:59,440 --> 00:28:01,240 Speaker 1: are not going to step up, what do we do 439 00:28:01,280 --> 00:28:02,359 Speaker 1: about the rest of the problem. 440 00:28:02,480 --> 00:28:04,560 Speaker 3: Yes, So, first of all, I think it's important to 441 00:28:04,560 --> 00:28:07,919 Speaker 3: know that we probably have about seventy percent of the 442 00:28:07,960 --> 00:28:11,720 Speaker 3: technologies that are needed for global decarbonization. So the challenge, 443 00:28:11,760 --> 00:28:14,480 Speaker 3: the real constraint is not that we don't have the technology, 444 00:28:14,480 --> 00:28:17,760 Speaker 3: it's the deployment. What's very interesting is that that deployment 445 00:28:17,840 --> 00:28:21,080 Speaker 3: is happening faster in emerging markets than it is in 446 00:28:21,160 --> 00:28:25,960 Speaker 3: developed countries. Because we have the technologies. They know that 447 00:28:26,119 --> 00:28:30,120 Speaker 3: to deploy those technologies across their systems is compelling from 448 00:28:30,200 --> 00:28:34,520 Speaker 3: an efficiency perspective, from a cost saving perspective, and that 449 00:28:34,600 --> 00:28:37,560 Speaker 3: it can be done by bringing together those actors in 450 00:28:37,600 --> 00:28:39,800 Speaker 3: the system that would benefit from the new technologies. So 451 00:28:39,840 --> 00:28:43,720 Speaker 3: we see more deployment in emerging markets than in developed countries. 452 00:28:44,200 --> 00:28:47,200 Speaker 3: But there are some places where we need new innovation. 453 00:28:46,920 --> 00:28:51,800 Speaker 1: Plenty of them, green steel, green cement, sustainable aviation fields, etc. Etc. 454 00:28:52,160 --> 00:28:52,840 Speaker 1: What about them? 455 00:28:53,000 --> 00:28:57,200 Speaker 3: Yes, So, first of all, we do need public finance. 456 00:28:57,400 --> 00:28:59,840 Speaker 3: We need public finance. This is not going to be 457 00:28:59,840 --> 00:29:02,720 Speaker 3: so by the private sector alone. What we should be 458 00:29:02,760 --> 00:29:06,520 Speaker 3: thinking about in every financing solution, or what needs to 459 00:29:06,520 --> 00:29:08,920 Speaker 3: be in what we need to be financing is what 460 00:29:09,000 --> 00:29:12,480 Speaker 3: is suitable for public finance and how? What is suitable 461 00:29:12,480 --> 00:29:15,240 Speaker 3: for private finance and how? And then where can we 462 00:29:15,280 --> 00:29:18,640 Speaker 3: find blended mechanisms or how can we use some types 463 00:29:18,680 --> 00:29:23,239 Speaker 3: of public or innovative risk sharing mechanisms to bring in 464 00:29:23,280 --> 00:29:26,440 Speaker 3: the private sector. Those are basically the three categories. The 465 00:29:26,480 --> 00:29:29,960 Speaker 3: public finance can come in many different mechanisms. We fund 466 00:29:30,120 --> 00:29:32,280 Speaker 3: R and D that is one of the best ways 467 00:29:32,320 --> 00:29:37,040 Speaker 3: to fund new technological innovation. We use subsidies to incentivize. 468 00:29:37,120 --> 00:29:40,040 Speaker 3: We also use mandates by the way and procurement, so 469 00:29:40,200 --> 00:29:44,520 Speaker 3: government doesn't even necessarily have to be laying out financing 470 00:29:44,840 --> 00:29:49,440 Speaker 3: to shift the markets if you mandate certain efficiency standards, 471 00:29:49,680 --> 00:29:53,320 Speaker 3: the markets shift. If you commit to procurement of some 472 00:29:53,520 --> 00:29:58,120 Speaker 3: standard of some clean technology, then the markets shift. If 473 00:29:58,160 --> 00:30:02,280 Speaker 3: you can aggregate demand in that way, then the markets 474 00:30:02,440 --> 00:30:07,560 Speaker 3: meet that aggregate demand. So some of the additional investments 475 00:30:07,600 --> 00:30:10,160 Speaker 3: needed can come in that way. Some of them remain 476 00:30:10,320 --> 00:30:12,360 Speaker 3: very difficult, and you've named a couple of them. So 477 00:30:12,560 --> 00:30:16,640 Speaker 3: let's take green steel, where right now the technology that 478 00:30:16,760 --> 00:30:21,120 Speaker 3: would decarbonized steel is more costly in some parts of 479 00:30:21,120 --> 00:30:24,240 Speaker 3: the world. Actually, because we're already seeing that in Sweden's 480 00:30:24,240 --> 00:30:27,680 Speaker 3: Stegra is able to produce clean steel at a rate 481 00:30:27,720 --> 00:30:30,240 Speaker 3: that is marketable on the market, and you have companies 482 00:30:30,280 --> 00:30:33,040 Speaker 3: that are willing to buy the green steel in Sweden. 483 00:30:33,360 --> 00:30:38,720 Speaker 3: But in Asia, where there's most of the world's steel production, 484 00:30:39,200 --> 00:30:42,760 Speaker 3: the clean versions are not yet cost competitive. This is 485 00:30:42,800 --> 00:30:46,520 Speaker 3: an example where I believe it to be possible to 486 00:30:46,600 --> 00:30:49,600 Speaker 3: bring together actors from within the system, which we are 487 00:30:49,640 --> 00:30:54,120 Speaker 3: also doing in January together with the real estate company 488 00:30:54,240 --> 00:30:57,800 Speaker 3: in Hong Kong that has an interest in procuring clean steel, 489 00:30:57,840 --> 00:31:00,240 Speaker 3: and realize that it can't do it on its own, 490 00:31:00,400 --> 00:31:03,600 Speaker 3: So we are bringing together Boo Steel, which has been 491 00:31:03,720 --> 00:31:06,680 Speaker 3: very involved from the supply side, and producing clean steel, 492 00:31:06,960 --> 00:31:09,479 Speaker 3: the real estate companies, the car companies that have an 493 00:31:09,520 --> 00:31:13,000 Speaker 3: interest in buying, the private sector financial institutions that are 494 00:31:13,200 --> 00:31:16,240 Speaker 3: happy to finance when there's going to be a commercial market, 495 00:31:16,480 --> 00:31:19,920 Speaker 3: the public sector officials that can understand well what types 496 00:31:19,960 --> 00:31:23,960 Speaker 3: of mandates would create this market. And then maybe in 497 00:31:24,000 --> 00:31:27,600 Speaker 3: this case we may need either development finance, concessional finance, 498 00:31:27,720 --> 00:31:31,760 Speaker 3: or philanthropy to address the green premium until the point 499 00:31:31,800 --> 00:31:33,000 Speaker 3: that the prices come down. 500 00:31:33,320 --> 00:31:36,840 Speaker 1: So the one place where we know coordination happens really 501 00:31:36,840 --> 00:31:40,560 Speaker 1: well is China, and of course that is the place 502 00:31:40,760 --> 00:31:44,640 Speaker 1: which is now as a result of that coordination among 503 00:31:44,680 --> 00:31:50,000 Speaker 1: government actors, among companies and finance, the place where most 504 00:31:50,000 --> 00:31:53,600 Speaker 1: green technologies are made, and they are made more cheaply 505 00:31:53,720 --> 00:31:57,320 Speaker 1: than anywhere else. But that kind of politics can be replicated. 506 00:31:57,560 --> 00:31:59,560 Speaker 1: Is there anything from the China model that can be 507 00:31:59,600 --> 00:32:01,920 Speaker 1: replicated outside of China? 508 00:32:01,960 --> 00:32:04,800 Speaker 3: I think there are two really important points. One is 509 00:32:04,840 --> 00:32:10,240 Speaker 3: that China sees a huge competitive advantage in building the 510 00:32:10,280 --> 00:32:13,600 Speaker 3: economy of the future. This is actually part of the 511 00:32:13,640 --> 00:32:18,840 Speaker 3: point is that they are it's benefiting their companies and 512 00:32:19,080 --> 00:32:22,960 Speaker 3: the country to be investing in the component parts of 513 00:32:23,000 --> 00:32:25,600 Speaker 3: the clean energy future. They are we are not going 514 00:32:25,680 --> 00:32:28,080 Speaker 3: to be able to compete for the price of solar panels, 515 00:32:28,440 --> 00:32:32,800 Speaker 3: certainly not evs, and they're doing this from an economic basis. 516 00:32:32,840 --> 00:32:35,360 Speaker 3: So that's one point is that we should This is 517 00:32:35,400 --> 00:32:39,760 Speaker 3: a perfect example of how economics and climate objectives have aligned. 518 00:32:40,160 --> 00:32:44,280 Speaker 3: The other thing is that, of course China sets vision 519 00:32:44,560 --> 00:32:48,960 Speaker 3: and a plan and a strategy and can be coherent. That, 520 00:32:49,120 --> 00:32:51,960 Speaker 3: by the way, can be done by any form of government. 521 00:32:52,280 --> 00:32:55,800 Speaker 3: Just have a plan and how do you achieve that plan? 522 00:32:56,200 --> 00:33:00,200 Speaker 3: Within all of these sectors, there is immense competition. That 523 00:33:00,320 --> 00:33:02,840 Speaker 3: is what has led to the development of the most 524 00:33:03,000 --> 00:33:08,800 Speaker 3: incredible technologies at the cheapest price. Immense competition because everything 525 00:33:08,840 --> 00:33:11,760 Speaker 3: in China is at an immense scale. So this is 526 00:33:11,880 --> 00:33:16,760 Speaker 3: not that it is so heavily subsidized by the government. 527 00:33:16,880 --> 00:33:21,320 Speaker 3: The government has set direction, created and enabling framework. Any 528 00:33:21,520 --> 00:33:23,920 Speaker 3: form of government can do that, and then there was 529 00:33:24,040 --> 00:33:27,320 Speaker 3: immense competition and the winners prevail, and there are a 530 00:33:27,320 --> 00:33:30,480 Speaker 3: lot of losers in that case, by the way, But China, 531 00:33:30,560 --> 00:33:33,400 Speaker 3: I think exemplifies two things we can all learn from. 532 00:33:33,600 --> 00:33:38,000 Speaker 3: One is that plans are useful. Planning is helpful. You 533 00:33:38,040 --> 00:33:43,520 Speaker 3: can align your incentives and your markets and your skill 534 00:33:43,640 --> 00:33:47,320 Speaker 3: sector with your plan. That is a good takeaway, And 535 00:33:47,360 --> 00:33:52,560 Speaker 3: the second takeaway is that there is tremendous economic opportunity 536 00:33:52,680 --> 00:33:55,640 Speaker 3: in the new clean energy future and if we don't 537 00:33:55,760 --> 00:33:59,520 Speaker 3: lean into that globally, then China will and we're already 538 00:33:59,520 --> 00:34:01,960 Speaker 3: seeing that. So it should be a message to all 539 00:34:02,000 --> 00:34:05,160 Speaker 3: of us that to be investing in the component parts 540 00:34:05,520 --> 00:34:10,160 Speaker 3: of a clean, efficient, reliable economic future can be a 541 00:34:10,200 --> 00:34:13,520 Speaker 3: real competitive and diplomatic advantage. By the way, this is 542 00:34:13,560 --> 00:34:16,319 Speaker 3: a good way to show leadership in the world is 543 00:34:16,360 --> 00:34:19,920 Speaker 3: to be the financing and technology partner to all of 544 00:34:19,920 --> 00:34:23,520 Speaker 3: the emerging markets that are huge markets for these new technologies. 545 00:34:23,920 --> 00:34:27,000 Speaker 1: So if you go back to McCartney's speech, then clearly 546 00:34:27,200 --> 00:34:30,680 Speaker 1: he pointed to a problem that needed to be highlighted 547 00:34:30,800 --> 00:34:33,680 Speaker 1: and given the platform to actually focus attentions and solve 548 00:34:33,680 --> 00:34:37,400 Speaker 1: a problem. But then his solution set isn't the right one. 549 00:34:37,640 --> 00:34:40,080 Speaker 1: Now McCartney is in government, he is the Prime Minister 550 00:34:40,120 --> 00:34:43,799 Speaker 1: of Canada, and what we've seen is he is continuing 551 00:34:43,840 --> 00:34:47,600 Speaker 1: to think of his solution set as the logical outcome. 552 00:34:47,920 --> 00:34:51,480 Speaker 1: So on this podcast, we had a minister from Karnie's 553 00:34:51,760 --> 00:34:54,440 Speaker 1: cabinet who resigned as a result of a deal that 554 00:34:54,520 --> 00:34:57,520 Speaker 1: he signed with Alberta, the state that produces most of 555 00:34:57,520 --> 00:35:01,160 Speaker 1: the oil and gas in Canada, and as part of 556 00:35:01,200 --> 00:35:05,600 Speaker 1: that logic of signing that deal, which you know, I 557 00:35:05,680 --> 00:35:08,279 Speaker 1: hopelessness can go back and look at the details of 558 00:35:08,440 --> 00:35:12,319 Speaker 1: but the logic was, look, governments are not in this 559 00:35:12,440 --> 00:35:16,960 Speaker 1: case Alberta not ready to invest in green solutions, but 560 00:35:17,239 --> 00:35:21,239 Speaker 1: Marconi things, because clean energy has become cheaper, markets will 561 00:35:21,280 --> 00:35:24,960 Speaker 1: do so. And so his logic here now is because 562 00:35:25,000 --> 00:35:27,200 Speaker 1: the politics is not there, We're going to let the 563 00:35:27,320 --> 00:35:31,120 Speaker 1: markets do the bidding. But you're saying no, Actually, for 564 00:35:31,239 --> 00:35:34,799 Speaker 1: a lot of this, we still need government solutions. We 565 00:35:34,840 --> 00:35:37,640 Speaker 1: still need government support, We still need public finance, even 566 00:35:37,680 --> 00:35:40,719 Speaker 1: if it doesn't come from a national government. Are we 567 00:35:40,760 --> 00:35:43,480 Speaker 1: concluding in twenty twenty six then that really let's go 568 00:35:43,560 --> 00:35:47,920 Speaker 1: back to the board and get the politics of supporting 569 00:35:47,960 --> 00:35:52,480 Speaker 1: climate action right, because that is the only way we 570 00:35:52,600 --> 00:35:55,520 Speaker 1: actually solve this problem and make it in a place 571 00:35:55,600 --> 00:35:58,960 Speaker 1: where all of these technologies make our lives better regardless 572 00:35:58,960 --> 00:36:01,200 Speaker 1: of climate anyway. 573 00:36:00,400 --> 00:36:03,040 Speaker 3: I think the takeaway for twenty twenty six is that 574 00:36:03,800 --> 00:36:08,360 Speaker 3: markets follow the real economy, but there are many actors 575 00:36:08,360 --> 00:36:12,000 Speaker 3: that shape what happens in the real economy rapidly declining 576 00:36:12,200 --> 00:36:16,880 Speaker 3: technology costs that has an impact. Commitments, procurement commitments have 577 00:36:16,960 --> 00:36:21,520 Speaker 3: an impact. Collaborations among private sector participants can create markets, 578 00:36:21,760 --> 00:36:25,040 Speaker 3: but we should understand that what gets financed depends on 579 00:36:25,760 --> 00:36:31,240 Speaker 3: the real economy and when demand changes or a company 580 00:36:31,440 --> 00:36:36,200 Speaker 3: signals its commitment to procure clean energy or to procure storage, 581 00:36:36,600 --> 00:36:41,960 Speaker 3: that makes those solutions financiable. Governments absolutely should be at 582 00:36:41,960 --> 00:36:44,640 Speaker 3: the table. And by the way, governments themselves have many 583 00:36:44,640 --> 00:36:48,720 Speaker 3: different actors cities, states, even within those there are different 584 00:36:48,719 --> 00:36:52,920 Speaker 3: agencies that have different tools that they can use, green banks, utilities. 585 00:36:53,200 --> 00:36:55,840 Speaker 3: So I don't want to get too consumed by the 586 00:36:55,880 --> 00:36:59,759 Speaker 3: idea that we need to convince our leadership that is 587 00:36:59,760 --> 00:37:03,200 Speaker 3: not thinking very coherently that they, of course they could 588 00:37:03,200 --> 00:37:08,520 Speaker 3: do more, but we're not hamstrung by their lack of sanity. 589 00:37:09,320 --> 00:37:13,080 Speaker 3: We can work with other real economy actors to make 590 00:37:13,160 --> 00:37:16,400 Speaker 3: markets financible. One thing that was odd in Canada, I 591 00:37:16,480 --> 00:37:19,200 Speaker 3: have to say is that we of course understand that 592 00:37:19,239 --> 00:37:24,120 Speaker 3: it's mandates and these procurements that make the markets. At 593 00:37:24,120 --> 00:37:25,719 Speaker 3: the same time as saying we're going to let the 594 00:37:25,800 --> 00:37:29,920 Speaker 3: markets solve it. Prime Minister Carney also rolled back, for instance, 595 00:37:29,960 --> 00:37:33,440 Speaker 3: the EV mandate and the tools that were in place 596 00:37:33,520 --> 00:37:39,600 Speaker 3: that would have shaped the demand. That is incoherent. Actually, 597 00:37:39,760 --> 00:37:43,200 Speaker 3: because the way that you shape and said, then you 598 00:37:43,239 --> 00:37:45,160 Speaker 3: know there's going to be a demand for fossil fuel 599 00:37:45,160 --> 00:37:47,919 Speaker 3: for years to come, Well, yes, if you aren't using 600 00:37:47,920 --> 00:37:51,160 Speaker 3: your real economy tools to shape that demand. That is 601 00:37:51,200 --> 00:37:54,439 Speaker 3: another fallacy in this climate debate is that the way 602 00:37:54,480 --> 00:37:57,359 Speaker 3: that we decrease the demand for fossil fuels is by 603 00:37:57,400 --> 00:38:01,799 Speaker 3: decarbonizing the sectors that use them. Why he rolled back 604 00:38:01,840 --> 00:38:05,279 Speaker 3: the mandates that would have had that effect while saying well, 605 00:38:05,560 --> 00:38:08,680 Speaker 3: oil's here to stay. That was the most incoherent part 606 00:38:08,719 --> 00:38:08,920 Speaker 3: to me. 607 00:38:09,400 --> 00:38:11,960 Speaker 1: So in trying to give agency to trying to tackle 608 00:38:12,000 --> 00:38:15,480 Speaker 1: problems of climate change, there are three big actors. There's governments, 609 00:38:15,600 --> 00:38:20,279 Speaker 1: there's private industry, and then there's individuals. Individuals have the 610 00:38:20,360 --> 00:38:23,000 Speaker 1: least agency in this fight. But if you look at 611 00:38:23,080 --> 00:38:27,520 Speaker 1: governments and finance, what you're saying is on accountability, you 612 00:38:27,600 --> 00:38:30,320 Speaker 1: really need to look at net zero targets and climate 613 00:38:30,360 --> 00:38:33,640 Speaker 1: goals and mandates and policies toward the government, and you 614 00:38:33,680 --> 00:38:35,640 Speaker 1: should hold them to account and you should create the 615 00:38:35,680 --> 00:38:39,400 Speaker 1: politics that enables that. But when it comes to private sector, 616 00:38:39,520 --> 00:38:43,360 Speaker 1: whether that's finance or business trying to hold them accountable 617 00:38:43,360 --> 00:38:46,080 Speaker 1: to net zero? Is there a wrong idea, But you 618 00:38:46,120 --> 00:38:49,200 Speaker 1: should hold them to account for what kind of future 619 00:38:49,560 --> 00:38:53,160 Speaker 1: that they as companies are trying to make money from. 620 00:38:53,600 --> 00:38:57,480 Speaker 1: Is that future a green future which will help the world, 621 00:38:57,880 --> 00:39:01,759 Speaker 1: or is that a future that is making everybody's lives worse? 622 00:39:02,160 --> 00:39:03,640 Speaker 1: Is that the best summation of. 623 00:39:03,680 --> 00:39:05,560 Speaker 3: How to take I think it's a very good one. 624 00:39:05,600 --> 00:39:07,560 Speaker 3: But I'm going to give a summation that is even 625 00:39:07,600 --> 00:39:10,440 Speaker 3: more a moral even though I am the try to 626 00:39:10,440 --> 00:39:13,279 Speaker 3: be the most principled person, but I think that we 627 00:39:13,320 --> 00:39:16,799 Speaker 3: can solve this even without expecting the private sector to 628 00:39:16,920 --> 00:39:20,239 Speaker 3: have any morality to it. My summation would be that 629 00:39:20,640 --> 00:39:23,960 Speaker 3: there really are risks to be managed. We should manage 630 00:39:24,000 --> 00:39:27,640 Speaker 3: those risks, but not assume that managing those risks is 631 00:39:27,680 --> 00:39:30,840 Speaker 3: going to necessarily it won't on its own lead to 632 00:39:30,880 --> 00:39:34,360 Speaker 3: new solutions. So let's first of all, stop talking about 633 00:39:34,520 --> 00:39:37,719 Speaker 3: climate as a financial risk as a solution set. It 634 00:39:37,760 --> 00:39:40,000 Speaker 3: is a financial risk, and we should be aware of that, 635 00:39:40,320 --> 00:39:43,080 Speaker 3: better accounting for it, and better managing it throughout the 636 00:39:43,120 --> 00:39:46,880 Speaker 3: real economy and the financial sector. On the real economy side, 637 00:39:47,280 --> 00:39:50,280 Speaker 3: what you said, by the way, is right. Our livable 638 00:39:50,320 --> 00:39:55,120 Speaker 3: future also now is increasingly, if not already the most 639 00:39:55,160 --> 00:39:59,880 Speaker 3: compelling affordable solution already. That's going to create massive investment 640 00:40:00,040 --> 00:40:06,080 Speaker 3: opportunities where it's not already financible or already the most competitive. 641 00:40:06,520 --> 00:40:09,920 Speaker 3: There are many tools in our toolkits, at different levels 642 00:40:09,920 --> 00:40:13,000 Speaker 3: of government, in different parts of the private sector, through collaboration, 643 00:40:13,239 --> 00:40:19,080 Speaker 3: through procurement commitments, we have many tools to address the risks, 644 00:40:19,120 --> 00:40:22,440 Speaker 3: the perceived risks that make these not financible. What I 645 00:40:22,480 --> 00:40:25,160 Speaker 3: would say to the private sector and the financial sector 646 00:40:25,320 --> 00:40:28,279 Speaker 3: is help be a part of these solution sets. That's 647 00:40:28,320 --> 00:40:31,239 Speaker 3: not even a cost, that's not a cost. If you 648 00:40:31,400 --> 00:40:34,200 Speaker 3: can come to the table and help us think how 649 00:40:34,200 --> 00:40:37,440 Speaker 3: do we make these transitions financiable, you are the first 650 00:40:37,440 --> 00:40:44,359 Speaker 3: in line to benefit from these new affordable, efficient, resilient investments. 651 00:40:44,760 --> 00:40:47,200 Speaker 3: And I would rather be a leader than a lagger. 652 00:40:47,360 --> 00:40:51,080 Speaker 3: But those who lead are going to change the systems, 653 00:40:51,280 --> 00:40:53,759 Speaker 3: and those who lag are going to be part of 654 00:40:53,800 --> 00:40:56,399 Speaker 3: these nu clean systems in any event, even if they're 655 00:40:56,400 --> 00:40:58,920 Speaker 3: going to have higher costs in retrofitting and so on. 656 00:40:59,400 --> 00:41:02,600 Speaker 3: So I believe that if we lean into creating the 657 00:41:02,680 --> 00:41:05,760 Speaker 3: markets that are ultimately in all of our collective interest. 658 00:41:05,840 --> 00:41:08,640 Speaker 3: We can do that without expecting any institution to be 659 00:41:09,400 --> 00:41:13,200 Speaker 3: moral or to believe in some future that is not 660 00:41:13,320 --> 00:41:16,520 Speaker 3: in their self interest. We're just trying to come together 661 00:41:16,640 --> 00:41:24,759 Speaker 3: to create a financible, new, efficient, resilient, clean system economy 662 00:41:24,840 --> 00:41:25,440 Speaker 3: for all of us. 663 00:41:25,960 --> 00:41:34,520 Speaker 1: Thank you, Lisa, Thank you so much, and thank you 664 00:41:34,600 --> 00:41:37,160 Speaker 1: for listening to zero. Now for the sound of the week. 665 00:41:43,560 --> 00:41:46,880 Speaker 1: That is the sound of chickpeas being roasted. As coffee 666 00:41:46,920 --> 00:41:51,000 Speaker 1: prices rise globally mainly because of climate change, many companies 667 00:41:51,120 --> 00:41:53,719 Speaker 1: are looking to one hundred year old recipes to make 668 00:41:53,800 --> 00:41:57,440 Speaker 1: coffee alternatives, and roasted chickpea powder is one of the 669 00:41:57,600 --> 00:42:01,160 Speaker 1: ingredients for those alternatives. Read the full article linked in 670 00:42:01,200 --> 00:42:04,279 Speaker 1: the show notes. If you liked this episode, please take 671 00:42:04,320 --> 00:42:07,480 Speaker 1: a moment to rate and review the show on Apple Podcasts, Spotify, 672 00:42:07,600 --> 00:42:11,400 Speaker 1: and YouTube. This episode was produced by Oscar boyd Our. 673 00:42:11,440 --> 00:42:14,840 Speaker 1: Theme music is composed by Wonderly Special. Thanks to Alistair 674 00:42:14,840 --> 00:42:19,400 Speaker 1: marsh Samarsadi Mosses Andim Laura Milan and Sharon chen I 675 00:42:19,440 --> 00:42:20,320 Speaker 1: am Akshadrati. 676 00:42:20,560 --> 00:42:21,320 Speaker 3: Back soon.