1 00:00:00,240 --> 00:00:03,800 Speaker 1: Welcome to zero I am Aksha Tarti this week. How 2 00:00:03,800 --> 00:00:19,759 Speaker 1: to unblock the private money taps. The world is pouring 3 00:00:19,800 --> 00:00:23,239 Speaker 1: money into the clean energy transition at an unprecedented rate. 4 00:00:23,840 --> 00:00:26,200 Speaker 1: Last year, more than two trillion dollars was invested in 5 00:00:26,239 --> 00:00:30,280 Speaker 1: low carbon technologies, according to bloombergenf Over half of that 6 00:00:30,480 --> 00:00:34,600 Speaker 1: went into renewable energy and grid infrastructure. Another third went 7 00:00:34,640 --> 00:00:39,040 Speaker 1: into electric cars. This year, those investments might slow down 8 00:00:39,080 --> 00:00:42,000 Speaker 1: in the US, but the signs remained bullish in other 9 00:00:42,080 --> 00:00:45,640 Speaker 1: parts of the world. In developed countries, the private sector 10 00:00:45,760 --> 00:00:48,479 Speaker 1: is leading the charge, with hundreds of billions of dollars 11 00:00:48,600 --> 00:00:52,160 Speaker 1: each year flowing to profitable clean tech opportunities and large 12 00:00:52,200 --> 00:00:56,160 Speaker 1: scale projects. Meanwhile, only a tiny trickle of private capital 13 00:00:56,200 --> 00:00:59,880 Speaker 1: goes to developing countries, with investors scared off by unfamiliar, 14 00:01:00,680 --> 00:01:04,679 Speaker 1: volatile exchange rates, and markets that at times seem too risky. 15 00:01:05,560 --> 00:01:08,360 Speaker 1: At COP twenty nine in November last year, all countries, 16 00:01:08,560 --> 00:01:11,120 Speaker 1: even the US, agreed to triple the money that goes 17 00:01:11,160 --> 00:01:14,440 Speaker 1: from rich countries to poor countries, reaching three hundred billion 18 00:01:14,480 --> 00:01:18,759 Speaker 1: dollars annually by twenty thirty five. But the United Nations 19 00:01:18,800 --> 00:01:21,440 Speaker 1: experts have found that the finance gap is closer to 20 00:01:21,640 --> 00:01:25,960 Speaker 1: one point three trillion dollars each year. The upcoming COP 21 00:01:26,000 --> 00:01:29,080 Speaker 1: thirty presidency is working on a roadmap that will hopefully 22 00:01:29,160 --> 00:01:32,240 Speaker 1: fill that void. And while we don't have the specifics yet, 23 00:01:32,520 --> 00:01:34,840 Speaker 1: we know that most of that gap will have to 24 00:01:34,880 --> 00:01:37,679 Speaker 1: be filled by the private sector. So how do we 25 00:01:37,800 --> 00:01:41,759 Speaker 1: unlock private capital for developing nations where clean energy investments 26 00:01:41,800 --> 00:01:45,640 Speaker 1: are most needed. For this episode of Moving Money, we're 27 00:01:45,680 --> 00:01:49,360 Speaker 1: welcoming back avin Ashbasod, special advisor on climate risks to 28 00:01:49,480 --> 00:01:53,400 Speaker 1: the President of the Inter American Development Bank. In this episode, 29 00:01:53,480 --> 00:01:56,080 Speaker 1: he shares his ideas on how to de risk investments, 30 00:01:56,240 --> 00:02:05,840 Speaker 1: attract private capital, and accelerate the clean energy transition globally. Avinash, 31 00:02:06,000 --> 00:02:07,040 Speaker 1: welcome back to the show. 32 00:02:07,320 --> 00:02:07,640 Speaker 2: Thank you. 33 00:02:07,720 --> 00:02:10,640 Speaker 1: Actually, when we typically talk about climate finance, we end 34 00:02:10,720 --> 00:02:13,760 Speaker 1: up talking about rich countries versus poor countries. But there 35 00:02:13,919 --> 00:02:16,919 Speaker 1: is a third group that we don't consider often, which 36 00:02:17,040 --> 00:02:20,200 Speaker 1: is private industry. One of the things that you have 37 00:02:21,240 --> 00:02:24,240 Speaker 1: suggested could be a solution for getting private investors to 38 00:02:24,320 --> 00:02:28,919 Speaker 1: invest in developing countries is to get a currency exchange guarantee, 39 00:02:29,200 --> 00:02:33,200 Speaker 1: because rich investors with dollars or pound don't find it 40 00:02:33,240 --> 00:02:35,839 Speaker 1: as attractive to invest in a roupe year rand, which 41 00:02:35,880 --> 00:02:39,480 Speaker 1: is fluctuating quite a lot. But if you could provide 42 00:02:39,600 --> 00:02:43,399 Speaker 1: a funding guarantee that would ensure that that exchange rate 43 00:02:43,520 --> 00:02:47,440 Speaker 1: is fixed, then that could be a much more attractive proposition. 44 00:02:47,880 --> 00:02:49,800 Speaker 1: Now that was just an idea when we talked about 45 00:02:49,840 --> 00:02:52,839 Speaker 1: it last time around on this podcast. You've actually put 46 00:02:52,840 --> 00:02:55,639 Speaker 1: it into action. Tell me more about how it's working. 47 00:02:56,080 --> 00:02:58,800 Speaker 3: So yes, indeed, we launched with the Government of Brazil, 48 00:02:59,240 --> 00:03:04,200 Speaker 3: Ministry finals and the Central Bank a FX liquidity facility. 49 00:03:04,360 --> 00:03:09,280 Speaker 3: It's just started. We're looking for investors, but the platform 50 00:03:09,360 --> 00:03:12,560 Speaker 3: is established. Now let me just make one step backwards. 51 00:03:12,600 --> 00:03:15,800 Speaker 3: I think you described this very well. We have a 52 00:03:15,840 --> 00:03:20,920 Speaker 3: trillion dollar target, maybe six hundred seven hundred billion of 53 00:03:20,919 --> 00:03:24,400 Speaker 3: that one trillion, so sixty or seventy percent could come 54 00:03:24,440 --> 00:03:29,120 Speaker 3: from the private sector investing in things that generates a revenue, 55 00:03:29,240 --> 00:03:32,600 Speaker 3: most of which looks like mitigation. So the farmers make money, 56 00:03:32,680 --> 00:03:36,840 Speaker 3: hydroelectric power stations make money. Now they're actually the private 57 00:03:36,880 --> 00:03:40,240 Speaker 3: sector is doing this in rich countries. Eighty one percent 58 00:03:40,760 --> 00:03:44,280 Speaker 3: of mitigation is funded by the private sector in rich countries. 59 00:03:44,440 --> 00:03:46,960 Speaker 3: So it's not like this is something that can't be 60 00:03:47,120 --> 00:03:51,160 Speaker 3: funded commercially and you got to blend it with public money. 61 00:03:51,200 --> 00:03:55,240 Speaker 3: It's being funded, it's commercially viable stuff, but it's not 62 00:03:55,320 --> 00:04:00,960 Speaker 3: happening in developing countries because the private investors feel that 63 00:04:01,120 --> 00:04:05,680 Speaker 3: the country risk, the currency risk, not something they're experts in, 64 00:04:06,200 --> 00:04:09,640 Speaker 3: is large and they don't have an ability to absorb 65 00:04:09,760 --> 00:04:14,040 Speaker 3: that risk very well, and so they stay away. 66 00:04:14,320 --> 00:04:14,920 Speaker 2: At the moment. 67 00:04:15,040 --> 00:04:18,640 Speaker 3: What happens is there's a bit of a market structure 68 00:04:18,760 --> 00:04:23,760 Speaker 3: problem in finance. So, as your listeners will know today, 69 00:04:24,400 --> 00:04:28,279 Speaker 3: investors don't say they will find the best investments in 70 00:04:28,320 --> 00:04:31,400 Speaker 3: the world. They've all been specialized. So you go to 71 00:04:31,520 --> 00:04:35,359 Speaker 3: a global infrastructure fund or a global energy fund or 72 00:04:35,440 --> 00:04:39,719 Speaker 3: global renewables fund, and that fund sells to its investors 73 00:04:40,360 --> 00:04:43,400 Speaker 3: that they're experts in this sector. They don't say, oh, 74 00:04:43,560 --> 00:04:48,800 Speaker 3: we're experts in currencies, we're experts in hedging. They say 75 00:04:48,800 --> 00:04:52,440 Speaker 3: we're experts in infrastructure, and that's why they get the money. 76 00:04:52,480 --> 00:04:55,080 Speaker 3: So then they say, all these other risks we are 77 00:04:55,080 --> 00:04:57,600 Speaker 3: going to farm out to somebody else, And so they 78 00:04:57,600 --> 00:05:00,320 Speaker 3: go to the banks, and the banks say currency risk 79 00:05:00,640 --> 00:05:04,039 Speaker 3: in Brazil for twenty five years for your solo farm. 80 00:05:04,240 --> 00:05:06,800 Speaker 3: The problem is that's long term and the banks are 81 00:05:06,800 --> 00:05:11,720 Speaker 3: short term. The problem is Brazil is highly pro cyclical. 82 00:05:12,000 --> 00:05:15,560 Speaker 3: When in the upcycle many emojory markets are doing well, 83 00:05:15,680 --> 00:05:19,480 Speaker 3: so are the banks. But in the downcycle, all of 84 00:05:19,520 --> 00:05:24,320 Speaker 3: these risks collide together. The countries have a bad time, 85 00:05:24,560 --> 00:05:27,039 Speaker 3: the banks have a bad time. So the banks know this, 86 00:05:27,160 --> 00:05:29,560 Speaker 3: and they're saying, well, you know when you need money, 87 00:05:29,680 --> 00:05:31,680 Speaker 3: when I need money, so I'm going to charge you 88 00:05:32,640 --> 00:05:35,720 Speaker 3: a lot for me providing you a guarantee on the 89 00:05:35,720 --> 00:05:40,160 Speaker 3: currency side. So we've come in, we being the Inter 90 00:05:40,200 --> 00:05:44,159 Speaker 3: American Develoment Bank and part of the Multilateral Development Bank 91 00:05:44,240 --> 00:05:48,440 Speaker 3: system and saying, well, we've got a triple A rating 92 00:05:49,320 --> 00:05:51,880 Speaker 3: and we need to make sure we're using the benefits 93 00:05:51,920 --> 00:05:53,880 Speaker 3: of that triple A rating. And one of the benefits 94 00:05:53,920 --> 00:05:57,919 Speaker 3: of that is in the downcycle, when people are fleeing risk, 95 00:05:58,480 --> 00:06:02,640 Speaker 3: they're flying into our instruments because they're looking for safety, 96 00:06:02,640 --> 00:06:05,599 Speaker 3: and we represent safety. So that's a perfect time for 97 00:06:05,760 --> 00:06:10,760 Speaker 3: us to lend to renewable energy projects the dollars they 98 00:06:10,760 --> 00:06:11,680 Speaker 3: may need. 99 00:06:11,400 --> 00:06:12,600 Speaker 2: To pay their investors. 100 00:06:13,120 --> 00:06:18,039 Speaker 3: So our commitment to lend dollars to good projects when 101 00:06:18,080 --> 00:06:19,600 Speaker 3: they need in the down. 102 00:06:19,480 --> 00:06:21,240 Speaker 2: Cycle means that they don't. 103 00:06:21,600 --> 00:06:23,760 Speaker 3: They no longer need to go to the banks and 104 00:06:23,800 --> 00:06:27,640 Speaker 3: ask for expensive hedging. They've got this pre commitment and 105 00:06:27,839 --> 00:06:30,880 Speaker 3: we are lending, you know, only in the down cycle 106 00:06:31,000 --> 00:06:34,200 Speaker 3: when people are coming to us anyway, and we are 107 00:06:34,279 --> 00:06:38,400 Speaker 3: picking the right projects, we're picking the right countries, and 108 00:06:38,440 --> 00:06:41,240 Speaker 3: so we've limited our risks. So we've launched that with 109 00:06:41,360 --> 00:06:44,440 Speaker 3: a backing of five point two billion dollars. So this 110 00:06:44,520 --> 00:06:47,560 Speaker 3: isn't a five million dollar pilot. This is a serious 111 00:06:47,760 --> 00:06:50,640 Speaker 3: Some serious money is behind this, and we're working with 112 00:06:50,680 --> 00:06:53,839 Speaker 3: some new investors on potentially coming in. Some of the 113 00:06:53,839 --> 00:06:57,839 Speaker 3: investments are actually not things we expected as an interesting 114 00:06:58,240 --> 00:07:01,840 Speaker 3: biodiversity type investment. So that is looking at the waste 115 00:07:01,839 --> 00:07:08,640 Speaker 3: products of sugar cane processes. Those byproducts are currently poured 116 00:07:08,680 --> 00:07:12,040 Speaker 3: into the rivers and the sea, creating all kinds of pollution, 117 00:07:12,440 --> 00:07:14,600 Speaker 3: and they could be turned into something more useful than 118 00:07:14,600 --> 00:07:18,120 Speaker 3: where we're working with one investor on that, and they're 119 00:07:18,120 --> 00:07:21,000 Speaker 3: a foreign investor and they are looking at the need 120 00:07:21,320 --> 00:07:24,320 Speaker 3: to not have to hedge the foreign exchange of that investment. 121 00:07:24,760 --> 00:07:28,040 Speaker 1: And then another idea that you are currently working on 122 00:07:28,160 --> 00:07:32,160 Speaker 1: haven't yet launched, is to figure out how foreign investors 123 00:07:32,160 --> 00:07:35,680 Speaker 1: can go into developing countries, but perhaps not directly down 124 00:07:35,720 --> 00:07:40,560 Speaker 1: to the project level, but perhaps through local banks, because 125 00:07:40,600 --> 00:07:42,960 Speaker 1: you're right, right now, most of the money that is 126 00:07:43,000 --> 00:07:46,600 Speaker 1: going in the energy transition on reducing emissions is going 127 00:07:46,640 --> 00:07:49,600 Speaker 1: in rich countries, whereas most of the money that we 128 00:07:49,760 --> 00:07:52,640 Speaker 1: need needs to go in developing countries, and so we 129 00:07:52,720 --> 00:07:55,720 Speaker 1: need to solve that problem. How exactly is it that 130 00:07:55,800 --> 00:07:59,200 Speaker 1: going to banks will make that happen rather than going 131 00:07:59,240 --> 00:08:00,240 Speaker 1: directly to project. 132 00:08:00,800 --> 00:08:03,760 Speaker 3: One of the things I've enjoyed about getting older is 133 00:08:03,800 --> 00:08:05,800 Speaker 3: a realization of what matters. 134 00:08:05,520 --> 00:08:07,440 Speaker 2: Is listening rather than speaking. 135 00:08:07,920 --> 00:08:12,040 Speaker 3: When I was thirty years younger, I used to think, 136 00:08:12,240 --> 00:08:14,520 Speaker 3: you know, the triumph of a meeting was I spoke 137 00:08:14,640 --> 00:08:17,560 Speaker 3: all the time. And now I realize you have to 138 00:08:17,640 --> 00:08:20,280 Speaker 3: listen all the time. And so I'm listening to all 139 00:08:20,320 --> 00:08:22,720 Speaker 3: these people who say, oh, I would love to invest 140 00:08:22,760 --> 00:08:25,920 Speaker 3: in emerging markets, I'd love to invest in climate, I'd 141 00:08:25,920 --> 00:08:29,280 Speaker 3: love to invest in biodiversity. But the risks are the 142 00:08:29,360 --> 00:08:32,320 Speaker 3: risks of going here, and the risks of will I 143 00:08:32,360 --> 00:08:36,160 Speaker 3: get the permit, will I be able to construct, will 144 00:08:36,200 --> 00:08:38,120 Speaker 3: I get all of these things. I'm listening to this 145 00:08:38,200 --> 00:08:40,880 Speaker 3: and thinking, hmm, okay, how do we come up with 146 00:08:41,160 --> 00:08:44,080 Speaker 3: ways of the risking? And then I'm looking at some 147 00:08:44,200 --> 00:08:47,240 Speaker 3: numbers and I realized, well, the banks in Latin America 148 00:08:48,480 --> 00:08:53,800 Speaker 3: own around thirty to forty billion dollars of assets today 149 00:08:54,640 --> 00:08:59,000 Speaker 3: on their balance sheets, they've leant thirty to forty billion 150 00:08:59,040 --> 00:09:05,400 Speaker 3: dollars in projects that are actually producing a revenue. So 151 00:09:05,720 --> 00:09:08,959 Speaker 3: the best thing for foreign investors to do is to 152 00:09:09,080 --> 00:09:13,040 Speaker 3: buy those things that are ready there. They're ready performing, 153 00:09:13,200 --> 00:09:17,160 Speaker 3: They don't need to deal with permitting risk, construction risk. 154 00:09:17,800 --> 00:09:23,880 Speaker 3: These are instruments already performing. Now it seems less sexy 155 00:09:24,200 --> 00:09:28,720 Speaker 3: to be buying something that's already there. There's no origination pioneer. 156 00:09:29,240 --> 00:09:31,000 Speaker 3: But so what we say is, okay, we're going to 157 00:09:31,040 --> 00:09:35,040 Speaker 3: create a fund that will buy the performing assets in 158 00:09:35,080 --> 00:09:40,560 Speaker 3: the banks today, but at a premium, on condition that 159 00:09:40,640 --> 00:09:44,120 Speaker 3: the banks reinvest the money that they've got from selling 160 00:09:44,200 --> 00:09:48,120 Speaker 3: their loans into the same sector. So this allows us 161 00:09:48,160 --> 00:09:51,720 Speaker 3: to do is to double the investment very quickly. And 162 00:09:51,760 --> 00:09:53,480 Speaker 3: the way to think about this is it's a little 163 00:09:53,520 --> 00:09:55,840 Speaker 3: bit like, you know, I'm an economist that I know 164 00:09:55,920 --> 00:09:59,200 Speaker 3: no actual science, so it's always a marvel when I 165 00:09:59,240 --> 00:10:02,959 Speaker 3: discover something hid like fluid mechanics. So you know, you 166 00:10:03,600 --> 00:10:07,559 Speaker 3: get you get the water going uphill by creating a vacuum, 167 00:10:07,679 --> 00:10:10,560 Speaker 3: you get water going uphill in a pipe by creating 168 00:10:10,559 --> 00:10:12,240 Speaker 3: a vacuum at the top. So what we'll be doing 169 00:10:12,320 --> 00:10:15,360 Speaker 3: is creating a vacuum at the top. We're moving all 170 00:10:15,360 --> 00:10:19,920 Speaker 3: of the loans, existing loans of performing renewable energy projects, 171 00:10:20,320 --> 00:10:23,880 Speaker 3: creating this vacuum at the top, allowing the same banks 172 00:10:23,880 --> 00:10:26,439 Speaker 3: that originated the first loan to go out looking for another. 173 00:10:26,679 --> 00:10:28,680 Speaker 3: And the reason why this is important actually that is 174 00:10:28,679 --> 00:10:31,319 Speaker 3: the banks are saying in Latin America and in India 175 00:10:31,360 --> 00:10:33,960 Speaker 3: another place where the banks have a lot of these acids, 176 00:10:34,679 --> 00:10:37,800 Speaker 3: we've done this, it's fine, but we're now running out 177 00:10:37,800 --> 00:10:41,520 Speaker 3: of runway to do any more. We're you know, we've 178 00:10:41,559 --> 00:10:45,200 Speaker 3: got concentration limits, We've got a limited amount of savings 179 00:10:45,280 --> 00:10:49,079 Speaker 3: there is. And so by coming in and creating that vacuum, 180 00:10:49,559 --> 00:10:51,920 Speaker 3: we're giving them the space to do more as well 181 00:10:51,960 --> 00:10:54,960 Speaker 3: as the need to do more. And so I think 182 00:10:54,960 --> 00:10:57,200 Speaker 3: that's a way in which we can go from thirty 183 00:10:57,200 --> 00:11:01,240 Speaker 3: billion dollars invested in renewables in Latin America to sixty 184 00:11:01,280 --> 00:11:03,760 Speaker 3: billion in a couple of years, and then one hundred 185 00:11:03,760 --> 00:11:05,520 Speaker 3: and twenty billion in a couple of years time, and 186 00:11:06,000 --> 00:11:08,520 Speaker 3: two hundred and forty billion in a few years after that. 187 00:11:08,640 --> 00:11:11,160 Speaker 3: So I think that that is a way that we 188 00:11:11,200 --> 00:11:14,480 Speaker 3: can really accelerate. You have all of these ideas about 189 00:11:14,800 --> 00:11:19,160 Speaker 3: accelerating in brand new projects, in brand new logations that 190 00:11:19,320 --> 00:11:22,480 Speaker 3: investors have never been before, and the reality is they're 191 00:11:22,559 --> 00:11:23,600 Speaker 3: too afraid to go. 192 00:11:23,840 --> 00:11:27,480 Speaker 1: Trying to invest in performing assets is exactly what finance does. 193 00:11:27,760 --> 00:11:30,200 Speaker 1: And so why is it that you have to come 194 00:11:30,280 --> 00:11:33,360 Speaker 1: up with this idea and why isn't finance already doing it? 195 00:11:33,679 --> 00:11:37,480 Speaker 3: We are quite right, ninety seven percent of finance is 196 00:11:37,800 --> 00:11:44,040 Speaker 3: refinancing something that it's a sad reality, and finance loves 197 00:11:44,080 --> 00:11:48,240 Speaker 3: to refinance and refinance over and over again. So I 198 00:11:48,240 --> 00:11:50,920 Speaker 3: actually think that we when we get this fund up 199 00:11:50,920 --> 00:11:53,200 Speaker 3: and running, people are going to come to it. Now, 200 00:11:53,520 --> 00:11:55,800 Speaker 3: the reality is today someone has to do this hard 201 00:11:55,840 --> 00:11:59,960 Speaker 3: work because these loans, you know, they're not defined as renewable. 202 00:12:00,160 --> 00:12:02,400 Speaker 3: So some of that to go round, go into these 203 00:12:02,440 --> 00:12:05,120 Speaker 3: bank ballot sheets and say here's the thing that I'm 204 00:12:05,120 --> 00:12:09,280 Speaker 3: prepared to buy and filter them out and one fund 205 00:12:09,320 --> 00:12:12,960 Speaker 3: that needs to do us At the moment, there is 206 00:12:13,080 --> 00:12:16,720 Speaker 3: no capital market in which this is happening in these countries, 207 00:12:16,920 --> 00:12:19,000 Speaker 3: But I'm going to take it to a capital market 208 00:12:19,440 --> 00:12:23,040 Speaker 3: in which would want that an international capital market that 209 00:12:23,080 --> 00:12:25,840 Speaker 3: I'm not going to have a portfolio of performing loans 210 00:12:26,120 --> 00:12:29,360 Speaker 3: in a wide variety of countries in renewable energies. I 211 00:12:29,480 --> 00:12:33,640 Speaker 3: believe we'd be able to package that into an instrument 212 00:12:34,040 --> 00:12:38,320 Speaker 3: that the investors in the capital markets internationally will want. 213 00:12:38,480 --> 00:12:40,960 Speaker 3: And if I can then sell on the loans that 214 00:12:41,000 --> 00:12:45,320 Speaker 3: I have bought, having packaged them into nice packages that 215 00:12:45,360 --> 00:12:48,120 Speaker 3: investors are looking for with the right degree of diversification 216 00:12:48,360 --> 00:12:52,120 Speaker 3: and the right degree of spread of credit, I will 217 00:12:52,120 --> 00:12:56,080 Speaker 3: then have money that could go and reinvest by buying 218 00:12:56,120 --> 00:12:58,400 Speaker 3: some new loans. And so we do think that this 219 00:12:58,520 --> 00:13:03,239 Speaker 3: has scalability because I think my first point of departure 220 00:13:03,559 --> 00:13:05,680 Speaker 3: in this space a few years ago with the bridge 221 00:13:05,720 --> 00:13:09,160 Speaker 3: shown initiative, was about how do we move the needle. 222 00:13:09,320 --> 00:13:14,440 Speaker 3: There's no shortage of clever, small ideas. How do we 223 00:13:14,480 --> 00:13:17,640 Speaker 3: come up with a small number of big ideas that. 224 00:13:17,679 --> 00:13:18,360 Speaker 2: Move the needle? 225 00:13:23,320 --> 00:13:26,280 Speaker 1: After the break, can carbon markets become the big idea 226 00:13:26,360 --> 00:13:29,200 Speaker 1: to move the needle? Or are they forever stuck in 227 00:13:29,240 --> 00:13:32,520 Speaker 1: the doldrums. By the way, if you've been enjoying this episode, 228 00:13:32,559 --> 00:13:34,640 Speaker 1: please take a moment to rate and review the show 229 00:13:34,800 --> 00:13:38,400 Speaker 1: on Apple Podcasts and Spotify. It helps other listeners find 230 00:13:38,440 --> 00:13:52,360 Speaker 1: the show. So we've talked so far about currency exchange 231 00:13:52,360 --> 00:13:56,079 Speaker 1: guarantees as an idea trying to get loan portfolios in 232 00:13:56,120 --> 00:13:59,960 Speaker 1: developing countries sold to international investors and freeing up care 233 00:14:00,000 --> 00:14:03,760 Speaker 1: capital in developing countries to do more green stuff. But 234 00:14:03,800 --> 00:14:06,960 Speaker 1: there are other private sector instruments that do exist, and 235 00:14:07,040 --> 00:14:10,679 Speaker 1: they exist at pretty large scale. So green bonds are 236 00:14:10,720 --> 00:14:15,840 Speaker 1: one where basically an investor buys into the bond which 237 00:14:15,880 --> 00:14:20,800 Speaker 1: is targeted for use in green stuff. So it could 238 00:14:20,840 --> 00:14:24,160 Speaker 1: be building a renewable energy project, it could be building 239 00:14:24,200 --> 00:14:27,960 Speaker 1: even adaptation projects sometimes are funded by green bonds, and 240 00:14:28,040 --> 00:14:31,320 Speaker 1: that's hundreds of billions of dollars on an annual basis. 241 00:14:31,920 --> 00:14:37,280 Speaker 3: Calling it green hmmm, doesn't make it green, And I 242 00:14:37,360 --> 00:14:42,840 Speaker 3: think that to me, the impact of that market, the 243 00:14:42,880 --> 00:14:47,920 Speaker 3: force of that market, is a function of how lower 244 00:14:48,360 --> 00:14:51,880 Speaker 3: is the infrast rate on that money. So I've called 245 00:14:51,920 --> 00:14:54,760 Speaker 3: something green, I'm going to use it for green purposes 246 00:14:55,000 --> 00:14:59,040 Speaker 3: and as a result, I can get money in the 247 00:14:59,080 --> 00:15:04,000 Speaker 3: marketplace at fifty basis points less one hundred basis points less, 248 00:15:04,400 --> 00:15:08,640 Speaker 3: and that's important because that means I could do more stuff, 249 00:15:08,880 --> 00:15:12,320 Speaker 3: more of this stuff. Right, The reality is the green 250 00:15:12,520 --> 00:15:19,120 Speaker 3: premium sometimes awkwardly called the gremium, is a few basis points. 251 00:15:19,680 --> 00:15:21,720 Speaker 3: And I look at that and I think that's really 252 00:15:22,280 --> 00:15:26,320 Speaker 3: two possible reasons why. Firstly, maybe people don't trust my 253 00:15:26,400 --> 00:15:30,120 Speaker 3: definition of green, and we need better definitions of green. 254 00:15:30,280 --> 00:15:32,720 Speaker 3: In economics, we're always saying that things are caused by 255 00:15:33,280 --> 00:15:36,880 Speaker 3: lack of information transparency, and so any economists hearing this 256 00:15:36,920 --> 00:15:40,240 Speaker 3: will say, ah, you have an information problem. No one 257 00:15:40,200 --> 00:15:45,280 Speaker 3: already believes that it's green. The other alternative is there 258 00:15:45,360 --> 00:15:48,920 Speaker 3: isn't a market for someone to accept a lower return 259 00:15:49,840 --> 00:15:54,440 Speaker 3: for doing something green. And I fear that that is 260 00:15:54,520 --> 00:15:57,600 Speaker 3: even more important, and that certainly seems to have been 261 00:15:57,640 --> 00:16:00,600 Speaker 3: the case in the last few years when interest rates 262 00:16:00,640 --> 00:16:01,080 Speaker 3: shut up. 263 00:16:01,280 --> 00:16:05,040 Speaker 1: And at the same time, there have been two things 264 00:16:05,040 --> 00:16:09,720 Speaker 1: that happen simultaneously. There's been backlash against ESG environmental social 265 00:16:09,760 --> 00:16:13,080 Speaker 1: governance on a political level in places like the US, 266 00:16:13,760 --> 00:16:17,360 Speaker 1: but outside the US, but there isn't a political backlash. 267 00:16:17,560 --> 00:16:20,320 Speaker 1: Investors have been moving away from ESG investments because they 268 00:16:20,320 --> 00:16:25,680 Speaker 1: can make money in just normal interest linked derivatives. 269 00:16:25,080 --> 00:16:26,440 Speaker 2: Like exactly right. 270 00:16:26,520 --> 00:16:32,640 Speaker 3: And it suggests that this issue is cyclical rather than linear, 271 00:16:33,280 --> 00:16:35,440 Speaker 3: so that there will be a time in the future, 272 00:16:35,480 --> 00:16:38,520 Speaker 3: the interest rates come down again and we should probably 273 00:16:38,560 --> 00:16:42,080 Speaker 3: issue some more more green bonds then, because, as you say, 274 00:16:42,120 --> 00:16:44,800 Speaker 3: when interest rates were very low, remember the zero interest 275 00:16:44,840 --> 00:16:47,960 Speaker 3: rate policy zup. It seems such a long time ago, 276 00:16:48,000 --> 00:16:50,880 Speaker 3: but actually only a few years ago. Then people began thinking, well, 277 00:16:50,880 --> 00:16:53,320 Speaker 3: I'm not getting much cash from my bond, I might 278 00:16:53,320 --> 00:16:55,160 Speaker 3: as well to get something else as well, right, And 279 00:16:55,280 --> 00:16:59,840 Speaker 3: so there was a whole explosion of social impact investing. 280 00:17:00,880 --> 00:17:02,560 Speaker 2: And these other instruments. 281 00:17:03,320 --> 00:17:07,120 Speaker 3: It has, as you say, really declined, and I think 282 00:17:07,160 --> 00:17:10,560 Speaker 3: that decline is because people can now get decent rates 283 00:17:10,560 --> 00:17:13,800 Speaker 3: of return and they're not bothered about getting something extra. 284 00:17:14,359 --> 00:17:16,680 Speaker 3: I think that that we're in that environment for the 285 00:17:16,720 --> 00:17:19,080 Speaker 3: next few years. I don't think going back down to zero, 286 00:17:19,119 --> 00:17:21,520 Speaker 3: but they will go back down low at some point 287 00:17:21,560 --> 00:17:24,200 Speaker 3: in the future, and we should issue those instruments again. 288 00:17:24,240 --> 00:17:28,240 Speaker 3: But it's not therefore a reliable or at the moment's 289 00:17:28,240 --> 00:17:29,159 Speaker 3: scalable solution. 290 00:17:29,480 --> 00:17:31,439 Speaker 1: Why is there a lack of demand for green bones? 291 00:17:31,960 --> 00:17:35,720 Speaker 1: Isn't it clear now with these global climate goals that 292 00:17:35,760 --> 00:17:38,760 Speaker 1: we have to be investing in these places and smart 293 00:17:38,800 --> 00:17:41,679 Speaker 1: investors try and get to the place where the trends 294 00:17:41,720 --> 00:17:43,879 Speaker 1: are where future money is to be made, and the 295 00:17:43,920 --> 00:17:45,920 Speaker 1: earlier you get in, the more money you can make. 296 00:17:46,119 --> 00:17:50,080 Speaker 3: But remember the equation here is not someone saying I'm 297 00:17:50,080 --> 00:17:53,520 Speaker 3: going to do some smart investing. I'm thinking about the 298 00:17:53,600 --> 00:17:57,159 Speaker 3: fact that in the future this thing I'm doing is 299 00:17:57,200 --> 00:17:59,440 Speaker 3: going to be valued better, It's going to be seen 300 00:17:59,480 --> 00:18:02,240 Speaker 3: as important, and therefore I will get a higher rate 301 00:18:02,240 --> 00:18:05,600 Speaker 3: of return. This equation is different. This is like saying, 302 00:18:05,640 --> 00:18:08,720 Speaker 3: accept a lower rate of return because you're doing something good, 303 00:18:09,119 --> 00:18:13,399 Speaker 3: and unfortunately, for whatever reason, that market does not seem 304 00:18:13,440 --> 00:18:16,399 Speaker 3: to be there. They're not people lining up to accept 305 00:18:16,400 --> 00:18:20,320 Speaker 3: a lower rate of return for doing good, and indeed, 306 00:18:20,400 --> 00:18:25,879 Speaker 3: in some places some pension fund trustees are being taken 307 00:18:25,920 --> 00:18:30,160 Speaker 3: to court saying that their job is to maximize rates 308 00:18:30,160 --> 00:18:31,360 Speaker 3: of return for their members. 309 00:18:31,640 --> 00:18:35,280 Speaker 1: The other idea that has been floated by clever financial 310 00:18:35,280 --> 00:18:38,680 Speaker 1: people is that green bonds as they had been defined, 311 00:18:38,760 --> 00:18:41,120 Speaker 1: because they are restricted for that money to be spent 312 00:18:41,200 --> 00:18:44,919 Speaker 1: on green activities, are perhaps a too restrictive instrument, and 313 00:18:45,000 --> 00:18:48,280 Speaker 1: perhaps that lower interest rate is not good enough. So 314 00:18:48,320 --> 00:18:52,280 Speaker 1: they created another instrument called a sustainability linked pond, where 315 00:18:52,560 --> 00:18:55,400 Speaker 1: the bond's money can be used for whatever a corporation 316 00:18:55,600 --> 00:18:58,359 Speaker 1: or a country wants it to use, except the interest 317 00:18:58,440 --> 00:19:02,840 Speaker 1: rate would be tied to the goals that the company 318 00:19:02,920 --> 00:19:08,159 Speaker 1: or the country has, and now bond investors get to 319 00:19:09,359 --> 00:19:13,119 Speaker 1: essentially drive whether the country or the company actually meets 320 00:19:13,119 --> 00:19:16,200 Speaker 1: those goals, because if it doesn't, then the interest rate 321 00:19:16,440 --> 00:19:19,479 Speaker 1: that the bond investors get paid rises and the company 322 00:19:19,520 --> 00:19:22,560 Speaker 1: or the country has to pay more. And that instrument 323 00:19:22,720 --> 00:19:25,240 Speaker 1: took off like a rocket over the past few years. 324 00:19:25,240 --> 00:19:28,280 Speaker 1: It's about one hundred million dollar market. We did an 325 00:19:28,280 --> 00:19:31,080 Speaker 1: investigation looking at how some of those goals were not 326 00:19:31,200 --> 00:19:34,639 Speaker 1: strong enough and that kind of halted the growth of 327 00:19:34,680 --> 00:19:38,280 Speaker 1: the market, but it's still a pretty robust market. All 328 00:19:38,320 --> 00:19:41,439 Speaker 1: the people I've spoken to have said fundamentally, it is 329 00:19:41,520 --> 00:19:46,360 Speaker 1: an interesting instrument, but there is an information problem that 330 00:19:46,520 --> 00:19:49,480 Speaker 1: once sorted, it will rise again. What do you think 331 00:19:49,520 --> 00:19:51,360 Speaker 1: about sustainability link ponds. 332 00:19:51,640 --> 00:19:55,240 Speaker 3: I think that, as with green bonds, there are some 333 00:19:55,280 --> 00:20:00,600 Speaker 3: people out there who are prepared to accept a or 334 00:20:00,800 --> 00:20:07,600 Speaker 3: changed interest rate based around sustainability. Government donors can be 335 00:20:07,680 --> 00:20:10,479 Speaker 3: part of that, philanthropists can be part of that, and 336 00:20:10,520 --> 00:20:14,840 Speaker 3: I believe that we need these instruments to tap that interest. 337 00:20:15,640 --> 00:20:20,800 Speaker 3: Is there a mass marketplace for that, I'm not sure. 338 00:20:21,160 --> 00:20:23,920 Speaker 3: I don't think I've seen evidence to say it is. 339 00:20:24,440 --> 00:20:27,960 Speaker 3: And in my current job at the Inter American Development Bank, 340 00:20:28,000 --> 00:20:31,879 Speaker 3: we're finding lots of opportunities to tap into a particular 341 00:20:32,000 --> 00:20:36,199 Speaker 3: donors interest and create a bond around that. So, for example, 342 00:20:36,320 --> 00:20:40,280 Speaker 3: that the current thing we're looking at is a loan 343 00:20:40,800 --> 00:20:44,120 Speaker 3: to adapt all schools in Latin America and the Caribbean 344 00:20:44,200 --> 00:20:47,600 Speaker 3: to enable them to deal with extreme heat. There's lots 345 00:20:47,600 --> 00:20:50,720 Speaker 3: of donors concerned about that. I mean, kids are not 346 00:20:50,840 --> 00:20:54,480 Speaker 3: going to be able to learn in forty degrees integrade. 347 00:20:54,480 --> 00:20:57,200 Speaker 3: It's going to have a huge impact on their future, 348 00:20:57,359 --> 00:21:02,520 Speaker 3: their potential. The American government and the British government, and 349 00:21:02,600 --> 00:21:06,240 Speaker 3: the French and German and the Qataris and others are 350 00:21:06,280 --> 00:21:10,000 Speaker 3: concerned enough about that to say, oh, I will back 351 00:21:10,040 --> 00:21:14,159 Speaker 3: an instrument that funds the change of these schools. And 352 00:21:14,200 --> 00:21:17,720 Speaker 3: once you've certified, because certification is important in all these 353 00:21:17,760 --> 00:21:21,960 Speaker 3: processes that the school has now adapted, I will pay 354 00:21:22,520 --> 00:21:27,639 Speaker 3: some interest and therefore can reduce the cost for the country. 355 00:21:27,680 --> 00:21:30,520 Speaker 3: So I think that those things. It's great that if 356 00:21:30,560 --> 00:21:34,679 Speaker 3: I can tap into a particular demand, I can do more. 357 00:21:35,080 --> 00:21:38,399 Speaker 3: But I think that is there a massive market of 358 00:21:38,640 --> 00:21:42,800 Speaker 3: ordinary retail investors who want to do that, I'm not sure. 359 00:21:43,160 --> 00:21:45,040 Speaker 3: I think also going to have some issues and we're 360 00:21:45,080 --> 00:21:52,400 Speaker 3: seeing this with debt swaps. Is the more bespoke they are, interesting, sophisticated, 361 00:21:52,960 --> 00:21:56,440 Speaker 3: the less liquid they are, and so that can mean 362 00:21:56,480 --> 00:22:00,280 Speaker 3: that they're not as helpful. And what I mean that 363 00:22:00,359 --> 00:22:03,040 Speaker 3: is that liquidity is partly about people understanding that. Right, 364 00:22:03,080 --> 00:22:06,800 Speaker 3: So I've got a marketplace and my coupon has every 365 00:22:06,840 --> 00:22:10,160 Speaker 3: single coupon in this marketplace has got some different link 366 00:22:10,440 --> 00:22:13,800 Speaker 3: based on something else, some other metric that's hard for 367 00:22:13,920 --> 00:22:18,760 Speaker 3: investors to understand, and so that reduces the potential marketplace 368 00:22:18,800 --> 00:22:21,560 Speaker 3: who are buying and selling these instruments. And if those 369 00:22:21,600 --> 00:22:24,320 Speaker 3: markets are small, they're going to have less liquidity and 370 00:22:24,400 --> 00:22:26,560 Speaker 3: be more costly. Yeah, And that sort of makes sense 371 00:22:26,600 --> 00:22:28,760 Speaker 3: to me from an equity perspective, which is a much 372 00:22:28,760 --> 00:22:32,479 Speaker 3: simpler market because you're looking at a company like Apple 373 00:22:32,600 --> 00:22:35,320 Speaker 3: and you're seeing, oh, they're going to produce a new iPhone, 374 00:22:35,359 --> 00:22:38,080 Speaker 3: and that's about the information you need because people love 375 00:22:38,240 --> 00:22:40,760 Speaker 3: a new iPhone, and so you're going to bet that 376 00:22:40,960 --> 00:22:42,639 Speaker 3: Apple's going to make more money and you buy the 377 00:22:42,640 --> 00:22:45,359 Speaker 3: stock in the price rises and you're happy. But in 378 00:22:45,400 --> 00:22:49,880 Speaker 3: these sustainability linked instruments, You're going to have to think, oh, 379 00:22:50,720 --> 00:22:55,600 Speaker 3: this Indian electric company is going to be reducing its 380 00:22:55,600 --> 00:22:59,639 Speaker 3: emissions by two hundred and fifty million tons by twenty thirty, 381 00:22:59,800 --> 00:23:02,240 Speaker 3: and that is going to be its goal. And that's 382 00:23:02,280 --> 00:23:06,240 Speaker 3: just already that is too much information for any normal 383 00:23:06,320 --> 00:23:09,280 Speaker 3: person to think about and deciding with it to sell 384 00:23:09,320 --> 00:23:13,440 Speaker 3: that bond, to buy another bond. Because there's a Korean 385 00:23:13,480 --> 00:23:16,560 Speaker 3: company who's got a similar target, but for a different 386 00:23:16,640 --> 00:23:20,160 Speaker 3: years and a different it's hard for investors to really 387 00:23:20,240 --> 00:23:23,160 Speaker 3: understand how they're getting in the best deal. To use 388 00:23:23,200 --> 00:23:25,959 Speaker 3: the power of the market to drive good deals and 389 00:23:26,000 --> 00:23:27,440 Speaker 3: good investments. 390 00:23:27,680 --> 00:23:30,800 Speaker 1: There's another private sector instrument that has got a lot 391 00:23:30,800 --> 00:23:35,080 Speaker 1: of backing at COP twenty nine. Article six rules would 392 00:23:35,080 --> 00:23:38,120 Speaker 1: agree this Article six sits under the Paris Agreement. It's 393 00:23:38,160 --> 00:23:43,720 Speaker 1: supposed to be a way for countries to trade carbon credits. 394 00:23:43,920 --> 00:23:47,600 Speaker 1: So Norway could be buying carbon credits from Indonesia and 395 00:23:47,840 --> 00:23:52,359 Speaker 1: reducing its own emissions from its balance sheet, while Indonesia, 396 00:23:52,840 --> 00:23:56,800 Speaker 1: which has many for USTs, even now gets to make 397 00:23:56,880 --> 00:24:00,879 Speaker 1: money and perhaps put it to an energy transition investment fund. 398 00:24:01,280 --> 00:24:03,800 Speaker 1: But companies could do it to a Microsoft that wants 399 00:24:03,800 --> 00:24:06,440 Speaker 1: to reach carbon negative by twenty thirty could be buying 400 00:24:06,480 --> 00:24:09,880 Speaker 1: the same forest credits from Indonesia. We've had, at least 401 00:24:09,880 --> 00:24:13,760 Speaker 1: from a corporate level, a voluntary market that has existed, 402 00:24:13,840 --> 00:24:17,400 Speaker 1: and we've covered that plenty on Bloomberg Green, but also 403 00:24:17,400 --> 00:24:20,240 Speaker 1: this podcast about how there are problems with that market. 404 00:24:20,760 --> 00:24:23,560 Speaker 1: But this new un back market was thought to be 405 00:24:23,640 --> 00:24:27,000 Speaker 1: one that will bring better rules and higher integrity and 406 00:24:27,040 --> 00:24:30,840 Speaker 1: then allow investment flows to happen, the thing that we 407 00:24:31,040 --> 00:24:34,879 Speaker 1: want trillions of dollars going to developing countries. How do 408 00:24:34,880 --> 00:24:36,200 Speaker 1: you feel about carbon markets? 409 00:24:36,640 --> 00:24:40,159 Speaker 3: In thinking a lot about the issue, I've come to 410 00:24:40,320 --> 00:24:43,199 Speaker 3: believe that there are really two things we need to 411 00:24:43,240 --> 00:24:47,639 Speaker 3: think about. One is the border and the other one 412 00:24:47,880 --> 00:24:49,119 Speaker 3: is the voluntary nature. 413 00:24:49,760 --> 00:24:56,000 Speaker 2: So within the same tax border like the. 414 00:24:55,920 --> 00:25:02,160 Speaker 3: EU, or within the same tax jurisdictional uk U, US Canada, 415 00:25:02,600 --> 00:25:09,320 Speaker 3: you can have some very substantial carbon markets which operate 416 00:25:09,440 --> 00:25:13,439 Speaker 3: with very high prices for carbon. The European market is 417 00:25:13,440 --> 00:25:18,040 Speaker 3: worth probably about eight hundred billion dollars, the US Cap 418 00:25:18,080 --> 00:25:20,919 Speaker 3: and Trade Canada. Those are significant markets. 419 00:25:21,000 --> 00:25:24,240 Speaker 1: Yeah, these are called compliance carbony, compliance carbon markets, and 420 00:25:24,280 --> 00:25:26,479 Speaker 1: I think the border is important now. 421 00:25:26,520 --> 00:25:29,320 Speaker 3: The problem is we don't have a compliance system operates 422 00:25:29,359 --> 00:25:34,320 Speaker 3: cross border, and so we created sophisticated voluntary systems. So 423 00:25:34,680 --> 00:25:37,720 Speaker 3: the reason why we have a voluntary market is because 424 00:25:37,720 --> 00:25:38,800 Speaker 3: of the border problem. 425 00:25:40,520 --> 00:25:43,919 Speaker 1: Well, but there are compliance markets like in Canada and 426 00:25:43,960 --> 00:25:49,360 Speaker 1: the US for example, like British Columbia with California and 427 00:25:49,440 --> 00:25:53,120 Speaker 1: with Oregon and Washington across borders, and it's a compliants. 428 00:25:52,800 --> 00:25:56,199 Speaker 3: Very limited and subject to a specific treaty. It's not 429 00:25:56,240 --> 00:26:00,399 Speaker 3: that it's impossible, but it is that it's easy for 430 00:26:00,600 --> 00:26:05,600 Speaker 3: national tax jurisdictions to basically price carbon through their tax system. 431 00:26:06,040 --> 00:26:08,280 Speaker 3: And basically it's a political problem, it's not it's not 432 00:26:08,320 --> 00:26:12,280 Speaker 3: a technical problem. So the fundamental issues is a taxpayer 433 00:26:12,520 --> 00:26:19,320 Speaker 3: in America prepared to pay for emission reduction activity in 434 00:26:19,359 --> 00:26:24,920 Speaker 3: Canada or vice versa, and the fact that the taxpayer, 435 00:26:25,480 --> 00:26:27,520 Speaker 3: you know, there may be a voluntary agreement to do that, 436 00:26:27,600 --> 00:26:29,880 Speaker 3: but not a taxpayer enforced agreement. 437 00:26:30,440 --> 00:26:33,200 Speaker 2: And that's the fundamental problem with this market. 438 00:26:33,640 --> 00:26:36,399 Speaker 1: And it's not about the integrity or the credits and 439 00:26:36,440 --> 00:26:38,840 Speaker 1: how the carbon accounting is done and whether the promises 440 00:26:38,880 --> 00:26:39,640 Speaker 1: are met or not. 441 00:26:40,160 --> 00:26:42,440 Speaker 3: To me, the line works this way, so people think 442 00:26:42,480 --> 00:26:44,639 Speaker 3: the line works and it's a lack of integrity. 443 00:26:44,920 --> 00:26:47,040 Speaker 2: These these these. 444 00:26:46,800 --> 00:26:49,840 Speaker 3: Naves are out there, these bad people doing bad things, 445 00:26:49,840 --> 00:26:51,440 Speaker 3: and as a result, there's no integrity. 446 00:26:51,640 --> 00:26:53,680 Speaker 2: And because there's no integrity, the price is low. 447 00:26:53,920 --> 00:26:58,560 Speaker 3: No, it's because it's voluntary and no one's required to 448 00:26:58,600 --> 00:27:01,280 Speaker 3: do it. So what is this marketplace? As someone who's saying, oh, 449 00:27:01,320 --> 00:27:04,680 Speaker 3: I wouldn't mind buying some credits to offset my activity, 450 00:27:05,200 --> 00:27:07,960 Speaker 3: and it's voluntary, I'm looking around. I don't have to 451 00:27:07,960 --> 00:27:09,800 Speaker 3: do it and not be required to do it, and 452 00:27:09,880 --> 00:27:13,160 Speaker 3: so I will buy the cheapest credit I can find. 453 00:27:13,280 --> 00:27:16,520 Speaker 3: So the price of this voluntary market is very, very low. 454 00:27:16,600 --> 00:27:19,600 Speaker 3: It's about two percent of the price of the compliant markets. 455 00:27:20,040 --> 00:27:22,239 Speaker 3: When the price is so low, there's no money in 456 00:27:22,280 --> 00:27:26,000 Speaker 3: there to do integrity properly. Because to do integrity properly 457 00:27:26,600 --> 00:27:31,600 Speaker 3: you need monitoring, evaluation. You need to consider also what 458 00:27:31,720 --> 00:27:36,560 Speaker 3: happens when the thing was reducing emissions stops reducing emissions, 459 00:27:37,080 --> 00:27:40,199 Speaker 3: So you need a bunch of staff that costs some money. 460 00:27:40,560 --> 00:27:42,800 Speaker 3: And if he has no money in this credit because 461 00:27:42,840 --> 00:27:46,360 Speaker 3: it's so it's voluntary and low priced, you're not investing 462 00:27:46,359 --> 00:27:49,520 Speaker 3: in integrity in that case. This will never work. No, 463 00:27:50,200 --> 00:27:53,160 Speaker 3: it will never work as long as it's voluntary. Now 464 00:27:53,200 --> 00:27:57,479 Speaker 3: you can make something nonvoluntary in a multiple ways. So 465 00:27:57,520 --> 00:28:02,080 Speaker 3: it could be there is a specific acts around the carbon, 466 00:28:02,160 --> 00:28:07,040 Speaker 3: but it could be that carbon is highly priced. Any 467 00:28:07,080 --> 00:28:10,000 Speaker 3: scheme in which has got a high price is part 468 00:28:10,040 --> 00:28:14,560 Speaker 3: of what's called an approved scheme, and approved schemes count 469 00:28:14,600 --> 00:28:17,720 Speaker 3: for something and they get some kind of tax benefit again, 470 00:28:17,920 --> 00:28:21,720 Speaker 3: some benefit which allows people to pay up. 471 00:28:22,480 --> 00:28:24,719 Speaker 1: So you can think of an approved scheme, say in 472 00:28:24,760 --> 00:28:29,240 Speaker 1: the UK, where there's an industry wide approved scheme that 473 00:28:29,320 --> 00:28:32,160 Speaker 1: says you have to reduce your emissions by this much 474 00:28:32,280 --> 00:28:34,639 Speaker 1: because we have our climate targets to meet. If you 475 00:28:34,760 --> 00:28:38,520 Speaker 1: don't reduce those emissions, we will create this approved scheme 476 00:28:38,840 --> 00:28:41,760 Speaker 1: that is in Indonesia that us the UK government is 477 00:28:41,800 --> 00:28:46,360 Speaker 1: working with Indonesian government to monitor and verify that those 478 00:28:46,480 --> 00:28:49,400 Speaker 1: carbon emissions are being reduced. You can buy credits from 479 00:28:49,440 --> 00:28:52,120 Speaker 1: that approved scheme and they will cost just about the 480 00:28:52,160 --> 00:28:54,800 Speaker 1: same as perhaps the money you will have to put 481 00:28:54,920 --> 00:28:58,600 Speaker 1: in reducing your emissions at home, and that would be workable. 482 00:28:59,080 --> 00:28:59,280 Speaker 2: Yes. 483 00:28:59,360 --> 00:29:03,840 Speaker 3: So the issue is enforcement across the border. How do 484 00:29:03,880 --> 00:29:06,920 Speaker 3: you enforce it across the border? How do you enforce 485 00:29:08,120 --> 00:29:13,680 Speaker 3: your taxpayers sending money abroad for activities. 486 00:29:13,960 --> 00:29:16,480 Speaker 2: Taxpayers don't want to do that. Governments don't want to 487 00:29:16,560 --> 00:29:18,400 Speaker 2: do that. That's the problem to solve. 488 00:29:18,440 --> 00:29:20,920 Speaker 3: And until we solve that, those markets are going to 489 00:29:20,960 --> 00:29:24,280 Speaker 3: remain low priced and integrity is going to be always low. 490 00:29:25,280 --> 00:29:31,280 Speaker 1: Thank you having nush, Thank you, Thank you for listening 491 00:29:31,320 --> 00:29:34,200 Speaker 1: to Zero. If you've not done it already, please check 492 00:29:34,240 --> 00:29:37,080 Speaker 1: out the other episodes in the Moving Money series. If 493 00:29:37,120 --> 00:29:40,200 Speaker 1: you have, we hope you've enjoyed the series. Please write 494 00:29:40,200 --> 00:29:42,560 Speaker 1: to us with any feedback at zero port at bloomberg 495 00:29:42,560 --> 00:29:44,520 Speaker 1: dot net. Let us know if you have any more 496 00:29:44,560 --> 00:29:47,160 Speaker 1: questions about climate finance that you'd like us to answer 497 00:29:47,160 --> 00:29:50,320 Speaker 1: in a future episode of Moving Money. And now for 498 00:29:50,400 --> 00:29:59,640 Speaker 1: the sound of the week, that's not the sound of 499 00:29:59,640 --> 00:30:02,200 Speaker 1: a gun, but the sound of a cash counting machine 500 00:30:02,600 --> 00:30:05,920 Speaker 1: used in banks. If you like this episode, please take 501 00:30:05,920 --> 00:30:07,800 Speaker 1: a moment to rate and review the show on Apple 502 00:30:07,840 --> 00:30:12,040 Speaker 1: Podcasts or Spotify. Share this episode with a friend or 503 00:30:12,160 --> 00:30:16,040 Speaker 1: with someone who still believes in carbon credits. This episode 504 00:30:16,080 --> 00:30:19,120 Speaker 1: was produced by Oscar Boyd. Noomberg's head of podcast is 505 00:30:19,160 --> 00:30:22,160 Speaker 1: Sage Bowman and head of Talk is Brendan newnham. Our 506 00:30:22,200 --> 00:30:25,400 Speaker 1: theme music is composed by Wonderly Special. Thanks to might 507 00:30:25,480 --> 00:30:29,840 Speaker 1: Lee Rao Soamersadi Mosses, Andem, Blake Maples, and Shawan Wagner. 508 00:30:30,440 --> 00:30:32,160 Speaker 1: I'm Akshadrati back soon.