Speaker 1: Welcome to zero I am Aksha Tarti this week. How
Speaker 1: to unblock the private money taps. The world is pouring
Speaker 1: money into the clean energy transition at an unprecedented rate.
Speaker 1: Last year, more than two trillion dollars was invested in
Speaker 1: low carbon technologies, according to bloombergenf Over half of that
Speaker 1: went into renewable energy and grid infrastructure. Another third went
Speaker 1: into electric cars. This year, those investments might slow down
Speaker 1: in the US, but the signs remained bullish in other
Speaker 1: parts of the world. In developed countries, the private sector
Speaker 1: is leading the charge, with hundreds of billions of dollars
Speaker 1: each year flowing to profitable clean tech opportunities and large
Speaker 1: scale projects. Meanwhile, only a tiny trickle of private capital
Speaker 1: goes to developing countries, with investors scared off by unfamiliar,
Speaker 1: volatile exchange rates, and markets that at times seem too risky.
Speaker 1: At COP twenty nine in November last year, all countries,
Speaker 1: even the US, agreed to triple the money that goes
Speaker 1: from rich countries to poor countries, reaching three hundred billion
Speaker 1: dollars annually by twenty thirty five. But the United Nations
Speaker 1: experts have found that the finance gap is closer to
Speaker 1: one point three trillion dollars each year. The upcoming COP
Speaker 1: thirty presidency is working on a roadmap that will hopefully
Speaker 1: fill that void. And while we don't have the specifics yet,
Speaker 1: we know that most of that gap will have to
Speaker 1: be filled by the private sector. So how do we
Speaker 1: unlock private capital for developing nations where clean energy investments
Speaker 1: are most needed. For this episode of Moving Money, we're
Speaker 1: welcoming back avin Ashbasod, special advisor on climate risks to
Speaker 1: the President of the Inter American Development Bank. In this episode,
Speaker 1: he shares his ideas on how to de risk investments,
Speaker 1: attract private capital, and accelerate the clean energy transition globally. Avinash,
Speaker 1: welcome back to the show.
Speaker 2: Thank you.
Speaker 1: Actually, when we typically talk about climate finance, we end
Speaker 1: up talking about rich countries versus poor countries. But there
Speaker 1: is a third group that we don't consider often, which
Speaker 1: is private industry. One of the things that you have
Speaker 1: suggested could be a solution for getting private investors to
Speaker 1: invest in developing countries is to get a currency exchange guarantee,
Speaker 1: because rich investors with dollars or pound don't find it
Speaker 1: as attractive to invest in a roupe year rand, which
Speaker 1: is fluctuating quite a lot. But if you could provide
Speaker 1: a funding guarantee that would ensure that that exchange rate
Speaker 1: is fixed, then that could be a much more attractive proposition.
Speaker 1: Now that was just an idea when we talked about
Speaker 1: it last time around on this podcast. You've actually put
Speaker 1: it into action. Tell me more about how it's working.
Speaker 3: So yes, indeed, we launched with the Government of Brazil,
Speaker 3: Ministry finals and the Central Bank a FX liquidity facility.
Speaker 3: It's just started. We're looking for investors, but the platform
Speaker 3: is established. Now let me just make one step backwards.
Speaker 3: I think you described this very well. We have a
Speaker 3: trillion dollar target, maybe six hundred seven hundred billion of
Speaker 3: that one trillion, so sixty or seventy percent could come
Speaker 3: from the private sector investing in things that generates a revenue,
Speaker 3: most of which looks like mitigation. So the farmers make money,
Speaker 3: hydroelectric power stations make money. Now they're actually the private
Speaker 3: sector is doing this in rich countries. Eighty one percent
Speaker 3: of mitigation is funded by the private sector in rich countries.
Speaker 3: So it's not like this is something that can't be
Speaker 3: funded commercially and you got to blend it with public money.
Speaker 3: It's being funded, it's commercially viable stuff, but it's not
Speaker 3: happening in developing countries because the private investors feel that
Speaker 3: the country risk, the currency risk, not something they're experts in,
Speaker 3: is large and they don't have an ability to absorb
Speaker 3: that risk very well, and so they stay away.
Speaker 2: At the moment.
Speaker 3: What happens is there's a bit of a market structure
Speaker 3: problem in finance. So, as your listeners will know today,
Speaker 3: investors don't say they will find the best investments in
Speaker 3: the world. They've all been specialized. So you go to
Speaker 3: a global infrastructure fund or a global energy fund or
Speaker 3: global renewables fund, and that fund sells to its investors
Speaker 3: that they're experts in this sector. They don't say, oh,
Speaker 3: we're experts in currencies, we're experts in hedging. They say
Speaker 3: we're experts in infrastructure, and that's why they get the money.
Speaker 3: So then they say, all these other risks we are
Speaker 3: going to farm out to somebody else, And so they
Speaker 3: go to the banks, and the banks say currency risk
Speaker 3: in Brazil for twenty five years for your solo farm.
Speaker 3: The problem is that's long term and the banks are
Speaker 3: short term. The problem is Brazil is highly pro cyclical.
Speaker 3: When in the upcycle many emojory markets are doing well,
Speaker 3: so are the banks. But in the downcycle, all of
Speaker 3: these risks collide together. The countries have a bad time,
Speaker 3: the banks have a bad time. So the banks know this,
Speaker 3: and they're saying, well, you know when you need money,
Speaker 3: when I need money, so I'm going to charge you
Speaker 3: a lot for me providing you a guarantee on the
Speaker 3: currency side. So we've come in, we being the Inter
Speaker 3: American Develoment Bank and part of the Multilateral Development Bank
Speaker 3: system and saying, well, we've got a triple A rating
Speaker 3: and we need to make sure we're using the benefits
Speaker 3: of that triple A rating. And one of the benefits
Speaker 3: of that is in the downcycle, when people are fleeing risk,
Speaker 3: they're flying into our instruments because they're looking for safety,
Speaker 3: and we represent safety. So that's a perfect time for
Speaker 3: us to lend to renewable energy projects the dollars they
Speaker 3: may need.
Speaker 2: To pay their investors.
Speaker 3: So our commitment to lend dollars to good projects when
Speaker 3: they need in the down.
Speaker 2: Cycle means that they don't.
Speaker 3: They no longer need to go to the banks and
Speaker 3: ask for expensive hedging. They've got this pre commitment and
Speaker 3: we are lending, you know, only in the down cycle
Speaker 3: when people are coming to us anyway, and we are
Speaker 3: picking the right projects, we're picking the right countries, and
Speaker 3: so we've limited our risks. So we've launched that with
Speaker 3: a backing of five point two billion dollars. So this
Speaker 3: isn't a five million dollar pilot. This is a serious
Speaker 3: Some serious money is behind this, and we're working with
Speaker 3: some new investors on potentially coming in. Some of the
Speaker 3: investments are actually not things we expected as an interesting
Speaker 3: biodiversity type investment. So that is looking at the waste
Speaker 3: products of sugar cane processes. Those byproducts are currently poured
Speaker 3: into the rivers and the sea, creating all kinds of pollution,
Speaker 3: and they could be turned into something more useful than
Speaker 3: where we're working with one investor on that, and they're
Speaker 3: a foreign investor and they are looking at the need
Speaker 3: to not have to hedge the foreign exchange of that investment.
Speaker 1: And then another idea that you are currently working on
Speaker 1: haven't yet launched, is to figure out how foreign investors
Speaker 1: can go into developing countries, but perhaps not directly down
Speaker 1: to the project level, but perhaps through local banks, because
Speaker 1: you're right, right now, most of the money that is
Speaker 1: going in the energy transition on reducing emissions is going
Speaker 1: in rich countries, whereas most of the money that we
Speaker 1: need needs to go in developing countries, and so we
Speaker 1: need to solve that problem. How exactly is it that
Speaker 1: going to banks will make that happen rather than going
Speaker 1: directly to project.
Speaker 3: One of the things I've enjoyed about getting older is
Speaker 3: a realization of what matters.
Speaker 2: Is listening rather than speaking.
Speaker 3: When I was thirty years younger, I used to think,
Speaker 3: you know, the triumph of a meeting was I spoke
Speaker 3: all the time. And now I realize you have to
Speaker 3: listen all the time. And so I'm listening to all
Speaker 3: these people who say, oh, I would love to invest
Speaker 3: in emerging markets, I'd love to invest in climate, I'd
Speaker 3: love to invest in biodiversity. But the risks are the
Speaker 3: risks of going here, and the risks of will I
Speaker 3: get the permit, will I be able to construct, will
Speaker 3: I get all of these things. I'm listening to this
Speaker 3: and thinking, hmm, okay, how do we come up with
Speaker 3: ways of the risking? And then I'm looking at some
Speaker 3: numbers and I realized, well, the banks in Latin America
Speaker 3: own around thirty to forty billion dollars of assets today
Speaker 3: on their balance sheets, they've leant thirty to forty billion
Speaker 3: dollars in projects that are actually producing a revenue. So
Speaker 3: the best thing for foreign investors to do is to
Speaker 3: buy those things that are ready there. They're ready performing,
Speaker 3: They don't need to deal with permitting risk, construction risk.
Speaker 3: These are instruments already performing. Now it seems less sexy
Speaker 3: to be buying something that's already there. There's no origination pioneer.
Speaker 3: But so what we say is, okay, we're going to
Speaker 3: create a fund that will buy the performing assets in
Speaker 3: the banks today, but at a premium, on condition that
Speaker 3: the banks reinvest the money that they've got from selling
Speaker 3: their loans into the same sector. So this allows us
Speaker 3: to do is to double the investment very quickly. And
Speaker 3: the way to think about this is it's a little
Speaker 3: bit like, you know, I'm an economist that I know
Speaker 3: no actual science, so it's always a marvel when I
Speaker 3: discover something hid like fluid mechanics. So you know, you
Speaker 3: get you get the water going uphill by creating a vacuum,
Speaker 3: you get water going uphill in a pipe by creating
Speaker 3: a vacuum at the top. So what we'll be doing
Speaker 3: is creating a vacuum at the top. We're moving all
Speaker 3: of the loans, existing loans of performing renewable energy projects,
Speaker 3: creating this vacuum at the top, allowing the same banks
Speaker 3: that originated the first loan to go out looking for another.
Speaker 3: And the reason why this is important actually that is
Speaker 3: the banks are saying in Latin America and in India
Speaker 3: another place where the banks have a lot of these acids,
Speaker 3: we've done this, it's fine, but we're now running out
Speaker 3: of runway to do any more. We're you know, we've
Speaker 3: got concentration limits, We've got a limited amount of savings
Speaker 3: there is. And so by coming in and creating that vacuum,
Speaker 3: we're giving them the space to do more as well
Speaker 3: as the need to do more. And so I think
Speaker 3: that's a way in which we can go from thirty
Speaker 3: billion dollars invested in renewables in Latin America to sixty
Speaker 3: billion in a couple of years, and then one hundred
Speaker 3: and twenty billion in a couple of years time, and
Speaker 3: two hundred and forty billion in a few years after that.
Speaker 3: So I think that that is a way that we
Speaker 3: can really accelerate. You have all of these ideas about
Speaker 3: accelerating in brand new projects, in brand new logations that
Speaker 3: investors have never been before, and the reality is they're
Speaker 3: too afraid to go.
Speaker 1: Trying to invest in performing assets is exactly what finance does.
Speaker 1: And so why is it that you have to come
Speaker 1: up with this idea and why isn't finance already doing it?
Speaker 3: We are quite right, ninety seven percent of finance is
Speaker 3: refinancing something that it's a sad reality, and finance loves
Speaker 3: to refinance and refinance over and over again. So I
Speaker 3: actually think that we when we get this fund up
Speaker 3: and running, people are going to come to it. Now,
Speaker 3: the reality is today someone has to do this hard
Speaker 3: work because these loans, you know, they're not defined as renewable.
Speaker 3: So some of that to go round, go into these
Speaker 3: bank ballot sheets and say here's the thing that I'm
Speaker 3: prepared to buy and filter them out and one fund
Speaker 3: that needs to do us At the moment, there is
Speaker 3: no capital market in which this is happening in these countries,
Speaker 3: But I'm going to take it to a capital market
Speaker 3: in which would want that an international capital market that
Speaker 3: I'm not going to have a portfolio of performing loans
Speaker 3: in a wide variety of countries in renewable energies. I
Speaker 3: believe we'd be able to package that into an instrument
Speaker 3: that the investors in the capital markets internationally will want.
Speaker 3: And if I can then sell on the loans that
Speaker 3: I have bought, having packaged them into nice packages that
Speaker 3: investors are looking for with the right degree of diversification
Speaker 3: and the right degree of spread of credit, I will
Speaker 3: then have money that could go and reinvest by buying
Speaker 3: some new loans. And so we do think that this
Speaker 3: has scalability because I think my first point of departure
Speaker 3: in this space a few years ago with the bridge
Speaker 3: shown initiative, was about how do we move the needle.
Speaker 3: There's no shortage of clever, small ideas. How do we
Speaker 3: come up with a small number of big ideas that.
Speaker 2: Move the needle?
Speaker 1: After the break, can carbon markets become the big idea
Speaker 1: to move the needle? Or are they forever stuck in
Speaker 1: the doldrums. By the way, if you've been enjoying this episode,
Speaker 1: please take a moment to rate and review the show
Speaker 1: on Apple Podcasts and Spotify. It helps other listeners find
Speaker 1: the show. So we've talked so far about currency exchange
Speaker 1: guarantees as an idea trying to get loan portfolios in
Speaker 1: developing countries sold to international investors and freeing up care
Speaker 1: capital in developing countries to do more green stuff. But
Speaker 1: there are other private sector instruments that do exist, and
Speaker 1: they exist at pretty large scale. So green bonds are
Speaker 1: one where basically an investor buys into the bond which
Speaker 1: is targeted for use in green stuff. So it could
Speaker 1: be building a renewable energy project, it could be building
Speaker 1: even adaptation projects sometimes are funded by green bonds, and
Speaker 1: that's hundreds of billions of dollars on an annual basis.
Speaker 3: Calling it green hmmm, doesn't make it green, And I
Speaker 3: think that to me, the impact of that market, the
Speaker 3: force of that market, is a function of how lower
Speaker 3: is the infrast rate on that money. So I've called
Speaker 3: something green, I'm going to use it for green purposes
Speaker 3: and as a result, I can get money in the
Speaker 3: marketplace at fifty basis points less one hundred basis points less,
Speaker 3: and that's important because that means I could do more stuff,
Speaker 3: more of this stuff. Right, The reality is the green
Speaker 3: premium sometimes awkwardly called the gremium, is a few basis points.
Speaker 3: And I look at that and I think that's really
Speaker 3: two possible reasons why. Firstly, maybe people don't trust my
Speaker 3: definition of green, and we need better definitions of green.
Speaker 3: In economics, we're always saying that things are caused by
Speaker 3: lack of information transparency, and so any economists hearing this
Speaker 3: will say, ah, you have an information problem. No one
Speaker 3: already believes that it's green. The other alternative is there
Speaker 3: isn't a market for someone to accept a lower return
Speaker 3: for doing something green. And I fear that that is
Speaker 3: even more important, and that certainly seems to have been
Speaker 3: the case in the last few years when interest rates
Speaker 3: shut up.
Speaker 1: And at the same time, there have been two things
Speaker 1: that happen simultaneously. There's been backlash against ESG environmental social
Speaker 1: governance on a political level in places like the US,
Speaker 1: but outside the US, but there isn't a political backlash.
Speaker 1: Investors have been moving away from ESG investments because they
Speaker 1: can make money in just normal interest linked derivatives.
Speaker 2: Like exactly right.
Speaker 3: And it suggests that this issue is cyclical rather than linear,
Speaker 3: so that there will be a time in the future,
Speaker 3: the interest rates come down again and we should probably
Speaker 3: issue some more more green bonds then, because, as you say,
Speaker 3: when interest rates were very low, remember the zero interest
Speaker 3: rate policy zup. It seems such a long time ago,
Speaker 3: but actually only a few years ago. Then people began thinking, well,
Speaker 3: I'm not getting much cash from my bond, I might
Speaker 3: as well to get something else as well, right, And
Speaker 3: so there was a whole explosion of social impact investing.
Speaker 2: And these other instruments.
Speaker 3: It has, as you say, really declined, and I think
Speaker 3: that decline is because people can now get decent rates
Speaker 3: of return and they're not bothered about getting something extra.
Speaker 3: I think that that we're in that environment for the
Speaker 3: next few years. I don't think going back down to zero,
Speaker 3: but they will go back down low at some point
Speaker 3: in the future, and we should issue those instruments again.
Speaker 3: But it's not therefore a reliable or at the moment's
Speaker 3: scalable solution.
Speaker 1: Why is there a lack of demand for green bones?
Speaker 1: Isn't it clear now with these global climate goals that
Speaker 1: we have to be investing in these places and smart
Speaker 1: investors try and get to the place where the trends
Speaker 1: are where future money is to be made, and the
Speaker 1: earlier you get in, the more money you can make.
Speaker 3: But remember the equation here is not someone saying I'm
Speaker 3: going to do some smart investing. I'm thinking about the
Speaker 3: fact that in the future this thing I'm doing is
Speaker 3: going to be valued better, It's going to be seen
Speaker 3: as important, and therefore I will get a higher rate
Speaker 3: of return. This equation is different. This is like saying,
Speaker 3: accept a lower rate of return because you're doing something good,
Speaker 3: and unfortunately, for whatever reason, that market does not seem
Speaker 3: to be there. They're not people lining up to accept
Speaker 3: a lower rate of return for doing good, and indeed,
Speaker 3: in some places some pension fund trustees are being taken
Speaker 3: to court saying that their job is to maximize rates
Speaker 3: of return for their members.
Speaker 1: The other idea that has been floated by clever financial
Speaker 1: people is that green bonds as they had been defined,
Speaker 1: because they are restricted for that money to be spent
Speaker 1: on green activities, are perhaps a too restrictive instrument, and
Speaker 1: perhaps that lower interest rate is not good enough. So
Speaker 1: they created another instrument called a sustainability linked pond, where
Speaker 1: the bond's money can be used for whatever a corporation
Speaker 1: or a country wants it to use, except the interest
Speaker 1: rate would be tied to the goals that the company
Speaker 1: or the country has, and now bond investors get to
Speaker 1: essentially drive whether the country or the company actually meets
Speaker 1: those goals, because if it doesn't, then the interest rate
Speaker 1: that the bond investors get paid rises and the company
Speaker 1: or the country has to pay more. And that instrument
Speaker 1: took off like a rocket over the past few years.
Speaker 1: It's about one hundred million dollar market. We did an
Speaker 1: investigation looking at how some of those goals were not
Speaker 1: strong enough and that kind of halted the growth of
Speaker 1: the market, but it's still a pretty robust market. All
Speaker 1: the people I've spoken to have said fundamentally, it is
Speaker 1: an interesting instrument, but there is an information problem that
Speaker 1: once sorted, it will rise again. What do you think
Speaker 1: about sustainability link ponds.
Speaker 3: I think that, as with green bonds, there are some
Speaker 3: people out there who are prepared to accept a or
Speaker 3: changed interest rate based around sustainability. Government donors can be
Speaker 3: part of that, philanthropists can be part of that, and
Speaker 3: I believe that we need these instruments to tap that interest.
Speaker 3: Is there a mass marketplace for that, I'm not sure.
Speaker 3: I don't think I've seen evidence to say it is.
Speaker 3: And in my current job at the Inter American Development Bank,
Speaker 3: we're finding lots of opportunities to tap into a particular
Speaker 3: donors interest and create a bond around that. So, for example,
Speaker 3: that the current thing we're looking at is a loan
Speaker 3: to adapt all schools in Latin America and the Caribbean
Speaker 3: to enable them to deal with extreme heat. There's lots
Speaker 3: of donors concerned about that. I mean, kids are not
Speaker 3: going to be able to learn in forty degrees integrade.
Speaker 3: It's going to have a huge impact on their future,
Speaker 3: their potential. The American government and the British government, and
Speaker 3: the French and German and the Qataris and others are
Speaker 3: concerned enough about that to say, oh, I will back
Speaker 3: an instrument that funds the change of these schools. And
Speaker 3: once you've certified, because certification is important in all these
Speaker 3: processes that the school has now adapted, I will pay
Speaker 3: some interest and therefore can reduce the cost for the country.
Speaker 3: So I think that those things. It's great that if
Speaker 3: I can tap into a particular demand, I can do more.
Speaker 3: But I think that is there a massive market of
Speaker 3: ordinary retail investors who want to do that, I'm not sure.
Speaker 3: I think also going to have some issues and we're
Speaker 3: seeing this with debt swaps. Is the more bespoke they are, interesting, sophisticated,
Speaker 3: the less liquid they are, and so that can mean
Speaker 3: that they're not as helpful. And what I mean that
Speaker 3: is that liquidity is partly about people understanding that. Right,
Speaker 3: So I've got a marketplace and my coupon has every
Speaker 3: single coupon in this marketplace has got some different link
Speaker 3: based on something else, some other metric that's hard for
Speaker 3: investors to understand, and so that reduces the potential marketplace
Speaker 3: who are buying and selling these instruments. And if those
Speaker 3: markets are small, they're going to have less liquidity and
Speaker 3: be more costly. Yeah, And that sort of makes sense
Speaker 3: to me from an equity perspective, which is a much
Speaker 3: simpler market because you're looking at a company like Apple
Speaker 3: and you're seeing, oh, they're going to produce a new iPhone,
Speaker 3: and that's about the information you need because people love
Speaker 3: a new iPhone, and so you're going to bet that
Speaker 3: Apple's going to make more money and you buy the
Speaker 3: stock in the price rises and you're happy. But in
Speaker 3: these sustainability linked instruments, You're going to have to think, oh,
Speaker 3: this Indian electric company is going to be reducing its
Speaker 3: emissions by two hundred and fifty million tons by twenty thirty,
Speaker 3: and that is going to be its goal. And that's
Speaker 3: just already that is too much information for any normal
Speaker 3: person to think about and deciding with it to sell
Speaker 3: that bond, to buy another bond. Because there's a Korean
Speaker 3: company who's got a similar target, but for a different
Speaker 3: years and a different it's hard for investors to really
Speaker 3: understand how they're getting in the best deal. To use
Speaker 3: the power of the market to drive good deals and
Speaker 3: good investments.
Speaker 1: There's another private sector instrument that has got a lot
Speaker 1: of backing at COP twenty nine. Article six rules would
Speaker 1: agree this Article six sits under the Paris Agreement. It's
Speaker 1: supposed to be a way for countries to trade carbon credits.
Speaker 1: So Norway could be buying carbon credits from Indonesia and
Speaker 1: reducing its own emissions from its balance sheet, while Indonesia,
Speaker 1: which has many for USTs, even now gets to make
Speaker 1: money and perhaps put it to an energy transition investment fund.
Speaker 1: But companies could do it to a Microsoft that wants
Speaker 1: to reach carbon negative by twenty thirty could be buying
Speaker 1: the same forest credits from Indonesia. We've had, at least
Speaker 1: from a corporate level, a voluntary market that has existed,
Speaker 1: and we've covered that plenty on Bloomberg Green, but also
Speaker 1: this podcast about how there are problems with that market.
Speaker 1: But this new un back market was thought to be
Speaker 1: one that will bring better rules and higher integrity and
Speaker 1: then allow investment flows to happen, the thing that we
Speaker 1: want trillions of dollars going to developing countries. How do
Speaker 1: you feel about carbon markets?
Speaker 3: In thinking a lot about the issue, I've come to
Speaker 3: believe that there are really two things we need to
Speaker 3: think about. One is the border and the other one
Speaker 3: is the voluntary nature.
Speaker 2: So within the same tax border like the.
Speaker 3: EU, or within the same tax jurisdictional uk U, US Canada,
Speaker 3: you can have some very substantial carbon markets which operate
Speaker 3: with very high prices for carbon. The European market is
Speaker 3: worth probably about eight hundred billion dollars, the US Cap
Speaker 3: and Trade Canada. Those are significant markets.
Speaker 1: Yeah, these are called compliance carbony, compliance carbon markets, and
Speaker 1: I think the border is important now.
Speaker 3: The problem is we don't have a compliance system operates
Speaker 3: cross border, and so we created sophisticated voluntary systems. So
Speaker 3: the reason why we have a voluntary market is because
Speaker 3: of the border problem.
Speaker 1: Well, but there are compliance markets like in Canada and
Speaker 1: the US for example, like British Columbia with California and
Speaker 1: with Oregon and Washington across borders, and it's a compliants.
Speaker 3: Very limited and subject to a specific treaty. It's not
Speaker 3: that it's impossible, but it is that it's easy for
Speaker 3: national tax jurisdictions to basically price carbon through their tax system.
Speaker 3: And basically it's a political problem, it's not it's not
Speaker 3: a technical problem. So the fundamental issues is a taxpayer
Speaker 3: in America prepared to pay for emission reduction activity in
Speaker 3: Canada or vice versa, and the fact that the taxpayer,
Speaker 3: you know, there may be a voluntary agreement to do that,
Speaker 3: but not a taxpayer enforced agreement.
Speaker 2: And that's the fundamental problem with this market.
Speaker 1: And it's not about the integrity or the credits and
Speaker 1: how the carbon accounting is done and whether the promises
Speaker 1: are met or not.
Speaker 3: To me, the line works this way, so people think
Speaker 3: the line works and it's a lack of integrity.
Speaker 2: These these these.
Speaker 3: Naves are out there, these bad people doing bad things,
Speaker 3: and as a result, there's no integrity.
Speaker 2: And because there's no integrity, the price is low.
Speaker 3: No, it's because it's voluntary and no one's required to
Speaker 3: do it. So what is this marketplace? As someone who's saying, oh,
Speaker 3: I wouldn't mind buying some credits to offset my activity,
Speaker 3: and it's voluntary, I'm looking around. I don't have to
Speaker 3: do it and not be required to do it, and
Speaker 3: so I will buy the cheapest credit I can find.
Speaker 3: So the price of this voluntary market is very, very low.
Speaker 3: It's about two percent of the price of the compliant markets.
Speaker 3: When the price is so low, there's no money in
Speaker 3: there to do integrity properly. Because to do integrity properly
Speaker 3: you need monitoring, evaluation. You need to consider also what
Speaker 3: happens when the thing was reducing emissions stops reducing emissions,
Speaker 3: So you need a bunch of staff that costs some money.
Speaker 3: And if he has no money in this credit because
Speaker 3: it's so it's voluntary and low priced, you're not investing
Speaker 3: in integrity in that case. This will never work. No,
Speaker 3: it will never work as long as it's voluntary. Now
Speaker 3: you can make something nonvoluntary in a multiple ways. So
Speaker 3: it could be there is a specific acts around the carbon,
Speaker 3: but it could be that carbon is highly priced. Any
Speaker 3: scheme in which has got a high price is part
Speaker 3: of what's called an approved scheme, and approved schemes count
Speaker 3: for something and they get some kind of tax benefit again,
Speaker 3: some benefit which allows people to pay up.
Speaker 1: So you can think of an approved scheme, say in
Speaker 1: the UK, where there's an industry wide approved scheme that
Speaker 1: says you have to reduce your emissions by this much
Speaker 1: because we have our climate targets to meet. If you
Speaker 1: don't reduce those emissions, we will create this approved scheme
Speaker 1: that is in Indonesia that us the UK government is
Speaker 1: working with Indonesian government to monitor and verify that those
Speaker 1: carbon emissions are being reduced. You can buy credits from
Speaker 1: that approved scheme and they will cost just about the
Speaker 1: same as perhaps the money you will have to put
Speaker 1: in reducing your emissions at home, and that would be workable.
Speaker 2: Yes.
Speaker 3: So the issue is enforcement across the border. How do
Speaker 3: you enforce it across the border? How do you enforce
Speaker 3: your taxpayers sending money abroad for activities.
Speaker 2: Taxpayers don't want to do that. Governments don't want to
Speaker 2: do that. That's the problem to solve.
Speaker 3: And until we solve that, those markets are going to
Speaker 3: remain low priced and integrity is going to be always low.
Speaker 1: Thank you having nush, Thank you, Thank you for listening
Speaker 1: to Zero. If you've not done it already, please check
Speaker 1: out the other episodes in the Moving Money series. If
Speaker 1: you have, we hope you've enjoyed the series. Please write
Speaker 1: to us with any feedback at zero port at bloomberg
Speaker 1: dot net. Let us know if you have any more
Speaker 1: questions about climate finance that you'd like us to answer
Speaker 1: in a future episode of Moving Money. And now for
Speaker 1: the sound of the week, that's not the sound of
Speaker 1: a gun, but the sound of a cash counting machine
Speaker 1: used in banks. If you like this episode, please take
Speaker 1: a moment to rate and review the show on Apple
Speaker 1: Podcasts or Spotify. Share this episode with a friend or
Speaker 1: with someone who still believes in carbon credits. This episode
Speaker 1: was produced by Oscar Boyd. Noomberg's head of podcast is
Speaker 1: Sage Bowman and head of Talk is Brendan newnham. Our
Speaker 1: theme music is composed by Wonderly Special. Thanks to might
Speaker 1: Lee Rao Soamersadi Mosses, Andem, Blake Maples, and Shawan Wagner.
Speaker 1: I'm Akshadrati back soon.