Wall Street Is More Than Willing to Fund the Green New Deal

(Bloomberg Businessweek) -- Even before Representative Alexandria Ocasio-Cortez of New York and Senator Ed Markey of Massachusetts, both Democrats, introduced their Feb. 7 resolution outlining a “Green New Deal,” members of both parties were calling the idea unrealistic or worse. Republican Mike Simpson of Idaho, who sits on the House Appropriations Committee, said it was “loony” without specifying why, and John Barrasso, Republican chairman of the Senate Committee on Environment and Public Works, labeled it an “absurd socialist manifesto.” Even House Speaker Nancy Pelosi, who’s been fearless in the face of Republican opposition on other issues, failed to bless it.

The plan’s greatest flaw, critics say, is that it would be too costly. Ocasio-Cortez advocates deficit spending, and she’s floated a 70 percent marginal tax rate for high earners that would generate some of the necessary revenue. But those worried about where the rest of the money will come from are forgetting one major, surprisingly enthusiastic player: Wall Street.

Investors are more than willing to put up the capital to fund GND goals—which include switching to 100 percent renewable or clean power in 10 years, building a nationwide energy grid, and renovating existing buildings for energy efficiency—provided they get clarity from Congress, says Jon Powers, president of financial technology company CleanCapital and former federal chief sustainability officer under President Obama. “The thing that holds up capital the most is uncertainty,” he says. “Once you have certainty in that policy, then that capital will know where to go.”

Sustainable investing is already a $12 trillion market in the U.S., according to the Forum for Sustainable and Responsible Investment; data from BloombergNEF show that global issuance of green bonds rose to $600 billion last year. While investment funds and big banks are anathema to Ocasio-Cortez, a Democratic Socialist who eschews corporate donations, they certainly are interested in how far she’s pushing the conversation on green initiatives.

“Wall Street would take this seriously,” says Stephen Liberatore, a managing director at asset manager Nuveen, who oversees $9 billion in fixed income tied to an environmental, social, and governance strategy. “There are more and more investors who are interested in having exposure to green projects and green debt.”

Government-corporate coordination on such a scale has worked before—during the original New Deal, but also during World War II, when Franklin D. Roosevelt created a national production board to direct factories into war-goods mode. “We’re imagining a lot of different funding methods,” including grants, direct loans, public-private partnerships, joint ventures, or creating new bond markets, says Robert Hockett, a Cornell Law School professor and senior policy adviser to Ocasio-Cortez. “As in the case of the original New Deal, we do envisage existing firms playing a really big role.”

During the Great Depression, the federal government created the Reconstruction Finance Corp., a government entity that doled out loans to companies and states to encourage investment and economic stability. The GND resolution proposes creating public banks along similar lines to give citizens part-ownership of infrastructure projects and investment returns.

Other funding avenues include public investment in green bonds and asset-backed securities, which are securitized leases tied to low- or no-carbon assets such as solar panels or loans made to landlords to finance building upgrades. The government already works closely with the asset-backed industry via Fannie Mae and Freddie Mac and at the state level with programs like the clean-energy loan-financing system, known as PACE. But any federally linked lending program would be controversial given previous failures, including loan guarantees made under the Obama administration to solar panel maker Solyndra, which eventually went bankrupt. Creating a federal lender to fund the programs outlined in the GND could be a solution, but it would be contentious, too: Critics point to the threat of ballooning liabilities and risks to the economy.

Endorsed so far by about 70 Democrats, including many of the nine declared contenders for the 2020 Democratic presidential nomination, the GND proposal includes a jobs guarantee and health care for all on top of its green-power pledges. A simple resolution, it wouldn’t have the force of law if it were passed—a highly unlikely eventuality. Senate Majority Leader Mitch McConnell said on Feb. 12 that he’ll force the Republican-controlled Senate to vote on it, to give everyone “an opportunity to go on record” with their view.

Markey and Ocasio-Cortez are aware of the political challenges, but they’ve chosen to play the long game. In a statement after the majority leader’s announcement, Ocasio-Cortez’s office said, “McConnell thinks he can end all debate on the Green New Deal,” but “all he’s going to do is show just how out of touch Republican politicians are with the American people.”

Private-sector investment isn’t enough to address the threat of climate change, says Saikat Chakrabarti, Ocasio-Cortez’s chief of staff. “What we think we need to do additionally—and what’s not happening on the scale it needs to—is federal investment,” he says. “The private sector alone cannot solve the climate crisis.”

The United Nations Intergovernmental Panel on Climate Change warned in October that the world had to take extraordinary action to avoid warming more than 1.5C this century, the goal of the Paris Agreement. Natural disasters cost the global economy $350 billion in 2017, according to Swiss Re AG, because of several particularly severe hurricanes; in 2018, the total was $155 billion. Climate researchers project that extreme weather will only get worse. The day after Thanksgiving, the U.S. government’s Global Change Research Program released its fourth report, in which 300 experts said climate change could cost the U.S. economy hundreds of billions of dollars a year and contribute to the deaths of thousands of Americans by the end of the century.

Preventing that outcome can be done only with action on a large scale and only with business involvement, according to economist Robert Pollin, who was commissioned to research an Obama-era stimulus package that included about $90 billion in clean-energy investments. “If we really are talking about totally transforming the U.S. energy system in a decade or two decades, there have to be some very big incentives there,” he says. “We’re rebuilding an entire energy infrastructure, so there’s massive opportunity for all kinds of businesses.”

The drafters of the Green New Deal will need to answer some major questions, including concerns about trade pacts, heavy industry, and wages. But the conversation they’ve prompted is already starting to arrive at some answers. “Think about where we are right now,” says Powers of CleanCapital. Candidates for president are staking their campaigns in part on the success of a massive green-energy undertaking, which is a sign of how far things have come from even a few years ago, he says: “The cultural moment for something like this to move forward is here.”

To contact the editor responsible for this story: Jillian Goodman at jgoodman74@bloomberg.net

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