Have you noticed that people aren’t waiting for 192 countries to agree how to address climate change? Many are getting on with it regardless, setting their own internal carbon prices, creating green investment products and targeting larger carbon reductions than most countries would contemplate at the Lima climate conference.
What could all this mean for Transport?
Internal Carbon Prices
Leading corporations already use internal carbon prices to factor future regulatory risk into current investments and create funds for carbon reduction activities. One study found 150 of the world’s biggest listed corporations – including 22 Australian firms such as Woolworths, Caltex and Qantas – have internal carbon prices ranging from US$6 to $80 per tonne. Most expect the cost of emitting greenhouse gases to rise so are integrating currently externalised carbon costs into traditional financial metrics to work out which projects to invest in now.
Microsoft makes environmental impact a line item in operational budgets by applying an internal carbon fee that is viewed as a climate solution rather than a new cost. By spreading the costs of its carbon neutral policy across the divisions that generate carbon emissions, Microsoft has created a self-replenishing fund to subsidise green initiatives and offset residual emissions.
Such voluntary actions to become carbon neutral ahead of or beyond regulation are increasingly seen as critical to stabilising climate change, and there’s real interest in scaling the innovation, reach and impact of voluntary carbon offsetting to help develop market mechanisms for a global climate agreement. As renowned free-market economist Milton Friedman would say, governments should create the market and then get out of the way and let the market figure out efficient allocation.
As investment funds start divesting fossil fuel exposures (Rockefeller Brothers Fund, Australian National University) and demand for green investment bonds grows dramatically, the Conscious Business movement is picking up momentum. The National Australia Bank has followed international financiers by releasing green bonds for fixed-income investors who want to support projects with positive environmental impacts. A green bond from Canada’s Export Development agency supported Queensland’s Gold Coast light rail system which began operating this year. Nordic Investment Bank’s $500 million green bond issue quickly climbed to $800 million reflecting the growing appetite in the market for debt instruments linked to an environmental benefit, its proceeds financing biofuel- and electricity-based transport projects amongst others.
The business case for green transport in Australia still stacks up without an explicit carbon price. Fuel efficiency savings go straight to a transporter’s bottom line, and their customers increasingly demand use of cleaner fuels. Yet access to capital prevents thousands of small- and medium-size transport and warehouse operators from reaping these benefits and producing economy-wide transport carbon reductions.
Green Transport Bonds
Broader application of green transport bonds that reach beyond public transportation deeper into the freight logistics market may be a solution. Helping profit-seeking investors finance green technology growth throughout the transport market could fast-track dramatic carbon reductions from a sector that contributes over 16% of all greenhouse gas emissions.
Precisely measuring carbon reductions will be key to sustainable financial returns, requiring creative collaboration among many stakeholders. Cutting-edge technology capturing data with advanced analytics must underpin assurance of environmental benefits to make this work at scale. The prize awaits those who dare to dream and can pull people together to create value in this space.
Waiting for international agreement at Paris 2015 and beyond will not fix our climate. As Australia repeals its carbon pricing laws and shrinks its renewable energy targets, states throughout the USA are setting ambitious mandatory renewable energy standards that will cover 78% of the US economy and position US industry as green technology leaders for decades to come. Unfortunately Australia’s new Emissions Reduction Fund offers little hope to the Transport sector.
Instead it’s the self-interest of people and business that is already creating profitable models to change behaviours and limit human impact.
Green transport bonds have the potential to turn a carbon price on its head, changing its role from an added cost passed along a value chain to a source of funding for green transport and a profitable Conscious Business investment that sustains climate change solutions right here in Australia.