Major Bank to Governments: Go on, Give us your Carbon Tax Money…

Guest essay by Eric Worrall

Banks have become remarkably coy about demanding carbon tax cash, in return for support for climate “investment”, but at least one major bank wanted to make sure readers got the hint.

Banking on climate change
19 Sep 2017
Andrew Cornell

Leaving aside that the energy debate in Australia is almost entirely a political one, there is another front, beyond politics and the economics of risk, for would-be financiers.

Global regulators of and investors in the financial services sector, the first port of call for funding or organising the funding of energy generation and distribution, have very clear views on the carbon economy.

Mark Carney, governor of the Bank of England and chairman of the Financial Stability Board has been one of the most prominent figures warning banks to be aware of their role in and vulnerability to a more carbon constrained world.

In a recent presentation at a forum organised by the BIS, OMFIF, the Deutsche Bundesbank and the World Bank Group, Green finance: can it help combat climate change?, Luiz Awazu Pereira da Silva outlined key elements of how regulators were thinking.

Any good policy to combat climate change requires a ‘price’ to act as an incentive to reduce a negative externality such as greenhouse gases (GHGs), in line with basic welfare economics,” he said.

While couching his discussion in the even-handedness of official economists, da Silva argued a “shadow price”, incorporating the social cost of carbon (SCC), would be enough to reduce emissions in a perfect world.

“In particular, in the cost-benefit analysis of investment projects, (we should) to take into account these negative externalities (eg congestion, pollution, toxic emissions),” he said.

Read more: https://bluenotes.anz.com/posts/2017/09/banking-on-climate-change

The letter the author refers is an effort by a group called ShareAction. I haven’t found a copy of the actual letter, but based on their other material there is a lot of talk about assets under risk, but very little talk about carbon taxes.

My thought – if low carbon investments are such a good idea, why do banks need “incentives”?

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45 thoughts on “Major Bank to Governments: Go on, Give us your Carbon Tax Money…

  1. Basic self-dealing and rent seeking. The bankers are afraid that their investments in subsidy mines, er, “renewable energy” might yield a loss when the peasants get out their pitchforks.

    • The investment is only a good investment so long as the subsidy subsists.
      Without the subsidy, the investment is a poor one.

  2. Lindsey Graham Joins Dems In Calling For A Carbon Tax: http://dailycaller.com/2017/09/19/lindsey-graham-joins-dems-in-calling-for-a-carbon-tax/

    Lindsey Graham also is the biggest amnesty sh__l among the GOP other than Ryan. And oddly he’s the name on the latest healthcare attempt. For all we know Graham has traded healthcare for Trump’s amnesty or Trump’s agreement to the Paris Accord.

    Trump Admin on the Paris climate deal. We’re out. We’re in! No, we’re out! Maybe https://hotair.com/archives/2017/09/17/paris-climate-deal-no-maybe/

  3. Banks are the major beneficiary of money created from air. When the pedal on real estate inflation is pressed to the floor, the only other source of “free” money is the printer.

    No this is NOT capitalism. It can be found in communist texts. How to fiddle the banking system. When nothing real guides the moral compasses of our central bankers they are only lead by self interest.

    • Geoff, you are on the right track. Creating a ‘carbon reduction’ and asserting it is an ‘economic benefit’ means it is equivalent to creating a good or service with tangible value that can be traded or converted to gold (real money).

      The banks will position themselves to handle (trade in) carbon reduction schemes where they initially acquire an ‘asset’ which, one way or another, is converted into real value through a ‘market’. The risk (that it is worth nothing at all) will be passed on to others who ‘invest’ in the asset with a view to having its value increase with time, such as an ever-rising value in a carbon-offset-squeezed market.

      In a recession, as was seen with housing mortgages and will be seen soon in vehicle loans, the net asset value soon drops below the purchase price or loan redemption value. So as there is a commodities cycle and a business cycle, there is inevitably going to be a ‘carbon offset asset cycle’. When it crashes, the value of carbon offsets – tradable certificates like a company share – will drop, wiping out the invested value (real money) that belonged to the buyer, unless they can wait until the rises again which might take decades, depending on the severity of the recession.

      The unique thing about carbon offset tradable value is it is completely arbitrary and is accidentally linked to inflation. If there is no inflation, there is actual deflation as in a recession: the ‘harm’ value of CO2 is reduced in real dollar terms leaving the carbon certificate at a value permanently below its purchase price. That will continue until inflation drives up the ‘harm value’. And still, the value is by fiat, a declaration that a ton of CO2 causes x-amount of damage. The banks are betting that the governments will continue to agree on such a certificate having value simply be declaring it to be so, based on a value-of-damage forecast. The tradable value will be backed by common fear.

      The value of a fiat currency is backed by a common need which is quite different. No one needs a carbon reduction certificate. They are hoping people will want one.

      Any banker worth his salt will grab the money and run into fixed assets like physical gold, knowing as they do that there is nothing really there. Plus they will take a commission on all transactions regardless of who is taking the risk. It is a proposition that would make a Medici blush.

      • The problem with giving vale to carbon reductions is that there is a dependency on the initial level of carbon emissions. It would behoove scammers to game the system by claiming initial high emissions and then pretending to have caused huge reductions. There is just too many undetermined factors in a carbon trading or carbon tax scheme, er, scam. It has already failed in several instances, one in particular as there was rampant fraud.

    • One of the problems with banks ( and the financial industry in general) is that they have no responsibility for their actions.
      In the UK, banks owe a very restricted duty of care to their customers, and it is therefore extremely difficult to hold them to account for inappropriate advice.
      No wonder they get involved in such hopeless investments.

  4. I’m not a professional economist, but when I read “While couching his discussion in the even-handedness of official economists, da Silva argued a “shadow price”, incorporating the social cost of carbon (SCC), would be enough to reduce emissions in a perfect world” – – – the only way I could make sense of the statement was to convert the term “shadow price” to “protection money” and the term “social cost of carbon” to “the highest extortion we can get without risking revolt” …

    • There is no social cost to carbon.
      There is a social benefit to carbon, and this is what has enabled and powered the developed west, and why those fortunate to live in developed western nations enjoy the lifestyle they do.
      Further the world and the biosphere is beginning to reap the benefit of more CO2, as the greening of the Sahel demonstrates, and as ever growing crop yields also confirms.

      • Thank you Richard Verney – you speak the truth.

        I look forward to the day when the fraudulent global warming house-of-cards comes crashing down, and the criminal miscreants who have promulgated this multi-trillion dollar scam are brought to account. Huge class-action lawsuits will be won against institutions that have profited from global warming alarmism, and leading climate fraudsters should do jail time.

      • Agreed.
        It’s the social cost of gullibility and stupidity, advanced by the avarice of the banking community who see free money being extorted from citizens and want to wet their beaks in the trough.

  5. Sure, Andrew Cornell a ‘price’ is needed to act as an incentive. Let me show you how our ‘clean energy price’ system works. Australia has a federal Large Scale Renewable Energy Target (LRET) scheme that currently provides a 168% (sic) subsidy to all large scale ‘renewable’ power generation operators, prima facie paid by electricity retailers, who have to buy all of the unreliable power that these massively subsidised generators produce, whilst forcing base load generators to idle their plant if there is more supply than demand.
    The ‘price’ mechanism for this scheme is totally artificial but very cunning – the government created a ‘market’ for ‘clean energy certificates’, which are gifted (the subsidy) to renewables generators for each MWh of their non-dispatchable energy sent to the grid, which must then be bought by energy retailers to meet the current 30,000 GWh annual Renewable Energy Target (or else they face a A$60/MWh penalty).
    These certificates are currently worth A$85 each (i.e. A$85/MWh delivered) in this ‘market’, but the wholesale price of electricity here averages only about $50, hence the 168% subsidy. Of course the cost of this scheme (adding at least A$85/MWh to retail electricity prices) is ultimately borne by the consumer, currently running at A$2 billion annually.
    So the renewable generators get a massive subsidy, the government and the energy retailers get a free ride, the consumer gets screwed by higher prices for no benefit, and the base load power generators get screwed twice – firstly by losing 30% of their market, and secondly by having to bid to retailers against heavily subsidised renewable energy to sell their remaining 70% (but only when the wind isn’t blowing and at night).
    It is no surprise then that Australia is facing a serious situation as ageing coal-fired power stations shut down but because of our LRET scheme none are being built to replace them. The state of South Australia has the highest percentage of renewables in Australia, and has actually blown up their decommissioned coal power stations to prevent them being recommissioned, and is (of course) facing a power crisis this summer! Watch and learn.

    • Screwed a third time. Base load power generators provide free backup for the renewables. As renewables make greater penetration in the marketplace, the free backup will disappear. Without free backup, renewables will collapse. Along with the rest of the economy.

    • Sounds right to me. Apart from the rort with the certificates is the compulsion for retailers to pay for unreliable energy whenever it is generated.

      The result is similar to having backyard vegetable growers drop into the local supermarket with their latest crop and the supermarket being compelled to buy whenever the grower turns up. The impact on the wholesale suppliers of vegetables would be devastating. The impact on the supermarkets and the consumers would be great uncertainty.

      In other markets there is usually a long term contract price and a spot price. In the electricity market there is effectively only a spot price. It is a logical mismatch when the nature of the commodity is considered. It is in fact almost as though the system was designed to self-destruct (not that I think it was).

      The two questions are whether the politicians are aware of the mismatch, and whether they have the political will to fix the problem they have created.

      • FG – Spot on. Regarding your two questions, I would answer: (1) = maybe, but most probably don’t understand the implications of LTCs vs spot prices because they have no business experience; (2) = no, because they don’t want to recognise that they caused the problem. Both sides of Au politics (Labor, Liberal/Nationals) are culpable re this mess – the RET scheme was started several parliaments ago, and has been ramped up by Labor, the Libs under PM Abbott previously tried to wind it back, current Lib PM is apparently a closet greenie and won’t touch it. We will have to wait till the SHTF (probably this summer) before anything changes.

      • “BoyfromTottenham September 20, 2017 at 5:37 pm

        …the RET scheme was started several parliaments ago…”

        In 1991 under Howard in fact. A RET of 2% was set which jumped to 20% under Juliar “There will be no carbon tax under a Govn’t I lead” Gillard. The rest is history. AGL are, literally, laughing all the way to the bank as they pull down their conventional generating capability. Power prices jumped about 20% effective July 1st 2017. About 20% rise again in 2018, and so on. Abbott abolished the “price on carbon” but should have reduced RET’s to ZERO. So, the Australia consumer is screwed. South Australia is the crash test dummy for the world. Victoria is following close behind. New South Wales and Queensland won’t be far behind. Western Australia want to separate from Australia.

    • Ponderous – somebody needs to create one of those narrated stick drawing YouTube vids explaining this as the text version is so nebulous and perplexing…

    • And then I keep hearing that my skepticism is unjustified — That it’s something that they are calling denialism. Sheesh-a-mighty. When did idiocy reach such pandemic proportions?

      I recommend that you take the time to read the essay that is at this URL:
      Rishon Rishon: Mundia & Modia: The two worlds in which we live
      http://www.rishon-rishon.com/archives/351860.html

      It says much about human nature and individual perceptions of the laws of nature that prevail on planet Earth. And the misplaced faith that millions of people have in the powers and the integrity of governments.

  6. I once heard a wise and honest businessman say that “An ethical deal was one that benefited both parties .”

  7. Well, it all makes more sense to me now. I didn’t understand it before, but now I do.

    The object is to make electricity too expensive for the average consumer to use it, which leaves consumers (the cash sources) without power when they need it most, as in when a furnace is required to provide heat or a water heater is needed to heat water for washing dishes and bathing.

    Since the consumer can’t afford the cost of this electricity, he’s back to oil lamps and boiling water on the stove or in a kettle in the front yard, using an acetylene torch. Fine in the summertime, but in the winter, not so much. At some point, the consumer finally succumbs to the stupidity of government-run utilities and freezes to death if he hasn’t already starved to death from being unable to store food in a fridge because he can’t afford to pay the cost of running one, and that means no cash for the utilities or the government. And he’s not allowed to hunt for food, either, because WILDLIFE!!!

    The overall goal, obviously, is to get rid of the consumer, an unnecessary and inconvenient item in this story, because consumers do nothing but generate higher carbon levels when they breathe, and so far, the government can’t tax people for breathing. But my guess is that a breathing tax is on its way.

    This idiotic story is brought to you by Aunty Entity and Mad Max.

  8. If banks can pull an Enron you better believe they will . Who set up the Chicago Climate Exchange ?
    Does anyone seriously think Goldman Sachs wouldn’t be all over that and who just happens to be at the Presidents elbow . Former Exxon (pro carbon tax ) and former Goldman . Is there any doubt once President Trump has been run off by RINO’s , Mueller and the media that a $$Billion carbon scam will be forced on citizens ? It’s not about saving the planet it’s about saving the governments ass for decades of unlimited
    debt growth . Saving the planet is just the excuse to shake down people on a sales tax .

    • When she (or any others members of “The most transparent administration in history”) looks in a mirror, I wonder if she sees anything?

  9. Of course the BIG question is why governments are allowing these climate modeled outputs, with their encoded guesswork, be a dictator of policy worldwide?
    There are many, many other more important issues, than whether or not the climate might get a degree or so warmer in the next hundred years, that will affect our children and their children.

  10. The Green Mafia (WWF, Greenpeace, etc.) should be forced to take ALL of the hundreds of millions of dollars on their books and invest it SOLELY in “green energy”.

    Only fair.

    If only we could create energy from hypocrisy…

  11. Ahhhh. Increase the risk factor in a project and the cost of borrowed money goes up.

    Banks don’t need taxes. All they need is government acquiescence in letting them add a climate change risk factor. A 0.5% climate change risk on a 5% interest rate is a 10% increase in revenue for zero cost – the risk is theoretical, not realized. Possibly 25% profit increase.

    Brilliant! And except for ending marginal projects and incentivizing compensatory false reductions in risks elsewhere, does nothing for the planet. Another win for Al Gore’s friends.

  12. Ahhhh. Increase the risk factor in a project and the cost of borrowed money goes up.

    Banks don’t need taxes. All they need is government acquiescence in letting them add a climate change risk factor. A 0.5% climate change risk on a 5% interest rate is a 10% increase in revenue for zero cost – the risk is theoretical, not realized. Possibly 25% profit increase.

    Brilliant! And except for ending marginal projects and incentivizing compensatory false reductions in risks elsewhere, does nothing for the planet. Another win for Al Gore’s friends.

  13. While couching his discussion in the even-handedness of official economists, da Silva argued a “shadow price”, incorporating the social cost of carbon (SCC), would be enough to reduce emissions in a perfect world.

    “In particular, in the cost-benefit analysis of investment projects, (we should) to take into account these negative externalities (eg congestion, pollution, toxic emissions),” he said.

    The phrase “social cost of carbon” is very misleading and deceptive, perhaps intentionally so. Carbon, as an element, is present in thousands of chemical compounds in all living organisms, including plants and human beings, and is an absolute necessity for life on earth. It cannot be created or destroyed, but only converted from one chemical compound to another.

    Whoever coined this phrase should specify it as “social cost of carbon dioxide emitted”, because any “warming” of the atmosphere will be supposedly due to carbon dioxide emitted. But if someone expresses a “social cost of carbon” as X dollars or Euros per tonne, does that mean tonnes of carbon in the fuel, or tonnes of carbon dioxide emitted? Burning 12 tonnes of carbon in a fuel produces 44 tonnes of carbon dioxide, so this confusion could lead to errors of a factor of 3.67.

    Then again, what is the actual “cost” of an extra tonne of CO2 in the air? We just read an article from the warm-mongers themselves saying that the climate models have over-estimated the warming, so that whatever cost would be incurred by a degree of warming would have to be spread over more tonnes of CO2 required to produce that warming, thereby lowering the “social cost” per tonne of CO2.

    A mass balance on the atmosphere shows that only about 60% of human CO2 emissions remain in the atmosphere, according to the rate at which the CO2 concentration at Mauna Loa is increasing. Do we calculate the “social cost” per tonne of CO2 emitted, or per tonne which remains in the atmosphere, which is 40% less?

    As to the 40% of human CO2 emissions which are re-absorbed into nature, what is the net BENEFIT of those tonnes of CO2 which are re-converted by plants into useful food for animals and people? Wouldn’t that have to be subtracted from from the “social cost” of carbon dioxide emissions?

    Even if it could be proved that extra CO2 in the atmosphere did cause warming, that warming could be beneficial in some areas, such as longer growing seasons in temperate regions where the growing season is limited between the last frost in spring and the first frost in autumn. Can we subtract that from the “social cost” of carbon dioxide emissions?

    There are many sources of error in trying to estimate a “social cost” of carbon dioxide emissions, some of them due to lack of knowledge, some of them due to deliberately ignoring beneficial effects of carbon dioxide, and exaggerating the risks. A promoter of a “green” energy project would prefer to use a high value, whereas a more realistic value (or zero) would lead to a more accurate cost-benefit analysis for any project, whether based on renewable or fossil fuel energy.

    Mr. Da Silva has also conflated carbon dioxide emissions with “pollution” and “toxic emissions”.

    Earth to Da Silva: Carbon dioxide is NOT pollution and is NOT toxic. Period. If you want to stop emitting carbon dioxide, stop breathing.

    There are legitimate reasons why a certain project could be rejected as emitting too much “pollution” or “toxic emissions”, such as sulfur oxides, nitrous oxides, and particulates, and one could evaluate the “social cost” of these pollutants. Such an analysis would favor natural gas-fired power plants over coal-fired power plants, and the technology to dramatically reduce emission rates of these pollutants has existed for nearly 50 years.
    But these decisions should be made by environmental regulators, not bankers.

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