Local Climate Banks: A way to pay for climate action
October 16, 2020
We’ve got the power to make our own power and to make money at the same time.
Each year, Guelph spends nearly half a billion dollars on energy: natural gas to heat our buildings; electricity to keep our lights on, fridges cool, and computers humming; and gasoline to keep our cars and trucks rolling. Only a tiny fraction of that money stays in the city to pay for poles and wires, natural gas gate stations, gasoline filling stations, and the like. The rest leaves town. That’s a huge economic drain on our community - enough to buy a CN Tower every six months.
The economic story of our Pathway to Net Zero Carbon is about changing that math. We can cut the $500M figure in half by attaining an energy efficiency level that Germany surpassed a decade ago. And of what’s left - money we can’t avoid spending on energy - we can spend as much as possible in Guelph, by investing in local renewable energy generation. That means more jobs, more local economic spinoffs, and more prosperity. All while carrying our economy across the threshold into a post-carbon future where greenhouse gas emissions are history.
Most people assume this transition will require mountains of government cash, raised from new taxes, new borrowing, or diverted by cutting other spending. The Pathway shows this is not true. At nearly 9%, its rate of return is easily high enough to attract private capital.
Where will that capital come from? The most obvious answer is institutional investors - pensions and insurance funds, for example. However, if we bring in money from out of town, the returns will also leave town - which recreates the unfortunate economic bleed that we currently experience with our energy dollars.
Enter the Local Climate Bank (LCB). This entity - more of a fund than a bank, since it won’t offer you banking services like online payment of your electricity bill - will be an ideally RRSP-eligible instrument that works much like a GIC. You put money in, something happens behind the scenes, and money comes back to you as your share of the fund appreciates in value, pays cash dividends, or both. Eventually you recoup your initial investment, but you continue to receive returns even after that.
The behind-the-scenes part is where the magic happens. Or, more accurately, the physics and the economics, both of which can feel like magic to some of us.
Let’s take a hypothetical example of a new run-of-river hydroelectric generation plant along the Speed River. The project budget - likely several million dollars, fronted by money you and others like you invested in the LCB - would be spent on environmental and economic assessments, engineering design, permitting, construction, grid connection, and commissioning. After all that is done, the plant would start generating electricity, which Alectra Utilities would buy and then resell to Guelph ratepayers. (Some regulatory and programming changes would need to happen first, but for this example we’ll gloss over those details.) The net revenues from the sale of that electricity would go back to the LCB, and from there back to you as a unit holder of the LCB fund.
Each year, the LCB would work with organizations like Our Energy Guelph to determine how much capital would be needed to cover all the planned projects like the hydroelectric one I just mentioned. The LCB would then issue the call for contributions from local investors like yourself.
If local investment fell short of the year’s goal, the LCB would work with other communities in the LCB network, institutional investors, and possibly government entities like the Canada Infrastructure Bank to make up the difference. If, on the other hand, the local investment goal were exceeded - that is, if the fund were “oversubscribed” - the excess could be invested via the LCB network into communities where project opportunities exceed the available local capital, be they urban or rural; local or remote; settler or indigeous; domestic or international.
As the financial returns flow in, many investors will choose to reinvest the proceeds, increasing the available pool of capital to repeat the process.
The result will be a self-sustaining engine - no, a motor - that will eliminate Guelph’s contribution to climate change, create local jobs, contribute to individual financial security, and build local prosperity. Our example will propagate to other communities, helping them to follow suit. As we build momentum with our efforts to solve the climate change mitigation problem, we will be able to extend this model to adjacent challenges:
- The climate change contribution that comes from outside of municipalities (such as agriculture, resource extraction, transportation)
- Climate change adaptation and resilience
- Carbon capture and sequestration
- Ecosystem restoration
If you want to learn more, or to get involved with making this vision a reality, reach out to us!