CLIMATE WATCH - Facing climate catastrophe and mass extinction, our greatest global challenge is neither technological nor financial. Instead, we must address transforming the consequences of economic activity. The pursuit of capitalist profit or socialist surpluses must lead away from self-destruction and become tools for ecological improvement. Ecological effects must be mirrored promptly in financial consequences supported by law, regulations and social rules that guide the myriad decisions on all levels from multibillion dollar investments to the trillions of daily economic transactions.
Dealing with onrushing climate disaster, the worsening new abnormal is an absolutely necessary, but not sufficient step for global ecological healing and long term well-being for the ecosphere and all life. Ecological economic growth is the road we must build as we travel. This is guided by and rooted in the pursuit of ecological and social justice. This means healing and mutually beneficial reform.
Ecological Sanity: Ecological sanity means adoption of new market rules that recognize and monetize ecological improvement, for example, the displacement of fossil fuel carbon emissions by renewable energy and energy efficiency. Ecological value monetized must become a major source of wealth and an important driver for ecological sustainability and moving markets to become tools for ecological and social justice and prosperity.
Ecological value is the path to ending so-called externalities, the consequences of pollution and habitat destruction that is the value proposition for unsustainable conduct leading us toward ecological, economic and social collapse. Monetizing ecological value can become the high profit center of the 21st century and beyond.
This requires primarily just simple accounting rule changes. We can help heal our world if we make accounting properly value sustainability and turn it into money as a manifestation of sustainability.
Crucially, the existing 37 billion tons of humanity’s carbon dioxide emissions can become, when slashed in half and displaced by renewables, the yearly basis for $35 trillion in ecological value and investment in further transformative ecological improvement. The one time dark arts of finance become tools for renewal.
New Market Rules for Mitigation of both Climate and Ecological Catastrophe: We can create a new regulatory asset, a Sustainability Credit (SC), that is based on the value of displacing one metric ton of carbon dioxide emissions (2,205 pounds) by renewable energy. Its price was set by the EPA at $190 in November 2022.
This means the total value of displacing global CO-2 emissions of 37 billion tons (gigatons) of carbon dioxide is $7.03 trillion. If, as recommended by IPCC, we reduce global emissions by 50% within ten years, the value monetized is $3.5 trillion per year. But monetizing the value of Sustainability Credits on the books of banks as paid in capital and as cash increases the investment value tenfold using the ordinary ability of banks to loan ten dollars for each dollar deposited in banks. In the case of SCs, future investment must be in additional carbon-dioxide reduction and sustainability technologies.
In that case, in year ten the potential global yearly global value of cutting carbon dioxide emissions in half is $35 trillion yearly for further sustainability investment. This is sufficient funds for massive global transformation. The money created by Sustainability Credits, used for productive investment is non-inflationary, and the dollars subject to ordinary central bank controls of the money supply of interest rates and bond purchases and sales.
Sustainability Credits do the opposite of conventional regulatory assets. They create wealth rather than raising prices. Existing Solar Renewable Energy Credits (SRECs) monetize the renewable aspects of green power. These help support renewable development thereby raising market prices. Sustainability Credits (SC) do the opposite. They create wealth and will reduce market power prices.
A Paradigm Shift: Our task is a paradigm shift not to abolish markets, but to simply, modestly transform the market rules, law, and regulations that guide economic activity. New market rules will send clear economic signals for the pursuit of profit. First, by valuing and monetizing ecological sustainability on the basis of hard data, reflecting the real social and ecological benefits, for example, of displacing one metric ton of carbon dioxide emissions by renewables. Second, by making sustainable goods and services less costly than polluting competitors, they gain market share and become more profitable.
Ecological value becomes a central tool for wealth creation that both manifests the assets necessary for the developing world, for the poor, to gain the capital to craft sustainable lives, and for the developed world to turn from pillage and self-destruction toward an economy that sends clear economic signals for sustainability and profit. Ecological wealth is real, the new gold. Its protection becomes the new common economic sense for business. The renewable energy infrastructure will represent ongoing increases in ecological value and further investment.
Perspective of a Solar Developer: We must build solar and storage as fast as we can in the next decade and beyond. It can certainly be done if we choose to do it. Bloomberg New Energy Finance (BNEF) in 2023 found the world needs to spend $8.3 trillion on renewable energy development between 2023 and 2030 to keep global warming well below 2°C.This isequal to $590 billion being invested in large and small-scale solar for each six months. Actual 2023 spending projected at $382 billion by the IEA (International Energy Agency), is 65% of what’s needed.
The good news is that on Sept. 11, 2023, at the G-20 meeting in Abu Dhabi, United Arab Emirates, global leaders answered this call, supporting a tripling to $4 trillion in annual renewable energy investments by 2030 to help keep global warming below 1.5 degrees C. This is detailed in Low-Cost Financing for Energy Transitions a report from IRENA (International Renewable Energy Agency) and India’s G-20 Presidency.
I build commercial scale solar farms focusing on ground mount dual-use agricultural solar above farm pasture and crops that provide both energy and food. My latest project is on a 150 year old farm where 200 kilowatts DC of solar generating 300,000 kilowatt hours a year will be above sheep pasture, the maximum that can be connected to a single phase power line on a country road. The Canadian Solar dual-sided 400 watt solar panel I used in 2022 now, in 2023, produces 540 watts output, a 35% increase at similar prices. Solar in the 200 kilowatts to 1,000 kilowatt scale (1 megawatt) can be built in a few months.
And yet, according to the IMF (International Monetary Fund), in 2022 we continue to spend globally an astounding $7 trillion globally on fossil fuel subsidies or 7.1 percent of global GDP. This is a $2 trillion increase since 2020, driven by government support to lower fossil fuel prices for producers and consumers in a market manipulated by oil suppliers maximizing profit.
The Three Steps Forward: The good news, first, is that stopping climate catastrophe by a rapid global pursuit of a solar led 100% renewable transformation from fossil fuels is economically and technologically feasible. Second, such a renewable transformation, is also the basis of enormous sustainable wealth creation and the massive reduction in pollution, depletion, and ecological damage with broad ecological consequences beyond energy. Third, at the same time, trillions of dollars in investment in renewable transformation must be an instrument for ecological and social justice manifest in a global convergence on sustainable norms for all.
The context of unsustainable inequality is reflected in radically disparate national carbon dioxide emissions. In 2021, the average North American emitted 11 times more CO2 than the average African. The top 1% of emitters had yearly carbon footprints over 50 tons of CO2, that is more than 1,000 times greater than the bottom 1% of emitters. Inequality is pervasive both within and between nations.
Sustainability means under a two metric ton per year personal basis globally for all below the current 4.7 tons global average. Combined with negative emission technologies to return the atmosphere to pre-industrial carbon levels, this will keep global carbon pollution at a level that can be dealt with by the natural carbon cycle.
Bio Energy and Negative Emissions: As renewables take command and emissions decline, the value of carbon displacement will also decline. But the current emergency and the high value of carbon displacement will continue for a number of years. In addition, reaching the so-called net zero goals and zero emissions is just the beginning of the necessity to return the atmospheric levels of carbon dioxide to pre-industrial level of 280 parts per million from current 2023 levels of 418.86 ppm on September 19, 2023.
This means the development of negative emissions practices and technology sequestering more and more carbon dioxide in plants and soil and life on land and sea and in optimized forestry, agricultural, and aquacultural practices and a wide range of negative emissions technologies, including renewable diesel, Sustainable Aviation Fuels (SAF) , Renewable Natural Gas (RNG,) cellulosic ethanol, renewable chemicals, novel crops, and waste feedstocks.
Sustainability Credits Not the Only Game in Town: Ecological value is already supported in practice by the Inflation Reduction Act (IRA). It allows the 30% to 70% solar Investment Tax Credit (ITC) to be turned into a cash award for those without a tax appetite. The finance of solar projects I am working on uses the 30% or 40% ITC (Investment Tax Credit) turned to cash after a solar energy system goes online as a significant portion of the capital stack.
The existing energy infrastructure is globally the greatest aggregation of capital. The 100% renewable energy transformation with over $70 trillion or more in expected investment will similarly represent an enormous amount of wealth for which a broadening of ownership from the rich to having a substantial portion of all renewable energy users become energy owners.
Banks as Ecological Champions: Banks and financial institutions of all sorts must play a crucial role in the global embrace of sustainability and ecological value. They will include not just commercial investment banks, but also credit unions, community banks, community development financial institutions (CDFIs), and green investment banks.
The Inflation Reduction Act opens the door to turning the Investment Tax Credit to cash for non-profits and others without a tax appetite. Many billions can be used to support broadened solar ownership.
It is essential that the creation of this new wealth be conditioned by requirements to only make these loans for further ecological investments. The enormous carrot is by regulation to permit SCs to be monetized in banks that will only use this new capital for ecologically sound investments or be unable to monetize SCs. The stick could be the limitation of bank loans other than those supported by the ecological value to the bank’s own capital. That means the bankers become fully at risk for their loans mitigating moral hazard of imprudent bank loans and speculative excesses, and the rescue of banks declared too big to fail. Central banks, like the Federal Reserve, will use typical tools to manage the money supply and interest rates that will encompass the new creation of ecological wealth. Since these investments are productive, they will be non-inflationary.
Making Renewable Energy Users Energy Owners: Instead of solar ownership being largely restricted to businesses, middle class homeowners, and the rich, there are now opportunities for all. Low income people and renters can become owners of the solar systems that provide energy. Cooperatives, associations, non-profits, and municipalities can take advantage of the opportunities right now under the IRA, USDA (U.S. Dept. of Agriculture) and state programs to become energy owners.
As a solar developer, one of the major challenges of solar development is to have a long term contract to sell the solar power to an off-taker. Typically, this meant selling solar energy to a utility or a large business or a university. The system is owned by the developer or by a wide range of other investors who buy operating solar energy systems as they come online. The system owner sells the solar energy to the local distribution utility that’s sent to the energy user under a long term retail contract between system owner and the energy user. The energy users are customers, not owners. They may save money from existing and future utility rates.
Until the IRA was adopted, the solar ownership track involved several steps from solar system Commercial Operation Date (COD) to the point when tax equity is exhausted at year six. The old path is still valid and still an appropriate pathway to ownership with minimal risk and out of pocket expense.
Solar Ownership Under the IRA: The IRA opens the door for energy user groups of all sizes working with developers to finance solar system development and ownership.
A small community solar group, for example, can buy and own a 200 kilowatt DC project with 500 solar panels that can meet the electric needs of 30 to 40 families. It can also mean that the residents of a large city of 1 million people could make deals to with a solar developer to own a sufficient number of megawatts to meet community needs.
Let’s focus here on a low income community with 5,000 people and a 20 megawatt annual electric consumption. Its energy needs could be provided by 13 megawatts of solar generation. Estimate a cost of $1.50 a watt to build or $19.5 million dollars. The USDA REAP program allows both agricultural producers and rural small businesses (towns or cities with less than 50,000 people, with some exceptions for larger population) to receive REAP grants and guaranteed loans for up to 70% of project costs with a maximum 50% grant.
In an ideal situation, the solar system qualifies for both a 40% Investment tax credit, a 30% REAP Grant, and a 30% REAP or SBA Loan. In practice that’s a little less than 100% since the coop sells the ITC for 37%. Coop out-of-pocket capital costs are $585,000 or 3% of $19.5 million costs. Capital stack here of $19.5 million is $585,000 coop funds, $7,215,000 Investment tax credit, $5,850,000 REAP Grant, and $5,850,000 REAP or SBA loan. Absent REAP grant, 19.5 million capital stack is $585,000 coop funds, $7,215,000 investment tax credit, and $11,700,000 Reap or SBA loan.
In the U.S., the IRA converts the Investment Tax Credit to cash when new solar projects come online. The ITC that can also include the costs for storage and interconnection. The solar ITC base is 30% of project costs. But the IRA can reach as much as 70%.The IRA provides ITC funds directly to non-profits and municipalities and also allows business entities without a tax appetite to sell their tax credits for cash at a small discount to entities with a tax appetite. Under the IRA there is no reason that Community solar cannot become a path to solar ownership.
In states with retail electric competition, legislation may allow towns to both purchase power and own solar resources. For example, in New Hampshire I wrote the first law that allowed a town to purchase power for its residents and businesses. The original bill was expanded to allow the town to help facilitate municipal and individual ownership of solar resources.
In contrast to state regulated retail power, wholesale power is Federally regulated by FERC (Federal Energy Regulatory Commission) rules for sale to utilities and end users. In some of the several large regional utility networks, it is possible for large scale developers to become members of the regional transmission group, for example, NEPOOL (New England Power Pool) that is also managed by the NE ISO (New England Independent System Operator).
Conclusion: The economic and political power of polluters, as usual, stands in our way. It’s important, in retrospect, to understand the consequences of the great surge in American industrial might and victory in WWII and emergence of the U.S as global leader. The American celebration of the 1950s and 1960s also led to enormous increases globally in industrial output and fossil fuel use that has globally expanded.
Since WWII, carbon dioxide emissions increased from 4.6 gigatons to 37.5 gigatons, or 820%. It was not until 1988 until global carbon surpassed the 350ppm barrier. According to Statistica in 1946, global carbon dioxide emissions were 4.64 gigatons, carbon dioxide at 310.3 ppm. By 1960 global carbon dioxide emissions were 9.39 gigatons and carbon dioxide at 320 ppm. In 1984 carbon dioxide emissions 19.66 gigatons, carbon dioxide 342 ppm. In 2022 emissions 37.49 gigatons, carbon dioxide 422 ppm. The ecosphere’s ability to maintain stable carbon levels is now overwhelmed and we are entering the era of progressively worsening climate disaster. The carbon dioxide ppm numbers do not lie. Politicians and polluters do.
Global ecological economic growth is our path to a sustainable, richer, and just future. This uses the climate emergency for long-term ecological, economic, and social prosperity manifest on a global convergence of sustainable norms for all. This is not charity but patient investment in mutual self-interest.
We are on the path toward global ecological calamity. The rapid development in the next decade of massive solar installations and improving efficiency and decreasing emissions is crucial. Making solar energy users energy owners is part of the pursuit of ecological and social justice. Energy users of all income levels must have a seat at the table to help make the crucial decisions ahead toward mitigating ecological calamity. This is our opportunity for sustainable transformation and renewal. Together we can build the road as we travel toward a sane, peaceful, and prosperous global ecological civilization.