 Good afternoon from the east coast of the United States, welcome everybody. I'm David Fenton, the founder of Fenton, the social change agency, and I'm also a longtime climate activist. Welcome to Inet Live's climate debates. This session will discuss green finance, the future of capital or financial window dressing. And all I can say is that it better be the future of capital or there may be a lot less capital around as the weather starts destroying things. So let's hope that the financial world starts to understand this better and stops investing what many of us consider suicide. So joining us today are Brett Christopher. Brett Christopher is professor at Uppsala University in Sweden. Leigh Johnson. Leigh, is it Leigh or Leigh, sorry? You're on mute. Leigh. Okay, sorry about that. Leigh Johnson, assistant professor at the University of Oregon and Adair Turner, Inet senior fellow in grantee as well as chair of the Energy Transitions Commission. Throughout the talk, we'll take a few questions from the audience. Please submit your questions anytime by clicking on the Q&A button. So let's get started. And Leigh, why don't we start with you? Sure. Thank you so much. Let me just make sure I've got my timer to stick to our allotted time. So I'm really excited to get going on this debate and I want to stoke the fires by beginning with my own definition of a green transition because I think we often forget a second component of it. The first, which I think we would all agree on, is this idea of needing to transition energy manufacturing transport systems and the built environment generally to renewables. And the second, which is often neglected, is managing and mitigating the impacts of the past 200 years of fossil fuel based growth on existing systems. So what you might call this adaptation retrofitting plank. So on the first plank, which I think the other two speakers are going to focus more squarely on, so at least most of that to them. But I want to make one big point, but it's easy to buy into the logic that falling costs are the lever we need to achieve substitution of renewables for fossil fuels. And this is almost word for word, the logic of Gates's breakthrough energy and the big new investments that were announced yesterday as part of Climate Week. But there's very good evidence that an aggregate economy-wide, at an aggregate economy-wide level, substitutions don't naturally follow as renewable prices fall. So even as fossil fuels become a smaller relative component of the energy mix in absolute terms instead of substitutions, we see very significant energy additions. So there's a macro-legible modeling that shows that every megawatt of renewable energy displaces only about a tenth of a megawatt of fossil energy. So what does that mean? Why? Well, we find more uses for energy. And the energy footprint of something like Bitcoin mining is a really harrowing example of all of this. So by and large, those new additions are not going to what I would call socially useful purposes, and they're not going to the vast parts of the globe that are still living with energy poverty. So that means that more supply side controls on fossil energy have to be part of the conversation. Voluntary corporate and institutional investor pledges are great, but not enough. There's always going to be some actors willing to flout those strictures. And I think we really also need to talk about radical strategies for keeping fossil fuels in the ground. And whether that's global source taxes on capital income or capping the grid or nationalizing some fossil fuel resources, there's got to be some really command-oriented approach and control-oriented approach to keeping those in the ground. Then on the second plank, which is adaptation. And if you doubt that this is a necessary part of the green transition, you should look at the woes of Pacific gas and electric, which is an investor-owned utility that's California's largest energy provider. And as many of you probably know, it entered bankruptcy after its lines started the deadliest wildfire in California history in 2018. It recently exited bankruptcy, only to face billions more in lawsuits for causing yet more wildfires in the subsequent years. And meanwhile, you've got hundreds of thousands of consumers living with these public safety power shutoffs in dry gusty conditions and paying them rates to bear the cost of the company's liabilities and its costs for operating in a transformed climate. So ultimately, you do have to find a way to bury the lines, which an investor-owned utility has very little interest or incentive to do. So that's the sort of thing where you've got to start thinking about public pools or making those utilities publicly owned and subject to really stringent adaptation and retrofitting controls. The last thing I want to say is that there's a really major problem in a lot of adaptation policy that assumes that price signaling from financial markets and particularly from insurance is going to create the necessary adaptations. There's a bunch of problems with that assumption. The first is that it assumes that there's perfect information about the actual current risk, whereas in fact, insurance pricing is much messier than that. Excuse me, we're running out of time. That may not react for years. And then the second, I'll end with a second then, is that it assumes that people can and will react solely to price structures and it's often much too late once the prices catch up with the current risk. So I'll end there for now. Thank you very much. Brad, would you like to go next, please? Sure. Thanks, David. Thanks, Lee. Okay. So before making a few basic assertions or points, I guess I want to say what those assertions or points are based on. So what I'm going to say is based on a bunch of research, some of which is ongoing research, into the financing of both fossil fuel production and renewable energy production on both the debt and equity side, and also in both primary and secondary markets. So looking at both the raising of capital, but also the buying and selling of equity capital on secondary markets. And so a lot of this work has been based upon interviews with financiers and investors, as I say, which is ongoing. And what I want to just suggest very briefly is that there's good news and there's bad news, although I think there's predominantly bad news. So the good news, which is I guess what I'll start with, is that based on what I've heard when I've been talking to people, I would say that not all of the kind of ESG stuff that we hear about is necessarily fluff or greenwashing. I don't think that's necessarily the case. For example, some private equity energy firms that I've been talking to have said that they've been struggling to raise finance for oil and gas production from certain groups of institutional investors like some public pension funds, for example, who simply just don't want to touch that type of business anymore. And conversely, do want to put money into renewables. So I don't think it's all fluff. And so I don't think it's all necessarily bad news. But I do think it's predominantly bad news. And I want to make free basic assertions along those lines. So the first is kind of the most obvious point, which is that fossil fuel producers can still get finance. And they can still get finance in primary markets. And if it's not from public pension funds, for example, it still appears to be the case that it's relatively straightforward for them to get finance from other sources. And that's especially true of debt. But I think it's also true of equity to a certain extent. And it just tends to be kind of less visible sources of finance, where perhaps the pressure that's being brought to bear by campaigners, for example, is not necessarily the same. So they can still get finance. That's the first point. The second point is that it's still affordable. That finance is still affordable. So if the only way that the finance sector can wean the economy of fossil fuels, other than by starving fossil fuel producers of capital entirely, is by increasing the cost of capital to a kind of a punitive rate, and I suspect it probably is the only way, then there's no evidence that I can see that that's happening yet. So that's the second point. And then the third and final point is that I think all of this at the end of the day comes down to a relatively simple point. And the heart of this is a basic problem of profitability. And what I mean by that is that oil and gas is still for the most part a good investment. And so in the kind of models of cash flow models that oil and gas producers and their financiers produce, this tends to hold even with carbon taxes being incorporated within those models at the scale that's currently being muted. So they don't see that the oil and gas is a sufficiently bad investment for them not to want to finance it. And more importantly, it's still seen as a better investment than renewables. So the operation of wind and solar farms is highly competitive, it's a very low margin, and the margins are declining as subsidies get removed around the world. And so even if there are lots of investors out there wanting to support renewables, and I think that absolutely there are, they're struggling to find a profitable home for that capital right now. And so I think that's a big, big problem going forward. And that's where I believe it. Very good. Adair, would you like to come next? Well, as Lee has said, we are already facing significant climate change. So we already face the need for adaptation. But we have to limit climate change as much as possible and to have let's say a 50-50 chance of limiting it to 1.5 degrees and a 90% chance of limiting it to two degrees centigrade. The IPCC analysis suggests that we need to get the whole world to about net zero around mid-century. And my commission believes that the absolute rule should be all rich developed economies must get there by 2050 at the latest. Some developing, lower income developing, it's okay to get there by 2060. The good news and the Energy Transition Commission, which I chair has set it out, is that that is absolutely technologically possible given what is happening on the technologies of renewable electricity, of hydrogen, of how you produce steel in a zero carbon fashion. And it's possible to decarbonize our economy, not just in the easier to abate sectors of the economy like a road transport, but in the harder areas, steel, cement, chemical, shipping, aviation. And once we get there, once we get to the second half of this century, the impact of that on living standards will, I think, be trivial. The challenge is that in order to get from here to there, there has got to be a lot of new investment and a lot of reallocation of investment. Order of magnitude, our calculation is that we have to invest about one and a half to two trillion dollars per annum, which is about one and a half to two percent of GDP in new things, while also not investing about 0.5 percent of GDP in old things. It's a net increase in investment, but it's also a major allocation, reallocation. And of course, that means that the financial system, the asset managers and the banks have got to do something quite big in terms of investing in different things from where they were in the past. A lot of that reallocation will have to be driven by public policy. And I think you have to be clear about this. The majority will not occur because people voluntarily do it for the good of society. We'll have to have hard public policies. Those should include carbon pricing. And in response to Brett, I would say we don't have the carbon prices high enough. The European Union is getting there. The European Union by 2030 probably will have quite a pervasive $100 a tonne carbon price, but it is an outlier in the world. But we should also use regulation. Let's be clear. The way to drive the decarbonisation of road transport is not through pricing. It is simply by saying there's a date beyond which it will be illegal to sell an internal combustion engine. That has been set in the UK at 2030, in Norway at 2025. And I think we should be trying very hard to get that at 2035 as an absolute backstop across the world. I also agree with Lee that we need absolute supply constraints on fossil fuels. So the International Energy Agency in its net zero report in May said we do not need and we must not have new oil and gas exploration. We've got enough in the ground. We've got to leave quite a lot of the reserves we already know in the ground. So let's not make our problem worse by discovering new ones. And so I think just very clear rules that say that permitting regimes are not going to allow people to do new oil and gas exploration should be there. So a lot of it has to come from policy. But I think there is also a role for the sort of net zero commitments which many asset managers and banks are making. So I am working directly with asset managers and banks who are trying to work out what they can do to make their investments and their lending compatible with a path for net zero. And I would say this is in many cases not greenwashed. It's for real. There's a lot of work going on. It will never be sufficient in itself but it is also incredibly valuable and it's incredibly important. I absolutely agree with Brad that even if we can get all the big known publicly listed asset managers and banks in the world to say we will never fund a new coal development you'll find it very difficult to stop people getting finance from somewhere in the private equity markets for instance which are much just susceptible to that. And that's why you need those hard policies as well. But the fact that an increasing number of major banks around the world are saying no new coal. No new they usually say no new high cost oil and gas development. I'd like that to be that no new development at all. But it is getting tighter and it is having some of the impacts that Brett is suggesting. So yes we need those voluntary commitments those clear net zero targets. They are not all greenwashed. They do play a powerful role but they'll never be powerful enough without public policy also setting some very clear boundaries both of price and regulation within which the private financial sector has to operate. Thank you very much. So this is the moment when our esteemed panelists can add to each other's comments and question each other. So who would like to go first to either challenge or emphasize or reiterate something that you heard? Well I've already done that on two things. I'd forgotten we were going to do that because I've already as it were name checked two things. Well there must be more. Brett said no but I wanted to actually pick up something that Brett said about you know oil and gas looks you know higher return than the renewables. I think we have to realize and it's a challenge for oil and gas companies, it's a challenge for investors that renewables will naturally occupy a different place in the capital market risk return spectrum than oil and gas. As long as you get renewables market structures right the good news is that they're relatively low risk things. You have auctions, their costs of operations are known, they don't have all that many future risks. One of the reasons why they're desirable but what that means is that correctly structured what they are really well designed for are the sort of pension fund which wants a yield uplift against a risk-free bond. It wants a reasonable rate of return but not a high rate of return because that is the natural structure of a renewable investment. It's infrastructure investment it's like it's like investing in a toll road like investing in an airport. It will never be the sort of investment which is like oil and gas exploration. Oil and gas exploration is risky but in the past if you've got it right you shot the lights out you've got 25% and you know what you have is some investors out there who like that stuff they will undertake the risk but they want the high return. Investing in an offshore wind farm an onshore wind farm a solar farm will never give that rates of return because it doesn't need to. Now what we want with those guys who want that sort of return is to say in addition to this low risk low return infrastructure investment that we need in order to drive a zero carbon economy there are high risk high return things but they're in what you might call clean tech. They are investing in synthetic biology in the hope that this is going to create the synthetic meat that means we no longer need herds of cattle and sheep producing methane emissions. It's completely new battery technologies which are beyond the incremental improvements so there is high risk high return but there is probably inherently within what our new energy system looks like a bigger weight of low risk low return and some people investors in the market find that difficult to come to terms with. Anyone else want to respond or add to that Lee, Brett? Well I did want to chime in on the net zero conversation because I think it's an interesting one and there's so many ways of defining net zero or even deciding who the proper target of a net zero call should be. Whether of course it's corporations or whole nation states themselves and there's been some recent arguments that the problem with net zero for corporations is not necessarily greenwashing that's a kind of separate conversation even if you accept that there are real transformations taking place because it's so difficult to compare across the board apples to apples and to draw the boundaries around different corporations energy structures and arrangements you might need to think about how net zero targets at whole nation state level fit in with those net zero corporate targets and that net zero corporate targets are really let's just say difficult to compare so they need some outside transparency some standards and reporting and it can be of some value but we can't take them at their word. Responds to Lee? Yes or dare? Yes I absolutely agree with this I think that the issue of what do people mean when they say net zero is complicated and needs a lot more precision. I think the steps on getting that precision are first of all being absolutely clear what you mean by net zero for a country and here you've got to decide to what extent you think that it is okay to say in 2050 you know I'll still have some gross emissions but I'm going to do some land use changes or I'm going to pay for some land use change elsewhere. Now what you have to do there within your national target is have a clear limit to what you rely on in terms of those things so the UK zero target set out now in legislation does not allow the UK to meet that by buying land use change reforestation outside the UK it places a boundary limit I mean that still leaves the possibility that the UK might as a good citizen in the world help pay for reforestation elsewhere but that's not going to count towards the UK getting to net zero and you've got to be clear what you've allowed there. You've already got to be clear what you have assumed you're going to do in carbon capture and storage right and you've got to make sure that that is credible. Our scenarios for where we need to be suggest that there is a role for carbon capture and storage but that it is much much smaller than some of the models used to produce so one you've got to define what is what did that phrase net mean is you know what was that what was the net in net then you've also got to be very clear on trajectory as well as end point because trajectory matters as well as for endpoint I actually believe that the easier bit of this is getting to something like net zero in 2050. My big worry is that unless we really force the pace with regulation and reallocation of capital we'll get there via a convex curve not a concave curve I will get there with 15% reductions to 2030 40% by 2040 and then wish it all happens in the 2040s. There's a sort of industrial logic to that given that there are a whole load of capital assets that take time to turn over but from a climate point of view we've got to be on a concave curve the IPCC says we've got to get down by about 15% in 2020s so you've really got to debate not just when you said net zero what the endpoint was but what's your trajectory from from A to B and then the final point which is a complexity for companies at one level people listening may not know this that these words what's called scope one scope two scope three in emissions scope one and scope two are broadly things that you either directly produce a co2 emission because you're burning some gasoline or you've bought in some electricity that took some gasoline scope three is about how much do you have responsibility for what your customers did with your product or how your supply chain surprised you now at one level logically as long as every single customer and corporate in the economy is committed to get it scope one and scope two to zero you could need them to own that scope three because everybody's go free and somebody else to scope one and scope two but actually there are particularly strategically important companies where either in terms of their customers for the fossil fuel industry or their supply chain for lots of other companies we do want them for now to own some of those scope three emissions and to take responsibility and try to drive them down but those are the multiple layers of complexity and one of the crucial things is just transparency and clarity of when somebody says that they're net zero how have they stepped through those set of issues very good yes one does need to be wary of this i'll point out and i don't know if you're aware of this in greenwashing history did you know that the term carbon footprint i'm told was invented by british petroleum and part of its purpose was to put the onus on the individual you bad person polluting and consuming carbon rather than on the industrial energy and transportation facility and infrastructure of the world and the people profiting from it so be aware very good so i want to get to some questions from the audience but lee i know much of the discussion centers around how much is this going to come from government finance and how much from private finance and what's the relationship between them and the red lines between them and one of the places i know that you're concerned about that this plays out is insurance because insurance markets are under enormous stress and we're just at the very beginning of that and if the government is going to step into insurance markets of course it has to be done in a way that's not limitless we will encourage a lot of building in the wrong places and and poor behavior this is i think a very underappreciated issue i saw the head of one of the global insurance trade associations say a few years ago that the world risk the collapse of insurance markets which imagine having an economy without an insurance market so lee do you want to tutor us on this a bit so one of the main well first of all we should differentiate between consumer and residential what many of us have been our quotidian lives think of as insurance which is often your homeowner's insurance or automobile insurance or whatnot and larger insurance for corporates and then the reinsurance cover that gives catastrophic cover for primary insurers and what we as end consumers experience as a price shock doesn't necessarily translate down that chain from reinsurer to insurer to us and at the speed in which you might think it would particularly for consumer markets there's all sorts of consumer protection regulation which doesn't exist in the same way for uh corporates and so that could mean that we're actually being being protected from seeing what an actuary deems the full cost of a policy to be for many years um and then only very suddenly after and finally a big loss um last year just 30 miles up the road uh almost 100 000 acres burned went up like that um and all of a sudden everyone realizes oh i better check what my policy is what are my exclusions um and you can see the first steps in this market starting to respond and translating that into price signals at which point um it's really already too late um to to to only start being responding now uh and you can think of similar situations which are even more baked in uh in flood insurance and i know brett has also written about um flood insurance markets um where these have been subsidized by the state for actually a very long time as part of a social safety net for homeowners uh which was very exclusionary of the rest of the population that didn't own property but the idea was well the state will help bear the burden um in britain and the uk i'm sorry in the uk and the us um will will bear some of the burden and um people weren't getting these so-called price signals for decades and decades uh and so in the us what's happened with the national flood insurance program is illustrative because um the national flood insurance program rate maps have not been updated for decades they were not reflecting even the current risk let alone risks that we know uh coastlines will face uh 10 20 30 years down the road uh so there's a huge movement following hurricane sandy in 2012 to update rate maps uh have homeowners start paying the full price of coverage um and you know insurers were actually quite interested in private insurers in some ways we're quite interested in actually being able to play in this market um if it was properly actuarially priced and that's a huge backlash because all of these people who have lived along the coast for generations and this is their primary equity right it's in their homes um are suddenly facing the full cost of that so what happens uh as a bigger waters gets rolled back uh and reformulated and there's all sorts of work around to make people still not have to pay the full cost of flood insurance and there's really the point I want to make is there's really good social reasons to think about other ways to pay for insurance um but then that puts huge burdens on the state uh which David was alluding to um and similar things are happening in california uh where the state actually had to put a moratorium on insurers um from just uh removing people's policies altogether uh from excluding wildfire from their homeowners policies uh and there's real talk about creating a california fire pool equivalent to something like california earthquake pool so i think the question um for from the perspective of private finance then is well how do we create a system in which it's not private insurers insuring while the getting is good and then the state has to take over uh once the mess is really well and done um so can you create a system in which private insurers have to pay in to a public reinsurance fund from the get-go um rather than only once things reach a really extreme point and that reinsurance fund so is is being partially capitalized by private insurers and reinsurers uh as a condition of continuing to do business when we know that things are only going to get worse great okay do others want to respond to that it's a complex issue and we shouldn't take too much time on it can I can I just make it more just on the point of private versus public finance private versus state finance a more general point um which is that essentially certainly in in the west certainly if you're talking about north america and europe we're still living in a world in which it is believed by the powers that be that private finance will suffice that if you that if you as government put in place the right policies or regulations to nudge private finance in the right direction through carbon taxes through um through other forms of policy making that private finance will ultimately step up to the table um and and fix things my own sense is that that is absurd actually given the given given the fact that you know um all that we have by way of evidence is what's happened historically um where it's it's plain to see that private finance has has led us in a particular direction which is not the direction in which we need to be going to to continue to assume that private financial markets with the necessary nudges in the right direction will will suffice I think is clearly clearly wishful thinking and I think that the sooner the government's kind of grasped the nettle on that the better but I don't think there's any particular signs of that happening anytime soon so I think at the end of the day it will require massive injections of public finance in one way or in one way or another particularly in terms of the new investment that's required um where it's not going to be necessarily obvious to the private financial sector that there are significant profits to be made and they're going to and because of that going to be going to be reluctant to invest and like I can't see the public sector forcing or compelling private financial investment in particular in particular particular directions and so I think that will mean will mean at the end of the day massive amounts of public finance but probably too late right there do you want to somewhat disagree with that or I think there is a particular role for public finance look when you look at the investment that we need it is absolutely dominated by the electricity system right our calculations are that 70 to 80 percent of all the new investment we need is essentially building lots more electricity generation and transmission and distribution lines so in the UK we have about 10 gigawatts of offshore wind offshore wind is our great resource the government has now committed to 40 gigawatts by 2030 and the indicative is about 100 gigawatts by 2050 and we will double our use of electricity we essentially buy that electricity the projects by declaring an auction for developers to say the lowest price at which they would deliver the electricity against a firm contract and I'm very confident actually that all that 100 gigawatts is deliverable in that fashion because there are a whole load of a pension funds and insurance companies whose natural desire is for a low risk low return investment and at the moment what they can buy is a government bond which has a real rate of return which is negative right so they are desperate to earn some yield uplift against a negative real rate of return so I actually think these big investments in those sectors via that market structure I think they will be financed what I'm more worried about is particular categories of investment that we now need around the world one of them is the same category of investment but in Africa where if you want the pension funds or the insurance companies of the world to say go off and seize the African opportunity and the African opportunity is to skip a generation it's never to build a coal-fired power station to start with so you never have to discuss how you run down your coal power space they have limitless quantities of wind and solar some of the cheapest stuff in the world but at the moment institutional investors across the world are incredibly wary and at one level they're right to be wary there's very big political risk a lot of the distribution companies are essentially bankrupt you know you've got all sorts of complicated distributional issues about you know how you enforce contracts against low-income people whether you should for electricity it's a political really big problem so there you know if you wanted to do a wind farm in the North Sea you'll have you'll get people queuing up to give you the money for three percent real you want to do the same in the Sahara you find you won't have people you know except a 15 percent real and that's a major impediment and this is where the whole role of development banks right this is what development banks are therefore in the world they are mechanisms to overcome these high cost of capital in trickier and more complex environments so that's where we need you know a big a big role and I think we should be seeing the major developed world bank developed countries stepping up to higher capital resources for our major development banks whether it be World Bank African Development Bank EBRD etc the second area is may surprise you that apart from the electricity system by far the biggest additional investment in the UK is about 15 000 pounds 20 000 per household to fix their residential heating system right it's how do you get rid of gas boilers how do you put in electric heat pumps and how do you insulate the houses well enough that it's sensible to have an electric heat pump now that is actually quite a tricky financing thing because I mean for a lot of pension funds and you know insurance companies the units here are far too small for them to be interested the banks don't think it through sometimes so here what I think we need is combinations of public and private finance I was talking the other day for one of our biggest mortgage lenders in the UK and saying what you need to do with government is create a very simple product where the government provides a bit of a subsidy and a guarantee for you to say to anybody who has a mortgage where it's currently below let's say 70 or 80% loan to current value here you can borrow 15 000 pounds very easily very slickly with good information about where to go to do the insulation which will bring down your energy costs in future we need to make that sort of quite a micro project a really smooth thing to occur because a lot of people at the moment would face a high cost of capital now we will also need to put redistribution into that what you actually have for that 15 000 quid each investment is you've got upper income people who've got that amount of money in the bank currently earning 1% because that's all interest rates are so if you point out to them that they could save money on their energy bills to get a return of 3% their cost of capital is below it it's in lower income group people have the highest cost of capital because they've got the highest loan to value ratios so you may have to have a redistributional role in there so I think we need to focus this issue about the role of the government balance sheet on specific problems like the development challenge in Africa and other countries with high cost of capital and these residential investments while recognizing that we can if we want and we have the structures right rely on the existing forms of private finance to drive all the wind farms that the UK needs in the North Sea very good so we have now about 12 minutes left and we have a number of questions from the audience so I'd like to turn to those and and and let's try to do this at a somewhat crisp pace so we can get to a number of them if that's okay so the first question from Diego Hidalgo is what types of financial regulation are required to promote investments and renewables and not in oil, coal and gas what types of financial regulation are required who would like to take that on Brett you're I mean my simple my simple observation there would be that historically renewable development has been driven overwhelmingly by direct and indirect government subsidies of various forms and my I guess part of my worry is that as the cost of and this goes back to something that Lee was talking about in the beginning that as the cost of renewables has come down lots of governments unevenly admittedly but lots of governments have been withdrawing or with or at least reducing subsidies and I think that's very very dangerous and very very problematic and I think that maintaining subsidies of various forms even if it means padding the profitability of of financial investment institutions is probably necessary to maintain and grow the rate of growth of renewables investment and it's in that sense it's encouraging to see the Biden administration talking about extending for 10 years the tax credits that have been used there historically so I think subsidies are probably a necessary thing to keep in place yeah well we should subsidize survival not suicide right it seems sensible Lee were you going to say just I think the flip side of that which is maybe so obvious that we haven't said it is ending all fossil fuel subsidies it's not exactly financial regulation per se right but that shouldn't go unsaid for sure okay so very quickly oh yes of course it there so it used to be a financial regulator a chairman of the UK financial services authority look the key thing we've got to do to here is not financial regulation it's other forms of subsidies and structures and supports and regulation it's just regulations and support in the real economy the one bit where I would slightly disagree with Brett is I think we are getting to the stage where solar and wind does not need subsidy but it still needs long-term contracts right it is a natural structure of wind and solar that you build a wind farm or a solar farm it costs a lot of money to put in up front and then it has a zero marginal cost of operation ever thereafter right or very close to zero that means that driving down the cost of capital is crucial and the way to get down the cost of capital is to have a fixed price at which that guy can deliver that electricity over a 10 or 20 or 30 a period now what that price is can be subject to an auction and we are now seeing those auctions producing prices which are way below way below the cost of coal and we're seeing that around the world when in India we've seen auctions come in at below three cents per kilowatt hour whereas that is below the cost of coal so you don't need a subsidy you don't need to give them a price which is you know higher than it would otherwise be you can use competitive auctions but the competitive auctions have to be about a bid for a long-term contract it's about it's about market structure and it's about allowing those long-term contracts to exist rather than subsidy per se so here we have a question that's indicative of the financial sophistication of some of the inet audience from Zoe Lindsay what is the panel's view on the row of macro prudential regulation i.e. should carbon intensive investments carry different risk weightings under the banking regulations? Dara, since you're a former regulator you want to start with this? I don't think this is the major thing and as a former financial regulator my immediate thing is you know macro prudential regulation for macro stabilization purposes is a complicated enough issue in itself and we know the key elements within it it's about preventing property price booms and busts funded by leverage so I'm a little bit wary of doing that I'm not totally against it I'm not totally against the regulator saying look there is a risk there's a stranded asset risk in lending against coal or against certain categories oil and gas so I'm going to put a bigger weight on that I'm not against that I'm not against the idea that within central bank you know discount windows for exactly the same purposes you're going to say I'm going to give you a higher price to provide liquidity and indeed some central banks like People's Bank of China really extends that a significantly long way and is more willing to lend against you know green loans and dirty loans so I don't think you should exclude it but honestly I would not rely on it for being the major lever and broadly speaking I tend to think the major responsibility lies on the government as regulator and the government as taxer rather than the central bank I know why some people reach out for the central bank and at one level it's it's it's understandable they think it's going to be politically more difficult to get through parliaments and congresses you know carbon prices so if I can persuade these central bank governors who have enormous personal discretion to do things without being subject to democratic limitations you know constraints yeah get on and do it and at one level I'm sympathetic to that you do have to be cautious what you wish for because if you give central banks under one administration if you look at them and say to the Fed I'm getting a carbon price difficult to to get through congress so mr. Powell will you previously you know do your rules in a way which favor this type of finance just be wary that you don't then get another president in future who says ah yeah well I rather like that gas pipeline you know why did you lend against that so the the idea that central banks and regulators are neutral as to the real economy sectoral results is not a bad principle well on that point I don't know if anybody else wants to weigh in but in our audience Pedro this gay ass I would like to ask about the role of central banks as regulatory agencies in the financial system are they making sufficient effort in transitional terms brat we do you want to weigh in on the central bank question I guess enough has been said about it I think the macro prudential point is in a sense the question yeah sure I don't stress in a different way so Lee you have your you're off mute you want to say something or should we move on okay so here's a deeper question are from mary j martini are governments held back in climate policies by their dependency from capital markets for those who rely on borrowing if so how to break this circle I think you the they're talking about corruption aren't they are governments held back in climate policies by their dependency on capital markets for those who rely on borrowing if so how to break this circle I'm not sure that they are I mean is the the supposition here that if a government has a large amount of a debt raising need that that fact is constraining its climate policy I'm not sure that that's right I mean you haven't seen that no I mean if you've got a bit big debt servicing you know and you're a ministry of finance what's not to love about a revenue stream from carbon taxation I mean you know you're you're under pressure to do it look I think the big constraints on government are far more to do with lobbying and depending on your political environment lobbying that goes as far as corruption and vested interest I think that's the you know that's the big constraint I I don't think you can look around the world and say the heavily the countries with the heavy debt burdens are not doing as much I mean you know look in Europe Italy is more constrained on its debt than Germany but Italy's under Mario Draghi is now doing as much on climate change as Germany so not quite convinced when their age is clarified no not not corruption the lack of money to implement the policies okay so it's just yes though remember some of the policies you want to do is to tax people you know some of these things that you want to do bring you in money rather than spending it yeah I mean at one level you may be right you know if you go back to what I said about the UK government needing in the UK to fund those um you know or to find ways with the private sector to fund you know residential heating investments yes it could be the case that you know we have a Treasury which is saying you know debt to GDP has gone to 100 percent it's shot up another 20 percent during Covid they're being more cautious about putting their hand in their pocket to do this than they would be but that should be balanced on the other side by the desire to raise taxes and given that you can help drive this process either by raising taxes on bad things or subsidizing good things it it works a little bit two ways. One more question and let's hear from Brett or Lee Mark Cliffass how far is the panel concerned that climate finance will be hounded out of public markets and into the shadows of private markets and SOEs beyond the reach of western regulators and investors which is happening with bitcoin you could say Brett yeah I think it's a very I think it's a very real issue I mean I think most of the you know so much of the debate that um that goes on um and we've we've sort of hinted at this already is focused on kind of the public capital markets and is focused on western fossil fuel companies you know the the exons and the BPs and and so on but you know if we're being if we're being totally honest you could you know if you if you really push the argument you would say that what happens in the west and what happens in western capital markets and what happens with the western fossil fuel companies is ultimately a bit of a sideshow to to to where the real action is at if you think that I can't remember what the exact figures are but certainly um you know I think it's more than 50 percent of global fossil fuel production is now under the control of of the national oil companies uh in in the Petro States and something like 85 percent or even 90 percent of fossil fuel reserves are under control of state-owned companies and so what happens on the supply side um is kind of out of the west hands at the end of the day and what happens on the demand side if you think of future demand growth being focused predominantly if not exclusively in Asia for future energy demand growth what happens on the demand side is kind of out of the hands of the west as well so at the end of the day um I think that you know a lot of what we've been discussing this evening is is actually a little bit of a sideshow and I think is that is that is that a concern it depends what you think about the the likelihood of progressive action being taken by those other types of institutions but it's the but it's the reality lead you have a quick closing comment on that um well just to sort of tack back with this conversation to something Adair was mentioning um because quite a bit of my work is in Africa and I do think um quite seriously about the problem of energy poverty and extending the grid and the reality of how that is happening in Africa right now is some relevant bank work um but by and large it's Chinese investment that does not come with ESG strings attached to whatever right and that uh tends to meld very nicely with um more authoritarian styles of government uh and which you know lower levels of transparency so how we can seed the sort of transformations that are necessary requires a lot more than just big dumps of capital investment it's these really small projects you know like solar micro grids incredibly impactful and in terms of you know expenditure per unit of energy to get it to where it's needed in Africa very expensive to get it there and maintain it but the cost of actual production of that energy is relatively low so it certainly requires upending a lot of these assumptions about large investments and thinking about how we can do small things just as in uh UK households well you've got to have the same kind of thinking in um you know northern Kenya or south Sudan so we're out of time and I want to recommend something a little unorthodox to everybody for some really interesting financial ideas I'd like to recommend a new science fiction novel and it is called the ministry for the future by Kim Stanley Robinson the ministry for the future right you look like you may have read it and uh they get the central banks of the world to release a new digital currency called the carbon coin which you get if you either take carbon out of the atmosphere or reframe from putting it in and it has very interesting effects I highly recommend this very entertaining and sobering book the point of course is that the cost of inaction on heating the planet far exceed the cost of action and hopefully the capital markets will be nudged into being a little more intelligent about this so that we continue to prosper thank you all for joining us today this is the end of today we'll be informal discussions happening with the discussion lounge now should you wish to continue the conversation we'll be back again tomorrow for more debates and discussions at 9 a.m. Eastern we hope to see you then on behalf of I&N and all the speakers thank you and have a good afternoon