Matthew H. Brown has worked for twenty years in Europe, North America, and Asia on energy issues. Brown has written more than fifty articles and books on renewable energy, energy efficiency, energy regulation, transmission, energy technology, and critical infrastructure protection. He holds a bachelor of arts degree from Brown University and a master of business administration from New York University.

Excerpt:

The typical activist government or business response to evidence of climate
change is to commit to reduce carbon emissions. Many go further and make
specific commitments to buy power from renewable-energy sources or to
reduce their energy consumption. A few take other steps like buying carbon
offsets to effectively neutralize their emissions of greenhouse gasses.
These are critical steps. But an essential element is missing—one that is a
necessary step if the fight to stabilize carbon emissions is to be successful:
financing. This chapter describes a few innovations in financing the transformation
to a low-carbon economy. These innovations do not rely solely
on government funding; such funding will always be limited and will never
be sufficient to stimulate the massive changes that will be required for this
transformation. Instead, these innovations focus on exploring ways to leverage
private and public capital, using both funding sources together so as to
multiply their combined effects.

The historical background upon which these innovations rests began
in the late 1970s in the United States when states like California and the
federal government adopted policies to encourage renewable energy. Climate
change was not yet on the policy agenda at the time; energy security
was paramount. Some of these early policies worked successfully over several
years to nudge emerging renewable markets closer to the mainstream.
California’s combination of tax credits and standardized utility payments
to independent renewable-power generators in the 1980s are an example
of this kind of financing policy. The financial returns from these California
policies alongside federal tax incentives meant that developers of renewableenergy
facilities could often make money from the incentives alone, whether
or not their facilities actually produced any energy. Fundamentally, though,
such a policy is not sustainable; it relies on a business model that is entirely
dependent on subsidies, and subsidies themselves rely on government’s
unpredictable appetite to consistently extend those subsidies.

Ideally, the financing arrangements to support energy efficiency and
renewable energy should rely less on subsidies and more on sustainable
financial partnerships between governments and the private sector to provide
low-cost capital for clean energy. To be really successful and sustainable,
however, any public-private financing initiatives should follow four
rules. The initiatives must be:
• Scalable. They must be able to step up to a very large scale; pilot programs
are fine, but the goal should be to mobilize large amounts of capital and
deploy that capital through well-marketed programs that reach large numbers
of people.
• Secure. Initiatives must recognize that money put at greater risk will cost
more than money put at lower risk. Therefore, financing programs should
be structured to provide secure ways to recoup money and to distribute
risks to those who can best bear those risks.
• Sustainable. Initiatives that rely on rebates may have a short-term impact
on building a market for technologies that are more expensive than their
traditional competitors. However, a goal for financing should be to seek
sustainable sources of funding that can provide steady support to the
investments that the private sector and governments must make over a
period of many years.
• Simple. Simplicity is key. People must be able to borrow money through
a streamlined process that performs quickly and minimizes paperwork
while adhering to underwriting standards necessary to ensure that borrowers
will be able to repay their loans. Financing programs, whether
designed for homeowners, developers, industry, or government agencies
should be designed for simplicity.