Green investment

I'm having a hard time seeing the point of the Greens' proposed new government-backed green-tech investment fund.

Here's their description:

In our first term of Government, the Green Party will:

• Establish a government-owned, independent, for profit Green Infrastructure Fund with a social and environmental purpose, to act as a magnet attracting private finance to transformational low carbon, climate resilient projects.
• The Fund will kick-start new clean infrastructure projects like solar and wind power installations, energy efficient buildings, biofuels, and other clean technologies.
• The Fund will have a minimum target rate of return of 7 percent, an annual emissions reduction goal of one million tonnes of CO2, and generate thousands of new jobs.
• It will cost $110 million over three years to be initially paid for by raising oil royalty rates from 46 percent to the international average rate of 70 percent.

Their full policy document points to what they see as the problem:

Without the right policy, price signals, and supportive partner institutions in place, private capital has continued to fund carbon and resource intense investments, while starving the emerging cleantech sector of the capital it needs to thrive.

I can understand there being a lack of investment in some tech, and overinvestment in others, if the price on carbon isn't right. But if that's the problem, and if the Greens are proposing the right price for carbon, then the fund isn't really needed: investors would shift over as the price signal changes. If the projects can earn a 7% return and aren't more risky than other comparable investments, I don't know why government kick-starts are needed.

Radio New Zealand called me for comment on the thing on Saturday; here's what I sent through. I recorded an interview on those themes; not sure if it aired as I was out with the kids Sunday.

1. If there are green-tech investments out there able to earn a minimum 5% rate of return, or a targeted 7-8% rate of return, what barriers exist that currently block that investment in New Zealand? We keep being told that the world is awash in capital, with loads of savings looking for relatively safe homes with reasonable returns. What problem is the fund then trying to solve?
2. If the barrier to green-tech investment is that returns are too low because the right price signals are not in place, it's still not clear what problem the fund solves. If the price signals aren't there, then the government's $100m won't find projects yielding returns and private capital won't join it; if the Greens put in place higher carbon charges that would make some green-tech investment feasible in New Zealand, again the fund wouldn't be needed as there would be private capital already ready to make the investment. The document says that clean tech's benefits aren't always captured by investors so government is needed - if that's right, isn't it more appropriate for government to be taxing pollution and then letting investors work out for themselves what works best to solve things?
3. It is odd for an investment fund to have a job-creation goal in addition to rate of return on investment. That wind turbines employ a lot of wind turbine technicians isn't a good reason to invest in them. If they happen to employ a lot of technicians while still producing electricity cheaply, that's something different. I hope the bullet point on job creation is an ancillary by-product of the investment rather than the point of it. Note too though that if those skilled technicians are necessary for the projects to go forward, and if New Zealand doesn't have them already (or enough of them), well, we're already at very very high employment rates - would we be then importing workers to do it, or would this be a longer-term thing where they'd plan on putting in new training programmes for very specialised jobs? If it's the latter, that's risky too: the price of solar (I think!) is dropping faster than the price of wind power; what happens if the government encourages a pile of kids to train up to be wind technicians and the next year, everybody's installing Tesla solar roofs, the price of power drops, and wind farms are no longer viable?
4. The proposal suggests funding projects like house retrofits, or innovative diversions from landfill. None of those make sense as investment projects. Homeowners can already borrow at the mortgage rate to fund house insulation projects, or lighting retrofits, or whatever. If that lending were less risky than the mortgage rate, banks would be competing already to provide funding for those projects at the lower interest rate. So what would this fund then do: provide loans to homeowners to put in insulation and the like, and charge a lower interest rate than the banks? Why would private investors stump money for that when they could buy shares in banks instead? Similarly, landfill remains remarkably cost-effective.
5. The way solar prices are dropping, I'd put reasonable odds on NZ hitting a 100% renewable electricity target (or darned close to it - maybe one other plant sticking around for emergency peaking demand) by 2030 even without a drop of government money going in. Have you seen the new Tesla roofs? They're already advertising as cost-competitive with traditional roofing materials; they'll be available from next year. Give it a decade and all the new roofs going in, and roof replacements, will be solar plants - unless the price of electricity drops faster than the price of these distributed generation panels. I also wonder a bit about the point of biofuels once we're at that point (although there's really cool stuff on the horizon from algae).
6. Kick-starting the fund by hiking oil royalty rates may be risky. I haven't had time to check into it, and won't have time to, but surely folks who have sunk capital into building offshore wells would have signed contracts specifying the royalty rates, right? It would be pretty surprising if anybody were willing to put in tens of millions in investment if they thought the government could wipe out the returns by hiking the royalty rates quickly. And if it had to raise the funds by hiking royalty rates on new drilling, well, there hasn't been all that much interest in drilling even at current royalty rates.