Green Bonds – A Logical Path to GHG Reduction

by Beth Bailey

How will the Trudeau administration lead us into economic recovery?

It’s clear that it will likely be heavily geared toward “green stimulus”.  And since a common theme through the government’s green initiatives is greenhouse gas (GHG) reduction, a logical starting point should be to incentivize GHG emitters to improving emission profiles. This makes way more sense than a myopic focus on the replacement of fossil fuels, as some climate activists would desire. 

The Canadian energy industry has been world leaders in innovation and technology development, providing numerous benefits to the world’s energy industry. These innovations and technology have led to a 28% reduction in GHG emissions per barrel of oil produced since 2000 without the assistance of government. 

Canadian businesses spent $11.8 billion on environmental protection in 2014, of which 55% was spent by the Canadian energy industry.

With a modest amount of incentives that Canadian energy industry could significantly reduce its environmental footprint and showcase its accomplishments to the world. So here’s a perfect opportunity to bring out something new with the green stimulus recovery effort – “green bonds”, which are a popular in capital markets circles around the world.

A green bond is a type of fixed-income instrument that is specifically earmarked to raise money for climate and environmental projects and encourage sustainability. The focus on environmental, social and governance (ESG) factors in determining global capital flows has highlighted many attractive features of green bonds.

The Climate Bonds Initiative is a global organization promoting green bond issuances, and it estimates there will be over US $350 billion of Green bonds issued in 2020. 

Most green bonds to date have targeted renewable energy, and low carbon infrastructure, but none have targeted the reduction of GHG, water use and reclamation activities, all falling within the domain and expertise of our largest economic contributor to Canada.

Here is a market opportunity.

The Alberta government should be promoting and supporting an Alberta Green Bond because it would elevate Alberta and its energy industry above other jurisdictions and highlight the ever-improving trends of sustainable resource development which is unique to Alberta.  This would allow it to finance and showcase the huge improvement the energy industry has made and will continue to make with GHG reduction and other sustainable initiatives. 

The influence of the climate movement in capital market has resulted in Canadian energy companies finding it more difficult access to capital, and much higher costs of capital than warranted given their leading-edge practices in environmental, innovation and stewardship.  The Green Bond can provide a pathway to lower cost of capital, encourage initiatives to reduce the energy industry’s environmental footprint, provide more accurate and reliable metrics on environmental and social matters that are uniquely relevant to the Canadian industry. 

The Green Bond would provide financing of projects that would result in the reduction of GHG emissions and energy efficiency, with the objective to demonstrate the Alberta energy industry’s commitment to sustainable operations and continue its leadership in climate change mitigation. 

Reliable, and sustainable energy is fundamental to a healthy environment and a strong, low-carbon economy. 

Beth Bailey is the Executive Director Suits and Boots

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