A slidecast of this presentation is available at http://www.slideshare.net/cscoxk/zero-interest-loans-for-energy-sustainability
Approximate text

This talk was first presented at the green new deal event put on by the green institute http://greeninstitute.org.au/gnd

It came after an talk by Tim Jackson who presented his book Prosperity without growth
In the talk I discuss one mechanism to implement Prosperity Without  Growth. 
The key to sustainability is energy sustainability. We cannot have prosperity without adequate energy and so the starting point for sustainability must be energy. If we can have abundant cheap sustainable energy we can address other issues but if we do not have energy we will not be able to achieve overall sustainability. To achieve cheap sustainable energy we must replace or substantially modify the way we generate most of our energy and that will require investment. This talk addresses how to obtain the money to invest.
First let us look at the costs of energy by various means. This diagram shows the proportion of costs to produce a kwh hour of energy using the economic system we have in place today. The green represents the cost of repayment, the red the cost of interest and the blue the running costs. The red and the green financial (or money) costs dominate the cost equation for all ways ways of generating energy.
This slide shows the actual costs in cents per kwh. Clearly unless we address the interest and repayment costs it is going to be difficult with today’s economics to get the amount of investment needed to produce enough energy.
In this slide we see the estimated costs in 2020 to produce a kwh of energy. Again the dominant costs are interests and repayments. If we do not reduce the costs of interest and repayments to make renewable energy economically competitive we must increase the cost of fossil fuel by increasing the operating costs of burning fossil fuel. We can do this by putting a price on the emissions of carbon in some way.
This slide shows how much do we need to increase the price of fossil energy to make renewables price competitive. Even for very efficient methods such as large scale geothermal or wind energy we will need to double the price of energy to make renewables price competitive. This will impose unacceptable burdens and it is highly unlikely that we can get all countries in the world to agree to such price increases.
This slide shows us how much it costs to save 1kg of CO2. The negative amount for coal shows the cost of saving 1 kg of CO2 through energy conservation. Clearly energy conservation is today the cheapest way to reduce CO2.
The message from the previous graphs is that if we could reduce the cost of finance we would make sustainable energy profitable and hence people would invest. 

To see how we can reduce the cost of finance let us examine how finance works today, then propose an alternative and show what is needed to make it work.

Let us first look at how a coal producer with and existing energy plant finances the building of a new coal plant. He goes to the bank and requests a loan. The bank decides to give him the loan and creates the money to give to Fred. It is important to realise that the request for the money comes first and then the bank creates money which the government promises to honour. The bank does not take money on deposit and give it Fred. The bank creates new money that it is going to give to Fred if he promises to pay the money back at some time in the future. To make sure Fred pays back the money the bank requires a mortgage on Fred’s existing assets. That is Fred promises to give his existing power plant to the bank if he does not pay back the loan. Fred takes the money and builds the power plant. He promises to also pay interest and typically that might be 7% interest and repaid within a period of time. The new plant either succeeds or it fails. If it succeeds the loan is paid back and the bank destroys the same amount of money it previously created. If the plant fails then the bank is obliged to seize the old power plant sell it and use the money to pay back the loan and destroy the money.
The purpose of the existing process is ensure that creating money through loans and the destroying it when it is repaid will limit the total amount of money in the system and hence reduce the risk of inflation.
Let us know look at the case of someone who wishes to build a new asset but does not have any existing asset. Fred wants to build a solar thermal plant. Currently he has no asset and so he cannot go to the bank to get a loan as he has nothing to mortgage. Instead he goes to an investor. The Investor has saved some money and gives it to Fred. The investor expects a high rate of return on his money – typically a minimum of 20%. Fred builds his power plant and in order to receive a high rate of return he must charge a high price for his output. The new plant succeeds or it doesn’t. In one case Fred and Investor have an asset that will continue to generate money for them. In the other case they lose their money or part thereof. The important point is that no money was created or destroyed in this process.
Using equity investment rather than loan investment means that the cost of finance is high because an investor can simply leave the money in the bank with near zero risk and still get a return of interest. There is also a shortage of money for equity investment because it must come from savings or from people prepared to risk other assets to create a loan to then invest. If there is a shortage then the price rises.
Let us now look at another scenario. In this case we are going to give zero interest loans and require repayments from the earnings. Fred wants to build a Solar Thermal Power Plant. He goes to the bank that creates the money and gives it to him. The government guarantees the money so the bank need not charge any interest because it does not have to pay interest on money to cover the loan because the government is guaranteeing the money. Fred now builds the power plant, trades and either the plant succeeds or fails. If it succeeds it makes a profit and the profit is used to repay the loan. If it does not succeed then loan is not repaid and Fred loses any deposit he may have made. The money supply has also increased.
The risk to the government (or really to the community) is that if too many loans fail it will increase the money supply to such an extent that it causes inflation.
To make zero interest loans work we have to ensure compliance and we have to make sure we do not create too much money. We first ensure compliance by the government deciding how much money to create and the areas of investment where the money will be invested. That is, the government limits the overall risk.
A key question is to whom to give the right to take out zero interest loans. It could keep the right to itself – which it does in times of war – or it could give it to people who already have assets or it could give it to the population. Giving it to the whole population on an equal basis is fair and democratic and is likely to be a politically acceptable solution. Let us assume that this is done. Each person in the population gets a relatively small amount of rights to take up a zero interest loan. People can trade their rights if they are risk averse and do not want to invest themselves. 
Loans are made with a 10% deposit that is paid back when the loan is repaid. When the loan is given then there is an agreement on how the money will be repaid from the earnings on the investment. 
Finally if the bank, plant owner or investor breaks the rules of investment then they are banned from further participation and they have to repay all outstanding loans.
Low cost finance will lead to low cost renewable energy. It is estimated that we can get to zero emissions by 2020 with $1,500 of loans available per person per year.
Please contact me if you are interested in more information or would like to implement zero interest loans.

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