Finance plays a critical role in supporting energy, water, and infrastructure projects, but private markets allocate capital within a framework set by governments. What sorts of policy or market changes could have the greatest impact on financing sustainable development? The Yale SOM Office of Alumni Relations and Qn magazine hosted a discussion on October 6, 2010, with two SOM alumni and a faculty moderator.
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Financing the Future: Will Markets and/or Government Lead the Way to Sustainability?
Finance plays a critical role in supporting energy, water, and infrastructure projects, but private markets allocate capital within a framework set by governments. How much are recent government actions shaping investment? How has the current economy affected activity? What sorts of policy or market changes could have the greatest impact on financing sustainable development? SOM alumni Bradley Abelow '89 and Stuart Staley '95 addressed key issues around financing the future in a webinar moderated by Yale SOM Professor Arthur Campbell.
View the panel discussion online.
PANELISTS:
Bradley Abelow ’89, Chief Operating Officer, MF Global Inc.
Bradley Abelow is Chief Operating Officer of MF Global Inc., a leading cash and derivatives broker. Prior to joining MF, Brad was a Founding Partner of NewWorld Capital Group, a private equity firm investing in businesses active in Environmental Opportunities. He was previously Chief of Staff to Jon Corzine, Governor of the State of New Jersey. Brad was also a Partner and Managing Director of The Goldman Sachs Group where he managed Goldman’s Operations Division. Brad joined Goldman Sachs in 1989 in the Investment Banking Division’s Corporate Finance Department. In 2005 he led the effort to create an Environmental Policy Framework for Goldman Sachs, which led to the creation of the Goldman Sachs Center for Environmental Markets. Brad serves as Chairman of the Environmental Protection Agency’s Environmental Finance Advisory Board. He is also a trustee of The Century Foundation and Just Vision.
Stuart Staley Yale SOM & FES '95, Managing Director & Head of Global Commodities, Citigroup
Stuart Staley is Managing Director, Head of Citi’s Global Commodities Group, and President of Citigroup Energy Inc. Based in London, he is responsible for Citi’s activities in physical and financial commodity products serving the firm’s global client base. Stuart joined Citi in May 2004 before which he spent 2 years with AEP Energy Services Ltd. in London where he served as CEO and was responsible for the company’s European generation, trading and marketing businesses. Prior to this role, Stuart spent 6 years with Enron where he held various positions in the company’s US electricity trading business before building Enron’s international coal and freight trading business out of London.
MODERATOR:
Arthur Campbell Assistant Professor of Economics at Yale SOM
Arthur Campbell is Assistant Professor of Economics at SOM. His research interests include industrial organization, economic theory, and energy/environmental economics. His most recent work studies government policies for promoting long-term changes in the mix of technologies used to produce electricity. In particular this work focuses on the impact of the intermittent nature of renewable technologies, such as wind and solar power, on the effectiveness of various policy alternatives for addressing climate change.
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The webinar generated a large number of audience questions. Here is a sampling. There is a great deal of expertise in the Qn magazine readership. Please feel free to post answers to any of these topics.
Q: What can businesses do — individually or in consortiums — to further spur government development of the necessary policy frameworks for sustainable finance?
Q: Do you think it's more important for government to create tax incentives for people to switch to low-carbon sources of energy or to invest in research and development of potentially breakthrough technologies?
Q: We know many energy efficiency investments have net negative costs (i.e., don't require government policy to drive profitability. While I agree a carbon price would increase the range of potentially profitable investments, isn't the challenge really how to monetize the benefits? What kinds of business models do you think will be successful in this regard?
Q: Given that natural gas / CNG is a clean(er) fuel vis-a-vis gasoline and diesel, and has a reasonable payback period for private and public transportation solutions, why is natural gas not being financed more aggressively as the fuel of the future for US transportation?
Q: Do you imagine that any venture capital will be used to fund climate adaptation in the developing world?
Q: With the increasing cost gap for renewables in developed markets, is there compelling rationale (and financing) to take these technologies (e.g., utility-scale solar) to developing or underserved markets where overall electricity demand still outstrips supply (e.g., India)?
Q: Do you see policy difference toward sustainability among US, EU and BRIC?
Q: The most pressing private US business mandate today seems to be investor demand for growth (across all sectors, not just energy). One could argue that demands of sustainability cannot help but be a drag on growth. Is this part of the new norm business (and investors) must now adjust to?
Q: The US has become a leader in liquid biofuels through direct subsidies to farmers while it's comparative advantage is in forest and ag residue biomass production. Alternatively the EU is stimulating growth in biomass where it has a disadvantage and is largely dependent on North American biomass production. How are equity players looking at this discontinuity and assymetry? Where are the opportunities in biomass production or generation?
Q: If it turns out that climate change concerns were overblown, is that any argument for sustainability?
Q: A recent article in environmental finance said that the SO2 trading regime was now on the rocks because industry managed to throw it into judicial purgatory. Comments?
Q: Is the SO2 trading program a good example for future Carbon Trading Programs? What are the potential differences?
Q: Carbon is a dangerous Red Herring — a better focus would be power generation and energy distribution and eliminating regulatory obstacles to all forms of renewable energy.
Q: The focus of the panelists so far seems to be global markets and deregulation to reduce the risk of global investing, moving capital around. What about the local aspect of sustainable business development. Should government in setting rules give some impetus to more localization of energy sourcing, a sort of import substitution first policy shift?
Q: Can you talk more about what's being done about financing companies through the Valley of Death?
Whatever the government is willing to allocate for renewable energy and infrastructure, it will still be grossly lacking. A little forethought can go a long way in a sustainable future for our country and the world at large.