Energy Bonds: A New Financial Market

One of the most daunting but necessary challenges faced by the U.S. is getting to other side of this energy crisis, both by migrating away from fossil fuel-based energy and building new infrastructure. But this is a challenge that requires billions of dollars, money that has to come from somewhere.

As a country, we have become locked in a consumer debt mindset. Few people adequately prepare for their retirement. Savings rates have dropped to all-time lows, while federal and consumer debt has ballooned to record levels.

But there might be a way to fund these massive clean energy public works projects, promote long-term savings and sanity in public finance, and in the process, educate citizens about how government and financial markets work.

We all hate taxes. As the saying goes, the power to tax is the power to destroy. So instead of creating a tax, we should create a national savings program that invests in national clean energy infrastructure projects. Here’s how it might work. (Keep in mind this is a simple example; in the real world, it would include exceptions):

A new line item appears on your payroll tax for a so-called “Federal Investment Bank” (or whatever it gets named). Five percent of your gross pay is automatically invested, say, $250 per month. This is not a tax, however, but a debt instrument, backed by the Treasury and carrying a 10-year maturity; whether you cash it in or reinvest it is up to you. As with private retirement accounts, incentives reward you for staying invested over the long term.

This fund would provide cheap, long-term capital for public works projects and would pay investors/taxpayers a guaranteed rate. To qualify, a project would need to be fiscally sound and provide a public good or service. Clean energy and public transit infrastructure are two good examples of facilities that both serve the public and require large-scale, long-term capital investment.

This fund would either loan money directly to projects or to specialist banks and agencies that focus on specific types of projects. These would not be grants, but traditional loans with long-term repayment schedules, collateral, etc. The government, as it does with the Federal Reserve, would serve as the bank’s bank, and act as a source of cheap and reliable capital.

You’d be able to see how much you had contributed, which projects had been funded with your bonds and expected rates of return. Would you view this as a tax, for example, if you knew that this year, your $3,000 helped fund a $100 million wind farm in Arizona, and that you’d expect to receive an average annual return of between 4 and 5 percent on that loan over 10 years?

However we tackle it, migrating to a national clean energy infrastructure is, by itself, a trillion-dollar challenge. Maybe we can continue borrowing that money from foreign countries, or maybe we should be investing in this ourselves. Sure, most of us would like to have more take-home pay, but if these funds are invested in public facilities that benefit everyone, one could argue that not only are you making money in the long term, you’re receiving benefits in the short term (for example, because investment in clean power farms is sheltering you from spikes in energy bills, local re-investment, etc).

Even for less sophisticated investors, most people will understand a statement that tells them their account balance, how much interest they’re earning and what’s available to withdraw or re-invest as their bonds mature. And of course, there’s no sophistication required to notice when gas prices are going down.

loading

Comments have been disabled for this post