Neil Collins’ Notebook: Green bonds are a con
Rishi Sunak was busy announcing the launch of green bonds this week. These are the same green bonds that he announced in the Budget, and in neither case was there any indication of what they are, how they will work, and whether they are a good idea. In this dance of the seven green veils, we have got to about number three, accompanied this time by 31 pages of lyrical prose which only lacked a Vaughan Williams soundtrack to complete the picture of sunlit zero-carbon uplands ahead.
Green Savings Bonds “will be critical in tackling climate change and other environmental challenges, funding much-needed infrastructure investment, and creating green jobs across the UK”. Of course. The “framework” might even help businesses looking to tap this source, if they can wade through what has become the standard regurgitation of How Green Was My Government, if only aspiration could make it so.
Nowhere are the real questions answered, because deep down we know that green bonds are a con. They either con investors into putting up capital for a return below what they can already earn by lending to the government, or they con the taxpayer by having incentives for holders which make them more expensive than other government borrowing. There are fancy ways that either can be disguised, as has been practised for years with premium bonds, where holders are essentially betting the interest for the (almost zero) hope of a big prize.
It is possible that enough savers will want greenery so badly that they will accept near-zero interest on their money in return for a warm glow from simply holding the bonds, although gathering £15bn this way could be quite a challenge. The historical precedent is War Loan, which was finally paid back, in much depreciated pounds, in 2014. The money was originally invested by savers who were urged to “save your way to victory”, helped by the lack of other homes for their money in wartime. Perhaps Sunak has something similar in mind, like “save your way to save the world”, or perhaps he will just go on announcing that they are coming, because his helpers can’t answer the awkward question above.
Going cheap: finest Columbian
Greenwash of the week: no more coal to be burnt in the UK to make electricity from 2024. This, apparently, sends out a clear signal to everyone else to follow suit. You can see how successful this has been so far by the hundreds of new coal-fired stations being built in China, India and elsewhere in the Far East, where the need for affordable energy is rising rapidly.
Well, we must do our bit. Drax, once the UK’s biggest coal-fired station, built on a near-inexhaustible supply of the stuff, is now burning wood pellets imported from the US, a switch which produces a fine stream of subsidies from the taxpayer for what may, or may not, be a marginal cut in CO2 emissions. Ivan Glasenberg is doing his bit, too. Glencore, the mining company he built, is helping Anglo American and BHP to pacify the green hordes by taking their Columbian coal businesses off their hands.
To see how keen the vendors are to wash out the black stuff, consider: by the time the deal closes late next year, the business will have generated so much cash that the $588m Glencore is paying for the two-thirds it doesn’t own will have effectively shrunk to $230m. The price to the Anglo and BHP shareholders of compliance with the mob has never been higher.
As Glasenberg has pointed out, sloughing off unfashionable coal this way makes no difference to the amount that gets dug. It merely transfers the ownership to obscure businesses (unlike Glencore, of course) who have a rather more, er, flexible approach to how they operate and are less exposed to the climate activists. Investment in new coal mines has fallen as big players have been bullied out, and the price is at a 10-year high as a result. Something similar is happening in oil, where western companies have cut back exploration, and the price is rising in anticipation of shortage. The state-owned operators in Russia and Saudi Arabia can hardly believe their luck.
As for Glasenberg himself, he has decided that 19 years in charge is long enough, so this week was his last. His reign has been entertaining, as long as you weren’t a shareholder. As he plunged into mining, the shares wilted. They have never again seen their 500p flotation price exactly a decade ago, and survived a near-death experience in 2015 which required an emergency share issue. Despite the coal cash flow, they do not look particularly attractive at today’s 314p. Glencore grew fat on its ability to trade commodities. Making money from digging them out has proved a whole lot harder.
Not very competitive
Andrew Tyrie always was a square peg for a round hole. A ferocious chairman of the treasury select committee, he was always too feisty and outspoken for ministerial preferment. When he quit parliament, and resurfaced as chairman of the Competiton and Markets Authority, we had high hopes he would wake it up. Alas, after two years he was out. Now he has fired a broadside at it from the Centre for Policy Studies which, while undoubtably deserved, may just bounce off.
Apparently, two thirds of businesses have no idea what the CMA does, while too much of its work is delegated from the board to groups of executives, resulting in it starting cases “that have little strategic justification or connection to the lives of ordinary consumers.” He advocates “greater openness to consumer complaints, through the introduction of a simple online form to alert the CMA to rip-offs in products and services.” A simple form! The very heaven in our bureaucracy-choked world, where lifting a pencil requires a risk assessment.
Like so much legislation designed before the digital age, the legal framework for competition and consumer protection policy is “struggling to keep pace with the growing power of online platforms, and the scope for the growth in consumer detriment in much of the economy that they make possible.” It’s a familiar refrain, and hard to disagree. It would have helped had he still been in the chair to push the changes through.