Discussing Michael Liebreich’s “Towards a Green Climate Finance Framework”

Bloomberg Finance CEO Michael Liebreich has published a 9 page paper with the title “Towards a Green Climate Finance Framework” in 2011.

There he doubts that $100 billion a year in taxpayer funds can be raised until 2020, and then proceeds to give some ideas on how private finance can be brought to invest more.

For one, I don’t agree with his pessimism about public funds. $100 billion a year is $100 per capita for the developed countries, which have a overall population of about one billion. And it is only about 0.13% of global GDP in 2011, and about 5% of World military spending in 2011.

In contrast, damages from global warming are already at $1.2 trillion per year, and will only rise. With these stakes, is it unreasonable to expect a modest $100 per capita of tax money until 2020?

But even if $100 billion a year of public funds will be found by 2020, it is of course still necessary to find lots of private funds from the $100 trillion capital market as well. As Liebreich correctly points out, having investment grade ratings is the key to that.

And having an Investment Treaty for protection against various risks of expropriation would be a necessary step to achieve that. For a large scale project in the Gobi desert there is no way Mongolia on its own, with its “junk” rating for government bonds, could achieve an investment grade rating.

There is of course already an “Investment Treaty” that gives some basic protection against expropriation, the Energy Charter.

But that works over international arbitration. Once an investor needs that, he is already in a bad position not compatible with an investment grade rating.

So the “Investment Treaty” would need to be a treaty specific to the Gobi desert project, where the sovereign partners who have the necessary firepower to guarantee investment grade ratings get the necessary conditions for a trillion dollar project fixed with Mongolia.

It will be interesting to see how such a treaty should look in detail, as well as if it can be achieved in time to make a difference with global warming.


Published by kflenz

Professor at Aoyama Gakuin University, Tokyo. Author of Lenz Blog (since 2003, lenzblog.com).

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