More coal for green investments

Investments in sustainable projects are risky and expensive for companies under the current conditions. "At the moment, companies simply cannot be sure that their investments will pay off," says Prof. Dr. Christian Klein. The economist heads the Sustainable Finance department at the University of Kassel.

Together with other renowned scientists, he has therefore developed a proposal to give companies more planning certainty. "At its core, our proposal aims to link government support for companies to their sustainability performance," explains Klein.

To this end, the authors propose an EU-wide investment fund financed by long-term, government-backed bonds. Companies that invest in sustainable projects with the primary goal of greenhouse gas neutrality would receive long-term, low-interest loans from this fund.

The special twist here is that the interest rate is linked to a hypothetical CO2 price that should apply in a world on the path to climate neutrality. If the applicable CO2 price is significantly lower than the hypothetical one, the loans for companies thus become cheaper to a greater extent than if the assumed and actual CO2 prices are close to each other.

"So we make the interest rate dependent on how well the government does its homework: the worse it is here, the more favorable the interest rate conditions are," Klein describes. "The advantage is: this takes the risk away from the companies and hands it over to the state. So we also create an incentive for the state to do its homework in a timely manner."

In addition to Christian Klein, Ottmar Edenhofer and Kai Lessmann of the Potsdam Institute for Climate Impact Research (PIK) and Marco Wilkens of the University of Augsburg collaborated on the paper, which is currently not yet published.

Contact:

Prof. Dr. Christian Klein
Email: klein[at]uni-kassel[dot]de 
Web: https://www.uni-kassel.de/fb07/institute/ibwl/personen-fachgebiete/klein-prof-dr/home.html