numbers, not adjectives — D. J. C. MacKay

12  The Two Types of Green Investment

Carl Edward Rasmussen, August 12, 2024

There are two types of green investment, which differ in their goals, motivation and requirements. Confusing the two greatly muddies the waters and prevents clear thinking and discussion. In this note, I clarify the distinction. I'll call the two types local and global.

In local green investments, the motivation and payoffs are local, and not dependent on global partnerships. For example, this could be investment in thermally insulating housing or in transport infrastructure with the goal of bringing down the use of fossil fuels. If a country imports fossil fuels, such a transition would be beneficial to the national economy. And nations who are fossil fuel exporters would free up capacity and allow more export. Apart from the dependency on the price of fossil fuels on international markets, the motivation and benefits rest within the local area.

Local green investments are straight forward. The usual issues exist with estimating costs and benefits, raising capital and overcoming possible resistance of actors who benefit from the status quo. But in principle, a clear cut case can be made. However, local green investments are only feasible when there is a positive net balance. Some sectors are expensive and difficult to decarbonise at scale, as is for example the case for air travel or initiatives relying on direct air capture. Of course, improved technology may help the economic case, but there is a limit beyond which local green investments are no-longer adequate.

It's questionable whether local green investments will be enough to stabilize atmospheric CO₂e concentrations, and thereby prevent further global warming. The existence of difficult to decarbonise sectors, and the lack of cheap, scalable direct air capture technology would suggest not. This means that a different mechanism must be used beyond local green investments, if we want to effectively tackle global warming.

Global green investments aim to avoid the consequences of climate change. The payoff for such investments is the avoidance of the huge costs associated with the consequences of further climate change. However, such investments require cooperation between nations to be effective. A small nation on its own would only have a small impact on global CO₂e concentrations, and driving their emissions right down to zero may not be economically advantageous. If however, a large number of nations move in concert, then global CO₂e would be substantially impacted and further global warming with its dire consequences would be avoided. That is why strong global cooperation is required. Not a weak voluntary framework like the Paris Agreement, but a strong, legally binding, trust building, global cooperative.

Both local and global green investments are reasonable and necessary. But they differ in their goals and their requirements. And local green investments can only go so far. Confusing the two tends to derail the debates and creates confusion where there should be clarity.