Bristol Green Deal

The election of an independent  mayor in Bristol offers opportunities for truly creative policy-making. In this guest post Chris Cook, a former market regulator in futures and petroleum markets and now senior research fellow at UCL, suggests a novel financing mechanism for funding a rapid expansion of Bristol’s renewable infrastructure as one step on the road to what he calls a ‘natural grid’.

One of the key objectives of any 21^st century political administration – and Bristol is no different - is how to achieve energy independence and energy security by becoming as self sufficient in energy as possible. Energy independence for Bristol can be achieved in two ways: firstly by investment in Bristol renewable energy, and secondly, by massive investment in energy efficiency.  21^st Century problems cannot be solved with 20^th century solutions, but the irony is that the radical funding solutions leading to energy independence may be found prior to the advent of modern banking in1694.

Prepay 1.0

It has been long forgotten, but for many hundreds of years British sovereigns financed their expenditure though issuing undated IOUs – at a discount enabling a profit - to creditors who provided value in exchange. These IOUs were returnable in payment for taxes and that part of the wooden 'tally stick' record issued to a creditor as a token of the IOU was known as the 'stock'.

Interestingly, the phrase 'rate of return' describes the rate at which the creditor could generate his profit by returning his IOU/stock to the Exchequer for cancellation.  The more tax he was due to pay, the quicker was the rate of return of the stock.

Now, while the idea that the mayor's administration might fund itself by issuing prepaid rates 'stock' at a discount in this way is a fascinating one, it happens to be illegal, and this proposal is rather more pragmatic, being achievable immediately, with no change in any law.

Prepay 2.0

Both renewable energy and energy efficiency are free.  Clearly, if renewable energy or energy savings can be packaged and sold to investors at the right price, then necessary capital investment can be funded. But there are several problems with conventional sterling (£) funding of renewable energy.

Firstly, compound interest on bank borrowings: a debt doubles in 10 years at 7% compound interest.  Secondly, electricity is sold at a low price to a wholesaler, who makes as much profit as the regulator permits when selling to retail customers. Thirdly, the high rates of return demanded by investors in respect of shares in Victorian vintage 'Joint Stock' Limited Liability Companies. 

Then, to add insult to injury, because most renewable energy development is by foreign owned companies, most of these fat profits from UK renewable energy are hoovered out of the UK. So, let's put renewable energy investment to one side for the moment and look at the low-hanging fruit: massive investment in energy efficiency – or a Bristol Green Deal.

The Gas Pool

The Gas Pool will be a fund, administered by an ethical and competent provider of financial services such as Triodos Bank. The proposition for Investors is that they may buy units in the Pool, and that these units will be denominated, like their gas bill, in MMbtu's of heat energy.  So investors may invest directly in the value of natural gas. However, in addition to only being able to sell units conventionally (or unconventionally)  to other investors they will also have the 'stock' choice of returning their units in payment for gas bills.

Note here that in the US there are billions of dollars invested in natural gas and other energy funds by investors who observe zero% interest on Treasury Bill investment, while the Federal Reserve Bank prints new dollars massively.  These risk averse 'inflation hedger' investors do not seek a return on their capital: they simply seek a return of their capital.

Gas Loans

The Bristol Gas Pool will invest – alongside the existing Green Deal and complementary to it – in 'micro' level energy saving investments in homes and the resulting 'Gas Loans' will be repaid as occupiers buy back units in the Gas Pool at the gas market £ price via their gas bill.

The conventional bank debt funded Green Deal suffers from two flaws: firstly, compound interest at perhaps 7%, and secondly, the behavioural problem that even though people may save £ there is no guarantee they will save energy. However, with Gas Loans, there is firstly no compound interest, since the return to investors is in the energy value of gas, and secondly unless occupiers use less energy then they will not save £. With the right legal and financial structure, such a Bristol Green Deal could be introduced tomorrow.

A Natural Grid

But of course, investment in homes addresses only part of the problem.  The UK needs a least energy cost 'Natural Grid' which is complementary to the 'least £ cost' National Grid currently festooning the country's beauty spots with pylons. Denmark leads the way here, both with retrofitting 'macro' infrastructure (eg Copenhagen's 150km hot water grid) and with massive 'bottom up' investment in community level heat infrastructure, such as combined heat and power, and heat storage.

Such macro and 'meso' level investment in Bristol – such as a network of community level modular Combined Heat & Power installations- may be funded using similar techniques. But exactly how that works would be - like resolution of unsustainable Bristol property debt using similar investment techniques – for another radical Bristol policy story.

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Subversion Lures

Bristol folk-hero folk-artist Banksy has returned to his roots to transform the city's Art Gallery and museum into a living exemplar of the best of modern art. Thought-provoking, wise and hilarious, it has been attracting throngs of visitors of varying shapes and sizes, ages and classes. It is a pleasure to be at an exhibition where rather than wondering what they should think or feel about the art people are just spontaneously laughing out loud. The show is on until the end of August and should not be missed.

The photo above is typical of Banksy's style - witty, provocative and challenging to contemporary culture, in this case the cheap flight. It is a prepared version of Claude Lorrain's Flight into Egypt, entitled 'Flight into Egypt: Budget Version'.

Amongst my favourites was the dildo that had been sneaked into the display case of stalactites and stalagmites, the gleaner who had skived off for a fag break, and 'the angel of the north' as a classical statue transformed into ladette. Banksy's history of run-ins with the law is a recurring theme - Mad-Max style riot police are found riding children's playground toys and skipping through meadows.

Start the Week this morning included a rather tame discussion about what civilisation means, which degenerated at one point into a sterile debate about the value of modern art. For me, the Banksy exhibition answered the question about what art is for, although questions of its monetary value continue to be problematic. While Banksy now sells internationally at a premium we cannot know how he spends his earnings. He has paid for all the costs of this exhibition, including the many additional staff needed to police the largest crowd seen in the Museum in a generation. Banksy himself obviously has little time for the mass-produced and unimaginative work of commercially focused artists such as Damien Hirst. One of his canvases is a spot painting attributed to 'Local Artist and Damien Hirst'. The spot painting is being covered with grey by a mouse with a stepladder and paint pot.

This rather poor photo illustrates Banksy's take on one of my favourite themes - the measurement of the unmeasurable. It is a graphic apparently illustrating crime data on the number of examples of street art experiencing a rapid increase.

The conservative minded commentator on Radio 4 was criticising the lack of nobility of modern art, its failure to show discipline and inspire higher thoughts. His female colleague was presenting her findings on the privatisation of formerly public space. Banksy seems to answer both their arguments. In an era when the complacent consider that we have reached the perfect apotheosis of humanity - the end of history - while children starve in their thousands every day, what could art do other than force us to question everything? And in an era of privatisation of everything from urban space to water supplies, one might well expect to find these questions raised by an artist who uses stolen public space as his preferred canvas. Tweet