Green Debt – The Real Cost

In stark contrast to the previous century, we live in a time when global warming is taken just as seriously as medical science. At the eleventh hour, humanity is now attempting to legislate its way out of a crisis of its own making.

Before you click elsewhere, this isn’t going to turn into some holier-than-thou spiel about climate change or greenwashing!

In this article, we take a look at green finance and then explore the cost of low-carbon alternatives in the world’s most polluting industries.

Green Finance

Have you noticed the use of environment-based monikers such as green, eco, and bio to identify anything with a lower carbon footprint? The same is now true with guilts and bonds (of which the former loans money to a government and the latter to a company or financial institution), both earning the bearer interim interest and full repayment on maturity. In 2019 Green Guilts were launched, followed by Green Savings Bonds through NS&I (the state-owned savings bank). Both are sold with enticing interest rates over their traditional alternatives. Proceeds from green guilt and bonds can only be used to fund green projects. Eligible green projects must meet strict criteria pertaining to clean transportation, climate change adaptation, energy efficiency, living and natural resources, renewable energy, or pollution prevention.

Outside of state-backed financial products, banks offer a vast range of green ISAs, bonds, and investment portfolios at favourable rates. You can even get a green business loan and a green mortgage! A note of caution is that banks define ‘green’ in different ways with different caveats. Here at Advocate, increasing numbers of clients are asking about green debt collection and whether the debt recovery process changes. Make no mistake; there is no leniency permissible in law or legislation that warrants us treating a green debt any differently.

Following on from the 2015 Paris Agreement, the UK committed to decarbonising its economy to reach net zero carbon emissions by 2050. To help kickstart the Green Revolution, HM Treasury and the City of London Corporation founded the Green Finance Institute in 2019. Its purpose is to promote and create green investment opportunities in the public and private sectors. This should drive innovation trickling down to consumer choices.

Green Alternatives

Every industry pollutes, some more than others. The world’s most polluting industries are transport, energy, fashion, agriculture, manufacturing and construction. Low-carbon alternatives exist, but they are not mainstream.

Transport: Almost every city seems to have a low emission zone these days. This puts public, private and commercial transport under the same spotlight. Electric vehicles are 25-50% more expensive than their combustion engine alternatives. In theory, servicing and maintenance should be less for electric cars because there are fewer moving parts. In practice, the brakes, tyres and suspension wear out sooner and cost more to replace because they are uprated to manage the additional weight of batteries. The big petroleum firms have slowly been developing synthetic fuel (e-fuel) to replace petrol and diesel at the pumps. Unless e-fuel can be mass-produced and certified, the cost per litre will remain astronomically high. The upcoming ban on new petrol and diesel vehicle sales threatens to make e-fuel irrelevant. Sustainable jet fuel has been slow to take off. The aviation industry now has a keen eye on Ecojet which in 2025 which intends to retrofit existing planes with hydrogen-electric power.

Energy: Depending on your choice of statistic, the UK generates 30-50% of electricity from renewable energy sources. The National Grid has committed to being carbon neutral by 2035, and construction of the Hinkley Point C nuclear power station is part of that plan. Sounds good, except nuclear energy is only low carbon once generating power. The process of construction, mining uranium, and eventual decommissioning involves exorbitant amounts of greenhouse gases, placing them on par with coal and gas over their service life. By the same token, solar panels are carbon neutral after around three years and have a service life of twenty to thirty years. On the average home or office block, the financial breakeven point for solar panels is anywhere between six and thirty years. Renewable energy is considerably cheaper than nuclear and coal. Energy wholesale markets continue to be based on fossil fuel prices, leaving green energy savings out of reach for consumers. The present stumbling block with heat pumps is the cost which can be anywhere from three to ten times more expensive than traditional boilers. Hydrogen boilers cost similar to their fossil fuel counterparts, emitting only water out of the flue but currently require an off-grid fuel cell. Modern boilers are already compatible with the planned 2-5% hydrogen blend due in 2025, with most able to accept up to 20% without modification.

In 2020 consulting firm Kearney found sustainable products were, on average, 75-85% more expensive because of higher manufacturing, development and certification costs. This is amplified by the application of traditional wholesale and retail markups.

Fashion: Polyester, nylon, cotton and acrylic are the least sustainable fabrics in fashion involving plastics, pesticides, and chemical treatments. Often the cheapest clothes are transported thousands of miles from the Far East. Organic and sustainable fabrics are available, but they are not mass-produced enough to compete on price.

Agriculture: Its well-known agriculture produces methane from animals and rice, carbon dioxide from farming and transportation, and nitrous oxide from fertiliser. There are equally good-tasting organic and vegan alternatives, but at a premium price; for example, a leading supermarket currently sells 1kg of rolled oats for 90pence or 750g of organic oats for £2.50. In 2023 a Singapore restaurant became the first to serve ‘cultivated’ chicken at a vastly discounted price. Using cultivated animal cells and a bioreactor, the end product is 3-D printed to create the right shape and texture. Production costs are not known, but the world’s first lab-grown burger cost £263,400 in 2013.

Manufacturing & Construction: When it comes to manufacturing electronics and consumer goods, there are few viable alternatives to precious metals and plastics outside of recycling discarded/end-of-life products. The construction industry faces a similar challenge because building regulations have evolved around carbon-intensive materials. There is a limited range of alternatives to concrete, steel and clay, which risks houses being classed as nonstandard construction for mortgage purposes, placing eco-homes in the same pariah status as Reema clad.

Green Reality Cheque

The commercial and consumer appetite to go green has always existed, but the urgency has not. The most polluting industries and their flagship businesses have left it until the eleventh hour. What the world once dismissed as nutjobs or eccentrics, it now embraces as Green Industrialists running disruptor companies showing the old guard what should have been achieved decades ago.

Whichever way you look at it, legislators, economies, industries, businesses and consumers face the same fundamental issue. That is, until the alternatives can match their carbon-intensive counterparts on quality and price through mass production, going green will remain an ethical luxury. Imagine buying that £2.50 bag of organic oats only to run out of meter money and not be able to make breakfast? What about foreclosing your home to live in that electric campervan? Or splash out on heat pumps, solar panels, and a carbon-neutral fleet to the point where wages and suppliers don’t get paid? If you go bust because of green debt, you won’t have the choice of ethical luxuries. Whether you are looking to go green as a business, an investor, or a human being, moderation is the key until such a time one’s financial position can reasonably match one’s environmental aspirations.