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Green Bonds: a new way to pay for clean, green projects


City will sell them to environmentally friendly investors

COURTESY: SHERRI KAVEN - Portland-based Lucid Energy builds small turbines such as this one to generate energy from inside water pipes.Cleaning up pollution and cutting greenhouse gas emissions doesn’t come cheap.

To make it easier, the city of Portland is poised to adopt a new way to finance environmentally friendly projects.

It’s called Green Bonds.

On June 24, the City Council likely will ask city staff to develop guidelines to sell Green Bonds.

“The Green Bond piece takes an environmentally friendly capital project and matches it up with investors who are interested in environmental concerns,” says Jonas Biery, a city debt manager with the Office of Management and Finance who is working on the new policy.

As soon as next year, Biery says, the city could sell its first Green Bonds. A leading contender: bonds to pay for the city to switch the rest of its streetlights to energy-saving LED bulbs.

The possibilities are endless.

Worldwide, investors seeking “socially responsible investments” now account for about 35 percent of assets managed by professionals, according to a new report by Moody’s Investor Service. Last year, $37 billion in Green Bonds were issued around the world, three times as much as the prior year, Moody’s found. They’re being used to pay for renewable energy, energy efficiency projects in buildings, sustainable forestry and agriculture, low-emissions transit, and other strategies for adapting to climate change.

So far, investors aren’t accepting lower earnings for buying Green Bonds. But there’s been heavy investor interest, so advocates hope Portland and other issuers can cut their costs down the road by paying lower rates to bond investors.

“That’s the idea,” Biery says, “that as the market develops, investors might be willing to pay more, which translates to a lower interest rate cost to us. That means we pay a lower borrowing cost.”

Corporations also can issue Green Bonds. Iberdrola, the Spanish utility that manages its huge U.S. wind power portfolio from its North American headquarters in Portland, was the world’s seventh-largest issuer of Green Bonds last year, with a $1 billion offering, according to Moody’s.

Portland-based Lucid Energy is the kind of company that could benefit. Lucid builds small turbines that are placed inside water pipes, using gravity to produce hydropower without killing any salmon. The projects become cost-effective for new pipes, or when water districts dig up and open old pipes to do repairs.

“It’s hard to find the capital to do new infrastructure,” says Lucid CEO Gregg Semler. Yet the Environmental Protection Agency projects the nation needs $750 billion in new water infrastructure in the next 20 years, he says.

Right now, there are no mandatory standards defining Green Bond projects or the kind of environmental gains they must achieve. A new set of voluntary guidelines, called the Green Bond Principles, was issued in March by participating parties.

Some cities are arguing that any water or sewer project can be paid with Green Bonds, under the premise that they make water cleaner. Portland wants to do projects with more tangible benefits.

“You kind of can call whatever you want green,” Biery says. “We’re not on the same page there.”

But Portland has been a leader in advocating for renewable energy projects and lowering carbon emissions. The city also has a problem paying for polluted “brownfield” cleanups, especially along prime Willamette River frontage.

Some at the city have wanted to call Portland’s offering Climate Bonds, but Biery prefers the more established name of Green Bonds.

It’s unclear if Green Bonds will open up new avenues for financing that were closed in the past. But the list of entities using them is growing fast.

In March, a bank in India — the world’s third-largest contributor to carbon emissions — issued that nation’s first Green Bonds, to pay for renewable energy projects. The United Arab Emirates is exploring Green Bonds to finance green energy projects, in a “Sharia-compliant” way that complies with Islamic strictures against interest earnings, according to Moody’s.

Arizona State University sold $182.6 million in Green Bonds in April. Closer to home, the city of Tacoma, Wash., issued $21 million worth in March.

“Portland is a place that people look to for innovative ideas,” Semler says. “It would be great if Portland could take advantage of it.”

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