Tom Rand is an Action Canada Fellow and Cleantech Venture Capitalist. His Celsias project is The Hotel Diaries.

Remember Victory Bonds? Citizens buying bonds backed by the government to help win a war? There's a new bond in town - the Green Bond: a bond to fight climate change. Green Bonds are a government-backed financial instrument designed to accelerate renewable energy production. This policy proposal is currently aimed at the Canadian government, and is designed to take advantage of Canada's massive potential in renewable energy production, a potential as vast as our physical geography. It can, however, be adapted to any country's profile.

Here's how it works in a nutshell:

• The public buys a bond, backed by the government - the Green Bond.
• The bond pays an interest rate comparable to a government-issued bond.
• The funds raised are handed over to the private sector, with a government mandate, and are loaned out at low rates to energy producers who choose renewable methods of energy production.
  • Not to companies developing technologies, but to those who are installing renewable technologies.

We've done a poll  - and Canadians love it (over 80% support the idea, over 60% would buy the bond). We've done the analysis - this is one of the most cost-efficient ways for government to lower carbon.

Green Bonds effectively lower the cost of renewable energy production, making it more cost competitive with fossil fuels. Renewable energy production is typically capital intensive - but commercial banks don't offer good rates on debt capital until technologies have been in commercial-scale operation for a long time. The problem is - we can't wait that long.  If you borrow money for a coal plant - cheap. If you borrow money for a biogas plant - expensive. A price on carbon will eventually tip the scales, but that price won't be high on a global scale for a long time to come. Green Bonds fills the gap!

What we call "threshold technologies" - those that would be made more economic with a lower rate of capital, but have proven themselves from an engineering standpoint - would be targeted. Geothermal, solar thermal, wind, tidal are all currently available, but under-deployed.

The government mandate: provide the maximum carbon reduction at the lowest price. There are two metrics of success. First - the total amount of carbon emissions reduced. Second - the cost of those reductions on a $/tonne basis. We've done the analysis: cost per tonne of carbon reduced is somewhere between $1 and $13 (Canadian) per tonne. That's cheap, cheaper than any other government subsidy that we know of.  The private fund manager is incentivized to maximize these metrics.

Why the private sector? There are a number of reasons, based on the idea that only the private sector can respond to financial incentives.

• Flexibility - the private sector can react to market conditions, picking the right technologies at the right time.
• Efficiency - the main cost will be defaulted loans, and only the private sector can take aggressive action to minimize this cost, and recoup assets in the case of default.
• Expertise - the expertise for project-by-project evaluation currently exists in the private sector.

Put all this together and you have one of the most flexible and efficient ways to reduce carbon. Plus, the public gets directly engaged in the fight of our lives.

For full details visit www.greenbonds.ca - we welcome other people to take this idea to their own governments.