Deutsche Bank unit envisions bright green New Deal

FWR Staff

1 December 2008

Fed-funded, "environmental" infrastructure backed by emission-credit market. DB Advisors, the institutional arm of Deutsche Bank's investment-management division, has a modest proposal for mitigating the financial crisis, softening the environmental impact of climate change and helping to secure long-term sources of energy: the government U.S. government should establish a "National Infrastructure Bank" to fund the construction of energy-efficient buildings and a new electric-power grid, the development and distribution of renewable power sources and energy-efficient products, and the creation of grand-scale public-transportation networks on a.

Small but growing

The result, says DB Advisors in a white paper called The Case for Green Infrastructure, Energy Security and Green Jobs would be the creation of 25 million new jobs by 2050 or so and a reduction in carbon emissions, a byproduct of fossil-fuel consumption that many see as a significant contributor to climate change. Referring to an estimate from the Political Economy Research Institute -- a think tank affiliated with the University of Massachusetts -- suggesting that the cost of such a program would come to about $100 billion in direct government spending, tax credits and loan guarantees.

The German asset manager sees three ways to pay for this: deficit spending, a general tax increase or a system for emission-credit trading -- a system that provides companies and other consumers of energy with incentives to reduce carbon emissions.

DB Advisors sees emission-credit trading between companies that emit carbon as a more efficient and more politically viable way to fund its "green" infrastructure buildout. This approach, which is predicated on government oversight of industrial polluters, also creates a market that allows for investor participation in emission exchanges, trades and arbitrage.

The carbon-emission market was worth $64 billion in 2007, according to the World Bank's Carbon Finance Unit. That's up from $30 billion in 2006 and $11 billion in 2005.

Frankfurt-based Deutsche Bank is a member of International Carbon Investors and Services, a London-based association of investment banks and emission-credit traders and advisories. -FWR

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