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Why Germany leads in renewables: it has its own green bank – Ellen Brown

Wind turbines in Germany (Source: Flickr cc)

The “Green New Deal” endorsed by US Rep Alexandria Ocasio-Cortez (D-NY), and over 40 other House members has been criticized as imposing a too-heavy burden on the rich and upper-middle- class taxpayers who will have to pay for it. However, taxing the rich is not what the Green New Deal resolution propos- es. It says funding would come primarily from certain public agencies, including the US Federal Reserve (Fed) and “a new public bank or system of regional and specialized public banks.”

Although funding through the Fed might be controversial, establishing a national public infrastructure and development bank should be a no-brainer. The real question is why we don’t already have one, as do China, Germany and other countries that run circles around the US in infrastructure development. Many European, Asian and Latin American countries possess their own national development banks, and also belong to bilateral or multinational development institutions that are jointly owned by multiple governments. Unlike the Fed, which considers itself “independent” of government, all national development banks are wholly owned by their governments and their mission is to carry out public development policies.

China has its own Infrastructure Bank and has also established the Asian Infrastructure Investment Bank, which counts many Asian and Middle Eastern countries in its membership, including Australia, New Zealand and Saudi Arabia. Both banks are helping to fund China’s trillion-dollar “One Belt One Road” infrastructure initiative. China is so far ahead of the US in regard to building infrastructure that Dan Slane, a former adviser on President Donald

Trump’s transition team, has warned, “If we don’t get our act together very soon, we should all be brushing up on our Mandarin.”

The renewable energy leader, however, is Germany, which has been called “the world’s first major renewable energy economy”. Germany has a public sector development bank with the name KfW ( Kreditanstalt für Wiederaufbau, or “Reconstruction Credit Institute”), which happens to be larger than the World Bank. Along with Germany’s nonprofit Sparkassen banks, KfW has largely funded Germany’s green energy revolution.

Unlike private commercial banks, KfW does not have to focus on maximizing short-term profits for its shareholders while turning a blind eye to external costs, including those imposed on the environment. The bank has been free to support the energy revolution by fund- ing major investments in renewable energy and energy efficiency. Its fossil fuel investments are close to zero. One of the key features of KfW, as with other development banks, is that much of its lending is driven in a strategic direction determined by the national government. Its key role in the green energy revolution has been played out within a public policy framework under Germany’s renewable energy legislation, including policy measures that have made investment in renewables commercially attractive.

As one of the world’s largest develop- ment banks, KfW has assets totalling $566.5 billion, as of December 2017. Ironically, the initial funding for KfW’s capitalization came from the US, via the Marshall Plan in 1948. Why didn’t the US fund a similar bank? For the simple reason that powerful banking interests did not want the competition from a government-owned bank that could make below-market loans for infrastructure and development. Major US investors today prefer funding infrastructure through public-private partnerships, in which private partners can reap the profits while any losses are imposed on local governments.

KfW and Germany’s Energy Revolution

German renewable energy technology mainly embraces wind, solar and bio- mass. In 2017, renewables generated 41% of the country’s electricity, up from just 6% in 2000; and the public banks provided over 72% of the financing for this transition. Over 2007-2009 KfW funded all of Germany’s investment in Solar Photovoltaic (PV) technology.

Subsequently, Solar PV was introduced nationwide on a major scale. This is the sort of catalytic role that development banks can play — kickstarting a major structural transformation by funding and showcasing new technologies and sectors.

Not only is KfW one of the biggest financial institutions, but it has been ranked one of the two safest banks in the world (the other, Switzerland’s Zurich Cantonal Bank, is also publicly owned). KfW sports triple-A ratings from all three major rating agencies — Fitch, Standard and Poor’s, and Moody’s. The bank benefits from these top ratings and the statutory guarantee of the German government, which allow it to issue bonds on very favourable terms, backing its loans with the bonds.

KfW does not operate through public- private partnerships, and it does not trade in derivatives or other complex financial products. It relies on traditional lending and grants. The borrower is responsible for loan repayment. Private investors can participate, but not as shareholders or public-private partners. But rather, they can invest in “Green Bonds,” which are as safe and liquid as other government bonds and are prized for their green earmarking. The first “Green Bond made by KfW” was issued in 2014 with a volume of $1.7 billion and a maturity of five years. It was the largest Green Bond ever at the time of issuance and generated so much inter- est income that the order book rapidly grew to $3.02 billion, although the bonds paid an annual coupon of only 0.375 percent. By 2017, the issue volume of KfW Green Bonds reached $4.21 billion.

Investors have benefited from the high credit and sustainability ratings of KfW, the risk-free liquidity of its bonds, and the opportunity to support climate and environmental protection. For large institutional investors with funds that exceed the government deposit insurance limit, Green Bonds are the equivalent of savings accounts – a safe place to park their money with the provision of a modest interest. Green Bonds also appeal to “socially responsible” investors, who have the assurance with these simple and transparent bonds that their money is going where they want it to.

The bonds are financed by KfW from the proceeds of its loans, which are also in high demand due to their low interest rates, which the bank can offer because its high ratings allow it to cheaply mobilize funds from capital markets and its public policy-oriented loans qualify it for targeted subsidies.

Roosevelt’s Development Bank: The Reconstruction Finance Corporation KfW’s role in implementing government policy parallels that of the Reconstruct- ion Finance Corporation (RFC) in funding the New Deal in the 1930s. At that time, US banks were bankrupt and incapable of financing the country’s recovery. President Franklin Roosevelt attempted to set up a system of 12 public “industrial banks” through the Fed, but the measure failed. Roosevelt then made an end run around his opponents by using the RFC that had been set up earlier by President Herbert Hoover, expanding it to address the nation’s financing needs.

The RFC Act of 1932 provided the RFC with capital stock of $500 million and the authority to extend credit up to $1.5 billion (subsequently increased several times). With those resources, from 1932 to 1957 the RFC loaned or invested more than $40 billion. As with KfW’s loans, its funding source was the sale of bonds, mostly to the Treasury itself.

Proceeds from the loans repaid the bonds, leaving the RFC with net profit. The RFC was able to finance bridges, roads, dams, post offices, universities, electrical power, mortgages, farms and much more; and it funded all of this while generating government income.

The RFC was so successful that it became America’s largest corporation and the world’s largest banking organization. Its success, however, may have been its nemesis. Without the emergencies of depression and war, it was a too-powerful competitor of the private banking establishment; and in 1957 it was disbanded under President Dwight Eisenhower. That’s how the US was left without the benefit of a development bank while Germany and some other countries were hitting the ground running with theirs.

Today some US states have infrastructure and development banks, including California, but their reach is very small. One way they could be expanded to meet state infrastructure needs would be to turn them into depositories for

state and municipal revenue. Rather than lending their capital directly in a revolving fund, this would allow them to leverage their capital into 10 times that sum in loans, as all depository banks are able to do.

The most profitable and efficient way for national and local governments to finance public infrastructure and development is with their own banks, as the impressive track records of KfW and other national development banks have shown. The RFC showed what could be done even by a country that was in dire economic straits, simply by mobilizing its own resources through a publicly owned financial institution. We need to resurrect that public funding engine today, not only to address the national

and global crises we are facing now but for the ongoing development that the country needs in order to manifest its true potential.

Source: The Web of Debt, 26 Jan 2019

The material in this article was published also in, with a different title.

Ellen Brown is an attorney, founder of the Public Banking Institute, and author of 12 books including Web of Debt and The Public Bank Solution. A 13th book titled Banking on the People: Democratizing Finance in the Digital Age is due out soon. She also co- hosts a radio program on PRN.FM called “It’s Our Money.” Her 300+ blog articles are posted at

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