Forum Jaargang 12 - Editie 2

12e Jaargang Februari 2010 editie #2

Renewable Energy K(r)anttekening ‘Een aanslag op een paar goede jaren is beter te verkopen’ p30

FSR Galadiner XIIIe bestuur Grijp jij deze kans? fotoreportage Onderscheid jezelf! p37

p45

Wij begrijpen dat sommige van je talenten een ander podium vragen.

Startende accountants en belastingadviseurs Als startend accountant of belastingadviseur begin je na je studentenleven aan een verantwoordelijke baan die veel van je vraagt. Bij Berk houden we rekening met die overgang van studeren naar werken en proberen we jouw baan zo goed mogelijk te laten aansluiten op jouw leven.

Wij begrijpen als geen ander dat je naast je werk nog andere talenten hebt en dat je na een inspannende werkdag soms behoefte hebt om je op je eigen manier te ontspannen. Bij Berk gaan hard werken, verantwoordelijkheid en vrijheid hand in hand.

Net als een breed werkterrein en de mogelijkheid van inhoudelijke verdieping via opleidingen. Spreekt de persoonlijke aanpak van Berk jou aan? Kijk dan eens op www.werkenbijberk.nl voor meer informatie en een overzicht van onze vacatures.

Maakt werk persoonlijk. www.werkenbijberk.nl

Stapje voor stapje

of maak je de sprong?

Zeker aan het begin van je loopbaan moet je jezelf vooral afvragen wat je uiteindelijk wilt bereiken. Het International Associate Programme is in ieder geval een uitstekende start.

En de huidige ontwikkelingen bij Fortis Bank Nederland bieden misschien wel meer kansen dan ooit. Als financiĂŤle dienstverlener zijn wij voortdurend in beweging. Daarom zoeken we gedreven masters met lef en ondernemerschap. Het International Associate Programme is een traineeship van 15 maanden en volledig toegesneden op jouw wensen. Je kiest zelf de (internationale) projecten binnen je eigen maatwerkprogramma.

Zo leiden we jou op tot allround manager of specialist.

Wil je meer informatie over het International Associate Programme, kijk dan op www.fortis.nl/career.

fsrforum • jaargang 12 • editie #2

Renewable energy

Voorwoord

Waarde lezer, Op het moment van schrijven zijn we een half jaar verder en ligt de tweede editie van deze jaargang van het FSR Forum voor u.

Ons energieverbruik groeit sneller dan ooit. Binnen enkele jaren zal makkelijk toegangbare olie en gas deze groei niet meer bij kunnen houden. Alle verschillende energiebronnen zullen samen moeite krijgen om aan de alsmaar groeiende vraag naar energie te kunnen voldoen. Nu meer mensen in de wereld verbeterde levensstandaarden willen, is de vraag naar energie uit veel verschillende, alternatieve, bronnen niet weg te denken. Hierbij kan men dus denken aan solar and wind energy, maar ook aan biofuels of LNG. Maar dan rijst de vraag of we al ons geld moeten zetten op de nieuwe, alternatieve vormen van energie. Gaan we het daar mee redden?

Het gebruik van meer energie betekent ook meer ‘greenhouse gases’. Er moet dus ook een manier gevonden worden om emissies te beheren en/of controleren.

In het eerste artikel van deze editie kunt u lezen over de impact van renewable energy op de climate change en gaat de auteur zelfs nog een stap verder door de invloed op de financiële crisis te bespreken. Verder komt u een artikel tegen dat zich richt op de invloed van de financiële sector op de ontwikkeling van renewable energy bespreekt. Daarnaast geeft het derde artikelen een obstakel aan in het ‘accounting for renewable power plants’.

De tijd is om gevlogen, en het was dan ook tijd om eens stil te staan bij wat er zich het afgelopen half jaar allemaal heeft afgespeeld binnen onze vereniging. U had van ons nog een verslag tegoed van twee activiteiten die al eerder dit jaar hebben plaatsgevonden.

Als eerste de International Banking Cycle. Elk jaar komen vanuit Londen de grootste namen in de wereld van investment banking naar Amsterdam en Rotterdam om zich aan studenten te presenteren. Voor de studenten de ideale gelegenheid om zich aan de bedrijven voor te stellen en de meeste studenten maakten daar dan ook graag gebruik van. Komend jaar zal de International Banking Cycle weer plaatsvinden, de voorbereidingen daarvoor beginnen langzamerhand te lopen.

Wil jij degene zijn die de verantwoordelijkheid draagt voor de organisatie van dit evenement?

Aarzel dan niet en kom langs op de kamer, bel ons (010 - 408 18 30) of mail naar intern@fsr.nu.

Niet alleen de Finance studenten werden getrakteerd op mooie activiteiten, ook de accountancy student kwam aan zijn of haar trekken want dit jaar werd wederom de FSR Big 4 Cycle georganiseerd.

De grote vier accountancy kantoren werden elk een dag bezocht en de studenten kregen zo de kans om de verschillen en overeenkomsten tussen de kantoren zelf te ervaren.

Wederom een groot succes; in deze editie vind u een verslag van de verschillende inhousedagen bij Ernst & Young, PricewaterhouseCoopers, Deloitte en KPMG. Zoals elk jaar verzorgt de FSR een dag voor haar actieve leden, dit zijn immers degenen die het mogelijk maken om de fantastische evenementen die de FSR kent, neer te zetten. Deze FSR Actievendag is volledig gewijd aan de actieve leden en is bedoeld om hen te bedanken voor hun inzet en enthousiasme. In deze editie kunt u een verslag vinden met vooral veel beeldmateriaal.

Verder was er nog meer tijd voor ontspanning, want het FSR Galadiner stond op de planning.

Aan de hand van de foto­reportage in deze editie kunt u een impressie krijgen van wat zich daar heeft afgespeeld.

2 • Voowoord

In het verenigingsnieuws zijn daarnaast de gebruikelijke rubrieken terug te vinden. Zo is Danielle Kleinheerenbrink aan het woord en vertelt zij ons de leukste en meest leerzame momenten van haar FSR tijd. Ook vind u hier de bijdrage van de FSR Alumnivereniging. Mocht u willen weten welke activiteiten van de Financiële Studievereniging Rotterdam nog op het programma staan, vergeet dan vooral niet het activiteitenoverzicht te bekijken.

De heer Groeneveld heeft ook voor deze editie weer een bijdrage geleverd, welke zeker de moeite waard is om te lezen.

We zijn een half jaar onderweg, maar we zijn nog lang niet klaar. Er staan nog veel mooie activiteiten op het programma, waaronder de European Finance Tour en het International Research Project, die naar respectievelijk Istanbul en India zullen afreizen voor bedrijfsbezoeken en onderzoek. Hun voorbereidingen en verhalen zullen in de komende editie meer aan bod komen.

Verder kijken wij uit naar een weekend met de actieve leden, dat in april zal plaatsvinden. De bestemming is nog niet bekend, maar een ding is zeker: dit wil je niet missen! Uiteraard zullen wij u hiervan op de hoogte houden aan de hand van mooi beeldmateriaal.

De Corporate Finance Competition komt ook steeds dichterbij en het belooft weer een prachtig evenement te worden. Landgoed Duin en Kruidberg zal ons met open armen verwelkomen dit jaar, helaas is Rijkman Groenink er dit keer niet bij.

Mocht u er over na denken zich in te willen schrijven voor dit evenement dan is het zeker een aanrader om het boek ‘de Prooi’ vooraf te lezen. Duin en Kruidberg was zoals u zult lezen, de locatie waar het topmanagement van de ABN Amro vergaderde.

Op kortere termijn vindt het Young Financials Diner plaats, houdt de promotie in de gaten om u in te schrijven en aan tafel te gaan met veelbelovende bedrijven.

Kortom, nog genoeg mooie activiteiten voor de boeg.

Rest mij niets anders dan u veel leesplezier te wensen!

Met vriendelijke groet, Karin Knegt Commissaris Interne Betrekkingen FSR Bestuur 2009-2010

× Voowoord • 3

fsrforum • jaargang 12 • editie #2

Renewable Energy

Inhoudsopgave

Finance for Renewable Energy: An Empirical Analysis of Developing and Transition Economies Christa N. Brunnschweiler This paper examines the role of the financial sector in renewable energy (RE) development. Although RE can bring socio-economic and environmental benefits, its implementation faces a number of obstacles, especially in non-OECD countries. One of these obstacles is financing: underdeveloped financial sectors are unable to efficiently channel loans to RE producers. The influence of financial sector development on the use of renewable energy resources is confirmed in panel data estimations on up to 119 non- OECD countries for 1980-2006. Financial intermediation, in particular commercial banking, has a significant positive effect on the amount of RE produced, and the impact is especially large when we consider non-hydropower RE such as wind, solar, geothermal, and biomass. There is also evidence that the adoption of the Kyoto Protocol has had a significant positive impact on the development of p6 the RE sector.

Money, Markets and Climate Change Shann Turnbull PhD Climate change has been identified as “The biggest market failure the World has ever seen”, (Stern 2006). This paper identifies the cost of finance as an influential element of this market failure and how it can be removed. One approach would be to use a renewable energy backed currency to build a complementary more efficient, stable and resilient financial system. The equivalent investment cost per kilowatt-hour (kWh) of generating electrical power from renewable sources is typically a number of times greater than that from burning carbon. This makes the financing cost of renewable electricity generation a number of times greater. However, the operating costs of most renewable electricity sources are significantly less, as the cost of fuel is eliminated and labour costs reduced. p14

K(r)anttekening drs. Joost G. Groeneveld RA RV Nee, zo’n wedstrijd moeten we niet houden. Dus iedereen die het nog kan maar gewoon tot zijn/haar 67e aan het werk? Dat zou al te simpel zijn. Wat hebben we aan politici als we geen tegenstellingen meer zouden hebben? Geen proletariaat; geen kapitalisten en geen arbeiders.

Dan màken we die tegenstellingen toch. In zo ongeveer het meest inkomensgelijke land ter wereld is dat een geweldig plan. Gewoon ouderwetse klassenstrijd. Waar de blauwe boorden 40 jaar voor de witte moesten werken, draaien we het die laatste twee jaren gewoon om. p30

Colofon FSR FORUM is een vijfmaal per jaar verschijnende uitgave van de Financiële Studievereniging Rotterdam KvK Rotterdam nr.: V 40346422 BTW nr.: NL 805159125 B01 ISSN-nr.: 1389-0913 12e jaargang, nummer 2, Oplage 1200

4 • Inhoudsopgave

Redactie Karin Knegt

Redactie Advies Commissie Dr. M. B. J. Schauten Dr. O. W. Steenbeek Prof. Dr. M. A. Van Hoepen RA Drs. R. Van der Wal RA Dr. W. F. C. Verschoor Prof. Dr. F. Hartmann Prof. Dr. G. Mertens

Met medewerking van Drs. J. G. Groeneveld RA RV

Verenigingsnieuws

Adverteerders

Woord van de voorzitter

39

FSR Actievendag

40

FSR Big 4 Cycle

41

FSR Galadiner

43

Traders Trophy

45

International Banking Cycle

47

Oud Bestuurder

48

Aegon (www.aegon.nl/werk) BDO Accountants & Adviseurs (www.werkenbijbdo.nl) Berk (www.werkenbijberk.nl) Ernst & Young (www.ey.nl/carriere) Flowtraders (www.flowtraders.com) Fortis (www.fortis.nl/career) Grant Thornton (www.carrierebijgt.nl) KPMG (www.gaaan.nu) Ministerie van Financien (www.werkenbijhetrijk.nl ) NIBC (www.careeratnibc.com) Shell (www.shell.com/careers) TNT (www.werkenbijtnt.nl)

DaniĂŤlle Kleinheerenbrink FSR Alumnivereniging

49

Activiteitenoverzicht

52

2009-2010

Bedrijfspresentaties Bedrijfspresentatie PricewaterhouseCoopers 30 Bedrijfspresentatie Berk

Redactieadres Redactie FSR FORUM, Kamer H15-08 Erasmus Universiteit Rotterdam Postbus 1738, 3000 DR Rotterdam Tel. 010 - 408 18 30 Fax. 010 - 408 90 61 E-mail forum@fsr.nu

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Abonnement Studenten EUR via lidmaatschap FSR en EFR; kosten e 5,-. Overigen via abonnement op FSR FORUM, inlichtingen te verkrijgen op redactieadres; kosten e 27,50 (inclusief BTW en verzendkosten).

Bank: ABN-AMRO 50.15.61.331 Bank ABN-AMRO 50.15.61.331

Adreswijzigingen Uitsluitend via kaartje naar FSR, Erasmus Universiteit Rotterdam, ter attentie van de secretaris of via het online-formulier op de website www.fsr.nu Grafische Vormgeving en druk Haveka de grafische partner

Overnemen of nadrukken van artikelen uit het FSR FORUM is uitsluitend toegestaan na schriftelijke toestemming van de redactie.

Hoewel bij deze uitgave de uiterste zorg is nagestreefd kan voor de aanwezigheid van eventuele druk(fouten) en andersoortige onvolledigheden niet worden ingestaan en aanvaard(en) auteur(s), redacteur(en) en uitgever in dezen geen aansprakelijkheid.

Advertentie-acquisitie Marc van Erkelens

Inhoudsopgave • 5

fsrforum • jaargang 12 • editie #2

Finance for Renewable Energy:

An Empirical Analysis of Developing and Transition Economies

Christa N. Brunnschweiler 1 Introduction Achieving a diversified and sustainable energy supply for future generations is one of the major challenges for today’s policymakers. Global energy demand is projected to grow by around 45 percent by 2030: more than three-quarters of the increased demand will come from developing and transition countries (IEA, 2008). Energy demand will continue to be covered mainly by conventional fossil fuels, such as coal, oil, and natural gas; accordingly, energy-related pollution is ­predicted to increase by up to 45 percent. Although OECD countries will still be major polluters, 97 percent of the ­estimated increase will come from non-OECD countries, especially China, India, and the Middle East (ibid.). Meanwhile, many estimates predict that oil and possibly natural gas production will plateau around the same time, casting doubt on future energy security.1 Hence, achieving a sustainable energy supply requires diversifying energy sources and changing the current dependence on non-renewable and ­polluting hydrocarbon fuels, a fact which is likely to feature prominently at the 2009 Climate Conference in Copenhagen.

For example, in a recent report the UN Commission on ­Sustainable Development states: Energy is crucial for sustainable development, poverty ­eradication and achieving the internationally agreed ­development goals, including the Millennium Development Goals. Access to reliable, affordable, economically viable, socially acceptable and environmentally sound energy ­services is crucial, particularly in developing countries.

While fossil fuels will continue to play an important role in the energy supply in the decades to come, every effort must be made to diversify the energy mix” (UN, 2007: 15).

Renewable energy technologies2 (RETs) can bring about both environmental and socio-economic benefits. They generally entail fewer emissions, use local resources—including labour— foster basic electrification in developing countries, and increase energy security.3 However, although there are already several commercially available and economically attractive RETs, they still account for only a modest proportion of global energy generation. This fact suggests that there are some missing links between the potential of RETs and their implementation. One problem regards the institutional framework and the absence of a policy design to effectively foster RETs. In this paper, we focus on another important missing link: the financing of renewable energy (RE) projects, in particular the relationship between financial sector and RET development in transition and developing countries.4 This missing link has been pointed out by numerous practitioners, who see the absence of well-developed financial intermediaries and the consequent financing ­difficulties as one of the most important obstacles during the realization of RE projects in developing countries (e.g., Painuly and Wohlgemuth, 2006).

Energy projects generally demand high levels of financing, which producers in less developed economies in particular can rarely cover on their own (World Bank, 1999; IEA, 2003). In turn, the financing for RETs is closely connected to the development of the financial sector. On the one hand, energy sector privatisation and liberalisation during the course of the 1990s increased the contribution of smaller private power projects, and at the same time induced a shift in external financing from the local government and multilateral institutions to private investors (Babbar and Schuster, 1998; Tharakan et al., 2007; Tirpak and Adams, 2008). On the other hand, RE projects have very high start-up costs relative to the expected monetary returns, and lengthy payback periods: they therefore typically require long-term maturity loans (UNEP FI, 2004; Sonntag-O’Brien and Usher, 2004b). The result was a plunge in energy project investment in the mid 1990s as large bilateral and multilateral donors pulled out, and investment in this sector has struggled to take off again.

The problem of financing RE projects is twofold: first, RET firms generally need long-term loans, whose availability in turn is positively linked to the development of the banking system (Demirgüç-Kunt and Maksimovic, 1999). In less developed economies, the banking sector is the major source of external financing (Tadesse, 2002; Carlin and Mayer, 2003; and Beck et al., 2004a), and access to bank credit is a serious problem especially for small- and medium-sized companies (Beck et al., 2004b). As a consequence, RE projects in less developed countries are at a particular disadvantage. Second, RET firms have limited access to financing because RE

6 • Finance for Renewable Energy: An Empirical Analysis of Developing and Transition Economies

The importance of the (private) financial sector ­particularly for the development of the energy sector has also been pointed out in several studies

projects compete against fossil fuel projects, which have a longer track record, relatively lower up-front costs, shorter lead times, and often favourable political treatment (Churchill and Saunders, 1989; Head, 2000; World Bank, 2002; SonntagO’Brien and Usher, 2004b).

It is worth noting that in both cases, under-investment in RET firms can be interpreted in terms of imperfect information between firms and financiers: projects aimed at developing new technologies bear, almost by definition, greater information costs to investors, which are more easily borne by a highly developed financial sector. Where the latter is not given, the result may well be a market distortion in favour of less risky investments, such as fossil fuel projects and large-sized enterprises. This is consistent with the view that the development of the domestic financial sector is a crucial factor in meeting the booming energy demand in less developed economies (Ishiguro and Akiyama, 1995; World Bank, 2003).

Renewable energy adoption is one of the targets of the Kyoto Protocol. There are two mechanisms in particular which can potentially help to overcome the financing hurdle, namely the Clean Development Mechanism (CDM) and the Joint Implementation (JI) programme. Both are designed to help Kyoto Protocol member countries—in particular Annex B countries—meet their emission targets, and to encourage the private sector to contribute to emission reduction efforts (see e.g., Pacudan 2005). The CDM mechanism in particular has been quite popular since its inception in 2006, with more than 1000 projects already approved. It is the only Kyoto ­Protocol mechanism which includes developing countries: it allows Annex B countries that are subject to emission-­ reduction targets to implement emission-reduction projects in non-Annex B developing countries, and earn certified emission reduction credits (JI programmes on the other hand involve joint projects by two Annex B countries). Some RE projects were already initiated in the late 1990s as CDM or JI pilot programmes, such as the Tejona windfarm in Costa Rica.5 The Kyoto Protocol’s adoption in December 1997 obviously marks a major change in global climate policy: we incorporate the potential Kyoto effects” into our study to further isolate the impact of financial sector development on the RE sector. However, it is still too early to gauge the full impact of the new Kyoto financing possibilities on the adoption of RE in developing and transition countries; this question is therefore left to future research.6 The analysis of the role of the financial sector—commercial banking, financial markets, insurance, etc.—for economic performance has generated a vast literature during the past two decades (see for example Kunt et al., 2001 for an over-

view). The importance of the (private) financial sector ­particularly for the development of the energy sector has also been pointed out in several studies. In one of the earliest analyses of energy sector financing in developing countries, Churchill and Saunders (1989) discuss a proper policy framework to encourage private sector financial involvement. Ten years later, Babbar and Schuster (1998) and Head (2000) still find substantial gaps in the financing of power projects, ­particularly RE projects. The financing obstacles for RETs are confirmed in the overview by Wohlgemuth and Painuly (1999), where eforts in different countries and regions are discussed and several policy recommendations derived. More recently, Sonntag-O’Brien and Usher (2004a) and Painuly and Wohlgemuth (2006) take a look at the experience to date with RET implementation in developing and transition countries, and again point to the (private sector) financing problems that RE projects encounter, as well as to some ­successful models that have been adopted. MacLean and Siegel (2007) concentrate on the financing of small-scale RE projects and distinguish three financing areas: end-user finance, business finance, and small-scale project finance.

The need for well-informed (local) commercial financiers, often to act as financing partners for the government and/or international development organizations, is a recurrent theme in all three areas.7 Despite the importance of the financial sector for the development of RETs particularly in developing and transition countries, which is borne out by numerous case study and anecdotal evidence, the subject has received little academic research attention. This paper contributes to the knowledge on what determines RET implementation by empirically ­analysing the relationship between financial intermediation and RE sector development, with a focus on non-OECD countries. To the best of our knowledge, this is the first attempt to examine this issue in a systematic empirical analysis.8 The literature discussed above suggests that a more highlydeveloped financial sector will have a positive impact on the development of the renewable energy sector. A well-functioning and unrestricted banking sector should be particularly ­relevant for credit allocation to renewable energy companies in developing and transition countries, where financial markets are still relatively small and bond or equity financing is therefore difficult or impossible. Of course, a well-developed financial sector alone is no guarantee for the success of RETs: the availability of adequate financing mechanisms should be viewed in the wider context of an appropriate RE policy framework.

We propose an empirical framework to test the effect of

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Finance for Renewable Energy: An Empirical Analysis of Developing and Transition Economies • 7

fsrforum • jaargang 12 • editie #2

The results also suggest that the adoption of the Kyoto Protocol has had a strong positive effect on the diffusion of RETs throughout developing and transition countries

financial sector development on RETs. We construct a panel dataset for up to 119 non-OECD countries for the period 1980-2006, using electricity generation per capita from renewable energy technologies as a proxy for RE sector development. We isolate the financial sector effects by ­controlling for energy-relevant policy measures, as well as measures of more general institutional quality. The empirical results from generalised least squares (GLS) panel and dynamic Arellano-Bond Generalised Method-of-Moments (GMM) estimations confirm the positive effect of financial sector and especially commercial banking sector development on RET use in developing and transition countries. The effects are particularly strong and economically significant for the newer RETs, including wind, solar, geothermal and biomass, while the overall impact on RE and hydropower generation is much more limited in magnitude, though still statistically significant.

The results also suggest that the adoption of the Kyoto Protocol has had a strong positive effect on the diffusion of RETs throughout developing and transition countries. The findings are robust to the inclusion of other covariates which could influence RE sector development, such as oil, coal and natural gas production and prices, and proxies for RE potential.

The implication is that without proper (private sector) finance, renewable energy is unlikely to reach its full potential in the developing world. An adequate financing framework should therefore be part of a more general RE sector development policy.

2 Data and methodology The discussion of the role of commercial finance in the development of RE has so far been based mainly on case studies and anecdotal evidence. The lack of a more systematic empirical analysis of the correlation between financial sector and RE development, independent of (or in addition to) a specific RE policy framework, has probably also been due to the data problem regarding the quantification of the RE sector, especially in the developing world.

The obstacles begin with the definition of RE in official statistics: traditionally, hydropower—mostly provided by large plants—has delivered the lion’s share of renewable energy in countries’ energy generation mix, with other types of RE — when included—making up for barely a few percent of overall energy production. Recently however, some environmentalists and policymakers have contended that large hydropower projects should not be viewed as viable contributions to ­sustainable energy production, as they often cause serious negative environmental and social externalities (notable examples are the giant Three Gorges Dam on the Yangtze

8 • Finance for Renewable Energy: An Empirical Analysis of Developing and Transition Economies

River in China or the dam project in Turkey). Moreover, most traditional, large hydro projects in the developing world have been co-financed by multilateral financial institutions and the local governments, with little or no involvement sought of commercial finance (World Bank, 2003). The use of an overall RE measure could therefore introduce a downward bias into the results on the importance of the financial sector for more modern RETs such as wind, geothermal and solar power. A further possible issue concerns the negative impact on agricultural (food) production of encouraging biomass production for use as biofuel, as demonstrated by the recent large fluctuations in the prices of grains and other foodstuffs.

We consider these issues when testing the importance of financial intermediation for RET development. First, we distinguish between different types of renewable energy generation, in addition to the aggregate measure. Second, as a proxy for our dependent variable, RE sector development, we use electricity generated with renewable resources in ­per-capita terms, and therefore avoid the issue of biofuels.

We construct three separate measures of RE sector development. The first, repc, measures the overall renewable resource electricity generation—including all types of hydropower, wood and waste, geothermal, solar, and wind— in billion kwh per capita.9 The second variable, hydropc, considers only hydroelectric power generation, again in billion kwh per capita. This distinction takes into account the importance of large hydropower in electricity generation, and their possible distorting effect on the results found using the data on total renewable energy generation. The third and final dependent variable, geopc, considers electricity produced from all non-hydro renewable energy types including some of the latest RETs, i.e. geothermal, solar, wind, and wood and waste energy resources. Again, this measure is in billion kwh per capita.

The electricity generation data for all three dependent variables is freely available from the U.S. Energy Information Administration (EIA) on a yearly basis since 1980 (or since the early 1990s for countries of the former Soviet Union and former Yugoslavia). The descriptive statistics in Table 1 show that the dependent variables repc and hydropc have a wide variation in per capita renewable energy resource intensity, while the generation of non-hydro renewable resource electricity (geopc) is more limited. A look at the share of RE in overall electricity generation shows that on average, in nonOECD countries around 34% of electric power was produced by renewable energy resources between 1980-2006, compared with around 32% in OECD countries. This relatively similar picture remains when we consider the share of hydroelectric power generation in overall electricity genera-

tion, which was on average around 33% for non-OECD and 29% for OECD countries. In both groups of countries, hydropower covered from 0% right up to 100% of total electricity generation. The situation is more varied when we look at the non-hydro RE share: in non-OECD countries, wood, waste, wind, solar and geothermal energy produced barely 1% of total electricity on average, but up to 40% in low- to middleincome countries like El Salvador and Nicaragua. In OECD countries, the average share of electricity generated from non-hydro RE was 3%, reaching up to nearly 20% in Luxembourg and 30% in Denmark.10 As noted above, the adoption of the Kyoto Protocol in late 1997 marks a huge shift in global climate policy, which also affects RE policy. It is therefore interesting to examine the data for any evidence of a change in RE use since 1998. In general, there has indeed been an increase in electricity generation with RETs in non-OECD countries: on average, overall RE electricity generation went from an average of 263.4 million kwh per capita before Kyoto to 393.8 million kwh per capita post-Kyoto. This was due to a large increase in hydropower, but also to a near doubling of non-hydro electricity production from an average 5 million kwh per capita to 9.6 million kwh per capita. Further analysis reveals that the post-Kyoto increase in RE use is common for all country income groups. It is also observable in all regions of the world, with a particularly large jump in RE use in SouthEastern Asia: here, average overall RE electricity generation went from 295.8 billion kwh per capita to 507.8 billion kwh per capita post-Kyoto. Again, most of the increase in this region comes from more hydropower; but non-hydro electricity generation increased more than 27-fold from a comparatively very modest 21 thousand kwh per capita to an average 569.4 thousand kwh per capita in the period after 1998. These initial findings are suggestive of a strong Kyoto effect”, which we will take into account in the estimations below.

The main explanatory variables include three different indicators of financial sector development, and a vector of control variables. The measures of financial sector development are taken from Beck et al. (2000). They are not direct measures of banks’ efficiency in credit allocation, but rather ­different proxies for financial intermediary development tested in the literature.11 The first indicator of financial sector development, dbacba, measures the importance of commercial banks’ asset share versus that of the central bank. In more highly developed and open economies, the commercial financial sector handles a greater share of household savings than the central bank. Assuming that the commercial financial sector is more efficient than the public

one in allocating credits, dbacba should positively correlate with RET development. This variable has also been tested several times in the finance literature, e.g. in King and Levine (1993a,b) and Levine et al. (2000).

The second variable, pcrdbgdp, captures the amount of credit provided by financial institutions to the private sector as a share of GDP. It excludes credits issued by governments and development banks. An unrestricted financial sector can be expected to account for a larger share of lending to the ­private sector. In fact, this variable has been shown by Levine et al. (2000) to be a reliable measure of financial intermediary development, i.e. the ability of financial institutions to efficiently mobilise and allocate resources to profitable ­ventures. Earlier versions of the measure were used for example in King and Levine (1993a,b) and Levine and Zervos (1998). We expect pcrdbgdp to correlate positively with the level of development of the RE sector.

The third and final financial variable, llgdp, is a general measure of financial sector development commonly known as financial depth”. It is defined as liquid liabilities of the financial system—currency plus demand and interest-bearing liabilities of banks and other financial intermediaries or, more generally, M2 divided by GDP. Financial depth is the broadest measure of financial intermediation, giving an indication of the overall size of the financial sector without ­distinguishing either between commercial and non-commercial banks and other financial intermediaries, or between the use of the liabilities. The assumption is that the relative size of the financial intermediary sector is positively correlated with the quantity and quality of the financial services ­provided, and we would therefore again expect a positive influence on the development of RETs. All three financial variables are measured in current prices, and GDP is PPP adjusted (see Beck et al. 2000 for more details). It shows that there is considerable variation in the financial sector development in non-OECD countries, ranging from practically non-existent in some countries to levels comparable with many OECD countries.12 As is to be expected, the means of all three indices were higher throughout the period for upper-middle-income and high-income non-OECD countries: the average values of dbacba, pcrdbgdp and llgdp were, respectively, 0.86, 0.39, and 0.53, as opposed to 0.67, 0.19, and 0.33 in low- and lower-middle-income countries.

These numbers also seem to indicate that the three variables measure slightly different aspects of the financial sector: in fact, dbacba has a 0.5 correlation with pcrdbgdp and 0.39 with llgdp, while pcrdbgdp and llgdp are more highly correlated (0.8). We will use the three financial sector variables separately to minimise multicollinearity issues.

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We expect RE sector development to depend on several factors other than financial intermediation. One obvious factor is the regulatory (or policy) framework for RE. We introduce two variables to capture different aspects of energy sector regulation. The first, psreform, describes the level of power sector reform, without special reference to RETs. It is based on a broad qualitative survey by the World Bank conducted in 1998 (ESMAP, 1999) and takes on values from 0 (least reformed) to 6 (reforms in all relevant areas have been implemented). The evaluation considers measures to create equal market opportunities for all energy resource types and encourage private firms’ participation and competition (competition being a main reform criterion). Hence, psreform is a proxy for government energy policies—although unfortunately a time-invariant proxy, since it is based on a one-time study. The ESMAP study was conducted for a large number of developing and transition economies, but not for most high-income and OECD countries. We assigned a value of 6 to all high-income non-OECD economies—ten mainly small island states—and the OECD countries (used in ­comparison estimations). In robustness tests, we add a dummy variable for artificially assigned top scores, or alternatively drop these countries altogether; both methods do not alter our main results, and even reinforce them (see below). The descriptive statistics show that power sector reforms have a relatively low mean of 2.58.

The second policy measure seeks to capture more specific RE policies by looking at the effects of the adoption of the Kyoto Protocol, which also includes efforts to diversify energy ­production to include more RETs. For this, we construct a simple zero-one dummy variable that takes on value one for all years from 1998 onwards.13 As discussed in the previous section, the institutional framework is also a crucial element of financiers’ information costs on RETs, signalling a government’s commitment to levelling the playing field for energy providers or even positively encouraging RETs, thereby reducing uncertainty about future profitability of a RE project. Since there is no reliable data available on creditor evaluation costs in less developed economies, these crude policy proxies will have to suffice. We expect a positive impact of both power sector reforms and the Kyoto dummy on the RE sector.

In addition to the two energy policy variables, we also use measures of over-all institutional quality in robustness tests.

It is in fact likely that RE projects, like other types of investment projects, benefit from general political stability, sound regulatory frameworks, effective governance, and secure property rights. Moreover, institutional quality in general

10 • Finance for Renewable Energy: An Empirical Analysis of Developing and Transition Economies

could be correlated with financial sector development in ­particular, although correlation coefficients range between a modest 0.38 and 0.5 (with the exception of pcrdbgdp, which has correlation coefficients between 0.52 and 0.61 with the institutional quality measures). We consider three different institutional measures: the first is an economic freedom index compiled by Gwartney et al. (2008) on a five-yearly basis until 2000, and on a yearly basis since 2001 (values for the most recent year were used for intermediate years before 2000). The index ranges from 1 (worst) to 10 (best) and includes evaluations of the legal structure and security of property rights, government size, access to sound money, trade freedom, and regulation of credit, labour, and business.

The other two measures capture regulatory quality and ­government effectiveness, respectively, and are taken from Kaufmann et al. (2008). These are available for a wider range of countries than the economic freedom index, but they have only been compiled since 1996. Although institutions change only slowly, we concentrate on the economic freedom index and only briefly discuss results using the other two measures, where the 1996 values were used for earlier years.

Several other control variables are included. Income per capita in USD (gdppc) controls for the possibility that richer and economically more developed countries may simply have higher energy production. The ratio of net foreign direct investment inflows to GDP (fdigdp) accounts for non-domestic investment, including investment by foreign development banks. We would generally expect this measure to positively affect RE sector development.14 The prices of the most common conventional fuels may affect investmentin alternative energy sources. We therefore control for the possible exogenous effects on RE development of the costs of non-renewable energy resources pro-duction by including the average annual market price of crude oil (oilprice), coal (coalprice), and natural gas (natgasprice), as well as the respective percapita production rates (oilprodpc, coalprodpc, and natgaspdopc). Furthermore, an interaction term controls for the possibility that large fossil fuel producers react differently to price changes than small producers or countries without any fossil fuels at all. In fossil-fuel poor countries, we would expect a clear positive effect of a fossil fuel price increase on the share of RE in power production.

Conversely, the more fossil fuels a country produces, the less likely it will be to invest in alternative energy resources, ­particularly in times of high prices and returns.

We also control for regional effects, as well as two specific time effects in the estimation period, namely the fall of the Soviet bloc and the start of the economic (and political) tran-

We construct a dummy variable where zero equals poor or very poor potential, and one equals moderate to high potential

sition of Central and Eastern European and Central Asian countries, and the financial crisis of East Asia, Latin America and Russia. We introduce a variable called transition for the former event, which has value zero until 1991 and then increases with every year after transition for transition countries, remaining zero for all others. This is meant to account for the time-diminishing overall negative economic effect of the transition shock. The variable fincrisis captures the second event (common to all countries), again assuming value zero until 1997, and then increasing with every successive post-crisis year. Both time variables are expected to have a positive effect on RE sector development, as investment in developing and transition countries generally slumped after the shocks and then gradually picked up again.

Finally, we seek to control for actual RE potential by including two variables for the two most important and widely diffused RETs. hydropot measures the technically exploitable part of gross theoretical hydropower capability, in twh per year.

Where not available, gross theoretical capability was used instead. The data was taken from the World Energy Council triannual Survey of Energy Resources (WEC, various years); intermediate years were filled in with the latest available value. windpot measures the potential for the currently most widely employed non-hydro RET, namely wind power. The measure is based on a recent study by Archer and Jacobson (2005), who present the first attempt at quantifying global wind power potential from real data. We construct a dummy variable where zero equals poor or very poor potential, and one equals moderate to high potential. According to the authors of the study, moderate (economic) potential starts at wind speeds at 80m (the hub-height of modern, 77m-diameter, 1500 kw turbines) between 6.8 and 7.5 m/s. They find ­substantial potential in all regions, particularly in North America and (northern) Europe, as well as the southern tip of South America.15 Although their study is the first to calculate wind power potential with a consistent methodology for the entire world, the data is available for one year only (generally 2000), which may be problematic if wind patterns change over time, for example due to effects of El Niño.

The EIA renewable energy dataset contains several missing years due to newly independent countries and gives us an unbalanced panel covering 119 non-OECD countries for the period from 1980 to 2006.16 Results including OECD countries are also shown for comparison.

In our main estimations, we perform generalised least squares (GLS) regressions for the equation Yit = α1 + α2Fit + α3Xit + ωit,

(1)

where Yit is the dependent variable (repc, hydropc or geopc) in country i at time t, Fit denotes the financial sector development variable, and Xit the vector of control variables. The composite error term ωit consists of the country-specific error component εi and the combined cross-section and time series error component uit, according to ωit = εi + ϑit.17 The main estimations were performed with one-year-lags for all relevant independent variables,18 since financial sector and other economic changes are not expected to have immediate effects on electricity generation. Alternative lag durations of up to five years confirm the results (available upon request), but reduce the number of observations. As there is no clear theoretical indication regarding the ideal lag number, we show results using one-year-lags.19 In further sensitivity tests that account for the possible dynamic effects of RE sector development and test the ­causality, we perform a dynamic panel data analysis. Linear dynamic panel analysis following Arellano and Bond (1991) is also designed for panels where the cross-section dimension exceeds the time dimension, as in our case where we have up to 119 non-OECD countries and a maximum of 26 years.

Dynamic models include unobserved country-level effects, which by construction are correlated with the lagged dependent variable, making standard estimators inconsistent. The Arellano and Bond (1991) first-differenced Generalized Methodof-Moments (GMM) estimator is consistent for the parameters of this model, though it still requires that there be no ­second-order serial autocorrelation in the idiosyncratic errors, which we systematically test for after two-step GMM estimations (not shown).

The basic estimation equation remains much the same as above (excluding time-invariant regressors), with the addition of the lagged dependent variable Yi (t-1) : Yit = β0Yi(t-1) + β1 + β2 Fit + β3 Xit + νit

(2)

3 Estimation results It is of particular interest to observe the sign and statistical validity of the financial sector coefficients α2 and β2. The aim is to observe whether the development of the RE sector is—other things equal—positively influenced by the financial intermediary sector in general (captured by the broad financial depth measure llgdp), and especially by the commercial banking system (proxied by the commercial bank asset share dbacba and the private credit allocation pcrdbgdp). Controlling for variables which affect RE or financial sector development allows us to draw conclusions on the causal impact of finance on RETs.

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This paper examines the effects of financial intermediation on the development of the renewable energy (RE) sector in a series of panel data estimations for the period 1980-2006

4 Discussion and conclusions This paper examines the effects of financial intermediation on the development of the renewable energy (RE) sector in a series of panel data estimations for the period 1980-2006.

Energy production today relies on exhaustible and polluting conventional fossil fuels, and a larger share of alternative energy sources in primary energy production would not only have positive environmental effects, but would also bring greater energy security for future generations, as RETs exploit domestic renewable energy resources. The increased use of RETs is one of the instruments to achieve the emissionreduction goals of the Kyoto Protocol, and it is also mentioned for example by the UN as a crucial part of achieving sustainable development.

The focus is on non-OECD developing and transition countries. Energy firms in less developed economies are largely dependent on external financing to realise new projects; in turn, external financing in these countries relies on the banking sector, as stock and bond markets, as well as venture capitalism, are not well enough established to provide largescale funding. However, the underdevelopment of the banking sector, in addition to specific RE-sector problems such as high up-front and information costs and long lead times, hamper the emergence of RE entrepreneurs. The financing problems are combined with the greater issue of energy sector regulations and RET policies, which do not always offer a level playing field for all energy producers, as fossil fuel generation often benefits from special incentives, as well as the advantage of well-established technologies and hence fewer unknowns for potential investors.

The empirical estimations, using RE electricity generation per capita as a proxy for RE sector development, show that financial sector development does indeed have a robust and significant positive effect on the amount of renewable energy produced, which is independent of (or in addition to) energy policy. We found that the effect is particularly large when we consider non-hydropower RE (i.e., geothermal, solar, wind, wood and waste), where a one-standard-deviation increase in our financial intermediation measures leads to an increase in non-hydro RE of up to 0.3 of a standard deviation. Of the three financial sector measures used, the commercial bank asset share and the private credit share proved the most robust, while financial depth is probably too broad a measure to adequately capture the more bank-focused development that is assumed to be important in developing and emerging economies. The results are robust to controlling for additional effects and to different sample specifications.

The findings also suggest that there has been a strong positive post-Kyoto effect in RET use in non-OECD countries, though we cannot pinpoint the exact cause to either the Kyoto ­Protocol mechanisms such as CDM and JI, or a growing ­environmental awareness with consequent domestic RE ­policies. The power sector reforms indicator had an ambiguous impact on RE sector development: the effect on overall RE use and hydropower tended to be negative, while the influence on non-hydro RETs was more positive. The lack of a clearer conclusion in this regard may be due to the data: the power sector reform index provided by ESMAP (1999) is available for only one year (1998), and concentrates on evaluating competitiveness and creating a level playing field for all types of energy resources, with no particular focus on RETs. Moreover, the mixed reform results to date in non-OECD countries have led to a general rethinking of the objectives and underlying assumptions of power sector reform (e.g., Williams and Ghanadan, 2006), which will hopefully lead to more adequate measures (and incentives) of reform progress.

As regards possible differences in fossil fuel producing countries, there is indeed some indication that (major) oil and natural gas producers generally see less electricity generation with RETs, particularly non-hydro RE, than other countries.

Fossil fuel price increases likely weaken the incentives to invest in RETs in major producers, while their effect is opposite in smaller producers and fossil fuel-poor countries.

The approach offers a first attempt at empirically verifying the role of finance for the development of the renewable energy industry. The availability of quality data on RE development and investment has so far hampered empirical studies in this area; further work is needed to corroborate the results, especially in the form of case studies. Additionally, it will be interesting to see the future impacts and developments of the Kyoto Protocol.

Any policy recommendations must remain tentative at this point. Nevertheless, it seems safe to say that the financial sector does indeed have a measurable impact on the emergence of renewable energy producers. A regulatory framework aimed at fostering the RE sector cannot neglect the financing aspects, and particularly the availability of private sector financial intermediation. Developing and strengthening the financial sector of course has greater macroeconomic benefits, as demonstrated by the vast finance-and-growth literature; however, it also has a non-negligible influence on the success of RE, especially the most recent non-hydro RETs. References on request.

12 • Finance for Renewable Energy: An Empirical Analysis of Developing and Transition Economies

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fsrforum • jaargang 12 • editie #2

Money, Renewable Energy and

Climate Change1

Shann Turnbull PhD 1. Introduction Global warming or climate change has been identified as “The biggest market failure2 the World has ever seen”, (Stern 2006). This paper identifies the cost of finance as an influential element of this market failure and how it can be removed.

One result would be to develop a basis for an alternative, more stable and resilient financial system.

The equivalent investment cost to produce each kilowatt-hour (kWh) of electrical power from renewable sources is typically a number of times greater than that from burning carbon.

This makes the financing cost of renewable power generation a number of times greater. However, operating costs of most renewable electrical generating sources are significantly less because the cost of fuel is eliminated and labour costs reduced.

If the finance costs for renewable sources of electricity generation were eliminated then the incentive for market forces to allocate resources to generate electricity from burning carbon would be reduced3.

Two approaches are considered for eliminating the finance cost of generating electricity from renewable sources: (i) Selective monetary policies to introduce Islamic Banking with interest free money and/or (ii) The introduction of kWh vouchers to pay for electricity generation from renewable sources that could be used as a basis to establish an alternative decentralised global unit of account (Turnbull 1977). A renewable “Energy Dollar” currency would create a unit of value whose price would not increase with increases in the cost of coal, oil, gas or taxes on their consumption. The relative value of the global unit of account would vary according to the local endowment of renewable energy and resources required for the most efficient technology.

14 • Money, Markets and Climate Change

The nature of money has undergone radical changes since its early development. “Free Banking” was widely practiced until the 20th Century (Dowd, 1992, White 1993). There was wide spread “Choice in Currency” as advocated by Hayek (1976a) for controlling inflation. Various commodities were used as currency such as gold, silver, copper, tobacco, cattle, salt and slaves (Galbraith 1976, Davies 1996). Paper money was issued by private banks that could be redeemed into the commodity used to define their unit of value.

Central banking began in 18th Century England and has now spread around the world. Today, governments, not private banks, define what can be used as money or “legal tender” to create a National monopoly of who can issue currency and create non-cash money in the form of bank credits. Alternative forms of money have been made illegal with private note issues being taxed as introduced in Australia by the Bank Note Tax Act of 1910. To counter this, Hayek (1976b) argued for the “Denationalization of money”.

Governments have universally adopted “fiat” money that cannot be defined in terms of anything real since President Nixon took the US off its attenuated version of the gold standard in 1971 (Galbraith 1976: 48). The Economist (1990) described fiat money as “funny money” in discussing the introduction of the Euro. It questioned if the Euro should be backed by commodities. Without the need to store and/or insure gold, silver or any other commodity as a “hard” currency, the costs of holding money, described as “demurrage”, has been eliminated.

Contemporary central banking has introduced a radically different form of money because: (i) What can be used as money is determined by the government not private interests; (ii) Governments rather than private interests determine who can issue money; (iii) Governments determine the minimum cost of risk-free non-cash money; (iv) The ability of interest rates to indicate the degree of risk is distorted by the cost of risk-free credit; (v) The value of money can no longer be defined in terms of anything real and so money is no longer directly tied to activities in the real economy: (vi) The need and cost of holding a reserve currency has been eliminated; (vii) There is now no common standard of value like a specified commodity to determine the relative value of foreign currencies that are determined by a complex interplay of trade, investment flows, derivatives and the monetary policies of foreign countries.

While governments manufacture and issue coins and notes, they have licensed out the manufacture of most non-cash money to private banks

A basic thesis of this paper is that the relatively recent innovation of central banking accepting monopoly “funny money” has been an exacerbating factor in the market failure responsible for climate change as well as the 2008 financial crisis.

While governments manufacture and issue coins and notes, they have licensed out the manufacture of most non-cash money to private banks4. The value of coins and currency notes created by the government represents only minor fraction of the money supply. The difference between the value at which coins and notes are issued and their cost of manufacture creates a profit that is described as “Seigniorage5”.

In a similar way, the manufacture of credit can create a profit from the interest charged to the borrower being higher than the interest paid on the deposits created by the new credit.

The profits created by UK banks from the privilege given to them by their government to create non-cash money has been estimated by Huber and Robertson (2000: 89) to be 15% of the UK GDP. This figure is consistent with UK Banks being responsible for contributing more than 25% of the value of all shares listed on the London Stock Exchange before the financial crisis arose in 2008. Australian Banks likewise represented around 25% in value of all shares traded on the Australian Securities Exchange in 2007.

As the Banking sector does not produce or trade any physical goods, the value of the banking sector represents the value it extracts from the real economy for the financial services it provides. This raises the question: Could financial services be provided without absorbing so much of the GDP? How much more productive in terms of non banking services might the economy become if the banks did not possess the privilege of making private profits from creating non-cash money that is a public good?

How much smaller would the finance sector become if non-cash money was only created by the government, as proposed by Patman (1941) and Friedman (Sennholz 2006)? As the US constitution is supposed6 to forbid the issue of currency notes without the approval of Congress, an amendment was proposed by Friedman and Friedman (1985) to allow the executive government to do so. Money created by the government would be controlled along the lines described by Friedman (1961), Friedman and Schwartz (1971: 566), Griffin (2002: 573), Huber and Robertson (2000: 9), Marx and Engels (1848) and supporters of the Monetary Reform Act (2008). A compromise proposal that would introduce what this author refers to as “Selective” monetary

reform in the US is the “State and Local Government Economic Empowerment Act – HR1452”7. Selective money policy provides one way to eliminate finance cost of electricity production from renewable energy sources as considered in Section three.

The basic idea of the money reformers is to remove the power of banks to create non-cash money through increasing the size of their balance sheets by creating loans and deposits.

This practice is described as “fractional” banking as the Bank’s equity becomes only a fraction of total deposits.

Government regulators generally require the degree to which banks can multiply their equity for making loans to follow the guidelines of the Bank for International Settlements (BIS) based in Switzerland.

The termination of fractional banking would mean that commercial banks would only lend funds that they attracted in the manner of credit unions, building societies and savings banks (before savings banks became de-regulated to become merged with commercial banks). Instead, governments would create credit as required by increasing the issue of currency notes or what Friedman and Friedman (1985) describe a “non-interest bearing non redeemable obligations”.

The reason why non-interest-bearing currency is generally accepted is explained by White (1987).

Shauf (1998) and the Monetary Reform Act (2008) propose that non-interest bearing notes be used to redeem interest bearing obligations of the US government to eliminate the need for tax payers to service the government debt that concerned Patman (1941). As the interest paid on US government bonds represents around 15% of tax revenues in recent years, US taxes could accordingly be reduced.

As the economy expanded and required additional credit, this would be supplied by the government. The profit, or seigniorage, of government created credit would be used to reduce the need to raise tax revenues as calculated by Huber and Robertson (2000: 89).

However, the credit created by commercial banks has been overshadowed by the credits created by investment banks to finance derivatives in recent years. The ability of these “shadow banks” to create synthetic derivative paper assets has arisen through de-regulation of the UK financial markets in the 1980’s and the repeal in 1999 of the US Glass Steagall Act. The Economist (2008) reported that “The derivative markets have grown at a stunning pace” with the total value of deriva-

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fsrforum • jaargang 12 • editie #2

tive contracts increasing from 2.5 times global GDP in 1997 to 11 times global GDP in 2007. The asset bubble created by synthetic assets has been matched by real liabilities that reduced the fraction of equity in investment banks to insignificant values. The value of derivative assets is much more volatile than bank loans to introduce instability in the financial system that resulted in a number of commercial, investment and mortgage banks failing in 2008. There exists a need not to just patch up the existing system but to redesign it to make it less costly in servicing the real economy but also more efficient and resilient.

This paper seeks to make a contribution in suggesting how the system could be redesigned. One approach is to modify the existing arrangement by introducing selective monetary policies. The other approach is to introduce a new type of “ecological” currency. It is described as ecological (Turnbull 1992: 96, 2007: 1546, 2008: 123) because its value is defined in physical terms and its properties follows the laws of nature with a limited life.

The next Section considers the structure of money with consideration of the strength and weaknesses of various forms.

The Third Section reviews the economics of generating electricity from burning carbon or from renewable sources.

It describes how selective monetary policy could be used to reduce climate change without price increases from the use of carbon trading or carbon taxing. The Fourth Section considers the design principles required to introduce an alternative demurrage/ecological currency redeemable into kWh to achieve similar objectives as with selective monetary policy. However, besides mitigating climate change “Energy dollars” create a basis for building an independent, more efficient and resilient financial system to provide a fall back alternative for any further breakdowns in the current system.

This alternative depends upon introducing a different structure for money as considered in the following Section.

currency described as a “Terra” backed by a basket of world commodities. In 1983 a local currency described as a “Constant” based on a basket of commodities was introduced in Exeter, New Hampshire by Ralph Borsodi (Boyle 2002: 202).

As noted by Boyle, the problem of using commodities is that their consumption changes over the seasons and over time as technology changes the composition of goods and services.

Some food commodities would be difficult and/or expensive to store so that any demands to redeem the currency into its constituent commodities might not be met. If the mix of commodities lost its alignment with the value of its constituent parts then an incentive could be created to redeem the currency to profit from selling its components.

Another problem in using a basket of commodities is that many can have considerable variations in quality that can alter its value to users. Some quality characteristics are difficult to define and measure. The purity of metal commodities can be more easily defined, measured and maintained than the characteristics of tea, tobacco or cattle and so on which have in the past been used as money. Another problem is that some commodities can substitute for others. However, there is no substitute for electricity generated from benign8 renewable sources and its quantity can be measured in kWh as precisely as required.

Besides being a unit of account, money also carries out the role of being a “medium” of exchange and a “store of value”.

However, fiat money no longer carries out its historical role in providing a physically definable “unit of value” like a pound weight of sterling silver or a defined weight of gold. There is now no contractual connection and so market feedback mechanism between money and the real economy and its environment. A visitor from another planet would be puzzled why our society uses fiat “funny” money as a “message stick” to allocate real resources when information being conveyed is not connected to any real resource?

2. The structure of money This Section compares contemporary fiat “funny” money with a gold backed currency and a currency whose value is defined in terms of kWh of electrical power generated from benign renewable sources.

A currency backed by a basket of commodities consumed in its host community is generally considered the most desirable basis for defining a unit of value whose purchasing power remains constant (Fisher 1911). Former Belgium Central Banker, Bernard Lietaer (2001) has proposed a global

16 • Money, Markets and Climate Change

Advanced economies are highly dependent on the consumption of energy. Energy consumption closely correlates with total economic activity in most countries. It is the production of electricity from burning carbon that is mostly putting the future of civilization at risk. So while defining a unit of value only on kWh has theoretical shortcomings there is a practical survival imperative to accept any shortcomings to help ameliorate market failure that is warming the planet. In any event, as noted above, the ideal theoretical basis for defining a unit value has practical problems in its implementation.

Table 1: Comparison of fiat currencies with those based on gold and renewable energy No Comparison criteria

Fiat dollars

Gold dollars

Renewable Energy

1

Not defined

Ounces/grams

Kilowatt-hours

Unit of value

2

Quality testing

Not required

Density

Not required

3

Intrinsic value

Negligible

Say 10%

100%

4

Subjective value

100%

Say 90%

Nil

5

Source of currency

Government decree

Few locations

Many & technology

Concentrated

6

Equity of supply

Depends on Gov.

7

Cost of distributing reserve currency

Negligible with electronic transfers Changes little with distance

Widely spread Increases with distance

8

Changes in production of money

Controls & interest rates

Little related to consumption/GDP Usually related to living standards

9

Volume of money controlled:

Indirectly by interest rates

Geography, trade and government According to economic activity

10 Rate of change in production of money Fiscal and monetary policies

Fluctuates with region and time Relatively stable by region and in time

11 Cost of storage

Not required

1% of value p.a.

Not required

12 Cost of insurance

Not required

1% of value p.a.

Not required

13 Ecological features

None

Natural product

Limited life

Table 1: ‘Comparison of fiat currencies with gold and renewable energy dollars’, uses 13 criteria for comparing money defined by governments as legal tender with those defined in terms of gold or benign sustainable sources of electricity. No quality testing is required for fiat currencies as quality is not defined as noted in row 2 of the Table. Tokens of fiat money have negligible intrinsic value while gold can be used in industry to some degree as suggested in row 3 of the Table.

Another special feature of energy dollars is that they have an intrinsic use value to pay for electricity that is little shared by gold and not at all with fiat money as indicated in row 4.

The definition of what is considered as fiat money is determined by governments, as noted in row 5. The sources for gold are concentrated in a handful of regions to create inequities between countries as noted in row 6. While commercially exploitable benign renewable energy is site specific it is very much more equitably distributed. Some sort of renewable electricity is available some of the time everywhere from the sun, wind and bacteria9.

The relative cost of converting renewable energy to electric power could vary according to the location. However, as noted in row 7 around 10% of electrical energy is typically lost in transmission, mostly when distributed at low voltage. A kWh currency would create a global standard unit of account but one that could vary in value relative to other commodities at different locations depending upon its source and the technology involved. As a result, market forces would allocate energy intensive industries to those locations with a comparative advantage in producing renewable electricity most efficiently.

The financial and energy cost of distributing energy intensive goods and services would offset to some degree the advantage.

ance costs as noted in rows 11 and 12. These costs are avoided with fiat money, renewable energy dollars and derivate energy dollars that would need also to be created to introduce hand to hand money. This does not mean that some storage devices are not required for some forms of renewable electricity production.

The production of both gold and renewable electricity depend upon to some degree on the environmental endowment of a region while fiat currencies are not connected to nature in any way as indicated in row 13. Indeed, the ability of modern money to increase its value from earning interest over time without reflecting any increases in real resources is inconsistent with natural processes that results in all living things decaying. Ecological forms of currency have also been proposed and introduced as described later in this Section.

The importance of having an ecological local currency connected to environmental conditions can be profound. The nature of a currency determines how resources are priced and markets allocate resources according to prices. To sustain humanity on the planet it is the environment that should influence how resources are allocated and governed as outlined by Turnbull (1992: 81–110) through “Building a Stakeholder Democracy” (Turnbull 1994: 85–90). In other words society needs to become composed of environmental republics with feedback mechanisms to influence human activities to sustain both. This cannot occur with fiat currencies controlled by governments and their monetary policies and institutions that are neither flexible nor adaptive to provide resiliency or ecological feedback (Olsson, Folke and Berkes 2004: 75).

As noted in closely related rows 8, 9 and 10 the volume of national currencies made available is typically controlled indirectly by interest rates, fiscal policies and prudential reserves required by government and/or the BIS. The availability of gold to back a currency in an economy can vary from place to place as noted in the Table. The amount of power available to back a currency on the other hand is closely related to consumer demand. In this way the volume of kWh money automatically becomes closely related to the level of economic activity or GDP. However, not shown in the Table, the volume of gold and energy currencies could also be controlled by political interventions.

The importance of having a decentralized local currency to allocate resources was highlighted by Jacobs (1985: 161) who stated that “Because currency feedback information is so potent, and because so often the information is not what governments want to hear, nations go to extravagant lengths to try and block off or resist the information”. Jacobs (1985: 163) went on to explain: Individual city currencies indeed serve as an elegant feedback controls because they trigger specifically appropriate corrections to specific responding mechanisms. This is a built-in design advantage that many cities of the past had but which almost none have now. Singapore and Hong Kong, which are oddities today, have their own currencies and so they possess this built-in advantage.

The use of a physical commodity like gold as the unit of account or “reserve” currency introduces storage and insur-

Consider a “mind experiment” that assumes that the consumption of foreign exchange in a region is directly proportional

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Money, Markets and Climate Change • 17

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The idea of introducing a usage charge on paper money was introduced by German speaking Silvio Gesell (1916)

to the population of the region. Let us make two other reasonably realistic assumptions: 1. Ten percent of the Australian population live in Western Australia, thus requiring only 10% of Australian foreign exchange and 2. Western Australians earn around 60% of all Australian foreign exchange through the export of their minerals and primary products. This means that on average each Western Australian is earning six times the foreign exchange they are spending.

Now if Western Australia established its own currency then its value would be determined by its terms of trade with the rest of the World. The other 90% of Australians residing in the Eastern States are earning only 44% (90%/40%) of the foreign exchange that they require.

The result would be a substantial decline in the value of the Australian dollar used in the Eastern States to create a boom in inbound tourism, education exports and manufacturing while the stronger Western Australia currency would attract migrants from the Eastern States and create an even greater strain on their resources. Other larger exporters in the Eastern States, mainly coal miners and farmers would demand that they establish their own non-urban regional currency to allow them to survive.

The mind experiment illustrates just how potent the design of a currency system can be. Currencies can create market forces far more influential than tariffs and taxes in allocating resources.

The problem of misallocation of resources introduced by fiat money was noted in the Soviet economy by The Economist (1991). To analyze the price distortions The Economist used kWh as a reference unit of value. The Economist has also established a “Big Mac index10” based on the relative prices of Macdonald Hamburgers in different countries for comparing currencies.

Even more profound changes in market allocation of resources could occur from the use of limited life, perishable, decaying currencies and/or those that introduce a usage or demurrage charge.

Metal based currencies incur a cost of storage and insurance which acts like a demurrage charge. An additional usage cost arises with currencies that are consumed like grain, livestock and tobacco. Grains and livestock have been used as a store of value, medium of exchange and unit of account for thousands of years (Davies 1996). The use of limited life commodities as

legal tender has not been trivial as noted by Galbraith (2001: 48) who observed that tobacco “had nearly twice as long a run as gold” as legal tender in the US from 1642 until it was forbidden by the US constitution.

The idea of introducing a usage charge on paper money was introduced by German speaking Silvio Gesell (1916). It was put into operation in Germany in 1919 after the First World War. A privately issued currency note was issued described as “Wära” a word compounded from “Wäre” and Währung” which mean respectively “Goods” and “Currency”. This “merchant currency” influenced the ideas of another German Rudolph Steiner who described it as “decaying” (Preparata 2006) money because the script lost all value unless a stamp was periodically purchased from the issuer and attached to the back of the script. As a result the script change hands very quickly so it became known as “speed money” as well as “Stamped script”, “neutral money” (Suhr 1989) or “Frei Geld” (free money).

The script was referred to as “free money” because it was given away like the notes issued as a “dividend” by the US State of Maryland in the 18th century (Galbraith 1976: 53).

However, unlike the Maryland dividend or the Social Credit distributions proposed by Major Douglas (1924), the notes paid for themselves from the revenues collected from the sale of stamps to keep the script valid. For example, a one dollar note that was redeemed after two years with a demurrage or negative interest charge of 1% per week would generate revenues for the issuer of 52 cents a year. Over the two year life of the script total revenues would be $1.04 to provide a profit of 4 cents after redeeming the script for $1.00. This profit is obtained even though the script was given away!

The average demurrage charge per user becomes smaller the faster the script circulates. If for instance the script was used 20 times in a week then the average cost per transaction would become 1/20 of one cent or 0.05% of the value of the script. The commission on credit card transactions cost 2% or more. The cost of stamped script would represent only 1% of the cost of a credit card commission.

Wära redeemable into coal was used by the owner of a bankrupt Bavarian coal mine to pay his employees to re-commence operations in 1929. Script holders could redeem their notes for coal or pay a 1% fee to the issuer for storing the coal. This was a time of hyper inflation and unemployment. Yale economist Irving Fisher (1933: 20) reported that the script issue “provided work, profits and better conditions for the entire community”. Use of the Wära rapidly spread to over 2,000

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In this way the operating cost savings of renewable energy can offset its higher investment cost per unit of output over the life of the equipment;

firms in Germany using various commodities for its backing.

This threatened the power of the German Government who introduced an emergency law to stop the issue of Wära in 1931 after they failed to achieve this end through the courts.

However, the idea was then taken up in 1932 by the Mayor of Wörgl in Austria. The local script was redeemable into Austrian Schillings deposited in a Trust Account. Redemption into Schillings would cost 2% but it would only cost 1% to hold the script for another month. The Mayor and other municipal employees had at least half their wages paid in local script. It was a great success with back taxes collected and public works being undertaken valued at many times more than the value of the script issued as reported by Fisher (1933: 24–29). Over 200 cities in Austria soon began issuing their own script. This led the Austrian Central Bank to terminate the use of local privately issued currency notes.

Similar success and government repression occurred in the US after Stamped Script began being introduced at the height of the depression in 1932. Fisher (1933: 30–44) records its spread and describes its various forms in Hawarden, Iowa; Evanston, Illinois; Russel, Kansas; Rock Rapids, Iowa; Albia, Iowa; Granite Falls, Minnesota; Nevada, Iowa; Pella, Iowa; Mangum, Oklahoma; Eldora, Iowa; Jasper, Minnesota; Merced and Anaheim, California; Lexington Nebraska; Enid Oklahoma and Knoxville, Tennessee.

A Bill was introduced into Congress to issue one trillion dollars of stamped script to revitalize the economy on February 1933 (Fisher 1933: 79–83). The script was to become legal tender and distributed to each State Governor in proportion to their population. Recipients then had to affix a two cent postage stamp to each one dollar note each week. After 52 weeks the notes could be redeemed at any Post Office into currency notes which were then backed by gold. The 4% seigniorage profit from the note issue would have raised $40 million for the government owned Post Office while helping to get the economy going again.

However, there was no role for the Federal Reserve System in the creation of this very substantial credit facility. The issue of ecological notes by the government would have diminished the relevance of the Central Bank and giving encouragement to those seeking to repeal the Federal Reserve Act. The Bankhead-Pettengill Bill of February 17, 1933 would have been of critical concern to the private and very influential shareholders11 of the Federal Reserve System as it would diminish their income, power and influence.

20 • Money, Markets and Climate Change

And so it was that a few weeks later on March 4th 1933, President Roosevelt announced the “New Deal” which temporarily closed all banks and prohibited the issue of all “emergency currencies”. By then over 2,000 communities were issuing various forms of stamped script.

John Maynard Keynes (1933: 234) supported the use of stamped script by stating: Those reformers, who look for a remedy by creating artificial carrying cost for money through the device of requiring legal-tender currency to be periodically stamped at a prescribed cost in order to retain its quality as money, have been on the right track, and the practical value of their proposal deserves consideration.

Consideration is now appropriate with the current crisis in the financial system. This has created an intellectual climate to reconsider and reappraise deep rooted habits of thinking.

The need for a new financial architecture has existed since Patman (1941) raised the question as to why governments should pay interest on the money they can create.

As described above, history provides evidence that ecological currencies can be introduced in parallel with national currencies, even if they are gold backed. So there is no need to make an all or nothing change. Alternative monetary arrangements could be introduced to trial new systems in the spirit of Hayek’s arguments for a “Choice in Currency”.

In this way fall back systems could be developed in case more serious defaults emerge using the existing official fiat or “funny money” system.

The problem is that permission is required by keepers of the existing system to roll back their exclusive status. The history of alternative types of money discussed above indicates that those in authority will resist changes to orthodoxy. A breakthrough to adopting a heterodox system might tragically need to wait until there is breakdown of the existing system.

In recent years there has been a revival of what are described as “complementary currencies”, “local currencies”, Local Employment Trading Systems (LETs), “Time dollars” and barter schemes12. A global map of these initiatives with a description of them is posted on the web pages of the Complementary Currencies Resource Centre13. The tradition of Germany being an innovator in alternative currencies is being maintained with it hosting most initiatives, encouraged by the support of Margrit Kennedy (1988).

From the complementary currency web site it is difficult to determine if any of these initiatives create an independent objective unit of account. While many may be described in terms of a commodity or hours of human time there are none that I am aware except “Liberty Dollars”14 that have established an independent unit of account. They thus represent a barter system of human labor or “shadow” money that defines value in terms of the local fiat currency. However, besides promoting local community economic activities, self-help and retaining wealth within a community these initiatives have introduced wide spread community awareness and knowledge of alternative exchange systems. In this way citizens have become educated and ready to support alternative currency systems.

Stodder, (2000) analyzed how a complementary “shadow” interest free money system established in 1934 by Swiss businesses has helped stabilize the national money supply through economic cycles over 65 years. Lietaer, Ulanowicz and Goerner (2008) have proposed that the Business to Business (B2b) Swiss “WIR” system be adopted by business interests in other nations. They recommend that governments become involved by accepting the private creation of interest free money to pay taxes. This proposal for managing the 2008 banking crisis needs to be compared with alternative of introducing stamped script that can be used not just by businesses but by individual voters. While stamped script creates an ecological form of hand to hand money it could be redeemed into either a fiat currency or an ecological kWh currency.

extracting CO2 from coal generators and burying it underground would increase the cost of electrical power from 5 US cents per kWh to 8 US cents per kWh (The Economist 2008: 4). The Economist quotes the cost of wind power (p.4) and solar powered system with overnight heat storage (p.8) at the same level of 8 US cents per kWh. Another related cause of the financial cost differential is that the use of fuel provides a substitute for the use of technology in converting energy from renewable sources. In other words, renewable sources require a greater investment in technology to replace the need for fuel. However, offsetting to some extent the higher investment cost per kWh of output from renewable energy sources is a reduction in operating costs achieved by eliminating the cost of fuel and reducing labor costs. In this way the operating cost savings of renewable energy can offset its higher investment cost per unit of output over the life of the equipment.

The utilization of renewable energy technology or its “capacity factor” can make a substantial difference to the size of the investment required to produce the equivalent amount of electricity over the operating life of the technology. For example if the wind only blows a third of the time the output of kWh per dollar invested will become a third of that from burning carbon. In other words to obtain the same output per dollar invested, the investment and so the finance costs must become three times larger as shown later.

This Section considers how the cost of finance affects the comparative cost of generating electrical power from burning carbon or from renewable energy sources. The cost of finance becomes an influential factor as the investment/technology cost of renewable energy generation is systemically higher than generating electricity from burning carbon.

The burning of coal, gas and oil can be continuous to allow the technology to be utilized 24 hours per day except for maintenance and fluctuations in demand to yield a capacity factor of 80%. The utilization of technology converting solar energy without storage to electricity might only yield a capacity factor of 20% so that to produce the same amount of kWh over its operating life would require four times the investment to multiply the cost of finance accordingly. While the wind can blow for 24 hours a day this may not occur every day or even for all of any one day. Wave energy sources can also be intermittent. Generators obtaining their power from hydro, tides, geothermal sources and biological process can be utilized in a way similar to burning carbon. However, hydro-electric sources have become limited, tidal and geothermal possibilities are not conveniently distributed and biological sources using bacteria have yet to be proven.

A fundamental cause is that the cost of fuel ignores external costs it creates in global warming. This is a major source of the market failure referred to by Stern (2006). The cost of

There are many ways to compare the costs of renewable sources of power. Graham, Reedman, and Coombes, (2007: 44), quote figures separately for centralized and decentralized

The ability of an alternative currency system to reduce climate change provides a basis for obtaining a political mandate to change the existing system. The next Section considers how the economics of producing electrical energy from burning carbon or from renewable sources can be affected by how a currency is structured and/or managed.

3. Economics of alternative sources of electrical power

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Table 2: How finance costs change relative prices of electricity from different sources Source of energy

Coal

Wind

Capacity cost: $A/Kw

*1,850

*1,925

Utilisation of capacity

Not required

Density

*29%

Say 10%

*80% Cost of finance: Debt/equity (Australian currency)

8%

0%

8%

0%

¢/kWh

¢/kWh

¢/kWh

¢/kWh

Finance costs over 25 years

2.44

1.06

7.02

3.03

Operations and Maintenance

1.22

1.22

0.25

0.25

Fuel

*1.00

1.00

Nil

Nil

Price of electricity

4.66

3.28

7.27

3.28

$US ($A1.00=$US0.66)

3.08

n.a.

4.08

n.a.

$US The Economist(2008: 4)

5.0

n.a.

8.0

n.a

* Figures as quoted by Graham, Reedman, and Coombes, (2007: 44)

generation. This is because different technologies are involved and the efficiencies of scale are different.

Table 2: How finance costs change relative prices of electricity from different sources uses indicative figures to illustrate how the cost of finance influences the economics of generating electricity from coal without carbon capture and wind power.

The cost of the investment in coal and wind technology to produce each Kw of electricity and the capacity factor of the technology are taken from Graham, Reedman, and Coombes, (2007: 44). Their work was undertaken for the “Cooperative Research Centre for Coal in Sustainable Development” with one of the authors being employed by a Coal supplier. It is unlikely that their data would contain any biases towards the wind energy alternative.

However, in Table 2, the price of coal generated electricity is estimated to be only 3 US cents per kWh in the year 2010.

This is 40% below the current price quoted by The Economist of 5 US cents per kWh. The low estimate might be explained

by Australia having an international competitive advantage in producing coal and/or recent significant changes in the exchange rate. Another source of the low price estimate for coal is that the Capacity cost of coal in 2010 is assumed to be $A1,850/Kw by Graham, Reedman and Coombes (2007: 44).

Dr Mark Diesendorf (2007) who has extensively researched the data, advised the author that the current capacity cost for coal is “about $A2,500 to $A3,000 per Kw” (i.e. at least one third higher) with the operating and maintenance costs for wind generators being around ¢1/kWh. The internationally competitive price of Australian generated electricity from coal shown in Table 2 is after using a higher interest15 than those of the data source and adopting operating and maintenance costs that made the price equal for either source of energy when there was no cost of money.

This was done to allow the cost of energy from either source to become the same when no interest and/or dividend charges were incurred. When there is no interest and/or dividend charge the cost of finance becomes the cost of paying back the funds required to purchase the generating capacity. The adjustments made to the data of Graham, Reedman, and Coombes, (2007: 44) is supported coincidently or otherwise by the ratio between the Australian dollar prices for each alternative being almost the same as the ratio of the two US dollar prices cited by The Economist shown in the last row of Table 2.

The data provided by Graham, Reedman, and Coombes, (2007: 44) is for centralized production without carbon cap-

22 • Money, Markets and Climate Change

ture. It specifies an investment cost of $A1,850 in 2010 to provide the capacity for generating each Kilowatt (Kw). The investment cost for each Kw capacity of wind power is given as $A1,925. However, the kWh generated was assumed to be reduced to 80% of capacity for coal generators to undertake maintenance and to 29% for wind, mostly because the wind does not blow all the time. This means that the capacity required to continuously delivery on average one kWh from coal needs to be increased to $A1,850/80% = $A2,313 and for wind to $A1,925/29% = $A6,638. In other words the equivalent investment required in wind technology is 3.4 times greater than that required for coal to obtain same output over the long run. As a result the finance costs would be multiplied by the same amount as shown in the “Cost of technology” row of Table 2.

For accounting purposes the investment in each type of technology is taken to be written off over 25 years which is equal to 219,000 hours. To amortize the cost of the coal generator a charge of $2,313/219,000=1.06¢/kWh is required while that for wind it is $6,678/219,000=3.03¢/kWh. It is also assumed that the equity and/or debt finance for the technology is paid back with equal monthly principal repayments and dividend and/or interest paid on a monthly basis like for a housing loan over the 25 years. The cost of repaying both principal and interest for coal become 2.44 ¢/kWh and 7.02 ¢/kWh for wind using an 8% p.a. cost of finance for either technology.

The price of power is determined by adding to operational and maintenance cost, to the finance cost, and fuel cost where this applies for coal. Using an 8% cost of finance, the cost of electricity from wind becomes 7.27 ¢/kWh being 58% higher than the cost of electricity from coal generation of 4.66 ¢/kWh. This compares closely with the 60% higher cost for wind power reported by The Economist. However, if Islamic banking was introduced and finance provided without an interest charge than market forces would become indifferent to allocating resources to either coal or wind.

While one may argue about the individual numbers used in the above analysis, the differences would not change the conclusion that the cost of finance is a significant factor in determining the relative costs of generating electricity from renewable or non-renewable sources.

No carbon taxes or carbon trading would be required to allocate resources to generating electricity from wind if a “selective” monetary policy was introduced along the lines proposed in the US House of Representatives Bill (HR1452). The indicative

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fsrforum • jaargang 12 • editie #2

figures of Table 2 show that without a finance cost the price of electricity would drop by 30% from the 4.66¢/kWh for coal to 3.28¢/kWh produced by wind.

One way of implementing a selective policy is for commercial banks to distribute interest free loans to finance renewable electrical energy generation on the basis that: (a) repayment of the loan was fully guaranteed by a non bank related insurance organization; (b) the insured zero interest loan was sold for its full value to the central bank to become part of the commercial banks’ statutory reserves and (c) a small processing fee could be obtained by the commercial bank and (d) the ownership and control of any excess or “surplus profits” (Turnbull 2006) from the electrical generators was distributed to the consumers.

The cost of credit insurance on the interest free loan would reflect the perceived risk of the investment in the wind generators that they would operate sufficiently reliably and for long enough to generate cash to pay back the loan. The insurance premium would indicate risk more accurately then current interest rates that are distorted because central banks create risk free credit at a price that is determined by monetary policy.

As indicated in Table 2 (and as experienced by many who have obtained a long term housing loan) interest charges over 25 years can multiply the cash that has to repaid back two or more times. Table 2 shows how an interest rate of 8% increases the cost of coal power by 44% and wind power by a disproportionally much greater amount of 122%. If access is provided to interest free finance, the cost of wind powered electricity reduces from 7.27¢/kWh to a highly competitive 3.28¢/kWh. If the financing of coal generators are not given access to interest free finance then wind powered electricity becomes 42% less expensive than coal generated power.

The above discussion shows how monetary policy could allocate resources from constructing generators that burn carbon to renewable energy generation without a complicated carbon trading scheme and/or a tax on burning carbon.

Carbon trading and/or carbon taxing introduce higher prices and so inflationary pressures. Selective monetary policies decrease costs and inflationary pressures. It achieves this by reducing the cost of the banking system by reducing the cost of Seigniorage. Patman (1941) and the promoters of interest free “Sovereignty Loans”, point out that it makes little sense for governments to increase their costs by paying interest on the money that only they have a right to create.

24 • Money, Markets and Climate Change

Likewise, it makes little sense for national governments to require State and Local governments to increase the cost of self-financing infrastructure services by charging them an interest rate. The interest does not reflect risk but a tax to further the profits of the banking system that creates the loans. As noted from Table 2, interest charges can double the price of infrastructure services that could include water, sewerage, trains, toll bridges and roadways. Rather than increase inflation, the creation of guaranteed self-liquidating interest free loans would make a direct contribution in reducing the prices of self-financing services. The services financed could in turn counter inflation by increasing productivity of the economy.

The banking system automatically creates credits in any event when it makes loans. It does this on an indiscriminate scatter gun basis that can both exacerbate inflation and the resilience of the banking system. New credits can be used for speculative purposes such as financing second hand shares and derivates or consumable durables that are not selffinancing. Selective monetary policies allow credit expansion to be precisely targeted to the formation of self-financing assets that the private sector has guaranteed to become “procreative” (Moulton 1934: 12). Moulton defined procreative assets as those that pay for themselves by increasing productivity to counter inflation by allowing “nature to yield her resources more productively” Because interest free loans would be guarantee by the nonbank sector they would increase the resiliency of the banking system. Systemic risk is also reduced because the statutory reserves of banks are increased by holding guaranteed loans as reserves. Banks would become more like building societies, credit unions, and old fashioned savings banks with more of their lending financed by the deposits they attract rather than by the deposits they create by making loans.

The introduction of a parallel independent competing currency provides an alternative and/or complementary way to introduce interest-free and/or negative interest money to overcome market failure that is driving climate change.

Besides mitigating climate change without increases in taxes and prices, a competing currency of Energy dollars provides a way to counter inflation as proposed by Hayek (1976a, b). In addition, Energy dollars provides another way of rebuilding the financial system on a more resilient and sustainable basis to provide a fall-back position in case there are any further breakdowns in the existing system. These issues are the subject of the following final Section.

The design criterion for the internet was that it had to be sufficiently resilient to withstand major failures in the case of a nuclear war

4. Mitigating market failure16 This Section outlines some of the institutional design criteria required for introducing an alternative currency redeemable into kWh to mitigate the market failure creating climate change while also providing the basis for building a resilient financial system.

The lack of resilience in the financial system was demonstrated in 2008 by the need for the US government and those in Europe and elsewhere to provide unprecedented financial support not only to banks, but to investment banks that had become “shadow banks” and to other firms. The failure was anticipated in the 1980’s as set out in Chapter 2, ‘Root Causes of the World’s Economic Breakdown’ (Benello, Swann and Turnbull 1997: 11–9) and provides lessons for designing an alternative system17.

One lesson is that if “the invisible hand” of market forces is to work in weeding out inefficient and/or imprudent firms, then no firm should be allowed to grow so big that it cannot be allowed to fail.

The design criterion for the internet was that it had to be sufficiently resilient to withstand major failures in the case of a nuclear war. For this reason it was designed on a highly decentralized basis so that a failure in one or more parts of the system would not bring down the whole system and there would be a number of ways to replace and/or work around the failed components. For the financial system to become resilient, central banking needs to be replaced by decentralized banking as existed around the world until a few centuries ago.

Government regulators have broken up dominant firms to promote competition. The Bell Telephone company was at one time was the largest corporation in the world but was forced to divide into seven “Baby Bells in the 1980’s. Big is not best for consumers. Nor is big best for resilience. Big may be best to achieve economies of scale and scope, but efficient operations are of little use if they are not systemically sustainable. System resilience needs to be added to the criteria for breaking up financial firms to a size that failure can be accepted by the system.

Arguments on how decentralization introduces system ­resilience are presented by Olsson, Folke and Berkes (2004).

Lietaer, Ulanowicz, and Goerner (2008) show how there is a trade-off between efficiency and resilience. The problem is that government regulators are populated by economists

who focus on efficiency rather than resiliency. Economists and the rest of us evolved from small ancestors who survived the cataclysmic event that make the dinosaurs extinct.

Many small overseas financial institutions that borrow and lend locally like building societies, credit unions and local banks are surviving the 2008 financial crisis without government support. Ironically their survival depended upon not participating in the sharing of risk by acquiring securities created by other firms. This leads to another lesson from the 2008 financial crisis.

A second lesson is that systemic degradation was introduced by financial intermediaries changing their business model to be inconsistent with their capital structure and role. This problem was seriously exacerbated by financial de-regulation in the 1980’s in the UK and in other markets and by the 1992 repeal of the Glass-Steagall Act in the US. Before de-regulation banks acted as intermediaries for carrying out the inherently risky role of using short term deposits to finance long term loans. To allow banks to carry out their role of borrowing short and lending long, governments provided them with lender of last resort facility to manage their liquidity risk. In return, governments regulated the degree to which banks could leverage their shareholders’ equity and so their profits with depositors’ funds.

An implicit assumption in governments providing banks the privilege of a lender of last resort facility was that banks would not only lend prudently but they would also retain and manage their loans closely with diligence. This assumption was made irrelevant with the securitization and distribution of loans to spread the risk of loans of going bad. This also spread the risk of systemic failure as occurred in 2008.

De-regulation and securitization allowed banks to change their business model from being principals issuing and holding debts to becoming both brokers and agents in the game of pass the parcel of debt. Debts sold were not longer being managed by the Bank as a Principal. At the same time, finance brokers like investment banks, which were in the business of being agents in transferring assets between Principals, became Principals themselves. In addition, brokers became “shadow” banks creating credits to finance highly volatile new asset classes described as derivatives. By this means investment banks also fueled an asset bubble with a capital structure that was too highly leveraged even to be a resilient Agent/broker let alone a Principal.

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Money, Markets and Climate Change • 25

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fsrforum • jaargang 12 • editie #2

Ecological money and currencies would create an incentive to invest in activities in the real economy that would at least maintain value if not have a prospect for increasing their value like investing in young trees.

The second lesson is that financial intermediaries need to be regulated to “stick to their knitting”. Financial firms need to act as an Agent or as a Principal but not both. Also, financial intermediaries should not accept both liquidity risk and loan loss risk together. Nor should foreign exchange risks be added.

Liquidity risks can be efficiently accepted by banking institutions with equity that is only around 10% of total assets while loan loss risks need to be accepted by insurance institutions with liabilities of less than 10% of their total assets. To achieve systemic efficiency and stability regulation is required so highly leverage banks and/or those reliant on wholesale funding, have their loans insured by institutions with liabilities that are less than 10% of their total assets or with specialized insurance intermediaries that can average risks over regions, time and sub-types of risk like mortgage insurance firms.

To avoid systemic global financial risk, banks need to also avoid accepting foreign exchange risks as either borrowers or lenders. Foreign exchange risks need to be allocated to the non bank sector either directly and/or indirectly through future contracts. The problem of foreign exchange risks can be avoided with currencies convertible into a commodity that can be stored and/or traded. Market forces can then play their role to automatically correct imbalances in foreign currencies by trading in the reserve commodity and/or other goods and services. This process is facilitated by a decentralized commodity based financial system such as considered in Section two.

The analysis of the operating characteristics of energybacked dollars in Section two supported it use for a decentralized currency system. From the discussion one can conclude that Energy dollars would meet the three design criteria described by Lietaer (2001). His three criteria were that it would: (i) Allow a country or region to unilaterally establish an internationally recognised convertible currency; (ii) Promote economic activity without inflation, and (iii) Support ecologically sound development.

Design of the institutional arrangements for an alternative currency present a greater challenge. Bob Swann, an associate of Borsodi who issued “Constants” in New Hampshire in 1973 put forward four criteria in a Chapter on “Building a community banking system” (Benello, Swann and Turnbull 1997: 178–83). The criteria were that the system would: (i) Be simple to understand; (ii) Use redeemable currency; (iii) Establish a stable universal unit of account and (iv) Organized and controlled at a local level.

28 • Money, Markets and Climate Change

As President of the E.F. Schumacher Society based in Great Barrington, Massachusetts, Swann sought to put these ideas into action. We developed a proposal to introduce Energy dollars redeemable into kWh as first proposed by Turnbull (1977). Swann obtained the agreement in principle to build a wind powered electrical generator on the top of a mountain at a local ski resort. Under US law, the local power distribution company was required to purchase locally generated power.

In this way we planned to distribute renewable energy to investors/consumers who purchased their power needs in advance.

Using the data in Table 2 a $US10 million wind power generator would have the capacity to generate 7,871 Kw. Over the 25 years of its operational life equivalent to 219,000 hours and operating only 29% of the time this would yield saleable hours of 500,000,000 kWh or 500 GWh. To raise the $US10 million to acquire the generator, its output would need to be pre-sold for a net present value of not less than US2¢/kWh. The concept was to fund the $US 10 million by selling pre-payment vouchers denominated in kWh to institutional consumers of electrical power who would use the vouchers to pay their power bills instead of US dollars. A target market was the sinking funds of condominium apartments. The consumers would purchase Energy dollar vouchers redeemable in specified kWh at specified years and acquire a pro-rata share in the equity of the wind generator. The generator would then be owned by its customers who would become residual claimants for any surplus values. The power distribution company would use the vouchers received from its consumers to pay the wind generator company for the power it supplied. In this way the credits created would be cancelled.

The project did not proceed because the billing system of the power distribution company did not possess an extra “field” in its data processing equipment to identify if the payments by its customers were made in US dollars or Energy dollars.

A point of interest is that, as a matter of practical necessity, the power distribution company would become a liquidity manager averaging out supply and demand much in the same way that central banker becomes a lender of last resort to manage deposits being called. Depending upon the contractual relationships with the power distribution company, it might have also become a de facto guarantor of the notes in the event the wind generator failed to deliver sufficient power to redeem all the vouchers on issue.

If the use of Energy dollars are to be scaled up to create competitive decentralized alternative autonomous financial systems

institutional arrangements need to be designed to manage traditional banking risks discussed above. There would also be a need to create additional non-cash credits to finance commerce and/or economic development. The issue of selfliquidating ecological demurrage currency denominated in kWh would avoid the cost of paying seigniorage. The cost of finance and the dead weight cost of the banking system could be substantially reduced. The benefits of Islamic Banking with an ecological currency could become widely shared.

The most profound result of widespread adoption of Islamic Banking is that the opportunity rate for evaluating investment projects would be significantly reduced. Money on its own would no longer create an opportunity cost. Ecological money and currencies would create an incentive to invest in activities in the real economy that would at least maintain value if not have a prospect for increasing their value like investing in young trees.

Environmental costs are created from economic analysis being based on discounting the future from using Present Value analysis. Discounted Cash Flow (DCF) analysis in any event depends upon the assumption that people have both the opportunity and the wish to invest their wealth rather than consume it to sustain their life. This assumption is not valid for many pensioners or when the opportunity for governments to invest depends upon citizens giving up consumption to pay tax.

been the problem from both what they have done and what they have not done. Regulators have failed by allowing the financial system to be become more complex than they are capable of understanding. The most senior government advisor in Australia, Dr. Ken Henry, the Secretary to the Treasurer, stated: The array of financial instruments deployed within the global financial system has become so complex that it defies understanding. For decades to come, policy makers around the world are going to be asking why those with sufficient authority didn’t, at some point, stand above the buzz of the financial markets and declare, in simple language, that all of this simply doesn’t make sense. (Ramsey 2008).

Another problem is that the study of alternative institutional arrangements is a neglected topic. How to design alternative financial and governance systems is also a neglected topic.

There is no longer time to fill this gap so the take home message for governments is that there is a need to learn while doing. To facilitate this process, governments should facilitate privately initiated monetary experiments along those described in this paper in the spirit of letting a thousand flowers bloom.

References on request.

The E.F. Schumacher Society proposal for issuing renewable energy dollars indicates how ecological money and Islamic Banking could be established on a highly decentralized basis.

The experience of Stamped Script being widely and rapidly accepted in Germany, Austria and the US illustrates how highly decentralized ecological currency could become rapidly adopted within a year or so if permitted by governments.

Existing initiatives to just save the financial system, let alone introduce reforms, are likely to take much longer.

The current breakdowns in the financial system and the inconvenient truth of global warming provide compelling reasons for governments to not just permit but facilitate the evolution of a more resilient, efficient banking system that could also avoid the time, complexity and uncertainty in the efficacy of carbon trading. It would also reduce the price rises associated with either carbon trading or taxing.

Besides introducing new initiatives to save and reform the current system, governments should recognize they have

× Money, Markets and Climate Change • 29

fsrforum • jaargang 12 • editie #2

Een zwaar beroep

K(r)anttekening

Prof-voetballers hebben een zwaar beroep. Top-turnsters lopen ook vaak al jong behoorlijk wat fysieke schade op.

Commando’s worden zwaar op de proef gesteld. Parelvissers krijgen het niet cadeau. Klassificeerders lopen gevaar. Buschauffeurs zijn niet veilig meer. En ik? Laten we onszelf niet vergeten. We hebben het allemaal zwaar. De één heeft een kapotte rug van het sjouwen; de ander doordat hij nooit uit zijn stoel is gekomen. Vrijwel niemand komt ongeschonden aan de pensioenstreep. En nu wordt de streep verlegd. Een eindje naar achteren. Want anders komen er teveel van die ‘nog goede jaren’ die ons bij onze pensioengerechtigde leeftijd worden gewenst. Hoe oprecht was die wens nu eigenlijk?

Het beroemde gouden horloge met inscriptie diende dus eigenlijk alleen maar om te kijken of het niet eindelijk je tijd was geworden. Als je te oud wordt, is dat horloge nog eerder kapot dan jij. En dat kan niet. Dus krijg je het wat later.

Drs. Joost G. Groeneveld RA RV1 is directeur van Wingman Business Valuators B.V. te Breda en voorzitter van de Stichting WBO (register van business valuators).

Hij was hoofddocent aan de Economische Faculteit van de Erasmus Universiteit te Rotterdam.

De straf op een langer leven is dat er langer moet worden gewerkt. Dat zeggen ze er niet bij, bij de antirook-campagne; de onverzadigde vetzuren; de linksdraaiende yoghurt; de vezeltabletten; dat dagelijkse halfuurtje beweging. Zoals een FNV-vertegenwoordiger 14 januari 2010 bij Business News Radio zei: je kunt alleen op arbitraire wijze generalisaties toepassen op de zwaarte van verschillende beroepen. En hij noemde de buschauffeur en de brandweerman. Het zou een vreemde wedstrijd worden. Wie heeft het beroepsmatig echt zwaar? Weegt een kapotte rug op tegen een versleten hart?

Zijn stoflongen erger dan Repetitive Strain Injuries (RSI)?

Er moet dus onderscheid zijn. 65 jaar voor wie het zwaar had. Dat zijn de submodalen van deze wereld. Ook zònder werk hebben die het ’t zwaarst. Dus wat wil je nog meer? Je legt de grens bij e 35.000 per jaar. Nu wordt het een wedstrijdje zo min mogelijk geld verdienen. Het laatste jaar wat gas terug nemen? Een beetje salaris verschuiven naar de echtgeno(o)t(e)? Hoe zat dat ook al weer met die mijnheer die ’s avonds nog moest bijverdienen? Verdient hij niet meer dan wat op je loonstrookje staat? Dan mag hij dus ook tot je 67e doorwerken. Maar ook zo eenvoudig zal het niet zijn.

Nu zijn er natuurlijk wel een paar technische problemen.

• Gaat het om het belastbare inkomen?

• Of wordt gerekend met het inkomen na belasting?

• Is het alleen het arbeidsinkomen?

• Gaat het om het eindloon of om het middenloon?

• Gaat het bij echtparen om de meestverdiener, of moeten beide bovenmodale echtelieden nog wat doorwerken?

• En kan demotie hierop van invloed zijn?

• Tellen variabele beloningen (bonussen) ook mee?

Een aanslag op een paar goede jaren is beter te verkopen dan een hogere belastingaanslag. De politicus die dit heeft bedacht, verdient de ‘prix d’elegance’ Nee, zo’n wedstrijd moeten we niet houden. Dus iedereen die het nog kan maar gewoon tot zijn/haar 67e aan het werk?

Dat zou al te simpel zijn. Wat hebben we aan politici als we geen tegenstellingen meer zouden hebben? Geen proletariaat; geen kapitalisten en geen arbeiders. Dan màken we die tegenstellingen toch. In zo ongeveer het meest inkomens­ gelijke land ter wereld is dat een geweldig plan. Gewoon ouderwetse klassenstrijd. Waar de blauwe boorden 40 jaar voor de witte moesten werken, draaien we het die laatste twee jaren gewoon om. Laat die witte boorden nog maar eens

30 • Een zwaar beroep

een paar jaartjes extra werken, dan kunnen die blauwen al vast met pensioen. De witten zouden niet zo lang hoeven te werken, wanneer ze nog een beetje meer belasting zouden betalen. Maar in zo’n genivelleerd landje als dat van ons is dat moeilijk te verkopen. Een aanslag op een paar goede jaren is beter te verkopen dan een hogere belastingaanslag. De politicus die dit heeft bedacht, verdient de ‘prix d’elegance’.

• En wordt het pensioen hoger wanneer op deze manier meer dan 40 jaar premie wordt betaald?

En dan zijn dit nog alleen de eenvoudige vragen.

En er zijn een paar bedrijfseconomische vraagstukken. Sociaal economen aggregeren die soms wat al te gemakkelijk naar de marge.

• In de eerste plaats gaat het om innovatie die in het algemeen belangrijk wordt gevonden, maar met meer senioren en minder jonge instroom wordt die niet echt gestimuleerd.

• De oudjes houden arbeidsplaatsen bezet maar zullen vaker

door letterlijk ouderdomskwaaltjes worden bezocht en afwezig zijn. Dat betekent vaker stagnatie.

• Hun produciviteit is afgenomen, maar ze moeten wel een bovengemiddeld salaris blijven genieten.

• Hun reactiesnelheid is afgenomen en daarmee hun mobiliteit en inzetbaarheid.

• Ook in de indirecte sfeer zijn ze kostbaar. Ze maken een relatief intensief gebruik van Arbodiensten en personeels­afdelingen.

En dat moet allemaal - en nog veel meer - in de desbetreffende ondernemingen extra worden verdiend.

Dat alles nog afgezien van de sociale problematiek. De 65-plussers die nog een beetje uit de voeten kunnen, zijn niet opeens inactief. Zij passen bijvoorbeeld op hun kleinkinderen. Voor hun jongere buren nemen zij de post aan als die aan het werk zijn; zij begeleiden jonge ondernemers; zij zitten in wijkraden; zij besturen hun ouderenverenigingen en zij zijn vrijwilliger op tal van andere terreinen. Kortom: zij werken. Zij zijn de smeerolie van de samenleving. Zonder hen komt veel tot stilstand. We hebben ze hard nodig en we zouden ze heel erg missen.

En toch moeten we ze missen wanneer zij langer betaald werk moeten verrichten. Twee jaargangen van de meest vitale 65-plussers worden aan deze pool onttrokken. Hun dochters die (van veel politici) veel meer richting full time aan het werk moeten, verliezen hun opvang. De overheid zal daarvoor vervanging moeten vinden… Ziet u wat er gebeurt? De extra centjes zullen niet aan pensioenfondsen kunnen worden besteed. Veel vrijwilligerswerk van voorheen moet worden betaald of het vervalt. Dat laatste is rampzalig.

Vervanging kost geld. En dat moet door die 65-plussers worden verdiend. Dat helpt de samenleving niet te bezuinigen. Het maakt heel veel dingen duurder. Veel tot nu toe ongeprijsde effecten moeten worden geprijsd. Een groter deel van de economie krijgt zo uitdrukking in geldstromen: dat wordt financiële economie. Een deel van onze bestaande economie wordt ingeruild voor een andere economie. De prijs die hiervoor wordt betaald, is met het bovenstaande slechts vaag aangeduid. Het gaat hierbij al lang niet meer om zware beroepen. Het gaat om een zwaar beroep. Niet op de enkeling, maar op de samenleving. Om ontwrichting te voorkomen, zou het goed zijn als politici zich dat zouden willen realiseren. En de pensioengerechtigde leeftijd op 65 zouden houden.

1 Directeur Wingman Business Valuators B.V., Breda

× Een zwaar beroep • 31

PricewaterhouseCoopers Je ideeën zijn belangrijker dan je studierichting Wat je gestudeerd hebt zegt veel, maar lang niet alles. Bij PricewaterhouseCoopers vinden we je ideeën en je inbreng uiteindelijk belangrijker dan je specialisatie. Bij PwC werken professionals samen vanuit drie invalshoeken: Assurance, Advisory en Tax & Human Resource Services.

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Voer op www.werkenbijpwc.nl je studierichting in en je ziet direct welke kanten je op kunt.

Als je zin hebt in een onverwachte wending Misschien heb je een studie gedaan die helemaal niet vanzelfsprekend leidt tot een carrière in de zakelijke dienstverlening. Maar ook dan is de kans groot dat PricewaterhouseCoopers je een boeiende professionele toekomst kan bieden.

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Als organisatie moeten we onderwerpen dus vanuit alle invalshoeken kunnen benaderen. En daar hebben we ook jouw ervaring en ideeën bij nodig. Aan de hand van je studierichting krijg je op www.werkenbijpwc.nl een overzicht van je kansen.

Als je onze passie maar deelt Bij PricewaterhouseCoopers werken we met passie en een gezonde dosis lef.

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fsrforum • jaargang 12 • editie #2

Accounting for renewable

power plant is a complex issue David Coulon

Renewables are proving complex for utility management in terms of how they should be dealt with under IFRS accounting rules, says David Coulon.

Generators and other utility companies are under mounting pressure to make investments in alternative energy. Increased awareness of climate change, concerns about the sustainability of non-renewable energy sources, the desire of consumer and corporate entities to be green and government incentives to encourage investment in alternative energy have all created strong demand for environmentally friendly energy production.

This, coupled with European Union requirements that the UK should generate 15 per cent of its energy from renewable sources by 2020, has led to a substantial growth in alternative energy.

However, while investment in alternative energy has experienced double digit growth in the past ten years, and the global market is expected to reach £44 billion a year in the next decade (despite the recnt downturn in the market), little clarity has emerged about key accounting issues under International Financial Reporting Standards (IFRS), which are still bedding down. This has raised concern that senior management is trying to explain performance (for which it is accountable to the board and to the investor community) under difficult circumstances. Not only is there a lack of tried and tested standards, but because this is still a new and changing field, decisions are being made in the absence of established industry best practice.

The first accounting dilemma in the event of a renewables investment is whether a business combination or an asset acquisition has occurred. Currently, IFRS 3 Business Combinations require that an entity distinguishes between the acquisition of a “business” and a group of assets. Since deciding where to draw the line between the two options creates completely ­different outcomes in a company’s financial statements, this decision has always required judgement, and diversity in practice is already evident in the industry.

Generators and other utility companies are under mounting pressure to make investments in alternative energy If the acquisition is a business combination, the various elements must be assessed to determine whether they are “operating assets” - for example a group of operating wind turbines with a connection to the grid - or “projects”, which have much less precise parameters and could include anything from an identified location with a positive wind study, to a lease of land, including planning permission and an operations and management agreement.

Intangible assets In a business combination, any difference between the amount paid and the value of the operating assets is treated in financial statements as intangible assets or goodwill. The value of goodwill cannot be spread evenly over time. Instead, its carrying value must be tested at least annually and any decrease must be recognised immediately. The timing of this can be unpredictable, causing difficulties in managing earnings expectations. This can make company ­performance look volatile.

Conversely, if a company believes it has not entered into a business combination, but has merely acquired a group of assets, these can be depreciated by a standard amount each year, making the earnings expectations more straightforward to manage.

34 • Accounting for renewable power plant is a complex issue

Making the distinction between business combination versus asset acquisition has always been tricky. More complexity will be added with effect from July next year with the introduction of a revised IFRS3 that states that a business need no longer create outputs that generate revenues.

Some companies may consider the revised standard broadens the definition of a business and brings more transactions within its scope. In the absence of specific guidance under IFRS, this presents management teams with a problem as regards whether it is a business or an asset that has been acquired, and what accounting treatment is most appropriate. This could create greater inconsistency within the industry and suggests businesses will need to apply care as they explain the impact on their financial results.

When determining the fair value of an asset (whether as a result of a business combination or for impairment purposes), IFRS often require that the associated future revenues are ­estimated. Determining revenues for alternative energy assets can cause difficulties because of frequent changes to incentive schemes, which can affect assumptions over the price of power, or the ability to trade emissions rights.

Incentives For example, Renewables Obligation Certificates (Rocs) are provided as an incentive to produce energy from renewable sources in the UK. When testing renewable energy generation assets for impairment, the difficulty for management is that the value of many of these incentives is only reliable for a ­relatively short term, but the life of the asset to which they relate may be upwards of 20 years.

In the absence of specific guidance, management teams are forced to guess what direction renewables incentives will take and what their value will be. This is a key assumption when impairment tests are undertaken. For analysts and other accounts users, the fact that companies may be making different assumptions about the same incentives and so recording different asset values is not helpful.

For example, assume that two companies have identical windfarms. They estimate future revenues using different assumptions about the future value of Rocs (current buyout price and recycle component). One company assumes there will be an increase in the Roc buyout price and another that it will remain stable. Both assumptions are reasonable but lead to a difference of up to 50 per cent in the value of the asset, as such incentives could account for up to 50 per cent of revenues.

Decommissioning is another area fraught with difficulty. It is inevitable that, in most jurisdictions, alternative energy companies will face a requirement to restore land (or seabed) to its original state. However, many companies would like to adopt a pragmatic approach to accounting for this requirement, and offset the cost of decommissioning against the scrap value of the assets. This is not allowed under the current accounting regime, which requires that these two events be treated separately. In addition, the provision is difficult to estimate because there is no history of decommissioning such assets.

Windfarms re-powered Another issue when accounting for decommissioning is the belief that existing windfarms will be “re-powered” and therefore will not need to be decommissioned. If companies end up re-powering, then the original provision made for decommissioning costs will be reversed, which could lead to a ­significant profit being recognised. Again, in the absence of guidance, it is up to management to exercise judgement to apply the appropriate accounting treatment.

Another accounting issue causing significant debate is how utilities should classify long-term (say 25-year) power purchase agreements with renewable energy producers. Should such agreements be classed as a normal executory contract or should they be treated as leases?

The answer can have a big impact on the reported gearing of a company. If the contract ends up as a finance lease, the company purchasing the power must recognise the generation assets and a corresponding financial liability on its balance sheet, even though they do not legally own the generation assets. Such an obligation could potentially put a company in breach of its covenants.

IFRS has not yet reached the status of what accountants call Generally Accepted Accounting Principles. Because the alternative energy industry is relatively new, company executives will be engaged in a series of delicate balancing acts for some time to come as they compile their financial statements. The key question, for management and users of the financial statements, is whether they give a true and fair view of activities.

Since this is something of a subjective assessment, there will always be room for interpretation and management must continue to seek ways to explain underlying performance so that the market has a clear and complete understanding of corporate activity.

David Coulon is partner and co-head of the London utilities assurance practice at Ernst & Young. Email: dcoulon@ uk.ey.com

×

Accounting for renewable power plant is a complex issue • 35

Nu lees je wel eens over staatsbedrijven.

Binnenkort mag jij ze beheren.

Het Rijk is mede-eigenaar van 35 grote onder- nemingen. Het ministerie van Financiën is namens de Staat aandeelhouder en verantwoordelijk voor Connexxion. Maar ook de oprichting van de onder-

Financiën zoekt startende bedrijfseconomen

neming die de Zuidas moet gaan ontwikkelen of

Wij bieden je van meet af aan veel ruimte voor

de aankoop van een aandelenbelang in het

eigen verantwoordelijkheid. Het kan dan ook

Rotterdamse Havenbedrijf. Op dit ministerie werk

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fsrforum • jaargang 12 • editie #2

Woord van de voorzitter

Peter James

Geachte leden, Na een knallend oud en nieuw, quality time met de familie en twee weken van ontspanning is het tijd voor het tweede deel van het collegejaar. Ten eerste allemaal een goed 2010 gewenst namens het gehele bestuur. Wij zijn aardig op koers om onze doelen te bereiken en ik zou graag van dit moment gebruik maken om iedereen op de hoogte te stellen wat er allemaal op de planning staat. Het is echter gepast om eerst terug te blikken op de eerste 5 maanden van het jaar.

Na de afronding van de International Banking Cycle en de Big 4 Cycle konden we tevreden terug kijken op het enthousiasme dat de deelnemers uitstraalden tijdens de inhousedagen en borrels met de verschillende bedrijven. Daarnaast was de Traders Trophy spannend en erg uitdagend en met 116 unieke deelnemers heeft de FSR de meeste inschrijvingen binnen weten te halen in vergelijking met de andere financiële steden. Helaas was er geen Rotterdamse eindwinnaar, maar iedereen heeft zich goed vermaakt. Op 14 november stond de actievendag gepland. Met 30 personen gingen we bij de Dutch Water Dreams in Zoetermeer raften of flowboarden, tijdens het diner bij Tony’s Place schoof de rest van de actieve leden aan en konden we genieten van een pizza en een soepele Italiaanse karaoke zanger. In de Plan C is de avond succesvol afgesloten en daar laten we het bij betreffende verdere details.

De gastcolleges met Shell, AEGON en Optiver en de geplande gastcolleges met BNP Paribas, Alp Invest en Ernst & Young onder strepen de waarde die de FSR hecht aan het feit dat de activiteiten inhoudelijk sterk blijven. De deelnemers van het IRP zijn bekend en er staat hen, onder leiding van Nienke en haar commissie, een bijzondere reis te wachten. Tien finance studenten en tien accountancy studenten zullen op maandag 26 april voor twee weken naar Mumbai verhuizen om hun onderzoek met een praktische inslag af te kunnen ronden. Uiteraard zal een groot aantal gebruik maken van de mogelijkheid om het land India verder te gaan bezichtigen. Erg goed om te zien dat de aanwezigen oud-bestuursleden en actieve leden zich uitstekend vermaakt hebben tijdens het gala op vrijdag 8 januari. In Hoofdstuk II werd een heerlijk drie gangen diner genuttigd met een eendenborst die door de gemiddelde vrouw niet opgegeten kon worden. In Plan C werd de avond op gepaste wijze afgesloten, dus de meeste zijn tot het gaatje gegaan die avond.

In de tweede helft van het jaar staan onder andere onze studiereizen voor de deur naar, zoals eerder vermeld, India en de European Finance Tour naar Istanbul waar onder andere een Turkse private equity boutique zal worden bezocht. In deze poort naar het Oosten wordt het ongetwijfeld een mooie reis dus inschrijven is een must. Na het bezoeken van Flowtraders, NIBC en KPMG in Nederland wordt de reis in Istanbul waarschijnlijk één om niet snel te vergeten. Begin maart staat de Multinational Battle op het programma waarbij Rotterdam, Amsterdam, Groningen, Tilburg en Maastricht tegen elkaar zullen strijden. Tijdens de voorronden zullen ongeveer 20 studenten per stad bepalen welke vijf studenten team Rotterdam zullen vertegenwoordigen tijdens de finale op 10, 11 en 12 maart. Participerende bedrijven zijn Heineken, NS, Akzo Nobel, KPN en ABN Amro en zij zullen uiteindelijk bepalen welke team de winnaar zal zijn. Op het moment van schrijven is de National Investment Competition van start gegaan en iedereen gokt letterlijk op de gigantische hoofdprijs van een reis naar New York voor 2 personen plus een zak geld van 2500 euro. Het is aan de deelnemers om wekelijks rendement te halen en zij kunnen daarbij zelf bepalen hoeveel tijd ze hierin steken. Een van onze paradepaardjes is de Corporate Finance Competition waar ondertussen de nodige voorbereidingen voor zijn getroffen. De 5-sterren locatie waar dit prestigieuze evenement plaats zal vinden is dit jaar landgoed Duin & Kruidberg, waar de Raad van Bestuur van ABN Amro, onder leiding van

bankier Rijkman Groenink, regelmatig vergaderde. Verder staat de Accountancy Day in mei gepland waarbij 2e en 3e jaarstudenten binnen een dag een goed inzicht krijgen in de accounting wereld, bovendien zijn er plannen voor eventueel een aanvulling op onze activiteiten agenda. Helaas kunnen wij daar nu nog niet te ver op in gaan.

Over de overige ontwikkelingen wil ik wel een aantal mededelingen doen. De nieuwe website is online en hierdoor bevorderen we onze professionele uitstraling. In lijn hiermee is onze nieuwe hijsstijl waarin de website de basis zal zijn voor de overige exposure van de FSR. Hiermee worden onder andere de visitekaarten, enveloppen, posters en flyers mee bedoeld. Niet echt een hoofddoel dit jaar, maar zeker de moeite waard om te vermelden is dat de FSR gaat verhuizen naar de 14e verdieping in het H-gebouw. Tijdens dit schrijven zijn de ontwikkelingen betreffende de reorganisatie nog in volle gang, echter de verhuizing zal zeker plaats vinden.

Hiermee zal het contact met onze vakgroep alleen maar vergroot worden, waardoor Het Financieel Dagblad en de Financial Times, die door de FSR gratis aangeboden worden, waarschijnlijk voor het eind van de ochtend weg zullen zijn.

Al met al staat de FSR er goed voor en kunnen wij van het XIIe bestuur in samenwerking met alle commissieleden tevreden terug kijken op de eerste vijf maanden. De inschrijvingen voor alle evenementen gaan erg goed en de partners geloven nog steeds in onze kracht waardoor de evenementen van hoge kwaliteit blijven. De nieuwe FSR film die standaard op de nieuwe website komt te staan is hier het bewijs van en het lijkt er dus op dat iedereen die met de FSR te maken heeft de kansen grijpt en dus zich onderscheidt!

Verenigingsnieuws • 39

fsrforum • jaargang 12 • editie #2

FSR Actievendag

Terwijl het ene deel van de groep actieven buiten ging raften vermaakte het andere deel van de actieven zich op/met een body board. Dit lijkt echter wat makkelijker dan dat het daadwerkelijk is en velen hebben dit dan ook ondervonden toen zij hun eerste stappen op de baan waagden.

Want als je even niet oplet of je board loslaat, was je al weer bovenaan en kon je achteraan de rij aansluiten om het nog een keer te proberen.

Enkele wat meer ervaren surfers zoals Jan Tijmen, Ishan en Marco lukte het om na enkele keren al op hun knieen te gaan zitten om zo de gesimuleerde golven te trotseren. Voor de rest was het louter proberen zo lang mogelijk op hun board te blijven balanceren.

Toen iedereen klaar was gingen we, inclusief blauwe plekken en gekneuste polsen, richting het restaurant waar ons een verrassing stond te wachten. Enkelen hebben dan ook van de gelegenheid gebruik gemaakt om een mooi duet op te voeren.

Hierna sloten wij de avond af in het beruchte Plan C, waar het bier rijkelijk heeft gevloeid.

Al met al een geslaagde avond en deze foto’s zijn daar het bewijs van.

40 • Verenigingsnieuws

fsrforum • jaargang 12 • editie #2

FSR Big 4 Cycle 2009

Met genoegen hebben wij dit jaar de accountancystudenten van de Erasmus Universiteit Rotterdam een kijkje laten nemen in de keuken van de grote vier.

a­ nalyseren van risico’s. Verder hebben we een vooraanstaand project­ontwikkelaar mogen bezoeken. De avond werd afgesloten met een heerlijk diner aan de Maas in Cafe Rotterdam.

Als student met een passie voor accounting is er een kleine kans dat je de vier grote accountantskantoren (KPMG, Deloitte, PwC en Ernst & Young) nog niet kent. Echter is dit ‘kennen’, vooral in het begin, het kennen van de namen.

Na een pauze van ongeveer drie weken ontmoetten wij PricewaterhouseCoopers. Ook hier werd er eerst op kantoor een case behandeld. Deze werd mooi aansluitend voortgezet bij de klant op locatie. De studenten mochten zich bij een echte klant bewijzen! Vervolgens werd de inhousedag afgesloten met een diner juist aan de andere kant van de Maas.

Tot grote vreugde van de Financiele Studievereniging Rotterdam hebben dit jaar veel studenten de stap genomen om het kennen van alleen bij naam achter zich te laten. Door het bezoeken van vier inhousedagen georganiseerd door de kantoren, hebben de studenten de onderlinge verschillen mogen waarnemen. Wanneer wij aan de studenten vroegen of zij een voorkeur voor een bepaald kantoor hadden, waren er meestal maar twee mogelijke antwoorden. Sommigen wisten het nog niet en anderen konden niet heel duidelijk zeggen waarom zij voor een bepaald kantoor kozen. De verschillen zijn ook heel moeilijk te definieren. Alle vier kantoren hebben een groot en varierend klantenpakket, werken in veel sectoren en geven de studenten het vooruitzicht om te groeien.

Waar het uiteindelijk om gaat is de klik die je met een bepaald kantoor hebt. Veel studenten maken de beslissing om bij een kantoor te werken, met de bedoeling om daar te blijven. Een goede band met jouw teamgenoten en een goed gevoel bij jouw omgeving is daarom een vereiste.

Last but not least heeft Ernst & Young de cyclus mogen voltooien. In de zeer sjieke board room hebben de studenten mogen brainstormen over kunst, de waarde ervan en wat voor een impact het heeft op de accountancywereld. Speciaal voor deze dag mochten wij dineren in (het op dat moment nog niet geopende) Wereldmuseum.

Wij van de Accountancycommissie hopen dat wij zowel de kantoren als de studenten tevreden hebben gesteld en dat dit evenement wordt aangeraden aan de accountancystudenten van volgend jaar!

Met vriendelijke groet, Ellis Heijboer Semih Tuna Sina Rahimy

KPMG heeft het spits afgebeten met een interessante case op kantoor over de commerciele kant van een baan als accountant. De groepen studenten hebben zich na het bestuderen van de case mogen presenteren aan de kantoren. In de avond is er heel origineel een kookworkshop gehouden waarbij er in teams met elkaar voor elkaar is gekookt.

Een week later heeft accountantskantoor Deloitte de studenten mogen ontvangen. Hoogtepunt van de case was het

Verenigingsnieuws • 41

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FSR Galadiner

» Verenigingsnieuws • 43

fsrforum • jaargang 12 • editie #2

FSR Galadiner

44 • Verenigingsnieuws

fsrforum • jaargang 12 • editie #2

Traders Trophy

Op woensdag 25 november was het dan eindelijk zover. Na het succes van vorig jaar waren de verwachtingen hoog gespannen, bovendien werd door de partners All Options en Oxyor hoge druk uitgeoefend om het evenement meer te laten slagen dan vorig jaar in de vorm van het uitgeven van prijzen voor meeste inschrijvingen en minste no-shows. Gelukkig is dit voor de FSR met dank aan Bart Lips en Jan Tijmen Donkelaar gelukt! In deze inleiding zou ik ook graag het management van de Master Financial Management willen bedanken en daarmee in het bijzonder Harmen Breedeveld voor het kosteloos beschikbaar stellen van de mooie zaal in het J-gebouw. Alvorens ik vooruit kijk naar de uitbreiding van dit unieke project, eerst een verslag van de voorronde en ervaringen van finalist Daniel Swart.

De voorronde was voor Rotterdam een groot succes. De reden daarvoor is dat All Options een beloning zou uitreiken aan de stad met de meeste inschrijvingen. En ‘wij’ Rotterdammers hebben Amsterdam, Groningen, Tilburg, Delft, Utrecht en Maastricht verslagen, dus dank aan alle deelnemers. Ook bewijst de Erasmus universiteit hiermee dat er maar een echte economie stad is in Nederland. Deelnemer en finalist Daniel Swart omschreef de voorronde mooi door te zeggen dat er gedurende de Traders Trophy geen tijd meer is voor het optimaliseren van je portfolio via Solver, maar gewoon handelen! Hiermee omschreef hij het evenement perfect en benadrukte de druk en rush waar je in terecht komt gedurende dit uur. Van de in totaal 120 deelnemers gingen er 6 door naar de finale die het best hadden gescoord op het behaalde rendement, klantvriendelijkheid en risico positie. Op donderdag 3 december was de finale op Beursplein 5 in Amsterdam. Tijdens deze finale streden 30 studenten voor de hoofdprijs van 1000 euro en een reis naar Chicago.

Ondanks dat ik alle vertrouwen had dat de finale een Rotterdamse winnaar zou krijgen, werd het helaas een student uit Singapore die finance studeert in Maastricht. Tijdens de finale werd in drie aandelen gehandeld wat het gecompliceerder maakte en de finalisten daardoor nog meer gefocused moesten zijn. Afgezien van het feit dat de studenten dus super geconcentreerd waren schaamde NOS Radio zich niet om de deelnemers gewoon te interviewen en te vragen in wat voor flow ze waren. De media aandacht rondom de finale was leuk om te ervaren, het gigantische artikel in de NRC Next was het hoogtepuntje hierin.

studie verenigingen in Nederland. De details zijn nog niet bekend, maar een uitbreiding van het evenement zal gaan plaatsvinden. In 2009 is het evenement georganiseerd in Zuid-Afrika, Zweden, Singapore, Hong Kong en Dubai. Waarschijnlijk zullen er in 2010 een aantal landen aan dit rijtje worden toegevoegd. Daarbij is de kans aanwezig dat er een wereldwijde finale ontstaat!

Al met al zijn wij van de FSR meer dan tevreden over het gehele evenement. Het unieke karakter van dit spel is goed naar voren gekomen en zijn erg blij dat wij dit mogen aanbieden aan de studenten. De Traders Trophy is uniek en met dit evenement bieden we iets aan wat een goede impressie geeft van wat traden inhoudt. Volgend jaar hopen we wederom op succesvolle dagen, maar met de ervaring van de afgelopen twee jaar mogen we er stiekem al vanuit gaan dat het wederom geslaagd zal zijn.

Traders Trophy Commissie Jan Tijmen Donkelaar Bart Lips Peter James

Tijdens de finale werden dus andere strategieën gevraagd en de afweging tussen market maker of market taker was een van de cruciale beslissingen die gemaakt moest worden. Wederom Daniel Swart over zijn strategie: ‘In de eerste 15 minuten genereerde ik gigantische rendementen, hierna besloot ik rustiger aan te doen en minder risico’s te lopen. Door de gematigde positie eindigde ik als 15e met 20K, terwijl de winnaar 45K opstreek. Dus een les heb ik in ieder geval geleerd tijdens de finale: risico loont!’.

Verder was media aandacht goed om te zien en in de Fyra naar Amsterdam stond in de NRC Next en groot artikel over dit evenement.

Volgend jaar zal de Traders Trophy weer neergezet worden door All Options, Oxyor en andere

Verenigingsnieuws • 45

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fsrforum • jaargang 12 • editie #2

International Banking Cycle

Massaontslagen, omvallende banken, grote verliezen, maar ook een sterk herstel op de aandelenbeurzen. 2009 was een heftig jaar voor iedereen, maar zeker voor de financiële lui onder ons.

Een echte rollercoaster ride zoals dat zo mooi genoemd kan worden in de taal van de Europese eilandbewoners. Voor de International Banking Cycle had dit ritje in de crisisachtbaan duidelijk merkbare gevolgen. De banken UBS, Barclays en Merrill Lynch werd het allemaal wat te hevig en -om even in termen te blijven- zij hebben dan ook geen kaartje voor nog een ritje gekocht.

Echter was er wel een nieuwe bank die klaarstond om een van de vrije zitjes in te nemen, de Japanse bank Nomura. Als nieuwkomer een mooie toevoeging aan het bestaande lijstje deel­ nemende banken voor de IBC die hun zoektocht naar jong talent ondanks de malaise ook in 2009 voortzetten.

Deutsche Bank, Lazard, J.P. Morgan, Morgan Stanley, Credit Suisse, RBS, ING en Nomura waren dit jaar de acht deelnemende banken die met delegaties bankiers vanuit Londen en Amsterdam gedurende de maanden oktober en november naar de Erasmus Universiteit Rotterdam en de Universiteit van Amsterdam afreisden om workshops en presentaties te geven, interviews af te nemen en te borrelen met geïnteresseerde studenten.

Zoals ieder jaar werd de IBC samen met de Financiële Studievereniging Amsterdam (FSA) georganiseerd en landelijk gepromoot op verscheidene universiteiten om zoveel mogelijk studenten in Nederland de kans te bieden in aanraking te komen met de grote investeringsbanken.

Ondanks dat het grootste aantal deelnemers zoals in voorgaande jaren weer uit Rotterdam en Amsterdam kwam, waren er tijdens deze vijftiende editie ook weer een aantal studenten uit steden als Delft, Maastricht, Groningen en Tilburg.

De voorbereiding voor de IBC begint elk jaar al vroeg. In de tijd dat iedere student nog bezig is met het maken van zijn laatste tentamens en zich eventueel voorbereidt op herkansingen wordt de commissie, bestaande uit drie leden, samengesteld. Vasco Hoving, Luc Gerretsen en Joyce van Luit stonden mij, Bram Lips, bij in de organisatie van een van de meest prestigieuze evenementen van de FSR. Waar andere studenten hun tijd gedurende de zomermaanden veelal brak in bed of badend op de zee doorbrengen werd er bij de FSR op de 15e verdieping van het H-gebouw hard gewerkt om voor tientallen studenten de mogelijke start van hun carrière in investment banking te faciliteren.

Als oud bestuurder van BNR Beurs nam Luc Gerretsen vorig jaar deel aan het International Research Project van de FSR naar Boston. Na een onvergetelijke week waarin de FSR een goede indruk op hem achterliet besloot hij deel uit te willen maken van de organisatie die de mooiste activiteiten op het gebied van Finance en Accountancy neerzet. Gezien zijn plan om dit jaar zijn bachelor rechten af te maken is zijn agenda nogal druk gedurende dit jaar, maar de start viel nog mee. Zijn rustige eerste blok en interesse in de bankenwereld deden hem snel beslissen om te solliciteren voor een plek in de IBC commissie.

‘De IBC commissie is een vrij intensieve commissie waar je echt naar een doel toewerkt’ zegt Luc. Een lange voorbereiding met de uiteindelijke dagen als soort van climax, maar deze zijn eigenlijk nog het drukst. De geijkte planning, nauwe samenwerking binnen de commissie en het kijkje in het recruitment proces van de banken waren interessante leerpunten voor hem.

Dit in combinatie met een berg aan mooie en leuke ervaringen leidt ertoe dat Luc erg positief terugblikt op de maanden als actief IBC commissielid.

Als commissielid heeft Luc wel verschillen tussen de banken opgemerkt al waren deze volgens hem niet levensgroot. ‘Het was te merken dat bij sommige banken het testosterongehalte wat hoger lag dan bij andere’, zegt hij. Zelf weet hij dan ook nog niet wat hij wil, of het überhaupt wel investment banking wordt is nog maar de vraag en welke bank zijn voorkeur krijgt is dus nog niet echt aan de orde. Wel noemt Luc als meest memorabele ervaring tijdens de IBC de komst van Maarten van Berckel tijdens de presentatie van Deutsche Bank. Maarten van Berckel is met zijn jarenlange ervaring bij verscheidene banken een grootheid in investment banking

v.l.n.r. Joyce van Luit, Vasco Hoving, Bram Lips en Luc Gerretsen binnen de Benelux. Om hem te zien spreken was erg interessant en heeft een grote indruk achter gelaten bij ons commissielid.

Dick Schotman, een 24-jarige student Financial Economics aan de EUR nam bij verschillende banken deel aan de workshops tijdens de IBC 2009. Via vrienden die een mooie stage hadden overgehouden aan voorgaande edities had hij gehoord over het evenement. Zelf schreef Dick zich in om te kijken of de investment banking wereld iets voor hem is en zich te oriënteren bij de diverse banken. Hij heeft goed kunnen zien hoe de banken Lazard, Morgan Stanley, RBS en ING waren tijdens de workshops en merkt op dat er duidelijke verschillen zijn in de bedrijfsculturen. Dit heeft zijn ideeën en voorkeuren voor een mogelijke werkgever duidelijk beïnvloed.

‘Het mooie aan investment banking is dat je bedrijven en hun operaties bekijkt vanaf een top level’ zegt Dick, ’je moet analytisch zijn en snel sterke en zwakke punten binnen een organisatie kunnen herkennen om deze mee te nemen in je waardering’. Het is de combinatie tussen het analytisch bezig zijn met data en informatie en het commerciële aspect van het contact met klanten dat hem juist zo trekt aan de investment banking sector. Om die reden heeft hij er dan ook voor gekozen om een aanbod aan te nemen en over enkele maanden te beginnen bij een van de banken die hij tijdens de IBC goed heeft leren kennen.

De ervaringsverhalen van commissielid en deelnemer liegen er niet om, de IBC was dit jaar wederom een groot succes.

Een mooi visitekaartje is weer afgegeven door de FSR en FSA en vele studenten hebben belangrijke stappen kunnen zetten in hun professionele carrière. Voor komend jaar hopen we uiteraard weer een even zo groot succes te behalen en met de inmiddels aantrekkende economie kunnen we verwachten dat de banken massaal staan te springen om deel te nemen aan het grootste investment banking evenement van Nederland.

Verenigingsnieuws • 47

fsrforum • jaargang 12 • editie #2

FSR Oud-bestuurder

Daniëlle Kleinheerenbrink Leeftijd: 27 Woonplaats: Rotterdam Werkzaam bij: BDO Audit & Assurance te Rotterdam Huidige functie: Senior Assistent Welk bestuur: 7e (2004-2005) Welke functie: Commissaris International Research Project Studie: Economie met als afstudeerrichting Accounting, Auditing & Control Jaar van afstuderen: 2006 In welke auto rijd je: Ford Fiësta Wat drink je op de vrijdagavond: Martini Levensmotto: ‘Work like you don’t need the money. Love like you’ve never been hurt. Dance like nobody’s watching.’ (Satchel Paige)

Nog een ander mooi verhaal?

De studiereis was op zichzelf al één groot mooi verhaal. Zo bestelde Frank Wirds heel zelfverzekerd ‘a pizza with ham and ennenès’ (lees: pineapple) en scoorde Stefan Briggeman midden op het zebrapad in New York een Queen uit Queens (we hebben Stefan daarna een paar avondjes moeten missen).

Wat heb je aan je FSR tijd gehad?

Wat is het mooiste moment van je FSR tijd?

Eigenlijk kwam dat moment pas na mijn bestuursjaar. Ik las een verslag van één van de deelnemers van het IRP. Hij beschreef daarin, vol enthousiasme, de studiereis naar Londen & New York en sloot af met de woorden dat het waarschijnlijk tot dan toe de mooiste tijd van zijn leven was. En dit was nog wel de laatste jongen waarvan ik verwacht had dat hij zoiets zou schrijven. Steeds had ik de gedachte dat de studiereis zo perfect mogelijk georganiseerd moest worden en ik was daardoor even vergeten dat deze 2,5 week voor een hele groep studenten een altijd blijvende bijzondere herinnering zou worden. Pas toen ik dat verslag las, besefte ik hoe geweldig ik het vond dat ik zo’n reis met een groep medestudenten heb mogen neerzetten.

Wat is het meest genante moment van je FSR tijd?

Ja, welke momenten eigenlijk niet? Ik lijk dan misschien netjes, maar ik maak de één na de andere blunder…uiteenlopend van het missen van een vliegtuig, samen met Arjan Latour een dansshow(tje) weggeven tijdens een FSR borrel in de Locus (waarna Rex Neijtzell de Wilde ons beheerst maar zeer stellig attendeerde op het feit dat het toch echt niet gepast was om op een FSR borrel te dansen) tot het vallen van een blok in een discotheek tijdens het beleidsweekend… waar ik even later opnieuw vanaf viel (ik dacht ik breng een beetje sfeer in de tent).

Bijna elke week gratis bitterballen!

Waar heb je gewerkt?

Na mijn afstuderen heb ik eerst acht maanden bij de Nationale Theaterkassa (NTK) gewerkt (nee, ik zat niet achter de kassa). Al op jonge leeftijd was ik helemaal dol op theater. Het was dan ook mijn droom om na mijn studie theater en economie te gaan combineren. Bij de NTK heb ik samen met de voormalige assistent van Jochem Myjer de toen zojuist opgestapte manager opgevolgd. Mijn collega was bekend in de theaterwereld en was onder andere goed in netwerken… ik zorgde voor de financiële berekeningen, de offertes en voor de puntjes op de ‘i’. De NTK verzorgde onder andere de hele kaartverkoop van Jan Smit, Disney on Ice en alle producties van V&V Entertainment.

Welke functies heb je gehad?

Na vier maanden verliet het hoofd van de administratie de NTK. Deze functie heb ik toen de resterende vier maanden bekleed. Ondanks het magische van de wereld waar ik toen in werkte, merkte ik dat ik graag door wilde leren. Ik stond voor mijn gevoel na een paar maanden al stil qua ontwikkeling. Daarom heb ik besloten om eerst zo veel mogelijk kennis op te doen bij een organisatie met veel afwisseling en waar ik door kan groeien. BDO sprak mij tijdens mijn bestuursjaar al aan en daar werk ik inmiddels 2,5 jaar.

Wat zijn je werkzaamheden?

BDO heeft voornamelijk MKB-klanten. Doordat deze klanten t.o.v. multinationals kleiner zijn, is het vaak mogelijk om in één of twee weken een controle af te ronden. Hierdoor zit ik samen met een team bijna elke week bij een andere klant waar wij de jaarrekening controleren. De klanten lopen uiteen van bouwbedrijf, veiling, verzekeraar tot theater. Die continue afwisseling maakt voor mij het werk nog steeds interessant en uitdagend.

Beste bestuursprestatie?

Wat voor onderneming is BDO?

Als algemene regel hadden wij aangenomen dat je als bestuurslid op taart moest trakteren als je te laat was tijdens de bestuursvergadering op maandagochtend. Wij kregen het voor elkaar om weken achter elkaar taart te eten…

Ik zie BDO als een zeer goede leerschool om met heel veel verschillende soorten organisaties in contact te komen. Daarnaast heerst er een ongedwongen sfeer. Zo staat één van onze partners gerust op vrijdag bitterballen te frituren…en die gaan er nog steeds goed in, ondanks een bitterbalrijk bestuursjaar.

48 • Verenigingsnieuws

fsrforum â&#x20AC;˘ jaargang 12 â&#x20AC;˘ editie #2

FSR Alumnivereniging Renewable Economics

Waarde leden, Global warming, CO2 emissie, groene stroom van offshore windparken en de elektrische auto.

De ontwikkelingen van de laatste jaren zijn in een stroomversnelling gekomen en vinden een plek in ons dagelijks leven. Niet het aantal seconden naar de honderd maar het aantal gram C02 per kilometer is belangrijk in de autoreclames. Huizen hebben een keurmerk voor de energiezuinigheid en een gesubsidieerde zonnecollector op het dak. In hotels, onder andere het hotel waar ik mij nu bevind, kan je tegenwoordig aangeven of badhanddoeken elke dag of om de dag gewassen moeten worden om energie en daarmee het milieu te sparen. Renewable energy is hot.

Met de komst van groene maatregelen zijn ook nieuwe economische vraagstukken ontstaan op het gebied van finance en accounting. Zo hebben CO2 genererende ondernemingen tegenwoordig te maken met een jaarlijkse toegekend aantal emissierechten voor CO2 uitstoot. De overheden trachten hiermee de negatieve externaliteiten uit de Micro-economie op te nemen in de economische rationaliteit. Daarmee samenhangend is er een Europese markt voor handel in emissierechten, waar ondernemingen het overschot dan wel tekort op de markt kunnen verkopen of inkopen. Uit een dergelijk nieuw fenomeen kunnen een aantal economische vragen worden gesteld. Marktanalisten willen hierin wellicht speculatief handelen, maar hoe bepaal je de waarde van een emissierecht? Wat zijn de leading en lagging indicatoren? Of, is er eigenlijk wel sprake van een markt? Als gevolg van de economische crisis hebben veel ondernemingen hun productie verminderd en zal uitkomen met het aantal reeds toegekende emissierechten.

De markt lijkt hier door illiquide te worden. Hoe zou dit voorkomen kunnen worden? Op het gebied van externe verslaggeving, kan vervolgens de vraag worden gesteld of emissierechten en plichten nog wel op de balans gewaardeerd kunnen worden als er geen marktprijzen zijn.

Dit soort renewable economics zijn een hot topic voor de academische wereld waarin nog veel geschreven kan worden. Dit FSR Forum laat met een aantal wetenschappelijke artikelen alvast een topje van de ijsberg zien en geeft wellicht een idee voor bijvoorbeeld een scriptieonderwerp.

In ieder geval wens ik jullie veel leesplezier!

Arjan Latour Vice-voorzitter FSR Alumnivereniging

Verenigingsnieuws â&#x20AC;˘ 49

Adviseren bij de fusie van een internationaal modebedrijf.

Maar ook bij de kleding van je vriend.

San Tsang, belastingadviseur bij Berk

Berk. Werk in balans.

Als belastingadviseur bij Berk onderhoud je persoonlijk contact met je klanten, die je op een breed terrein adviseert. Om een ingewikkeld fusietraject succesvol te begeleiden, wordt er nogal wat gevraagd van je vakkennis en sociale vaardigheden. Maar bij Berk weten we ook dat de boog niet altijd gespannen kan zijn. En dat een goed evenwicht tussen werk en privé de prestaties alleen maar verbetert. Daarom bieden we je, naast een uitdagende baan, volop ruimte

Belastingadviseurs m/v om ook buiten het werk van waarde te kunnen zijn. Zodat je vriend net zo goed kan profiteren van jouw deskundig advies.

Ben jij op zoek naar een verantwoordelijke baan met goede carrièremogelijkheden? En wil je werken bij een kantoor dat veel van je vraagt maar je ook de ruimte geeft voor je privéleven? Dan past Berk wellicht bij jouw ambities. Kijk op www.werkenbijberk.nl voor meer informatie en een overzicht van alle vacatures.

Vestigingen: Almelo, Almere, Amsterdam, Breda, Den Haag, Eindhoven, ‘s-Hertogenbosch, Kampen, Katwijk, Leiden, Nijmegen, Rotterdam, Utrecht, Velsen, Waalwijk, Zaandam, Zwolle, Centrale diensten Gouda, Aalst (België), Gent (België).

An independent member of Baker Tilly International

De ontwikkeling van San Tsang

Op 1 april 2005, na afronding van haar studie fi scaal recht en een korte tussenstop elders, begon San Tsang als junior belastingadviseur bij de vestiging van Berk in ’s-Hertogenbosch. De cultuur van Berk sprak haar direct aan, met als belangrijk onderdeel de ruime mogelijkheden om jezelf te ontwikkelen. Haar doel: doorgroeien naar de adviespraktijk door gerichte werkervaring te combineren met het volgen van relevante opleidingen en cursussen.

“Waarom Berk? Omdat er bij Berk voldoende ruimte is om jezelf te ontwikkelen, bijvoorbeeld door het volgen van opleidingen.

Zo volg ik momenteel de NOB-opleiding, die drie jaar duurt. Daarnaast heb je nog een ruime keuze uit een groot aanbod van cursussen. Goede begeleiding hoort daar ook bij. Ik krijg regelmatig feedback op mijn werkzaamheden en heb met mijn leidinggevende een loopbaangesprek halverwege het jaar en een beoordelingsgesprek aan het einde van elk jaar.

Liever Berk Ik heb fi scaal recht gestudeerd in Maastricht.

Toen ik bij Berk solliciteerde was er niet direct een vacature beschikbaar. Daarom heb ik eerst bij een ander bedrijf gewerkt als assistent-belastingadviseur, maar daar beviel de cultuur me niet goed. Gelukkig kwam er toch nog een vacature vrij bij Berk. Ik heb geen moment geaarzeld en de overstap was snel gemaakt.

Wekelijks ervaringen uitwisselen Als fi scalist is het nodig de ontwikkelingen in het vakgebied nauwgezet te volgen.

Die ontwikkelingen gaan erg snel en om mijn kennis op peil te houden neem ik regelmatig een grote hoeveelheid vakliteratuur door.

Iedere week bespreek ik met mijn collega’s de vaktechnische ontwikkelingen en de gevolgen daarvan voor Berk en onze klanten.

Dat is een mooie gelegenheid om ervaringen uit te wisselen. Het is leuk om te zien dat iedereen hart voor de zaak heeft – en daarmee voor de zaken van onze klanten.

Leren om te groeien Het werk dat ik nu doe is afwisselend en biedt goede vooruitzichten. Ik houd me bij Berk vooral bezig met de aangiftepraktijk, de controle van aanslagen, het schrijven van bezwaarschriften en met voorbereidend advieswerk voor ervaren belastingadviseurs.

Ik heb veel contact met klanten om de benodigde gegevens te verkrijgen. Het is de bedoeling dat ik, door het opdoen van werkervaring in combinatie met het volgen van opleidingen, doorgroei naar de adviespraktijk. Ik zou Berk als werkgever dan ook niet alleen aanraden vanwege de goede werksfeer, maar zeker ook omdat er goede vooruitzichten zijn als het gaat om persoonlijke ontwikkeling en carrièreperspectieven.”

fsrforum • jaargang 12 • editie #2

Activiteitenoverzicht 2010-2011

Activiteiten 2010-2011 March Multinational Battle Five multinationals, five battling cities, are you part of it?

Young Financial Dinner What’s your expected return from this dinner?

European Finance Tour Istanbul, the booming port to the East!

National Investment Competition Invest and be a winner!

April International Research Project India, explore this mysterious emerging market!

May Accountancy Day Will you choose accountancy?

Corporate Finance Competition Five star event: hotel, companies and participants!

June International Business Experience Feel the rush!

52 • Verenigingsnieuws

Wat belangrijk is, laat je niet los.

d Ik wil ruimte om te groeien. Waar zet ik

Waar je ook bent, belangrijke beslissingen zijn nooit ver weg. In je rol als accountant en bij het bepalen van je volgende carrièrestap.

Bij Grant Thornton begrijpen we dat je voortdurend bezig bent met je groei. Sterker nog, wij zijn er zelf ook mee bezig. Onder andere door jouw ambities alle ruimte te geven en door je talent te versterken met een goed doortimmerde opleidingsaanpak. Meer over ons op onze website.

www.carrierebijGT.nl

ol ev

g

e end

stap?

Grant Thornton bij jou in de buurt: Alphen aan den Rijn - Amsterdam Boskoop - Gouda - Leiden - Rijswijk Rotterdam - Woerden

Accountancy - Belastingen - Advies

eAGeR & YounG Je bent jong, maar je bent nog veel meer. Voeg je naast kennis ook karakter toe? En wil jij jezelf nog verder ontwikkelen? Dan zouden we wel eens goed bij elkaar kunnen passen.

Wij kijken verder dan je opleiding en zijn benieuwd naar jouw persoonlijkheid, jouw kracht.

Ernst & Young biedt je volop kansen in de wereld van assurance, tax, transaction en advisory.

So, whatâ&#x20AC;&#x2122;s next for your future? www.ey.nl/carriere