Securitization as a Model for an Equitable Transition

While action on climate change appears to be increasingly affordable in the long run, the costs and risks of the transition to a low-carbon economy—most of which are likely to fall on those least able to bear them—are emerging as a critical barrier to rapid action. This chapter will introduce and analyze emerging green financing mechanisms that can help mitigate these inequitable burdens using a portion of future benefits from a low-carbon economy. We focus on the example of the transition challenges associated with near term risks and costs borne by energy customers, workers, and communities in the context of a rapid phaseout from coal by regulated US utilities. We introduce and discuss a specific financial tool—ratepayer-backed bond securitization—that has emerged over the last seven years as a key financial mechanism for facilitating a just and equitable transition of regulated US utilities. We discuss experience with the tool across several US states, with a view towards identifying some of the practical challenges to wider implementation. Finally, we turn to a discussion of the lessons learned and explore ways in which the experience with securitization could be generalized and scaled across geographies and sectors as a template for how financial innovation can help enable a more equitable transition to a low-carbon economy.