Should Nuclear Energy Projects in France Qualify for Green Bond Financing?
Abstract
The following is a first progress statement for my proposed Master’s Thesis “Should Nuclear Energy Projects in France Qualify for Green Bond Financing?” This writing details the steps I have followed in choosing this field of study and research topic. The premise of my proposed thesis is that while recognizing the importance of green technologies, and the advent of green bonds as a useful financing mechanism in support of the same, there is an apparent trend towards excluding the well-established nuclear industry in France from participation in the green bond market, in favor of other renewable energy sources which are highly subsidized and whose financial feasibility is as of yet unproven. My research project would first seek to confirm this trend, and then to question its appropriateness, particularly from the points of view of France itself and of the many stakeholders in France’s nuclear industry.
First Progress Statement for Master’s Thesis: Should Nuclear Energy Projects in France Qualify for Green Bond Financing?
Introduction
The following is a first progress statement for my proposed Master’s Thesis “Should Nuclear Energy Projects in France Qualify for Green Bond Financing?” In selecting this topic, I have followed a series of recommended steps. First, I conducted initial research on the subject of green bonds, and on the subject of nuclear energy in France. I then considered my own objectives and competencies in researching and writing on these subjects. Having confirmed my qualifications and deep interest in this field of study, I then conducted the recommended analysis in framing an appropriate problematic (research topic), and elaborated specific research questions derived from my topic. I have since continued my initial literature review of scientific articles, academic books, and other sources. Finally, I have decided upon an appropriate research methodology, prepared an initial research plan, and assembled a detailed preliminary bibliography.
Opportunities, Competencies and Objectives; Finding a Research Theme
I have great personal interest in environmental issues generally, and green technologies in particular. Upon first learning about green bonds, I took an immediate interest in this important (and still-evolving) financing mechanism, realizing of course that all large energy projects or other industrial projects (green or not) require financing. Indeed, most large projects are driven by financial performance and, at their inception, totally dependent on financing sources. The concept that an entire area of public and private project finance might somehow be defined by its “greenness” was of special interest to me. At the same time, I also have a close personal connection to France. I am familiar with French history and culture, and I am well aware of France’s historical status as a leading proponent and user of nuclear energy.
During my undergraduate studies, and during my Master’s studies to date, I have taken courses that have touched on the themes of project finance, sustainability and green technologies. I have a good understanding of project financing and bond financing, generally, as well as deep interest in environmental protection, sustainability and green technologies.
I have good research and analytical skills, especially as regards qualitative research. I preferred a topic that would allow me to take advantage of these skills, and not require computer expertise in handling quantitative data, or proficiency with advanced economics, statistics or mathematics. I also preferred a topic that would allow me to explore public policy questions, and the important social and cultural issues of our times, as opposed to more scientific or quantitative questions.
Putting all of these considerations together, I have decided to devote my Master’s thesis to the study of green bonds, and specifically in the context of how that financing mechanism is used or has been used in France, or is otherwise relevant to France. Having decided my chosen field of study, the next step was to define my research topic.
Elaborate an Appropriate Problematic (Issue) or Research Topic
Based on my initial research on the subject of green bonds in France, I was able to make some general but important observations.
The threat posed by global warming and environmental degradation, and promoting “green growth” are now at the very top of policy agendas of major governments and international institutions (OECD, 2009, p.1).
Investment in green technologies has increased significantly in recent years. Green bonds, as a financing mechanism for technology projects, are a relatively new development. The definition of “green” in this context, however, is far from settled. Some definitions are being set by the financial industry, and a “Climate Bonds Standard” has already been adopted (Inderst, Kaminker, Stewart, 2012, pp.6-7).
Different approaches to approving green investments have evolved over the years, such as screening, green thematic investing and engagement with companies. Some methods support investment in specialist green companies, while others are project oriented. Independent rating agencies have arisen and are growing in acceptance. Vigeo was founded in 2002 and has established itself as the leading European expert in the assessment of companies and organizations with regard to their practices and performance on environmental, social and governance (“ESG”) issues (Vigeo, 2016). France’s own energy agency (EDF) has relied on Vigeo ratings in its issuance of green bonds for two non-nuclear projects (EDF, 2016).
There is general agreement that the production of renewable energy is a green activity. Wind, solar, hydropower, biomass, geothermal and ocean energy are all in this category, and these account for the vast majority of renewable energy projects (Golub, Kauffman and Yeres, 2011, p.23).
Nuclear power seems to be in a class of its own. It is a low-carbon source of energy, and has made a great contribution historically to lowering carbon emissions. Nuclear energy, however, brings other risks in the areas of waste treatment, national security and release of radiation (Golub, Kauffman and Yeres, 2011, p.23).
France derives about 75% of its electricity from nuclear energy, due to a long-standing policy based on energy security. However, this share is to be reduced to 50% by 2025, in line with European Union guidelines and international politics. France is the world's largest net exporter of electricity due to its very low cost of generation, and gains over €3 billion per year from this. France has been very active in developing nuclear technology. Reactors and fuel products and services are a major export. It is building its first Generation III reactor. About 17% of France's electricity is from recycled nuclear fuel (World Nuclear Association, 2016).
Over the years France developed the capability to build reactors faster and operate them more efficiently than other countries. More than 76 percent of French reactors were built in less than seven years (as compared to 35% for the Americans). The French nuclear build-out cost about $330 billion, yielding a levelized cost of energy of 5 cents per kilowatt-hour. At the same time, France found a way to recycle nuclear waste, drastically cutting down on disposal requirements. A family of four over 20 years would generate a 35-millimeter film canister’s worth of nuclear waste. France’s nuclear sector is one of the country’s largest employers, currently employing 220,000 people (Urfan, 2015).
EDF, France’s government-owned electricity company, has issued two series of green bonds (a 2013 series and a 2015 series)(EDF, 2016). Both were for non-nuclear projects.
These basic facts, when brought all together, raise an important question: should nuclear energy projects in France qualify for green bond financing?”
Elaborate Research Questions Derived from the Problematic
First, as green bonds increase in global acceptance and usage, there is an evolving understanding of what kinds of projects can or should appropriately qualify for this special class of financing. While renewable energy projects are universally accepted as appropriate uses, nuclear energy projects remain controversial. The controversy lies in the observation referenced above - nuclear energy is a low-carbon source of energy but entails other risks related to waste treatment, national security and release of radiation (Golub, Kauffman and Yeres, 2011, p.23).
That first question is complex enough in the abstract – green bonds vs. nuclear energy. A second question arises, though, when the inquiry moves into the realm of real-world policy and politics. Is it possible to reconcile a common goal shared by many nations (supporting green technologies through green bonds) with the disparate policies of certain of those same nations (France in particular) on the question of nuclear energy? Stated differently, is France being pressured by the international community to move away from its successful nuclear program? And is access to green bond financing (or lack thereof) being used to increase this pressure?
As opposed to nuclear energy, most renewable energy programs are highly subsidized and not yet proven to be financially feasible. A fourth question would be whether nuclear energy should be so easily abandoned in favor of unproven alternatives? And is evolution of green bond financing – to the extent it is biased against nuclear programs - another step in this direction?
I can visualize many similar questions as I pursue this research. I believe these are important questions which support my chosen research topic “Should Nuclear Energy Projects in France Qualify for Green Bond Financing?”
Do a literature review (scientific articles, academic books, and study on the subject).
I have conducted an initial review of the literature, which includes much writing in the area of green technologies and a growing body of work concerning green bonds specifically.
We have seen the emergence in recent years of new types of financial instruments related to sustainability, and one of these is the green bond. A green bond is a debt security where the proceeds are allocated to finance sustainable projects. The first green bond was issued in 2007. In 2008 the World Bank and the Scandinavian bank SEB issued the biggest green bond to date, USD 2.325 billion (Tiselius and Kronqvist, 2015, pp.1-2).
There are many different definitions for what constitutes green investments. Opinions differ widely on what “green” means but also on what is meant by “investment”. Some definitions are very generic, and others more technical. Some are investment-driven, others arise from scientific, or ethical discussions. “Greenness‟ can be expressed in absolute terms (a technology is either green or not green) or in relative terms (e.g. one technology produces less greenhouse gas emissions than another). Green investments are invariably mixed and confused with climate change concerns, although there is at least more science as to the latter (Inderst, Kaminker and Stewart, 2012, pp.10-11).
Even though the World Bank green bond was a huge public relations success, the new green bond market did not grow significantly in succeeding years. An important milestone was reached in 2013, when the green bond market reached USD 11 billion in annual issuance. This amount reached USD 36 billion by 2013 and will have reached USD 100 billion for 2015. 2013 was also when the first ever corporate green bond was issued (by Swedish real estate company Vasakronan). Before that, municipalities and international institutions such as the World Bank and the European Investment Bank dominated the green bond market. The corporate side to the green market has grown very rapidly since 2013 (Tiselius and Kronqvist, 2015, pp 2-3).
In any case, governments and companies are becoming more interested in investing in environmentally sustainable projects and proving their social responsibility. This trend is also being supported by investors, who are increasingly seeking socially responsible investments. This trend is consistent with the increase of signatories to the Principles for Responsible Investments (Tiselius and Kronqvist, 2015, pp. 2-3).
In short, there is much writing in this area, and yet my research topic has not been addressed directly.
Find an Appropriate Research Methodology (Quantitative, Qualitative or Mix of Both)
I will follow a qualitative research methodology. As noted above, my personal strengths and interests are not in the areas of computerized data collection, or statistics or other quantitative analysis. I do have a deep interest in the proposed study areas, which include some of the most important public policy questions of our times. My research and writing skills are best employed in a more qualitative research.
I aim to give a more clear understanding of whether green bond financing is evolving in a manner inherently prejudicial to proponents and users of nuclear energy, and France in particular. I propose to explore the related question of whether France should be pressured to move away from its successful nuclear programs in favor of as-of-yet unproven renewable energy programs. If the business world and financial markets have not yet decided on the feasibility of many renewable energy projects, it is too early for nuclear power to be written off.
Create a Research Plan
My proposed research plan would include primary and secondary sources. I consider it important to include a survey and/or semi-structured interviews of the French people themselves, as their opinions do not seem to be represented anywhere in the literature. From the point of view of the French public, however, there seems to be a glaring question. Is the international community forcing France to move away from its successful nuclear energy program? The sector’s 220,000 employees might very well be concerned about this. And there are obviously many other stakeholders who would share those concerns. They might well argue that if France has developed a safe and cost-effective nuclear program which has become an integral part of its economy, it should not be pressured to move away from that program, especially in favor of as-of-yet unproven renewable energy programs.
I propose to create a scientific survey, to be conducted within France, to measure public opinion on the country’s nuclear energy program. The survey might be composed so as to compare opinions on nuclear vs. renewable energy, or on the impact of green bond financing, or on the importance of the nuclear program to France’s economy, or other inquiries to be developed. I propose to employ accepted statistical methods in framing the survey, to the extent possible. Alternatively, I will create and conduct a series of semi-structured interviews. The main goal of the survey or interviews would be to add to the literature (and to the debate) a representation of French public opinion on these issues of such importance to them, which seem to be being resolved without their participation.
Then, I would continue my research of secondary sources. I have a (preliminary) theory that France is indeed being pressured by outside forces to curtail its nuclear program, without any good justification. I will explore and test this theory through research, so as to develop a complete and critical assessment of the literature in this area. I would look for contradictions, insufficiencies, or omissions in existing studies. Based on what I have found to date, I do not believe that the French public on its own has decided to turn away from its nuclear program. I do not believe that the French public has declared that nuclear energy is not “green” enough. And if green bonds are to become an important source of financing for future energy projects, I do not believe it is the French public that seems to be disqualifying nuclear energy from enjoying the benefits of green bonds.
Bibliography
Conference Report (2015). 2015 Paris Climate Conference. Framework Convention on Climate Change. United Nations.
EDF (2016). Green Bond. Retrieved from https://www.edf.fr/en/the-edf-group/dedicated-sections/finance/investors-analysts/credits/green-bond
Golub, S., Kauffmann, C. and Yeres, P. (2011). Defining and Measuring Green FDI: An Exploratory Review of Existing Work and Evidence. OECD Working Papers on International Investment, No. 2011/2.
Green grow the markets, O (2014). The Economist. Retrieved from
http://www.economist.com/news/finance-and-economics/21606326-market-green-bonds-booming-what-makes-bond-green-green-grow
Inderst, G., Kaminker, Ch., and Stewart, F. (2012). Defining and Measuring Green Investments: Implications for Institutional Investors. OECD Working Papers on Finance, Insurance and Private Pensions, No. 24, OECD Publishing. Retrieved from
https://www.google.com/webhp?sourceid=chrome-instant&ion=1&espv=2&ie=UTF-8#q=green+bonds+france+scholarly+articles
International Capital Market Association (2016). Retrieved from
http://www.icmagroup.org/Regulatory-Policy-and-Market-Practice/green-bonds/green-bond-principles/
Nuclear Power in France (2016). World Nuclear Association. Retrieved from
http://www.world-nuclear.org/info/country-profiles/countries-a-f/france/
OECD (2009). Integrating Climate Change Adaptation into Development Co-operation: Policy Guidance, OECD Publishing, Paris.
Tiselius, J. and Kronqvist, M. (2015). Drivers of Growth in the Corporate Green Bond Market. Copenhagen Business School. Retrieved from https://www.google.com/webhp?sourceid=chrome-instant&ion=1&espv=2&ie=UTF-8#q=green+bonds+france+scholarly+articles
Urfan, U. (2015). France Loses Enthusiasm for Nuclear Power. Scientific American. Retrieved from http://www.scientificamerican.com/article/france-loses-enthusiasm-for-nuclear-power/
Vigeo (2016). Retrieved from http://www.vigeo.com/csr-rating-agency/
World Bank (2015). Green Bonds Attract Private Sector Climate Finance. 2105. Retrieved from http://www.worldbank.org/en/topic/climatechange/brief/green-bonds-climate-finance
