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Thursday, 14 Feb 2019

Ceisteanna ar Sonraíodh Uain Dóibh (Atógáil) - Priority Questions (Resumed)

National Treasury Management Agency Bonds

Ceisteanna (5)

Eamon Ryan


5. Deputy Eamon Ryan asked the Minister for Finance his plans for the further use of green bonds in public debt management and for the hypothecation of such funds for capital investment projects here. [7514/19]

Amharc ar fhreagra

Freagraí ó Béal (8 píosaí cainte) (Ceist ar Finance)

I welcome that we raised €3 billion from a green bond issued in the autumn. I understand that the bond will mature in approximately 12 years and that it was sold at a yield of 1.2% or 1.3%. Nevertheless, we need to scale up the initiative considerably. Our existing national development plan will bring us only one third of the way, at most, towards our climate target for 2030. There is a significant investment task for this country, which green bonds could help finance. I am keen to hear the Minister's plans in that regard.

I thank the Deputy for acknowledging the success of the initiative, which I appreciate. As he noted, it raised €3 billion. The bond, which matures in 2031, was sold at an initial yield of 1.399%, following a decision the Government made last July. The transaction was a further move by the NTMA to diversify its issuance, access a new category of investor and provide a new debt instrument to meet untapped investor demand. The accessing of these investors is important given the increased focus of investors and funds on environmentally sustainable investments. It is important that Ireland is one of the first sovereign states to meet this demand.

An allocation report will be made available to investors annually until an amount equal to the net proceeds of the Irish sovereign green bond has been fully allocated. The report will include the total amount allocated to eligible green projects, the total amount allocated per category and the remaining unallocated amount. In addition, an eligible green project impact report on the environmental impacts of the eligible green projects will be made available to investors on at least a biennial basis, subject to the availability of data. This could provide updates on the status of projects such as sustainable water, wastewater management and clean transport.

To respond directly to the final question which the Deputy asked, I am open to considering how we can continue this approach in the future. I will depend on the advice of the NTMA on the matter but it is fair to say the initial offering of the bond was successful. I am sure the NTMA and I intend to examine ways in which we can continue this activity in the coming years.

I have some suggestions for ways we could use those bonds to invest in long-term projects that will yield a substantial return. Yesterday, I raised with the Minister for Transport, Tourism and Sport the possibility of a metro loop on the southside of Dublin. Rather than stopping the underground in Charlemont Street or Ranelagh, it could be extended to Terenure, Templeogue and Tallaght on the south west, loop around via Sandyford and University College Dublin and return to the city centre. While that sounds grandiose, it is what we need on the southside of Dublin to make public transport work. Despite all the public transport projects in the current plan, the National Transport Authority sent me a letter in which it predicted that there would still be a 30% increase in transport emissions in Dublin by 2040. We need, therefore, to think bigger and metro is just the sort of project that green bond could help finance.

We need to develop massive offshore wind resources, much of which can be done by the private sector through auctions but we should own the transmission grid to ship that power to the rest of Europe because we have a comparative advantage. It is a real opportunity. Long-term regulated transmission assets are the sort of funding for which green bonds are perfect.

Each of these projects would probably cost at least €5 billion. After the Minister's reply, I will provide two more examples of the way we should be thinking about investing, which goes far beyond what is outlined in the national development plan.

The answer I gave a moment ago hopefully indicated to the Deputy that we are open to using the issuing of bonds such as this to fund infrastructural activity that meets the needs for either clean transport or green energy. It will not surprise the Deputy to hear that I am concerned about specifying formally that any form of borrowing or tax revenue has to be directly linked into specific projects. The green bond, and the way we have structured it, has really pushed the envelope and the framework for doing this. It is clear that there is an investor demand for it.

On further investment of capital for transport projects, we are at a point where capital investment is increasing by almost 24% compared to last year, which is an increase of €1.4 billion. We have to be careful, if we want to make very significant increases in the future, that we not only consider how it would be funded and how we might borrow for it, but also whether we have the capacity actually to do the work.

I am disappointed. We should not be saying that we cannot hypothecate. Green bonds do hypothecate: they have to go towards sustainable investments. The market for those bonds is looking for exactly the type of project I am talking about. I remember Mr. Andrew McDowell coming here a couple of years ago and he was crying out to lend long-term for these bonds but lamenting the fact that there were no counter parties. We can provide the counter parties with specific projects.

I was on "Prime Time" the other night with Deputy Michael Healy-Rae to discuss retrofitting. I mentioned that, on private homes alone, we are probably looking at a €50 billion investment to get rid of fossil fuel heating systems. We have to go further with our public buildings and our social housing. It will require a massive, multi-billion euro investment. The savings from the reduction in fuel costs can help to cover it if a long-term loan is required. That type of hypothecation is the type of investment the market wants to invest in because it provides a future income stream. It is similar in forestry. We have to move towards a massive level of afforestation and continuous cover forestry. The difficulty is that forestry is a 50 year, 80 year or 100 year project. However, an income stream can be derived from the thinnings as the forest grows. That has a real value, and the market can put a price on it, which provides it with confidence. If there is confidence around those big capital, long-term projects then low-cost funding can be provided. The Minister has to hypothecate to make that happen. He should think big and think long-term.

It is a good thing that the Deputy is nowhere near the standards of Deputy Mattie McGrath, who decides what his answer is going to be before I give my answer. I said that the essence of a green bond is that it is directed at particular types of projects we want to go ahead with, and that these are some of the types of projects a green bond might be able to fund. We can then explain to investors how their money is being used, including in areas such as clean transport and environmental projects. My only area of difference with the Deputy on this issue is that I believe we should be very careful about saying that we are going to issue a bond to fund individual projects, because we have already seen and are well aware of the challenges that can arise when the funding of very specific projects is mooted and the delays that can happen on those projects as a result. What the NTMA and the Government have done is more sensible. We have laid out broad indicators of the kinds of projects we would like a green bond to fund without being specific about the projects themselves. When we go to issue another green bond in the future we will have to show we have made this work, which of course is a different form of market discipline. Indeed, it is a form of market discipline of which I imagine the Deputy approves.

Can I have a further rejoinder?

The Deputy has had two supplementaries already.