The managing director of environmental finance and stability at Citigroup, and the founding president of the American Council on Renewable Energy, tells Climate Spectator that Australia has an important role to play in the clean energy finance market.

He also says that China will build a "black economy" before it switches to green; that the hot emerging renewable sectors are in Australia, Latin America, parts of Africa, the Middle East and China; that he's not a fan of cap-and-trade as a driver of the clean energy market – incentives and government mandates are what's needed; and lists his picks for the winning clean technologies of the future.

This is an edited transcript of an interview conducted at the sidelines of the Ecogen conference in Brisbane this week.

Giles Parkinson: It seems clear that the build-out of green energy and renewable energy across the globe is going to depend largely on private financing. The governments aren’t going to be paying for it.

Michael Eckhart: Exactly. Governments are in debt. They don’t have any money.

GP: Is private finance going to come to the party?

ME: Well, I’m working on it. No. If you look at (the statistics) from Bloomberg New Energy Finance about just the total capital per year in the last… since 2004, that’s the private sector talking, right there. That’s not public money. There is some government R&D, and some loan guarantees, and there are incentives in there, but you know it’s hard to really break out, what is the government cost to the feed-in tariff or the government cost to the tax credit. But I’d say, roughly speaking, over 90 per cent of those bar charts that’s private sector capital on the move. It’s happening.

GP: You mentioned, though, that three-fifths of the clean energy investment is coming from just a very few countries and outside of that there’s nothing happening at all. If bankers don’t see wind turbines and solar panels outside their offices, then they just don’t get it and they just don’t finance it.

ME: Well, let’s just say there’s a comfort level; it’s not alien if you see it all the time. If you’re a banker in Iowa, you know, you’re driving past wind farms and ethanol projects – it’s all over the place. I mean it’s normal. It’s not a big deal. But if you literally never see a wind farm, you never see a solar panel, and it’s hard to imagine doing something with it. It’s just... It’s a new thing. You know, I do think that has an effect.

GP: You said Australia is important for the clean energy finance market. Why is that?

ME: Australia is important because it’s the lowest cost of electricity (generation) in the world. It’s the highest concentration of coal-fired power in the world. And it has sort of a pioneer’s culture, still, compared with other countries... So if renewables can get going here, they can get going anywhere. Australia is one of those tough places – like South Africa, like south east of the United States, like China, like India; they’re burning a lot of coal and it’s low cost and their economy is built around that thesis that they have very low-cost, reliable electricity and hence they’ve attracted, you know, aluminium smelters and chemical plants and so forth, basic industries, and you can’t just end that all of a sudden and go a new way. You can’t turn it into a service industry overnight. You’re a metals and mining and manufacturing industry, or country rather, and that’s what’s here. So, how can we get renewables to work in a compatible way in Australia, to me is really important, and it’s not political, it’s economic, you know.

GP: And you said it was important to sell the positive of the renewables as an economic benefit, rather than try and sell it on negative message about combating climate change.

ME: The CEOs and the people leading basic industries, they don’t see the jobs in solar and wind and they don’t care about them because they’re not in their companies. What they’re concerned about is jobs in their own company, building their own company, their own profits, and if we lead with, you know, a climate regime solution as a way of getting to renewables, we’re demanding that existing industry, take a penalty before they can get to the good thing. You know, I found that around the world you don’t have to do that. You know, climate benefits are one of the benefits of renewables, but there’s only one of them. Even if it didn’t have environmental attributes, it’s still as… it’s new technology, it’s, you know… and it has its economic place.

GP: You mentioned before, which I found was interesting, that China wants to build a black economy, in a sense, to get the money to be able to build a green economy.

ME: That’s exactly what they’re doing.

GP: Can you explain a bit more about that then?

ME: They’re very explicit about it. They know what they’re doing. They know that to generate wealth in the world economy, they have to sell products at a lower cost than the world average, so they get the jobs. They’re all about the communist government uplifting all the people of China to have a good life. And so, to employ these people, they have to be able to sell products. They know that. It’s a necessary evil to them. So, they’ve got to have low-cost energy, low-cost labour, low cost of doing business to capture world market share and all these products, which is what they’re doing. And they’re stacking up their profits and they will then redeploy that into the green economy.

It’s exactly what the United States says: we built our economy on basic industries – metals, mining, chemicals, steel – okay, and all this pollution happened and then people a) got upset about the pollution, and b) we had enough money to correct it. So, we started investing our capital into having a cleaner economy. China saw that happen. I know the energy advisor to the state councils, named Shi Dinghuan, who’s a very good friend of mine and he explains all this to me; that this is how they think, this is what they’re planning. They know exactly what they’re doing.

GP: And how does America respond to this – because Steven Chu and Barack Obama, they’ve recognised the threat from China and the clean energy economy as it were – is the US in any position to respond to this at the moment, because it’s not going to have a cap and trade scheme? Its energy security policy seems to be in doubt. It doesn’t have a nationwide renewable energy target. How does it compete?

ME: Pretty badly. I don’t think the US will ever be the leader in renewable energy, per se. That’s why I work around the world. The United States can’t. The US government is based on geographic representation whether its representatives in the House of Representatives are senators from states, all of our government is based on geographic representation and we don’t have geographically uniform energy resources: Solar is where it is; wind is in the middle of the country; coal fields are where they are; oil is where it is; natural gas is where it is. And that reflects the vote in the Congress.

Congressmen are voting to protect their constituents… No congressman represents all of America, just the President does. And so, their job is to represent their constituents in the Congress. And so, if they come from coal country, they’re going to be for coal, they’re not going to be for solar. And that’s why, you know, we can’t get a majority vote on anything in energy. Even oil, gas, coal and nuclear cannot get a majority vote. It’s a whole lot of polarities and minority votes and that’s why every energy bill in the United States is an amalgam of every energy source ...because that means every congressman gets something and then it passes.

GP: So, where are the interesting areas for you then?

ME: China. I’ll go to China twice in the next two months. Latin America is emerging quickly. To me it’s like Australia. The emerging places are Australia, Latin America, parts of Africa, the Middle East. These are the emerging markets for renewables right now. They’re all bubbling right now, starting to happen. And I want Citi to be there financing those projects and that’s why I travel around looking for these opportunities.

GP: Does the future of renewable energy depend, to an extent, on a carbon price? Or is it not needed?

ME: It helps indirectly, of course, because the whole issue of the cap-and-trade regime penalises and rewards the sinners, not the others. But I’m not in favour of the cap-and-trade, never have been, because it doesn’t incentivise. I’m completely in favour of the carrot, not the stick, and cap and trade is the stick. It’s penalising bad behaviour, not rewarding the good behaviour. It’s only an indirect effect.

GP: So what sort of policies will you need, then, to get to those long-term targets of 70, 80 or 90 per cent in clean energy. I’d be interested to know what your forecast is for that and how do we get there?

ME: Well, look at it this way. Let’s say there’s 100 years’ worth of oil, a 150 years’ worth of natural gas and 300 years’ worth of coal, right? Everyone works with these numbers. So, let’s go out 300 years and say, what’s left? Ok. So, the end game of all this is no fossil fuels; it’s renewables and nuclear by definition. What I’m trying to make happen is for this to happen in 30 years instead of 300 years. As that joke goes, you know, the Stone Age didn’t end when they ran out of stones. Why make the transition when you run out of oil? Why can’t we make it faster and actually preserve oil for its higher value as a petrochemical feedstock instead of just burning it? It could be good for 1000 years if we did that – and it’s a very valuable product for those higher value purposes.

GP: Which policies do you need to get there then?

ME: I think it’s incentives. You know, the things that work, the feed-in tariff, the tax credit incentives. It’s mandates and incentives just to do renewables. You know, you’re a healthy guy. You work out and all that. So, you know, if I wanted you to eat healthier foods like fruits and vegetables, why would I penalise meat and potatoes to force you to get the fruits and vegetables? Why don’t I just incentivise you to eat fruits and vegetables? ...You don’t have to penalise the bad to force you to the good. Just incentivise the good. People are drawn that way. That’s all I’m saying. It’s human nature. And I’m very much in favour of incremental incentives for incremental renewables and get the snowball going and then it catches on.

GP: And which technologies are you finding particularly interesting at the moment?

ME: Well, hydro is the backbone wherever it’s available and that’s still happening. Wind power is, to me, a bridge and we’ll develop wind power in the best locations. The long-term winning technology I’ve always believed was solar PV because we can literally make every roof out of solar PV, literally. We can do that. And I think, long term, that will be it. There won’t be a roof on earth that isn’t made of PV. I think, in terms of PV, not on cars but on paving highways – we’ll pave ...electric highways with PV materials. Ok, the wheels might not be running on the PV. The PV might be in between the wheel tracks, but we can build this… You know, I think of the upper deck of the Washington Beltway as the electric highway: All the commuters come in, they have a little battery – they need five miles’ worth of battery – they drive around the Beltway, they recharge, they drive into the city, they park, they recharge, they come out here, they’re on the Beltway, they’re recharging. You don’t need, you know, this massive battery bank if we put the electricity on the road instead of trying to put it in the trunk. And as an electrical engineer, I’m pretty-well convinced we will never, never develop battery technology with the energy density of a tank of gasoline. You know, a tank of gasoline is not energy, it’s storage, and there’s a lot of energy in that tank and trying to squeeze battery… I don’t think we can get there. So, I think we’ve got to get the electricity on the road. And the way PV is going, it’s going to cost nothing in the end. So I’ve always been confident this is going to happen.

GP: Ok. And just back to Citigroup: what sort of share do you have in the clean energy financing market? And who are the main competitors?

ME: It’s between 5 and 10 per cent, which is a market-share leader. There are so many banks and so, you know, 5 or 10 per cent market share of anything in finance is a world-dominant position. So we’re up there. Morgan Stanley, Goldman Sachs, Bank of America, Merrill Lynch; but every bank in the world participates in this space, but those are the ones that participate on a global basis.