Do-gooders push for central banks to cut loans to polluters.

 

 

I’m all for dealing with carbon dioxide emissions in realistic as opposed to totally unrealistic ways. E.g. I’m all for subsidising wind turbines and solar power generation, plus high taxes on fossil fuels are a good idea.

Unfortunately it has become fashionable in think tank circles over the last year or two to push for central banks to limit lending to polluters, like coal mines. The logic or should I say “false logic” is all too appealing. It seems to go something like “central banks are powerful institutions, and something needs to be done about global warming, ergo central banks would be able to do plenty about global warming.”

The big flaw in that argument is that if a corporation is prevented from borrowing money to fund itself, it can easily fund itself via equity.  And indeed, the debt/equity ratios of different corporations are all over the place, which indicates there is not much difference between the cost of funding via borrowing and via equity.

For example, Google is funded almost entirely by equity: i.e. it borrows very little. If the do-gooders’ idea that curbing borrowing to corporations that pollute was valid, Google would be a disastrous flop. Far as I know Google has done extremely well ever since the day it was founded.