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UK’s new government urged to promote low-carbon investment

29 June 2010 – The Green Investment Bank Commission, a fully independent group convened to advise the new UK government, has published a report today that highlights the urgent need for a new public financial institution to unlock the investment needed for Britain to deliver a timely transition to a low-carbon economy.
 
The Commission, which consulted widely with financial institutions, businesses and non-governmental organizations, estimates that £550bn ($83bn) could be required for investment in supply chains and infrastructure in order to meet the UK’s climate change and renewable energy targets between now and 2020.
 
But a number of barriers, notably insufficient capacity in the debt capital markets, perceived risk around policy support frameworks, risk around the new technologies being rolled out and difficulties with financing large numbers of smaller projects, have together made financing low-carbon infrastructure at the scale and speed required to meet the country’s carbon targets unachievable without scaled up government intervention.
 
The Commission recommends that the Green Investment Bank (GIB) is established to act in the public interest to identify and address these market failures and investment barriers over the long-term.

The Commission has proposed that the primary focus of the GIB should be on lowering risk for investors, rather than simply providing capital. It suggests the GIB could help catalyze low-carbon investment by:

  • Unlocking project finance through equity co-investment, first loss debt and insurance products for low-carbon technologies and infrastructure.
  • Creating green bonds to provide access to the very large pools of capital held by institutional investors. Such products would fit with the long-term investment horizons of pension funds and life insurance companies and would provide the scale of capital needed to fund the low carbon transformation.
  • Selling green ISAs, which would be an important and visible way for retail investors to make a contribution to the funding of green infrastructure.
  • And, in light of the recent National Audit Office report entitled, ‘Government funding for developing renewable energy technologies’ the GIB should use the potential rationalization of quangos and their funds to radically improve government support for low-carbon innovation and commercialization.


James Cameron, executive director and vice-chairman of Climate Change Capital, as well as a member of the Green Investment Bank Commission said: “The GIB can work over the long term in the national interest and will help to build the new clean economy around us. It is a tremendous opportunity to rapidly scale up the investment we need to tackle climate change, whilst simultaneously creating the jobs and industries of our future.”

Chief executive of E3G Nick Mabey said: “The traditional approach of simply increasing the rewards to investors in the low-carbon economy has delivered only a fraction of the investment needed. It is time for a new approach. 

“The GIB, with its focus on innovative risk mitigation, will send a strong signal to investors that the UK is serious about its low-carbon transformation. By unlocking major new streams of investment the GIB will give greater certainty of meeting the UK’s climate change targets and give better value for money to taxpayers and energy consumers.” 

Commenting on the report, Greg Barker, Energy and Climate Change minister, said: “Low-carbon investment is a vital part of our economic recovery and the GIB is part of ensuring that UK PLC can lead the world and reap full advantage from the transition to a genuinely competitive low carbon economy.

“Detailed proposals on the creation of a UK GIB will be brought forward following the Spending Review.”