Green Bank needs freedom to borrow and invest
The Deputy Prime Minister’s announcement on the Green Investment Bank clears away some of the uncertainty around the Green Bank. It will be enshrined in law and given powers to borrow in capital markets. But the £3bn funding cap to 2015 leaves a major funding gap to be bridged – up to £16bn of green investment a year is needed, according to the Committee on Climate Change. And keeping the GIB on the government’s balance sheet seems more ideology that good green economics. Most other European public infrastructure banks do not appear on their balance sheets. The government should free the GIB to deliver green investment at the scale and pace required for a green recovery.
Last week’s debate about climate targets brought the coalition to recognise its collective responsibilities. In agreeing to cut carbon emissions by 50% by 2027, the coalition has taken the welcome decision to continue to follow the strategic advice of the Committee on Climate Change (CCC). The committee’s latest report argues that investment costs to meet the fourth carbon budget (2023 to 2027) will be far higher than recently seen in the energy sector, reaching up to £16bn annually in the 2020s. The committee suggests that this compares to £2bn average annual investment in the electricity sector – and £200bn average annual investment across the whole economy – in the early 2000s.
Such is the scale of the green investment challenge in the that we need a Green Investment Bank similar in form and function to the institutions of our main EU competitors, Germany and France. Estimates vary, but the UK needs to invest some £450 billion in low carbon investment until 2025.
Nevertheless, the TUC welcomes the decision of the coalition to underpin the GIB with new legislation and providing for full, independent borrowing powers. This will give investors confidence, as the CBI has pointed out, that the bank will play a key role in mitigating some of the risks of investors planning major low carbon investments. This will enable it to maximise its leverage from the capital markets.
We also welcome the policy shift allowing the GIB to support the Green Deal home energy efficiency programme. The TUC has joined a number of campaigning organisations, through the Transform UK alliance, is supporting this demand. Low cost finance such as the GIB will be able to assemble is essential to kick start the programme.