Can a hobbled Green Bank reboot the economy?
A major gap has opened up between the Government and the Opposition over the scale and ambition of funding for green economic growth. According to the Shadow Business Secretary at the second reading debate, until the Government allows its Green Investment Bank (GIB) to borrow and leverage its initial equity to make more capital available, “it will not be a body that most people would recognise as a bank.” It is a fund, whereas it is an operational bank that the country needs. Allowing the bank to borrow is the key to generating growth and rebooting the UK economy. The TUC welcomes the Green Investment Bank in principle. So what are our concerns, as the GIB legislation moves into Committee stage?
More than £200 billion of investment is needed in the next decade “to develop the innovative technologies and products that will underpin it…There is a market failure here that the green investment bank will address.” This was the Business Secretary’s estimate as he introduced the GIB legislation. Critics would argue that the investment challenge is far greater – with up to £1 trillion needed by 2030 to upgrade and decarbonise UK infrastructure, and 70% of this needed in green technologies.
Borrowing power: a key test for the legislation will be whether it provides certainty to investors that the GIB will be able to borrow from the capital markets and enjoy a State guarantee. The legislation does contain an enabling power for State guarantee and this is welcomed. But there’s no indication that the Bank will be ever be allowed to borrow in practice. The Government has provided up to £3bn of initial public support. But each year, Germany’s KfW state bank, the “equivalent” of our proposed Green Investment Bank (GIB), invests 25 times as much each year in green investments as the Treasury will allow the GIB. Today’s draft GIB legislation reveals a gulf in ambition between ourselves and our competitors. So, legislative amendment is needed to guarantee a commitment to borrowing, a signal to investors and to stimulate economic growth.
Green mandate: legislative underpinning of the GIB’s green mandate is welcome, but the mandate must be tightly drawn to promote low carbon technologies and avoid the possibility of lending either to high carbon or other general infrastructure. There’s ambiguity in the green purpose of ‘advancement of efficiency in the use of natural resources.’ In the worst case, the Bank could support of highest efficiency gas power generation without any carbon capture technology. The legislation should preclude support for high carbon projects or environmentally harmful activities.
Public accountability and transparency: in the wake of the banking crisis, the GIB should be required to uphold the highest standards of public accountability and transparency. The legislation does not provide for a formal or public facing review of the progress of the Bank, and no requirements for stakeholder or public consultation.
Oddly, the Treasury appears to be the biggest barrier to the GIB emerging as a leading driver of green economic growth. And maybe that is the point.