Green Bank fudge won’t drive green growth
Where will the funds for a green recovery come from? In a startling report last week, Ernst & Young revealed that the UK is facing an energy finance crunch. We need £450 billion to finance new energy supply infrastructure and energy efficiency measures by 2025. But traditional sources of capital are only likely to deliver £50-80 billion. We fear that tomorrow’s spending review will leave us stranded without the funding needed for green growth.
Ernst & Young identified an energy finance gap of £370 to £400 billion. That means up to 10 times more investment is required than will be supplied by business as usual. They concluded that a Green Investment Bank was essential to help bridge that gap by sharing the risk of investment with the private sector and leveraging in high levels of private capital.
Yet we hear today that Treasury officials are pushing for a £2 billion “fund” to be created instead of a £4-6 billion green banking institution.
A new Bank is the transformational proposal that has received the support of an unprecedented alliance of business, finance, unions and charity stakeholders. It should be remembered that the difference between the two finance models is not in the least trivial. A fund could perhaps leverage in 1.5 to 3 times as much private capital. That will hardly make a dent on the energy finance gap.
A Bank that issues bonds on the other hand could leverage 20 times as much private capital, turning a £6 billion government investment into £120 billion green investment bonanza. Repeat that capitalisation level twice more and the low carbon energy finance gap will be plugged delivering energy security, economic prosperity and a green jobs bonanza.
We don’t expect Treasury officials to have vision. There are many historical precedents showing how short-sighted they can be. They even argued against the Spitfire programme in the lead up to the second world war. But we do expect it of our political leaders and it now time for them to stand up for green growth. Our economic recovery will depend upon it.