Posts Tagged ‘Green investment bank’

The Aldersgate Group convened a discussion on the developing Green Investment Bank (GIB) policy (which we’ve written about before), attracting around 250 attendees to the marble-panelled halls of Bank of America Merrill Lynch. It was good to hear the Department of Business Innovation and Skills official and bankers alike using the language of market failure that is the ethos of cowburps.

There are large market failures that justify the need for the GIB. Stern described climate change as the ‘biggest market failure’. More subtly how will the financial sector provide insurance products (that typically cover 2-3 years) to hedge against green investment risks: which are taking place over 40 year time horizons!

But a check is needed here as to whose markets are failing and why. Governments have addressed the basic market failure for carbon (that there was no market for it). There are now markets, created and driven by regulations, such as through the European Emissions Trading Scheme, creating a price for carbon. A significant problem for low-carbon green investments is the political uncertainty over carbon markets and the long-term price of carbon. These are market failures with the Government-created carbon market. Rather than rely on the GIB policy intervention to fix the failures in the carbon market, the first policy option should be to remove them. This can be done by setting a long-term policy that puts a price on carbon, i.e. a carbon tax with a long-term escalator, and/or a better designed cap on emissions addressed by the Emissions Trading Scheme.

In reality, both a Green Investment Bank and a carbon tax are needed. But it would be perverse for Government to intervene to fix failures in the markets it has created, without also trying to remove those failures by improving the policies that created them.

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The long-awaited spending review was announced today. Here are some quick notes and thoughts from the pasture on how it impacts green spending:

  • After hearing not a lot about it over the past few months, the commitment of £1 billion to fund the Green Investment Bank was a welcome surprise. You may remember that we’ve written about it before amidst worries that the Bank would be shelved.  While it is not the £1.5 billion that Alistair Darling set aside for it, the Chancellor added that he hoped that private investors would add to the funds.
  • We are not entirely sure what to make of the £1bn investment in carbon capture and storage technology and £200m on wind farms. Choosing which technology to invest in is always a gamble but the current government seems to have put its money on CCS. Can the investment be more effectively spent by broadening it to any green technologies?
  • News that the Department of Energy and Climate Change (DECC)’s spending is to be cut 5% each year comes as both a relief and a worry. There were fears that cuts would be much deeper but 5% is still a worry, totalling up to 20% by 2014. Interestingly, DECC is labour leader Ed Miliband’s old department.
  • Correspondingly, the Department of Environment, Food and Rural Affairs (Defra) will be seeing cuts to funding of 8% per year, or nearly a 1/3rd by 2014. Earlier news reports revealed that Natural England and the Environment Agency, both Defra quangos, will see ‘substantial reform’ and budget cuts.

Daisy’s write-up of the Tory manifesto during the general election furore will give you a quick refresher about what they promised with regards to the environment. It all seems on par at the moment, although we hope that they have a plan for the 80% cuts in carbon emissions post DECC and Defra cuts.

More to come this week:

A more in-depth review of the impact of spending cuts to the environment

Arts cuts – Are we cutting more than we can afford?

In the meantime, read more:

Spending Review: Osborne wields axe – BBC Live

Spending Review – The detailed report – Directgov

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What is a Green Investment Bank? Well this it seems lies at the heart of most things; From the red (Labour’s) corner the green investment bank was described as using £1 billion of public capital derived from assets with a matching of £1 billion from the private sector to enable the financing of low carbon infrastructure. From the blue/yellow (Tory/Lib-Dem’s) corner the bank is described as an aid to tackling the barriers to financing low carbon investment by providing:

1. Insurance policies for low carbon technologies and infrastructure where there are current gaps in the market,
2. Green bonds to allow the insurance industry to invest in for a 20-30 year term with yields to match their annuity options, and
3. Green ISA’s.

These would be financed with additional public funds from the ‘rationalisation’ of some existing quangos and funds.

So far so similar – both groups seem to want to offer products to investors to attract private money into low carbon/green projects and both rely on some public money being available.

So what’s the gossip?


Last Budget, March 2010 The then chancellor announced £1.5bn to kick-start green energy projects from the sale of assets such as the channel tunnel.
Elections, May 2010 Result: Conservative/LibDem Coalition.
End of June 2010 Green Investment Bank Commission reports on the operation of a Green Investment Bank for Conservatives.
Mid-July 2010 Rumblings that the Green Investment Bank is to be cancelled.

In an article titled ‘UK shelves green investment bank’ the FT actually reported a broad political consensus in favour of such a bank (15/07/2010), however, in the same article it is clear that the initial plan for a bank based on Labour’s last budget is unlikely. It seems that in times such as these we are all pawns in the big game of the spending review which will report in the autumn. Until then we can say that:

1. There are difficulties with funding the low carbon sector,
2. There is political will across parties to address this issue,
3. How this issue will be addressed, whether a Green Investment Bank is brought into existence and at what scale will be determined by the outcomes of the spending review.

Enjoy the summer till then…


UK Shelves Green Investment Plan – FT
Scrapping the green investment bank would be a disaster for jobs – Ed Miliband
Aldersgate Group News
Bob Wigley – Chairman, Green Investment Bank Commission

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