Green Investment Bank should cut number of quangos

Greenwise Staff

29th June 2010

A Green Investment Bank (GIB) should rationalise the number of existing Government quangos, funds and initiatives that currently support low carbon projects in the UK, a commission set up to look at establishing such a bank has said.

The GIB Commission, an independent group created earlier this year by the Chancellor of Exchequer to advise Government on how best to increase investment in low carbon infrastructure and technologies, has published a report today that calls for the urgent creation of a new public financial institution to scale up the Government intervention required to meet the UK’s carbon targets.

It estimates that as much as £550 billion worth of investment could be needed to meet UK climate change and renewable energy targets between now and 2020.

The UK has to source 15 per cent of its energy from renewables by 2020 and has so far achieved only three per cent of that target. It also has to reduce its carbon emissions by 80 per cent by 2050.

The Commission pointed to a number of barriers and market failures, including insufficient capacity in the debt capital markets, currently preventing the necessary investment required to meet these targets. It said a GIB, established in statute with a clear mandate, is the best vehicle to identify and address these over the long term.

"Rapid mobilisation"

But it said "rapid mobilisation" of a GIB was necessary to avoid the potential for investors to take "a wait and see approach".

The Commission also said GIB should cut back the "plethora" of quangos charged with supporting low carbon projects. It added that this process should happen "quickly" with the savings secured being reinvested in the new institution.

Basing its conclusion on a recent National Audit Office report, the Commission said rationalising these bodies would "significantly improve" the cost-effectiveness of efforts to meet renewable energy and climate change targets.

Organisations and companies that could face the prospect of rationisalisation include the Carbon Trust, the Technology Strategy Board, the Energy Technologies Institute and Research Councils. The Government has already indicated that Regional Development Agencies will be scrapped in favour of Local Enterprise Partnerships.

The Coalition Government has said it backs the creation of a GIB, but has so far kept quiet on how it would like it to be funded or managed.

"The Green Investment Bank […] 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," said James Cameron, executive director and vice-chairman of Climate Change Capital and a member of the GIB Commission.

Initially, the Commission said the GIB should prioritise its investment in "proven energy efficiency projects", "enabling technology", such as smart grids, and third round offshore wind.

GIB funding

Over time, it proposes that the GIB could provide funding in the form of grants, equity co-investment, insurance products, wholesale capital and long-term carbon price underwriting.

It said the GIB would need to raise funding through a mixture of Government funding, bank capitalisation (including the use of a bank levy) and commercial investments. But it said the primary focus of the GIB should be on lowering risk for investors and therefore has recommended measures such as green bonds and green ISAs.

"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," said chief executive of E3G Nick Mabey and co-author of the paper that made the first case for the creation of such an institution. "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."

Among other recommendations made by the Commission in its report today is that the GIB should sit alongside the Committee on Climate Change, which advises Government on legally binding climate change targets, to provide financial advice to Government on climate change-related investment issues.

It also called on the Government to appoint a 'Shadow’ Board by October to lay the foundations for the new bank while a GIB Bill is drafted and taken through Parliament.

The GIB Commission was established in February by the former Chancellor Alistair Darling to develop proposals for a bank that could help increase investment in the low carbon infrastructure and technologies.