A long-awaited report into the investment needed to create a low carbon UK economy has concluded that the problem “is akin to trying to build substantial new housing stock without a 20-25 year mortgage market”.
The Green Investment Bank Commission report – known as the Wigley report after its chairman Bob Wigley – states that the scale of the investment required to meet UK climate change and renewable energy targets is unprecedented, with the investment needed between now and 2020 hitting £550bn.
In contrast, only £11bn was invested in Britain’s ‘dash for gas’ during the 1990s, which was considered transformational at the time.
The commission identified several market failures and investment barriers in financing low carbon infrastructure, which, unless remedied, will mean the UK will miss its low carbon targets.
These included confidence gaps among investors caused by technology risks, lack of transparency in government policy and high capital requirements for commercialisation, and the challenge of making large numbers of small, low carbon investments attractive to institutional investors.
The reports states that among the key factors to the UK meeting its legal decarbonisation targets are ensuring energy security and future growth; reducing exposure to high and volatile fossil fuel prices; and creating new businesses and jobs.
The establishment of a Green Investment Bank is critical to helping the UK deliver its low carbon future.
The commission said that the bank should operate independently of government, and as it evolves and grows, its advisory role could expand to include local authorities. The report suggests a three-tier structure to operate the bank: an advisory council, a board of directors and a management team.
The report states that “ad hoc government initiatives” had resulted in many Whitehall-funded quangos and funds backing low carbon innovation. While commending the work of these organisations, the report states that their efforts could be better channelled, and as such identifies three quangos and six funds that could be brought into the Green Investment Bank.
They are the Carbon Trust, the Technology Strategy Board, the Energy Technologies Institute, the International Environmental Transformation Fund, Ofgem’s Low Carbon Network Fund, the Environmental Transformation Fund, the Strategic Investment Fund, the UK Innovation Fund, and the Marine Renewables Deployment Fund.
The report says that the bringing together these quangos and funds could be done quickly, with the savings made being poured back into the Green Bank. This, it argues, ensures value for money for the taxpayer while improving service delivery.
The commission also looks at Green bonds and states that they could be utilised in two ways: as a means of financing the Green Bank or lowering the cost of debt for projects.
Green bonds may need to be rated by an external agency to make them attractive to some investors and, says the report, the market must be “deep enough and long-dated enough to provide the necessary liquidity”.
However, the commission warns that “simply labelling a bond as ‘green’ is unlikely to spread its appeal beyond socially responsible investment and ethical funds. As with any other bond, all participants must be able to make a return.
Green ISAs are also mentioned as a small but “visible and symbolic way” for investors to make a contribution to the Green Investment Bank.