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Bookmark and ShareTony Greenham is head of the finance and business programme at nef.

Big Sticks, Big Solutions and the Unmentionable Funding Proposal

Now don’t get me wrong – I am a big fan of the proposals launched this week by the Green Investment Bank (GIB) commission. Let’s celebrate a report that explicitly recognises market failures, and applies some big brains to how to encourage investment in useful low-carbon infrastructure. Let’s hope that George Osborne, having set up the commission, acts quickly to create the GIB.

So why mention big sticks? In launching the report to a packed house at the Green Alliance summer reception, commission Chairman Bob Wigley was refreshingly blunt. Surveying the dismal impact of previous policies to encourage domestic households into energy efficiency and renewables, he observed that the old regime was one of “grants and advice”. To really get anywhere what we need is a regime of “Sticks, grants, advice and loans”. The GIB can do something about the last three; the first requires political guts.  Penalising house owners for not being green enough? Go, Bob, go. However, Mr Wigley was understandably diplomatic when asked his opinion of the fortitude of the government’s guts.

And what of big solutions – isn’t that what we need? Well up to a point, yes. There will be many large scale infrastructure projects to fund. But the commission identifies that most investment funds are too big to invest in small scale community energy projects, of which we need tens of thousands. The solution it seems is to aggregate the small morsels of community energy into a suitably large and appetising dish for the institutional fund managers to feast on.

Instead, how about making it easier for people to invest directly in their local energy co-operative and not give the cash to the giant institutional funds in the first place? Oh no, hold on – how would the City earn its cut? Best not go down that route.

And finally, what about the Unmentionable Funding Proposal? The commission says we need to find £550bn over 10 years to invest in the low-carbon transition. A questioner from the floor pointed out that the Bank of England had pumped £200bn into the economy in as many months to save the financial system. This has clearly not caused a Zimbabwe style monetary collapse, despite the orthodox horror of ‘printing money’, but now it seems that it is rather impolite to mention it. When there is spare productive capacity in the economy, why not use ‘green  quantitative easing’ to kick start the GIB? Bob was characteristically blunt in his evasiveness: “I’m afraid as a former member of the Court of the Bank of England I’m going to dodge that question”.

Bookmark and ShareAndrew Simms is nef‘s Policy Director and head of nef’s Climate Change programme.

How should a Green Investment Bank most effectively be set up?
The banking failure laid bare the private sectors’ veiled dependence on the public sphere in bad times. But, a publicly owned Green Investment Bank will be proactive, not just there to pick up the pieces of mistakes made elsewhere. It should provide affordable credit, capital and guarantees, and in the process leverage further investment, but only to groups, companies and initiatives that will help push a rapid transition to a low carbon economy. Capital can be raised from a mixture of bonds, carbon taxes, the redirection of resources held in other part public owned banks and “green” quantitative easing. Working mostly at a large scale, the Green Investment Bank will need a network of more local, sister banks able to provide capital for smaller scale initiatives.

What should it use its financial resources to support?
The priority will be to finance a new low-carbon infrastructure for Britain. From new and renovated low-energy building stock, to a new multi-scale, multi-technology renewable energy power system, to a clean, efficient, transport network with a hugely enhanced role for mass public transit, the bank would be instrumental in rewiring the nation for a low-carbon, high well-being future. In essence, it will help to write a national insurance policy against a future of high and volatile fossil fuel prices, geo-political insecurity and carbon constraints due to global warming.

(originally published in the Guardian)

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nef employees blog in their personal capacity. The opinions expressed here do not necessarily reflect those of the new economics foundation.