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UK's Green Investment Bank needs borrowing powers, says Environmental Audit Committee

Out-Law News | 11 Mar 2014 | 4:51 pm | 2 min. read

The UK's government-backed Green Investment Bank (GIB) must be granted full borrowing powers by 2015-16 if it is to be successful, regardless of whether national debt targets are met, a committee of MPs has said.

Reporting on the 'green finance gap', the Environmental Audit Committee said that the GIB's ability to provide funding for energy and infrastructure projects to meet the UK's emissions reduction targets was constrained by its lack of borrowing powers. The government has previously committed to allow the bank to borrow from 2015-16, but this commitment is conditional on national debt falling as a percentage of GDP.

"Allowing the GIB to borrow would boost green investment and create jobs, and should not be delayed even if public debt is flat rather than falling in 2015-16," said committee chair Joan Walley. "In Germany their green investment bank has driven a massive home energy efficiency programme by providing loans at lower than market rates through high street banks – and writing off some of the loan if refurbishment makes the house 'near zero' carbon homes standard."

The GIB is a government-backed bank set up in October 2012 to provide finance to private sector projects to help develop a 'green economy'.

Its priority funding sectors are offshore wind, waste recycling and energy from waste, non-domestic energy efficiency and support for the government's Green Deal. During the first phase of the GIB's existence, which will run until 2015-16, the government will provide the bank's funding alongside private investors. It has committed £3.8 billion up to March 2016 in order to do so.

In its report, the Environmental Audit Committee said that the bank had used the government's initial capital funding to make a number of useful investments, including by providing low fixed-rate loans repayable from the resulting energy savings to local authorities wishing to install low-energy street lighting. However, without the power to borrow on the capital markets the bank's ability to enlarge its investments, and so help to reduce the 'green finance gap', was limited, the committee said.

According to the committee, investment in green infrastructure currently accounts for less than half of the £200bn needed in energy infrastructure to deliver national and international emissions reductions targets by 2020. It said that this 'gap' could create a 'carbon bubble', and ultimately lead to another financial crisis, due to stock markets overvaluing companies with fossil fuel assets.

The committee made a number of recommendations that the government should implement in order to encourage investment in green infrastructure, by reducing instability and risk and increasing certainty about reward for investors. It recommended that the government use its electricity market reform (EMR) programme to guarantee regulatory certainty and certainty around future subsidies for investors, including indicative funding levels under the Levy Control Framework, until 2030. The Bank of England's Financial Policy Committee should also do more to monitor the systemic risks to financial stability of a carbon bubble, in consultation with the independent Committee on Climate Change; while companies should provide investors with information about their carbon exposure as part of their annual reporting requirements, it said.

Giving evidence to the Committee, business and energy minister Michael Fallon said that the GIB had "all the funding it needs for the moment".

"It has plenty to be getting on with and plenty of projects to be investing in, so I think it is a little early to start comparing it directly with its German equivalent," he said.

He added that the Bank had state aid approval from the European Commission until October 2016, and that the government would have to "go back ... and extend that approval if we are to continue to fund its borrowing rather than push it out into the capital markets".