Written evidence submitted by the TUC
SUMMARY
The TUC welcomes the decision of the Environmental
Audit Committee to inquire into the role of a Green Investment
Bank in securing the UK's green economic recovery.
The TUC is concerned that the UK Government does
not currently have a convincing narrative around economic growth.
The Green Investment Bank has a vital role to play
in delivering the massive investment, from infrastructure to company-level
finance, needed to secure economic growth, generate employment
and cut our CO2 emissions.
In this submission, the TUC makes the case for:
Urgent action to establish the Bank as an independent
entity.
It must have both independence and accountability
to all stakeholders.
Its capitalisation must reflect the scale of the
challenge: the GIB may need up to £20 billion in capitalisation
by 2020 - an average injection of £2 billion pa from 2011.
Its investment priorities should be in energy efficiency
and renewable energies.
1. THE CASE
FOR GREEN
GROWTH
1.1 The TUC is concerned that the UK Government
does not currently have a convincing narrative around economic
growth. We are conscious that a White Paper on growth is due to
be published shortly after the Comprehensive Spending Review,
but since May's General Election, political discourse has been
dominated by the fiscal deficit, leaving many observers (including
the TUC) concerned at the risk of very slow growth or even a double-dip
recession that this presents. Fears may have been reduced somewhat
if a convincing argument had been put forward about how growth
will be pursued alongside deficit reduction, especially after
the public sector contracts on which many private sector companies
rely have been cancelled. But no such argument has been forthcoming
and the case for economic growth almost appears to be an afterthought.
1.2 The TUC believes this to be a profound mistake.
In our view, growth cannot be taken for granted. In the short
term, the path to steady economic recovery will be tough. In the
longer term, the UK must take its place in the global economy
based on a specialism in high skill, high value industries - industries
which must be green. For example, where possible, ever more environmentally
conscious commuters will wish to use high-speed rail, providing
opportunities for UK-based companies in transport infrastructure.
When they use their cars or fly, the will demand cleaner cars
and aircraft. To give another example, there are major challenges
facing sectors such as energy, discussed below, and construction.
Taken together, this is the biggest economic and environmental
challenge that we face, but it also has the capacity to be a major
opportunity for UK industry if we seize the moment.
1.3 Of course, growth by itself is not enough.
The UK must be mindful to ensure that it does not experience a
jobless recovery. Growth must provide meaningful, high-skill,
high value employment for ordinary people. A focus on the industries
described above can bring about large scale employment, but government
policy must be designed to ensure that this is the case. The TUC
believes that one factor in the remit for loans from a future
Green Investment Bank must include the number of quality jobs
that any proposal delivers for the UK.
2. THE CO2
CHALLENGE
2.1 Meeting our legally-binding targets to cut
the UK's CO2 emissions by one third by 2020 presents
a major financing challenge to the UK economy. It will require
significant, new and sustained investment in low carbon technologies
for energy supply and industry. Estimates of the investment required
vary: Dieter Helm[25]
suggests £434 billion for new or replacement infrastructure
by 2020, with Ofgem estimating £200 billion for energy
alone.
2.2 If our aspiration is for the UK to be the
No. 1 place for low carbon investment in Europe, with opportunities
for new jobs and skills, new low carbon financing capability is
needed to propel investment.
3. JUST TRANSITION
3.1 What is more, in its support for ambitious
targets to cut CO2 emissions, the TUC has argued for
a "just transition" to a low carbon future. Just transition
is about recognising and planning fairly and sustainably for the
huge changes that climate change policies will have for our whole
economy. In the past, significant periods of economic restructuring
have often happened in a chaotic fashion, leaving ordinary people,
families and communities to bear the brunt of the transition to
new ways of producing wealth. The idea of "just transition"
seeks to avoid this kind of injustice, so that this crucial transformation
can progress with the speed and depth required. Financing a green
new deal has to be part of this package. Any new major funding
institution must be accountable and transparent in its activities.
3.2 In July 2010, the Committee on Climate Change[26]
(CCC) set out the UK's "innovation challenge" to 2020
and beyond, commenting that:
current levels of public expenditure for RD&D
should be regarded as a minimum;
cuts would be detrimental to the achievement of our
climate goals;
UK energy RD&D funding is low by international
standards; and
a two to fivefold increase in innovation investment
is required.
3.3 Among the key technologies the CCC recommends
include investments in:
Four demonstration CCS plants, key to achieving required
early power sector decarbonisation.
Demonstration of gas CCS power generation.
Offshore wind, which may require additional funding.
Increased funding for marine generation demonstration.
Current electric car funding, where £260 million
is required to support pilot projects and early stage market development,
with further funding likely to be required in the period to 2020.
4. GREEN INVESTMENT
BANK
4.1 Our current political discourse is dominated
by tackling the deficit rather than boosting investment, yet there
is an urgent and compelling need to get an effective Green Investment
Bank up and running. A token gesture from Government will not
do. An independent, adequately funded operation must emerge as
a genuine driving force powering economic recovery, funding regeneration
in the regions, and strengthening our energy security.
4.2 Recent estimates (Ernst & Young[27])
suggest that the UK needs to see a total of £450 billion
in low carbon investment until 2025. This includes £225 billion
in energy "supply side" investment and £225 billion
in energy efficiency "demand side" investment. Of course,
barriers to low carbon investment include the relatively high
risk associated with new, low carbon technologies and the diverse
business models that need to be developed. Companies and banks
alone cannot be expected to shoulder the full burden of the huge
investment required. As both the Wrigley Commission and Ernst
& Young have suggest, the Green Investment Bank can help tackle
these challenges by providing products and services aimed at sharing
low carbon investment risk with the private sector and acting
as a bridge to tap the vast pools of long-term capital held by
the institutional investors.
4.3 The TUC is not the only voice that sees the
economic imperative for a new powerful financial institution.
We have joined forces with a number of other organisations to
call for a Green Investment Bank, including BA, BT, Friends of
the Earth, Green Alliance, TransformUK, Greenpeace and Microsoft,
and investors such as AXA Investment Managers, Merrill Lynch and
the British Venture Capital Association.
5. FUNDING AND
MANDATE
5.1 The TUC supports the creation of an organisation
with a clear mandate to provide affordable capital for low-carbon
projects, from the Green Deal energy efficiency, which could create
a quarter of a million jobs, to major infrastructure investments.
5.2 If this vision is to become a reality, then
we also need to explore the potential of new funding mechanisms,
including Green Bond, and to encourage institutional investors
such as pension funds - who collectively control over £2
trillion of assets - to use the huge pool of capital at their
disposal to support green growth.
5.3 Finally, although securing finance is certainly
a major challenge in building the economy of the future, the fundamental
issue is getting our strategy right. As the Stern Review concluded,
climate change is the most compelling example of market failure
in history. His report underlines the need for a pro-active, interventionist
response, which must necessarily include:
an effective price of carbon that will drive
low carbon investment and innovation;
a regulatory framework that will support and incentivise
investments, especially in key projects such as carbon capture
& storage, renewable energy through a feed-in tariff and other
mechanisms to support domestic and larger scale renewables, such
as offshore wind;
increased investment in our science infrastructure;
and
a well funded green skills strategy to equip the
UK's workforce for the challenges ahead.
6. THREE TUC
PRIORITIES TO
ENSURE A
SUCCESSFUL GREEN
INVESTMENT BANK
6.1 Urgency: The Green Investment Bank
must be fully operational within a year. Provision for it must
therefore feature in the Energy Bill 2010. If this is not feasible,
then in a new Bill during the next few months.
6.2 Independence and accountability: We
would agree with the Wrigley Commission[28]
that the GIB should be set up by Act of Parliament as a permanent
institution working in the long-term national interest. It must
be a bank, not a fund, a key mark of which is that it can raise
bonds. Any profits derived from public funds should be reinvested.
It should be independent of Parliament for individual investment
decisions. It should include a stakeholder board that genuinely
represents the wider public interest, including industry, trade
union and civil society representatives, to ensure credibility,
accountability and transparency in its investment strategy.
6.3 Capitalisation, to finance low carbon
energy supply and energy efficiency: As has been widely acknowledged,
the GIB Commission estimated that £550 billion in low carbon
energy investment was needed in the UK over the next 10 years.
In contrast, only £11 billion was invested in Britain's "dash
for gas" during the 1990s. The Commission highlighted the
investment priorities of low carbon energy supply and energy efficiency
investments, both domestic and business. We believe that, as a
minimum, that the GIB may need up to £20 billion in capitalisation
by 2020 - an average injection of £2 billion per year from
2011. This would unlock many billions more in private capital
investment. Obvious sources of revenue would include unlocking
pension fund investment for green purposes; capitalising the bank
by using revenue from the bank levy; and the auction of EUETS
permits. Energy Efficiency must be a major priority. But we are
concerned that the Green Deal will not be able to raise cheap
finance without using the GIB to raise Green Bonds as the prime
source of finance. Green Bonds would enable the Bank to raise
high levels of capital from the debt markets for both renewables
infrastructure projects and a major national energy efficiency
programme.
6.4 There is an urgent need to resolve the fundamental
issues of what role the GIB must play in a green economic resurgence,
its investment priorities and governance. What is not in doubt
is that these decisions on the Bank must be made now, for no other
reason than whilst we delay, the climate change we are determined
to address continues to gather pace.
14 October 2010
25 Delivering a 21st Century Infrastructure for Britain,
Dieter Helm, James Wardlaw and Ben Caldecott, Policy Exchange,
2009. Back
26
Building a low-carbon economy - the UK's innovation challenge,
Committee on Climate Change, July 2010. Back
27
Capitalising the Green Investment Bank, Ernst & Young,
October 2010. Back
28
Unlocking investment to deliver Britain's low carbon future,
June 2010. Back
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