Supplementary written evidence submitted
by the Environmental Industries Commission
We the Environmental Industries Commission (EIC)
and its 230 member companies are delighted to have the opportunity
to submit our written evidence to the Environmental Audit Committee
on the Green Investment Bank (GIB). We have followed the debate
on this subject to date and we would like to congratulate the
chair and all the members of the committee for facilitating and
inducing such a robust, varying and wide ranging debate.
The EIC believe that the UK needs a new approach
and new thinking to create sustainable jobs and low carbon resource
efficiency which will save the economy money and protect our environment.
Today we have an opportunity to shape a new economy
that is driven by industrial processes which are low carbon and
resource efficient, and protect our environment. The fundamental
logic of this "new economy" must be for ecological sustainability.
If we are to do this the government must reconcile
the markets with the environment. We need above all a strong and
robust economic-environmental policy framework that puts a cost
on pollution, thereby encouraging finance and investment in low
carbon resource efficient industrial operations and supply chains.
We presently have a serious market failure that is
stopping investment in the environmental technology and services
sector. We believe the GIB will be a key part in the jigsaw in
correcting this failure. It is the job of the GIB to aggregate
environmental projects that will profit across the UK and start
the investment process.
The GIB and its focus will be a key decision this
government takes in stimulating growth and driving innovation
right across the environmental sector, not just in the low carbon
subsector.
We understand the difficulty and the pressure that
the Treasury is under to take the right decision. We have some
concerns of our own. The GIB could be a pivotal point in job creation
and greening the UK economy.
We believe that the GIB should not be a fund
but a fully operational commercial bank that drives profit for
the taxpayer.
We believe that, in starting, the GIB should not
invest in high risk projects which are unproven or cannot be funded
off the balance sheets of the companies that want the investment.
This would turn the GIB into a fund and would prolong the market
failure and deadlock we are trying to break out from.
The investment strategy of the GIB needs to be transparent
if it is to get public support to buy green ISA's. The first investment
priority must be on technologies and companies that are not reliant
on burning organic high carbon matter to create energy. We must
implement a strategy to fill the energy gap that starts with energy
efficiency, renewables and works through all options before we
use retrofitted old technologies.
If the GIB just focuses on energy efficiency and
created investment capital of £1 billion on this sector it
would immediately and directly create 50,000 jobs (This does not
account for indirect, induced or gross employment) and return
£3 billion in energy spend to the wider economy.
The GIB is about building confidence and sending
the right message to the markets so they unlock finance and invest
in environmental technologies. The GIB must be the finance mechanism
that supports industry exploiting the positive synergies between
environmental protection and economic growth.
On 24 November 2009 the then Shadow Chancellor George
Osborne consulted on the creation of a GIB and tasked it with
investing in the next generation of green British businesses.
The original focus and remit of the Wigley report was on Offshore
Wind, Smart Grids and Energy Efficiency. We recommend that the
government expand this to embrace investment opportunities right
across the environmental technology and services sector (including
water pollution control technologies, air, land, waste, buildings,
etc).
We would like to thank the Chair, Committee members,
the clerks and all the staff of the Environmental Audit Committee
for all the hard work that they have put into this inquiry and
we look forward to seeing the report when it is launched.
THE ENVIRONMENTAL
INDUSTRIES COMMISSION
The Environmental Industries Commission (EIC) EIC
was launched in 1995 to give the UK's environmental technology
and services industry a strong and effective voice with Government.
The EIC is at the forefront of the move towards a low-carbon and
resource efficient environmentally focussed economy. We work to
provide our sector with a strong and effective voice with government
to ensure that UK companies are able to succeed in the rapidly
growing global market place for green technologies.
With over 230 member companies EIC has grown to be
the largest trade association in Europe for the environmental
technology and services (ETS) industry. It enjoys the support
of leading politicians from all three major parties, as well as
industrialists, trade union leaders, environmentalists and academics.
The EIC and its members work to provide solutions
to meet environmental standards set by government legislation.
We ensure these standards are met through good practice and "after
sales" service to clients. We work with government to strengthen
the UKs policy framework. This work ensures that the Government's
intentions to put environmental protection at the heart of its
plans for economic growth. This framework ensures that the government's
environmental targets are realised and the UK have cleaner air,
water and land.
The EIC operates eleven membership policy subgroups
which focus on: Business and Innovation, Renewable Transport Fuels,
Scottish Group, Carbon& Environmental Management, Waste Resource
Management, International Business, Industrial Air Pollution,
Water Pollution Control, Contaminated land, Environmental Laboratories,
Sustainable Buildings and Energy Efficiency and Transport Pollution
Control.
While members support this publication and provided
extensive input, individual recommendations cannot be attributed
to any single member and the EIC takes full responsibility for
the views expressed.
Adrian Wilkes
Chairman
Jonny Mulligan
Chief Executive Director
EIC RECOMMENDATIONS
1. It is vital that GIB embraces a full understanding
of the economic opportunities of "green investment"
There is a risk that a GIB will institutionalise
a narrow understanding of the economic opportunities of "green
investment". If the Bank's mandate is limited to helping
the UK meet the low-carbon investment challenge, the UK risks
forfeiting the huge investment opportunities that exist across
the whole of the environmental sector.
2. Protecting the environment is not only
the defining challenge of the coming decade. It is also the defining
business opportunity
The industry is currently worth £112 billion
to the UK economy and is projected to grow to £224 billion
by 2020. At that time the global market is expected to be £3-4
trillion in direct and indirect goods and services. There is no
reason that the UK cannot lead this growth and rebuild its economy
to take advantage of these economic realities. The opportunities
are huge.
3. The GIB offers tremendous opportunity to
rapidly scale up the investment we need to tackle environmental
challenges, whilst simultaneously creating the jobs and industries
of our future
The delivery of carbon targets for 2020 and beyond
and the tackling the significant challenges of land remediation;
water and resource efficiency; water pollution control; air quality,
and so on present a major financing challenge for the UK economy,
the majority of which will need to be delivered by the private
sector.
The absence of automatic self-correction of market
failures dictates a role for government. To make the transition
to a sustainable economy a success we need to make investment
in low carbon resource efficient technologies and services the
primary focus for business and households. These sectors are facing
a market failure in finance and we believe it is time that government
intervened to correct this failure. This is why we need a GIB
to free up capital flowing to these sectors and create jobs.
4. We cannot leave it to the market alone—a
GIB will only be as successful as the environmental policy framework
that underpins it
The range of environmental challenges we face are
a product of the greatest and widest-ranging market
failure ever seen. Government intervention
in the economy is vital for creating the high growth markets that
the Bank will be looking to invest in. The foundation for all
green markets is principally a strong and stable economic environmental
policy and regulatory framework. This will give investors long-term
certainty on their investment decisions.
Without a strong and stable economic environmental
policy and regulatory framework there will be no market and, therefore,
nothing for the GIB to invest in.
Good policy design, of course, is not a panacea.
There is a huge finance gap in delivering the transition to a
low carbon, resource efficient economy, which the GIB must fill.
However, a long term, ambitious environmental policy framework
is the foundation on which the GIB must build.
5. Taking advantage of the green economic
opportunity is dependent on Government intervention, ahead of
international competitors
The UK's international competitors have become increasingly
aware that environmental protection yields significant economic
benefits as well as ecological gains. We must take urgent action
to compete. If we fail to do so countries such as Germany, China,
the USA, Japan and Korea—whose governments are continuing
to put in place ambitious support measures for their environmental
industries—will gain an early mover advantage. The government
must take a decision. Do we want to be leaders or laggards in
this sector?
6. The GIB must be a bank and not a fund
The GIB must be a commercial bank and not a fund.
The GIB should invest in low risk cost effective technologies
we know will work and create immediate employment in the UK economy
today. We believe the big impact, high risk, unproven and high
cost projects that will take years to realise a return will create
problems for the GIB. If the money for the GIB is used for these
projects we believe it would essentially turn the GIB into a fund.
This must be avoided.
Goldman Sachs has reported that in April 2010 the
World Bank funded CCS projects in South Africa for part of a $3.4
billion loan. We believe that this is the correct approach and
source of funding these big projects that benefit global organisations.
Today the cost to get just one CCS plant to test phase is estimated
to be between £750 million to £1 billion. In comparison,
research from the Carbon Trust show that £1 billion invested
in energy efficiency would create 50,000 jobs and put £3
billion back into the UK economy on money saved on energy spend.
7. The GIB must be a commercial bank with
a focus on profit for the taxpayer and a transparent investment
strategy for consumers
The GIB must be a commercial bank with a focus on
profit for its investors including the Treasury. It should employ
economists and financial leaders that can de-risk the investment
propositions. It must drive its profits by investing in the new
technologies and companies that are on the ascendency and are
not reliant on high carbon burning organic matter and retrofitting
old technologies.
The GIB should invest in companies that have high
environmental criteria and generate their profits from low carbon
environmental means across its global operation. It must invest
in socially and environmentally worthwhile projects that serve
society, job creation and local projects.
We believe public support will be key to the success
of the GIB. The GIB must be open for the public to invest in with
green ISAs and trust. To build the public support the GIB must
be very transparent with its investment strategy. It should focus
on projects that the public can understand and trust and see a
return on. It should sell ISA's that are targeted at energy efficiency
or local renewable energy projects across the UK.
8. The objectives and roles the GIB should
assume, the areas it should operate (and not operate) in, and
how its lending and investment decisions should balance green
benefits against financial risks
The GIB must have a remit to invest in the whole
low carbon environmental industry.
The 2009 Government report "Low Carbon and Environmental
Goods and Services: An Industry Analysis" identifies emerging
markets that the UK should prioritise in terms of market size
and forecast growth. It concludes that the water treatment sector
is a market that forecasts "high levels of growth in market
value".
The report's forecast growth rates in market value
for sub sectors between 2007-08 to 201415, (ranked by cumulative
market growth): 1) wind, 2) alternative fuels, 3) building technologies,
4) alternative fuel for vehicles, 5) geothermal, 6) carbon finance.
The sectors that the EIC would like to see investment
being made available for would include: Building Technologies,
Recovery and Recycling; Waste Management, Water & Waste Water,
Energy Management, Contaminated Land, Environmental Consultancy,
Air Pollution Control and Low Carbon Renewable Transport.
9. The GIB's investment priorities, and whether
and how the bank should support and foster areas where the UK
has emerging green technology strengths
It should be the primary role of the GIB to share
the risks of green investment with the private sector and to leverage
high levels of private capital.
The GIB should focus on energy efficiency as a priority.
After this it should focus on renewables and work through all
options before we use retrofitted old technologies to fill the
energy gap. Finance should also be available to the environmental
technologies that we have already listed.
10. The funding and governance structures
required to create an effective and accountable body, including
the role of "green bonds"
The GIB must be designed with a clear picture of
the environmentally sustainable economy that we want to achieve
and over what time frame. A fully independent and accountable
Bank must be established in statute with a clear mandate to invest
across the environmental industry.
The GIB must be a bank (and not just a fund) with
the ability to raise Green Bonds to access the huge pools of capital
held by the managed funds market. The Bank must also design other
innovative financial products including Green ISAs.
The Bank should also be used to support the Green
Deal—by assisting with the provision of upfront finance,
to keep costs down for consumers and to provide equity and technical
expertise for community and local authority low carbon investments.
We believe that even though we are in fiscally constrained
times the £1 billion for the GIB is very low and that the
government should look to more funding. The government has a range
of options that it could use to raise additional finance for the
GIB. The Government could recycle the revenue from existing "green
taxes" through the GIB.
The landfill tax, which used to be recycled through
BREW could be directed through the Bank.
The report "The Economy and Public Finances:
Supplementary Material" that accompanied the 2009 Budget
forecasts that Landfill Tax receipts will increase by 60% between
2008-09 to 2013-14, from £1 billion to £1.6 billion.
This could be directed through the Bank.
8 February 2011
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