Green Investment Bank

Written evidence submitted by the Woodland Trust (GIB 15)

The Woodland Trust welcomes the opportunity to respond to this consultation. The Trust is the UK's leading woodland conservation charity. We have three aims: to enable the creation of more native woods and places rich in trees; to protect native woods, trees and their wildlife for the future; to inspire everyone to enjoy and value woods and trees. We own over a 1,000 sites and have more than 300,000 members and supporters.

The significance of any barriers or ‘market failures’ requiring the establishment of a Green Investment Bank, and any risks of not getting this done quickly

1. The Woodland Trust believes that there should be at least twice as much native tree and woodland cover in the UK because trees and woods bring so many benefits to society – these include carbon abatement, supporting productive agriculture, enhancing landscape amenity and improving water quality. Regrettably significant barriers exist for those organisations and individuals who may be considering investing in woodland creation as evidenced by the fact that for all the images of a green and pleasant land the UK is one of the least wooded countries in Europe and planting rates with broadleaved species have halved in England in the last six years. The nature of the investment – often high capital costs that are repaid in the longer term with a low rate of return – can dissuade investors as can the risk of land devaluation and the initial cost of establishing and maintaining the trees. Sometimes the beneficiaries of the expenditure are not always those delivering the upfront investment – for example a private company planting trees may find that the most significant health savings are made by the NHS rather than inside their own organisation. Moreover, the complex nature of the current support mechanisms can act as a disincentive for investors and those prepared to plant trees on their own estate. It is necessary to ensure that the private sector is rewarded when their tree planting delivers on public policy.

2. Moving forward the establishment of a GIB could be crucial in fashioning the mechanisms that provide the long term security and framework within which the barriers to woodland creation can be removed or mitigated. In their report, the Green Investment Bank Commission noted that the GIB should operate in partnership with the private sector (rather than acting in competition), invest in projects that cannot be funded by commercial banks but have environmental significance, and act only when intervention can accelerate market interest in green projects. [1] Funding woodland creation meets all these criteria as the GIB can provide the long term safety for those wishing to plant trees, low interest loans or grant aid for projects which have genuine ecosystem benefits and stimulate market interest in tree planting and mass woodland creation.

3. At a time when there is recognition across the political spectrum that there needs to be an increase in tree planting rates – the Low Carbon Transition Plan [2] and Read Report [3] both detailed the benefits – it could be potentially disastrous if the GIB was not empowered to fund tree planting projects. The Read Report advocated planting 23,200 ha per year over the next 40 years as ‘this could, by 2050, be delivering, on an annual basis, emissions abatement equivalent to 10% of total GHG emissions’. [4] Meanwhile the recently published Lawton Review demonstrated that the UK must redouble its efforts if it is going to create fully functional ecological networks. [5] It is therefore important that woodland creation be funded through the GIB as it is one crucial method for delivering on the aspiration to restore and safeguard the ecosystems that sustain our quality of life.

The objectives and roles the Green Investment Bank 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

4. The Green Investment Bank should finance those environmental projects that afford multiple environmental, social and economic benefits but struggle to access finance from commercial outlets due to the nature of the investment – often a low yield investment that repays over a longer term than its competitors. From the Trust’s perspective tree planting fits this model as it is perceived as an unattractive investment when compared to other opportunities. Nevertheless it delivers a range of benefits such as absorbing carbon from the atmosphere, aiding the management of flooding and improving water quality and supporting productive agriculture. Importantly there are a multitude of economic, environmental and social benefits associated with woods and trees which are outlined below:

The commercial benefits:

· Acting as a cost effective tool for absorbing carbon from the atmosphere. Mixed woodlands managed for multiple objectives can deliver abatement at less than £25 per tonne of CO2 (the Committee on Climate Change considers £100 per tonne to be good value and David Reid considers his figure to be ‘pessimistic’ as it does not include the co-benefits woodland provides). [6]

· Aiding the management of flooding and improving water quality. Research has shown that increasing tree cover in urban areas by 10% reduces surface water run-off by almost 6%. [7]

· Supporting employment: the timber industry is estimated to employ about 55,000 people in Great Britain. [8]

· Branding and market research opportunities.

The environmental and social benefits:

· Supporting productive agriculture including the maintenance of healthy populations of pollinating insects (estimated to be worth between £120-£200 million per year) and providing on-farm energy generation. [9]

· Improving health outcomes as trees and woods could save millions in healthcare costs. Around £110 billion is spent each year in the UK on healthcare, equal to 8.5% of all income. It has been estimated that if every household in England had good access to quality green spaces such as woodland it could save around £2.1 billion annually. [10]

· Reducing the radiant heat in urban areas and providing shade and shelter.

The Green Investment Bank’s investment priorities, and whether and how the bank should support and foster areas where the UK has emerging green technology strengths

5. The Trust believes that there is a compelling business, environmental and social rationale for funding woodland creation and tree planting. Once created the GIB will have the advantage of being able to co-ordinate financing and provide the long term security for environmental investments. For example to double native tree and woodland cover across the UK in 50 years there needs to be an average of 15,000 ha planted per annum and this involves planting approximately 22 million trees. Assuming that the average cost per established tree is £2 then the bill per year is £44 million (£440 million by 2020 and £2.2 billion by year 50). Given the wide range of benefits increasing native woodland cover affords this is not an unreasonable expense and would be a fraction of the £550 billion the Green Investment Bank Commission estimated was needed between now and 2020 to deliver a low carbon economy. [11]

The funding and governance structures required to create an effective and accountable body, including the role of ‘green bonds’

6. The Green Investment Bank will need to be independent from government, transparent and accountable if it is going to imbue investors with a sense of confidence. In terms of funding woodland creation there are a number of mechanisms the Bank could consider using to stimulate investment. These include the following points:

Government grants

7. The report by the Commission suggested that the GIB should act as the administrative arm for all low carbon grants by merging organisations such as the Carbon Trust and Technology Strategy Board within the competence of the Bank. Assuming the GIB was to become the source for grant funding it is essential that the recipients of these grants are environmental projects such as native woodland creation where the motivation for the investment may be to deliver on conservation objectives or ensure other public benefits like civic amenity. Such grant funding is justifiable because woods and trees deliver a range of benefits such as alleviating flooding (and in the longer term perhaps reducing insurance costs), carbon storage and improved public health. These are all of commercial value but are not easily delivered by private sector investment.

Green bonds (woodland bonds)

8. Green bonds are seen as a vehicle for tapping into the longer term and lower risk investment market. Due to the long term nature of any investment it is likely to appeal to the institutional investors, and in particular UK Pension funds, which by the very nature of these funds are long term investments with averaging liabilities of twenty years or more. Their current investment strategy is naturally driven into equities and long-term bonds; and this structure fits well with a climate related product and may appeal to insurance companies and investment/pension funds. For green bonds to be attractive they may need to be rated by an external agency and they will require a positive reason over and above their green credentials to encourage investors to switch to them. Bonds could be used to either fund a GIB, whereby the GIB is the issuer of the bond for individual projects such as woodland creation. In order for the Green Bonds to flourish there is a need for all participants to make a return on the investment as it is inadequate to simply label a bond as ‘green’ and expect mass investment. Indeed, green branding alone may only have a limited appeal to a small minority of socially responsible investors or ethical funds and therefore be unable to unlock the capital needed. A green bond market should therefore reflect existing bond markets so that potential investors feel comfortable with it as an investment vehicle.

Green ISAs (woodland ISAs)

9. The Commission’s report argued that the Government could consider raising the personal allowances for Green ISAs and using the inducement of additional tax credits and/or low interest rates to stimulate investment. The GIB could manage these Green ISAs and market the product for people who had an interest in supporting woodland creation. As with the Green Bonds, part of the profit made from the favourable taxation and interest rates could be hypothecated into a particular tree planting project and may generate funds for the National Tree Planting Campaign. As mentioned above, the Read Report produced for the Forestry Commission demonstrated that woodland creation is a cost effective method of removing carbon. [12] Given these carbon savings Green ISAs should support a woodland creation drive as part of the carbon abatement strategy envisaged by the Commission’s report.

Green Investment debt fund

10. Any profits from the Green Investment Bank could be re-invested into a green investment debt fund as laid out by the Commission report. Woodland creation could be funded by low interest loans from this fund as it may enable those who struggle to access the finance from commercial banks to do so and bring woodlands into management for projects such as renewable energy production. Any additional surpluses could also be re-invested into conservation projects that are not commercially viable but are of environmental and social value. [13]

Levy on energy bills

11. Another method for raising funds suggested by the Commission was an additional levy on electricity bills. Consumers already pay environmental levies on their energy and so any additional charges should demonstrate direct and tangible benefits. Tree planting would be an ideal investment opportunity for this type of funding stream as the energy companies or the GIB could show how the additional expense was delivering benefits for the consumer in terms of creating woodland that offers ecosystem benefits like improved air quality and scenic green space for the public to enjoy.

Climate levies

European Emissions Trading Scheme and the Renewables Obligation

12. There are a range of climate change levies that may be used to capitalise woodland creation projects. These include the European Union Emissions Trading Scheme (EU ETS) and the Renewables Obligation. Given the low cost and high carbon return of trees and woodland – alongside the other ecosystems benefits – there is a strong case that businesses should be able to use woodland creation as a mechanism for claiming permits under the ETS (it would need to be additional to existing woodland creation in the UK). Woodfuel and biomass production could also be counted under the Renewables Obligation as a means of bringing woods into management or financing new creation.

The Kyoto protocol

13. The Kyoto protocol gives each signatory a target for limiting or reducing emissions expressed as levels of allowed emissions or ‘assigned amounts’. Signatories to the protocol can also generate credits for activities that absorb carbon from the atmosphere such as woodland creation. At present the Government includes grant-funded woodland creation in its UK greenhouse gas reporting meaning that private investors are unable to use domestic forestry as a carbon offset. By retiring its claim to the Assigned Amount Units (AAUs) for domestic forestry the Government will help stimulate the type of private sector investment needed to deliver on the aim of the UK Low Carbon Transition Plan to create an additional 10,000 hectares per year for the next fifteen years in order that those growing trees could remove up to 50 million tonnes of carbon dioxide between now and 2050. [14]

Sale of government assets, the public estate and regulatory powers

14. The Commission recommended that the sale of government assets might be used to capitalise the bank. Whilst the Coalition government appear to have rejected this as an option, there is logic to reinvesting the sale of public land – such as some parts of the Forestry Commission estate which deliver limited public benefit at present – into woodland creation, restoration and protection as this may stimulate a drive of activity in the private sector that will deliver on public policy.

15 October 2010