Green Investment Bank

Written evidence submitted by the TUC (GIB 18)


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 [1] suggests £434 billion for new or replacement infrastructure by 2020, with Ofgem estimating £200billion 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 [2] (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.

· 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 [3] ) 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.

4. Funding and Mandate

4.1 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.

4.2 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.

4.3 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.

5. Three TUC priorities to ensure a successful Green Investment Bank

5.1 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.

5.2 Independence and accountability: We would agree with the Wrigley Commission [4] 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.

5.3 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.

5.4 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

[1] Delivering a 21 st Century Infrastructure for Britain , Dieter Helm, James Wardlaw and Ben Caldecott, Policy Exchange, 2009.

[2] Building a low-carbon economy – the UK’s innovation challenge, Committee on Climate Change, July 2010.

[3] Capitalising the Green Investment Bank, Ernst & Young, October 2010.

[4] Unlocking investment to deliver Britain’s low carbon future, June 2010.