Green Investment Bank

Written evidence submitted by Peter Jones OBE


· Funding Sources to supplement State injections

· The role of Inheritance tax breaks

· Competing with existing dealflows in a global context

· Target investment projects- Low hanging fruit and Aggregation

· Planning and land issues- waste sector exemplars

· The criticality of carbon evaluation and measurement

· Links to the Electricity Market Reform

· Extant models – the London case.

2.The Respondent

2.1 My environmental background is that of a main Board Director with one of the top 3 UK Waste management companies in the UK for 20 years. Since the sale of that Plc in 2008 and my retirement I have been contacted to assist in the acceleration of the low carbon Agenda with specific reference to the 60 plus million tonnes of "scrap" carbon based material which flows from domestic and business sources into recycling, energy and landfill each year. This work is undertaken for……

- a major European Bank which has created a £300 million Pension Fund investment vehicle targeted at delivering low carbon solutions for co-located waste conversion processes

- - the same Bank which is interested in the use of its Property portfolio of industrial sites to lease to waste , energy and technology companies for the materials diverted from landfill

- A "virtual" Committee under the supervision of the WRAP (Waste and Resources Action Programme) examining the blockages faces the application of large scale anaerobic digestion gas to grid

- The London Waste and Recycling Board as the Mayor’s advisor

- Technology companies operating in the fields of plasma gasification, hydrogen fuel cell storage, anaerobic digestion, carbon dioxide sequestration from waste incinerator thermal oxidation and waste logistics

- A now superceded Regional body which has produced a Planning location analysis tool for evaluating infrastructure projects in waste and renewable energy under my Chairmanship.

- As a recent Pensioner I have acquired a working knowledge of pension tax structures.

- I am a Board member of our Village not for profit Community Interest Company which is seeking to fund a small scale anaerobic digestion gas plant and low cost community housing to the tune of £3 million.

2.2 All these entities share a common interest in the realisation of very real projects associated with the diversion of organic material from landfill to soils, gas, electricity, combined heat and power,synthetic transport fuels or hydrogen. These amount to over 60 million tonnes (compared to the 60 million tonnes of coal and 70 million tonnes of fossil gas) burned in the economy each year. Peer reviewed studies suggest that waste can divert around 6% of the electrical load and a similar amount of heat from fossil sources at a cost of between £10 and £15 billion investment.

3. Funding Sources and Tax Breaks

3.1 Whilst the Treasury does not accept hypothecation the sourcing of the base capital of the GIB should be linked to the flow of funds triggered by the recent changes in the regime for Carbon Reduction Certificates to that of a de facto tax and the yields from the Landfill Tax net of the refunds via the credit scheme.

On an annualised basis these are currently estimated at a combined £2.5 billion and would thus support a total Bank capital base of the order of £40 billion every year. It has to be conceded that landfill input tonnages are now highly elastic however .

3.2 A point which seems to have been ignored on which I commented over 2 years ago relates to Pension Funds. The latter urge, rightly perhaps, the facilitation of a bond type programme backed by State guarantees, mutuality structures, the advantages of leveraging in a Bank rather than a Treasury State borrowing model and the importance or relevance of Utility type return structures to guard against future legislative changes (aka the Spanish example).

3.2 My submission is that the attractiveness of the whole vehicle could more simply be tackled via inheritance tax changes with the decision left firmly in the hands of individual investors with their IFAs. Pension Fund Trustees of companies may be differently incentivised but they appear to control around £800 billion (within the NAPF) compared to the estimated £2 trillion or more in all pension funds.

3.3 Upon retirement I was presented with a choice of leaving funds in a corporate scheme or resigning that and creating a SIPP.The former option would result in all funds reverting to the scheme on the death of myself and my spouse. In the event of that happening with a SIPP the previous Government would have imposed a one off tax of 82%. The current Coalition have reduced that to 55% tax.

3.4 My point is that if the death tax on SIPPs ( or the proportion of them invested in qualifying Green investments as equity, project loans, bonds or securitised debt) is reduced further to levels of the order of 25% the necessary investment levels of at least £600 billion to convert to a low carbon economy would rapidly materialise from decisions by individual investors. This is a reasonable assumption because a £1 million pension SIPP invested to a Treasury defined maximum in UK Green Bonds of, say 50%, would permit an additional £125,000 to remain in the Estate when the SIPP crystallises on the death of the last remaining spouse( at a 25% rate).

Initiating such changes in 2012 will create an immediate flow of investment of £500,000 as a portfolio in approved schemes spread across water, transport, energy and waste but the tax impact will not be experienced until 2030 or more in the case of a 60 year old at current mortality predictions. In this way an ageing population in well funded SIPPS becomes a benefit to the UK rather than overseas funds where a devaluing Sterling may accelerate reduced returns.

3.5 As the desired funding gap is filled the Treasury can simply amend the qualifying rules for later SIPPs . The annualised income impacts for the Treasury are not as significant as might be imagined because the tax yield ( 55% 0n over £2 trillion of SIPPS) will be staggered over many decades as holders AND THEIR SPOUSES die. They can regulate their exposure as the gap fill at each Budget Review . I have no data but if my portfolio is typical of the whole UK the bulk of SIPPS are invested in overseas schemes anyway so historic earnings are not being currently utilised to the benefit of the UK.

The role of the Bank would be to regulate qualifying schemes ( on the Landfill Tax Entrust model perhaps) and issue Bonds ,possibly as a one stop shop provider.

4. Low Hanging Fruit and Aggregation

4.1 In the UK waste sector there are considerable opportunities for co-located resource recovery Parks alongside large single point energy users such as airports, docks, industrial estates, data processing centres, food chain processing centres, prisons, hospitals and so forth. There is no single entity capable of accepting the common risks of………….

Feedstock Guarantees




End output markets

Thus there is considerable appetite for the estimated £15 billion needed for around 1000 new low carbon transition sites based on utilising the WRAP Planning tool and increasingly proven low carbon advanced waste technologies.

These are targeted at 2 to 10 Mw load nodes. At the other extreme my experience with our village CIC confirms a market for large numbers of village based renewable energy projects which are probably best managed by aggregation within Branded portfolio products for Pension fund investment.

5. Planning and Land

5.1 The Advantage West Midlands/ WRAP Planning Tool is a software based programme which evaluates prospect sites on the basis of socio-political impacts ,biodiversity, communications links, the site characteristics and the veracity of the exit product markets. This enables a transparent, quantitative based site assessment to be undertaken in conjunction with local residents.

5.2 Information on the tool has been circulated to Commercial Land Agents such as Savills, BNP Paribas, Quintain, St. Modwen and Fisher German so that they can consider the application of it to sites in their commercial portfolio .The Tool is short-listed for an RITP Award.

6. Carbon Evaluation and the Electricity Market Reform

6.1 It is essential that in order to apply a coherent set of parameters for fossil carbon dioxide displacement the GIB has access to coherent , academically peer reviewed standards for "footprinting " candidate schemes as part of the qualifying process. Given the diversity of that displacement in terms of watts, therms, gigajoules, tonnes of recyclate of litres of transport fuel the Bank needs to participate on the basis of common standards which measure benefits by a single measure. The absence of such coherence will lead to inconsistencies in the regimes of internalised externality costs in the form of Obligation Certificates, feed in tariffs, tradeable packaging permits and offsets in gas, electricity , transport and materials markets These will in turn impact the overall integrated commercial rate of return and dividend flow to bond, equity or loan holders.

7. The London Model

7.1 This response is in a personal capacity but I commend to the Committee the template of the 2 year old London Waste and Recycling Board, of which I am a Member. Whilst funding is derived notionally from the allocation of Landfill Tax Credits this has been leveraged to a point where around £60million has enabled over 7 times that level in terms of initiated schemes by ensuring that LWARB funds have first accessed EU match funds and secondly provided the de-risking of early mover projects by sacrificing guaranteed returns on high risk loans or equity to "top out" base funding provided from commercial lenders in the form of equity,bonds , secured and unsecured loans.

7.2 In closing I commend to the Committee the need for extreme urgency. The push for these measures in terms of supply side pressures from rising concentrations of carbon dioxide are well evidenced, practically as well as scientifically. However the demand side opportunities in terms of National competitive advantage, job creation, export potential and other practical market factors offer a rare opportunity for substantial financial, technical and commercial growth in the UK at a time when the doors are closing on consumer focussed production industries.

18 January 2011