Green Investment Bank

Supplementary written evidence submitted by the Environmental Industry 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.

Chairman

Adrian Wilkes;

Chief Executive Director

Jonny Mulligan

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 2007/8 - 2014/15, (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 fisca lly 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 per cent between 2008/09 to 2013/14, from £1 billion to £1.6 billion. This could be directed through the Bank.

8 February 2011