Enterprise and Regulatory Reform Bill

Memorandum submitted by the TUC (ERR 08)

Green Investment Bank 

 The TUC welcomes the Green Investment Bank in principle.

Its combination of public funding unlocking private sector investment in environmentally transformational technologies could make a vital contribution to support our green economy and the wider growth agenda.

However, an immediate concern for the TUC relates to the massive scale of new investment required to meet our challenging climate targets. The investment demands arising from the Energy Bill are likely to mean doubling the rate of energy project investment achieved over the past decade. Yet the GIB will not be allowed to borrow from the capital markets; instead, the Government has provided up to £3bn of initial public support, with further access to capital subject to national debt falling sufficiently at an unspecified date.

Some £200bn is required to develop the UK’s low carbon energy infrastructure in the next decade or so. Getting the legislation right is a critical test for the success of the GIB, and will affect the efficacy and credibility of the Bank long into the future.

At this stage, the TUC believes there are 3 main concerns:

Mandate

Legislative underpinning of the GIB’s green mandate is welcome, but the mandate must be tightly drawn to promote low carbon technologies and avoid the possibility of lending either to high carbon or other general infrastructure. Clause (1)(1)c) challenges the environmental credibility of the Bank, in that it defines the green purpose of ‘advancement of efficiency in the use of natural resources.’ The Bank is only legally required to fulfil one or more of the purposes in clause 1 to satisfy the green test. Therefore, in its current form the legislative mandate of the Bank could support of highest efficiency gas power generation without CCS component technology. Support of other general infrastructure projects or sectors not normally regarded as ‘green’ would also be lawful provided the investment activity met new or best practice standards for resource efficiency. The TUC would therefore wish to see amendments to the Bill so that the purpose clauses to ensure that the Bank’s activities genuinely address our climate change and low carbon energy challenges.

Borrowing powers

A key test for the legislation and company constitution will be whether it provides visibility and certainty to investors that the GIB will be able to borrow from the capital markets in the near future, and enjoy a State guarantee. The legislation does contain an enabling power for State guarantee and this is welcomed. However it contains no indication that the Bank will be ever be allowed to borrow in practice. Each year, Germany’s KfW state bank, the "equivalent" of our proposed Green Investment Bank (GIB), invests 25 times as much in green investments as the Treasury will allow the GIB. Today’s draft GIB legislation reveals a gulf in ambition between ourselves and our competitors. The TUC therefore would wish to see amendments allowing the Bank to borrow from the capital markets at the earliest opportunity.

Public accountability and transparency

In the wake of the banking crisis, the GIB should be required to uphold the highest standards of public accountability and transparency. The legislation does not provide for a formal or public facing review of the progress of the Bank, and no requirements for stakeholder or public consultation.

June 2012

Prepared 22nd June 2012