Green investment bank must operate commercially to generate a low-carbon economy

March 14, 2011 - PRLog -- If the Green Investment Bank is to succeed in directing billions of needed investment into green projects such as renewable energy, it must be allowed to operate commercially and attract private sector investors, MPs have warned in a scathing report on the government plans.

An influential cross-party committee of MPs said the government is putting the UK's fledgling low-carbon economy at risk by downgrading the "green investment bank" to a mere fund, while officials want to water down the proposals for the £2bn bank. They also called for the bank to issue "green ISAs" through which individual investors could put their savings into low-carbon projects.

Joan Walley, chair of the environmental audit committee, which published its report on Friday said "If the government is serious about being the 'greenest ever', the chancellor must ensure the green investment bank can do what it says on the tin and raise extra capital like a real bank."

The green investment bank was supposed to be structured as a normal investment bank, with the ability to raise money and loans, and to issue bonds and other investment products, including green ISAs, as promised by the chancellor, George Osborne.

However, the Treasure objected to the initial plans arguing the green investment bank could swell the deficit because it would appear as a liability on the government's balance sheet. Therefore, the plans are likely to be watered down and the bank will be restricted instead to dispensing a small pot of government funding, with £1bn coming from general funds and £1bn to £2bn more from the sales of public assets. Green ISAs have also been dropped.

The government appears divided on the issue, which it must resolve by the end of May when the details of the new bank will be published. The new report found that between £200bn and £1,000bn in green investment would be needed in the next two decades to generate a low-carbon economy in the UK. But Ernst & Young told the inquiry that traditional sources of private capital would only provide about £50bn to £80bn by 2025.

Conservative MP Zac Goldsmith said: "I think it's very clear that if we are to have any hope of meeting the government's stated aspirations, we will need a bank capable of issuing bonds, not a limited fund. If it is to be a bank, then the initial capitalisation doesn't concern me too much, as it will be able to raise finance in the normal way, and on a big scale. If it is a fund, then it will fall dramatically short regardless of the initial capitalisation."

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