I've banged on before about the issue of the Green Investment Bank (GIB). This the institution that is supposed to help bring forward funding for our low carbon future committed to by the coalition in its founding agreement. Previously I've chipped in my tuppence worth on the issue of the scale of the bank - should it be able to raise funding on capital markets, thus leveraging in many times more in the way of investment funds than its initial capitalisation.
I see last week that this debate is still unresolved. On Monday 31 Jan the Financial Times reported that Energy Secretary Chris Huhne was at loggerheads with HM Treasury's supposed position on the GIB. Huhne sees fund-raising via issuing bonds as a key requirement for the GIB to be able to invest anywhere near enough to bridge what he sees as a several hundred billion pound gap to 2025 for funding clean energy infrastructure.
Treasury on the other hand is baulking at the prospect of GIB bonds adding to the Government's stock of public sector net debt and would rather see the GIB as a much more limited fund, restricted to investing only what it is funded for by government (currently £1 billion) – and any other private co-investment it can secure.
Cabinet Office Minister Oliver Letwin joined the debate on Tuesday 1 Feb by suggesting one way around could be to set the GIB up ‘off balance sheet'. It's a little unclear what Letwin thinks this would look like with the media suggesting off balance sheet meant a private sector bank. We think it's more likely that off balance sheet means the bank would be separated out as a public corporation in the national accounts, perhaps similar to RBS and Lloyds holdings by the government currently.
Either way the idea is to limit the negative impact bonds issued by the GIB would have on public sector net debt – either by placing these liabilities in the private sector or allowing a transparent means for markets to ‘look through' the GIB impact. Critics claim both methods might imply the government wouldn't stand behind GIB liabilities – thus restricting its ability to offer subsidised products to the green investment market.
My view remains as it was late last year: the GIB should be able to raise funds. Without fund-raising powers, it won't really be able to achieve anything. In fact it would hardly deserve the name Green Investment Bank and would be better renamed the Green Investment Fund - or perhaps amalgated with existing funding as a Carbon Trust Deluxe.
Perhaps more important to the role manufacturers can play in Britain's green revolution is the purpose of the institution. The purpose though always fuzzily referred to, has actually yet to be properly spelt out.
The Green Investment Bank Commission, appointed by Labour to investigate the proposal for a GIB recommended in June 2010 a GIB be established ‘to support the delivery of the UK's emission reduction targets as set by the Climate Change Act 2008. The support should be based on a public-private investment model and address specific market failures and investment barriers in a way that will achieve emission reductions at least cost to taxpayers and energy consumers'.
I think, to truly harness the innovative potential of the UK's dynamic manufacturing sector, the GIB needs to expand its imagination beyond large scale clean energy infrastructure projects, as I understand is the government's current intention, and instead support all green investments. This would include many low carbon product and process innovations from our members.
In fact in our view, a GIB could be more sensibly focused primarily on smaller scale green technology investments, including in the infrastructure supply chain. Large scale clean energy infrastructure investments will be influenced mainly by changes in carbon and energy policies – and we see even a full-scale bond-raising GIB as providing very marginal additional influence on investment in clean energy infrastructure, in the context of policies the government is proposing elsewhere on climate and energy.
This is an even stronger point If the GIB does end up being restricted to just the government's capitalisation. It makes no sense for the GIB to focus on clean energy infrastructure as these investments are by their nature in the several billions of pounds.