A Green Investment Bank will begin operating in the United Kingdom in April 2012, according to Deputy Prime Minister Nick Clegg. If so, it will be the first such institution in the world.
Many countries have state-supported development banks, but this will be the first with a mission to exclusively fund green projects. It will begin with offshore wind farms and energy efficiency programs, Clegg says.
According to Clegg, the government will set aside 3 billion pounds in initial capital to fund the bank. That’s expected to leverage an additional 15 billion pounds in private investment for green infrastructure.
However, the British parliament must still pass a law that details how the bank will operate, and investors are waiting on these crucial details.
Bloomberg New Energy Finance notes there is likely to be a much greater appetite for project financing than the bank can meet.
While Clegg notes wind farms and energy efficiency as the two areas of initial focus, the bank’s scope will be quite broad, ranging from transportation to defense against floods; it’s not yet clear whether the bank will become involved in initiatives to incentivize adoption of residential programs for energy efficiency and renewable power.
"This will give businesses the reassurance they are looking for to invest in British renewable energy jobs and industries," Friends of the Earth’s senior economy campaigner Simon Bullock told BBC News. "But there is still room for dinosaur forces in the Treasury to hamper the bank’s effectiveness – the government needs to say legislation will happen next year at the latest, and make clear the bank can borrow from the capital markets from the outset."
Currently, proposals for the bank state that it will not start borrowing from the capital markets until April 2015, and only then, provided "the government target for debt is falling as a percentage of GDP has been met".
The announcement follows criticism in recent weeks that the UK’s Conservative-Liberal Democrat coalition government is not living up to promises to be the ‘greenest government ever’.
Jonathon Porritt, former head of UK’s Sustainable Development Commission, published a report stating the government dropped the ball on aviation tax and schemes to boost small-scale renewables.
A separate government report warned the UK could lose out on hudreds of billions of pounds in private investment and fall short of its emissions targets if plans for the green bank did not move forward.
The Green bank is one of a few policy ideas that are central to low-carbon energy reform in the UK. The coalition government is also reviewing ideas for electricity market reform, creating a floor price for carbon trading and replacing the country’s Renewable Obligation Certificate program with a feed-in tariff for large-scale renewable energy projects.
Proposals for a Green Bank have been floated in the US in recent years. Representative Chris Van Hollen (D-MD) introduced the Green Bank Act of 2009, which would have set up a bank as an independent, tax-exempt, wholly owned corporation of the United States. But the proposal failed to gain momentum before midterm elections gave control of the House to Republicans.
Connecticut Too
The state of Connecticut’s General Assembly passed legislation this month that would create the first US-based green bank to finance clean energy and efficiency projects.
Although Connecticut’s would start with $50 million, a much smaller capital base than the UK bank, it would start borrowing immediately, rather than waiting until 2015 as in the UK.
The initial capital would be garnered through a surcharge on electric bills (UK’s would come from asset sales), and the bank would mostly finance residential installations.
If it’s successful, Connecticut’s green bank could be a model for a similar one at the federal level or in other US states.
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