The Green Investment Bank: Boom or Bust
In the 2010 Spending Review, Chancellor George Osborne announced a £1 billion injection of funding for the publicly owned Green Investment Bank (GIB).
10th August 2012 | Kate Roche: Rolton Group
From day one, however, the GIB has been subject to intense scrutiny: debates regarding whether it should materialise as an investment bank with the capacity to lend and borrow money, or as a finite pool of resources, dominate discussion of the venture.
If designated as a functioning bank, able to borrow against its own capital in order to dramatically 'plump up' accessible funds, the GIB will have a far greater ability to invest in clean energy projects. Once receiving a return from these, it will become a self-sustaining business much like Germany’s KfW, propelling itself ad infinitum with an increasing budget to get viable initiatives off the ground. The other option, a large but capped financial aid, will of course dwindle and eventually run out.
Superficially, then, the choice seems an obvious one; an investment bank will generate far greater investment than a set fund could hope to match. The crux of the argument, however, is found in the state of the country’s financial sector: it is in very dire straits. Any money which the bank borrows will potentially exist as national debt if classified as ‘public sector,’ in turn increasing the deficit and thus, unsurprisingly, not attracting Governmental support.
To combat this problem, the GIB will not be able to borrow money against its own capital until 2015 at the earliest, even though it is expected to receive the necessary state-aid approval from the EU commission in autumn 2012. This date, three years into the future, is when the country’s debt is predicted to have moved into a state of decline as a percentage of GDP, though this estimate is changeable at best. In fact, recent forecasts are placing the date nearer to 2016/17, and there are growing concerns that, unless the deficit is controlled, the GIB may be waiting indefinitely for permission to borrow.
If the situation wasn’t so urgent, perhaps playing the waiting game would be acceptable. However, with Charles Hendry, minister of the Department for Climate Change, stating that the UK needs to invest £100 billion in the low-carbon sector to meet our future electricity needs, any time spent waiting starts to look like time wasted. In addition to this, the country’s carbon, greenhouse gas, and renewable energy targets all demand huge investment in the sector if they are to be met. This level of financial support can only be a realistic demand if the GIB is borrowing and lending to accrue sufficient funds.
Nick Clegg has stated that ‘the UK will be the first country to have a national bank dedicated to the green economy,’ but this hangs in the balance of whether an agreement can be made about the functionality of the Green Investment Bank.
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