March 23 (Bloomberg) -- The U.K. tripled funding for a new Green Investment Bank and allowed it to raise money, Chancellor of the Exchequer George Osborne said, meeting a demand made by lawmakers who said the measure was needed to spur carbon cuts.
The bank will be able to begin operations in 2012, a year earlier than planned, Osborne said today in his second budget since his Conservative Party came to power last year in a coalition with the Liberal Democrats. From 2015, it will be allowed to borrow money, he said. Osborne in October earmarked 1 billion pounds ($1.6 billion) to capitalize the institution.
“Today I commit 2 billion pounds more, funded by asset sales underwritten by the Treasury,” Osborne told lawmakers in parliament. This “will leverage an additional 15 billion pounds of private sector investment in green projects” by the next election, which is scheduled in 2015 at the latest, he said.
The government, led by Prime Minister David Cameron, is trying to deliver on a pledge to be the “greenest” ever while cutting spending to curb a record budget deficit. The chancellor also set a “floor price” for carbon-dioxide emissions and scrapped a tax on power consumers that’s meant to fund carbon capture and storage projects.
The bank is designed to spur investment in carbon emissions-cutting technologies such as wind power. Its capital is still less than the 4 billion to 6 billion pounds that the accounting firm Ernst & Young LLP said the institution should get. At least 200 billion pounds of investment is needed to shift consumers from fossil fuels to cleaner forms of energy over the next two decades, according to the multi-party Environmental Audit Committee panel of lawmakers.
‘Ramp Up’ Investment
That committee on March 11 said the Green Investment Bank could stimulate 1 trillion pounds of investments for clean energy projects as long as it was a “fully fledged bank” providing bonds, loans and insurance products and able to take equity stakes in renewable energy projects.
Companies including London-based fund manager Climate Change Capital and the accounting firm PwC praised Osborne’s decisions on the Green Bank, while opposition Labour Party leader Ed Miliband and the environmental group Greenpeace said it should be allowed to borrow immediately.
“It is a tremendously good thing that the bank will have the power to borrow mid-decade,” said Ben Caldecott, head of European policy at Climate Change Capital. “That is when the U.K.’s capital requirements for a low-carbon transition start to reach a critical point when we need to ramp up investment.”
In documents posted on line, the Treasury said the bank won’t be allowed to borrow money until the U.K.’s debt is falling as a percentage of economic output.
“The bank unveiled by George Osborne is a lame duck,” said Doug Parr, policy director at Greenpeace. “The refusal to allow it to borrow money anytime soon represents a huge missed opportunity with the price being paid in lost green growth and clean-tech jobs.”
Osborne’s decision to allow the bank to borrow resolves a debate between the Treasury and Energy and Climate Change Secretary Chris Huhne’s department over what powers to give the institution, with one option leaving it only able to distribute state money.
“It would take longer to set up a bank that can borrow immediately and you’d achieve less in the short run,” John Gibbs, a corporate finance partner at PwC, said today in an interview in London. “If the bank can get up and running in the next two years and use creatively and effectively the 3 billion pounds to then leverage 15 billion in private money, they will achieve an enormous amount.”
Carbon Floor Price
The government estimates the global market for low-carbon goods and services is 3.2 trillion pounds, a figure that’s set to rise to 4 trillion pounds in 2015. The U.K. environmental industry is worth 112 billion pounds and employs 1 million people, according to the Environmental Industries Commission, a trade group whose more than 230 members include Babcock International Group, Johnson Matthey Plc and Severn Trent Plc.
In a separate environmental measure, Osborne said that the minimum price to power producers for emitting carbon dioxide will be set at about 16 pounds a metric ton from April 2013, rising to 30 pounds in 2020. “Relief” will be granted to plants that use carbon capture and storage and combined heat and power technology, he said without giving further details.
Osborne said the government still intends to fund four demonstration projects for carbon capture and storage while scrapping a tax on power consumers designed to fund them. The technology, which siphons smokestack emissions for underground storage, will now be now be funded through general taxation.
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