The Green Investment Bank will start trading next year with a total start-up fund from the government of £3bn.
And the UK will become the first country in the world to introduce a floor price for carbon.
These were the two green headlines from this afternoon’s Budget. As predicted, Chancellor George Osborne revealed that the government would commit a further £2bn to the Green Investment Bank, on top of the £1bn he had already pledged in last year’s Spending Review.
He said this would enable the bank to begin trading a year earlier than the its original 2013 target, and added that he expected it to be able to leverage some £15m in investment in the following years.
He said the Carbon Price Floor would be set at £16 per tonne and introduced in 2013. This he said, would “provide the incentive for investment in our dilapidated energy sector” and help the UK’s most energy-intensive businesses.
Declaring that “Britain is open for business”, Mr Osborne also introduced measures to stimulate innovation. Telling the House of Commons that he wanted the UK to be the place that “international businesses go to, not leave”, he unveiled £100m for science and environmental innovation projects, and the creation of 21 new enterprise zones, including Liverpool, Leeds, Tyneside and Sheffield.
And on planning measures, he said a priority would now be given to those applications that offered sustainable benefits.
Response to the Green Investment Bank news was swift. Climate Change Capital’s vice-chairman James Cameron said: “The Budget is a pivotal moment in the evolution of the Green Investment Bank concept into a real and enduring institution. The coalition is creating something that can make a positive difference to the entrepreneurial enterprises we need to deliver sustainable growth and the green transformation of our economy.”
“In the current fiscal environment, committing £3bn is an achievement, and by allowing the GIB to borrow mid-decade, its lending can ramp up quickly when the country’s low carbon capital requirements reach a critical point. But, this mustn’t be a question of “fire and forget”. It is also important that as the bank develops, its capital base is regularly reinforced with pollution permit auction proceeds and newly announced UK carbon tax revenues.”
And he cautioned: “The bank can’t do everything straight away. In the near term, it must be focused on specific financing challenges. For example, attracting the deep pools of low cost capital held by institutional investors to finance mission critical green infrastructure, such as offshore wind and energy efficiency.”
On the carbon price floor, Climate Change Capital’s head of research and market analysis Rupert Edwards, said: “The government’s carbon price floor proposals demonstrate that the UK has the ambition to take a leadership role on climate policy at a time when the EU as a whole seems to be losing its nerve. Investors will, however, have serious doubts about the long-term credibility of the carbon price floor policy as it is currently conceived. This is because it is a tax-based mechanism subject to annual votes in Parliament.”
“A policy to reduce uncertainty must itself be certain. To ensure that certainty a contractual obligation could be created with no costs to government if the Treasury keeps to its carbon price floor commitments. If the carbon price support was actually guaranteed, it would increase certainty, reduce the incentive for investors to ‘wait and see’, and lower costs for investors and the economy.”