Green Investment Bank is a funding scheme initiated in 2010 by the British government and assigned the task of attracting private funds for the financing of the British private sector's investments related to environmental preservation and improvement.
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Under its environmental obligations, the United Kingdom is legally committed to significantly reducing its carbon emissions by 2050. More importantly, by 2020, a significantly higher percentage of energy generated in Britain must originate from renewable sources.[1]
A non-partisan, House of Commons committee on climate change was established to study and recommend ways of meeting the country's obligations. The committee reported that for a new, low-carbon business and government infrastructure to be established, the necessary investment would range between £200 billion and £1 trillion over the next two decades.[2]
The committee further stated that since traditional sources of capital for investment in green infrastructure could not provide even half that amount by 2025, there would be a funding gap that needed to be covered by the state budget.[2]
The Fiscal year 2010 British government budget contains the first mention of a "green investment bank" scheme, earmarked with £2 billion. Chancellor Alistair Darling stated that the Labour government was committed to "to support offshore wind energy" and other forms of alternative energy, which he also billed as "crucial to guiding the country out of recession".[3]
After the 2010 general election, the newly formed Conservative-Liberal Democrat coalition government defined its primary economic objective to be the drastical reduction of Britain's debt and yearly deficits.[4] Accordingly, the government sought to create a financing scheme for the environmental investment needs of the country that would be funded mainly by the private sector, including the banks.
In June 2010, the "Green Investment Bank" Commission, after holding hearings, recommended that the government creates an eponymous banking entity within the year.[2] Chancellor George Osborne remained sceptical after objections to the creation of such a bank were raised by the Treasury, since a Green Investment Bank would "swell the state deficit" as it would appear as a liability on the government's balance sheet.[5]
The UK government's Spending Review of October 2010 that announced a raft of austerity measures to deal with the UK government deficit, also included an announcement about the creation of a Green Investment Bank. The government now expects to obtain by early 2013 the European Commission's approval for state aid to the Bank, with investment in green projects estimated to begin by April 2012[6].
The plans for the environmental funding scheme have been endorsed by Greenpeace, whose executive director urged the prime minister to "get personally involved", as well as by a number of similar organisations,[7] such as Transform UK, whose director stated that "the only cost the Treasury should consider is the cost of failure to unleash this institution's massive potential to re-power our economy."[5] Environmentalists have engaged in public demonstrations demanding a quicker implementation of the plans.[8]
However, non-government organisations and environmentalists have criticised the scheme because it lacks ambition. The World Development Movement has disputed that such a small scheme would attract the kind of investment needed to "generate green jobs, green industry and a green economy in the UK".[9] An economic study commissioned by WDM and Platform recommended that, instead of creating a new "banking scheme", the government should "transform the [already] publicly-owned Royal Bank of Scotland into a powerful green investment bank", in the process also "creating 50,000 green jobs".[10]
In May 2011, a former adviser to the government, Jonathon Porritt, who had been head of the Sustainable Development Commission, publicly criticised the Coalition's scrapping of a planned rise in aviation tax, its watering down of schemes that promote small-scale renewable electricity and its failure to promote a "green investment bank" with immediate borrowing powers. Mr Porritt claimed he examined 75 policies on which the government had committed itself, finding little or no progress in 55. The government responded that it remains "committed to the environment", but claimed that the economic recession had affected environmental policies.[11].
On 23 May 2011, Deputy Prime Minister Nick Clegg stated that the Green Investment Bank "will begin operating in April 2012", adding that the bank's early targets would be "offshore wind, waste and non-domestic energy efficiency".[12] Clegg added that legislation would "ensure the independence of the institution."
On 24 May 2011, Business Secretary Vince Cable, in addressing the parliament, stated that the bank will become "a key component" of the transition to a "low-carbon economy", which will need "significant investment over the coming decades.” Cable also stated that the GIB will have an initial capitalisation of £3 billion, which "the Government believes will leverage a further £15 billion of private investment".[13]
The same day, the Department for Business, Innovation and Skills, in a press release[14] containing answers to "frequently asked questions" about the bank, outlined the planned finances of the GIB and its activation in "three phases":
Dr Cable unveiled on the same day his department's statement of vision for the bank[16]. The document was cautiously[17] positive about the prospects of private investment in the environment, in Britain.
There has been a lot of media interest in where the Bank will be house its headquarters, which will initially have between 50 and 70 staff members, with more than 20 locations across the UK showing an interest. A final decision on the location of the bank's HQ should be made by the end of March 2012.[18]
The Department for Business appeared to indicate on 12 December 2011 that the 'Incubation' phase had progressed, with the announcement of a new team within the department: UK Green Investments (UKGI). The team is to "drive investment in the UK’s green infrastructure until the Green Investment Bank is formally established"[19]. As at 4 January 2012, the "Team" subpage of the UKGI homepage details six team members: five men and one woman. [20]
On 25 May 2011, the Business Secretary informed the House of Commons that the BIS would appoint Sir Adrian Montague, CBE, chairman of private equity firm 3i, to lead a team of "independent financial experts" in setting up the Green Investment Bank before it starts work next year[21]. Secretary Cable said that the bank will be initially staffed by up to 100 people tasked with "financing the Coalition's plans for a low-carbon economy".