Coalition 'committed' to green economy

---

Nicky Morgan MP welcomes the deputy prime minister's announcement of the establishment of a Green Investment Bank.

Today the deputy prime minister announced the creation of the world's first national bank dedicated to the green economy. The establishment of a Green Investment Bank, to lend to the green energy sector, has long been on the cards, and was one of the key policies included in the coalition agreement, as part of an ambitious commitment to be ‘the greenest government ever'. In March this year, the government demonstrated its commitment by announcing an extra £2bn initial capitalisation from asset sales.

While the revelation that the bank's borrowing powers will be delayed until 2015 may cause some disappointment, I believe that today's announcement proves once again the government's dedication to the creation of a stable financial institution, capable of making long-term investments in this country's green energy sector.

I welcome the steps the government has said it will take to ensure the operational independence of the bank, including the establishment of a new governance board. It is clear that if the bank is to become a financial institution capable of attracting private sector investment, investment decisions must lie with the bank itself and be based on financial viability, rather than government support for a particular technology.

Today's announcement signals the right trajectory for a financial institution unlike any other. The success of the UK's green economy will require the Green Investment Bank to be a long-standing financial entity, established and secure in the face of inevitable challenges to come.

I firmly believe that today's decision to limit initial investment to larger-scale and tested technologies will increase the chances of the bank's success. If the Green Investment Bank is to succeed, it would seem only sensible to place those early investments where the contribution to improving clean energy provision is clear and the risk on the investment return comparatively small. To adopt this approach is not to shy away from the challenge of creating a financial institution capable of taking on high-risk investment projects, but instead recognises the longer-term need to attract initial private sector investment. This will enable the bank to widen its remit and diversify investments into smaller and less developed technologies in a few years' time.

As chair of the Westminster Sustainable Business Forum's work on the Green Investment Bank, I've been listening to businesses that would potentially invest in such a bank. Loud and clear, the main message has been that at this early stage, businesses are looking for certainty, both in terms of investments and policy. The private sector wants to know that the Green Investment Bank will still be operational five years down the line. Investing more in established projects now will lay the foundations for the long haul, and pave the way for a more diverse range of investment projects in the future.

And to address concerns that the bank will end up competing with private investors, the government has declared that it is anxious to avoid crowding out the competition. Indeed, the environmental audit committee has highlighted that as cutting the deficit is a top priority, government money can only go a small way to meeting the sheer scale of investment needed in the energy sector. Estimates suggest there needs to be investment ranging between £200bn and £1trn over the next 10 to 20 years if the UK is to remain on track to meet renewable energy and emissions-reduction targets.

Finally, the issue of control. With the government's decision to delay borrowing until at least 2015/16, the bank's focus over the next four years should be to make the most out of the initial £3bn capitalisation. As the debate about early-stage borrowing appears to be closed, the discussion should now focus on the strategy for the next four years, and how the £3bn will be used to raise the £15bn private sector investment estimated by the government to be achievable.

To facilitate this, the government will need to direct investment carefully, as establishing control at the beginning is another pragmatic necessity. To engage the private sector in this process, I will be chairing discussions with business and parliamentarians with the Westminster Sustainable Business Forum later next month.

The UK has just signed up to an ambitious fourth carbon budget and there can be no delay in acting to meet this target. If investment in more established clean energy, such as wind and solar, provides greater certainty of achieving reductions in emissions and a secure supply of energy from low-carbon sources, then this represents one of the first steps in the huge investment needed to realise these targets.

After all, if we are able to secure the Green Investment Bank's success in financially difficult times, the door will still be left open for diversification and development of early-stage technologies further down the line.