搜索
TheeconomicsoftheGreenInvestmentBank:costsandbenefits,rationaleandvalueformoneyReportpreparedforTheDepartmentforBusiness,Innovation&SkillsFinalreportOctober2011TheeconomicsoftheGreenInvestmentBank:costandbenefits,rationaleandvalueformoney2AcknowledgementsThisreportwascommissionedbytheDepartmentofBusiness,InnovationandSkills(BIS).VividEconomicswouldliketothankBISstafffortheirpracticalsupportinthereviewofoutputsthroughoutthisproject.WewouldliketothankMcKinseyandDeloittefortheirvaluableassistanceindeliveringthisprojectfromstarttofinish.Inaddition,wewouldliketothanktheDepartmentofEnergyandClimateChange(DECC),theDepartmentforEnvironment,FoodandRuralAffairs(Defra),theCommitteeonClimateChange(CCC),theCarbonTrustandSustainableDevelopmentCapitalLLP(SDCL),fortheirvaluablesupportandadviceatvariousstagesoftheresearch.Wearegratefultothemanyindividualsinthefinancialsectorandtheenergy,waste,water,transportandenvironmentalindustriesforsharingtheirinsightswithus.ThecontentsofthisreportreflecttheviewsoftheauthorsandnotthoseofBISoranyotherparty,andtheauthorstakeresponsibilityforanyerrorsoromissions.Anappropriatecitationforthisreportis:VividEconomicsinassociationwithMcKinsey&Co,TheeconomicsoftheGreenInvestmentBank:costsandbenefits,rationaleandvalueformoney,reportpreparedforTheDepartmentforBusiness,Innovation&Skills,October2011TheeconomicsoftheGreenInvestmentBank:costandbenefits,rationaleandvalueformoney3ExecutiveSummaryTheUKGovernmentiscommittedtoachievingthetransitiontoagreeneconomyanddeliveringlong-termsustainablegrowth.However,thistransitionrequiresunprecedentedinvestmentoverthecomingdecades,withanestimatedinvestmentofupto£200billionintheenergysystemaloneovertheperiodto2020(Ofgem,2009),andfurthersignificantinvestmentinotherkeygreensectorssuchastransport,waste,waterandflooddefences.TheGovernmentannouncedtheGreenInvestmentBank(GIB)intheGovernment’sCoalitionAgreementin2010andcommittedinthe2011BudgettofundtheGIBwith£3billionovertheperiodto2015.TheGIBwillbecomeakeycomponentofthetransitiontoagreeneconomy,complementingothergreenpoliciestohelpaccelerateadditionalinvestment.ThispaperhasbeendevelopedinthecontextofworktoestablishtheGIBledbytheDepartmentforBusinessandSkills(BIS).ItsummarisestheresultsoftheworkstreamontheEconomicRationalefortheGIBanddrawsonworkbyseparateworkstreamsonproductdesignandtheGIBorganisation.ThepaperseekstoaddressthefollowingquestionsforestablishingtheGIB:–Ofthesectorsselectedbygovernmentasbeingofpolicyimportance,whichhavemarketfailuresorareasofcapitalshortagefortheGIBtoaddress?Iftheydoexist,critically,howbigaretheyandaretheylikelytobepermanentortransitory?–DoestheGIBasenvisioned,withatargetedsetofinterventionsanda£3billioncapitalisation,offervalueformoneycomparedtoalternativepolicies?–WhatisthelikelyimpactoneconomicgrowthintheUK?Thepurposeoftheworkwastoanswerthesequestions,andsoinformtheestablishmentofaGIBbyprovidingarobustandobjectiveevidencebase,throughasetofanalysesreportedhere.IllustrativeprioritysectorassessmentandrationaleforinterventionFifteensectorswereidentifiedbytheGIBprojectteaminconjunctionwithothergovernmentdepartmentsfortheirimportancetothegreeneconomyandsuitabilityaspossiblecandidatesforfinancialintervention.Broadly,mostofthesectorsexaminedshareacommonattributethatcreatesachallengeforinvestment:novelty.Formany,itisnoveltyoftechnology.Theyvaryintheirstagesoftechnologydevelopment.Insomecasesthough,theyarenotnovel,namelyrollingstock,flooddefence,photovoltaicsandonshorewind,andinothercasestheyare,forexample,carboncaptureandstorage,wavepowerandelectricvehiclecharginginfrastructure.Someonthelistaresonewthattheyarenotyetreadytobedeployedcommercially,suchasmarineenergyandcarboncaptureandstorage.Forothersectors,thenoveltyisreflectedinthebusinessmodelorcommercialarrangements.OneexampleistheGreenDeal,whereloansaresecuredagainstareceivablescontracttiedtothemeterpoint,andsomecontractenergymanagementmodelswithinnon-domesticenergyefficiency,againusingfinancesecuredagainstreceivables.Atthesametime,theUKgovernmentisaimingtoachieveambitioustargetstodecarbonisetheeconomywhichmeansthatinvestmentingreensectorsneedstobeincreasedmorequicklythanislikelytohappenwithoutgovernmentintervention.Thisspeedofadoptionisbeinghamperedbyanumberofsector-relatedTheeconomicsoftheGreenInvestmentBank:costandbenefits,rationaleandvalueformoney4marketfailuresandconstraintsinthefinancialmarkets.Sector-relatedmarketfailuresincludeexternalities,informationasymmetries,marketpowerandcomplements.Onthefinancialmarketfailureside,issuesrelatetounfamiliaritywiththenewtypesoftechnologyandbusinessmodelrisksrelatedtocarbontechnologies,aswellascompanies’abilitytoexpandtheirbalancesheets.Whileplayerswouldbecomeaccustomedtotheserisksandscaleupinvestmentovertime,thiswouldhappenataratethatistooslowgiventhepaceofinvestmentnowdefinedbypolicy.TheGIBwillthereforeneedtocomplementandaddtotheexistingpolicyframeworkwithtailoredandtargetedfinancialinterventionsthathelptoaddressmarketfailures,overcomeriskaversion,hightransactioncosts,andtheresultinglackofcapital.The