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Unlocking investment to deliver low carbon future

Unlocking investment to deliver Britain's ' low carbon future '
A report published by the Green Investment Bank (GIB) Commission, a fully independent group convened by the Chancellor of the Exchequer to advise Government, highlights the urgent need for a new public financial institution to unlock the investment needed for Britain to deliver a timely transition to a low carbon economy (one planet economy) as per Securing the Future 2005 - JMS) .

June 2010

Government commission urges rapid setting up of Green Investment Bank

Scores of government-backed organisations face being swallowed by a new UK Green Investment Bank, under radical proposals announced today.

Billions of pounds that are being spent by disparate quangoes and officials funds should instead be ploughed into an eco-bank, a group of leading financial and environmental experts recommended. The Green Investment Bank Commission argued that cutting the number of state-funded green bodies would "radically improve" the task of cutting the nation's carbon output – an area where Britain continues to lag behind official targets.

The Commission was led by former Merrill Lynch chairman Bob Wigley. It warned that the scale of the looming crisis means that the government needs to rapidly set up a bank to fund Britain's low-carbon future, ideally within the next six months.

"The scale of the investment required to meet UK climate change and renewable energy targets is unprecedented, and of a size not seen since the post World War Two reconstruction", warned the commission, which was set up by George Osborne last year when in opposition.

The government has estimated that building the new low-carbon infrastructure that the UK needs will cost £550bn between now and 2020. The total bill over the next twenty years could hit £1tn.

Wigley's team have named three quangoes with an annual budget of £185m to be folded into a Green Investment Bank (GIB) - the Carbon Trust, the Energy Technologies Institute, and the low carbon wing of the Technology Strategy Board. They also have their eye on six government funds with a total budget of £2bn. In their 50-page report, which was welcomed by the government, they say that these nine groups have been "initially identified", indicating that the Bank could go hunting through the "Quango Jungle" for more organisations to "rationalise" as its first tranche of funding runs out.

Wigley strenuously denied that he was keen to abolish the Carbon Trust, which helps businesses cut their CO2 output.

"The opposite is the case. Some of the best ideas in this report come from the Carbon Trust, and I hope they could be at the heart of a green investment bank," Wigley said.

The Carbon Trust's chief executive, Tom Delay, said he was "pleased to see the Wigley report has incorporated our ideas to increase private sector investment." And he pledged to work closely with the government as it formulates its plans.

Today's report also appeared to put pressure on Osborne as he works towards this autumn's Comprehensive Spending Review (CSR), by warning that the task of setting up a GIB needs to begin immediately.

The government said the report was "a very important piece of work."

"We are totally committed to working towards a low carbon economy in a way that underpins the global competitiveness of the UK," said Gregory Barker, minister of state for climate change. "We see a Green Investment Bank as a very important part of a transition that puts the UK at the forefront of green technology," he added.

Alistair Darling proposed setting up a Green Investment Bank in his 2010 budget. Under his plan, it would have been capitalised with £2bn, a small fraction of what Wigley's team believe is needed. The present government has also pledged to create a GIB, but Barker emphasised that these plans will not be announced until after the CSR on October 20. This may grate with the Commission's recommendation that the Bank's chairman should ideally be appointed in August, with the rest of the board in place before November.

Wigley ruled himself out of running the bank as chief executive, but indicated that he might be open to a "part-time board role such as chairman".

Analysts have warned that the uncertainty over the government's plans for a Green Bank may actually be hindering the flow of funding, with potential investors staying on the sidelines until the situation becomes clearer.

Financial firepower
Wigley is convinced that the private banking alone cannot provide the financial firepower needed to meet the UK's carbon reduction targets. Under the commission's blueprint, a GIB would be made up of two parts – a banking division to encourage and nurture private investment, and a funding arm which would allocate grants, loans and subsidies to low carbon schemes. Together, they would help generate and spend the £50bn a year needed to fund clean energy projects, from building new wind farms to making the nation's homes and offices energy efficient.

Only some of the funding would come from existing quangos. The rest could come from the sale of bonds to leading investors such as pension funds to finance long-term projects, while individuals could be offered 'Green Isas'. A levy could also be placed on energy bills, and money from the sale of assets such as the Channel Tunnel rail link could also be handed to the GIB.

While the government would not underwrite projects, the Bank might tempt developers to invest in ecological projects by guaranteeing them a fixed income, removing the fear that a change of official policy could suddenly render a scheme uneconomical.

Wigley is confident there would be demand for long-term bonds to fund capital-intensive projects such as a wind farm.

"Once it is built, the additional running costs and risk are limited. The wind is unlikely to stop blowing," Wigley pointed out.

However, as the Guardian reported this week, the proportion of power delivered from renewable sources in the UK fell last year – partly due to low wind speeds.

Wigley also suggested that the building of new nuclear power stations could fall within the remit of the bank, as could installing a network of power points across the country for electric vehicles.

The commission's report received broad backing from the City and environmental groups.

Hugh Savill, acting Director of Investment Affairs at the Association of British Insurers, said a Green Investment Bank could help direct long-term funding into eco projects.

"As investors, insurers have an appetite for long term instruments to match their liabilities. Provided the details are right, targeting bond issues at insurers' long term investment horizons will encourage more partnership between insurers and government," said Savill."

The British Private Equity and Venture Capital Association also gave its support.

"This marks the next step in implementing a well-designed Green Investment Bank that will facilitate and accelerate private sector investment and build public support for reaching Britain's low carbon, renewable energy and energy security targets," said Simon Walker, chief executive of the BVCA.

Friends Of The Earth urged Osborne not to "dither".

"The coalition must make setting up the Green Investment Bank a major priority," said Simon Bullock, Friends of the Earth's Senior Economy Campaigner.

TUC general secretary Brendan Barber called on the government to take a radical approach to the issue. "A simple re-branding of existing funds or setting investment goals too low will restrict the ability of the Bank to achieve lower carbon emissions, higher economic growth and more 'green' jobs," he said.

You can download the full report here:

71 page PDP

Some good ideas, but still underpinned by the flawed concept of future growth. When will the political classes realise that Growth is over in the absence of cheap energy?