Green Finance - Environmental Audit Committee Contents


Conclusions

1.  Increasing investment in low-carbon energy, and reducing investment in fossil fuels, depends on an unambiguous assessment by investors that the international community will produce a credible and significant commitment to reduce emissions in a timescale commensurate with the urgency needed for avoiding dangerous climate change. (Paragraph 5)

2.  We recognise the Government and European Commission's arguments about the importance and flexibility and dealing with individual states' circumstances and energy policies. Although energy efficiency may be more cost-effective than switching to renewable sources of energy for some countries, it is vital that each country has an ambitious and binding target for renewable energy to create a level playing field within the EU. (Paragraph 8)

3.  There is a significant green investment gap. The current level of green investment is running at less than half of the level needed to deliver the decarbonisation implicit in national and international targets. A significant scale-up us needed. (Paragraph 12)

4.  As we have highlighted in previous inquiries, a significant barrier to investment in low-carbon energy has been uncertainty for potential investors about the future direction of Government policy. The Government's Electricity Market Reform, including the contracts for difference and capacity market regimes, though flawed, provide an opportunity for greater policy stability in future. (Paragraph 25)

5.  New carbon reporting arrangements for companies can help investors understand carbon impacts, and could help stimulate greater focus on these issues amongst customers and suppliers to help add pressure on companies to adopt more sustainable practices. (Paragraph 35)

6.  All investors are required to follow a fiduciary duty in their investment decisions, but that can be interpreted in different ways by different investors. It is important that investors factor the risks of exposure to carbon into their decision-making and consider the climate impacts of investments, as part of their wider social and environmental responsibilities. (Paragraph 40)

7.  The Green Investment Bank has made a solid start, making investments which will help to fill part of the gap in the required level of green investment. The Bank's aim, rightly, is to establish itself as an enduring institution. It needs to be able to raise significant further private sector capital for investment alongside the Bank's programmes, and to borrow itself to enlarge the scale of its work. However, with Autumn Statement 2013 indicating a flat, rather than falling, trajectory in 201-16 for Government debt as a percentage of GDP—the Government's test for allowing the Bank to borrow—there is doubt about the prospects of the Bank being able to borrow in that year as originally planned. (Paragraph 50)

8.  We are pleased that the Green Investment Bank has provided funding for Green Deal energy efficiency schemes. However, the number of schemes financed by the Green Deal is still some way off the required level, or that achieved in Germany. (Paragraph 54)

9.  The Government's Community Energy Strategy addresses a number of the issues of concern raised during our inquiry. The scale of some of the challenges is significant, and will require co-ordination between Government departments and local authorities for progress to be made. We await to see what 'teeth' the Community Energy Unit will have to make progress on these issues. In contrast, the European Commission's proposals on energy state aid rules appear to run counter to the strategy's objective of encouraging community energy groups. The pace of change has been slow, particularly around key initiatives such as 'license lite' and State Aid approval for the Green Investment Bank to be involved in Community Energy. (Paragraph 62)

10.  Whilst we recognise the difficulties inherent in redirecting Quantitative Easing and securing the international support needed to introduce a financial transaction tax, we consider there is merit in further investigating such devices to provide an additional source of finance for green investment. (Paragraph 69)

11.  As we have described in this report, there is an urgent need to address the green investment gap. The Green Investment Bank and some individual programmes and initiatives are making some inroads in filling that gap. But a more co-ordinated approach is needed to accelerate progress. (Paragraph 73)


 
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Prepared 6 March 2014