The new UK government can chart an alternative way forward for green finance - academic
The new UK government should focus on investing public resources in green infrastructure rather than incentivising private green finance through derisking, a University of Manchester expert has argued.
In an article published by Policy@Manchester, Dr James Jackson explains that, despite being in office for only a matter of weeks, the Labour government “has already made several interventions in a bid to ‘catalyse’ private investment.”
These include revisions to the National Planning Policy Framework “to ease investments in onshore wind development,” the creation of GB Energy, “a publicly owned company capitalise to the tune of £8.3bn,” and the establishment of a £7 billion National Wealth Fund, “working alongside the Crown Estate to ‘de-risk’ investments in technology not yet scalable or mature.”
However, Dr Jackson warns that further investment in green finance remains in doubt “given fiscal rules to both balance revenue-expenditure, particularly following claims of a £20bn ‘blackhole’,” coupled with Chancellor of the Exchequer Rachel Reeves’ commitment to reduce national debt as a share of GDP within five years.
In these circumstances, he believes the government is faced with two options in relation to green finance.
First, Ministers could “incentivise private green finance through de-risking.” This would require attracting private capital at a ratio of 1:3 “by derisking emergent technology through initial public investment” – mirroring the approach of the Conservative government over the last decade.
Or second, “invest in public green finance through green bonds – investments in green infrastructure that create equity and yield returns.”
In his article, the University of Manchester academic contends that, by its initial actions, the government appears to be pursuing the first option.
But he adds: “It is important to treat the idea of catalysing private capital with initial public investment - as if it is a natural sequence of events – with a degree of scepticism.” This policy, he argues, “is not dissimilar from the previous government’s approach, whose Industrial Strategy in 2017, Green Industrial Revolution in 2021 and Net Strategy in 2022 were all couched in very much the same terms.”
He continues: “That there remains what is often called a ‘finance gap’ between the amount required to decarbonise the economy and the amount being invested – even when assuming the private sector will come forth with the required capital – is evidence that such strategies do not work.”
As such, Dr Jackson believes that, rather than simply ‘de-risking’ private capital, “the new government could instead invest in green infrastructure itself.”
He writes: “It should therefore prioritise another round of Green+ Gilt (green bonds) to be invested in mature, reliable technologies that have not only already proved their viability (such as off/onshore wind and solar) but also yield reliable returns for the Treasury. Bond issuances can be kept within the fiscal rules by ceasing fossil fuel subsidies, adjusting the Bank of England’s rules on indemnifying bond holdings at commercial banks and increasing ‘wind fall taxes’ on energy producers, supermarkets and banks.”
‘New governments bring new opportunities: a way forward for green finance?’ by Dr James Jackson is available to read on the Policy@Manchester website.
