European Union

Portugal's government has adopted its draft budget for 2016 - without waiting for the European Commission's findings. The commissioners deem many of the new socialist minority government's prognoses too optimistic. Will this be the start of another row over the austerity policy?

Valdis Dombrovskis, Vice-President of the EU Commission, has endorsed the proposal put forward by the German Finance Minister Schäuble to finance the reception and integration of refugees with a Europe-wide fuel tax. The Latvian press thinks little of its countryman's behaviour.

Copenhagen has introduced tougher asylum laws. In future the police will be able to confiscate asylum seekers' cash and valuables, there are new restrictions on family reunion and the validity periods for residency permits have been shortened. The move has drawn fierce criticism from abroad - which several Danish commentators reject.

In the three years since its foundation, the Green Investment Bank (GIB) has made waves in the green investment scene in the United Kingdom (UK). But rather than resting on its laurels the UK government needs to realise the work of GIB has not gone far enough, that the level of green investment in the UK is still woefully low, and that the state still needs to play a role in green finance.  

In August 2014 I wrote a piece for this blog on the GIB. Established and owned by the UK government, GIB was then the fresh-faced poster child of environmental finance in Britain. The Bank was a bold experiment, set-up to demonstrate the financial viability of green investment.

Already GIB has become an established, successful feature of the green finance scene in the UK. Because of the Bank’s success, a month after the May 2015 election, the new Conservative government announced its decision to sell a majority stake of GIB. For the Conservatives this sale is a natural continuation of the Bank’s commercial model; as the GIB has been shown to work as a model for green investment it now has to go a stage further and prove that it can operate “free from the shackles of state ownership”, to quote Savid Javid, the Minister who announced the sale.

The decision to privatise part of GIB has caused a furore in political and environmental circles (though fears about the future of GIB seem overstated, it is likely to continue to play a solely environmental role). However, with government funding commitments to GIB due to expire in March, the sale seems imminent and unavoidable. Rather than fighting over the ownership of one bank, it is better to focus on the attitudinal influence that the Bank has had. Has GIB really had the ‘demonstration effect’ impact that it was intended to? Have other investors looked to the example set by GIB in the last few years and moved into the field of green investment? Will the UK reach its £200bn green investment target by 2020 (the low end of the £220 – 330 billion needed for a green transition over this decade)? The answers to these questions are important to understanding what should follow the inevitable sale of GIB.

Undoubtedly, GIB has done great work in the brief period since its launch. Through committing £2.1bn in its capital it has contributed to 62 UK green economy projects worth £10.1bn. At a near 1:5 ratio of leveraging private capital and with a 10% projected return on investments, GIB has shown it’s ability to act effectively and demonstrated the potential for green investment.

When I wrote on GIB previously, the Bank was the most active investor in the UK green economy. Upon the publication of their latest financial report this was a position that they still held. Yet GIB alone is not doing enough to reach the investment levels thought necessary to build the green economy. Even under private ownership, GIB’s long-term strategy is to have an investment run-rate of £800m to £1bn a year. Therefore, there will be no astronomical boom in GIB investment levels after privatisation.

GIB recognises that ‘Investment levels in the UK’s green economy remain well below what’s required’. With waves of government green subsidy cuts it seems that little is being done to help promote any increase in those investment levels. Tellingly, the Director General of the Confederation of British Industry spoke out against the government’s record in September of last year saying, “Today’s investors are more uncertain about the UK’s low-carbon future. From the roll-back of renewables to the mixed messages on energy efficiency these changes send a worrying signal about the UK as a place for low-carbon investment”.

That there isn’t another institution rising to threaten the supremacy of GIB shows that to-date the rewards of the bank’s demonstrative mission have yet to be reaped. Other UK investors in the same field don’t have anywhere near the level of capital needed to get the UK closer to the £200bn target. Organisations like the Foresight Group and Oxford Capital Partners, to give just two examples, manage investment portfolios that run into the low hundreds of millions. These are hardly competitors for GIB with its annual running-rate of near £1bn.

The tone of Ministers’ public statements on GIB has been of a ‘good-job, well-done’ nature. There is no recognition that while GIB has in itself been a success it is has barely raised 5% of the 2020 green investment target. Currently, even the conservative £200bn green finance target appears near astronomical. Much more needs to be being done to promote green investment in the UK. Current debates over the sale of one bank seem to be little more than a distraction.

A solution to the current lacklustre situation may well be right before us, albeit one that is unlikely to appeal to more ideological Conservatives. Javid stated in his GIB sale speech that the Bank was a model for “a government successfully involving itself in the markets”. Perhaps the government should follow on from this success, after the sale of GIB, with the creation of second bank for green investment – GIB 2.0. This could introduce a healthy dose of competition for GIB, further demonstrate the sustainability of green investments, and bring the UK that bit closer to its £200bn goal by 2020. Meanwhile the original GIB, privately managed and owned, would continue to demonstrate the viability of green investment.

There is much that can be learnt from the UK government’s first venture into green investment banking. There are notable market gaps at present (though it would unfair to put the blame for these solely on the shoulders of GIB) that a GIB 2.0 could help correct. The unfortunate demise of the Green Deal leading to a serious lack of national energy efficiency efforts is one such case. There are also plenty of other examples of state-supported green finance that lessons can be learnt from. Germany’s state-owned KfW bank, which partly funds sustainability projects through the sale of green bonds, could offer one model under which GIB 2.0 could operate (capital sourcing is an issue which has hindered the GIB since its inception).

Unfortunately, this is an idea that is unlikely to see the light of serious consideration. Fears of the “shackles of state ownership” and of raising the deficit could easily trump green investment shortcomings. Whatever comes next though, the UK government needs to recognise that after the sale of GIB it can’t wash its hands of green investment. Like it or not, the state still has an important role to play in the abatement of climate change and the financing that is needed to achieve this goal.

The post Green Investment Bank 2.0? appeared first on Ideas on Europe.

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The Informal Meeting of EU Ministers of Defence takes place on 5 February 2016, in Amsterdam.

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Delegations

Source : © European Union, 2016 - EP

Plenary sessions : The debate on the upcoming UK referendum on EU membership dominated Parliament´s first February plenary alongside migration, the future of Schengen, the liberalisation of services and car emissions. In addition Estonian President Toomas Hendrik Ilves and Nigerian President Muhammadu Buhari addressed MEPs. Read on for more details of what happened during this week's plenary session.

Source : © European Union, 2016 - EP

Plenary sessions : The debate on the upcoming UK referendum on EU membership dominated Parliament´s first February plenary alongside migration, the future of Schengen, the liberalisation of services and car emissions. In addition Estonian President Toomas Hendrik Ilves and Nigerian President Muhammadu Buhari addressed MEPs. Read on for more details of what happened during this week's plenary session.

Source : © European Union, 2016 - EP

This is Friday’s edition of our new Brussels Briefing. To receive it every morning in your email in-box, sign up here.

Mr Renzi, left, during his visit last week with Germany's Angela Merkel in Berlin

Sometimes it seems not a day goes by without Matteo Renzi, the Italian prime minister, picking a fight with Brussels. For a while, it was his angry denunciation of its slow response to the refugee crisis. Then he accused the EU of a “double standard” on Russian gas pipelines. More recently, he held up a €3bn EU aid package to Turkey. And he’s been blaming new EU rules for his country’s mounting banking crisis. But the most critical fight he’s been waging was on full display yesterday: his attempt to get more wiggle room for Italy’s 2016 budget.

Pierre Moscovici, the European Commission’s economic chief, was the man in the firing line this time, since yesterday was his semi-regular appearance to unveil the EU’s latest economic forecasts. In the run-up to Mr Moscovici’s announcement, Pier Carlo Padoan, the Italian finance minister, laid down his marker: he wanted a decision quickly that would allow Rome more flexibility to spend a bit more than EU rules normally allow. But Mr Moscovici was having none of it. Mr Padoan would have to wait until May for a decision, along with every other eurozone minister.

In what appeared a fit of mild Gallic pique, Mr Moscovici also noted that “Italy is the only country in the EU” that had already been given special dispensation under new budget flexibility guidelines – it is able to miss its structural deficit target by 0.4 per cent in order to implement Brussels-approved economic reforms – and it was now coming back repeatedly for more.

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General : Trade agreements can affect anything from employment to migration, so no wonder that people are interested in them. On 3 February our Facebook fans had the chance to ask Bernd Lange, the chair of the international trade committee, all about them during a chat. The German member of the S&D group, who is also in charge of drafting Parliament's position on the Transatlantic Trade and Investment Partnership (TTIP), managed to answer more than 60 questions on trade agreements such as TTIP.

Source : © European Union, 2016 - EP

General : Trade agreements can affect anything from employment to migration, so no wonder that people are interested in them. On 3 February our Facebook fans had the chance to ask Bernd Lange, the chair of the international trade committee, all about them during a chat. The German member of the S&D group, who is also in charge of drafting Parliament's position on the Transatlantic Trade and Investment Partnership (TTIP), managed to answer more than 60 questions on trade agreements such as TTIP.

Source : © European Union, 2016 - EP

Plenary sessions : MEPs urge the European Commission to take concrete steps to address the permanent handicaps that EU islands face and make full use of their potential, in a resolution voted on Thursday. The text also stresses the unique difficulties that southern insular regions face due to the increased migration flows and asks that special tax regimes should continue.

Source : © European Union, 2016 - EP