Government must ‘tap global reservoir of free capital’ to invest in green infrastructure

The UK Government should boost economic growth by "tapping a global reservoir of free capital" to invest in sustainable infrastructure for energy, transport and cities, according to two new reports published today (12 August) by research institutions at the London School of Economics and Political Science.

Analysis from the Grantham Research Institute on Climate Change and the Environment and the ESRC Centre for Climate Change Economics and Policy highlight that record-low interest rates provide an ideal opportunity for the UK to borrow money for an enhanced green infrastructure programme that would improve financial growth without stimulating inflation. 

The researchers claim that such a programme would increase economic returns for private sector investors and help to bridge any investment shortfall following the decision to leave the European Union (EU).

The current global economic environment is suitable for public funds investment in green infrastructure, according to the first report on ‘Building 21st century sustainable infrastructure: time to invest’ from former head of economic forecasting at Her Majesty’s Treasury Dimitri Zenghelis. 

“Some in the Government worry that ‘unsustainable’ borrowing might deter investors, but the collapse in UK Government bond yields tells us that the markets are signalling for more, and not less, public investment, with little concern for the risk of debt default or inflation,” Zenghelis said.

‘Fit for the future’

In the second part of analysis on sustainable infrastructure, Zenghelis suggests that institutional design is required to “limit political short-termism” and take advantage of the opportunity to boost the UK’s productive capacity and secure a resilient low-carbon economy. Specifically, the researcher recommends that the Government assumes control of issuing infrastructure bonds through the National Infrastructure Commission, a body which would take into account the UK’s natural environment through a “natural capital investment plan”. 

Another recommendation suggests that private investors in renewable energy projects should receive risk guarantees as a reassurance that the Government’s reduced minority share in the Green Investment Bank (GIB) is sufficient to mitigate against sudden and adverse policy upheavals.  

Zenghelis indicates that “any Government investment in large infrastructure needs to be ‘fit for the future’ and allow the UK to stay competitive by shifting resources to fast-growing, low-carbon markets”. 

He added: “Infrastructure investments will last 20 years or more and so must be designed to avoid locking in to, stranding and possibly scrapping, carbon-intensive assets, networks and behaviours. 

“Tapping a global reservoir of free capital would help the Government to deliver these objectives and strengthen the sustainability of the public finances. Targeted infrastructure investment would boost the value and resilience of public assets. It would also offer private investors, in particular pension, insurance and sovereign.”

Green infrastructure

The Bank of England’s governor Mark Carney has claimed that close to $7trn will need to be spent on new green infrastructure across the globe in order to cut carbon emissions over the next 20 years.

Last month, a report from the United Nations (UN) revealed that green bonds have the potential to drive the global low-carbon transition, but standardised criteria will be critical for the future credibility of the market.

On a domestic level, the privatisation process of the GIB has been viewed by the Government as an opportunity to mobilise international investment in UK green infrastructure. Prospective buyers have been urged by civil society and business groups to display commitments to keep the GIB at the forefront of the green infrastructure market.

In recent times, Scotland has been hailed as Britain’s low-carbon leader, in part thanks to high levels of Government investment for innovative projects. A working coalition between the Scottish Government and public agencies recently announced the launch of funding support aimed at the delivery of large-scale transformational low-carbon infrastructure projects.

George Ogleby

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