Speech by The Economic Secretary to the Treasury, Justine Greening MP, Overview of UK Policy Frameworks
Speech by the Economic Secretary to the Treasury.
Introduction
Thank you.
There is a real need to mobilise private capital in developing countries, to ensure that we meet our low carbon objectives.
Debt, equity markets, and financial innovation all have an integral role to play in achieving our goals.
But I feel that the success of these initiatives is largely dependent on the policy framework in which they sit.
It is vital to have a transparent policy framework that clearly shows the direction that domestic climate change policy is heading.
Without this it is difficult - if not impossible - to attract private finance. As the returns from investment become uncertain; and the risks of backing new low carbon projects - when compared to more traditional assets - becomes too great.
Much of what the UK Government is looking to achieve with its framework is to create a policy environment that is stable, and provides a clear sense of direction.
One that gives the private sector the ability to invest with confidence.
UK Policy Framework
The UK has been a strong advocate for action to mitigate the effects of climate change:
- We were the first to nation to have legally binding emission targets.
- The first to set up a greenhouse gas trading scheme.
- And will be the first to include a sustainability report alongside our annual accounts.
But we also recognise that our aims cannot be met without the support and investment of the private sector.
In an incredibly constrained fiscal environment there is a real need to consider how we can achieve more, with less public expenditure.
In the UK alone we require £200 billion worth of energy investment over the next decade, driven largely by our 2020 low carbon commitments.
Given the immaturity of many low carbon technologies, there is a need to use subsidies and other forms of Government support to help generate this finance.
This system of subsidies needs to be simple, stable and prioritised - not an increasingly complex set of short-term arrangements.
Frequent changes to policy holds back private finance - as the potential for future subsidisation means that the rewards from investing tomorrow could be greater than the rewards from investing today.
The real challenge, therefore, is to create a policy framework that is focussed on the long-term, is transparent, and minimises the scope for deviation.
One that supports private investment, not undermines it.
So I’d like to highlight three policy ideas in particular which will be important for leveraging private, low-carbon investment in the UK.
First, we are looking at options for establishing a Green Investment Bank to address barriers to private investment.
It is important to stress that the Green Investment Bank will not be in the business of subsidising ventures that would happen anyway, nor of the crowding out the private sector.
The focus will be on working with the market; supporting investment where the market fails.
Second, we will bring forward proposals in the autumn to use the tax system to provide more certainty and support for a carbon price.
And third, we want to see a more ambitious cap and trade system, and higher levels of auctioning in the EU Emissions Trading Scheme.
However, any changes to the current cap and trade system need to be considered very carefully - we don’t want to risk undermining the progress that has already been made.
Helping Developing Nations
But today we are here to discuss how developing nations can mobilise private capital to fund low carbon investments.
Because climate change is an international problem, and one that won’t be solved without coordinated global action.
The UK Government has pledged to spend £1.5 billion by 2012 to help developing countries reduce emissions.
We are committed to helping reduce global emission levels and are working in partnership with other countries to achieve this by:
- phasing out inefficient fossil fuel subsidies, while providing targeted support to the poorest nations.
- looking at the role Multilateral Development Banks could play in leveraging private finance for low carbon investments.
- encouraging other countries to develop emissions trading mechanisms to expand the role of the carbon market.
- and working as part of the UN Advisory Group on Climate Finance, to explore new sources of funding from private and public sector bodies.
Without this exchange of experience and communication between countries we will never tackle climate change.
So I welcome the work that the CMCI is doing to help identify the options available to developing nations when leveraging private, green investment.
As even Bob Geldoff - through the launch of his ‘8 Mile Venture Capital Fund’ - has demonstrated that, when in the pursuit of humanitarian objectives, the private sector can play a key role.
For example, in today’s money the Live Aid appeal raised £352 million to tackle poverty and deprivation in Africa. The new 8 Mile Fund will raise an estimated £650 million.
There is much the developing world can gain from working in partnership with private financers.
So I look forward to learning from the experiences of Indonesia, and how their own Policy Framework is putting them on the front-foot to secure private investment.
And I’m keen to hear the proposals that Deutshe Bank are putting forward on how public-private partnerships can help support renewable energy projects in developing countries.
Both of which will be the focus of this final session.
[Ends]