March 23, 2011 / 4:06 PM / 7 years ago

Extra £2 billion pledged for green bank

LONDON (Reuters) - Britain on Wednesday committed an additional 2 billion pounds ($3.27 billion) to its Green Investment Bank in its budget measures and introduced a 16 pound price floor for carbon emissions permits from 2013.

Both measures are aimed at driving investment in green infrastructure and low-carbon electricity generation.

They were mostly welcomed by investors but criticized for not going far enough by some environmental groups.

Britain is trying to bolster a faltering economy without compromising plans to erase 81 billion pounds of spending over the next four years.

The government has already committed 1 billion of funding to create a Green Investment Bank (GIB), aimed at leveraging investment for low-carbon technology from the private sector.

It will now increase that funding to 3 billion and the bank will commence operations in 2012-13 — a year earlier than planned.

“In the current fiscal environment committing 3 billion pounds is an achievement and by allowing the GIB to borrow mid-decade, its lending can ramp up quickly when the country’s low carbon capital requirements reach a critical point,” said James Cameron, vice chairman of Climate Change Capital.

The bank should start raising its own funds from 2015-2016 when the national debt starts to fall, through issuing bonds.

“(The bank) should leverage an additional 15 billion pounds of investment from the private sector,” finance minister George Osborne told parliament.

Britain needs to invest around 200 billion pounds by 2020 in greener technologies so it meets ambitious emissions cut targets.

PRICE FLOOR

The UK will also introduce a price floor for EU carbon emissions permits of 16 pounds per tonne from April 1, 2013, rising to 30 pounds per tonne by 2020, Osborne said.

“We believe this trajectory strikes the right balance, meeting the needs of policy makers, consumers and investors,” said EDF Energy chief executive, Vincent de Rivaz.

The floor price puts a minimum tax on carbon-intensive power generation, which indirectly rewards producers of greener energy and will be applied to operators in the EU’s emissions trading scheme.

The government could earn 740 million pounds from the floor price in 2013-2014, it said. To do that, prices for EU carbon permits would have to be 9 pounds in 2014, based on Thomson Reuters Point Carbon calculations. Futures for delivery in 2014 were trading at around 17.30 pounds on Wednesday.

The price floor could put pressure on coal prices and the cost of running coal-fired power plants, some experts said.

“The dark spreads will be really under pressure. Therefore people may make decisions to switch plants off earlier,” Andy Cox, head of energy and natural resources at KPMG, told Reuters.

Dark spreads describe profit that generators make for burning coal in power production.

The UK government also dropped plans for a new levy to help fund the cost of three new carbon capture and storage (CCS) plants.

The 3 billion pound levy was in addition to 1 billion pounds already committed by the government for a pilot CCS project.

“The further 3 billion will be financed by general spending instead of a complex new levy,” Osborne said.

Reporting by Nina Chestney; Additional reporting by Karolin Schaps

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