Green Investment Bank
The final item of business is a members’ business debate, on motion S4M-02277, in the name of Sarah Boyack, on the green investment bank. The debate will be concluded without any question being put.
Motion debated,
That the Parliament welcomes the announcement that the first ever UK Green Investment Bank (GIB) will have its headquarters based in Edinburgh; considers that the city of Edinburgh is ideally suited to deliver the key objectives of the GIB, which aims to encourage and stimulate investment in low-carbon technologies; further considers that the green, financial and research sectors of the capital are already well established and that the decision will strengthen the links between the financial centres of Edinburgh and London; believes that the GIB provides an ideal opportunity to put great momentum behind the green revolution and to build strong relationships with industries across Scotland, the UK and beyond; further believes that the announcement clearly showcases the strengths of Edinburgh and also the potential for the green industry to grow significantly and bring a great boost for jobs, and congratulates what it considers the sheer hard work and determination of the Edinburgh Chamber of Commerce, which it sees as a successful driving force behind the bid.
17:12
I lodged the motion because I wanted to congratulate everyone—in particular, the Edinburgh Chamber of Commerce—for doing such a fantastic job of mobilising people to submit a successful bid for the green investment bank.
It was in no way a foregone conclusion that Edinburgh’s bid would be successful. If someone had listened to our debates, they would have assumed that it was a certainty, but there were 32 bids from throughout the United Kingdom and, although we are rightly clear about the huge progress and the policy commitments that we have made on renewables, I suspect that we are not quite so aware of what is happening in the rest of the UK. The Humber, the east of England and Cornwall have ambitions not only to emulate us but to overtake us, so there was no room for complacency. That is the context for the announcement that Edinburgh has been successful in securing the green investment bank and that is why it is such a major success.
The decision is hugely helpful for allowing Scotland’s renewables and low-carbon industries to prosper, because we need stability and the massive investment that come from being part of the wider UK. There would not have been such a huge expansion of renewables without the Scottish Parliament but, paradoxically, we will not fully realise the industry’s massive potential without the subsidies, infrastructure and long-term market that come from being part of the UK.
It has been announced that, alongside the Edinburgh headquarters for the bank, the main transaction team will be based in London. According to the Secretary of State for Business, Innovation and Skills, that will allow for the strength of the two capitals to be harnessed. I hope that it will make the bank’s operation more effective, but we need to be vigilant about the possibility of the Edinburgh operation being treated as second fiddle to the main player in London. Edinburgh must be the headquarters of the GIB in substance as well as name. It is not just about a nameplate; it is about the function and operations of the bank in Edinburgh.
The big drop in Edinburgh’s international ranking as a place to do business in “The Global Financial Centres Index 11”, which was published this week, highlights the fact that we cannot afford to be complacent. The strengths that we debated only a few weeks ago now need to be brought into play. Our academic networks and our legal and financial expertise in putting together deals for our renewables sector must now play their part in building the momentum that is necessary to deliver the green industrial revolution that we need.
Having been the birthplace of the industrial revolution, Scotland now needs to play its part in the economic transformation that we need for the 21st century. Our target to reduce carbon emissions by 42 per cent by 2020 is now only eight years away and we need widespread application of low-carbon technologies in all our economic activities if we are to deliver on that ambition.
I will make the case in the debate for a strong green investment bank, which is empowered to take forward its goal of driving investment to address the market failures and risks that are associated with developing green industries, because there are concerns that the bank, as it has been set up, has not been given sufficient financial support to let it get on with that job.
Business leaders, economists and campaigners have all focused on the missed opportunity created by delaying the introduction of the bank’s borrowing powers until 2015. Transform UK describe it as akin to waiting for a seriously ill patient to recover before administering life-saving medicine. If the bank does not have borrowing powers from the outset, we risk missing the boat as overseas countries pursue these technologies and reap the rewards. If it had borrowing powers from the start, the UK Government would provide investors with the confidence to put money into the bank and allow it to provide a stimulus to emerging green technologies while creating jobs, promoting growth and cutting emissions.
The green investment bank is not meant to be an ordinary bank. It is meant to lead the way with investment in low-carbon technologies and it is meant to act where the traditional banks will not. Some have suggested that the bank will be little more than a pot of money and that, although it will help to fund many admirable projects, it will not provide sufficient reassurance to overcome the barriers faced when seeking finance for green developments from the traditional banks. Part of the rationale behind the bank was to provide an environment that would encourage investors to take a risk on emerging technologies. With the right encouragement and the right investment, the creation of the bank would be an ideal opportunity to put great momentum behind the green revolution and to build strong relationships with industries throughout Scotland and the UK and beyond.
Even the Confederation of British Industry is clear that the bank
“should have powers to borrow from the outset to give investors confidence.”
We need that investment and that investment capacity. I hope that the debate will add weight to the argument to ensure that we get a green investment bank that is capable of delivering on its ambition.
At a meeting last month of the cross-party group on renewable energy and energy efficiency, we discussed the superb progress that has been made in the wave and tidal sector, but it is hugely expensive work. It is eye-wateringly expensive to get from the laboratory to getting the kit into the water, but that has to happen because kit has to be tested before it reaches the stage of mass production. Huge progress has been made in the short time that wave and tidal power has been looked at. The Edinburgh-based wave energy company Aquamarine Power has said that companies need the investment now, not in two years’ time.
I argue for faster and more meaningful progress. Lord Stern, the climate change economist, has argued that the bank should not operate like other financial institutions. He said that it is not about state subsidy or state aid; this is an institution that is needed because of the market failures in finance, particularly those associated with risk and policy risk.
Mark Lazarowicz, one of the key advocates of the green investment bank, argued yesterday that the ability to raise bonds would hugely increase its potential impact. After yesterday’s budget, the need for the bank to be a game changer is even more critical.
The green investment bank is important, because it will sit alongside our traditional banks such as the Royal Bank of Scotland, HBOS and Barclays. They need to be persuaded to do more on renewables and low-carbon industries, alongside banks such as Triodos and the Co-operative Bank, which have already started to invest in the sector. We need the bank to make that difference.
The Royal Society for the Protection of Birds has argued that from the outset there must be clearly established criteria that the bank will invest only in projects that have environmental sustainability at their core.
It is hugely exciting that Edinburgh has been given the chance to be the location for the bank, but we must ensure that it has the political and financial support to live up to its potential. It is about not only our future but the world’s future. It is about the future of low island states and less developed countries, which are already on the front line of climate change.
I attended a United Nations conference on climate change in Dhaka last week, at which we received plaudits for our work on carbon emission targets and the legislation that we put through in our Parliament. People welcomed the fact that we have taken the lead in Scotland and the rest of the UK, but we will deserve that praise only when we achieve our targets. The green investment bank is a vital part of that.
17:19
This is my third speech on the green investment bank in less than a year. In my first one, which I made in my members’ business debate last June, I said that I would never grow tired of proclaiming from the rooftops the virtues of my new constituency. Little did I know that I was going to get so much practice at it in such a short time.
Fortunately, it is a case of third time lucky, in that we have had the great news that the HQ of the green investment bank will be coming to Edinburgh. There is nothing wrong with a bit of self-congratulation, as long as it is tempered with reflection.
The unity that was shown in the campaign, not only in the Parliament but in civic society and the private sector in Edinburgh, was a model for how we can work together in the interests of the city, the country and the environment. It is testimony to all the groups that came together—led, as Sarah Boyack’s motion says, by the Edinburgh Chamber of Commerce, but also including Scottish Financial Enterprise, the City of Edinburgh Council, the Scottish Government and MPs and MSPs from all parties—that we succeeded in making the irrefutable case for Edinburgh as the natural heart of the new green economy.
During that campaign, some of the minor disagreements that we had about the institution and about wider issues of green investment were put aside. Although I did not want to be a party pooper, I was going to dust those off as notes of caution but, fortunately, Ms Boyack has already done so, so I do not feel as if I am spoiling the party.
Now that the announcement that the GIB’s HQ will be coming to Edinburgh has been made, we need to be sure of three things, namely that it is green, that it is an investment bank and that it is an HQ. The investment and the footprint in Edinburgh will be vital. We cannot simply have a branch of the bank. I will be interested to see the details that emerge on what, physically, will be in Edinburgh. I note that the Green Investment Bank Ltd is registered with Companies House—it has registration number 07951292—as a company in England and Wales. If the HQ is based in Scotland, perhaps it should be registered as a company in Scotland.
As an investment bank, it must have borrowing powers very early on and be able to actively act like a bank. Having to wait until 2015 seems to be an inordinate delay.
Furthermore, it must be green. We might take that for granted, and the priorities that have been set out for it include a range of worthwhile green issues in addition to offshore renewable energy in general, such as energy from waste, non-domestic energy efficiency and other measures that are vital parts of the new green economy, and which are necessary if we are to deliver the change that we need to make if we are to meet the 42 per cent target. However, the “Update on the design of the Green Investment Bank” document includes the suggestion—admittedly, it is not prioritised—that, at some future time, the low-carbon interventions that the bank might progress could include nuclear power. I would dispute whether nuclear power is low carbon, and I would definitely disagree that it is green.
Those three important caveats should not detract from Edinburgh’s success in being announced as the location for the bank’s HQ.
Ms Boyack mentioned the union and the market that it brings, and the ability to access English markets gives the Scottish renewables industry a great deal of strength. International trade will always happen, but I note that there have been a few instances in which the kind of investment that the bank is aiming to stimulate has been held back. For example, there is the long-running issue of transmission charging, which is still hampering investment in Scotland. Another example is the fossil fuel levy. Although I very much welcome today’s announcement, I wish that the steps that have now been taken had been possible four or five years ago. If it is bad having to wait until 2015 for the bank to have borrowing powers, it is just as bad that we have had to wait until 2012 to be able to announce that money that was raised in Scotland and was earmarked for Scotland can be released.
Overall, the GIB is a great initiative. It strikes me that it is somewhat reminiscent of what was done as part of South Korea’s path to prosperity, in that it identified where the market failures were and focused public investment strategically with a view to picking a winner and, above all, to climbing the value chain. In the past, the focus has always been on generation but, in the future, the real prizes will be in the technology for marine, wave and tidal power, not simply in manufacturing, which brings many jobs, too, but in development and export. That is the objective that we aim to reach.
I am afraid that I must ask you to conclude.
Is the limit not six minutes?
The limit is four minutes in a members’ business debate.
My apologies—I had thought I had six minutes. I shall be very brief.
Edinburgh can be a fantastic home for this new industry, financing it as we reap the benefits of the GIB and the renewable energy investment fund announced today.
17:25
I, too, welcome the news that the GIB will be headquartered in Edinburgh and congratulate all those involved in this achievement.
Scotland has a unique mix of natural resources and access to cutting edge research and practical engineering expertise. It is right that the bank should have good connections to the many businesses here. The bank will be capitalised with £3 billion of Government finance over the period to 2015 and that significant level of cash is welcome, too.
A bank is one of the best ways to invest in the revolutionary changes that we need in our energy systems, the way we deal with our waste and our water infrastructure. Those changes will be a challenge. According to the UK Government’s own figures we will need £200 billion of investment in our energy sector alone. How will we meet this? The GIB plans to use its £3 billion to leverage commercial money on to projects to bring into the green economy private money that might not otherwise have had the confidence to invest here.
There are three ways we could ensure that the GIB maximises the green economy opportunity and helps us meet the levels of investment needed. Some are possible today, or will be very soon at least, and one in particular is even more possible because of the bank’s situation in Edinburgh. The Department for Business, Innovation and Skills—the UK Government department responsible—envisages the bank investing in “near-commercial” projects. It will then be investing along lines very similar to a normal commercial bank. I would like us to be a little more ambitious with key technologies that will help us reach our climate change targets. Early-stage marine technologies in particular should come under the investment strategy of the bank.
I recognise that there are other moneys to help develop early-stage marine renewables. The Scottish Government has pledged £18 million to fund the deployment of commercial arrays, but if the GIB is not able to invest in higher risk projects, bringing the risk down and therefore enabling more private investment, it is not maximising its potential. I hope that over the years, as the institution matures, we will see its remit grow in ambition. As it matures and graduates to a full bank, the institution will be able to raise some of its own finance. The current plans are that it will do that in April 2015. I agree entirely with the members who have already spoken and hope that that will happen much sooner.
To meet the financial challenge, it is really important that the bank can borrow and issue bonds. Future borrowing powers will only be given if the structural deficit is eliminated and that enhances the uncertainty that the bank will mature. I hope that the UK Government can give more certainty on that point soon.
Finally, to leverage private money will require good working relations with other banks. The GIB will be in a good position in Edinburgh to build relations with the RBS, which is also headquartered here. The RBS is a specialist energy financier. According to a report from Platform using Bloomberg figures, in the years from 2008 to 2010 inclusive, the RBS was involved in providing finance worth almost €8 billion to companies listed in the world’s 20 biggest operators of coal mines and generators of coal-based electricity. That makes the RBS the UK high street bank that has been most heavily involved in financing the hydrocarbon industry. Obviously, I would rather see that €8 billion being diverted from fossil fuels towards cleaner energy production, but it serves to illustrate that the RBS is an energy specialist and could have a very beneficial partnership with our newest bank in Scotland. The fact that the RBS is 84 per cent Government-owned gives that extra incentive for us to ensure that its future energy investments are green.
It is time to address the risks inherent in business-as-usual banking behaviour. Let us be ambitious and optimise the GIB’s potential to provide social, environmental and economic benefits.
17:29
I must be honest and say that I was expecting a slightly more upbeat members’ business debate. Edinburgh won, Scotland won, and by locating the green investment bank in Edinburgh the United Kingdom wins too. We all win because of the bank’s being located in Edinburgh. It is worth reflecting on that. It is worth reflecting on what needs to happen next and what united us, as opposed to what might divide us in future.
I congratulate the Edinburgh Chamber of Commerce, in particular, and everyone who got on board, at all levels of government and in all parts of Scotland. The campaign was excellent and it was won on merit. The campaign was critical, because when it came to the crunch the decision was pretty close. If we look at the secretary of state’s decision, which was published on 8 March, we find that of the 32 locations that applied, 26 were eliminated because they could not match the criteria that had been set down, which brought the number of competitors down to six. We comfortably beat Birmingham, Milton Keynes and Peterborough, which left Edinburgh, London and Manchester. The review panel gave London a perfect score in all categories, but the competition between Edinburgh and Manchester was tight. In our view and the Parliament’s view that was not a close contest and Edinburgh was streets ahead, but Edinburgh ended up with 115 points and Manchester ended up with 100 points. That shows just how important it was that people united. It was the thrust and momentum of the campaign that made it happen.
The next steps are critical. We need early recruitment of a chair and senior independent director. We need the right people, but we need them early. The Parliament and the Scottish Government ought to be champing at the bit to meet the chair and independent director as soon as is practicable after their appointment.
The bank must focus on making an early and a lasting impact. As Alison Johnstone said, £200 billion of investment in the energy sector is needed if we are to meet our targets. The bank has a fraction of that amount, so it is critical that everything that it does has an impact and that it focuses on areas in which it can make a genuine difference, instead of spreading itself too thinly.
We should all ask ourselves what we can do to speed things up and get the bank up and running as quickly as possible. What does the bank need in terms of office space, infrastructure and recruitment? Are there things that the local authority, Scottish Enterprise and the Scottish Government can do to assist the process? How can we best support the bank’s work, not just here but throughout the United Kingdom? The bank must serve the whole UK, even though there are many opportunities just in Scotland.
We all joined together to win the bid, but that was just the beginning. The work on the real prize starts now and we all need to pull together in the same direction. There is a big opportunity. We could become the epicentre for Europe’s renewables, as the Edinburgh Chamber of Commerce suggested. The whole must be greater than the sum of its parts, which is why I welcome this important debate.
17:33
I warmly congratulate Sarah Boyack on securing the debate and I entirely agree with her analysis. The choice of Edinburgh as the location for the green investment bank was the result of a number of things, but above all it was the result of the unity of purpose in the campaign and in the leadership of the Edinburgh Chamber of Commerce and Scottish Financial Enterprise. Members of all parties in the Scottish Parliament were united, and Glasgow and Edinburgh were at one in their co-operation—that is perhaps not an alliance of natural bedfellows—and the universities all fell in behind the bid. It was truly a united campaign, although it was not one in which the outcome could be taken for granted—I suspect that it was a close-run thing. However, the case was made strongly across the board, and I congratulate all members.
Sarah Boyack’s tone was upbeat, in an Edinburgh sort of way—a kind of douce and restrained jubilation. Just before the debate on 22 February, in which most members in this debate took part, there was a united photo call, which took place in the penthouse suite of one of the offices of Quayle Munro on a very windy day, as befits the campaign for a body that will hopefully fund some of our offshore wind developments. Sarah Boyack, Alison Johnstone, Liam McArthur and I attended that windswept photo shoot. As Marco Biagi said, we are entitled to slap ourselves on the back.
At the same time, though, we should be thinking about the future. The practical points that Mr Brown raised are all absolutely correct; I want to touch on some of those. We have been in touch with the UK GIB, as it is at the moment. It is in the incubation stage, which I understand is the junior tadpole stage of a bank, as it transmogrifies to become a fully fledged, grown-up bank.
It will start doing business in April and it will be looking for early hits. My officials have had discussions with the organisation. We will keep fully in touch with it and I look forward to meeting the appropriate staff as soon as possible. We should keep working together in the alliance that we have formed with the Edinburgh Chamber of Commerce, the SFE and so on. We need some form of support group to keep that unity of purpose going. Individuals who have given leadership to the campaign and who, in the case of Owen Kelly and his colleagues, helped us to win the campaign will be able to play a strong part in making things happen. We are looking at all that and there is unity of purpose.
Alison Johnstone mentioned the large numbers for the scale of investment that is needed to achieve our ambitions—£200 billion is a figure that one sees frequently. I always mistrust large numbers, but it certainly will be a large figure in this case; we just do not know quite how large. The point is that the bank will only have £3 billion, so it needs to lever in lots of private money. Above all, the key will be to create an environment in which private sector investors have confidence to invest.
A number of factors are involved here. For example the costs of offshore wind have to be bought down, which is a challenge for the industry. It is aware of that challenge; it is up for it and it is addressing it.
However, we also need private sector finance. As it happens, I was at a Chatham house rules meeting in London this week with a number of financiers, at which I learned that there are substantial private sector funds for renewables. That is excellent news.
I met Charles Hendry, with whom I enjoy a good working relationship. We are working hard to win the vote in the referendum, and I believe that he is shortly to become a Scottish resident, although that may be an uphill struggle. However, Charles and I get on just fine. I think that we both acknowledge that one of the challenges is that we have to set the ground rules on electricity market reform. There is a danger at the moment of a bit of an investment hiatus in some sectors, for example in hydro power. We all want to move swiftly to make EMR work; that is a shared purpose. We have suggested that as part of the institutional framework for EMR, the Scottish Government and the devolved Administrations play a part in a kind of delivery committee. That proposal is on the table.
We look forward to working constructively with the Westminster Government because the Scottish National Party believes that, irrespective of the outcome of the referendum, an integrated UK energy market will be needed on both sides of the border. England needs our renewable energy and Scotland needs England’s demand for our renewable energy. That mutual need is one of the drivers for a policy of common shared purpose.
Marco Biagi quite rightly referred to transmission charges. I hope that, before very long, we can have a debate in the Parliament on transmission charges and project transmit, and that we will have the same unity of purpose in persuading the Office of the Gas and Electricity Markets that, although it has moved a step in the right direction with its draft proposals, we urgently require it to include a solution in its “minded to” letter—which will be issued on 19 April, I think—that recognises that the islands are part of the UK, too, and cannot be excluded from the proposals. I believe that the compromise proposal has the support of the Liberal party and SNP elected representatives, and I believe, hope and expect that it has the support of the islands councils. We are waiting for confirmation of that. I hope that we will unite so that the islands are not prevented from harnessing the potential benefits of renewable energy.
I will finish with an observation. Before I became a politician in 1999, I was a solicitor. That the method of arguing in the courts, where I used to appear before the sheriff, is somewhat different from political argument constantly has surprised and irked me—indeed, it still does from time to time. In the courts, one had to use reasoned arguments to the sheriff; if one strayed into personal comments, abuse or comments on the validity of one’s opponent’s arguments, one rapidly got shot down. Sometimes in politics, I have thought that extraneous arguments have far too much scope to play. The campaign for the green investment bank was won on the basis of the arguments. It was won because we united together, stood behind the arguments and did not get involved with party politics. Long may that approach continue.
I congratulate every member and person who won the campaign for Edinburgh. We look forward to working closely in co-operation with our colleagues in the London Government and the London branch of the green investment bank.
Meeting closed at 17:42.