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A very good introduction to the potential for green or climate bonds to raise significant finance for the low carbon transition can be found on the Climate Bonds Initiative site. This international collaboration, supported by the Network for Sustainable Financial Markets and Carbon Disclosure Project, is looking at the case for climate bonds at an international level.

The site was launched at Copenhagen and there are some very useful papers going through the case and some of the ways to construct such bonds. The Climate Bonds Initiative is a global collaboration and the website will be a good place to keep up with developments from around the world.

A very good summary of how private financing works for renewable energy has just been produced for Chatham House by Kirsty Hamilton and Sophie Justice. Entitled Private Financing of Renewable Energy – A Guide for Policymakers, it does exactly what it says on the tin.

Kirsty has spent over five years working with the finance community on renewable energy issues and has produced a very clear, concise guide to the types of finance required and available for getting renewable energy deployed at scale. The paper also looks at the common barriers to accessing this finance and the impacts of the credit crunch so far.

As well as this paper Kirsty has also published a longer document Unlocking Finance for Clean Energy: the Need for ‘Investment Grade’ Policy. This is a more detailed look at the policy framework for clean energy through the lens of the private investment community. Both papers come highly recommended.

The UK Pre-Budget Report contained an announcement of the creation of Infrastructure UK. This new body, to be chaired by Paul Skinner, ex-Chairman of Rio Tinto, is being set up to develop a strategy for the UK’s infrastructure over the next 5 to 50 years. The Pre-Budget Report also states that Infrastructure UK will begin to lever in more investment to low carbon infrastructure projects from sources including the European Investment Bank.

One of its tasks, before the Budget in Spring 2010, will be to consider the case for a ‘low carbon investment institution’, to facilitate more rapid investment in low carbon infrastructure. This is widely assumed to be a Green Investment Bank.

More details on Infrastructure UK will be published soon, but now the UK Government has joined the Conservatives and Liberal Democrats in formally developing policy in this area. This is no more than first base in the policy debate as both major parties could yet reject the whole idea. You can see the Green Alliance reaction to the announcement here. Green Alliance and partners will be building up the case over the next few crucial months. 

The World Bank is continuing to lead the way in creating a global market in green bonds. It has been one of the leading institutions to begin issuing green bonds and demonstrating there is a market for them amongst investors. Their third tranche of green bonds was issued on 3 December 2009 with the total now raised reaching $800 million in the space of a year. The take up from large public sector pension funds in particular, has been very positive.

To complement the actual market activity, there have been a variety of recent papers advocating the use of climate bonds, public finance mechanisms and development banks as ways to reduce the risks to private investors of low carbon projects in the developing world. The best of these are from Lord Stern’s group in London School of Economics, and a coalition of investors brought together by UNEP.

Lord Stern’s Grantham Institute at the LSE produced a detailed set of papers in September 2009 setting out the case for using public finance mechanisms as a means of delivering the financial transfers from the developed to developing world that are being negotiated in Copenhagen. In doing so these mechanisms have the potential to lever in many billions of private sector capital as well.

UNEP, in partnership with a number of global investor groups such as the Institutional Investors Group on Climate Change and the P8 Group of major pension funds, produced a report in October 2009, arguing a similar case. Their report, Catalysing low-carbon growth in developing countries, recommended a series of mechanisms that could reduce specific risks facing private investors in low carbon projects in developing countries. Some of these were analogous to insurance cover backed by public institutions like development banks.

If such mechanisms can be effective for investment in the developing world, there is no reason why the same principles could not be applied to the developed world. Perhaps we should be admitting to ourselves that we are economies in transition to a radically different low carbon future.

Welcome to a new feature of the Green Alliance sustainable economy theme, a blog focused on the rapidly growing debate on new ways to finance the low carbon transition.

Green Alliance is amongst a number of organisations developing policy and advocating new ways to secure private investment into the transition of the UK infrastructure required to deliver a low carbon economy. We have published our own briefing on Establishing a Green Investment Bank for the UK, and will be publishing other papers in the next few months on aspects of this debate.

But this blog will mainly provide a commentary on events, publications and speeches of other organisations in the field of green finance policy. Our aim is for this to be a resource for others in this space to build and disseminate their ideas, also be an entry point for people interested in these issues and wanting to find out more.

For example, on of the most recent endorsements for a Green Investment Bank and associated green bonds is the business and NGO coalition, the Aldersgate Group. In a report published in October called Financing the Transition, the group which has members that include United Utilities, BT, the Environment Industries Commission and WWF, argues that issuing climate bonds could be a way of offering institutional investors secure and long term returns for low carbon investments.

This week, has seen a flurry of political activity. On Tuesday, Shadow Chancellor, George Osborne backed the idea of a Green Investment bank. He announced in a wide ranging speech that the Conservatives ‘are consulting on the creation of a Green Investment Bank which will invest in the next generation of green British business’. There is a little more detail in the speech, but not enough to judge the policy. Green Alliance will be working with others to influence this consultation.

Then on Wednesday, the Liberal Democrat Shadow Chancellor, Vince Cable announced his party was backing the creation of a National Infrastructure Bank. This institution would certainly be able to lever private finance into much of the low carbon infrastructure that the country needs, but it must have a clear remit on low carbon transition to prevent other higher carbon infrastructure such as road building or airports also being given support.

The Pre-Budget Report is due in early December. We wait with interest to see if the Government will come forward with ideas to match the opposition.

We are calling for the creation of a publicly owned Green Investment Bank in the UK to facilitate the large scale mobilisation of private capital that will be required to deliver a low carbon transition.

Read the details of the call in  our briefing . (pdf - 84.1 kilobyte)