Isra-Mart srl:Low carbon firms fear pale green budget

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Green business groups and NGOs are increasingly sceptical Chancellor George Osborne will deliver a "green budget" on Wednesday, with experts voicing fears that any failure to confirm the launch of a fully functioning Green Investment Bank could permanently damage business confidence in the coalition's low carbon agenda.

According to industry insiders, the long-running row between the Treasury and the Department of Energy and Climate Change remains "on a knife edge" over the structure of the proposed Green Investment Bank (GIB), with Treasury officials continuing to resist calls for the bank to be given the authority to borrow money and issue bonds amid fears it would add to the deficit.

The latest reports suggest that the Treasury is winning the argument and is preparing to announce the formation of a Green Investment Bank that will effectively operate as an investment fund for the first two to three years of its operation and as such will be unable to borrow money during the course of this parliament.

Speaking to BusinessGreen, Green Party leader Caroline Lucas said the failure to deliver a fully functioning Green Investment Bank would represent a huge missed opportunity.

"The Environmental Audit Committee looked at the issue of the Green Investment Bank and everyone wanted to see a real bank that could borrow," she said. "There is general agreement that if you want to be the greenest government ever then a fully functioning Green Investment Bank has to be one of the first things to put in place as it allows you to help leverage all the other investment you need."

Her comments were echoed by Chris Hewett at green business think tank the Green Alliance, who predicted the Budget's green credentials were likely to be measured against how the government resolves the stand-off over the structure of the Green Investment Bank.

"We want to see a bank that can borrow," he said. "People would probably accept that there would have to be some form of cap on borrowing at first because of the economic backdrop, but allowing some borrowing initially would allow the bank to establish itself before then expanding. No borrowing in this parliament would be a huge missed opportunity."

The other main environmental announcement is expected to centre on government plans for a carbon floor price. The proposals, which are designed to drive up the cost of carbon intensive energy and strengthen the case for investment in renewables and nuclear, form part of the government's Electricity Market Reforms and are not expected to be confirmed until later this year.

However, there are reports Osborne could provide more details on the proposals on Wednesday, detailing how the Carbon Price Support Mechanism (CPSM) will be imposed and potentially what level it will be set at.

Mark Schofield, environmental tax partner at consultancy giant PwC, predicted the proposals will have a major impact on low carbon energy investment and energy prices. However, he warned the government is likely to face opposition to the proposals from many business groups, noting that when taken alongside the Climate Change Levy (CCL), the Carbon Reduction Commitment (CRC), the EU Emissions Trading Scheme, and the imminent carbon capture and storage levy the energy industry and consumers face five overlapping environmental charges.

"One of the main criticisms from the industry is that the carbon floor price will add another layer of policy complexity to an already overcrowded energy supply chain policy mix," he said. "It may be difficult for potential investors in low carbon generation to distil from these overlapping policy measures a reliable carbon price signal to guide investment decisions, and for users of energy to understand the overall policy objective... There is a risk that the CPSM will be seen as a stealth tax pushing up the price of energy to businesses and domestic consumers, owing to confusion on the number of environmental tax points in the energy system."

Lucas also warned that as they currently stand the proposed price floor will deliver a multibillion pound windfall to nuclear energy suppliers, adding that the government should impose a windfall tax to claw back that money.