Inquiry into Green Finance by the Environmental Audit Committee

In our evidence, written by Molly Scott Cato and Jonathan Essex, we suggested using an Energy Return on Energy Invested measure to assess whether an investment is green, and a much greater emphasis on public and co-operative financing of green infrastructure.

It is common parlance amongst Greens to talk about the inherent link between the instability of capitalism as an economic system and the uncontrolled exploitation of nature's wealth that is leading to ecological collapse. These two seem to come together in the question of 'green finance'.

The early response from the conventional finance institutions has been to seek to profit from investment in green sectors, for example by creating carbon-based derivatives.

Summary of the evidence submitted by Green House:

  • Green House believes that the failure of green investment is a clear indication that the market is not suited to tackling some of the most critical and urgent aspects of our transition to a sustainable future, notably the need for rapid and wide-scale investment in home insulation and renewable energy generation. The explanation is that green investment involves long-term thinking, which the market does not readily support, especially when it is matched with policy uncertainty.
  • In terms of incentives for investment we would draw particular attention to the importance of setting a clear and high rate of Feed-in Tariff. The changes to the feed-in tariff, which had already been introduced late compared with our competitors, following the change of government was a disastrous indicator of the lack of commitment to establishing a clear policy framework to encourage investment and is likely to have been the central explanation for the failure of green finance.
  • We also stress the importance of considering policy regarding green finance in combination with the issue about how the infrastructure is owned and how the profits are shared. The case of Denmark indicates clearly the extraordinary investment that can be achieved through collaborative efforts between government and local co-operatives.
  • Private investment is unlikely to be the game-changer we need to see unless a major change in public attitudes creates the political conditions needed to sustain serious incentives for green investment and disincentives for fossil-fuel investment. Community-led and public investments can be a way both of dealing with the inadequacy of private investment and of encouraging that change in public attitudes.
  • We suggest that the discussion of ’green finance’ is not limited to areas of government investment currently labelled as ’green’ by the government, such as the Green Deal and Green Investment Bank. Rather we would propose that green investment must constitute an overall shift and prioritisation of treasury, fiscal and monetary investment priorities so that all government investments are viewed through a green lens.
  • Finally, we challenge the committee to think boldly about the potential for directly created money as an alternative to private interest-bearing finance. Evidence shows that money created through quantitative easing via financial institutions adds to inequality and does little to improve the economic position. The opportunity exists in a time of recession for the government to create money directly to invest in green infrastructure and we would strongly support such a policy.
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