The newly elected Labour government in the UK has been urged to adopt a different approach to green finance, focusing on public investment in green infrastructure rather than relying on private sector incentives. Dr James Jackson, an academic from the University of Manchester, argues that this shift is crucial for meaningful progress in decarbonisation efforts.
In an article for Policy@Manchester, Dr Jackson highlights recent government actions aimed at stimulating private investment, including changes to the National Planning Policy Framework to facilitate onshore wind projects, the establishment of GB Energy with £8.3 billion in capital, and the creation of a £7 billion National Wealth Fund intended to ‘de-risk’ investments in emerging technologies.
However, Dr Jackson raises concerns over the sustainability of such private-sector-focused initiatives, particularly in light of fiscal constraints. The government faces challenges in balancing revenue and expenditure amid claims of a £20 billion fiscal ‘blackhole,’ alongside Chancellor of the Exchequer Rachel Reeves’ commitment to reduce national debt as a percentage of GDP within five years.
In this context, Dr Jackson presents two potential paths for the government regarding green finance. The first option involves incentivising private investment through de-risking, a strategy that aims to attract three times as much private capital for every public pound invested in nascent technologies. This approach echoes the Conservative government’s methods over the past decade.
Alternatively, Dr Jackson advocates for direct investment in public green finance, specifically through green bonds. He argues that investing in established green infrastructure projects—such as wind and solar energy—would create equity and generate reliable returns for the Treasury.
Dr Jackson believes that the government’s initial actions indicate a preference for the first option, focusing on catalysing private investment through public funds. However, he expresses scepticism about the effectiveness of this strategy, pointing out that it mirrors past policies from previous administrations. He notes that despite ongoing efforts, a significant ‘finance gap’ persists between the investment needed to decarbonise the economy and the actual capital being deployed.
To effectively address this gap, Dr Jackson urges the government to reconsider its priorities. He suggests a renewed focus on issuing Green+ Gilts (green bonds) for mature, proven technologies that can deliver consistent returns. He also recommends that the government align its fiscal policies by phasing out fossil fuel subsidies, revising Bank of England rules on indemnifying bond holdings, and implementing increased ‘windfall taxes’ on energy producers, supermarkets, and banks.
Dr Jackson’s article, titled “New governments bring new opportunities: a way forward for green finance?”, offers a critical perspective on the UK’s current green finance strategy and calls for a reassessment of priorities to effectively combat climate change. The full article is available on the Policy@Manchester website.
