UK Net Zero Emissions Target
Debate between Baroness Worthington and Viscount Younger of Leckie(5 years, 5 months ago)
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Baroness Worthington (CB)
My Lords, when we passed the original Climate Change Act in 2008, the UK was the first country to pass a legally binding target for reducing our climate-damaging emissions. I am glad that in setting that example we triggered action from other countries; Sweden and New Zealand have now also legislated. Now that we are taking this bolder step to remove all our domestic emissions, we will see others follow. In the past few weeks, both Chile and Japan have committed to moving to net zero targets. I commend the Government and everyone who has contributed to getting to this position. The UK is taking the morally correct path. We are showing leadership at a time when the world is completely distracted by the rise of nationalism and populism. We are saying that there are more important issues that unify us as citizens of this sole planet that we share. We must take every step to ensure that this is not just a paper target but is backed up by policy. We have decades of examples of how we have done this; we are not starting with a blank sheet of paper. We have shown that we can decarbonise fastest among all OECD countries without it affecting our growth or economic development. We are a shining of beacon of hope in fairly dark times. I sincerely hope we will take our message to the UN in September, to Washington and Beijing, and that we will see others stepping up and increasing their ambition. It is easier and cheaper to do this than it has ever been. The technologies are there, the political will is growing and the children are out on the streets demanding that we do more. I am delighted that the Government are showing such leadership. Now we need to take it to Parliaments all around the world.
Viscount Younger of Leckie (Con)
My Lords, before the Minister replies, I suggest that questions be kept succinct and short to enable as many Peers as possible to speak in the time available.
Enterprise and Regulatory Reform (Designation of the UK Green Investment Bank) Order 2013
Debate between Baroness Worthington and Viscount Younger of Leckie
The Parliamentary Under-Secretary of State, Department for Business, Innovation and Skills (Viscount Younger of Leckie) (Con)
My Lords, the purpose of this order is to designate the UK Green Investment Bank for the purposes of Sections 3 to 6 of the Enterprise and Regulatory Reform Act 2013. Designation means that certain statutory requirements provided for in that Act will apply to the bank.
First, Section 3 of the Act will apply, preventing the bank from altering its objectives unless this is either required by law or approved by the Secretary of State. This will ensure that the bank’s articles of association always remain consistent with the green purposes provided for in the Act. Secondly, Section 4 of the Act provides the Government with a bespoke power to fund the bank. Thirdly, Sections 5 and 6 impose on the bank certain enhanced reporting and publication requirements, including a requirement to report to Parliament if the operational independence undertaking is revoked or materially altered.
This enhanced reporting requirement means that the bank must, for example: report as if it were a quoted company; as part of this, include in its annual report information on its impact on the environment and on directors’ remuneration; and, finally, report on the likely effect of its investment-related activity on greenhouse gas emissions.
The Act specifies that certain conditions must be met before the bank may be designated. I am satisfied that each of these conditions has now been met. I would like to go through these. First, the bank’s objectives, provided in Article 3 of the bank’s articles of association, provide assurance that the bank will engage only in investment-related activity it considers likely to contribute to the achievement of one or more of the statutory green purposes. Secondly, the bank’s objects provide assurance that the bank’s investment-related activity, taken as a whole, is likely to contribute to a reduction of global greenhouse gas emissions, in line with the approach agreed during the passage of the Bill. Thirdly, the bank’s operational independence undertaking was laid before Parliament in July, at the same time as the draft order. Finally, I can also confirm that the bank is wholly owned by the Crown.
In June, the Secretary of State placed a copy of the bank’s first annual report in the House Libraries, providing detailed information about its strategy and approach to delivering its remit and about its activities to date. Designation of the bank will mean there is a statutory obligation on the Secretary of State to lay a copy of the annual accounts and reports before Parliament in future.
The bank has now been operating for one year and in that time it has achieved a great deal. As noble Lords will know, it has a double bottom line of being both profitable and green; it will achieve its objective of mobilising additional private sector investment in green projects only if it can demonstrate such investments make sound commercial sense.
The bank has developed its strategies for investment in relevant sectors and made commitments to green projects in each of its priority sectors of offshore wind, energy efficiency, waste recycling and waste to energy, with the projects supported located throughout the United Kingdom. The bank has to date committed a total of £714 million and has brought alongside over £1.8 billion of additional private sector finance. Information about individual commitments is routinely made available on the bank’s website and in its annual reports. It has made a good start on delivering green impacts, and we would expect this to continue as more of the projects that the bank has supported become operational. There is clearly an important role for the Green Investment Bank to play in mobilising additional private capital into green sectors. That is why at the recent spending review we allocated a further £800 million to it, meaning it now has £3.8 billion of funding for the period to March 2016. We are in the process of seeking European Commission approval for this additional funding and hope to make progress with that further approval in the early part of next year.
By designating the bank, we are bringing into effect the statutory requirements and safeguards that will ensure that the bank will, and can continue to, deliver its green purposes. I commend this order to the Committee.
Baroness Worthington (Lab)
My Lords, I am grateful to the Minister for his introductory comments and for setting the context for today’s debate. It is to be welcomed that the bank is to be designated and is to fall under the statutory controls that were set out in the Enterprise and Regulatory Reform Act. This gives us an opportunity to reflect on some of the events that have occurred over the past 12 months, now that it has been operating for a year, as the Minister stated.
To what degree does the Minister feel that the bank’s ability to perform its task has been affected by recent messages coming from the Government about the desire to roll back on support for green energy taxes and levies? My concern is that the green bank will be only as successful as the policy environment in which it can operate. We will increase risk and reduce profitability for the bank if we do not create the right investment signals about our commitment to low-carbon investment and projects. In the review that we are told is taking place on green levies and taxes, will the impact on investor confidence be fully taken into account and will the Green Investment Bank’s advice, comments and thoughts be sought in that review?
To reflect, we are in a fast-changing environment and energy policy is now at a far more critical stage than it has been. It is important that we do not change course in an unconsidered manner without thinking through the impact that will have on other government policies, including on the Green Investment Bank, which has received many plaudits and cross-party support as regards its objectives and the way it has been set up.
Secondly, given that we have now had a year of operation, to what extent are the priority areas that have been identified for the bank sufficiently broad to enable it to invest in a wide enough portfolio of projects? Despite the fact that £740 million has been committed, I have heard that that investment has slowed down in recent months. The investment is very much front-loaded and a large part of it is taken up with one investment in the Drax biomass conversion project. However, in recent months fewer projects seem to have come forward. Is that because the range of investments is too narrow? I would be interested to hear from the Minister what could be achieved if the list were broader. I am sure that that would involve discussions in Brussels around state aid and what is allowed to be invested in. I would be very interested to hear whether discussions are already under way as I am sure that it will take time for any changes to be secured in Brussels.
The other question I would like to raise is around the Green Deal. I understand that the Green Investment Bank has a role to play in supporting the Green Deal. However, as we know, the Green Deal has not got off to the flying start for which we had hoped. That is regrettable. There is a question for the Government now as to what we can do to improve the performance of the Green Deal. One of the problems is that the interest rates being offered on the financial package are far higher than those set by the Bank of England, and that is deterring people from taking out the financial package. I think people are interested because a large number of people are seeking the advice of Green Deal assessors but they are not going on to take out the financial package. Can something be done under the Green Deal to help that? Given that the profit margin it needs to return is only 3.5%, could there be a way in which the Green Investment Bank could be used to bring down the cost of financing? I think that we would all welcome that and I am sure that it would drive more people towards taking up the Green Deal.
As we have said a number of times before, a bank needs to borrow in order to be a bank. It is regrettable that we do not have a bit more clarity over when the bank will be allowed to borrow. If the supply chain of projects is not as great as we had hoped, the Labour Party would want to give the bank more flexibility in relation to borrowing. In fact, the Leader of the Opposition said in his speech at the conference this summer that he would give the bank full borrowing powers. The Government have set criteria to be met after which the bank will be allowed to borrow but it seems to me that those criteria are rather harsh. It could be that they are never met and that our deficit reduction plans curtail the bank too much. However, if we were to free up the bank, that might well help us to meet our deficit reduction plans quicker, so there is definitely something to be said for looking at that again and providing more clarity as to when the bank can become a more fully fledged bank. I look forward to the Minister’s response.
Viscount Younger of Leckie
I thank the noble Baroness for her general support for this statutory instrument, as well as for her helpful questions, and I will endeavour to answer them.
First, the noble Baroness brought up the effect of a desire to roll back green taxes. She asked whether the tax review would damage investor confidence and whether the Green Investment Bank would contribute to the review. The Government are looking at how to get people’s energy bills as low as possible to help hard-pressed families; she will know that this is a tack that we are taking. We have already increased competition and brought new players into the market to offer consumers real choice, and the most vulnerable are getting direct help with their bills this winter. We will continue this work to make sure that consumers are getting a good deal. No one is talking about changing support for large-scale renewables or feed-in tariffs, which are essential for investor confidence in the renewables sector and our commitments to a low-carbon economy. It is a bit too early to say what the review’s outcome will be, but it will take account of the effect on green investment.
Baroness Worthington
I thank the noble Viscount for his answers and apologise for the number of questions. It would be good to carry on the correspondence in writing.
One thing that I did not quite hear an answer on was: could something be done using the Green Investment Bank to bring down the costs of borrowing for the Green Deal financing? I do not expect an answer now because it is something that needs quite a lot of consideration but it is important that the use of the Green Investment Bank is maximised to try to make these policies successful.
On the pipeline of projects, I hope that the Green Investment Bank is able to provide feedback to the Government on how it perceives this conveyor belt of projects can be improved. I sense that this is all tied up with the Energy Bill that is currently being finalised. One of the key issues in the Energy Bill is strike prices—what the level of support is going to be for different technologies. Knowing how interested the Green Investment Bank is in offshore wind, I encourage the Minister to listen to what it says about the number of projects that can come through under the current proposed strike prices.
With regard to the Government’s backing of offshore wind, we have seen a steady decrease in estimates of how much offshore wind we are going to see. That has unsettled the investment community and might have something to do why there is not the healthy conveyor belt of projects that we might want to see. I do not expect a reply on that either, I just urge the Minister to consult the Green Investment Bank and to work with colleagues in DECC to ensure that the offshore wind industry is supported, because it is so important for investment in the UK and for jobs in areas that are in desperate need of regeneration.
Viscount Younger of Leckie
I will most certainly reply to the noble Baroness on her first, more broad-ranging question. I think that will be an interesting reply, giving the Government’s position but also acknowledging the importance of green energy. I certainly look forward to doing that. I will reflect on the other points the noble Baroness has made and get back to her with some clear answers on those issues, including the very important point about offshore wind. With that, I commend the order.
Enterprise and Regulatory Reform Bill
Debate between Baroness Worthington and Viscount Younger of Leckie(11 years, 9 months ago)
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Baroness Worthington
My Lords, we also welcome the fact that the Government have listened to our debate in Committee and have tabled amendments to make more explicit the green purposes of the Green Investment Bank. As has been said many times, with no ability to borrow, the bank can scarcely be described as a bank, and with unclear purposes it might also cease to be green. We welcome the Government’s amendments, but there is a remaining concern. When we discussed this in Committee, we were looking for specific references to the meeting of the UK’s carbon budget under the Climate Change Act 2008. The amendments tabled for consideration today do not contain that explicit reference, which is a great shame, and we hope to reinstate it. References to “global greenhouse gas emissions” may be welcome, but which country, let alone which bank, can truly be expected to make a contribution to such an outcome? The factors influencing global emissions are complex and manifold, and where the UK could make a difference to global emissions is by showing leadership on policy and instruments to tackle climate change. The Climate Change Act was drafted not only with a view to contributing to solving the global problem but to demonstrating leadership at home. The Green Investment Bank has been created to contribute to the latter part as much as the former and therefore the legislation which shapes this decision should refer to our existing, world-leading climate change mitigation legislation. I hope that the Minister will accept these amendments, which seek to achieve this.
The Parliamentary Under-Secretary of State, Department for Business, Innovation and Skills (Viscount Younger of Leckie)
My Lords, I welcome the contributions from my noble friend Lord Teverson and the noble Baroness, Lady Worthington, to this debate, and indeed the cross-party support that there is for the UK Green Investment Bank. The bank will be a key driver of the transition to a green economy and is already making investments in green infrastructure projects. The bank has already committed more than £400 million to projects across a range of sectors, including waste, non-domestic energy efficiency and offshore wind. These investments are illustrative of the impact we expect the bank to have in the coming years.
In turning to the first amendment, I emphasise the large measure of agreement between the Government and noble Lords who have tabled this amendment. We agree that the reduction of greenhouse gas emissions is a key objective for the bank and accept that it would be right to give this objective statutory recognition. However, we want to do this in a way that best reflects the bank’s corporate governance framework and its position as a Companies Act company. Clause 1 sets out five statutory green purposes which, read together, set the parameters of the bank’s activity to ensure that it must always remain green. These green purposes provide an overarching framework for the bank’s green activity while preserving the necessary breadth to adapt to evolving green priorities over the long term. The Government consider that this breadth is essential as there are important activities which are clearly “green”, but may not reduce greenhouse gas emissions, including recycling and improving water quality. We would not want the Bill to be amended in such a way that put doubt on the bank’s ability to invest in these areas, and I welcome noble Lords’ support for this approach.
As I have said, the Government agree that the reduction of greenhouse gas emissions is an important objective for the bank. That is why we have included a statutory green purpose explicitly to this effect, and why we have tabled our own amendments, to which I will turn shortly. However, it is important that we focus on the key objectives for the bank and do not introduce additional requirements that might complicate its decision-making process. We need to ensure that under its constitution, the Bank can operate as a commercial company. This is important because the bank’s impact may be diluted if the board is concerned that the Government or the courts may seek to second-guess its commercial judgments. That is why the Secretary of State has given an operational independence undertaking to the board.
It is equally important that the legislation provides sufficient clarity for the board and does not expose its investment decisions to increased risk of challenge by bringing a clear public element to the Bank’s functions. Furthermore, by adding another test on which the board will have to be satisfied when making investment decisions, this amendment raises the prospect of the legislative framework conflicting with the bank’s own constitution, something we believe is avoided through the Government’s proposed amendments to the Bill.
At the same time, we do not believe that our ambition in this area is any less than that of noble Lords. The Government’s amendments do not refer to a significant reduction in greenhouse gas emissions because we do not believe that it would be possible to give sufficient clarity to the bank’s directors if we were to introduce such imprecise wording. Indeed Amendment 1 would not require the board to make a significant reduction to greenhouse gas emissions. The Government’s preferred approach of making the new obligation part of the company’s objects would, however, give the bank’s directors strong encouragement to maximise the reduction of greenhouse gas emissions, as that would be the most likely way to maximise the success of the company.
The noble Lord, Lord Smith of Kelvin, who is chairman of the UK Green Investment Bank, has said that he supports this approach, and I welcome his letter, which I received a couple of days ago. The noble Lord has been very clear that he welcomes a statutory obligation on the bank in respect of the reduction of greenhouse gas emissions, but has said that it is important that this is achieved in a way that is consistent with the bank’s internal constitution and with the directors’ general duties to the company.
We also agree with noble Lords that it is important that the bank contributes to a reduction in UK greenhouse gas emissions. As this Bill must make provision for the long-term future of the bank, we believe that the best approach would be to achieve this through an amendment to the company’s objects and we intend to make such an amendment shortly. Amendment of the objects after designation will of course require the affirmative resolution of both Houses of Parliament.
Finally, I will comment on two further aspects of this amendment. Amendment 1 would require the board to have regard to the advice and reports of the Committee on Climate Change. I am happy to give a commitment on behalf of the noble Lord, Lord Smith of Kelvin, and the other members of the bank’s board that they will do so. We would, however, much prefer not to impose a specific statutory obligation on the board which might cast doubt on the breadth of the general duty on all directors—under Section 172 of the Companies Act 2006—to have regard to the impact of the company’s operations on the environment.
Secondly this amendment, unlike the Government’s amendments, does not impose a corresponding disclosure requirement on the board. We believe it is important that there is a tailored disclosure obligation on the board in respect of this new requirement to ensure full transparency and accountability. This approach is of course in keeping with the best standards of corporate governance.
I will now turn in more detail to the Government’s own amendments in this area. Amendment 3 requires the Secretary of State to be satisfied that the bank’s objects are such that, in acting consistently with them, the bank’s investment activities—taken as a whole—would be such as the bank considers likely to contribute to a reduction of global greenhouse gas emissions. The new obligation on the board is therefore imposed through the company’s statement of objects in its articles of association. This reflects the approach we have taken in respect of the green purposes and ensures that the new obligation forms part of the directors’ general duties to the company, including the duty to promote the success of the company in line with its objects. We believe that this will be the most effective approach. It also eliminates the possibility of inconsistency with the company’s corporate governance framework and reduces the risk of legal challenge to the board’s investment decisions.
The new provision goes significantly beyond the assurances we have already given in this area and ensures that the bank will continue to focus its investments in areas that will deliver such reductions. As I have said, the noble Lord, Lord Smith of Kelvin, has indicated his support for the Government’s approach.
Amendment 8 would prevent any alteration to the bank’s objects which is not consistent with the requirement for the bank’s investment activities as a whole to deliver a reduction in greenhouse gas emissions. This will ensure that this new obligation will continue to apply even if there were to be a change in the company’s ownership.
The third substantive element is the imposition of a bespoke reporting requirement in respect of the new obligation on the directors to ensure that the bank’s overall investment portfolio reduces greenhouse gas emissions. Previous debates have touched on the bank’s commitment to transparency, and the bank’s board has already agreed that the bank will voluntarily report on the greenhouse gas impacts of its investments. This new reporting requirement will complement that commitment by requiring the bank’s directors to include in their directors’ report an explanation of the steps that they have taken to ensure that the bank’s investment activities would be likely to contribute to a reduction of global greenhouse gas emissions, together with a statement of their views on the likely effect of the bank’s activities on global greenhouse gas emissions. In addition, the bank will be required to report on the greenhouse gas emissions associated with its own activities under the forthcoming changes to the narrative reporting requirements on quoted companies.
Finally, turning to Amendments 4, 9 and 12, the Government strongly believe that any new obligations in this area should be imposed through the company’s constitution rather than through a separate public law requirement, which might not be wholly consistent with the directors’ duties under the company’s constitution. The amendments tabled by the noble Baroness, Lady Worthington, seek to combine the two approaches by imposing an obligation in respect of an Act of Parliament through the company’s constitution. The Government consider that this approach will not deliver the degree of clarity that is needed.
The Climate Change Act 2008 imposes obligations on the Government, not on the UK Green Investment Bank—there is a difference. Reference to this Act in the company’s constitution cannot therefore provide the clarity that the bank’s directors need for effective decision-making. At the same time, I do not believe that these amendments show greater ambition than the Government’s approach.
The Government are proposing that, under the bank’s constitution, the directors will have a general duty to ensure that the bank’s investment activities, taken as a whole, contribute to a reduction of greenhouse gas emissions, both globally and in the United Kingdom. This is not a stand-alone duty but must be read alongside the directors’ general duty to act in the way that they consider would be most likely to promote the success of the company, using the definition of success set out in the company’s objects. The directors would fail in this duty if they were to aim for a very small net reduction in greenhouse gas emissions even if, acting consistently with their other duties, they could achieve a much more significant reduction. We therefore do not believe that an additional obligation linked to Climate Change Act targets would in practice affect the board’s decision-making or the scope of its ambitions in this area.
In conclusion, we agree that the reduction of greenhouse gases will be a key objective for the bank but we wish to ensure that statutory intervention on this point reflects the bank’s position as a Companies Act company and its corporate governance framework. We believe that the Government’s amendments, which will create a requirement through the objects for the bank’s investment portfolio to deliver a carbon reduction and set out in statute the reporting mechanisms that sit behind this requirement, will address noble Lords’ concerns in the way that best reflects the bank’s corporate governance. I therefore ask my noble friend Lord Teverson to withdraw his amendment.
Baroness Worthington
My Lords, during the debate in this House much has already been said about the absurdity of creating a bank and then effectively tying its hands behind its back by not allowing it to borrow. The Government’s statistics show that green industries in the UK are bucking the overall trend, showing healthy growth and contributing to the reduction in our balance of trade deficit. The bank could and should be helping to increase this welcome outcome but, apparently in ignorance of this fact, the Government have provided it with only a relatively limited amount of starting capital and have explicitly stated that it cannot borrow until an economy-wide criterion is met. Its ability to plan for the future and to help further strengthen growth in these particular green sectors is therefore severely limited, and it cannot contribute to getting the wider UK economy back on its feet at precisely the time when we need just that. This amendment seeks to ensure that there is a plan in place for the bank’s future development by setting a deadline by which borrowing will be allowed and creating a defined timeline that removes the uncertainty that currently hangs over the bank’s future, allowing it to plan for the future. Doing so helps to ensure that green growth can help to bring the UK’s economy back to good health even as it helps to restore the health of our environment. Denial of borrowing powers or setting a date for borrowing powers shows a lack of commitment, and the bank will be weakened and undermined as a result.
The arguments presented here and in previous discussions have been very persuasive. I hope the Government will accept this amendment. In the event that the noble Lord, Lord Teverson, does not feel able to test the opinion of the House, we will press the issue to a vote.
Viscount Younger of Leckie
My Lords, the Government are fully committed to providing the UK Green Investment Bank with the funding it needs to become a successful and enduring green financial institution. In Budget 2011, the Government committed to providing the bank with £3 billion until 2015, and I appreciate the endorsement by my noble friend Lord Teverson of the sufficiency of the initial funding of the bank. This is a significant injection of capital, which would allow the bank to build market confidence and begin mobilising investment in green infrastructure projects. As the noble Lord, Lord Smith of Kelvin, explained in his excellent speech at Second Reading, the bank’s initial priority must be to show the Government and private capital markets that it is a well-run organisation with a good track record, worthy of the injection of more capital or borrowing money from capital markets. The noble Lord, Lord Smith, also made clear that, as chairman of the UK Green Investment Bank, he will approach the Government as a shareholder well before 2015 if he believes that it would be in the company’s long-term interests to borrow, either from Government or from the capital markets, from April 2015.
I believe this is the right approach. The bank will, of course, require additional funding in due course, but it is too early to make commitments about the level and type of funding for the bank from 2015-16 or the precise timing of an application to the Commission in respect of borrowing. We should instead take the necessary steps to ensure that the bank has the confidence of investors and other market players by 2015 and put in place a proper process by which the board can discuss its future funding needs, and how these can best be addressed with its shareholder.
As part of this process we have given a commitment that the Government will seek state aid approval in respect of borrowing from the European Commission before the end of this Parliament. Amendment 10 would go further by setting a statutory timetable for a notification to the European Commission and, subject to this, for permission for the bank to borrow from the capital markets. We do not believe that this is either warranted or wise. The Government should not be committed by statute to making a premature or ill-thought-through application, particularly as this would have cost and resource implications both for the Government and indeed the European Commission.
We should also be clear that the level of bank borrowing will need to be agreed by the Government as part of their future spending plans. We should not be apologetic about this. Any borrowing by the bank would score against the national debt targets and it is essential for sustained growth that the Government maintain tight fiscal discipline. I want to emphasise again, in response to the comments made by my noble friend Lord Teverson, that the Government will consider the full range of funding options for the bank from April 2015, but it is important that we do not run before we can walk. In the light of these points, I hope the noble Lord will agree to withdraw this amendment.